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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended 31 March 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ to ________
Commission file number 0-26376
ON TECHNOLOGY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3162846
(State of incorporation) (IRS Employer Identification Number)
Waltham Woods
880 Winter Street, Building 4
Waltham, Massachusetts 02451-1449
(781)487-3300
(Address and telephone of principal executive offices)
-----------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------- -------
14,298,832 shares of the registrant's Common stock, $0.01 par value, were
outstanding as of May 1, 2000.
THIS DOCUMENT CONTAINS 29 PAGES.
----
THE EXHIBIT INDEX IS ON PAGE 28.
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<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 2000
CONTENTS
Item Number Page
- ----------- ----
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance sheets:
March 31, 2000 and December 31, 1999 3
Statements of operations:
Three months ended March 31, 2000 and 1999 4
Statements of cash flows:
Three months ended March 31, 2000 and 1999 5
Notes to condensed consolidated financial statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
EXHIBIT INDEX 28
2
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE><CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,678 $ 16,941
Accounts receivable, net of allowance for doubtful accounts
and sales returns of $800 and $666, respectively 6,867 7,347
Inventories 100 92
Prepaid expenses and other current assets 891 582
-------- --------
Total current assets 23,536 24,962
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Computers and equipment 4,664 4,561
Furniture and fixtures 591 523
-------- --------
Less - Accumulated depreciation 3,633 3,442
-------- --------
1,622 1,642
-------- --------
Other assets and deposits 150 149
Purchased intangibles, net of $2,034 and $1,999 of
accumulated amortization, respectively -- 35
-------- --------
$ 25,308 $ 26,788
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,527 $ 4,112
Accrued expenses 2,279 1,655
Due to Meeting Maker, Inc. 640 --
Reserve for distributor inventories 120 120
Deferred revenue 3,894 3,931
-------- --------
Total current liabilities 10,460 9,818
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - Authorized 2,000,000 shares Issued - none -- --
Common stock, $.01 par value - Authorized - 20,000,000 shares
Issued and outstanding - 14,185,903 shares and
13,848,164 shares, respectively 142 138
Additional paid in capital 75,733 74,596
Accumulated deficit (60,819) (57,694)
Accumulated other comprehensive loss (161) (23)
Treasury stock (15,000 and 15,000 shares at cost, respectively) (47) (47)
-------- --------
Total stockholders' equity 14,848 16,970
-------- --------
$ 25,308 $ 26,788
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE><CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUE:
- --------
Net product revenue $ 2,669 $ 4,518
Net product revenue - Meeting Maker, Inc. (MMI) 1,027 1,072
Other revenue 1,440 858
Other revenue - MMI 582 402
------------ ------------
TOTAL REVENUE 5,718 6,850
------------ ------------
OPERATING EXPENSES:
- -------------------
Cost of product revenue 862 890
Cost of product revenue - MMI 34 200
Sales and marketing 2,753 2,923
Research and development 2,211 2,046
General and administrative 1,588 981
MMI operating expenses 935 789
------------ ------------
LOSS FROM OPERATIONS (2,665) (979)
------------ ------------
Interest income, net 180 55
Other Income -- 183
------------ ------------
LOSS BEFORE ALLOCATION TO MMI AND
PROVISION FOR INCOME TAXES (2,485) (741)
------------ ------------
Allocation to MMI (640) --
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,125) (741)
------------ ------------
Provision for income taxes -- --
------------ ------------
NET LOSS $ (3,125) $ (741)
============ ============
Basic net loss per share $ (0.22) $ (0.06)
============ ============
Diluted net loss per share $ (0.22) $ (0.06)
============ ============
Basic shares used in
per share calculation 13,944,344 12,420,640
============ ============
Diluted shares used in
per share calculation 13,944,344 12,420,640
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE><CAPTION>
THREE MONTHS
ENDED MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,125) $ (741)
Adjustments to reconcile net loss
To net cash used in operating activities
Non-cash compensation expense relating to
stock options and warrants 461 --
Depreciation and amortization 164 406
Changes in assets and liabilities:
Accounts receivable 527 (120)
Inventories (8) (7)
Prepaid expenses and other current assets (311) (178)
Accounts payable (140) (858)
Accrued expenses 26 6
Due to Meeting Maker, Inc. 640 --
Deferred revenue (37) 685
-------- --------
Net cash used in operating activities (1,803) (807)
-------- --------
Cash Flows From Investing Activities:
Purchase of property and equipment (110) (68)
-------- --------
Net cash used in investing activities (110) (68)
-------- --------
Cash Flows From Financing Activities:
Exercise of stock options 612 20
Stock purchased through ESPP 57 66
Principal repayments on obligation under capital lease -- (10)
-------- --------
Net cash provided by financing activities 669 76
-------- --------
Net effect of exchange rates on cash & cash equivalents (19) 223
Net decrease in cash and cash equivalents (1,263) (576)
Cash and cash equivalents, beginning of period 16,941 8,001
-------- --------
Cash and cash equivalents, end of period $ 15,678 $ 7,425
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest paid $ -- $ 7
======== ========
Income taxes paid $ -- $ --
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q, March 31, 2000
(in thousands, except per share data)
(unaudited)
1. Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements have been
presented by ON Technology Corporation (together with its consolidated
subsidiaries, the "Company") (except for the balance sheet information as of
December 31, 1999) in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Regulation S-X pertaining to interim financial statements. Accordingly, these
interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all adjustments and accruals which
management considers necessary for a fair presentation of financial position as
of March 31, 2000 and December 31, 1999, and results of operations for the three
months ended March 31, 2000 and March 31, 1999. The results for the interim
periods presented are not necessarily indicative of results to be expected for
any future period. The financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K.
2. Net Loss per Share
------------------
The Company calculates net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 "SFAS 128", EARNINGS PER SHARE. Basic net
loss per share is calculated by dividing net loss by the weighted average number
of common shares outstanding for the period. For the three months ended March
31, 2000 and 1999, respectively, stock options and warrants have been excluded
from the diluted weighted average shares outstanding calculation, as their
effect would be anti-dilutive.
Basic and diluted net loss per share as required by SFAS 128, are as follows:
Three Months
Ended March 31,
----------------------
2000 1999
-------- --------
Net loss $ (3,125) $ (741)
Basic weighted average shares outstanding 13,944 12,421
Weighted average common equivalent shares -- --
-------- --------
Diluted weighted average shares outstanding 13,944 12,421
======== ========
Basic net loss per share $ (0.22) $ (0.06)
======== ========
Diluted net loss per share $ (0.22) $ (0.06)
======== ========
Anti-dilutive securities, that were not
included in the above table are as follows:
Stock options and warrants 2,418 1,894
======== ========
6
<PAGE>
3. Reporting Comprehensive Income
------------------------------
The Company adopted SFAS 130, "REPORTING COMPREHENSIVE INCOME", effective
January 1, 1998. SFAS 130 establishes standards for reporting and display of
comprehensive income and its financial statements. The Company's only item of
other comprehensive income relates to foreign currency translation adjustments,
and is presented separately on the balance sheet as required. If presented on
the statement of operations for the three months ended March 31, 2000 and March
31, 1999, comprehensive loss would be $138 greater and $33 less, respectively
than reported net loss, due to foreign currency translation adjustments.
4. Segment Reporting
-----------------
During the three months ended March 31, 2000 and 1999, the Company had two
reportable segments: Desktop Management and Groupware. Management had organized
the segments based on differences in products and services because each segment
required different technology and marketing strategies. The Desktop Management
segment constitutes the ON Command CCM product line, which develops, markets and
supports enterprise desktop management products. The Groupware segment develops,
markets and supports real-time group scheduling products.
The Company evaluates segment performance based on gross margin from
operations and does not capture segment net income (loss) or segment assets.
The following table illustrates segment operating data for the three months
ended March 31, 2000 and 1999, respectively.
---------- ----------- ---------
DESKTOP
THREE MONTHS ENDED, MANAGEMENT GROUPWARE TOTAL
MARCH 31, ---------- ----------- ---------
2000
Net Product Revenue $2,669 $1,027 $3,696
Other Revenue 1,440 582 2,022
------ ------ ------
Total Revenue 4,109 1,609 5,718
Cost of Product Revenue 862 34 896
------ ------ ------
Gross Margin 3,247 1,575 4,822
1999
Net Product Revenue 4,520 1,070 5,590
Other Revenue 858 402 1,260
------ ------ ------
Total Revenue 5,378 1,472 6,850
Cost of Product Revenue 891 199 1,090
------ ------ ------
Gross Margin 4,487 1,273 5,760
- ------------------
See Note 5 for discussion of sale of the Groupware Segment.
7
<PAGE>
5. Sale of the Meeting Maker Business
----------------------------------
On January 6, 2000 the Company signed an asset purchase agreement with a
newly organized privately held company named Meeting Maker, Inc. to sell the
Company's Groupware business (Meeting Maker) subject to the approval of the
Company's stockholders and certain other conditions. Under the asset purchase
agreement, the Company agreed to sell to Meeting Maker, Inc. the Company's
Groupware business (Meeting Maker), including all of the Company's interest in
our real-time group scheduling software (Meeting Maker product), for a total
purchase price of $1,000,000. The Company also agreed to guarantee the receipt
of $600,000 of accounts receivable relating to the Meeting Maker business. In
connection with the sale, the Company will also receive a warrant which entitles
the Company to purchase up to 4.9% of the outstanding common stock of Meeting
Maker, Inc. The Company prepared and filed a Proxy Statement for a Special
Meeting of the Shareholders to seek approval of this proposed sale. The Special
Meeting of Stockholders was held on April 28, 2000, at which time the meeting
was adjourned until Friday, May 26, 2000 to allow the Company additional time to
gather the necessary Shareholder votes to approve the Meeting Maker transaction.
If the Company does not receive the required number of Shareholder votes
approving the Meeting Maker transaction, the transaction will not be consummated
on its present terms and timetable. Should the Company receive shareholder
approval and the closing of the Meeting Maker transaction occurs, the Company
will record the transaction as a discontinued operation under APB 30. Until such
time of shareholder approval, the Company will continue to reflect the financial
position and results of operations of Meeting Maker, Inc. in the Balance Sheet
and Statement of Operations. In addition, as a result of the management
agreement with Meeting Maker, Inc., in which the Company transferred effective
control of the Groupware business (Meeting Maker) to Meeting Maker, Inc. and has
no risk of ownership related to the operating results, 100% of the net income
(loss) during the period from January 6, 2000 until shareholder approval will be
allocated to Meeting Maker, Inc.
6. Line of Credit
--------------
At March 31, 2000, the Company was out of compliance with certain covenants
under its line of credit agreement with a commercial bank. At March 31, 2000,
the Company did not have an outstanding balance under the line of credit
agreement. Subsequent to March 31, 2000, the bank informed the Company that they
would not issue a waiver of non-compliance with respect to the convenant
violations and therefore, the parties may terminate the line of credit
agreement.
8
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis of Financial Condition
and Results of Operations
FORM 10-Q, March 31, 2000
(unaudited)
OVERVIEW
ON Technology Corporation and Subsidiaries (the "Company") provides
enterprise desktop management software for heterogeneous enterprise networks
that is open, scalable, and easy to use and administer. The Company's principle
product, ON Command CCM, or CCM, is designed to address the enterprise desktop
management requirements of large organizations. This product is an advanced
system for managing and controlling PC software across corporate networks and
the internet. It also provides a single, integrated system for managing desktop
and mobile PCs from a centralized server. ON Command CCM can be deployed across
most major hardware platforms and network operating systems and protocols.
On December 30, 1999, the Company announced that it had completed a $12
million private placement of common stock and warrants to two institutional
investors. Each investor purchased 514,837 shares of common stock at a price of
$11.65 per share and received warrants to purchase 257,419 shares of common
stock at an exercise price of $15.15 per share. The number of shares of common
stock issuable upon exercise of these warrants and the exercise price for such
warrants is subject to adjustment in the event that the average closing bid
price per share of common stock for the fifteen trading days preceding December
29, 2000 is below $15.15 per share. The investors also received additional
warrants exercisable upon the occurrence of certain specified events.
Until quite recently, the Company also marketed the Meeting Maker group
scheduling software. Meeting Maker was part of the Company's Groupware business
which remained after the sale of the Company's Network Security and Management
Business to Elron Software, Inc. in 1998. Soon after that sale, the Company
announced that it would de-emphasize its investment in new customer acquisitions
for Meeting Maker and concentrate our efforts on ON Command CCM and related
product and business development activities. On January 6, 2000 the Company
signed an asset purchase agreement with a newly organized privately held company
named Meeting Maker, Inc. to sell the Company's Groupware business (Meeting
Maker) subject to the approval of the Company's stockholders and certain other
conditions. Under the asset purchase agreement, the Company agreed to sell to
Meeting Maker, Inc. the Company's Groupware business (Meeting Maker), including
all of the Company's interest in our real-time group scheduling software
(Meeting Maker product), for a total purchase price of $1,000,000. The Company
also agreed to guarantee the receipt of $600,000 of accounts receivable
relating to the Meeting Maker business. In connection with the sale, the Company
will also receive a warrant which entitles the Company to purchase up to 4.9% of
the outstanding common stock of Meeting Maker, Inc. The Company prepared and
filed a Proxy Statement for a Special Meeting of the Shareholders to seek
approval of this proposed sale. The Special Meeting of Stockholders was held on
April 28, 2000, at which time the meeting was adjourned until Friday, May 26,
2000 to allow the Company additional time to gather the necessary Shareholder
votes to approve the Meeting Maker transaction. If the Company does not receive
the required number of Shareholder votes approving the Meeting Maker
transaction, the transaction will not be consummated on its present terms and
timetable. Should the Company receive shareholder approval and the closing of
the Meeting Maker transaction occurs, the Company will record the transaction as
a discontinued operation under APB 30. Until such time of shareholder approval,
the Company will continue to reflect the financial position and results of
operations of Meeting Maker, Inc. in the Balance Sheet and Statement of
Operations. In addition, as a result of the management agreement with Meeting
Maker, Inc., in which the Company transferred effective control of the Groupware
business (Meeting Maker) to Meeting Maker, Inc. and has no risk of ownership
related to the operating results, 100% of the net income (loss) during the
period from January 6, 2000 until shareholder approval will be allocated to
Meeting Maker, Inc.
On February 1, 2000, ON hired Robert L. Doretti as its President and Chief
Executive Officer. At the time, Mr. Doretti was also elected to the Board of
Directors to fill the vacancy created by the resignation of Christopher Risley
from the Board of Directors which also became effective as of February 1, 2000.
Herman DeLatte, ON's former President and Chief Executive Officer, resigned from
each of these offices effective February 1, 2000, but Mr. DeLatte continues to
serve as a member of ON's Board of Directors.
9
<PAGE>
The Company does not provide forecasts of the future financial performance
of the Company. From time to time, however, the information provided by the
Company or statements made by its employees may contain forward-looking
statements. In particular, statements contained in this Form 10-Q that are not
historical statements (including, but not limited to, statements concerning
estimates of future revenues, operating expense levels and such operating
expense levels relative to the Company's total revenues) constitute
forward-looking statements under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. See "Certain Factors That May Affect
Future Results."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as percentages of the Company's total revenue:
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------- -------
Revenue:
Net product revenue 46.7% 66.0%
Net product revenue - Meeting Maker, Inc. (MMI) 18.0% 15.6%
Other revenue 25.2% 12.5%
Other revenue - MMI 10.1% 5.9%
------- -------
Total revenue 100.0% 100.0%
------- -------
Operating expenses:
Cost of product revenue 15.1% 13.0%
Cost of product revenue - MMI 0.6% 2.9%
Sales and marketing 48.1% 42.7%
Research and development 38.7% 29.9%
General and administrative 27.8% 14.3%
MMI operating expense 16.3% 11.5%
------- -------
Loss from operations (46.6)% (14.3)%
------- -------
Interest income, net 3.1% 0.8%
Other income ---% 2.7%
------- -------
Loss before allocation to MMI and
provision for income taxes (43.5)% (10.8)%
------- -------
Allocation to MMI (11.2)% ---%
------- -------
Loss before provision for income taxes
Provision for income taxes (54.7)% (10.8)%
------- -------
Provision for income taxes ---% ---%
------- -------
Net loss (54.7)% (10.8)%
======= =======
NET PRODUCT REVENUE. The Company's net product revenue is derived primarily
from the licensing of ON Command CCM software products. For the three months
ended March 31, net product revenue decreased $1.9 million (40.9%) from 1999 to
2000. The decrease in revenues associated with the Company's Desktop Management
software business was primarily due to an increased emphasis in attracting
larger enterprise customers, computer OEMs, service providers and value added
resellers.
NET PRODUCT REVENUE- MEETING MAKER, INC. (MMI). The Company's net product
revenue from the MMI business is derived primarily from the licensing of the
Meeting Maker software product. For the three months ended March 31, net product
revenue attributable to the Meeting Maker business decreased $45 thousand (4.2%)
from 1999 to 2000. The marginal decrease in the MMI software business was
attributed to the maturing nature of the Meeting Maker product.
10
<PAGE>
OTHER REVENUE. The Company's other revenue primarily consists of maintenance
revenue, training and professional services associated with the ON Command CCM
products. For the three months ended March 31, other revenue increased $582
thousand (67.8%) from 1999 to 2000. The increase is attributed to higher
maintenance and professional service fees associated with the sales of the
Company's desktop management software business.
OTHER REVENUE - MMI. The Company's other Meeting Maker revenue primarily
consists of maintenance revenue and professional services associated with the
Meeting Maker product. For the three months ended March 31, other revenue
associated with the Meeting Maker business increased $180 thousand (44.8%) from
1999 to 2000. The increase is attributed to higher renewed maintenance fees and
professional service fees associated with the sales of the Company's Meeting
Maker software.
COST OF PRODUCT REVENUE. Cost of product revenue primarily consists of
expenses associated with product documentation, production, fulfillment and
professional services costs and royalty fees associated with products that are
licensed from third party developers. In addition, cost of product revenue
includes the amortization of purchased intangibles. For the three months ended
March 31, cost of product revenue decreased $28 thousand (3.1%) from 1999 to
2000. This decrease was primarily the result of decreased product revenue and
amortization of an intangible.
COST OF PRODUCT REVENUE - MMI. Cost of product revenue primarily consists of
expenses associated with product documentation, production and fulfillment
costs. For the three months ended March 31, cost of product revenue decreased
$166 thousand (83.0%) from 1999 to 2000. This decrease was primarily the result
of reduced direct expenses due to the phase out of the Meeting Maker product.
SALES AND MARKETING EXPENSE. Sales and marketing expense primarily consists
of compensation and benefits paid to sales and marketing personnel. Sales and
marketing expense also includes the costs associated with public relations,
trade shows and conferences, and the telephone and information technology costs
associated with sales activities. For the three months ended March 31, sales and
marketing expenses decreased $170 thousand (5.8%) from 1999 to 2000. The
decrease is due partially to reduced commissions, which are a direct result from
lower revenues in the quarter ended March 31, 2000. The decrease in expense was
partially offset by a non-cash compensation charge of $74 thousand.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense includes
costs associated with the development of new products, the enhancement of
existing products, and the provision of technical support. For the three months
ended March 31, research and development expense increased $165 thousand (8.1%)
from 1999 to 2000. The increase is due to additional investments in the
Company's desktop management software business. The Company plans to continue to
make significant investments in research and development related to the
Company's desktop management software business.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
includes executive compensation, executive support costs, accounting operations,
planning, and business development operations. For the three months ended March
31, general and administrative expense increased $607 thousand (61.9%) from 1999
to 2000. The increase is primarily due to non-cash compensation charges totaling
approximately $387 thousand.
MMI OPERATING EXPENSE. MMI operating expense includes sales and marketing,
research and development and general and administrative expenses as defined
above, directly associated with the Meeting Maker product. For the three months
ended March 31, MMI operating expense increased $146 thousand (18.5%) from 1999
to 2000. The increase is primarily due to new operational investments made by
Meeting Maker, Inc. into the Meeting Maker business including additional
personnel.
INTEREST INCOME, NET. Interest income consists primarily of interest income
earned on cash and cash equivalents. For the three months ended March 31,
interest income increased $125 thousand (227.3%) from 1999 to 2000. The increase
is due primarily to a higher cash balance available for investment as a result
of additional funds received in December 1999 from the Company's private
placement.
OTHER INCOME. Other income for the three months ended March 31, 1999 of $183
thousand resulted from an insurance receivable.
11
<PAGE>
ALLOCATION TO MMI. Until the Company receives shareholder approval of the
Meeting Maker transaction and closes the sale of the Meeting Maker business to
Meeting Maker, Inc. under the terms of the asset purchase agreement described
above, the Company will continue to reflect the financial position and results
of operations of Meeting Maker, Inc. in the Balance Sheet and Statement of
Operations. In addition, as a result of the management agreement with Meeting
Maker, Inc., 100% of the net income (loss) during the period from entering into
the management agreement until shareholder approval will be allocated to Meeting
Maker, Inc.
INCOME TAXES. There were no tax provisions for the three months ended March
31, 1999 and 2000 due to an operating loss in each quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through private and
public placements of capital stock and the net proceeds received from the Elron
transaction. At March 31, 1999 and 2000, the Company had available cash and cash
equivalents of $7.4 million and $15.7 million respectively. As of March 31,
2000, the Company has a $1.0 million letter of credit guarantee outstanding for
a subsidiary against a line of credit with a foreign bank and a $1.0 million
letter of credit guarantee outstanding securing the lease for the Company's
Waltham facility. At March 31, 2000, the Company was out of compliance with
certain covenants under its line of credit agreement with a commercial bank. At
March 31, 2000, the Company did not have an outstanding balance under the line
of credit agreement. Subsequent to March 31, 2000, the bank informed the Company
that they would not issue a waiver of non-compliance with respect to the
convenant violations and therefore, the parties may terminate the line of credit
agreement.
Net cash used in operating activities for the three months ended March 31,
1999 and March 31, 2000, was $807 thousand and $1.8 million, respectively.
For the three months ended March 31, 1999, net cash used in operating activities
consisted primarily of a net loss of $741 thousand coupled with a net change in
operating assets and liabilities of $(472) thousand offset by depreciation and
amortization charges of $406 thousand. For the three months ended March 31,
2000, net cash used in operating activities consisted primarily of a net loss of
$3.1 million which was offset with a net change in operating assets and
liabilities of $57 thousand, depreciation and amortization charges of $164
thousand, amortization of deferred compensation charges of $461 thousand and the
$640 thousand promissory note payable to Meeting Maker, Inc. (MMI).
Net cash used in investing activities for the three months ended March 31,
1999 and March 31, 2000 was $(68) thousand and $(110) thousand, respectively.
For the three months ended March 31, 1999, cash used in investing activities
consisted of the purchases of property and equipment of $68 thousand. For the
three months ended March 31, 2000 cash used in investing activities consisted of
the purchases of property and equipment of $110 thousand.
Net cash provided by financing activities for the three months ended March
31, 1999 and March 31, 2000 was $76 thousand and $669 thousand, respectively.
For the three months ended March 31, 1999, cash used in financing activities
consisted of exercises of stock options of $86 thousand coupled with principal
repayment on obligations under capital lease, offset by stock purchases through
the Company's Employee Stock Purchase Plan ("ESPP") of $10 thousand. For the
three months ended March 31, 2000, cash provided by financing activities
consisted of exercises of stock options of $612 thousand and stock purchases
through the ESPP of $57 thousand.
12
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
SOME STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT HISTORICAL
STATEMENTS (INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING ESTIMATES OF
FUTURE REVENUES, OPERATING EXPENSE LEVELS AND SUCH OPERATING EXPENSE LEVELS
RELATIVE TO THE COMPANY'S TOTAL REVENUES) CONSTITUTE FORWARD-LOOKING STATEMENTS
UNDER THE SAFE HARBOUR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. THE FOLLOWING RISK FACTORS, AMONG OTHER FACTORS (INCLUDING THE
ACCURACY OF THE COMPANY'S INTERNAL ESTIMATES OF REVENUE AND OPERATING EXPENSE
LEVEL AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION), MAY CAUSE THE COMPANY'S ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE RESULTS STATED IN SUCH FORWARD LOOKING STATEMENTS.
THE SALE OF MEETING MAKER WOULD ELIMINATE A HISTORICALLY SIGNIFICANT SOURCE OF
THE COMPANY'S CASH FLOW AND MAY RESULT IN CASH FLOW DEFICITS.
For the fiscal years ended December 31, 1998 and 1999, respectively, Meeting
Maker produced $7,530,000 and $7,361,000 in revenues, $3,882,000 and $4,304,000
in operating profits, and significant cash flow. For the three months ended
March 31, 1999 and 2000, respectively, Meeting Maker produced $1,474,000 and
$1,609,000 in revenues and $485,000 and $640,000 in operating profits, and
significant cash flow. These results positively impacted the Company's overall
financial performance. In addition, the cash flow generated by the Meeting Maker
business was available to support the activities of the CCM business which,
historically, has been unprofitable and had negative cash flow. For the fiscal
years ended December 31, 1998 and December 31, 1999, respectively, the remaining
businesses had operating losses of $4,415,000 and $6,672,000, producing
significant negative cash flow. For the three months ended March 31, 1999 and
2000, respectively, the remaining businesses had operating losses of $1,464,000
and $3,305,000, producing significant negative cash flow. Management believes
that, in the absence of substantial investment, for fiscal 2000 and thereafter
Meeting Maker's operating profits and positive cash flow would substantially
diminish, if not disappear in their entirety. In contrast, management believes
that the CCM business will achieve operating profits and positive cash flow at
some time during fiscal 2000 and beyond. These expectations form the basis of
management's decision to divest the Meeting Maker business. If these
expectations turn out to be incorrect, especially insofar as CCM is concerned,
the Company may experience substantial cash flow deficits.
OUR CCM PRODUCT MARKETING STRATEGY DIFFERS FROM OUR PREVIOUS MARKETING STRATEGY
The target market for CCM is entirely different from the target market for
the Groupware products we had marketed and sold through our Free Trial Marketing
system prior to 1998. The target market for CCM consists primarily of large
corporations such as Deutsche Telekom, MCI Worldcom and AutoNation (all existing
CCM customers). 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 our
Groupware products of approximately $2,500. Sales of CCM products pose
significantly greater financial risks, and require greater up-front investments
in marketing, technical and financial resources, than sales of our historical
products. As a result, we have adopted a marketing strategy using a direct sales
force and in-field service organization. This 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. We have developed valuable marketing and service
experience and expertise in Europe and, recently, in the United States. However,
there can be no assurance that we will be able to continue to expand and apply
such experience and expertise to the CCM market.
For the twelve months ended December 31, 1998, one customer accounted for
$3.5 million, or 18% of net revenue from the Company's current products. For the
twelve months ended December 31, 1999, two customers accounted for $7.6 million,
or 24.5% of net revenue. For the three months ended March 31, 1999, two
customers accounted for $3.1 million, or 45% of net revenue. For the three
months ended March 31, 2000, one customer accounted for $0.7 million, or 12% of
net revenue. 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.
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WE WILL NEED TO EXPAND OUR DISTRIBUTION CHANNELS IN ORDER TO DEVELOP OUR
BUSINESS AND INCREASE REVENUE
We sell our products through our direct sales force and a limited number of
distributors, and we provide maintenance and support services through our
technical and customer support staff. We plan to continue to invest large
amounts of resources in our direct sales force, particularly in North America.
In addition, we are developing additional sales and marketing channels through
value added resellers, system integrators, original equipment manufacturers and
other channel partners. We may not be able to attract channel partners that will
be able to market our products effectively, or that will be qualified to provide
timely and cost-effective customer support and service. If we establish
distribution through such indirect channels, our agreements with channel
partners may not be exclusive. As a result, such channel partners may also carry
competing product lines. If we do not establish and maintain such distribution
relationships, this could materially adversely affect our business, operating
results, and financial condition.
IF THE MARKET FOR OUR ENTERPRISE DESKTOP MANAGEMENT SOFTWARE SOLUTIONS DOES NOT
CONTINUE TO DEVELOP AS WE ANTICIPATE, OUR ABILITY TO GROW OUR BUSINESS AND SELL
OUR PRODUCTS WILL BE ADVERSELY AFFECTED
In recent years, the market for enterprise software solutions has been
characterized by rapid technological change, frequent new product announcements
and introductions, and evolving industry standards. In response to advances in
technology, customer requirements have become increasingly complex, resulting in
industry consolidation of product lines offering similar or related
functionality. In particular, we believe that a market exists for integrated
enterprise-wide infrastructure management solutions. However, the existence of
such a market is unproven. If such a market does not fully develop, this could
have a materially adverse effect on our business, results of operations, and
financial condition. Regardless of the development of a market for integrated
infrastructure management solutions, factors adversely affecting the pricing of,
demand for, or market acceptance of our enterprise desktop management
applications could have a material adverse effect on our business, results of
operations, and financial condition.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS,
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR PRODUCTS MAY DECLINE
As a result of rapid technological change in our industry, our position in
existing markets or other markets that we may enter can be eroded rapidly by
product advances. The life cycles of our products are difficult to estimate. Our
growth and future financial performance depend in part upon our ability to
improve existing products and develop and introduce new products that keep pace
with technological advances, meet changing customer needs, and respond to
competitive products. Our product development efforts will continue to require
substantial investments. We may not have sufficient resources to make the
necessary investments.
THE TECHNOLOGICAL REQUIREMENTS OF THE CCM PRODUCTS MAY PRESENT ADDITIONAL
CHALLENGES IN PRODUCT DEVELOPMENT WHICH, IF WE CANNOT MEET, MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS
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 our
historical products were not as technologically sophisticated as CCM, we have
not to date made all of the required investment and have not proven that we can
develop and maintain the organization required to support such products. We
believe that our experience with CCM to date will provide a valuable base on
which to build the necessary financial, technical and personnel resources to
continue to sell, market, develop and support the CCM products. However, there
can be no assurance that we will be able to expand and develop our resources to
support CCM products.
CCM is typically larger and more complex than the products that we have
previously developed. Our ability to continue to enhance CCM to meet customer
and market requirements will depend substantially on our ability to effectively
manage this development effort, to attract and retain the required development
personnel in Waltham, Massachusetts and Starnberg, Germany and to coordinate and
manage geographically remote development efforts.
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We have experienced product development delays in the past and may
experience delays in the future. Difficulties in product development could delay
or prevent the successful introduction or marketing of new or improved products.
Any such new or improved products may not achieve market acceptance. Our current
or future products may not conform to industry requirements. If, for
technological or other reasons, we are unable to develop and introduce new and
improved products in a timely manner, our business, operating results, and
financial condition could be adversely affected.
ERRORS IN OUR PRODUCTS COULD RESULT IN SIGNIFICANT COSTS TO US AND COULD IMPAIR
OUR ABILITY TO SELL OUR PRODUCTS
Because our software products are complex, these products may contain errors
that could be detected at any point in a product's life cycle. In the past, we
have discovered software errors in certain of our products and have experienced
delays in shipment of our products during the period required to correct these
errors. Despite testing by ON and by current and potential customers, errors in
our products may be found in the future. Detection of such errors may result in,
among other things, loss of, or delay in, market acceptance and sales of our
products, diversion of development resources, injury to our reputation, or
increased service and warranty costs. If any of these results were to occur, our
business, operating results and financial condition could be materially
adversely affected.
IN THE FUTURE, INCLUSION OF FUNCTIONS PROVIDED BY CCM IN SYSTEM SOFTWARE AND
APPLICATION SUITES MAY AFFECT OUR COMPETITIVE POSITION
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 functions that are currently provided by CCM.
In addition, some vendors may bundle these products in their existing
application suites at no additional charge. The widespread inclusion of the
functions provided by our products as standard features of operating system
software could render our products obsolete and unmarketable particularly if the
quality of such functions were comparable to the functions offered by our
products. Furthermore, even if the software functions provided as standard
features by operating systems are more limited than those of our products, there
is no assurance that a significant number of customers would not elect to accept
such functions instead of purchasing additional software. If we were unable to
develop new CCM software products to further enhance operating systems and to
successfully replace any obsolete products, our business, financial condition,
prospects and results of operations would be materially and adversely affected.
NEW PRODUCT INTRODUCTIONS AND THE ENHANCEMENT OF EXISTING PRODUCTS BY OUR
COMPETITORS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS
The market for our products is highly competitive and diverse. The
technology for enterprise desktop management software products can change
rapidly. New products are frequently introduced and existing products are
continually enhanced. Competitors vary in size and in the scope and breadth of
the products and services offered.
We face competition from a number of sources, including:
o large and established companies such as Microsoft, Computer Associates and
IBM/Tivoli which offer client management capabilities as part of their
systems, network or desktop management systems;
o software companies and others who provide application suites such as Intel
and Network Associates, whose products include client management
applications;
o information technology and systems management companies such as IBM,
Computer Associates International, and Hewlett-Packard Company; and
o the internal information technology departments of those companies with
infrastructure management needs.
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In addition, 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 the Windows 2000 operating system, as well as the
Microsoft Systems Management Server.
Some of our current and many of our potential competitors have much greater
financial, technical, marketing, and other resources than ON has. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer needs. They may also be able to devote greater resources to
the development, promotion, and sale of their products than we can. We may not
be able to compete successfully against current and future competitors. In
addition, competitive pressures faced by ON may materially adversely affect our
business, operating results, and financial condition.
NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR OUR
ABILITY TO RETAIN AND EXPAND OUR MARKET SHARE
Because competitors can easily penetrate the software market, we anticipate
additional competition from other established and new companies as the market
for enterprise desktop management applications develops. In addition, current
and potential competitors have established or may in the future establish
cooperative relationships among themselves or with third parties. Large software
companies may acquire or establish alliances with our smaller competitors. We
expect that the software industry will continue to consolidate. It is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share.
SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE ENTERPRISE DESKTOP MANAGEMENT PROVIDERS
AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, WHICH COULD HURT OUR ABILITY TO SELL
OUR PRODUCTS
Our ability to sell our products depends in part on their compatibility with
and support by providers of system management products, including Tivoli,
Computer Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have
recently acquired providers of help desk software products. These providers of
system management products may decide to close their systems to competing
vendors like us. They may also decide to bundle their infrastructure management
and/or help-desk software products with other products for enterprise licenses
for promotional purposes or as part of a long-term pricing strategy. If that
were to happen, our ability to sell our products could be adversely affected.
Increased competition may result from acquisitions of help desk and other
infrastructure management software vendors by system management companies. The
results of increased competition, including price reductions of our products,
reduced gross margins, and reduction of market share, could materially adversely
affect our business, operating results, and financial condition.
DUE TO THE TECHNOLOGICAL CHALLENGES ASSOCIATED WITH CCM, WE MAY NOT HAVE THE
FINANCIAL RESOURCES NECESSARY TO CONDUCT THE BUSINESS AS PRESENTLY CONTEMPLATED
Our product development, marketing and sales costs for the CCM products are
approximately $700,000 to $1,500,000 per month. We believe that we have enough
cash from operations to fund these costs through December 31, 2000, whether or
not we complete the sale of the Meeting Maker product. There can be no assurance
that our estimate of the marketing, sales and product development costs of the
CCM products is correct, or that these costs will not exceed our available
financial resources, or that we will be locate additional sources of financing,
if and when needed.
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OUR INCREASING RELIANCE ON INTERNATIONAL REVENUE COULD ADVERSELY AFFECT OUR
OPERATING RESULTS
In fiscal 1998 and 1999, total international revenue (outside the United
States) represented approximately 54% of total revenue. For the fiscal year 2000
and thereafter, we expect that international revenue may constitute a
significantly greater portion of our total revenue. In the three months ended
March 31, 1999 and 2000, respectively, total revenues from international
licenses represented approximately 44% and 57% of total revenue. Accordingly, a
greater percentage of our total revenue may 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 materially adverse effect on our future international license revenue.
Our continued growth and profitability will require continued expansion of
our international operations, particularly in Europe, Latin America, and the
Pacific Rim. Accordingly, we intend to expand our current international
operations and enter additional international markets. Such expansion will
require significant management attention and financial resources. We have only
limited experience in developing local-language versions of our products and
marketing and distributing our products internationally. We may not be able to
successfully translate, market, sell and deliver our products internationally.
If we are unable to expand our international operations successfully and in a
timely manner, our business, operating results, and financial condition could be
adversely affected.
AS OUR EXPANDING INTERNATIONAL OPERATIONS IN EUROPE AND ELSEWHERE ARE
INCREASINGLY CONDUCTED IN CURRENCIES OTHER THAN THE U.S. DOLLAR, FLUCTUATIONS IN
THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY EXCHANGE LOSSES
A large portion of our business is conducted in foreign currencies.
Fluctuations in the value of foreign currencies relative to the U.S. dollar have
caused and will continue to cause currency transaction gains and losses. We
cannot predict the effect of exchange rate fluctuations upon future operating
results. We may experience currency losses in the future. We may implement a
foreign exchange hedging program, consisting principally of purchases of one
month forward-rate currency contracts. However, our hedging activities may not
adequately protect us against the risks associated with foreign currency
fluctuations.
On January 1, 1999, certain member states of the European Economic
Community, the EEC, fixed their respective currencies to a new currency, the
euro. On that date, the euro became a functional legal currency within these
countries. During the three years beginning on January 1, 1999, business in
these EEC member states will be conducted in both the existing national
currencies, such as the French franc or deutsche mark, and the euro. Companies
operating in or conducting business in EEC member states will need to ensure
that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the euro.
We are still assessing the impact that the euro will have on our internal
systems and our products. We will take corrective actions based on the results
of such assessment. We have not yet determined the costs related to this
problem. Issues related to the introduction of the euro may materially adversely
affect our business, operating results, and financial condition.
WE HAVE A HISTORY OF LOSSES, WE CANNOT PREDICT OUR FUTURE OPERATING RESULTS AND
WE CANNOT ASSURE OUR CONTINUED PROFITABILITY
Through March 31, 2000, we have recorded cumulative net losses of
approximately $60.8 million. In addition, our products and marketing strategy
have changed substantially since the mid-1990s. We have acquired or developed a
significant number of products in the last five years. As a result, prediction
of our future operating results is difficult, if not impossible. There can be no
assurance that we will become or remain profitable on a quarterly or annual
basis. In addition, we do not believe that the growth in revenues we have
experienced in recent years is necessarily indicative of future revenue growth
or future operating results.
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FUTURE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS DUE TO A NUMBER OF
FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL, COULD ADVERSELY AFFECT OUR STOCK
PRICE
Our quarterly operating results have varied significantly in the past and
may vary significantly in the future depending upon a number of factors, many of
which are beyond our control. These factors include, among others:
o our ability to develop, introduce and market new and enhanced versions of
our software on a timely basis;
o market demand for our software; the size, timing and contractual terms of
significant orders;
o the timing and significance of new software product announcements or
releases by ON or our competitors; changes in our pricing policies or our
competitors;
o changes in our business strategies; budgeting cycles of our potential
customers;
o changes in the mix of software products and services sold;
o reliance on indirect sales forces like systems integrators and channels;
o changes in the mix of revenues attributable to domestic and international
sales; and
o the impact of acquisitions of competitors; seasonal trends; the
cancellations of licenses or maintenance agreements; product life cycles;
software defects and other product quality problems; and personnel changes.
We have often recognized a substantial portion of our revenues in the last
month or weeks of a quarter. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in the last month or weeks
of that quarter. Due to the foregoing factors, quarterly revenues and operating
results are not predictable with any significant degree of accuracy. In
particular, the timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery. The timing between
initial customer contact and fulfillment of criteria for revenue recognition can
be lengthy and unpredictable, and revenues in any given quarter can be adversely
affected as a result of such unpredictability. In the event of any downturn in
potential customers' businesses or the economy in general, planned purchases of
our products may be deferred or canceled, which could have a material adverse
effect on our business, operating results and financial condition.
OUR CONCENTRATION ON THE CCM BUSINESS REPRESENTS A NEW DIRECTION FOR OUR
BUSINESS AND PROBLEMS WITH THE IMPLEMENTATION OF THIS STRATEGY MAY ADVERSELY
AFFECT OUR BUSINESS
On January 3, 2000, we entered into an agreement to sell our Groupware
business to Meeting Maker, Inc. These actions were designed to focus us on CCM
and end our involvement with the Groupware business. We cannot be sure that our
new corporate strategy will be successfully implemented. Furthermore, we cannot
be sure that we will not engage in further reorganizations or restructurings in
the future.
OUR SALES CYCLE IS LONG AND UNPREDICTABLE, AND POTENTIAL DELAYS IN THE CYCLE
MAKE OUR REVENUES SUSCEPTIBLE TO FLUCTUATIONS
The licensing of our software generally requires us to engage in a sales
cycle that typically takes approximately four to nine months to complete. The
length of the sales cycle may vary depending on a number of factors over which
we may have little or no control, including the size of the transaction and the
level of competition which we encounter in our selling activities. During the
sales cycle, we typically provide a significant level of education to
prospective customers regarding the use and benefits of our products. Any delay
in the sales cycle of a large license or a number of smaller licenses could have
a material adverse effect on our business, operating results and financial
condition.
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SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY
OPERATING RESULTS
Our business has experienced and is expected to continue to experience
seasonality. Our revenues and operating results in our December quarter
typically benefit from purchase decisions made by the large concentration of
customers with calendar year-end budgeting requirements, and from the efforts of
our sales force to meet fiscal year-end sales quotas. In addition, we are
currently attempting to expand our presence in international markets, including
Europe. International revenues comprise a significant percentage of our total
revenues, and we may experience additional variability in demand associated with
seasonal buying patterns in such foreign markets.
FUTURE ACQUISITIONS PRESENT RISKS WHICH COULD ADVERSELY AFFECT OUR BUSINESS
In the future, ON may make acquisitions of, or large investments in, other
businesses that offer products, services, and technologies that further our goal
of providing enterprise desktop management software solutions to businesses or
which complement our current business. Any future acquisitions or investments
that we may complete present risks commonly encountered with these types of
transactions. The following are examples of such risks:
o difficulty in combining the technology, operations, or work force of the
acquired business;
o disruption of on-going businesses;
o difficulty in realizing the potential financial and strategic position of ON
through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures, and
policies;
o possible impairment of relationships with employees and clients as a result
of any integration of new businesses and management personnel;
o difficulty in adding significant numbers of new employees, including
training, evaluation, and coordination of effort of all employees towards
our corporate mission;
o diversion of management attention;
o difficulty in obtaining preferred acquisition accounting treatment for these
types of transactions; likelihood that future acquisitions will require
purchase accounting resulting in increased intangible assets and goodwill,
substantial amortization of such assets and goodwill, and a negative impact
on reported earnings; and
o potential dilutive effect on earnings.
The risks described above, either individually or in the aggregate, could
materially adversely affect our business, operating results, and financial
condition. Future acquisitions, if any, could provide for consideration to be
paid in cash, shares of ON common stock, or a combination of cash and ON common
stock.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR CCM BUSINESS IN RECENT PERIODS,
AND OUR ABILITY TO MANAGE THIS GROWTH AND ANY FUTURE GROWTH WILL AFFECT OUR
ABILITY TO ACHIEVE AND MAINTAIN PROFITABILITY
We have grown significantly in recent periods, with total CCM revenues
increasing from $8.6 million in fiscal 1997, to $11.3 million in fiscal 1998,
and to $23.5 million in fiscal 1999. CCM revenues for the three months ended
March 31, 1999 and 2000, respectively, were $5.4 million and $4.1 million. If we
achieve our growth plans, such growth may burden our operating and financial
systems. This burden will require large amounts of senior management attention
and will require the use of other ON resources. Our ability to compete
effectively and to manage future growth (and our future operating results) will
depend in part on our ability to implement and expand operational, customer
support, and financial control systems and to expand, train, and manage our
employees. In particular, in connection with acquisitions, we will be required
to integrate additional personnel and to augment or replace existing financial
and management systems. Such integration could disrupt our operations and could
adversely affect our financial results. We may not be able to augment or improve
existing systems and controls or implement new systems and controls in response
to future growth, if any. Any failure to do so could materially adversely affect
our business, operating results, and financial condition.
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OUR BUSINESS DEPENDS IN LARGE PART UPON THE PROTECTION OF OUR PROPRIETARY
TECHNOLOGY THE LOSS OF WHICH WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR
BUSINESS
Our success is heavily dependent upon our proprietary software technology.
We rely on a combination of contractual rights, trademarks, trade secrets and
copyright to establish and protect our proprietary rights in software.
We use a printed "shrink-wrap" license for users of our products distributed
through traditional distribution channels in order to protect our 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 license terms, including the
terms which seek to protect our proprietary technology. If the printed
shrink-wrap licenses prove to be unenforceable, this may have a material adverse
effect on our business, financial condition, prospects and results of
operations.
The laws of some foreign countries either do not protect our proprietary
rights or offer only limited protection for those rights. Furthermore, in
countries with a high incidence of software piracy, we may experience a higher
rate of piracy of our products.
We have obtained registrations in the United States for the following
trademarks: ON Technology, Meeting Maker, CCM, ON Command CCM, Notework, DaVinci
Systems, ON Technology & Design, ON Location and Instant Update. We have filed
for the trademark "ON Command CCM" in the European Community, Canada and
Australia. As a result, we may not be able to prevent a third party from using
our trademarks in many foreign jurisdictions. We have not to date registered any
of our copyrights.
There can be no assurance that the steps taken by ON to protect our
proprietary software technology will be adequate. Lesser sensitivity by
corporate, government or institutional users to avoiding infringement of
propriety rights could have a material adverse effect on our business, financial
condition, prospects and results of operations.
There has been substantial litigation in the software industry involving
intellectual property rights of technology companies. We have not been involved
in any such litigation. Although we do not believe that we are infringing the
intellectual property rights of others, any involvement in this type of
litigation may have a material adverse effect on our business, financial
condition, prospects and results of operations. In addition, since we may
acquire or license a portion of the software included in our future products
from third parties, our exposure to infringement actions may increase because we
must rely upon these third parties for information as to the origin and
ownership of any software being acquired. We generally obtain representations as
to the origin and ownership of such acquired or licensed software and we
generally obtain indemnification to cover any breach of such representations.
However, there can be no assurance that these representations are accurate or
that such indemnification will provide us with adequate compensation for a
breach of these representations. In the future, we may need to initiate
litigation to enforce and protect trade secrets and other intellectual property
rights owned by us. We 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. This litigation could be costly
and cause diversion of management's attention, either of which could have a
material adverse effect on our business, financial condition, prospects and
results of operations. Adverse rulings or findings in such litigation could
result in the loss of our proprietary rights, subject us to significant
liabilities, require us to seek licenses from third parties or prevent us from
manufacturing or selling our products. Any one of these items could have a
material adverse effect on our business, condition, prospects and results of
operations. Furthermore, there can be no assurance that any necessary licenses
will be available to us on reasonable terms, or at all.
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IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS COULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS
We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. Such laws provide only limited protection. Despite
precautions that we take, it may be possible for unauthorized third parties to
copy aspects of our current or future products or to obtain and use information
that we regard as proprietary. In particular, we may provide our licensees with
access to our data model and other proprietary information underlying our
licensed applications. Such means of protecting our proprietary rights may not
be adequate. Additionally, our competitors may independently develop similar or
superior technology. Policing unauthorized use of software is difficult and,
while we do not expect software piracy to be a persistent problem, some foreign
laws do not protect our proprietary rights to the same extent as United States
laws. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of resources, and could materially adversely
affect our business, operating results, and financial condition.
THIRD PARTIES COULD ASSERT, FOR COMPETITIVE OR OTHER REASONS, THAT OUR PRODUCTS
INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, AND SUCH CLAIMS COULD INJURE OUR
REPUTATION, CONSUME TIME AND MONEY, AND ADVERSELY AFFECT OUR ABILITY TO SELL OUR
PRODUCTS
While we are not aware that any of our software product offerings infringe
the proprietary rights of third parties, third parties may claim infringement
with respect to our current or future products. We expect that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the software industry grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements may not be available on acceptable
terms or at all. As a result, infringement claims could have a material adverse
effect on our business, operating results, and financial condition.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US
Our license agreements with our customers typically contain provisions
designed to limit exposure to potential product liability claims. Such
limitation of liability provisions may, however, not be effective under the laws
of certain jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our products entails the risk of such
claims. We may be subject to such claims in the future. A product liability
claim could materially adversely affect our business, operating results, and
financial condition.
OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
IF THEY CHOOSE TO LEAVE ON, IT COULD HARM OUR BUSINESS
Our success will depend to a significant extent on the continued service of
our senior management and certain other key employees, including selected sales,
consulting, technical and marketing personnel. While our employees are required
to sign standard agreements concerning confidentiality and ownership of
inventions, few of our employees are bound by an employment or noncompetition
agreement. In addition, we do not generally maintain key man life insurance on
any employee. The loss of the services of one or more of our executive officers
or key employees or the decision of one or more such officers or employees to
join a competitor or otherwise compete directly or indirectly with us could have
a material adverse effect on our business, operating results and financial
condition.
21
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WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS
Our future success will likely depend in large part on our ability to
attract and retain additional highly skilled technical, sales, management, and
marketing personnel. Competition for such personnel in the computer software
industry is intense, and in the past we have experienced difficulty in
recruiting qualified personnel. New employees generally require substantial
training in the use of our products. We may not succeed in attracting and
retaining such personnel. If we do not, our business, operating results, and
financial condition could be materially adversely affected.
FUTURE CHANGES IN THE FEDERAL IMMIGRATION LAWS COULD LIMIT OUR ABILITY TO
RECRUIT AND EMPLOY SKILLED TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, AND
THIS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS
To achieve our business objectives, we must be able to recruit and employ
skilled technical professionals from other countries. Any future shortage of
qualified technical personnel who are either United States citizens or otherwise
eligible to work in the United States could increase our reliance on foreign
professionals. Many technology companies have already begun to experience
shortages of such personnel. Any failure to attract and retain qualified
personnel as necessary could materially adversely affect our business and
operating results. Foreign computer professionals such as those employed by us
typically become eligible for employment in the United States by obtaining a
nonimmigrant visa. The number of nonimmigrant visas is limited by federal
immigration law. Currently, Congress is considering approving an increase in the
number of visas available. We cannot predict whether such legislation will
ultimately become law. We also cannot predict what effect any future changes in
the federal immigration laws will have on our business, operating results, or
financial condition.
BECAUSE ON'S OFFICERS AND DIRECTORS OWN A LARGE PORTION OF ON COMMON STOCK, THEY
MAY BE ABLE TO CONTROL MOST MATTERS REQUIRING STOCKHOLDER APPROVAL, AND THIS MAY
PREVENT OR DISCOURAGE POTENTIAL BIDS TO ACQUIRE ON
Based on shares outstanding as of March 6, 2000, ON's officers, directors,
and entities directly related to such individuals together beneficially own
approximately 10.14% of the outstanding shares of ON common stock. As a result,
ON's officers and directors may be able to control most matters requiring
stockholder approval, including the election of directors and the approval of
mergers, consolidations, and sales of all or substantially all of the assets of
ON. Such concentrated share ownership may prevent or discourage potential bids
to acquire ON unless the terms of acquisition are approved by such officers and
directors.
PROVISIONS IN OUR CHARTER DOCUMENTS AND IN DELAWARE LAW MAY DISCOURAGE POTENTIAL
ACQUISITION BIDS FOR ON AND PREVENT CHANGES IN OUR MANAGEMENT WHICH OUR
STOCKHOLDERS FAVOR
Certain provisions of ON's charter documents eliminate the right of
stockholders to act by written consent without a meeting and specify certain
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings. Such provisions are intended to increase the likelihood
of continuity and stability in the composition of the ON board of directors and
in the policies set by the board. These provisions also discourage certain types
of transactions which may involve an actual or threatened change of control
transaction. These provisions are designed to reduce the vulnerability of ON to
an unsolicited acquisition proposal. As a result, these provisions could
discourage potential acquisition proposals and could delay or prevent a change
in control transaction. These provisions are also intended to discourage certain
tactics that may be used in proxy fights. However, they could have the effect of
discouraging others from making tender offers for ON's shares. As a result,
these provisions may prevent the market price of ON common stock from reflecting
the effects of actual or rumored takeover attempts. These provisions may also
prevent changes in the management of ON.
ON's board of directors has the authority to issue up to 2,000,000 shares of
preferred stock in one or more series. The board of directors can fix the price,
rights, preferences, privileges, and restrictions of such preferred stock
without any further vote or action by ON's stockholders. The issuance of
preferred stock allows ON to have flexibility in connection with possible
acquisitions and other corporate purposes. However, the issuance of shares of
preferred stock may delay or prevent a change in control transaction without
further action by the ON stockholders.
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As a result, the market price of the ON common stock and the voting and other
rights of the holders of ON common stock may be adversely affected. The issuance
of preferred stock may result in the loss of voting control to others. ON has no
current plans to issue any shares of preferred stock.
ON is subject to the antitakeover provisions of the Delaware General
Corporation Law, which regulates corporate acquisitions. The Delaware law
prevents certain Delaware corporations, including ON, from engaging, under
certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For purposes of Delaware law, a "business combination"
includes, among other things, a merger or consolidation involving ON and the
interested stockholder and the sale of more than 10% of ON's assets. In general,
Delaware law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of a company and
any entity or person affiliated with or controlling or controlled by such entity
or person. Under Delaware law, a Delaware corporation may "opt out" of the
antitakeover provisions. ON has not "opted out" of the antitakeover provisions
of Delaware law.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
WHICH MAY PREVENT STOCKHOLDERS FROM RESELLING THEIR SHARES AT OR ABOVE THE PRICE
AT WHICH THEY PURCHASED THEIR SHARES
In the past, the market price of our common stock has varied greatly and the
volume of our common stock traded has fluctuated greatly as well. We expect such
fluctuation to continue. The fluctuation results from a number of factors
including:
o any shortfall in revenues or net income from revenues or net income expected
by securities analysts;
o announcements of new products by ON or our competitors;
o quarterly fluctuations in our financial results or the results of other
software companies, including those of our direct competitors;
o changes in analysts' estimates of our financial performance, the financial
performance of our competitors, or the financial performance of software
companies in general;
o general conditions in the software industry;
o changes in prices for our products or the products of our competitors;
o changes in our revenue growth rates or the growth rates of our competitors;
o sales of large blocks of the ON common stock; and
o conditions in the financial markets in general.
In addition, the stock market may from time to time experience extreme price
and volume fluctuations. Many technology companies, in particular, have
experienced such fluctuations. Often, such fluctuations have been unrelated to
the operating performance of the specific companies. The market price of our
common stock may experience significant fluctuations in the future.
23
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THE LOWER THE TRADING PRICE OF OUR STOCK, THE GREATER THE DILUTION WHICH
SHAREHOLDERS MAY EXPERIENCE AS A RESULT OF THE ISSUANCE OF WARRANTS TO CASTLE
CREEK TECHNOLOGY PARTNERS LLC AND MARSHALL CAPITAL MANAGEMENT INC.
The number of shares of Common Stock of the Company which must be issued
upon exercise of the Warrants issued to castle Creek Technology Partners LLC and
Marshall Capital Management Inc. is tied to the fluctuating market price of the
Company's Common Stock:
o the lower the trading price of the Company's Common Stock on
the effective date of the registration statement filed by
the Company on Form S-3 (initially filed on January 25,
2000) and the lower the average trading price for the
fifteen days preceeding December 29, 2000, the greater the
number of shares of Common Stock that must be issued and the
greater the dilution caused by these securities;
o the perceived risk of dilution may cause Creek Technology
Partners LLC and Marshall Capital Management Inc. or other
stockholders to sell their shares, which would contribute to
the downward movement in stock price of the Common Stock;
and
o the significant downward pressure on the trading price of
the Common Stock could encourage investors to engage in
short sales, which would further contribute to the downward
spiraling price of the Common Stock.
THE ISSUANCE OF WARRANTS IN CONNECTION WITH THE PRIVATE PLACEMENT TRANSACTION ON
DECEMBER 29, 1999 MAY SUBJECT ON TO RISK OF DELISTING BY NASDAQ.
In late January 1999, NASDAQ released its guidance on "future priced
securities" and the necessity of ON to comply with NASDAQ's listing maintenance
requirements in issuing these securities. We believe that the issuance of the
warrants to Castle Creek Technology Partners LLC and Marshall Capital Management
Inc. in connection with the closing of the private placement transaction on
December 29, 1999 does not violate these criteria and that we are in compliance
with NASDAQ's listing maintenance criteria. However, in the event that NASDAQ
were to determine that the issuance of the warrants was in violation of the
NASDAQ listing maintenance requirement, or if we were otherwise unable to
continue to meet NASDAQ's listing maintenance requirements, NASDAQ may delist
the Company. Such delisting could have a material adverse effect on the price of
our common stock and the level of liquidity currently available to our
shareholders. We may not be able to satisfy these requirements on an ongoing
basis.
24
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Item 3. Quantitative And Qualitative Disclosure About Market Risk
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, and investment changes.
INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's cash equivalent investments.
The Company has not used derivative financial instruments. The Company invests
its excess cash in short-term floating rate instruments and senior secured
floating rate loan funds which carry a degree of interest rate risk. These
instruments may produce less income than expected if interest rates fall.
FOREIGN CURRENCY RISK. International revenues from the Company's foreign
subsidiaries and other foreign sources for the three months ended March 31, 2000
were approximately 57% of total revenues. International sales are made primarily
from the Company's subsidiary in Germany and are denominated in the local
currency. Accordingly, the Company's German subsidiary uses the local currency
as its functional currency. The Company's international business is subject to
risk typical of an international business, including, but not limited to,
differing economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, the Company's future results could be materially
adversely impacted by changes in these or other factors. The Company is exposed
to foreign currency exchange rate fluctuations as the financial results of its
foreign subsidiary are translated into U.S. dollars in consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact overall profitability.
INVESTMENT RISK. The Company may invest in the future, in the equity instruments
of privately held companies for business and strategic purposes. However, as of
March 31, 2000, the Company holds no such investments. For these non-quoted
investments, the Company's policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the
carrying values. The Company identifies and records impairment losses on
long-lived assets when events or circumstances indicate that such assets might
be impaired.
25
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 2000
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
On January 31, 2000, the Company issued a warrant to purchase 25,000
shares (subject to adjustment) of common stock, par value of $0.01
per share, of the Company, to Heidrick and Struggles, Inc. in
consideration of services rendered to the Company in connection with
the hiring of Robert L. Doretti as President and Chief Executive
Officer of the Company. These warrants are exercisable at any time on
or before January 31, 2003 as an exercise price of $11.25 per share.
The warrant was issued by the Company in reliance upon an exemption
from the registration and prospectus delivery requirements of the
Securities Act of 1933, specifically the exemption contained in
Section 4(2) of such Act.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Exhibit Index on page 28 are
filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed with the SEC on
January 4, 2000 relating to the private placement
transaction with Castle Creek Technology Partners LLC
and Marshall Capital Management, Inc.
2. Current Report on Form 8-K filed with the SEC on
January 8, 2000 relating to the execution and delivery
of the Asset Purchase Agreement by and between the
Company and Meeting Maker, Inc.
3. Current Report on Form 8-K filed with the SEC on
February 3, 2000 relating to the hiring of Robert L.
Doretti as President and Chief Financial Officer of the
Company.
26
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ON TECHNOLOGY CORPORATION
/s/ Robert L. Doretti
----------------------------------
Date: May 15, 2000 Name: Robert L. Doretti
Title: President and
Chief Executive Officer
/s/ Stephen J. Wietrecki
----------------------------------
Date: May 15, 2000 Name: Stephen J. Wietrecki
Title: Vice President of Finance
and Chief Financial Officer
27
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 2000
INDEX TO EXHIBITS
Exhibit No. Exhibit Title
- ----------- -------------
10.27 Management Agreement by and between the Company and Meeting
Maker, Inc. dated as of January 3, 2000.
10.28 Transition Agreement by and between the Company and Meeting
Maker, Inc. dated as of January 3, 2000.
27.0 Financial Data Schedule.
- ------------------
MANAGEMENT AGREEMENT
--------------------
THIS MANAGEMENT AGREEMENT (the "AGREEMENT") is made as of the 3rd day of
January, 2000 (the "MANAGEMENT ASSUMPTION DATE") by and between Meeting Maker,
Inc., a company organized under the laws of the Cayman Islands, with its
principal office at 880 Winter Street, Building Four, Waltham, Massachusetts
02451-1449 (the "BUYER") and ON Technology Corporation, a Delaware corporation
with its principal office at 880 Winter Street, Building Four, Waltham,
Massachusetts 02451-1449 (the "COMPANY").
Preliminary Statement
---------------------
WHEREAS, the Company owns, licenses and supports computer software known
as Meeting Maker, together with certain rights and other assets related to the
foregoing, as more fully described in the Asset Purchase Agreement referenced in
the next paragraph (the "ACQUIRED BUSINESS").
WHEREAS, subject to the terms and conditions of the Asset Purchase
Agreement by and between the parties of even date herewith (the "ASSET PURCHASE
AGREEMENT"), the Buyer desires to purchase, and the Company desires to sell, all
of the assets comprising the Acquired Business. Capitalized terms that are used
but not otherwise defined herein shall have the respective meanings ascribed to
them in the Asset Purchase Agreement.
WHEREAS, except for approval by the shareholders of the Company to the
transactions contemplated by the Asset Purchase Agreement (the "SHAREHOLDER
APPROVAL"), and a cash settlement at the Closing with respect to the Guaranteed
Receivables, all conditions to the Closing have been satisfied.
WHEREAS, certain of the Closing Deliveries have been placed in escrow
pursuant to the Escrow Agreement (Management Assumption).
WHEREAS, subject to the terms and conditions of this Agreement, the Buyer
desires to acquire, and the Company desires to grant, actual possession of,
operating control of, and the right to manage and operate the Acquired Business,
pending Shareholder Approval and the Closing.
WHEREAS, the Board of Directors of the Company has determined that the
Buyer's management of the Acquired Business prior to the Closing in accordance
with this Agreement is in the best interests of the Company's shareholders.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. Transfer of Acquired Business.
1.1 Management of Acquired Business. Subject to and upon the terms
and conditions of this Agreement, the Company hereby grants and conveys, and the
Buyer hereby acquires and accepts, actual possession of, operating control of
and authority to manage the Acquired Business, exclusive of the Guaranteed
Receivables and any amounts collected with
<PAGE>
respect thereto, during the term of this Agreement (subject to Section 4.10
below). So long as the Buyer shall comply with this Agreement, under no
circumstances shall the Company participate in, control or influence the
management of the Acquired Business during the term of this Agreement.
In furtherance of the foregoing, but in each case solely in connection
with the Buyer's management of the Acquired Business, during the term of this
Agreement:
(a) the Company hereby grants to the Buyer a royalty free
license of the Meeting Maker software products;
(b) the Company hereby grants to the Buyer a royalty-free
license to the Buyer's rights under the Contracts;
(c) the Company hereby makes available to the Buyer all of the
Transferred Employees;
(d) the Company hereby authorizes the Buyer to sell, dispose
and otherwise deal with Inventory and to collect the accounts receivable
generated as a result thereof for the Buyer's own benefit, subject to Section
3.2 hereof; and
(e) the Company hereby grants to the Buyer the right to
generate additional inventory and accounts receivable, for its own account,
subject to Section 3.2 hereof.
1.2 Excluded Assets. For greater certainty, the assets listed on
Schedule 1.1B to the Asset Purchase Agreement (the "EXCLUDED ASSETS") shall be
excluded from the Acquired Assets.
1.3 Accounting for Transfer. The parties shall account for the
transfer of the management of the Acquired Business in accordance with United
States Generally Accepted Accounting Principles, to reflect the terms of this
Agreement, including, but not limited to, accounting for all profits and losses
of the Acquired Business during the term of this Agreement for the account of
the Buyer.
2. Nature of Relationship. In the performance of this Agreement, it is
mutually understood and agreed that the Buyer is at all times acting and
performing as an independent contractor with, and not as the employee or agent
of the Company, and no act, or failure to act, by any party hereto shall be
construed to make or render the other party its partner, joint venturer,
employee or associate or to afford any rights to any third party other than as
expressly provided herein.
3. Term of Agreement.
3.1 Termination. This Agreement shall become effective as of the
date hereof and shall terminate only upon the earliest of:
(a) delivery to the Escrow Agent of the Opinion Release
Instructions; or
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(b) the consummation of a transaction pursuant to a third
party offer, as provided for in Section 5.6 of the Asset Purchase Agreement; or
(c) May 31, 2000.
The date of the first occurrence described in Section 3.1(a) or (b)
is referred to herein as the "TERMINATION DATE."
3.2 Effect of Termination.
(a) Termination of this Agreement shall not release or
discharge either party from any obligation, debt or liability that shall have
previously accrued and remains to be performed upon the effective date of
termination.
(b) In the event of termination of this Agreement pursuant to
Section 3.1(a), all right, title and interest of the Company in the Acquired
Business shall vest in the Buyer, as set forth in the Asset Purchase Agreement.
(c) In the event of termination of this Agreement pursuant to
Section 3.1(b) or 3.1(c), (i) on the Termination Date the Buyer shall deliver to
the Company those assets (including any unsold Inventory and new inventory and
tangible personal property) as are set forth on Schedule 2.7(b) and Schedule
2.15 that constitute the Acquired Business on the Termination Date, together
with Excess Inventory, as set forth in clause (iii) below; provided, however,
that the aggregate book value of the delivered Inventory and new inventory shall
be $78,000, (ii) the Buyer and the Company shall use their best efforts to
efficiently and effectively re-transfer the management of the Acquired Business
from the Buyer to the Company, and (iii) the Company shall purchase from the
Buyer all inventory generated by the Acquired Business having a value as of the
Termination Date in excess of $78,000, as such excess value is determined by the
Buyer and the Company within 30 days following the Termination Date on the basis
of the report or reports issued by the fulfillment houses ("EXCESS INVENTORY");
provided, however, that in no event shall the Company be required to purchase
Excess Inventory having a value greater than $10,000. If the value of the assets
of the Acquired Business that are to be delivered to the Company pursuant to
Section 3.2(c)(i) are less than $769,000, then the Buyer shall remit to the
Company a cash payment of any such deficiency. If the value of the assets are
greater than $769,000, the Company shall remit to the Buyer a cash payment of
any such excess.
4. Rights and Obligations of the Buyer and the Company.
4.1 Revenue of Acquired Business; Collection of Accounts Receivable.
The Buyer shall retain all revenues from the operation of the Acquired Business
during the term of this Agreement. Any such revenues inadvertently received by
the Company during the term of this Agreement, other than collections of
Guaranteed Receivables (which shall be treated as set forth in the Asset
Purchase Agreement and Section 4.10 below), shall be transferred, as promptly as
is practicable, from the Company to the Buyer. Any Guaranteed Receivables
inadvertently received by the Buyer during the term of this Agreement shall be
transferred, as promptly as is practicable, from the Buyer to the Company.
3
<PAGE>
4.2 Operating Costs and Expenses of Acquired Business. The Buyer
shall be responsible for all liabilities, claims, defects, damages, casualties,
costs and expenses (whether latent or patent, foreseen or unforeseen) incurred
or accrued in connection with the Acquired Business during the term of this
Agreement, including, but not limited to, all costs of equipment, repair and
supplies, liability and property insurance related to the Acquired Assets, and
all personal and real property lease payments (including specifically, but
without limitation, that certain Sub-sublease Agreement by and between the Buyer
and the Company, dated even date herewith), license fees, advertising and
marketing costs, experts fees (including attorneys' and accountants' fees),
development costs and other costs and expenses of every nature whatsoever
related to the Acquired Business.
4.3 Responsibility for Employees and Expenses.
(a) During the term of this Agreement, the Transferred
Employees shall be employed by the Company but shall, to the extent allowed by
law, be subject to the complete supervision, direction and control of the Buyer.
The Buyer shall pay for all salaries, commissions, taxes, insurance, sick leave,
vacation pay, workers compensation, unemployment compensation, liabilities
pursuant to Federal Insurance Contributions Act and the Federal Unemployment
Trust Act, and all other claims, costs, expenses and liabilities of any nature
whatsoever related to the Transferred Employees (collectively, the "EMPLOYMENT
EXPENSES") arising during the period commencing on the Management Assumption
Date and ending on the date of termination of this Agreement (the "TERM") and
the Buyer shall be directly responsible for all such expenses related to all
other personnel involved in the Acquired Business. Employment Expenses shall
include, without limitation, all severance and salary continuation obligations
of Transferred Employees whose employment is terminated, or who voluntarily
resign, during the term of this Agreement, other than Transferred Employees who
are terminated by the Company pursuant to Section 4.3(d) below. During the term
of this Agreement, the Company shall not, in any manner, seek to, or cause an,
increase in the Employment Expenses without the Buyer's prior written consent.
(b) The Buyer's reimbursement of the Company's Employment
Expenses shall be paid by the Buyer either through payment to the Company prior
to the Company making payment of such Employment Expenses or directly as
follows:
(i) the Buyer shall, from time to time, pay directly to
Automatic Data Processing, Inc. ("ADP") all Employment Expenses customarily
invoiced by ADP to the Company, with each such payment to be received by ADP not
less than 24 hours prior to the deadline imposed by ADP with respect to such
payment (each payment being referred to herein as an "ADP PAYMENT"); and
(ii) all other Employment Expenses shall be paid
directly by the Buyer to the party to whom payment is due.
The Buyer's obligations set forth in clause (i) above (collectively, the
"PAYMENT OBLIGATIONS") shall be secured by a security interest in the Buyer's
accounts receivable, as more particularly described in the Security Agreement
(Management Agreement) dated as of the date
4
<PAGE>
hereof between the Buyer and the Company, which shall be in substantially the
form attached hereto as Exhibit A.
In the event that the Buyer defaults in any of its payment obligations set
forth in clause (i) above, then immediately upon such default the Company may
enforce its rights (including foreclosure of collateral, which shall include the
ability to collect the Buyer's accounts receivable) pursuant to the Security
Agreement (Management Agreement).
(c) During the term of this Agreement, the Company shall, at
the written request of the Buyer, terminate the employment of one or more
Transferred Employees. In the event of such termination that is effected without
cause or other than pursuant to Section 4.3(d) below, the Buyer shall be
responsible for all salary continuation and severance obligations (pursuant to
the Company's existing policy, a copy of which is set forth as Schedule 4.3(c)
hereto) with respect to such Transferred Employees.
(d) In the event that one or more individuals identified on
Schedule 2.11 of the Asset Purchase Agreement refuse to sign the offer letter
provided by the Buyer to such individuals with respect to proposed employment
with the Buyer, then the Company shall, at the request of the Buyer, terminate
the employment of such individual(s) and thereupon the Company shall be
responsible for all salary continuation and severance obligations (pursuant to
the Company's existing policy) with respect to such individual(s).
(e) In the event that the Buyer so requests, the Company shall
hire, on terms specified by the Buyer, one or more employees identified by the
Buyer as being necessary or appropriate for the operation of the Acquired
Business during the term of this Agreement. For purposes of supervision,
direction and control, as well as for purposes of payment of all claims, costs,
expenses and liabilities of any nature whatsoever, such newly hired employees
shall be treated as Transferred Employees pursuant to this Section 4.3 and all
such claims, costs, expenses and liabilities of any nature whatsoever shall be
included in the definition of "EMPLOYMENT EXPENSES."
4.4 Reports, Taxes. With respect to the Acquired Business and the
Acquired Assets, the Buyer will duly and timely file, if required or necessary,
or if not so required or necessary, shall provide the Company, at the Buyer's
expense, with any assistance that the Company may reasonably require with
respect to, 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 related to the Acquired
Assets and that arise from or in connection with the operation of the Acquired
Business during the term of this Agreement (unless contesting such in good faith
and adequate provision has been made therefor).
4.5 Insurance of Acquired Business. The Company shall maintain, in
full force and effect during the term of this Agreement, insurance protecting
the Acquired Business against such hazards and in such amounts as the parties
may agree, naming the Buyer as an additional insured for such insurance. The
Buyer shall pay to the Company the cost of such insurance upon receipt of an
invoice therefor.
4.6 Conduct of Business. The Buyer shall carry on the Acquired
Business diligently and shall not make or institute any unusual methods of
manufacture, purchase, sale,
5
<PAGE>
shipment or delivery, lease, management, accounting or operation. The Buyer
shall conduct all marketing and sales activity in such manner as is customary in
the industry, but shall not make payments to suppliers or other parties in
connection with the Acquired Business at a less frequent rate than is customary
for the Company. All property that is related to the Acquired Business shall be
used, operated, repaired and maintained in a normal business manner consistent
with the Company's customary practice.
4.7 Absence of Material Changes. Without the prior written consent
of the Company, which consent shall not be unreasonably withheld, the Buyer
shall not, with respect to the Acquired Assets and the Acquired Business:
(a) mortgage, pledge, or subject to any lien, charge or any
other encumbrance any of the Acquired Assets, except in the ordinary course of
business;
(b) sell, assign, or transfer any of the Acquired Assets,
except for inventory sold in the ordinary course of business;
(c) waive any rights of material value to the Acquired Assets,
except in the ordinary course of business;
(d) alter the payment terms with respect to any Account
Receivable, including, without limitation, issue any credit or rebate with
respect to any Account Receivable; or
(e) extend credit to any customers that the Company has
designated as "credit-hold" as of the Management Assumption Date, as set forth
on Schedule 4.7(e) hereto; or
(f) commit or agree to do any of the foregoing, except in the
ordinary course of business.
4.8 Access to Management, Properties and Records. During the term of
this Agreement, the Buyer and the Company shall afford the officers, attorneys,
accountants and other authorized representatives of the other party reasonable
access (subject to the terms of the Confidentiality Agreement between the Buyer
and the Company) upon reasonable notice and during normal business hours to all
management personnel, offices, properties, books and records of such other
party, for the sole purpose of confirming such other party's satisfaction of its
obligations hereunder. The Buyer shall furnish the Company with such financial
and operating data and other information as to the business of the Buyer as the
Company shall reasonably request. The Company shall furnish the Buyer with such
financial and operating data and other information as to the business of the
Company as the Buyer shall reasonably request.
4.9 Payment of Suppliers and Vendors. During the term of this
Agreement, the Company shall pay all of the suppliers and vendors that provided
goods or services to the Acquired Business prior to the Management Assumption
Date ("ACQUIRED BUSINESS VENDORS") for goods and services provided prior to the
Management Assumption Date ("CARRYOVER OBLIGATIONS") in a manner consistent with
the Company's payment practices with respect to its other suppliers and vendors.
In the event that the Buyer determines to pay any Carryover Obligations that are
more than 45 days overdue to an Acquired Business Vendor, the amount of
6
<PAGE>
such payment shall be adjusted at the Closing against the $700,000 purchase
price then payable by the Buyer to the Company.
4.10 Working Capital Funding. During the term of this Agreement:
(a) The Company agrees that the Buyer shall be entitled to the
benefit of the Guaranteed Receivables and use of the proceeds of the Company
derived from the collection of the Guaranteed Receivables to help fund the
Buyer's working capital needs.
(b) Within two business days after the end of each week, the
Company shall deliver and remit to the Buyer via check or wire transfer to an
account designated in writing by the Buyer, those amounts collected from
Guaranteed Receivables that have not been previously delivered and remitted to
the Buyer hereunder; provided, however, that the Company may accumulate such
proceeds prior to remittance if the amounts collected are less than $50,000. The
Company shall also deliver to the Buyer with each weekly remittance of such
collected Guaranteed Receivables a written report identifying the sales activity
of the Acquired Business for the immediately preceding week and an updated
listing of the Guaranteed Receivables, the collection thereof, and the cash
position of the Acquired Business as of the end of such week.
(c) The Company's agreement to remit the proceeds of
Guaranteed Receivables are subject to the continued accuracy of, and continued
compliance with the Buyers representations, warranties and covenants herein. In
the event of a breach of any of such representations, warranties or covenants,
the Company shall have the right to terminate its obligations pursuant to
Section 4.10(a) above and shall be entitled to enforce its rights (including
foreclosure of collateral, which shall include the ability to collect the
Buyer's accounts receivable) pursuant to the Security Agreement (Management
Agreement).
5. No Obligations of the Company. Except with respect to the Company's
employment of the Transferred Employees (but subject to the respective parties'
obligations set forth in Section 4.3), and except with respect to the Company's
termination of Transferred Employees, as set forth in Section 4.3(d) below, the
Company shall have no obligations whatsoever with regard to the Acquired
Business during the term of this Agreement. Any act or omission of the Buyer
pursuant to the Buyer's obligations under this Agreement shall not be deemed to
be an act or omission of the Company. The Buyer and the Company agree that the
only conditions precedent to the Closing are the delivering of the Shareholder
Approval and Opinion Release Instructions to the Escrow Agent. Notwithstanding
the discovery or occurrence, prior to, on, or after the Management Assumption
Date, of any matter whatsoever, including, without limitation, the breach of any
representation or warranty herein or in any other agreement between the Buyer
and the Company (regardless of the extent of materiality), or any claim, damage,
defect, loss, liability, cost or expense relating to any matter whatsoever
(regardless of the extent of materiality and whether or not latent), including
without limitation, the Acquired Business, the Acquired Assets and the
Transferred Employees, the sole recourse of each of the Buyer and the Company
shall be the indemnification provisions set forth in Section 9 of the Asset
Purchase Agreement (with respect to matters arising under the Asset Purchase
Agreement and not directly related to the subject matter hereof) and the
indemnification provisions set forth in Section 6 of this Agreement (with
respect to matters arising under this Agreement). The Buyer and the Company
agree that any remedy at law for any breach of this
7
<PAGE>
Section 5 would be inadequate and that each party shall be entitled to
injunctive relief in addition to any other remedy that it may have.
6. Indemnification.
6.1 Losses Related to Acquired Business. The Buyer hereby
indemnifies and holds harmless the Company from and against all 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"),
arising during the Term in connection with the operation and management of the
Acquired Business including, without limitation, all Losses that arise during
the Term with respect to the Transferred Employees. The Company hereby
indemnifies and holds harmless the Buyer from and against all Losses arising
during the Term by reason of the Company's breach of its obligations hereunder.
6.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 6, the Company (the "INDEMNIFIED PARTY"),
shall promptly notify the Buyer (the "INDEMNIFYING PARTY") of the claim and,
when known, the facts constituting the basis for such claim. 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, the notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. 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 after notification thereof as provided in
Section 6.3 of this Agreement, the Indemnified Party shall have the right to
settle or compromise such claim upon giving notice to the Indemnifying Party as
provided in Section 6.3.
6.3 Defense of any Claim. In connection with any claim which may
give rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a third party, the Indemnifying Party may, upon written
notice to the Indemnified Party, assume the defense of any such claim or legal
proceeding. 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 60 days after
the date such claim is made or pursue such claim in a reasonably prudent manner:
(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
8
<PAGE>
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.
6.4 Payment of Indemnification Claims. All indemnification hereunder
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.
6.5 Recoverable and Cap. The provisions set forth in Section 9.7 of
the Asset Purchase Agreement with respect to the Recoverable and the Cap shall
apply to the Buyer's indemnity obligations hereunder.
7. Dispute Resolution. In the event that any dispute should arise
between the parties hereto with respect to any matter covered by this Agreement,
the parties hereto shall resolve such dispute in accordance with the procedures
set forth in Section 12 of the Asset Purchase Agreement.
8. General.
8.1 Entire Agreement; Amendments; Attachments.
(a) This Agreement and all agreements and instruments to be
delivered by the parties pursuant hereto represent the entire understanding and
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, on the one hand, and the Company by the
consent of its Board of Directors or officers authorized by such Board, on the
other hand, may amend or modify this Agreement, in such manner as may be agreed
upon, by a written instrument executed by the Buyer and the Company.
8.2 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.
8.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts. Each party
hereto irrevocably consents to the exclusive personal jurisdiction of the state
courts of The Commonwealth of Massachusetts and the federal courts of the United
States resident in The Commonwealth of Massachusetts, and waives any objection
which it might have based on improper venue or forum non conveniens to the
conduct of proceedings in any such court, waives personal service on it, and
consents that all such service of process may be made by mail in accordance with
Section 8.4 hereof.
9
<PAGE>
8.4 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if delivered in accordance with
the provisions of Section 14 of the Asset Purchase Agreement.
8.5 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 may not assign its obligations hereunder without
the prior written consent of the Company. Any assignment in contravention of
this provision shall be void. No assignment shall release the Buyer from any
obligation or liability under this Agreement.
8.6 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.
8.7 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.
8.8 Power of Attorney. The Company hereby irrevocably constitutes
and appoints the Buyer, its successor and assigns, its true and lawful attorney,
with full power of substitution, in its name or otherwise, and on behalf of the
Company, for its own use, to claim, demand, collect and receive at any time and
from time to time any and all assets, properties, claims, accounts and other
rights, tangible or intangible, to be managed by the Buyer hereunder, and to
prosecute the same at law or in equity and, upon discharge thereof, to complete,
execute and deliver any and all necessary instruments of satisfaction and
release.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of and on the date first above written.
ON TECHNOLOGY CORPORATION
By: ___________________________
MEETING MAKER, INC.
By: ___________________________
11
<PAGE>
SCHEDULE 4.3(C)
Terminated employees will receive two weeks of severance pay plus an additional
week for every year of service beginning with year two. In addition, any unused
vacation pay will be paid, including the vacation accrued during the severance
period. Health insurance and other benefits will continue for the terminated
employee through the end of the month in which severance pay ceases.
TRANSITION AGREEMENT
--------------------
THIS TRANSITION AGREEMENT (the "AGREEMENT") is made as of the 3rd day
of January, 2000 by and between Meeting Maker, Inc., a company organized under
the laws of the Cayman Islands, with its principal office at 880 Winter Street,
Building Four, Waltham, Massachusetts 02451-1499 (the "BUYER") and ON Technology
Corporation, a Delaware corporation with its principal office at 880 Winter
Street, Building Four, Waltham, Massachusetts 02451-1449 (the "COMPANY").
WHEREAS, subject to the terms and conditions of the Asset Purchase
Agreement by and between the parties of even date herewith (the "ASSET PURCHASE
AGREEMENT"), the Buyer desires to purchase, and the Company desires to sell, all
of the assets comprising the Acquired Business. Capitalized terms that are used
but not otherwise defined herein shall have the meanings ascribed to them in the
Asset Purchase Agreement; and
WHEREAS, subject to the terms and conditions of a Management Agreement
by and between the parties of even date herewith (the "MANAGEMENT AGREEMENT"),
the Buyer desires to acquire, and the Company desires to grant, actual
possession of, operating control of, and the right to manage the Acquired
Business, pending Shareholder Approval; and
WHEREAS, in connection with the consummation of the Asset Purchase
Agreement and the Management Agreement, the parties desire to provide for a
transition of ownership and control of certain portions of the Acquired Business
pursuant 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 sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. Logistical Matters. The Buyer and the Company shall cooperate to
provide for (a) the relocation of personnel, (b) the transition of finance,
operations and administrative controls, (c) the transition of voice and data
systems, and (d) the transition of corporate communications, and certain other
logistical matters, as may arise.
2. Employee Matters. The Buyer and the Company shall provide for
certain employee matters pursuant to the Employee Matters Plan attached hereto
as Exhibit A.
3. Administrative Costs. During the period commencing on the Management
Assumption Date and ending on the Closing Date, the Buyer and the Company shall
each provide reasonable administrative services to the other, free of charge, to
effectuate the terms of this Agreement and the Management Agreement. Any
administrative services rendered thereafter by one party to the other shall be
compensated in accordance with the prices, terms and conditions to be negotiated
between the parties in good faith.
4. Moving and Separation Costs. All out-of-pocket moving and separation
costs incurred by the Company and the Buyer in connection with the transfer of
the Acquired Business to the Buyer within 880 Winter Street, Building Four,
Waltham, Massachusetts shall be borne in equal parts by the Buyer and the
Company.
<PAGE>
5. Transferred Employees.
(a) The Company shall use reasonable efforts to persuade the
Transferred Employees to accept employment with the Buyer, provided, however,
that the Company shall not be required to incur any out-of-pocket costs in
connection with such efforts.
(b) Buyer shall, to the extent practicable, adopt the current
seniority status of Transferred Employees.
6. General.
6.1 Term of Agreement. This Agreement shall become effective as of
the date hereof and shall terminate on the Termination Date, as defined in
Section 3.1 of the Management Agreement.
6.2 Entire Agreement. This Agreement and all agreements and
instruments to be delivered by the parties pursuant hereto represent the entire
understanding and 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. To the extent that any provision of this Agreement shall contradict or
be inconsistent with any applicable provision of the Asset Purchase Agreement or
the Management Agreement, such provision of the Asset Purchase Agreement or the
Management Agreement shall control.
6.3 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.
6.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts. Each party
hereto irrevocably consents to the exclusive personal jurisdiction of the state
courts of The Commonwealth of Massachusetts and the federal courts of the United
States resident in The Commonwealth of Massachusetts, and waives any objection
which it might have based on improper venue or forum non conveniens to the
conduct of proceedings in any such court, waives personal service on it, and
consents that all such service of process may be made by mail in accordance with
Subsection 6.5 hereof.
6.5 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if delivered in accordance with
the provisions of Section 13 of the Asset Purchase Agreement.
<PAGE>
6.6 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 may not assign its obligations hereunder without
the prior written consent of the Company. Any assignment in contravention of
this provision shall be void. No assignment shall release the Buyer from any
obligation or liability under this Agreement.
6.7 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.
6.8 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.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of and on the date first above written.
COMPANY:
ON TECHNOLOGY CORPORATION
By:________________________
MEETING MAKER, INC.
By:________________________
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