SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement | | Confidential, for Use of the
Commission Only (as Permitted
by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ON TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
ON TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Filing party:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
ON TECHNOLOGY CORPORATION
WALTHAM WOODS
880 WINTER STREET, BUILDING FOUR
WALTHAM, MA 02154
Dear Stockholder:
The Annual Meeting of Stockholders (the "Meeting") of ON Technology
Corporation (the "Company") will be held at Fleet National Bank, 75 State
Street, Boston, Massachusetts at 10:00 a.m., Eastern Daylight Time, on Friday,
April 28, 2000.
At the Meeting, you will be asked to consider and vote upon the
election of one director to serve until the Annual Meeting of the Stockholders
held in the year 2003, to approve amendments to the Company's 1992 Employee and
Consultant Stock Option Plan (the "Employee Plan") to increase the number of
shares available under the Employee Plan from 3,800,000 shares to 5,400,000
shares, and to ratify the Board of Directors' selection of Arthur Andersen LLP
as the Company's independent auditors.
In the material accompanying this letter, you will find a Notice of
Annual Meeting of Stockholders, a Proxy Statement relating to the actions to be
taken by the Company's stockholders at the Meeting and a Proxy. The Proxy
Statement more fully describes and includes information about the matters for
consideration at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
Whether or not you plan to attend the Meeting, however, please complete, sign,
date and return your Proxy in the enclosed envelope. If you attend the Meeting,
you may vote in person as you wish, even though you have previously returned
your Proxy. It is important that your shares be represented and voted at the
Meeting.
Sincerely,
/s/ Robert L. Doretti
------------------------------------
Robert L. Doretti
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
ON TECHNOLOGY CORPORATION
WALTHAM WOODS
880 WINTER STREET, BUILDING FOUR
WALTHAM, MA 02154
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of ON Technology Corporation, a Delaware corporation (the "Company"), which will
be held at Fleet National Bank, 75 State Street, Boston, Massachusetts at 10:00
a.m., Eastern Daylight Time, on Friday, April 28, 2000, for the following
purposes:
1. To elect one Class II director to serve until the Company's Annual
Meeting of Stockholders held in 2003 and until her successor is duly elected
and qualified;
2. To approve amendments to the 1992 Employee and Consultant Stock
Option Plan increasing the number of shares available under such plan from
3,800,000 to 5,400,000;
3. To ratify the selection of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000; and
4. To transact such other business that may properly come before the
Meeting or any postponement or adjournment thereof.
Stockholders of record at the close of business on March 6, 2000 are
entitled to notice of, and to vote at, this Annual Meeting of Stockholders and
any postponement or adjournment thereof. For ten days prior to this Annual
Meeting, a complete list of the stockholders entitled to vote at the meeting
will be available for examination by any stockholder for any purpose relating to
the meeting during ordinary business hours at the principal offices of the
Company.
By Order of the Board of Directors
/s/ Stephen J. Wietrecki
---------------------------------
STEPHEN J. WIETRECKI
SECRETARY
Waltham, Massachusetts
March 28, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED REPLY ENVELOPE. BY RETURNING YOUR PROXY CARD, YOU WILL ASSURE
REPRESENTATION OF YOUR SHARES AT THE MEETING. IF YOU ATTEND THE MEETING, YOU
MAY, OF COURSE, VOTE YOUR SHARES IN PERSON EVEN THOUGH YOU HAVE SENT IN YOUR
PROXY. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER,
BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM
THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
ON TECHNOLOGY CORPORATION
WALTHAM WOODS
880 WINTER STREET, BUILDING FOUR
WALTHAM, MA 02154
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of proxies to be voted at the Annual
Meeting of Stockholders of the Company to be held at Fleet National Bank, 75
State Street, Boston, Massachusetts, at 10:00 a.m., Eastern Daylight Time, on
Friday, April 28, 2000, and at any adjournment thereof (the "Meeting"), for the
purposes set forth in the accompanying Notice of Annual Meeting. This Proxy
Statement and the accompanying proxy card are being mailed on or about March 28,
2000, to the stockholders of record as of the close of business on March 6, 2000
(the "Record Date").
GENERAL INFORMATION
SOLICITATION OF PROXIES
The cost of soliciting proxies from stockholders will be borne by the
Company. Copies of solicitation materials will be furnished to banks, brokerage
houses, fiduciaries and custodians holding in their names shares of common stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or employees of the Company.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked in writing
(including by delivery of a later dated proxy) or in person by notifying the
Secretary of the Meeting, in writing, at any time prior to the voting of the
proxy.
VOTING OF PROXIES
If the enclosed proxy card is properly executed and returned to the
Company, all shares represented thereby will be voted as indicated therein. If a
proxy is returned without instructions, it will be voted FOR the nominee named
therein, FOR the approval of the amendments to the 1992 Employee and Consultant
Stock Option Plan and FOR the ratification of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2000.
VOTING RIGHTS AND OUTSTANDING SHARES
On the Record Date there were 14,253,203 outstanding shares of Common
Stock (excluding 15,000 shares held in treasury), which is the only class of
stock outstanding and entitled to vote at the Meeting. The holders of such
shares will be entitled to cast one vote for each share held of record as of the
Record Date. On the Record Date, the closing sales price of the Common Stock on
the Nasdaq National Market was $13.375 per share.
The holders of a majority of the shares of Common Stock issued,
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy will be counted for purposes of determining
whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of
Common Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, and entitled to vote is required to approve the
amendments to the Company's 1992 Employee and Consultant Stock Option Plan and
to ratify the selection of Arthur Andersen LLP as the Company's independent
auditors. Abstentions and shares held by brokers that are present, but not voted
because the brokers do not
<PAGE>
have the discretionary authority to vote such shares as to a particular matter,
i.e., "broker non-votes," will be counted as present for purposes of determining
if a quorum is present. Abstentions will have the same effect as a negative
vote. Broker non-votes, on the other hand, will have no effect on the outcome of
the vote.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 6, 2000, certain
information relating to the beneficial ownership of Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) the Company's Chief
Executive Officer and each of the other five most highly compensated executive
officers of the Company serving as of December 31, 1999 (collectively, the
"Named Executive Officers"); and (iv) the directors and Named Executive Officers
of the Company as a group:
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK(2)
- ------------------------ --------------------- ---------------
Robert L. Doretti (3) 443,114 3.11%
Herman DeLatte (4) 545,722 3.83%
Christopher A. Risley (5) 1,342,357 9.42%
Laurent Raynaud (6) 211,012 1.48%
Stephen J. Wietrecki (7) 57,172 *
Ram Sudama (8) 10,625 *
Gina Bornino Miller (9) 22,499 *
Robert Badavas (10) 20,740 *
William C. Hulley (11) 134,907 *
All directors and executive officers 1,445,791 10.14%
As a group (8 persons) (12)
- ----------------------------
*Less than 1%
1. Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
2. The percentages shown in this column are calculated from the 14,253,203
shares of Common Stock actually outstanding on March 6, 2000, and reflects
966,323 stock options held by the persons set forth in this table that are
exercisable within 60 days from March 6, 2000.
3. Includes 443,144 shares issuable upon exercise of stock options.
4. Includes 311,250 shares issuable upon exercise of stock options.
5. Includes 286,195 shares of Common Stock held by The Risley Family Limited
Partnership (the "RFLP"). Mr. Risley is a general partner of the RFLP, in
which he holds a 1% general partnership interest. As the general partner,
he has sole voting and investment control over the shares of Common Stock
held by the RFLP. The Risley Children's Trust (the "Risley Trust"), an
irrevocable trust for the benefit of Mr. Risley's children, is the limited
partner of the RFLP. Mr. Risley has no investment or voting control over
the Risley Trust and disclaims beneficial ownership of the Risley Trust's
99% limited partnership interest in
-2-
<PAGE>
the RFLP. Also includes 14,791 shares issuable upon the exercise of
stock options. Mr. Risley's business address is c/o Insite Innovations,
1900 Broadway, Suite 200, Redwood City, California 94063.
6. Includes 55,312 shares issuable upon the exercise of stock options.
7. Includes 25,287 shares issuable upon exercise of stock options. Includes
5,000 shares of Common Stock held by an individual retirement account for
the benefit of Felix Wietrecki. Stephen J. Wietrecki has the power to
direct the sale of such shares but disclaims beneficial ownership thereof.
8. Consists of 10,625 shares issuable upon the exercise of stock options.
9. Consists of 22,499 shares issuable upon exercise of stock options.
10. Consists of 20,740 shares issuable upon the exercise of stock options.
11. Consists of 47,628 shares of Common Stock held directly by APA Pennsylvania
Partners, 25,646 shares of Common Stock held directly by Fostin Capital
Partners II and 61,633 shares issuable upon exercise of stock options held
by Mr. Hulley. William C. Hulley, a director of the Company, is a general
partner of APA Pennsylvania Partners and Fostin Capital Partners II. Mr.
Hulley disclaims beneficial ownership of the shares held by APA
Pennsylvania Partners and Fostin Capital Partners II. Mr. Hulley assigned
all stock options he received pursuant to the Company's stock option plans
to The P/A Fund, L.P., a fund of which he is a general partner of the
managing partner, and, accordingly, disclaims beneficial ownership with
respect to shares issuable upon the exercise of such stock options.
12. Includes an aggregate of 950,490 shares of Common Stock issuable pursuant
to stock options exercisable within 60 days from March 6, 2000. Includes
364,469 shares held by affiliates of certain officers and directors of the
Company with respect to which such officers and directors disclaim
beneficial ownership.
The above table does not include any shares of Common Stock currently held by
Castle Creek Technology Partners LLC or Marshall Capital Management Inc., or
Shares of Common Stock issuable upon the exercise of the Warrants held by such
parties. The Warrants, by their terms, cannot be exercised at any time to the
extent that the exercise would result in Castle Creek Technology Partners LLC or
Marshall Capital Management Inc. having beneficial ownership of more than 4.9%
of the total number of shares of the Company outstanding at the time of
exercise. For example, while Castle Creek Technology Partners LLC may exercise
the Warrants for and sell 1,007,150 or more shares over the life of the
Warrants, it may not currently exercise the Warrants to the extent that it would
at the time of exercise beneficially own any 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 Warrants, then the number of shares
that Castle Creek Technology Partners LLC or Marshall Capital Management Inc.
can own at any one time would also increase.
-3-
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL I)
The Company has a classified Board of Directors consisting of two Class
I Directors, two Class II directors and two Class III directors. The Class I,
Class II and Class III directors currently serve until the Annual Meetings of
Stockholders to be held in 2002, 2000 and 2001, respectively, and until their
respective successors are duly elected and qualified. At each Annual Meeting,
directors are elected for a full term of three years to succeed those whose
terms are expiring.
The term of office for the sole serving Class II director is currently
expiring and the director currently serving on the Board is nominated for
election at the Meeting. The persons named in the proxy will vote to elect as a
director Ms. Bornino Miller unless the proxy is marked otherwise. Currently,
there is a vacant seat on the Board for a Class II Director. Pursuant to
Delaware law and the Company's By-laws, this vacancy may be filled by a vote of
the majority of the members of the Board then in office.
The Class II director will be elected to hold office until the Annual
Meeting of Stockholders in 2003 and until her successor is duly elected and
qualified. Each of the nominees has indicated his willingness to serve, if
elected; however, if the nominee should be unable to serve, the proxies may be
voted for a substitute nominee designated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF THE NAMED NOMINEE
BOARD OF DIRECTORS
The table below sets forth for the current directors, including the
Class II nominee to be elected at this Meeting, certain information with respect
to age and background.
Director Position with
Name Age Since the Company
- ---- --- ----- -----------
NOMINEE FOR CLASS II DIRECTOR
TO BE ELECTED AT THE
ANNUAL MEETING:
Gina Bornino Miller 39 1998 Director
CLASS I DIRECTORS:
William C. Hulley 41 1994 Director and
Chairman of the Board
Herman DeLatte 45 1997 Director
CLASS III DIRECTORS:
Robert P. Badavas 47 1998 Director
Robert L. Doretti 57 2000 Director, President
and CEO
-4-
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company as of March 6, 2000 are as follows:
Name Age Position with the Company
- ---- --- -------------------------
Robert L. Doretti 57 President and Chief
Executive Officer
Stephen J. Wietrecki 30 Vice President, Finance and
Chief Financial Officer
Ram Sudama 51 Chief Technical Officer
Laurent Raynaud 38 Vice President, European Sales
And Support
BUSINESS EXPERIENCE OF OFFICERS, DIRECTORS AND NOMINEES FOR DIRECTOR
ROBERT L. DORETTI has served as President, Chief Executive Officer and
Director of the Company since February 1, 2000. Prior to joining the Company,
Mr. Doretti served as President and Chief Executive Officer at Thinking Machines
Corporation from February, 1995 to June, 1999. Mr. Doretti served in a
transitional role with Thinking Machines Corporation from June, 1999 through
January, 2000. From December, 1992 through December, 1994, Mr. Doretti was
President and Chief Executive Officer of Vision Ten, Inc. From September 1989
through December 1992, Mr. Doretti had his own technology strategy and alliance
consulting business. From September, 1987 to September, 1989, Mr. Doretti served
as Executive Vice-President for sales and marketing at Dataproducts Corporation
and from July, 1979 to August, 1987, Mr. Doretti was Group/Senior Vice President
at Wang Laboratories.
STEPHEN J. WIETRECKI has served as Vice President, Finance and Chief
Financial Officer of the Company since April 4, 1999. From July, 1997 to April,
1999, Mr. Wietrecki served as Director of Finance of the Company. Previously,
Mr. Wietrecki served as a Senior Financial Analyst at the Company. From May,
1994 to October, 1995, Mr. Wietrecki was employed by BTR Plc as a Senior
Internal Auditor.
LAURENT RAYNAUD has served as Vice President, European Sales and
Support of the Company since November, 1997. Previously, Mr. Raynaud served as
European Managing Director of Micrographix Software Inc. from January, 1992
through June, 1997.
RAM SUDAMA has served as Chief Technical Officer of the Company since
October 1998. Previously, Mr. Sudama served as a technology advisor to the Board
of Directors of Teradyne, Inc. from January 1998 through September 1998 and as
President of Sandalwood Studios, Inc. from June 1997 through December 1997. From
November 1996 through May 1997, Mr. Sudama was Chief Technical Officer for
Borland International Inc. (now known as Inprise Corporation), providing
technical direction for enterprise strategy, and Vice President of Technology
for Open Environment Corp. from August 1993 through October 1996.
HERMAN DELATTE has served as a Director of the Company since September
1997. Until his resignation from the positions of President and Chief Executive
Officer of the Company on February 1, 2000, Mr. DeLatte had served as President
of the Company since September, 1997 and Chief Executive Officer of the Company
since November 1997. Prior to joining the Company, Mr. DeLatte was employed by
Micrografx Inc. as President and Chief Operating Officer from September 1994 to
May 1997 and as Vice President, Europe, from August 1991 to September 1994.
ROBERT P. BADAVAS joined the Board of Directors of the Company on
August 1, 1998 as a Class III Director to fill a vacant seat on the Board. Since
December of 1995, Mr. Badavas has served as President and Chief Executive
Officer of Cerulean Technology, Inc., which specializes in wireless mobile
information software. From
-5-
<PAGE>
October 1986 through October 1995, Mr. Badavas served as Senior Vice President
and Chief Financial Officer of Chipcom Corporation, a software company, where he
was responsible for the finance, information systems and strategic transactions
units. For the two month period prior to joining Cerulean Technology, Mr.
Badavas enjoyed personal time. Mr. Badavas also serves as a member of the Board
of Directors for Renaissance Worldwide, Inc., a company listed on the National
Nasdaq Market which provides strategic and enterprise solutions implementation
and consulting services.
WILLIAM C. HULLEY has been a director since June 1994 and Chairman of
the Board of Directors of the Company since July 1997. Mr. Hulley was employed
from 1989 until 1994 by Fostin Capital Corp., a venture capital company, and has
been a General Partner of Fostin Capital Partners since 1993. Mr. Hulley
co-founded Adams Capital Management, Inc., a private venture capital company, in
1994 and is a Vice President and General Partner. Adams Capital Management is a
managing partner of several venture capital partnerships, including The P/A
Fund. Mr. Hulley is a director of several private companies and not-for-profit
corporations.
GINA BORNINO MILLER joined the Board of Directors of the Company on
July 14, 1998 as a Class II Director to fill a vacancy on the Board. Ms. Bornino
Miller was employed as President, Specialty Storage Products Group, of Quantum
Corp. from January 1993 through October 1996, where she was responsible for the
non disk-drive storage products business unit. Ms. Bornino Miller has been
self-employed as a consultant since October 1996 and, since January 1998, has
primarily provided her consulting services to Microbia, Inc., a biotechnology
company. Since the summer of 1998, Ms. Bornino Miller has served as a member of
the Board of Directors of Microbia, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee and an
Audit Committee; the Board of Directors does not maintain a Nominating Committee
or a committee performing similar functions. The Compensation Committee is
comprised of three members of the Board of Directors: Messrs. Hulley, Badavas
and Doretti serve on the Compensation Committee, with Mr. Doretti serving as an
ex-officio non-voting member. Prior to February, 2000, Mr. DeLatte served as the
ex-officio non-voting member of the committee. The principal functions of the
Compensation Committee are to review the Company's compensation programs and
policies, to establish compensation for the Company's executive officers, to
review and approve annual bonuses to be paid to such executive officers and to
administer the stock option plans.
The Audit Committee is comprised of three members of the Board of
Directors: Mr. Badavas and Ms. Bornino Miller serve on the committee with one
vacancy remaining. The principal functions of the Audit Committee are to
nominate the accounting firm to be appointed as the Company's independent
certified public accountants and to review the plan and scope of the audit, the
report of the audit upon its completion and the adequacy of the Company's
internal accounting procedures and controls. The Audit Committee also maintains
a continuing review of the nature and extent of all services provided to the
Company by such accountants and evaluates their fees and the effects of such
services upon their independence.
MEETINGS AND COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a fee of $4,000
for attendance at each regular and special meeting of the Board of Directors, a
fee of $2,000 for attendance at each meeting of the Audit or Compensation
Committees if the director is a member of such committee, and a fee of $650 for
attendance at each telephonic meeting of the Board of Directors or the Audit or
Compensation Committees, if the director is a member of such committee. Each of
Messrs. Hulley and Badavas and Ms. Bornino Miller elected, for a one year period
beginning on July 15, 1999, to reduce the cash compensation which each was
entitled to receive for attendance at Board and committee meetings. As a result,
during this one-year period, each of Messrs. Hulley, Risley and Badavas and Ms.
Bornino Miller will receive a fee of $2,500 for in-person attendance at each
meeting of the Board of Directors, $1,000 for in-person attendance at each
meeting of a committee on which he or she is a member of such committee, $500
for attendance at each telephonic meeting of the Board of Directors and $200 for
attendance at each telephonic meeting of a committee on which he or she is a
member. Directors who are not employees of the Company are additionally
reimbursed for out-of-pocket expenses incurred in attending Board of Directors
meetings and are eligible to receive options under the Company's 1995 Directors
Stock Option Plan. Directors who are
-6-
<PAGE>
employees of the Company are not compensated for their service on the Board or
any committee thereof. During 1999, the Board of Directors met in person five
times and the Compensation Committee met in person two times. The Board of
Directors, the Compensation Committee and the Audit Committee met by telephonic
means eight, nine and three times, respectively, during 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were satisfied, except that Stephen J.
Wietrecki filed a Form 3 incorrectly on May 5, 1999 and Laurent Raynaud filed a
Form 3 incorrectly on March 2, 1999.
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information with respect to the
compensation, for the last three fiscal years, of the Company's Chief Executive
Officer and each of the five other most highly compensated executive officers
who received compensation in excess of $100,000 during fiscal year 1999.
<TABLE><CAPTION>
LONG-TERM
COMPENSATION
-----------
ANNUAL COMPENSATION SECURITIES ALL
------------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- --------------------------- ---- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Herman DeLatte(1) .................................. 1999 $ 250,000 $211,049.15 120,000 ____
President and Chief Executive Officer 1998 250,000 127,634 ____ ____
1997 83,333 62,500 375,000
Stephen J. Wietrecki(2) ............................ 1999 119,807.34 94,506.66 40,000 ____
Chief Financial Officer, Vice President, 1998 95,329.56 24,647.45 10,500 ____
Finance, Treasurer and Secretary 1997 75,958.36 15,077.09 24,500 ____
Laurent Raynaud(3) ................................. 1999 190,780 79,491 30,000 ____
Vice President, European Sales and Support 1998 176,082 40,267 15,000 ____
1997 25,382 6,346 75,000 ____
Roy T. Sanford(4) .................................. 1999 120,214.10 12,492.79 30,000 ____
Vice President, Marketing and Alliances 1998 163,500 72,162 20,000 ____
1997 106,827 40,635 8,000 ____
Ram Sudama(5) ...................................... 1999 167,066.,67 81,463.24 30,000 ____
Chief Technical Officer 1998 27,500 30,313 50,000 ____
1997 _____ ____ ____ ____
</TABLE>
1 Mr. DeLatte joined the Company as President on September 1, 1997 and was
appointed to the office of Chief Executive Officer in November 1997. Mr. DeLatte
resigned as President and Chief Executive Officer in February, 2000.
2 Mr. Wietrecki was appointed to the offices of Vice President, Finance and
Chief Financial Officer on May 3, 1999.
3 Mr. Raynaud joined the Company as Vice President, Eurpoean Sales and Support
in November, 1997.
4 Mr. Sanford joined the Company as Vice President, Marketing and Alliances,
in April 1997. Mr. Sanford resigned as Vice President, Marketing and Alliances
in July, 1999.
5 Mr. Sudama joined the Company as Chief Technical Officer in October, 1998.
-7-
<PAGE>
STOCK OPTION GRANTS IN FISCAL YEAR 1999
The following table shows information with respect to stock options
granted to each Named Executive Officer during fiscal year 1999.
<TABLE><CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES EXERCISE PRICE APPRECIATION FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM
NAME GRANTED(1) YEAR ($/SHARE)(2) DATE 5% ($) 10% ($)
- ---- ---------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Herman DeLatte 120,000(3) 13.65% $1.688 02/26/09 329,949 525,388
Stephen J. Wietrecki 15,000(3) 1.71% $1.688 02/26/09 41,244 65,674
25,000(3) 2.84% $2.188 05/03/09 89,101 141,878
Roy T. Sanford 30,000(3) 3.41% $1.688 02/26/09 82,487 131,347
Ram Sudama 30,000(3) 3.41% $1.688 02/26/09 82,487 131,347
Laurent Raynaud 30,000(3) 3.41% $1.688 02/26/09 82,487 131,347
</TABLE>
- --------------------------------
(1) The options were granted under the Company's 1992 Employee and Consultant
Stock Option Plan. Options are generally subject to the employee's continued
employment. The exercise of options will be accelerated in the event of certain
occurrences including the sale of the Company, the sale of all or substantially
all of the Company's assets or a change in control of the Company. An
individual's eligibility to exercise vested options generally terminates 90 days
after the termination of such individual's employment relationship with the
Company.
(2) The exercise price per share of each option was determined by the Board of
Directors to be equal to the fair market value per share of Common Stock at the
date of grant.
(3) The options become exercisable over a four-year period, 25% on the first
anniversary of the date of grant and 6.25% at the end of each of the following
three month periods.
EMPLOYMENT AGREEMENTS
Mr. Doretti joined the Company as President and Chief Executive Officer
in February, 2000 pursuant to the terms of an Offer Letter dated January 31,
2000 (the "Doretti Offer"), Mr. Wietrecki assumed the positions of Vice
President, Finance and Chief Financial Officer in May, 1999 pursuant to the
terms of an Offer Letter dated April 30, 1999 (the "Wietrecki Offer") and Mr.
Sudama joined the Company as Chief Technical Officer in October 1998 pursuant to
the terms of an Offer Letter dated October 20, 1998 ("Sudama Offer"). While no
formal employment agreement exists between the Company and any of these
individuals, the Doretti Offer, the Wietrecki Offer and the Sudama Offer each
provide for salary increases and bonuses as the Company's Board of Directors may
determine from time to time. The Doretti Offer also provides that upon
termination without cause, Mr. Doretti shall continue to receive his
then-current salary and benefits for a twelve month period and any cash bonus
earned but not yet paid for completed quarters and fiscal years as well as a
prorated amount of the quarterly and annual cash bonus for the quarter and
fiscal year during which such termination of employment occurs. The Wietrecki
Offer provides that if Mr. Wietrecki's employment is terminated in connection
with a transaction resulting in a change of control of the Company, he shall be
entitled to a severance payment equal to six months' salary. The Sudama Offer
provides that if Mr. Sudama's employment is terminated or substantially
diminished in nature or status in connection with a transaction resulting in a
change of control of the Company, he shall be entitled to a severance payment
equal to six months' salary. Mr. Raynaud does not have an employment agreement
or offer letter specifying employment or termination provisions.
The following table shows information with respect to stock options
held as of December 31, 1999 by the Named Executive Officers.
-8-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR END OPTION VALUES
<TABLE><CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 ($) (1)
------------------------------ ------------------------------
VALUE
SHARES ACQUIRED REALIZED
NAME ON EXERCISE (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herman DeLatte ___ ___ 140,625 354,375 $1,661,132.82 $4,230,994,69
Ram Sudama 12,500 $100,390.62 ___ 67,500 _____ $ 812,094.37
Stephen J. Wietrecki ___ ___ 19,124 55,876 $ 233,835.01 $ 663,855.01
Laurent Raynaud ___ ___ 42,187 77,813 $ 498,919.82 $ 931,690.19
Roy T. Sanford 42,250 $155,804.77 ___ ___ _____ _____
</TABLE>
- -------------------
(1) Calculated based on the fair market value per share of the underlying
securities at December 31, 1999 ($13.875) minus the per share exercise price.
(2) Calculated based on the fair market value of the underlying securities on
the exercise date minus the exercise price of such options.
During 1998 and 1999, the Company did not adjust the exercise price of
its stock options previously awarded to its employees, including certain of its
executive officers. During 1997, however, the Company did adjust the exercise
price of its stock options previously awarded to employees. This adjustment was
accomplished by allowing employees holding out-of-the-money options to surrender
the old options and receive new options with a lower exercise price. The
employees had to elect to make this adjustment. Not all employees made this
election; a total of 65,295 options were affected and the new exercise price is
$2.875 for all such options. Other than Stephen J. Wietrecki, none of the
Company's Named Executive Officers participated in the 1997 option repricing.
There were no option repricings in any prior fiscal year by the Company. The
following table sets forth all such repricings of options held by any executive
officers.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE><CAPTION>
Market
Number of Price Exercise Length of
Securities of Stock at Price at Original
Underlying Time of Time of Option Term
Options/ Repricing Repricing New Remaining at
SARs or or Exercise Date of
Repriced or Amendment Amendment Price Repricing or
Name Date Amended (#) $ $ $ Amendment
- ------------------ ------- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Doretti ---- ---- ---- ---- ---- ----
Stephen J. Wietrecki 7/30/97 750 2.875 12.75 2.875 3 Yrs.
7/30/97 750 2.875 12.75 2.875 4 Yrs.
Ram Sudama ---- ---- ---- ---- ---- ----
Roy T. Sanford ---- ---- ---- ---- ---- ----
Laurent Raynaud ---- ---- ---- ---- ---- ----
</TABLE>
-9-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is determined by the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
which is comprised of non-employee directors. The Compensation Committee
approves compensation policies for the executive officers of the Company and
oversees the general compensation policies of the Company. The Compensation
Committee has furnished the following report for calendar year 1999:
COMPENSATION PHILOSOPHY AND GOALS
During 1999, the goals of the Company's executive compensation program
remained constant: to attract, retain and motivate the most talented individuals
available in the Company's market. The elements of compensation encompassed in
the program include base salary, annual cash incentive compensation and awards
of stock options under the Company's incentive compensation plans. The
competitiveness of the Company's executive compensation approach is reviewed
annually and validated with external salary surveys generally available to the
Company through professional affiliations.
The Company utilizes four guiding principles for its executive
compensation approach, which are set forth below. These principles are
established to design, fund and administer the program and form the framework
for decision making.
STOCKHOLDER INTERESTS - The financial interests of the stockholders are
the major consideration in the design, funding and administration of
all executive compensation programs.
EXECUTIVE COMPENSATION - The value of all tangible compensation
components to the executive compensation program are considered in the
aggregate. Consideration of individual components is only performed in
the context of the total executive compensation program.
GROUP AND INDIVIDUAL ACHIEVEMENT - The Company's performance-based
executive compensation program reflects a balancing of group and
individual achievement.
SUSTAINED PERFORMANCE - An emphasis is placed on the long-term
executive compensation incentives while maintaining an annual cash
compensation program capable of producing focus on near-term results
and milestones.
COMPONENTS OF COMPENSATION
TARGET ANNUAL CASH COMPENSATION. Each executive position in the Company
is compared to similar positions in comparable companies for which data are
available. From this comparison, annual target cash compensation is set to
reflect compensation standards in the industry. The Compensation Committee
gathers data from independent consultants and, after conferring with the
President of the Company on the salaries for senior management (excluding his
own salary), sets annual salary levels in the first quarter of each year. The
target annual cash compensation is broken into two separate components: a base
salary and an incentive bonus. During 1999, the Compensation Committee reviewed
the target annual cash compensation levels of all executive officers who were
employed at the Company and, based on the performance of the Company and these
executives, approved increases of 5.0% to 10.0% for such executive officers.
In reviewing the comparable levels of compensation for Chief Executive
Officers, the Compensation Committee determined that Mr. DeLatte's compensation
as the Company's Chief Executive Officer was reasonable in lights of industry
information regarding the range of salaries offered to chief executive officers
of comparable companies and the business judgment of the members of the
Compensation Committee. Mr. DeLatte's equity compensation was structured to
reward Mr. DeLatte upon the Company's financial success.
BASE SALARY. In general, the Compensation Committee sets the base
salary component of total target annual cash compensation at approximately 75%
of the total cash compensation for executive officers. The intention of the
Compensation Committee is to leave a significant portion of target annual cash
compensation subject to the performance of the Company.
-10-
<PAGE>
INCENTIVE BONUS. The Compensation Committee awards incentive bonuses as
part of total annual cash compensation based on two objectives: the achievement
by the Company of certain financial targets for annual revenue and operating
income and the achievement by individual executives of certain strategic
objectives. The Company's financial objectives relate entirely to an annual
business plan that is submitted in December by the executive team and the
individual executive's strategic objectives relate to goals established by the
executive and members of the Board of Directors for personal success within the
Company. The bonus system is intended to stimulate successful execution of the
annual business plan. The bonus plan allows for quarterly (partial) payments of
executive bonuses, with the balance of executive bonuses payable only after
completion of the audit following each fiscal year. No incentive bonuses are
paid unless achievement is at least 90% of the annual business plan at various
milestones throughout each fiscal year.
EQUITY INCENTIVES. The Compensation Committee believes that the
executive compensation program of the Company must motivate the executive
officers of the Company to create core economic value which results in long-term
appreciation in the price of the Common Stock, thus aligning the interests of
employees with the interests of the Company's stockholders and providing a
strong incentive for key executive to remain in the employ of the Company.
Additionally, the appropriate use of equity incentives is a valuable tool in
recruiting new executives for the Company. The Compensation Committee believes
that, in the case of a growth-oriented business such as the Company, a
substantial portion of the compensation of executive officers should be
contingent on appreciation in value of the stockholders' investments. Based on
the foregoing principles, in 1999 the Compensation Committee awarded options for
120,000 shares to Herman DeLatte, 30,000 shares to Ram Sudama, 30,000 shares to
Laurent Raynaud, 30,000 shares to Roy T. Sanford and 40,000 shares to Stephen J.
Wietrecki.
The Committee believes that for calendar 1999 the remaining key
executives of the Company had adequate stock and option packages to provide them
with an appropriate incentive to maximize short-term and long-term shareholder
value. The Committee intends to review the status of equity incentives for
senior executives in 2000 and thereafter to insure that key executives of the
Company are appropriately motivated and rewarded.
CERTAIN TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986 generally disallows
a tax deduction to publicly held companies for compensation in excess of
$1,000,000 paid to the chief executive officer and the four other most highly
compensated executive officers. Compensation based on performance is not subject
to this deduction limit, if certain requirements are met. Based on the
compensation awarded to Mr. DeLatte, and the other executive officers of the
Company, it does not appear that the Section 162(m) limitation will have a
significant impact on the Company in the near term. The Compensation Committee
plans to structure the incentive compensation part, which currently consists of
the annual cash incentive compensation and the stock option plan, of its
compensation program to comply with Section 162(m).
The Compensation Committee
William C. Hulley
Robert P. Badavas
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists
of Messrs. Badavas, Hulley and Doretti. Prior to February 2000, Mr. DeLatte
served in Mr. Doretti's current role as an ex-officio member of the Compensation
Committee. Each of the current non-employee directors is entitled to receive
compensation in the form of cash and options to purchase Common Stock for their
services as directors. Mr. Badavas and Hulley, on August 1, 1998 and August 4,
1995, respectively, have received options to purchase 10,000 shares of Common
Stock under the Directors Plan, which will be exercisable in 12 equal quarterly
installments on the date of grant and the last day of each of the 11 fiscal
quarters commencing with the first full fiscal quarter after the date of grant
at a per share price equal to the initial public offering price. Additionally,
each of Messrs. Badavas and Hulley elected during 1998, in consideration for the
one-year reduction in fees each is entitled to received from the Company for
attendance at board and committee meetings during 1998, to receive options to
purchase 10,000 shares of Common Stock under the 1992 Employee and Consultant
Stock Option Plan at a price per share equal to the fair market value of the
Company's
-11-
<PAGE>
Common Stock on the date of grant. These options are fully exercisable. Messrs.
Badavas and Hulley agreed to extend this reduction in fees for another one year
term in July, 1999, although no additional stock options were granted to Messrs.
Badavas and Hulley in consideration for such fee reduction. No director or
executive officer of the Company and no member of its Compensation Committee is,
or was during the year ended December 31, 1999, a director or compensation
committee member of any other business entity that had a director that sits on
the Company's Board of Directors or Compensation Committee.
COMPARISON OF STOCKHOLDER RETURN
The line graph below compares the cumulative total stockholder return
on the Company's Common Stock with the cumulative total return of the Nasdaq
Total U.S. Index and the Nasdaq Computer and Data Processing Index, resulting
from an initial assumed investment of $100 in each, and assuming the
reinvestment of any dividends, for the period beginning on the date of the
Company's initial public offering on August 1, 1995 and ending on December 31,
1999. Stock price performance shown in the Performance Graph for the Common
Stock is historical and not necessarily indicative of future price performance.
The Common Stock was sold at its initial offering at a price of $15.00 per
share, and the closing sales price of the Common Stock on the Nasdaq National
Market on December 31, 1999, was $13.875.
[PERFORMANCE GRAPH]
<TABLE><CAPTION>
Original Data: 8/1/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------- ------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ONTC 18.375 13 5.375 1.1313 1.375 13.875
NASDAQ Composite Index 991.11 1052.13 1291.03 1570.35 2192.69 4069.31
NASDAQ Computer Index 353.09 366.13 518.79 618.66 1134.19 2325.4
</TABLE>
AMENDMENT TO THE 1992 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
(PROPOSAL II)
PROPOSED AMENDMENTS TO THE COMPANY'S 1992 EMPLOYEE AND CONSULTANT
STOCK OPTION PLAN
On January 28, 2000, the Compensation Committee of the Board of
Directors of the Company, pursuant to authority granted to them by the Board,
approved an amendment to the 1992 Employee and Consultant Stock Option Plan (the
"Stock Option Plan") to provide for an increase in the number of shares
available for issuance pursuant to the Stock Option Plan from 3,800,000 shares
to 5,400,000 shares. This number of authorized shares represents the total
number of options to purchase shares available under the Stock Option Plan
regardless of the number of options previously granted, whether exercised or not
by such optionees. As of March 6, 2000, the Company had no shares remaining
available for the grant of additional options. This amendment to the Stock
Option Plan remains subject to approval by the stockholders of the Company at
this Annual Meeting. Assuming the presence of a quorum, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present at
the Annual Meeting, in person or by proxy, is necessary to approve the amendment
to the Stock Option Plan.
-12-
<PAGE>
DESCRIPTION OF THE 1992 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
The Stock Option Plan was originally adopted by the Company's Board of
Directors (the "Board") and the stockholders of the Company on July 29, 1992.
The Stock Option Plan was amended by the Board and the stockholders of the
Company effective May 6, 1994 and again on each of May 18, 1995, April 30, 1996,
April 30, 1997 and April 30, 1998. The Stock Option Plan, as amended, provides
for the grant of options which will qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options, which will not so qualify. The purpose of the Stock
Option Plan is to secure for the Company and its stockholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and certain consultants or advisors to, the Company who are expected to
contribute to the future growth and success of the Company.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan is administered by the Board, whose construction
and interpretation of the terms and provisions of the Stock Option Plan, and the
option agreements issued pursuant to the Stock Option Plan, is final and
conclusive. The Board has the authority to adopt, amend and repeal rules and
regulations relating to the Stock Option Plan and to determine the terms and
conditions of the respective option agreements and to make all other
determinations as it shall deem necessary or desirable for the administrative of
the Stock Option Plan. No member of the Board may be liable for any action or
determination relating to the Stock Option Plan made in good faith. The Board
has, to the full extent permitted by or consistent with applicable laws and
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3"), delegated any or all of its powers under the
Stock Option Plan to the Compensation Committee. In such event, all references
to the Board in the Sections of this Proxy Statement dealing with the Stock
Option Plan shall mean such Compensation Committee or the Board.
The Board may, in its sole discretion, grant options to purchase shares
of the Company's Common Stock and issue shares upon exercise of such options as
provided in the Stock Option Plan. With respect to the grant of options under
the Stock Option Plan to officers or directors of the Company (as defined for
purposes of Rule 16b-3), the selection of the recipient, the timing of the
option grant, the exercise price of the option and the number of shares subject
to the option must be determined by either (i) the Board, of which all the
members shall be disinterested persons, or (ii) a committee of two or more
directors having full authority to act, all of the members of which shall be
disinterested persons. For purposes of the Stock Option Plan, a director shall
be deemed to be a "disinterested person" within the meaning of Rule 16b-3, as
such term is interpreted from time to time.
SHARES SUBJECT TO THE STOCK OPTION PLAN
The total number of shares that were authorized for issuance under the
Stock Option Plan is 3,800,000. As of March 6, 2000, 2,033,808 shares were
available for issuance under the Stock Option Plan pursuant to options currently
outstanding or options available for grant. If an option granted under the Stock
Option Plan expires or is terminated without having been exercised in full, the
shares allocable to the unexercised portion of such option shall again become
available for grant pursuant to the Stock Option Plan.
The Stock Option Plan contains provisions for the disposition of
options in the event of a consolidation, merger or sale of substantially all of
the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or property of any other corporation or business
entity or in the event of a liquidation of the Company.
The Board may grant options under the Stock Option Plan in substitution
for options held by employees of another corporation who become employees of the
Company, or a subsidiary of the Company, as a result of a merger or
consolidation of the employing corporation with the Company, or a subsidiary of
the Company, or as a result of the acquisition by the Company, or one of its
subsidiaries, of property or stock of the employing corporation. The substitute
options may be granted on such terms as the Board considers appropriate in the
circumstances.
If the outstanding shares of Common Stock of the Company are changed by
reason of any merger, consolidation, sale of substantially all of the assets of
the Company, reorganization, recapitalization, reclassification, stock dividend,
stock-split, reverse stock-split, or other similar capital change in the
Company's capital stock, the Board may appropriately adjust (i) the maximum
number and kind of shares reserved for issuance under the Stock Option Plan,
-13-
<PAGE>
(ii) the number and kind of shares or other securities subject to then
outstanding options under the Stock Option Plan, and (iii) the price for each
share subject to any then outstanding options under the Stock Option Plan,
without changing the aggregate purchase price as to which such options remain
exercisable, provided that no such adjustment shall be made if such adjustment
would cause the Stock Option Plan to fail to comply with Section 422A of the
Code or with Rule 16b-3.
GENERAL TERMS AND CONDITIONS OF THE STOCK OPTION PLAN
TYPES OF OPTIONS. The Stock Option Plan provides for the granting of
options which will qualify as incentive stock options under Section 422 of the
Code and nonstatutory stock options, which will not so qualify.
OPTION AGREEMENTS. Each recipient of an option must execute an option
agreement which indicates whether the option is an incentive stock option or a
nonstatutory stock option and which contains the specific terms applicable to
such option, including the exercise price, duration, time and method of exercise
and such other terms and conditions of the grant as may be determined by the
Board in accordance with the Stock Option Plan. The terms applicable to a
specific grant may vary among participants in the Stock Option Plan.
OPTION EXERCISE PRICE. The option prices for all options granted under
the Stock Option Plan are determined by the Board. In the case of an incentive
stock option, this price may not be less than 100% (or 110% in the case of an
option granted to a person holding more than 10% of the total combined voting
power of all classes of stock of the Company) of the fair market value of the
Common Stock on the date of grant.
NONTRANSFERABILITY OF OPTIONS. Options granted under the Stock Option
Plan shall not be assignable or transferable by the person to whom it is
granted, either voluntarily or by operation of law, except (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order (as defined in the Code) or (iii) pursuant to Title I of the
Employee Retirement Income Security Act, or the rules thereunder. During the
life of the optionholder, the option shall be exercisable only by the
optionholder.
DURATION OF OPTIONS. Each option shall expire on such date as the Board
shall be set forth in the applicable option agreement. In the case of an
incentive stock option, this expiration date may not be more than ten years from
the date on which the option is granted (or five years in the case of options
granted to persons holding more than 10% of the voting power of stock of the
Company).
EXERCISE OF OPTIONS. The period or periods during which any option
granted under the Stock Option Plan may be exercised shall be determined by the
Board. Options generally become exercisable over a four-year period beginning on
the first anniversary of either the date of grant or the date of hire of an
employee and continuing thereafter in equal quarterly installments. An option
shall be considered outstanding until it has been either fully exercised or
cancelled or has expired by reason of the lapse of time.
TERMS OF PAYMENT. The purchase price of any shares of Common Stock
purchased upon exercise of an option shall be paid in full, at the time of
purchase, by delivery of cash or a check payable to the Company, or by such
other methods as may be provided in the optionholder's option agreement.
TERMINATION OF EMPLOYMENT. The Board shall determine the period of time
during which an optionholder may exercise an option following such
optionholder's termination of employment, death or disability. Such periods
shall be set forth in each optionholder's option agreement. No incentive stock
option may be exercised unless, at the time of such exercise, the optionholder
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(a) an incentive stock option may be exercised within the
period of three months after the date the optionholder ceases to be an
employee of the company (unless his or her option agreement specifies a
shorter period or a longer period, in which case an exercise after such
three-month period shall be treated as the exercise of a non-qualified
option);
(b) if the optionholder dies while employed by the Company, or
within three months after the optionholder ceases to be an employee of
the Company, the incentive stock option may be exercised by the
-14-
<PAGE>
person to whom it is transferred by will or the laws of descent and
distribution within the period of one year after the date of death
(unless a shorter period is specified in the applicable option
agreement); and
(c) if the optionholder becomes disabled (as defined in
Section 22(e)(3) of the Code or any successor provision thereto) while
employed by the Company, the incentive stock option may be exercised
within the period of one year after the date the optionholder ceases to
be employed because of such disability (unless a shorter period is
specified in the applicable option agreement).
Notwithstanding the above, no option is exercisable after the
expiration period as determined by the Board at the time of the option grant.
LIMITATIONS ON THE INCENTIVE STOCK OPTIONS. In addition to the
provisions concerning incentive stock options which are described above, if an
incentive stock option granted to any employee under the Stock Option Plan
becomes exercisable for the first time by any employee during any one calendar
year such that the aggregate fair market value of the Common Stock with respect
to which incentive stock options are exercisable exceeds $100,000, the options
to acquire stock in excess of the $100,000 shall be treated as nonstatutory
stock options.
ADDITIONAL RESTRICTIONS. The Board may include additional provisions in
any option agreement under the Stock Option Plan, including restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make or arrange
for loans or to transfer other property to optionholders upon the exercise of
options, or such other provisions as determined by the Board in accordance with
the Stock Option Plan; provided that such additional provisions shall not be
inconsistent with any other term or condition of the Stock Option Plan and shall
not cause any incentive stock options granted under the Stock Option Plan to
fail to qualify as incentive stock options within the meaning of Section 422 of
the Code.
ACCELERATION, EXTENSION. The Board has the authority to accelerate the
date on which an option granted under the Stock Option Plan may be exercised or
to extend the dates during which an option granted under the Stock Option Plan
may be exercised.
CANCELLATION AND NEW GRANT OF OPTIONS. The Board has the authority to
effect, at any time and from time to time, with the consent of the affected
optionholders, (i) the cancellation of any or all outstanding options under the
Stock Option Plan and (ii) the grant in substitution therefor of new options
under the Stock Option Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled options.
ELIGIBILITY. Options under the Stock Option Plan may be granted to
persons who are, at the time of the grant, employees of or consultants to
(including any officers and directors who are employees of or consultants to),
the Company or any of its subsidiaries, provided that incentive stock options
may only be granted to persons who are eligible to receive such options under
Section 422A of the Code. A person who has been granted an option may, if he is
otherwise eligible, be granted an additional option or options if the Board
shall so determine. The Stock Option Plan provides additional limitations on the
options that may be granted to a person who holds, directly or indirectly, more
than 10% of the combined voting power of all classes of stock of the Company.
Subject to adjustments as set forth in the Stock Option Plan, no
employee shall receive options to purchase more than 500,000 shares of common
stock during the ten-year term of the Stock Option Plan. For purposes of
calculating this maximum number, (i) an option shall continue to be treated as
outstanding despite its repricing, cancellation or expiration and (ii) the
repricing of an outstanding option or issuance of a new option in substitution
for a cancelled option shall be deemed to constitute the grant of a new
additional option separate from the original grant of the option that is
repriced.
GENERAL RESTRICTIONS
Participants in the Stock Option Plan generally have no rights as
stockholders in shares of Common Stock until certificates for those shares have
been issued. No certificates for Common Stock will be issued under the Stock
Option Plan unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act, any applicable
listing requirements of any national securities exchange upon which stock of the
same class is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance
-15-
<PAGE>
and delivery, shall have been fully complied with. Participants may be required
to represent and agree in writing, for themselves and for their transferees,
that the stock acquired by him or them under the Stock Option Plan is being
acquired for investment purposes.
Nothing contained in the Stock Option Plan confers upon any participant
any rights with respect to his or her employment by the Company.
The Stock Option Plan does not provide that any person has or may
create a lien on any funds, securities or other property held under the Stock
Option Plan.
EFFECTIVE DATE; AMENDMENT; TERMINATION
The Stock Option Plan was adopted by the Board and the stockholders of
the Company on July 29, 1992. The Stock Option Plan was amended by the Board and
the Stockholders of the Company effective May 6, 1994. The Stock Option Plan was
again amended by the Board and the stockholders effective on May 18, 1995, and
on each of April 30, 1996, April 30, 1997 and April 30, 1998.
The Stock Option Plan shall terminate upon the earlier of (i) the close
of business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Stock Option Plan shall have been issued
pursuant to the exercise or cancellation of options granted under the Stock
Option Plan. If the date of termination is determined under (i) above, then
options outstanding on such date shall continue to have force and effect in
accordance with and subject to the terms and conditions of the Stock Option Plan
and the appropriate option agreements.
The Board has the power to amend the Stock Option Plan. No amendment
may be made without stockholder approval if such approval is necessary to comply
with any applicable tax or regulatory requirement, including Section 422 of the
Code and Rule 16b-3 of the Exchange Act or any successor provisions thereto.
The termination or any modification or amendment of the Stock Option
Plan shall not, without the consent of an optionholder, affect his or her rights
under an option previously granted to him or her. With the consent of the
optionholder affected, the Board may amend outstanding option agreements in a
manner not inconsistent with the Stock Option Plan. The Board has the right to
amend or modify (i) the terms and provisions of the Stock Option Plan and of any
outstanding incentive stock option granted under the Stock Option Plan to the
extent necessary to qualify any or all such options for such favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code and (ii) the
terms and provisions of the Stock Option Plan and of any outstanding option to
the extent necessary to ensure the qualification of the Stock Option Plan under
Rule 16b-3.
PLAN BENEFITS TABLE
Because future awards to executive officers, consultants and employees
of the Company are discretionary and cannot be determined at this time, a
tabular presentation of anticipated plan benefits has not been included in this
proxy statement.
FEDERAL INCOME TAX TREATMENT OF STOCK OPTIONS
The following is a summary of the federal income tax treatment of
incentive stock options and nonstatutory stock options. This summary is general
and does not apply to gifts or any dispositions other than sales. Also, under
certain circumstances, an optionholder may be entitled to a credit for
alternative minimum tax previously paid. Additionally, in some individual cases,
it will be important to consider the state and foreign tax consequences of
participation in the Stock Option Plan and the effect, if any, of gift, estate
and inheritance taxes.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by the
optionholder upon the grant or exercise of an incentive stock option granted
under the Stock Option Plan (provided the difference between the option exercise
price and the fair market value of the stock on the date of exercise must be
included in the optionee's "alternative minimum taxable income" as described
below), and no corresponding expense deduction will be available to the Company.
Generally, if an optionholder holds shares acquired upon the exercise of an
incentive stock option until the
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later of (i) two years from the grant of the option and (ii) one year from the
date of transfer of the purchased shares to him or her (the "Statutory Holding
Period"), any gain recognized by the optionholder upon a sale of such shares
will be treated as a capital gain. The gain recognized upon the sale is the
difference between the option price and the sale price of the stock. The net
federal income tax effect on the holder of incentive stock options is to defer,
until the stock is sold, taxation of any increase in the stock's value from the
time of grant to the time of exercise, and to cause all such increase to be
treated as capital gain.
If the optionholder sells the stock prior to the expiration of the
Statutory Holding Period (a "disqualifying disposition"), he or she will realize
taxable income at ordinary income tax rates in an amount equal to the lesser of
(i) the fair market value of the stock on the date of exercise less the option
price or (ii) the amount realized on sale less the option price, and the Company
will receive a corresponding business expense deduction. Any additional gain
will be treated as long-term capital gain if the shares are held for more than
one year prior to the sale and as short-term capital gain if the shares are held
for a shorter period. If the optionholder sells the stock for less than the
option price, he or she will recognize a capital loss equal to the difference
between the sale price and the option price. The loss will be a long-term
capital loss if the shares are held for a shorter period.
Special rules may apply to options held by directors and officers. If
the optionholder making a disqualifying disposition is a person required to file
reports under Section 16(a) of the Exchange Act, and the option was exercised
within six months of the date of grant, the amount of taxable income realized at
ordinary income tax rates (and the amount of the Company's business expense
deduction) will be equal to the lesser of (i) the fair market value of the
shares on the date that is six months after the date of grant less the option
price of (ii) the amount realized on sale less the option price.
For purposes of the "alternative minimum tax" applicable to
individuals, the exercise of an incentive stock option is treated in the same
manner as the exercise of a nonstatutory stock option. Thus, an optionholder
must, in the year of option exercise, include the difference between the
exercise price and the fair market value of the stock on the date of exercise in
alternative minimum taxable income. The alternative minimum tax is imposed upon
an individual's alternative minimum taxable income at a rate of 24%, but only to
the extent that such tax exceeds the taxpayer's regular income tax liability for
the taxable year.
NON-STATUTORY STOCK OPTIONS. No taxable income is recognized by the
optionholder upon the grant of a nonstatutory option. The optionee must
recognize as ordinary income in the year in which the option is exercised the
amount by which the fair market value of the purchased shares on the date of
exercised exceeds the option price (and the Company is required to file reports
under Section 16(a) of the Securities Exchange Act of 1934, as amended). If such
a person (executive officers and directors of the Company) exercised the option
within six months of the date of grant, upon exercise of such option, no income
will be recognized by the optionholder until six months have expired from the
date the option was granted, and the income then recognized will include any
appreciation in the value of the shares during the period between the date of
exercise and the date six months after the date of the grant, unless the
optionholder makes an election under Section 83(b) of the Internal Revenue Code
of 1986, as amended (the "Code") to have the difference between the exercise
price and fair market value at the time of exercise recognized as ordinary
income as of the time of exercise.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee. Any additional gain or
any loss recognized upon the subsequent disposition of the purchased shares will
be a capital gain or loss, and will be a long-term gain or loss if the shares
are held for more than one year.
WITHHOLDING. The Company has the right to deduct from any payments
otherwise due to an optionholder any federal, state or local taxes required by
law to be withheld with respect to any shares issued upon exercise of options
under the Stock Option Plan.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The Stock Option Plan is qualified under Section 401(a) of the Code and
the Company believes that the Stock Option Plan is not subject to the Employee
Retirement Income Security Act of 1974.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL II
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RATIFICATION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT AUDITORS
(PROPOSAL III)
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending December 31, 2000, and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Arthur
Andersen LLP has acted as the Company's auditors since 1987. Representatives of
Arthur Andersen LLP will be present at the Annual Meeting, will have an
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP is not
required by the Company's By-laws or otherwise. The Board of Directors, however,
is submitting the selection of Arthur Andersen LLP to the stockholders as a
matter of good corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee and the Board of Directors will reconsider
whether or not to retain such firm. Even if the selection is ratified, the Audit
Committee and the Board, in their discretion, may direct the appointment of a
different independent accounting firm at any time during the year if they
determine that such a change would be in the best interest of the Company and
its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL III
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders that are intended to be presented at the
Company's Annual Meeting of Stockholders in 2001 must be received at the
Company's executive offices in Waltham, Massachusetts no later than December 31,
2000, to be included in the proxy statement and proxy card related to such
meeting.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting, other than the matters set forth herein. Should
any other matter requiring a vote of shareholders arise, the proxies in the
enclosed form of proxy confer upon the person or persons entitled to vote the
shares represented by such proxies discretionary authority to vote the same in
accordance with the best judgment.
By Order of the Board of Directors
/s/ Stephen J. Wietrecki
--------------------------------
Stephen J. Wietrecki
SECRETARY
March 28, 2000
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO: INVESTOR RELATIONS, ON TECHNOLOGY CORPORATION,
WALTHAM WOODS, 880 WINTER STREET, BUILDING FOUR, WALTHAM, MASSACHUSETTS 02154.
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FONTC PS00
<PAGE>
ON TECHNOLOGY CORPORATION
Waltham Woods, 880 Winter Street, Building Four, Waltham, MA 02451
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON APRIL 28, 2000
The undersigned, hereby appoints as Proxies Robert L. Doretti and Stephen J.
Wietrecki, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
capital stock of ON Technology Corporation (the "Company") held of record by the
undersigned on March 6, 2000, at the Annual Meeting of Stockholders to be held
on April 28, 2000 and at any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN , THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2 AND 3.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
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Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If the shareholder is a corporation, the signature should
be that of an authorized officer who should indicate his or her title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
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ON TECHNOLOGY CORPORATION
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1. Election of Directors. FOR THE WITH-
NOMINEE HOLD
(01) Gina Bornino Miller [ ] [ ]
RECORD DATE SHARES:
FOR AGAINST ABSTAIN
2. To approve an amendment to the 1992 Employee [ ] [ ] [ ]
and Consultant Stock Option Plan.
3. To ratify the appointment of Arthur Anderson LLP [ ] [ ] [ ]
as independent auditors.
4. In their discretion, the proxies are authorized to [ ] [ ] [ ]
vote upon such other matters as may properly
come before the meeting.
Please be sure to sign and date this Proxy. Date
-------------
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Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
ON TECHNOLOGY CORPORATION
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Corporation that require your immediate attention and approval. This is
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, April
28, 2000.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
ON Technology Corporation
