AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000
REGISTRATION NO. 333-95333
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ON TECHNOLOGY CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 04-3162846
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
WALTHAM WOODS
880 WINTER STREET, BUILDING 4
WALTHAM, MA 02451-1449
(781) 487-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
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COPIES TO:
ROBERT L. DORETTI GABOR GARAI, ESQ.
ON TECHOLOGY CORPORATION EPSTEIN BECKER & GREEN, P.C.
WALTHAM WOODS 75 STATE STREET
880 WINTER STREET, BUILDING 4 27TH FLOOR
WALTHAM, MA 02451-1449 BOSTON, MA 02109
(781) 487-3300 (617) 342-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC,
ACTING PURSUANT TO SECTION 8(a) OF THE SECURITIES ACT OF 1933, MAY DETERMINE.
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This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
PROSPECTUS
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ON TECHNOLOGY CORPORATION
WALTHAM WOODS
880 WINTER STREET, BUILDING 4
WALTHAM, MA 02451-1449
Telephone Number: (781) 487-3300
ON TECHNOLOGY CORPORATION
2,059,350 SHARES
COMMON STOCK
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These shares may be offered and sold from time to time by certain
stockholders of ON Technology Corporation, identified in this prospectus. See
"Selling Stockholders." The selling stockholders, Castle Creek Technology
Partners LLC and Marshall Capital Management, Inc., acquired 1,029,674 shares of
ON common stock in a private placement transaction on December 29, 1999. The
selling stockholders also acquired warrants to purchase an additional 514,838
shares of common stock of ON and warrants which may be exercisable for
additional shares of common stock of ON if the average closing bid price per
share of ON common stock is less than $11.65 per share on the effective date of
the registration statement to which this prospectus relates. The number of
shares of ON common stock issuable upon exercise of the warrants will increase
if the average closing bid price per share of ON's common stock is less than
$15.15 per share on December 29, 2000.
The selling stockholders will receive all of the net proceeds from the
sale of the shares. The selling stockholders will pay all underwriting discounts
and selling commissions, if any, applicable to the sale of the shares. ON will
not receive any proceeds from the sale of the shares other than the exercise
price payable to ON upon exercise of the warrants.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 OF
THIS PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY.
ON's common stock is quoted on the NASDAQ National Market under the
symbol "ONTC." On March 24, 2000, the last reported sale price of the common
stock was $11.25 per share.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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March 28, 2000
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TABLE OF CONTENTS
PAGE
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Information Incorporated by Reference........................................1
Forward Looking Information..................................................2
ON Technology Corporation....................................................3
Where to Find Additional Information about ON................................3
Risk Factors.................................................................3
Use of Proceeds..............................................................16
Selling Stockholders.........................................................18
Plan of Distribution.........................................................20
Material Changes.............................................................21
Interests of Named Experts and Counsel.......................................21
Legal Matters................................................................21
Experts......................................................................21
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy, shares of ON common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the shares.
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INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" in this prospectus the
information contained in other documents that we file with them. This means that
we can disclose important information to you by referring you to those other
documents. The information incorporated by reference is considered to be part of
this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below, and any future filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. This prospectus is part
of a Registration Statement we filed with the SEC (Registration No. 333-95333).
The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
3. Our Current Report on Form 8-K dated April 13, 1999 relating to the
termination of John Bogdan, our former Chief Financial Officer.
4. Our Current Report on Form 8-K dated May 7, 1999 relating to the
appointment of Stephen J. Wietrecki as Treasurer and Chief Financial
Officer.
5. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
6. Our Current Report on Form 8-K dated July 23, 1999 relating to the
streamlining of our sales and marketing staff.
7. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.
8. Our Current Report on Form 8-K dated January 4, 2000 relating to the
sale of common stock and warrants to Castle Creek Technology Partners
LLC and Marshall Capital Management, Inc.
9. Our Current Report on Form 8-K dated January 18, 2000 relating to the
sale of our MeetingMaker product line.
10. Our Current Report on Form 8-K dated February 4, 2000 relating to the
appointment of Robert L. Doretti as President and Chief Executive
Officer.
11. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
12. All of our filings pursuant to the Exchange Act after the date of
filing the initial registration statement and prior to the
effectiveness of the registration statement.
13. The description of our common stock contained in the Registration
Statement on Form 8-A as filed with the SEC on August 1, 1995.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Chief Financial Officer, ON Technology
Corporation, Waltham Woods, 880 Winter Street, Building 4, Waltham, MA
02451-1449, telephone number (781) 487-3300.
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FORWARD LOOKING INFORMATION
This prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions and other statements contained in the
prospectus that are not historical facts. When used in this prospectus, the
words "expects," "anticipates," "estimates" and similar expressions are intended
to identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important facts that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including statements under the caption "Risk
Factors." Our actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below. In
particular, please review the sections captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our annual reports
on Form 10-K for the fiscal years ended December 31, 1998 and December 31, 1999,
and our quarterly reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, which reports are incorporated by
reference, and comparably named sections of any subsequently filed Exchange Act
reports. In connection with forward-looking statements which appear in these
disclosures, prospective purchasers of the shares offered hereby should
carefully consider the factors set forth in this prospectus under "Risk
Factors."
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ON TECHNOLOGY CORPORATION
We provide enterprise desktop management software for heterogeneous
enterprise networks that is open, scalable, and easy to use and administer. Our
principal 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.
Until quite recently, we also marketed our MeetingMaker group
scheduling software. Meeting Maker was part of our Groupware business which
remained after the sale of our Network Security and Management Business to Elron
Software, Inc. in 1998. Soon after that sale, we announced that we would
de-emphasize our investment in new customer acquisitions for MeetingMaker and
concentrate our efforts on ON COMMAND CCM and related product and business
development activities. On January 6, 2000 we signed an asset purchase agreement
with a newly organized privately held company named Meeting Maker, Inc. to sell
ON's Groupware business subject to the approval of ON's stockholders and certain
other conditions. This transaction was announced on our Current Report on Form
8-K filed with the SEC on January 18, 2000. Under the asset purchase agreement,
we agreed to sell to Meeting Maker, Inc. our active Groupware business,
including all of ON's interest in our real-time group scheduling software, for a
total purchase price of $1,000,000. We also agreed to guarantee the receipt of
$600,000 of accounts receivables relating to the MeetingMaker business. In
connection with the sale, we will also receive a warrant which entitles us to
purchase up to 4.9% of the outstanding common stock of Meeting Maker, Inc. We
have prepared and filed a Preliminary Proxy Statement for a Special Meeting of
the Shareholders to seek their approval of this proposed sale.
On February 1, 2000, ON hired Robert L. Doretti as its President and
Chief Executive Officer. At that 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
will continue to serve as a member of ON's Board of Directors.
WHERE TO FIND ADDITIONAL INFORMATION ABOUT ON
We file annual, quarterly and special reports, proxy statements, and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at 450 Fifth Street, NW, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms, including the locations of regional offices. Our SEC filings
are also available to the public from our Web site at http://www.on.com, or at
the SEC's Web site at http://www.sec.gov. Information on our Web site does not
constitute part of this prospectus.
RISK FACTORS
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS PROSPECTUS OR IN
DOCUMENTS INCORPORATED BY REFERENCE THAT ARE NOT DESCRIPTIONS OF HISTORICAL
FACTS MAY BE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED HEREIN
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS OR IN DOCUMENTS
INCORPORATED BY REFERENCE HEREIN.
THE SALE OF MEETINGMAKER WOULD ELIMINATE A HISTORICALLY SIGNIFICANT SOURCE OF
ON'S CASH FLOW AND MAY RESULT IN CASH FLOW DEFICITS.
For the fiscal years ended December 31, 1998 and December 31, 1999,
respectively, MeetingMaker produced $7,530,000 and $7,361,000 in revenues,
$3,882,000 and $4,304,000 in operating profits, and significant
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cash flow. These results positively impacted ON's overall financial performance.
In addition, the cash flow generated by the MeetingMaker 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.
Management believes that, in the absence of substantial investment, for fiscal
2000 and thereafter MeetingMaker'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 MeetingMaker
business. If these expectations turn out to be incorrect, especially insofar as
CCM is concerned, ON 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 ON's current products. For the
twelve months ended December 31, 1999, two customers accounted for $7.6 million,
or 24.5% of net revenue. It is possible that ON's change in marketing strategy
will result in other customers accounting for more than 10% of ON's net
revenues.
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
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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.
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
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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.
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.
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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 $1,250,000 to $1,750,000 per month. We believe that we have
enough cash to fund these costs through December 31, 2000, whether or not we
complete the sale of the MeetingMaker 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.
OUR INCREASING RELIANCE ON INTERNATIONAL REVENUE COULD ADVERSELY AFFECT OUR
OPERATING RESULTS
In fiscal 1998 and fiscal 1999, total revenue from international
licenses (license revenue from outside the United States) represented
approximately 54% of our total revenue. For the fiscal year 2000 and thereafter,
we expect that international revenue may constitute a significantly greater
portion of our 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 our 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
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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 December 31, 1999, we have recorded cumulative net losses of
approximately $57.7 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.
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;
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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 6, 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.
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
9
<PAGE>
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. 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.
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
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<PAGE>
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, MeetingMaker, 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.
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
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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.
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.
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<PAGE>
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. 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,
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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 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.
THE LOWER THE TRADING PRICE OF OUR STOCK, THE GREATER THE DILUTION WHICH
SHAREHOLDERS MAY EXPERIENCE AS A RESULT OF THE DECEMBER 29, 1999 PRIVATE
PLACEMENT TRANSACTION.
The number of shares of common stock which must be issued upon exercise
of the warrants issued to Castle Creek Technology Partners LLC and Marshall
Capital Management Inc. in connection with the closing of the private placement
on December 29, 1999 is tied to the fluctuating market price of ON's common
stock. As a result:
o the lower the trading price of ON's common stock on the effective date
of this Registration Statement and the lower the average trading price
for the fifteen trading days preceding December 29, 2000, the greater
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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 Castle Creek, Marshall Capital
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 met NASDAQ's listing maintenance requirements, NASDAQ may delist ON.
Such delisting could have a material adverse effect on the price of our common
stock and on the level of liquidity currently available to our shareholders. We
may not be able to satisfy these requirements on an ongoing basis.
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USE OF PROCEEDS
ON will not receive any proceeds from the sale of the shares by the
selling stockholders. All net proceeds from the sale of ON common stock will go
to the stockholders who offer and sell their respective shares.
PRIVATE PLACEMENT TO SELLING STOCKHOLDERS
On December 29, 1999, in a private placement under the Securities Act
of 1933, as amended, and pursuant to the terms and conditions of the Securities
Purchase Agreement by and among ON, Castle Creek Technology Partners LLC and
Marshall Capital Management Inc., ON sold 1,029,674 shares of common stock (the
"Investors Shares") to Castle Creek Technology Partners LLC and Marshall Capital
Management Inc. (the "Investors"), for an aggregate purchase price of
$12,000,000 (the "Investors Transaction"). These shares represented
approximately 7.4% of the then-total outstanding shares of ON common stock. In
connection with the private placement, the Investors were issued warrants to
purchase an aggregate of 514,838 shares of common stock, which warrants are
subject to increase under the circumstances described below (the "Initial
Warrants"). In addition, the Investors were issued warrants to purchase
additional shares of common stock, which warrants are exercisable only under the
circumstances below (the "Additional Warrants," and together with the Initial
Warrants, the "Investor Warrants"). The amount of shares of common stock
issuable upon exercise of the Investor Warrants, if any, is to be determined
based upon the formulas contained in such warrants. This amount is not currently
determinable.
INVESTORS TRANSACTION
The following is a summary of selected information relating to the
Investors Transaction. Copies of the Securities Purchase Agreement, the
registration rights agreement entered into concurrently with the Investors
Agreement, and the form of investor warrants (collectively, the "Investors
Transaction Documents") which relate to the Investors Transaction have been
filed with the Securities and Exchange Commission, and ON will, upon request,
provide a copy of these documents to any stockholder at no cost.
The following table contains a comparison of the (a) authorized, (b)
outstanding, (c) authorized and unissued but reserved, and (d) unreserved shares
of common stock prior to the Investors Transaction and following the Investors
Transaction. Prior to the Investors Transaction, reserved shares include shares
of common stock reserved for issuance upon exercise of options under ON's 1992
Employee and Consultant Stock Option Plan. After the Investors Transaction,
reserved shares include, in addition to those mentioned in the prior sentence,
an estimated number of shares reserved pursuant to the Investor Warrants.
<TABLE><CAPTION>
AUTHORIZED AND
AUTHORIZED OUTSTANDING UNISSUED BUT RESERVED UNRESERVED
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Prior to 12/29/99 20,000,000 Common 12,804,669 Common 2,949,881 Common 4,245,450 Common
Investors
Transaction 2,000,000 Preferred 0 Preferred 0 Preferred 2,000,000 Preferred
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
After Giving 20,000,000 Common 13,834,343 Common 2,435,043 Common 3,730,614 Common
Effect to Investors
Transaction 2,000,000 Preferred 0 Preferred 0 Preferred 2,000,000 Preferred
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
- ----------------------- ----------------------- --------------------- ---------------------- -------------------
</TABLE>
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INVESTOR WARRANTS
The Investor Warrants consists of two sets of warrants: the Initial
Warrants and the Additional Warrants. The Initial Warrants are exercisable for
five years from the date of issuance to purchase an aggregate of 514,838 shares
of common stock at an exercise price of $15.15 per share, which is 130% of the
initial purchase price for the Investors Shares. The price per share and number
of shares is subject to adjustment on December 29, 2000 if the average closing
bid price per share of the common stock for the 15 trading days preceding
December 29, 2000 is below $15.15 per share, assuming the Nasdaq National Market
is still the principal trading market for ON's common stock. The adjustment is
described more fully below. The Additional Warrants are exercisable for five
years from the date of issuance to purchase an additional number of shares of
common stock determined by the formula set forth below. The exercise price is
equal to the par value, $.01 per share. The Investor Warrants provide for an
optional cashless exercise. The Investor Warrants contain anti-dilution
provisions which increase the number of Warrant Shares issuable upon exercise of
the Investor Warrants if ON issues its securities for below-market
consideration. The number of shares subject to the warrants is also subject to
adjustment upon recapitalizations, and upon any sale of shares of common stock
beneficially owned by certain executives of ON during specified periods of time.
The Investors may elect, and to some extent be required to, receive cash
consideration in exchange for the Investor Warrants in connection with certain
major transactions, such as a sale of ON or its merger into another company.
INITIAL WARRANTS
The number of shares which may be issuable upon exercise of the Initial
Warrants is subject to adjustment in the event that the average closing bid
price per share for the 15 trading days preceding December 29, 2000 is below
$15.15 per share. In that case, the exercise price per share for shares issuable
upon exercise of the Initial Warrants will be reduced to that 15 day average
closing bid price, and the number of shares issuable upon exercise of the
Initial Warrants will increase to a number of shares such that the total
exercise price for all shares issuable under the Initial Warrants remains
$7,799,795.60. This is the initial aggregate exercise price for the shares of
common stock underlying the Initial Warrants.
The purpose of the adjustment in the Initial Warrants is to protect the
Investors against a decline in the price of the common stock from the date of
issuance of the Investors Shares and the Initial Warrants until December 29,
2000. Set forth below is a table indicating the number of shares of common stock
issuable upon exercise of the Initial Warrants, assuming that the average
closing bid price per share for the 15 trading days preceding December 29, 2000
is $13.375, $8.70, $5.80 and $2.90. There is no limit on the maximum number of
shares which may be issuable under the Initial Warrants pursuant to this
formula. If the average closing bid price per share of the common stock for the
fifteen trading days preceding December 29, 2000 is $13.375, the closing bid
price per share on March 6, 2000, 583,161 shares of the common stock would be
issuable upon exercise of the Initial Warrants.
<TABLE><CAPTION>
- ----------------------------------- --------------------------------- -----------------------------------
ASSUMED AVERAGE CLOSING BID PRICE PERCENTAGE DECLINE FROM 2/21/00 SHARES OF COMMON STOCK ISSUABLE
PER SHARE ON 12/29/00 15 DAY TRAILING AVERAGE UPON EXERCISE OF INITIAL WARRANTS
- ----------------------------------- --------------------------------- -----------------------------------
<S> <C> <C> <C>
$11.60 0% 583,161
- ----------------------------------- --------------------------------- -----------------------------------
$8.70 25% 896,528
- ----------------------------------- --------------------------------- -----------------------------------
$5.80 50% 1,344,792
- ----------------------------------- --------------------------------- -----------------------------------
$2.90 75% 2,689,584
- ----------------------------------- --------------------------------- -----------------------------------
</TABLE>
ADDITIONAL WARRANTS
To the extent that the average closing bid price of the common stock
for the 15 trading days preceding the effective date of the registration
statement covering the shares issued or issuable to the Investors (the
"Effective Date Price") is less than $11.65 per share, the formula in the
Additional Warrants allows the Investors to receive
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<PAGE>
additional shares of common stock, at an exercise price of $.01 per share. The
amount of additional shares subject to the Additional Warrants, when added to
the number of Investors Shares, effectively reduces the purchase price of the
Investors Shares to the Effective Date Price. The Additional Warrants limit the
number of shares issuable upon exercise of the Additional Warrants to a maximum
of 469,788 shares, the number of shares that would be issuable if the Effective
Date Price is equal to or less than $8.00 per share.
The formula upon which the amount of shares of common stock for which
the Additional Warrants are exercisable is determined on the basis of the
Effective Date Price as follows:
(1) Subtract from $11.65 the higher of (x) the Effective Date Price and
(y) $8.00;
(2) Divide the remainder of (1) above by the higher of (x) the Market Price
and (y) $8.00; and
(3) Multiply the result of (2) above by 1,029,674, the total number of
Investors Shares.
The purpose of the above formula in the Additional Warrants is to
protect the Investors against a decline in the price of the common stock from
the date of issuance of the Investors Shares and the Investors Warrants until
the date that the registration statement the Investors Shares is declared
effective by the SEC.
Set forth below is a table indicating the number of shares of common
stock issuable upon exercise of the Additional Warrants, assuming that the
Effective Date Price is $11.65 or higher, $11.00, $10.00, $9.00, and $8.00 or
lower.
- ------------------------------ -------------------------------------------------
ASSUMED EFFECTIVE NUMBER OF SHARES OF COMMON STOCK ISSUABLE
DATE PRICE UPON EXERCISE
OF THE ADDITIONAL WARRANTS
- ------------------------------ -------------------------------------------------
$11.65 or higher 0
- ------------------------------ -------------------------------------------------
$11.00 60,844
- ------------------------------ -------------------------------------------------
$10.00 169,896
- ------------------------------ -------------------------------------------------
$9.00 303,181
- ------------------------------ -------------------------------------------------
$8.00 or lower 469,788
- ------------------------------ -------------------------------------------------
SELLING STOCKHOLDERS
The shares covered by this prospectus consist of shares currently held
and shares issuable upon full exercise of the Initial Warrants and the
Additional Warrants.
The number of shares that may actually be sold by each selling
stockholder will be determined by the selling stockholder. Because each selling
stockholder may sell all, some or none of the shares that it holds, and because
the offering contemplated by this prospectus is not currently being
underwritten, no estimate can be given as to the number of shares that will be
held by the selling stockholders at the termination of the offering.
The following table presents information regarding the selling
stockholders. The shares included in the table below represent the shares
beneficially owned by each selling stockholder as of the date of this prospectus
plus a good faith estimate of the number of shares that will become issuable
upon exercise of the Initial Warrants. The prospectus and the registration
statement of which it is a part will be amended prior to effectiveness to
register the shares, if any, which will become issuable pursuant to the
Additional Warrants. Under the Registration Rights Agreement, we are required to
register for resale all of the shares issued to the selling stockholders in the
private placement and the shares issuable to the selling stockholders upon full
exercise of the Initial Warrants and the Additional Warrants.
Under their terms, the Initial Warrants and the Additional Warrants are
exercisable by any stockholder only to the extent that the number of shares
outstanding, together with the number of shares beneficially owned by the
18
<PAGE>
holder, would not be more than 4.9% of the total shares outstanding. This
beneficial ownership is determined under section 13(d) of the Securities
Exchange Act of 1934.
The percentages shown in the table are based upon 13,883,448 shares
outstanding as of December 29, 1999. The numbers shown in the column "Number of
Shares Being Offered" include additional shares that may be issuable to the
selling stockholders upon exercise of the Initial Warrants and Additional
Warrants.
At our election, but subject to specific conditions, the Initial
Warrants and Additional Warrants are not exercisable for shares if, upon
exercise, the number of shares to be received would be more than 20% of the
total number of shares outstanding.
The selling stockholders have advised us that they are the beneficial
owners of the shares being offered.
<TABLE><CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES AFTER OFFERING
BENEFICIALLY OWNED (assuming the sale of all
PRIOR TO OFFERING registered shares)
----------------------------------- -----------------------------------
SHARES OF PERCENTAGE OF NUMBER OF SHARES OF PERCENTAGE OF
SELLING STOCKHOLDERS COMMON STOCK COMMON STOCK SHARES OFFERED COMMON STOCK COMMON STOCK
- ------------------------------------ --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Castle Creek Technology Partners LLC... 705,516(1) 4.9% 1,029,675 0 0%
Marshall Capital Management, Inc....... 705,516(1) 4.9% 1,029,675 0 0%
</TABLE>
(1) Does not include 66,740 shares issuable upon exercise of the Initial
Warrants which by their terms, cannot be exercised at any time to the
extent that exercise would result in any selling stockholder having
beneficial ownership of more than 4.9% of the total number of shares
outstanding at the time of exercise. For example, while Castle Creek
Technology Partners LLC may exercise the Initial Warrant and the
Additional Warrant for and sell 1,007,150 or more shares over the life
of the Initial Warrant and the Additional Warrant, it may not currently
exercise the Initial Warrant or the Additional Warrant to the extent
that it would at the time of exercise beneficially own more than
705,516 shares, based upon 13,883,448 shares outstanding as of December
29, 1999, and assuming that at the time of exercise, it does not
beneficially own any other shares. If the total number of shares
outstanding increases, including as a result of issuance of outstanding
shares upon exercise of the Initial Warrants, then the number of shares
that a selling stockholder can own at any one time would also increase.
Castle Creek Partners LLC is the investment manager for Castle Creek
Technology Partners LLC, and consequently may be deemed to have voting
control and investment discretion over the securities held by Castle
Creek Technology Partners LLC. Castle Creek Partners LLC disclaims
beneficial ownership of all securities owned by Castle Creek Technology
Partners LLC. Daniel Asher and John Ziegelman, members of Castle Creek
Partners LLC, may be deemed as a result thereof to be the beneficial
owners of the securities held by Castle Creek Technology Partners LLC.
Messrs. Asher and Ziegelman disclaim such beneficial ownership.
Marshall Capital Management Inc. is an indirect, wholly-owned
subsidiary of Credit Suisse Group, a publicly traded Swiss financial
services company. Credit Suisse Group disclaims beneficial ownership of
such shares.
19
<PAGE>
PLAN OF DISTRIBUTION
ON will not receive any proceeds from the sale of the shares. The
shares may be sold or distributed from time to time by the selling stockholders,
or by pledgees, donees or transferees of, or other successors in interest to,
the selling stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. The selling stockholders
understand that they may not cover their short sales with the registered shares.
The distribution of the shares may be effected in one or more transactions that
may take place through the NASDAQ National Market, including block trades or
ordinary broker's transactions, or through privately negotiated transactions, or
through a combination of any such methods of sale, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the selling stockholders in connection with such
sales.
In connection with distributions of the shares or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with selling stockholders. The selling stockholders may also sell shares
short and deliver the shares to close out such short positions. The selling
stockholders may also enter into option, swaps, derivatives or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares registered hereunder, which the broker-dealer may resell pursuant
to this Prospectus. The selling stockholders may also pledge the shares
registered hereunder to a broker or dealer and upon a default, the broker or
dealer may effect sales of the pledged shares pursuant to this Prospectus.
From time to time, the selling stockholders may be engaged in short
sales, short sales against the box, puts and calls and other hedging
transactions in our securities, and may sell and deliver the shares in
connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time, a selling stockholder may pledge
its shares pursuant to the margin provisions of its customer agreements with its
broker-dealer. Upon delivery of the shares or a default by a selling
stockholder, the broker-dealer or financial institution may offer and sell the
pledged shares form time to time.
An affiliate of Castle Creek has a short position in shares of common
stock. Castle Creek has confirmed to us that none of the shares of common stock
covered by this Registration Statement will be used to cover any portion of this
short position. Castle Creek has also confirmed to us that neither it nor its
affiliate will take any action to cover any portion of this short position
during any period that Castle Creek is deemed to be engaged in a distribution of
the shares pursuant to this registration statement.
The aggregate proceeds to the selling stockholders from the sale of the
shares will be the purchase price of the common stock sold less the aggregate
agents' commissions, if any, and other expenses of issuance and distribution not
borne by ON. The selling stockholders and any dealers or agents that participate
in the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the shares by them
and any commissions received by any such dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
To the extent required, the specific shares of common stock to be sold,
the name of the selling stockholders, purchase price, public offering price, the
names of any such agent, dealer or underwriter, and any applicable commission or
discount with respect to a particular offering will be set forth in an
accompanying prospectus supplement.
The rules and regulations in Registration M under the Securities
Exchange Act of 1934 provide that during the period that any person is engaged
in the distribution, as so defined in Regulation M, of our common stock, such
person generally may not purchase shares of our common stock. The selling
stockholders are subject to applicable provisions of the Securities Act of 1933
and the Securities Exchange Act of 1934 and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of shares of the common stock by the
selling stockholders. The foregoing may affect the marketability of the common
stock.
20
<PAGE>
ON has agreed to bear certain expenses of registration of the common
stock under the federal and state securities laws and of any offering and sale
hereunder not including certain expenses, such as commissions of dealers or
agents, and fees attributable to the sale of the shares. ON has agreed to
indemnify the selling stockholders against certain liabilities, including
certain potential liabilities under the Securities Act.
Any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to this prospectus.
There can be no assurance that the selling stockholders will sell any
or all of the shares of common stock offered by the selling stockholders
hereunder.
MATERIAL CHANGES
All material changes to ON's affairs that have occurred since December
31, 1998 are contained in our filings with the SEC which are incorporated herein
by reference.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the shares of common stock offered hereby has been
passed upon for ON by Epstein Becker & Green, P.C., Boston, Massachusetts. Gabor
Garai, a partner in Epstein Becker & Green, P.C., is the Assistant Secretary of
ON.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been
passed upon for ON by Epstein Becker & Green, P.C., Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements incorporated by reference
in this prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said reports.
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by ON in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and NASDAQ National Market listing
fee.
AMOUNT TO BE PAID
-----------------
SEC registration fee .........................................$ 6,048.31
NASDAQ National Market listing fee ...........................$ 17,500.00
Legal fees and expenses ......................................$ 40,000.00
Miscellaneous expenses .......................................$ 10,000.00
-----------
Total ...................................................$ 73,548.31
===========
21
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a
corporation to include in its charter documents and in agreements between the
corporation and its directors and officers provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article IX of ON's Amended and Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permitted
under Delaware law.
Article VI of ON's By-laws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation to the
fullest extent permitted under the General Corporation Law of Delaware.
ON has entered into indemnification agreements with its directors and
executive officers, in addition to indemnification provided for in ON's By-laws,
and intends to enter into indemnification agreements with any new directors and
executive officers in the future.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling ON
pursuant to the foregoing provisions, ON has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Registration Rights Agreement dated December 29, 1999, entered into
by ON in connection with the sale of shares of ON common stock and warrants to
purchase ON common stock to Castle Creek Technology Partners LLC and Marshall
Capital Management, Inc., provides that ON will indemnify the selling
stockholder against certain liabilities, including liabilities under the
Securities Act.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of ON in which indemnification is
being sought, nor is ON aware of any threatened litigation that may result in a
claim for indemnification by any director, officer, employee or other agent of
ON.
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
5.1 Opinion of Epstein Becker & Green, P.C.
10.25 Offer Letter from ON Technology Corporation to Robert L.
Doretti dated January 31, 2000
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Epstein Becker & Green, P.C.(included in
Exhibit 5.1)
24.1 Power of Attorney (reference is made to the signature page
of this Registration Statement)
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
22
<PAGE>
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (a) and (b) above do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by ON pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the Registration
Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for the purpose of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 28th day of March, 2000.
ON TECHNOLOGY CORPORATION
By: /s/ Stephen J. Wietrecki
-------------------------
CHIEF FINANCIAL OFFICER
24
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
5.1 Opinion of Epstein Becker & Green, P.C.
10.25 Offer Letter from ON Technology Corporation to Robert L.
Doretti dated January 31, 2000
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Epstein Becker & Green, P.C.(included in
Exhibit 5.1)
24.1 Power of Attorney (reference is made to the signature page
of this Registration Statement)
25
EXHIBIT 5.1
-----------
[LETTERHEAD OF EPSTEIN BECKER & GREEN, P.C.]
January 24, 2000
ON Technology Corporation
One Cambridge Center
Cambridge, MA 02142
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by ON
Technology Corporation with the Securities and Exchange Commission on January
24, 2000 (Registration No. 333-95333, as amended (the "Registration Statement"),
in connection with the registration under the Securities Act of 1933, as
amended, of a total of 2,059,350 shares of Common Stock, $.01 par value per
share, in ON Technology Corporation (the "Shares"). We understand that the
Shares are to be sold from time to time on the Nasdaq National Market at
prevailing prices or as otherwise described in the Registration Statement. As
your legal counsel, we have examined the proceedings taken by you in connection
with the sale of the Shares.
It is our opinion that the Shares are legally and validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
EPSTEIN BECKER & GREEN, P.C.
/s/ Epstein Becker & Green, P.C.
---------------------------------
By: Gabor Garai, Member
EXHIBIT 10.25
-------------
ON TECHNOLOGY CORPORATION
880 Winter Street
Building Four
Waltham, MA 02451-1449
January 31, 2000
Mr. Robert L. Doretti
297 Commonwealth Avenue, No. 5
Boston, MA 02115
Dear Bob:
On behalf of ON Technology Corporation (the "Company"), I am pleased to
offer you the position of President and Chief Executive Officer of the Company.
The terms of your employment relationship with the Company are as set forth
below, as approved by the Company's Board of Directors.
1. POSITION. You will serve in a full-time capacity as President and Chief
Executive Officer of the Company, reporting to the Company's Board of Directors
and based in the Company's Waltham, Massachusetts office. As such, you will have
such responsibilities as are commensurate with your position and determined by
the Board. You will also be appointed a member of the Board at the first meeting
of the Board that follows the commencement of your employment with the Company.
2. BASE SALARY, BENEFITS. You will be paid a base salary as determined by the
Board of Directors on an annual basis, at a rate of not less than $250,000. Your
salary will be payable in accordance with the Company's standard payroll
policies (subject to normal required withholding). You will receive a vacation
package comparable to that provided for key executives and will be eligible to
participate in the Company's life, disability, medical, dental and other
insurance programs available to key executives ("Benefits"). In addition, the
Compensation Committee of the Company's Board of Directors ("Compensation
Committee") will use good faith efforts to obtain post-employment health
insurance for you and your spouse upon your termination of employment at
retirement age in accordance with Company policy or upon your death or
disability, so long as the aggregate cost of such health insurance to the
Company, after any employee contribution, is not significant and does not
require any payment of premiums for more than two years after the date of this
letter. Alternatively, the Company and you may agree upon other arrangements
having a comparable purpose and cost. Any such post-retirement health insurance
is included in "Benefits".
3. SIGN-ON BONUS. Effective with the commencement of your employment with the
Company, you will receive a stock option having the following terms:
Option Shares: 0.25% of the outstanding common stock of the
Company (36,732 shares).
Exercise Price: Market price on date of grant.
<PAGE>
Vesting: Vested immediately in full.
Stock Restriction: Stock purchased pursuant to
this option before the first anniversary of
the grant will be subject to a repurchase
option in favor of the Company at the
Exercise Price if your employment with the
Company is terminated by you without
Constructive Termination (as defined below),
or by the Company for Cause (as defined
below), prior to the first anniversary of
the grant.
4. INCENTIVE PROGRAM. The Company has an incentive compensation program for key
executives ("Incentive Program") tied to performance against the quarterly and
annual plan ("Plan"). The Plan is adopted for each fiscal year by the
Compensation Committee, based upon recommendations by management. As Chief
Executive, you will have a critical input in establishing the Plan on an annual
basis; we expect that the Plan for calendar year 2000 will be developed under
your supervision during the 45-day period after your commencement of employment
and will be approved by the Compensation Committee promptly thereafter. Under
the Incentive Program, you will be eligible for an annual bonus equal to
$150,000 if the Company's performance meets the Plan objectives. The Incentive
Program will provide that you will receive a maximum bonus of 150% of your
annual base salary if the Company's performance reaches the requisite parameters
specified in the Plan.
5. STOCK OPTION PERFORMANCE BONUS. You will receive a performance bonus in the
form of a stock option (the "Performance Stock Option") with the following
terms:
Option Shares: 2.5% of the outstanding common stock of the
Company (367,325 shares)
Exercise Price: Market price on date of grant.
Vesting: Vested in full upon the seventh anniversary
of the grant.
Acceleration: Vesting will be accelerated during the first
and second fiscal years as follows: (a) for
each of the eight fiscal quarters in
calendar year 2000 and 2001, between 8% and
10% of the Option Shares will be accelerated
in a linear progression, corresponding with
the Company achieving between 80% and 100%
of the applicable fiscal quarter benchmark
set forth in the Plan; and (b) for the
entire fiscal years 2000 and 2001, options
for between 8% and 10% of the Option Shares
will be accelerated in a linear progression,
corresponding with the Company achieving
between 80% and 100% of the applicable
fiscal year benchmark set forth in the Plan.
For example, if the Company achieves 60% of
the Plan in Q1, 85% in Q2, 100% in Q3, 110%
in Q4, and 90% for the fiscal year, then the
option would be accelerated 0%, 8.5%, 10%,
10% and 9%, respectively, or a total of
137,746 Option Shares for such fiscal year.
If the Company exceeds Plan for one or more
quarters or for a fiscal year, but the
maximum percentage of Option Share
acceleration (50%) has not been achieved for
such fiscal year (due to below-Plan
performance for other quarters or the fiscal
year), then the Compensation Committee will
include in its Incentive Program, in
additional to the cash amounts referenced in
Section 4,
2
<PAGE>
some or all of the Option Shares that would
have accelerated had the Plan for the
applicable quarters or fiscal year been met.
6. STOCK OPTION. You will be granted a stock option ("Time Vesting Option")
with the following terms:
Option Shares: 3% of the outstanding common stock of the
Company (440,790 shares).
Exercise Price: Market price on date of grant.
Vesting: The nonqualified portion of the Option will
be fully exercisable upon grant, subject to
the Company's right to repurchase the shares
issuable upon exercise of the option upon
termination of your employment by the
Company, which right lapses over four years
as follows: 25% lapses upon the first
anniversary of the grant and 75% lapses over
the three years thereafter in equal
quarterly increments. The incentive stock
option portion of the Option will be a
standard option subject to four year vesting
in accordance with the schedule set forth in
the previous sentence.
7. NATURE OF STOCK OPTIONS. The Stock Options referenced in paragraphs 3, 5 and
6 above will be incentive stock options to the extent permitted by applicable
tax regulations. Options in excess of the incentive stock option limits will be
non-qualified stock options.
8. OTHER INCENTIVE COMPENSATION. During your employment by the Company, you
will be eligible for additional awards under the Company's 1992 Employee and
Consultant Stock Option Plan, under any subsequent similar plans or under other
incentive programs or plans adopted from time to time by the Board of Directors,
as determined by the Compensation Committee or the Board of Directors.
9. TERMINATION OF EMPLOYMENT. If your employment with the Company is terminated
by your death or disability or by the Company for any reason other than for
Cause, or in the case of Constructive Termination, you (or your estate) will be
entitled to receive (a) $250,000, paid as though you were still employed by the
Company over a period of 12 months in installments in accordance with the
Company's normal practices, (b) continued Benefits during the 12 months
following such termination, (c) 12 months of acceleration of vesting (or
comparable reduction in the Company's right to repurchase your shares with
respect to the nonqualified Time Vesting Option) and, if the termination of
employment occurs before the end of the second fiscal year after grant of the
Performance Stock Option, then the Company shall be deemed to have met 100% of
Plan for any remaining quarters and fiscal year in the 12 month period
commencing on such termination, including the quarter then in progress, but
excluding any quarter ending after such 12 month period, (d) an opportunity to
exercise your stock options during the period of 12 months (three months for
incentive stock options) following such termination to the extent vested in
accordance with section (c) above at the date of such termination, and (e) any
cash bonus earned but not yet paid for completed quarters and fiscal years under
the Plan as well as a prorated amount of the quarterly and annual cash bonus
pursuant to the Plan for the quarter and fiscal year during which termination of
your employment occurs, based on the number of days of the quarter or fiscal
year, as applicable, that you were employed by the Company. The Company will
obtain and maintain life insurance for the benefit
3
<PAGE>
of your estate to cover the exercise price of vested and unexercised stock
options held by you in the event of your death.
You will not be entitled to any additional payments, salary, bonus or
benefits in the event of termination for Cause. For the purposes of this
Agreement, "Cause" means a determination by a majority of the Board in its
reasonable judgment (after providing written notice to you specifying in
reasonable detail the specific conduct that it considers to constitute cause and
stating the date, time and place for a special board meeting to consider the
same and after providing you and your counsel the opportunity to be heard at
such board meeting) that you have (a) engaged in acts in violation of the law,
(b) breached your fiduciary duty to the Company or duties of loyalty or care to
the Company, (c) willfully disobeyed the good faith, lawful policies or
instructions of the Board, or (d) violated the provisions of Paragraph 9 of this
Agreement. For the purposes of this Agreement, "Constructive Termination" means
a material diminution of duties, change in title or reporting relationship,
change in location or reduction in base salary or Benefits.
10. CHANGE OF CONTROL. The stock options described in this Agreement will
provide for 24 months acceleration of vesting (or comparable reduction in the
Company's right to repurchase your shares with respect to the nonqualified Time
Vesting Option) upon a Change of Control (as defined below) of the Company. In
addition, if the Change of Control occurs before the end of the second fiscal
year after grant of the Performance Stock Option, then the Company shall be
deemed to have met 100% of Plan for any remaining quarters and fiscal year in
the fiscal year during which such Change of Control occurs. For a period of 12
months following a Change of Control of the Company, if your employment is
terminated by the Company for any reason other than for Cause or is terminated
by Constructive Termination, you will be entitled to receive the severance
benefits set forth in Paragraph 8 above. For the purposes of this Agreement,
"Change of Control" means any sale of all or substantially all of the Company's
assets or any merger, consolidation or stock sales which results in the holders
of the Company's capital stock immediately prior to such transaction owning less
than 50% of the voting power of the Company's capital stock immediately after
such transaction.
11. STANDARD EMPLOYEE AGREEMENTS. Like all Company employees, you will be
expected to sign and comply with an Employee Confidentiality Agreement (the
"Employee NDA") which requires, among other provisions, the assignment of patent
and other intellectual property rights to any invention or other trade secrets
created during your employment with the Company and non-disclosure of
proprietary information. Your employment will be contingent upon and not be
deemed effective until you have executed and returned the Employee NDA to the
Company. In addition, you will abide by the Company's strict policy that
prohibits any new employee from using or bringing with him or her from any
previous employer any confidential information, trade secrets, or proprietary
materials or processes of such former employer. You also agree that, during the
term of your employment with the Company and for one year thereafter, you will
not actively engage in any other employment, occupation, consulting or other
business that directly or indirectly competes with the business in which the
Company is now involved or becomes involved during the term of your employment;
will not divert existing or prospective customers of the Company; will not
solicit or hire any Company employees; and will not engage in any other
activities that conflict with your obligations to the Company. You will also be
expected to sign stock option agreements in form and substance satisfactory to
the Company for the stock options described in this Agreement.
4
<PAGE>
12. BUSINESS EXPENSES. You will be entitled to reimbursement by the Company for
all reasonable business expenses that you incur or pay in the performance of
your duties and responsibilities hereunder (including but not limited to travel
and automobile), subject to such reasonable substantiation and documentation as
may be specified by the Company from time to time.
13. AT -WILL EMPLOYMENT. You will be an employee-at-will, meaning that either
you or the Company may terminate your employment relationship at any time,
without notice, for any reason or no reason, subject to the Company's
obligations set forth in this offer letter.
14. START DATE. Your employment with the Company will commence at a date to be
mutually determined but no later than full-time on Tuesday, February 1, 2000.
15. EXPIRATION. This offer expires January 31, 2000.
16. FEDERAL IMMIGRATION LAW. For purpose of federal immigration law, you will be
required to provide the Company documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within 3 business days of your commencement date, or our
employment relationship with you may be terminated.
17. ENTIRE AGREEMENT. This Agreement, together with your stock option
agreements, and your Employee NDA, constitutes the entire agreement between the
parties and supersedes all other agreements or understandings.
Bob, on behalf of the Board, let me indicate how pleased I am to extend
this offer, and how much I look forward to working with you. Please indicate
your acceptance by signing and returning the enclosed copy of this letter.
Sincerely,
ON Technology Corporation
By:
---------------------------
Title:
-----------------------
The forgoing terms and conditions are hereby accepted:
Signed:
----------------------------
Robert L. Doretti
Date:
------------------------------
Indicated Start Date:
--------------
5
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 26, 2000
included in ON Technology Corporation's Form 10-K for the year ended December
31, 1999 and to all references to our firm included in this registration
statement.
Boston, Massachusetts
March 24, 2000
EXHIBIT 24.1
------------
POWER OF ATTORNEY
NOW ALL PERSONS BY THESE PRESENTS, that each such person whose
signature appears below constitutes and appoints, jointly and severally, Herman
DeLatte and Stephen J. Wietrecki their attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement on Form S-3 (including post-effective amendments), to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, thereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutions, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------ ------------------
<S> <C> <C>
/s/ HERMAN DELATTE Chief Executive Officer January 25, 2000
--------------------------------- and Director
Herman DeLatte
/s/ STEPHEN J. WIETRECKI Vice President and January 25, 2000
--------------------------------- Chief Financial Officer
Stephen J. Wietrecki
/s/ WILLIAM C. HULLEY Chairman of the Board January 25, 2000
---------------------------------
William C. Hulley
/s/ CHRISTOPHER A. RISLEY Director January 25, 2000
---------------------------------
Christopher A. Risley
/s/ GINA M. BORNINO Director January 25, 2000
---------------------------------
Gina M. Bornino
/s/ ROBERT BADAVAS Director January 25, 2000
---------------------------------
Robert Badavas
</TABLE>
