AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 2001
REGISTRATION NO. 333-95333
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3/A-3
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ON TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3162846
(State 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, 27TH FLOOR
880 WINTER STREET, BUILDING 4 BOSTON, MA 02109
WALTHAM, MA 02451-1449 (617) 342-4000
(781) 487-3300
(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
1,029,674 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.
1,029,674 shares were registered for sale in the offering covered by this
prospectus and, to date, 273,481 of these shares have been sold in the offering
covered by this prospectus. The selling stockholders also acquired warrants to
purchase an additional 514,838 shares of common stock of ON (the "Initial 1999
Warrants") and warrants which were exercisable for additional shares of common
stock of ON based on the average closing bid price per share of ON common stock
on the date this Registration Statement first became effective (the "Additional
1999 Warrants"). The Additional 1999 Warrants have expired by their terms. On
December 18, 2000, the Company and each of the selling stockholders entered into
exchange agreements under which the selling stockholders agreed to exchange the
Initial 1999 Warrants for warrants to purchase a total of 2,800,000 shares of
common stock of ON (the "New Warrants"). ON has filed a separate registration
statement covering the shares issued or issuable upon exercise of the New
Warrants.
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 January 8, 2001, the last reported sale price of the common
stock was $.8438 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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January 16, 2001
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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...............................................................15
Private Placement to Selling Stockholders.....................................15
Selling Stockholders' Stock Ownership.........................................16
Plan of Distribution..........................................................18
Material Changes..............................................................19
Interests of Named Experts and Counsel........................................19
Legal Matters.................................................................19
Experts.......................................................................19
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 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.
2. Our Current Report on Form 8-K dated January 18, 2000 relating to the
sale of our MeetingMaker product line.
3. 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.
4. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
5. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
6. Our Current Report on Form 8-K dated April 11, 2000 relating to our
financial results for the quarter ended March 31, 2000.
7. Our Current Report on Form 8-K dated June 9, 2000 relating to our May
26, 2000 Special Meeting of Stockholders and our relationship with
Meeting Maker, Inc.
8. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
9. Our Quarterly Report on Form 10-Q for the quarter ended September 30,
2000.
10. Our Current Report on Form 8-K dated December 21, 2000 relating to our
the Exchange Agreements entered into with Castle Creek Technology
Partner LLC and Marshall Capital Management, Inc.
11. All of our filings pursuant to the Exchange Act after the date of
filing of this post-effective amendment and prior to the effectiveness
of this post-effective amendment.
12. 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 Executive 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 year ended December 31, 1999, and our quarterly
reports on Form 10-Q for the quarters ended March 31, 2000, June 30, 2000 and
September 30, 2000, 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.
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 COMPANY IS CURRENTLY EXPERIENCING CASH FLOW DEFICITS AND MAY CONTINUE TO
EXPERIENCE CASH FLOW DEFICITS IN THE FORESEEABLE FUTURE.
For the fiscal quarter ended September 30, 2000, ON had operating
losses of approximately $1,314,000 producing significant negative cash flow. ON
has continued to experience operating losses and negative cash flow in the
fourth quarter of fiscal 2000. Management believes that the Company will
continue to experience operating losses and negative cash flows for the
foreseeable future. If the Company does not achieve positive cash flow by
December 31, 2001, it will not have cash, cash equivalents or borrowing capacity
sufficient to fund its operations and, accordingly, the Company would have to
seek external equity or debt financing to continue its operations. There can be
no assurance that we will be able to secure such external financing.
OUR MARKETING REQUIRES SIGNIFICANT INVESTMENTS
Sales of products require significant up-front investments in
marketing, technical and financial resources. We have adopted a marketing
strategy using a direct sales force and in-field service organization. This
strategy requires significant investments in 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 our target market.
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A SIGNIFICANT PORTION OF OUR REVENUES DERIVES FROM A RELATIVELY SMALL NUMBER OF
CUSTOMERS
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 in the future other customers will
account 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 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 OUR PRODUCTS MAY PRESENT CHALLENGES IN PRODUCT
DEVELOPMENT WHICH, IF WE CANNOT MEET, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS
The technological demands of our current 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 our current
products, 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 to date will provide a valuable
base on which to
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build the necessary financial, technical and personnel resources to continue to
sell, market, develop and support our products. However, there can be no
assurance that we will be able to expand and develop our resources to support
our products.
Our current products are typically larger and more complex than the
products that we have previously developed. Our ability to continue to enhance
our current products 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 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 OUR PRODUCTS 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 our products. 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 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.
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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 Windows 2000 ("W2K"), which
includes a set of technologies that address some of the same client management
issues as CCM.
Some of our current and many of our potential competitors have much
greater financial, technical, marketing, and other resources than we have. 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 us may materially adversely affect our
business, operating results, and financial condition.
NEW COMPETITORS AND ALLIANCES AMONG EXISTING COMPETITORS COULD IMPAIR OUR
ABILITY TO RETAIN AND EXPAND OUR MARKET SHARE
Because competitors can easily penetrate the software market, we
anticipate additional competition from other established and new companies as
the market for enterprise desktop management applications develops. In addition,
current and potential competitors have established or may in the future
establish cooperative relationships among themselves or with third parties.
Large software companies may acquire or establish alliances with our smaller
competitors. We expect that the software industry will continue to consolidate.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
SYSTEM MANAGEMENT COMPANIES MAY ACQUIRE ENTERPRISE DESKTOP MANAGEMENT PROVIDERS
AND CLOSE THEIR SYSTEMS TO OUR PRODUCTS, WHICH COULD HURT OUR ABILITY TO SELL
OUR PRODUCTS
Our ability to sell our products depends in part on their compatibility
with and support by providers of system management products, including Tivoli,
Computer Associates, and Hewlett-Packard. Both Tivoli and Hewlett-Packard have
recently acquired providers of help desk software products. These providers of
system management products may decide to close their systems to competing
vendors like us. They may also decide to bundle their infrastructure management
and/or help-desk software products with other products for enterprise licenses
for promotional purposes or as part of a long-term pricing strategy. If that
were to happen, our ability to sell our products could be adversely affected.
Increased competition may result from acquisitions of help desk and other
infrastructure management software vendors by system management companies. The
results of increased competition, including price reductions of our products,
reduced gross margins, and reduction of market share, could materially adversely
affect our business, operating results, and financial condition.
DUE TO THE TECHNOLOGICAL CHALLENGES ASSOCIATED WITH OUR CURRENT PRODUCTS, WE MAY
NOT HAVE THE FINANCIAL RESOURCES NECESSARY TO CONDUCT THE BUSINESS AS PRESENTLY
CONTEMPLATED
Our product development, marketing and sales costs for our current
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, 2001.
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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
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. 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 September 30, 2000, we have recorded cumulative net losses of
approximately $64.7 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.
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FUTURE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS DUE TO A NUMBER OF
FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL, COULD ADVERSELY AFFECT OUR STOCK
PRICE
Our quarterly operating results have varied significantly in the past
and may vary significantly in the future depending upon a number of factors,
many of which are beyond our control. These factors include, among others:
o our ability to develop, introduce and market new and enhanced versions
of our software on a timely basis;
o market demand for our software; the size, timing and contractual terms
of significant orders;
o the timing and significance of new software product announcements or
releases by ON or our competitors; changes in our pricing policies or
our competitors;
o changes in our business strategies; budgeting cycles of our potential
customers;
o changes in the mix of software products and services sold;
o reliance on indirect sales forces like systems integrators and
channels;
o changes in the mix of revenues attributable to domestic and
international sales; and
o the impact of acquisitions of competitors; seasonal trends; the
cancellations of licenses or maintenance agreements; product life
cycles; software defects and other product quality problems; and
personnel changes.
We have often recognized a substantial portion of our revenues in the
last month or weeks of a quarter. As a result, license revenues in any quarter
are substantially dependent on orders booked and shipped in the last month or
weeks of that quarter. Due to the foregoing factors, quarterly revenues and
operating results are not predictable with any significant degree of accuracy.
In particular, the timing of revenue recognition can be affected by many
factors, including the timing of contract execution and delivery. The timing
between initial customer contact and fulfillment of criteria for revenue
recognition can be lengthy and unpredictable, and revenues in any given quarter
can be adversely affected as a result of such unpredictability. In the event of
any downturn in potential customers' businesses or the economy in general,
planned purchases of our products may be deferred or canceled, which could have
a material adverse effect on our business, operating results and financial
condition.
WE MAY ENGAGE IN REORGANIZATIONS OR RESTRUCTURINGS
We have engaged in reorganizations and restructurings over the past
five years. Furthermore, we cannot be sure that we will not engage in further
reorganizations or restructurings in the future.
OUR SALES CYCLE IS LONG AND UNPREDICTABLE, AND POTENTIAL DELAYS IN THE CYCLE
MAKE OUR REVENUES SUSCEPTIBLE TO FLUCTUATIONS
The licensing of our software generally requires us to engage in a
sales cycle that typically takes approximately four to nine months to complete.
The length of the sales cycle may vary depending on a number of factors over
which we may have little or no control, including the size of the transaction
and the level of competition which we encounter in our selling activities.
During the sales cycle, we typically provide a significant level of education to
prospective customers regarding the use and benefits of our products. Any delay
in the sales cycle of a large license or a number of smaller licenses could have
a material adverse effect on our business, operating results and financial
condition.
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SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS MAY AFFECT OUR QUARTERLY
OPERATING RESULTS
Our business has experienced and is expected to continue to experience
seasonality. Our revenues and operating results in our December quarter
typically benefit from purchase decisions made by the large concentration of
customers with calendar year-end budgeting requirements, and from the efforts of
our sales force to meet fiscal year-end sales quotas. In addition, we are
currently attempting to expand our presence in international markets, including
Europe. International revenues comprise a significant percentage of our total
revenues, and we may experience additional variability in demand associated with
seasonal buying patterns in such foreign markets.
FUTURE ACQUISITIONS PRESENT RISKS WHICH COULD ADVERSELY AFFECT OUR BUSINESS
In the future, ON may make acquisitions of, or large investments in,
other businesses that offer products, services, and technologies that further
our goal of providing enterprise desktop management software solutions to
businesses or which complement our current business. Any future acquisitions or
investments that we may complete present risks commonly encountered with these
types of transactions. The following are examples of such risks:
o difficulty in combining the technology, operations, or work force of
the acquired business;
o disruption of on-going businesses;
o difficulty in realizing the potential financial and strategic position
of ON through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures, and
policies;
o possible impairment of relationships with employees and clients as a
result of any integration of new businesses and management personnel;
o difficulty in adding significant numbers of new employees, including
training, evaluation, and coordination of effort of all employees
towards our corporate mission;
o diversion of management attention;
o difficulty in obtaining preferred acquisition accounting treatment for
these types of transactions; likelihood that future acquisitions will
require purchase accounting resulting in increased intangible assets
and goodwill, substantial amortization of such assets and goodwill, and
a negative impact on reported earnings; and
o potential dilutive effect on earnings.
The risks described above, either individually or in the aggregate,
could materially adversely affect our business, operating results, and financial
condition. Future acquisitions, if any, could provide for consideration to be
paid in cash, shares of ON common stock, or a combination of cash and ON common
stock.
OUR ABILITY TO MANAGE 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. Total CCM revenues for the nine- month
period ended September 30, 2000 were approximately $11.0 million. If we achieve
our growth plans, such growth may burden our operating and financial systems.
This burden will require large amounts of senior management attention and will
require the use of other ON resources. Our ability to compete effectively and to
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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 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.
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IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS COULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS
We rely primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our proprietary rights. Such laws provide only limited protection. Despite
precautions that we take, it may be possible for unauthorized third parties to
copy aspects of our current or future products or to obtain and use information
that we regard as proprietary. In particular, we may provide our licensees with
access to our data model and other proprietary information underlying our
licensed applications. Such means of protecting our proprietary rights may not
be adequate. Additionally, our competitors may independently develop similar or
superior technology. Policing unauthorized use of software is difficult and,
while we do not expect software piracy to be a persistent problem, some foreign
laws do not protect our proprietary rights to the same extent as United States
laws. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of resources, and could materially adversely
affect our business, operating results, and financial condition.
THIRD PARTIES COULD ASSERT, FOR COMPETITIVE OR OTHER REASONS, THAT OUR PRODUCTS
INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, AND SUCH CLAIMS COULD INJURE OUR
REPUTATION, CONSUME TIME AND MONEY, AND ADVERSELY AFFECT OUR ABILITY TO SELL OUR
PRODUCTS
While we are not aware that any of our software product offerings
infringe the proprietary rights of third parties, third parties may claim
infringement with respect to our current or future products. We expect that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in the software industry grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays, or require us to enter into royalty
or licensing agreements. Royalty or licensing agreements may not be available on
acceptable terms or at all. As a result, infringement claims could have a
material adverse effect on our business, operating results, and financial
condition.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US
Our license agreements with our customers typically contain provisions
designed to limit exposure to potential product liability claims. Such
limitation of liability provisions may, however, not be effective under the laws
of certain jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our products entails the risk of such
claims. We may be subject to such claims in the future. A product liability
claim could materially adversely affect our business, operating results, and
financial condition.
OUR SENIOR MANAGEMENT AND OTHER KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND
IF THEY CHOOSE TO LEAVE ON, IT COULD HARM OUR BUSINESS
Our success will depend to a significant extent on the continued
service of our senior management and certain other key employees, including
selected sales, consulting, technical and marketing personnel. While our
employees are required to sign standard agreements concerning confidentiality
and ownership of inventions, few of our employees are bound by an employment or
noncompetition agreement. In addition, we do not generally maintain key man life
insurance on any employee. The loss of the services of one or more of our
executive officers or key employees or the decision of one or more such officers
or employees to join a competitor or otherwise compete directly or indirectly
with us could have a material adverse effect on our business, operating results
and financial condition.
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WE WILL NEED TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL TO
SUCCESSFULLY GROW OUR BUSINESS
Our future success will likely depend in large part on our ability to
attract and retain additional highly skilled technical, sales, management, and
marketing personnel. Competition for such personnel in the computer software
industry is intense, and in the past we have experienced difficulty in
recruiting qualified personnel. New employees generally require substantial
training in the use of our products. We may not succeed in attracting and
retaining such personnel. If we do not, our business, operating results, and
financial condition could be materially adversely affected.
FUTURE CHANGES IN THE FEDERAL IMMIGRATION LAWS COULD LIMIT OUR ABILITY TO
RECRUIT AND EMPLOY SKILLED TECHNICAL PROFESSIONALS FROM OTHER COUNTRIES, AND
THIS COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS
To achieve our business objectives, we must be able to recruit and
employ skilled technical professionals from other countries. Any future shortage
of qualified technical personnel who are either United States citizens or
otherwise eligible to work in the United States could increase our reliance on
foreign professionals. Many technology companies have already begun to
experience shortages of such personnel. Any failure to attract and retain
qualified personnel as necessary could materially adversely affect our business
and operating results. Foreign computer professionals such as those employed by
us typically become eligible for employment in the United States by obtaining a
nonimmigrant visa. The number of nonimmigrant visas is limited by federal
immigration law. Currently, Congress is considering approving an increase in the
number of visas available. We cannot predict whether such legislation will
ultimately become law. We also cannot predict what effect any future changes in
the federal immigration laws will have on our business, operating results, or
financial condition.
BECAUSE ON'S OFFICERS AND DIRECTORS OWN A LARGE PORTION OF ON COMMON STOCK, THEY
MAY BE ABLE TO CONTROL MOST MATTERS REQUIRING STOCKHOLDER APPROVAL, AND THIS MAY
PREVENT OR DISCOURAGE POTENTIAL BIDS TO ACQUIRE ON
Based on shares outstanding as of December 31, 1999, ON's officers,
directors, and entities directly related to such individuals together
beneficially owned approximately 18% 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.
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<PAGE>
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, 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.
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THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE OF THE NEW WARRANTS WILL HAVE A
DILUTIVE EFFECT
The number of shares of ON's common stock issued or issuable upon
exercise of the warrants (the "Warrant Shares") issued to the selling
stockholders in exchange for the Initial 1999 Warrants is fixed at 2,800,000 in
the aggregate (subject to adjustment for stock splits, stock dividends and
similar events and to weighted average antidilution adjustments in the case of
certain below-market securities issuances by ON); however, because the exercise
price is $.01 per share (subject to adjustment for stock splits, stock dividends
and similar events and to weighted average antidilution adjustments in the case
of certain below-market securities issuances by ON), the issuance of the Warrant
Shares has (in the case of Warrant Shares already issued) or will have a
dilutive effect on the stockholders of ON. This effect is significantly less
dilutive than the dilution that would have resulted from the exercise of the
Initial 1999 Warrants. See "Private Placement to Selling Stockholders."
WE MAY SUBJECT ON TO RISK OF DELISTING BY NASDAQ
On January 9, 2001, Nasdaq notified ON that because the closing bid
price of ON's common stock has been less than $1.00 for 30 consecutive trading
days, ON's common stock does not currently meet Nasdaq's requirements for
continued listing on the Nasdaq National Market System. This notification does
not result in immediate delisting; however, it starts a process that might
result in delisting. If ON's common stock were delisted by Nasdaq, absent a
listing on another exchange or quotation on another automated quotation system
of a national securities association, ON would not be eligible to file a
registration statement on Form S-3 with respect to any of its shares of common
stock, including the Warrant Shares. Delisting could also have a material
adverse effect on the price of our common stock and on the level of liquidity
currently available to our shareholders.
WE WILL BE SUBJECT TO FINANCIAL PENALTIES IF THE SHARES ISSUED OR ISSUABLE UPON
EXERCISE OF THE NEW WARRANTS CANNOT BE RESOLD UNDER A REGISTRATION STATEMENT ON
FORM S-3
Under the Exchange Agreements, ON must file a registration statement on
Form S-3 covering the resale of the Warrant Shares on or before January 12,
2001. If such registration statement is not declared effective on or before
April 12, 2001, ON must pay each of Castle Creek and Marshall Capital a penalty
in an amount equal to $5,000 for each day in the first month that such
registration statement is not effective plus $10,000 for each day in the
following months that such registration statement is not effective. In addition,
if after such registration statement has been declared effective such
registration statement is not available for resales of the Warrant Shares during
the two-year period commencing with its effective date for any reason outside of
the control of the selling stockholders, ON must pay each of Castle Creek and
Marshall Capital a penalty in an amount equal to $7,500 for each day such
registration statement is not effective.
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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
The following is a summary of selected information relating to the
December 29, 1999 and December 18, 2000 transactions with the Investors. Copies
of the Securities Purchase Agreement and the registration rights agreement
entered into on December 29, 1999 (collectively, the "Original Investors
Transaction Documents"), and the Exchange Agreements, the New Warrants, the
Notes and Mutual General Releases entered into on December 18, 2000
(collectively, the "Exchange Documents") 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.
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 "Original 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 were 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 were exercisable only under the circumstances below
(the "Additional Warrants," and together with the Initial Warrants, the
"Original Investor Warrants"). The Additional Warrants have expired by their
terms.
Since the issuance of the Original Investor Warrants, ON's common stock
has traded as high as $16.00 per share. Since March, 2000, the trading price of
ON's common stock has declined substantially. Under the reset provisions of the
Initial Warrants, the number of shares that would have been issuable to the
holders of the Initial Warrants effective December 29, 2000 would have increased
to represent in excess of 80% of ON's common stock. Concerned about this
possibility, in the early fall ON's management contacted the Investors and began
negotiations to restructure the reset provisions of the Investor Warrants. As a
result of these negotiations, the Investors agreed to eliminate the reset
provision contained in the Investor Warrants. On December 18, 2000, the Company
entered into exchange agreements with each of the Investors pursuant to which
each Investor has exchanged its Initial Warrant for a new warrant exercisable
for 1,400,000 shares of common stock (each a "New Warrant" and, collectively,
the "New Warrants") and a promissory note in the principal amount of $500,000
(each a "Note" and, collectively, the "Notes").
Each New Warrant has an exercise price of $.01 per share, which is
subject to proportionate adjustment in the event of a stock split, stock
dividend or similar event, and to weighted-average adjustment in the event of
certain issuances of securities by the Company at an offering price below the
then current market price of such security. Each New Warrant expires after 5:00
p.m., Eastern Time on December 29, 2004. As of January 8, 2001, Castle Creek has
exercised its New Warrant for a total of 356,284 shares of ON's common stock,
and Marshall Capital has exercised its New Warrant for a total of 350,095 shares
of ON's common stock.
The principal amount of each Note is due and payable on December 31,
2001, unless a registration statement covering all the shares of the Company's
common stock that are entitled to be registered under the Exchange Agreements is
effective for not less than 20 trading days during the period beginning November
15, 2001 and ending December 31, 2001 (the "Measurement Period") and the average
closing price of the Company's common stock for the last 20 trading days during
the Measurement Period when such registration statement is effective exceeds
$3.00 per share (as adjusted to reflect any stock splits, reverse stock splits,
stock dividends or similar events). Interest is payable on the Notes only after
a default at the rate of 9% per year.
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SELLING STOCKHOLDERS' STOCKOWNERSHIP
The shares covered by this prospectus consist of shares currently held
by the Investors.
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. A separate registration statement will be filed to register the
shares, which have been issued or are issuable pursuant to the New Warrants.
Under the Registration Rights Agreement, as amended, 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 New Warrants.
Under their terms, the New 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 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 14,920,839 shares
outstanding as of January __, 2001. 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 New Warrants.
The selling stockholders have advised us that they are the beneficial
owners of the shares being offered.
<TABLE><CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING (3)
---------------------------- ------------------------------
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... 731,397(1) 4.9% 514,837 0 0%
Marshall Capital Management, Inc....... 731,397(2) 4.9% 514,837 0 0%
</TABLE>
(1) Includes 725,753 shares held beneficially and of record by Castle Creek
and 5,644 shares issuable upon exercise of the New Warrants held by
Castle Creek. Does not include 1,038,071 shares remaining available for
exercise under the New Warrants held by Castle Creek which by their
terms cannot be exercised at any time to the extent that exercise would
result in Castle Creek 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 may exercise its New Warrant for and sell
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1,043,715 or more shares over the life of its New Warrant, it may not
currently exercise its New Warrant to the extent that it would at the
time of exercise beneficially own more than 731,397 shares, based upon
14,920,839 shares outstanding as of January 8, 2001, 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 New
Warrants, then the number of shares that Castle Creek 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, a member of Castle Creek Partners LLC, may
be deemed as a result thereof to be a beneficial owner of the
securities held by Castle Creek Technology Partners LLC. Mr. Asher
disclaims such beneficial ownership.
(2) Includes 724,934 shares held beneficially and of record by Marshall
Capital and 6,463 shares issuable upon exercise of the New Warrants
held by Marshall Capital. Does not include 1,043,442 shares remaining
available for exercise under the New Warrants held by Marshall Capital
which by their terms cannot be exercised at any time to the extent that
exercise would result in Marshall Capital having beneficial ownership
of more than 4.9% of the total number of shares outstanding at the time
of exercise. For example, while Marshall Capital may exercise its New
Warrant for and sell 1,049,905 or more shares over the life of its New
Warrant, it may not currently exercise its New Warrant to the extent
that it would at the time of exercise beneficially own more than
731,397 shares, based upon 14,920,839 shares outstanding as of January
8, 2001, 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 New Warrants, then the number of shares
that Marshall Capital can own at any one time would also increase.
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.
(3) Assumes that all of the shares registered under this Registration
Statement and the Registration Statement covering the shares issued or
issuable upon exercise of the New Warrants are sold.
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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 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.
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.
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.
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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, 1999 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 PAID IN AMOUNT PAID IN
CONNECTION WITH CONNECTION WITH
THE ORIGINAL THE EXCHANGE
TRANSACTION TRANSACTION
================================== =============== ================
SEC registration fee $ 6,048.31 $ 0
NASDAQ National Market listing fee $ 17,500.00 $ 0
Legal fees and expenses $ 40,000.00 $ 5,000.00
Miscellaneous expenses $ 10,000.00 $ 2,000.00
================================== =============== ================
Total $ 73,548.31 $ 7,000.00
================================== =============== ================
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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, as amended,
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
stockholders 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:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
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(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. 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.
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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
Post-Effective Amendment No. 1 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 16th day of January, 2001.
ON TECHNOLOGY CORPORATION
By: /s/ Robert L. Doretti
----------------------------------
CHIEF EXECUTIVE OFFICER
DIRECTORS:
/s/ Robert L. Doretti
--------------------------------------
Robert L. Doretti
/s/ John Cassarini
--------------------------------------
John Cassarini
/s/ Gina Bornino Miller
--------------------------------------
Gina Bornino Miller
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
---------------- ----------------------------------------------------------
5.1 Opinion of Epstein Becker & Green, P.C. (previously filed)
10.25 Offer Letter from ON Technology Corporation to Robert L.
Doretti dated January 31, 2000 (previously filed)
23.1 Consent of Arthur Andersen LLP (previously filed)
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)
23
