sec document
As filed with the Securities and Exchange Commission on March 19, 2003
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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FALCONSTOR SOFTWARE, INC.
Delaware 77-0216135
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Baylis Road
Melville, New York 11747
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(Address of principal executive offices) (Zip Code)
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2000 Stock Option Plan
1994 Outside Directors Stock Option Plan
(Full title of the plans)
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ReiJane Huai
President and Chief Executive Officer
FalconStor Software, Inc.
125 Baylis Road
Melville, New York 11747
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(Name and address of agent for service)
631-777-5188
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(Telephone number, including area code, of agent for service)
With a copy to:
Steven Wolosky, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue, New York, New York 10022
(212) 753-7200
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Amount offering Aggregate Amount of
Securities to be price Offering Registration
to be registered registered(1) per share Price fee
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Common Stock,
par value $.001
per share........ 2,350,000 $4.00 (2) $9,400,000 (2) $864.80 (2)
(3)
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(1) Pursuant to Rule 416(c) under the Securities Act of 1933, as amended
(the "Securities Act") this Registration Statement also covers an
indeterminate amount of interests to be offered or sold pursuant to
the employee benefit plan(s) described herein. There are also
registered hereby such indeterminate number of shares of Common
Stock, $.001 par value (the "Common Stock") as may become issuable
by reason of the operation of the anti-dilution provisions of the
FalconStor Software Inc. (the "Company") 2000 Stock Option Plan (the
"2000 Plan") or the 1994 Outside Directors Stock Option Plan (the
"1994 Plan").
(2) Includes 505,318 shares with respect to which options were granted
at an average exercise price of $4.04 per share and 120,416 shares
with respect to which options were granted at an average exercise
price of $5.25 per share. With respect to the remaining shares
available for issuance under the 2000 Plan and the 1994 Plan,
pursuant to Rule 457(h) under the Securities Act of 1933, as amended
(the "Securities Act"), the offering price per share, solely for the
purpose of determining the registration fee, is equal to the closing
sale price of the Company's Common Stock as reported on the Nasdaq
National Market on March 13, 2003 of $4.00 per share.
(3) Registration fees were previously paid for the registration of
8,662,296 shares (Registration No. 333-69834) and 150,000 shares
(Registration No. 33-83574) under the 2000 Plan and the 1994 Plan,
respectively. The fee being paid herewith pertains to an aggregate
of 2,350,000 shares of Common Stock issuable upon exercise of
options granted under the 2000 Plan and the 1994 Plan.
EXPLANATORY NOTE
The Company has prepared this Registration Statement in accordance
with the requirements of Form S-8 under the Securities Act, to register
2,000,000 shares of Common Stock, $.001 par value per share, of the Company
issuable pursuant to the 2000 Plan of the Company, and 350,000 shares of Common
Stock, $.001 par value per share, of the Company issuable pursuant to the 1994
Plan of the Company. The Company previously registered 8,662,296 shares
(Registration No. 333-69834) and 150,000 shares (Registration No. 33-83574)
under the 2000 Plan and the 1994 Plan, respectively. Pursuant to General
Instruction E to Form S-8, the contents of the prior registration statements
relating to each of the 2000 Plan and the 1994 Plan, and all periodic reports
that the Registrant filed after such Registration Statements to maintain current
information about the Registrant are hereby incorporated by reference.
This Form S-8 includes a Reoffer Prospectus prepared in accordance
with Part I of Form S-3 under the Securities Act. The Reoffer Prospectus may be
utilized for reofferings and resales of shares of Common Stock acquired pursuant
to the (i) 2000 Plan and (ii) the 1994 Plan, the shares of which were previously
registered.
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The Company will provide documents containing the information
specified in Part I of Form S-8 to employees as specified by Rule 428(b)(1)
under the Securities Act. Pursuant to the instructions to Form S-8, the Company
is not required to file these documents either as part of this Registration
Statement or as prospectuses or prospectus supplements pursuant to Rule 424
under the Securities Act.
PROSPECTUS
2,350,000 SHARES
FALCONSTOR SOFTWARE, INC.
Common Stock ($.001 par value)
This prospectus relates to the reoffer and resale by certain selling
stockholders of shares of our Common Stock that may be issued by us to the
selling stockholders upon the exercise of stock options granted under our 2000
Stock Option Plan or our 1994 Outside Directors Stock Option Plan. We previously
registered the offer and sale of the shares to the selling stockholders. This
Prospectus also relates to certain underlying options that have not as of this
date been granted. If and when such options are granted to persons required to
use the prospectus to reoffer and resell the shares underlying such options, we
will distribute a prospectus supplement. The shares are being reoffered and
resold for the account of the selling stockholders and we will not receive any
of the proceeds from the resale of the shares.
The selling stockholders have advised us that the resale of their
shares may be effected from time to time in one or more transactions on the
Nasdaq National Market, in negotiated transactions or otherwise, at market
prices prevailing at the time of the sale or at prices otherwise negotiated. See
"Plan of Distribution." We will bear all expenses in connection with the
preparation of this prospectus.
Our Common Stock is listed on the Nasdaq National Market. On March
18, 2003, the closing price for the Common Stock, as reported by the Nasdaq
National Market, was $ 4.23.
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. THEY
HAVE NOT MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE SHOULD
BUY THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March 19, 2003.
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION............................................1
INCORPORATION BY REFERENCE.....................................................2
ABOUT THIS PROSPECTUS..........................................................2
RISK FACTORS...................................................................3
THE COMPANY....................................................................9
USE OF PROCEEDS................................................................9
SELLING STOCKHOLDERS...........................................................9
PLAN OF DISTRIBUTION..........................................................11
LEGAL MATTERS.................................................................13
EXPERTS.......................................................................13
ADDITIONAL INFORMATION........................................................13
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES................................................13
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document we file at the SEC's public reference room
located at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain further information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the
public over the Internet at the SEC's Web site at http://www.sec.gov. You may
also request copies of such documents, upon payment of a duplicating fee, by
writing to the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports,
proxy statements and other information concerning us can also be inspected at
the Nasdaq National Market Operations, 1735 K Street, N.W., Washington, D.C. You
may also find recent documents we filed on our website at www.falconstor.com.
1
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, until the sale of all the shares of Common Stock that are
part of this offering. The documents we are incorporating by reference are as
follows:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2002;
(2) Our Current Report on Form 8-K filed on January 29, 2003;
(3) The description of our Common Stock contained in our
registration statement on Form 8-A declared effective by the SEC on June 28,
1994, including any amendments or reports filed for the purpose of updating that
description.
You may request a copy of these filings, excluding the exhibits to
such filings which we have not specifically incorporated by reference in such
filings, at no cost, by writing or telephoning us at the following address:
FalconStor Software, Inc.
125 Baylis Road
Melville, New York 11747
Attention: Chief Financial Officer
(631) 777-5188
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with
the SEC. You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We have not authorized
anyone else to provide you with different information. The Selling Stockholders
will not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement is accurate as of any other date than the date on the front of those
documents.
2
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS
INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN OUR COMMON STOCK.
WE HAVE HAD LIMITED REVENUES AND A HISTORY OF LOSSES, AND WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.
Due to the early stage of our product, we have had limited revenues
and a history of losses. For the years ended December 31, 2002 and 2001, we had
revenues of $10.6 million and $5.6 million, respectively. The increase in our
revenues from 2001 to 2002 is primarily due to the release of our principal
product at the end of the second quarter of 2001. For the period from inception
(February 10, 2000) through December 31, 2002 and for the year ended December
31, 2002, we had a net loss of $23.7 million and $11.5 million, respectively. We
have signed contracts with resellers and original equipment manufacturers, or
OEMs, and believe that as a result of these contracts, our revenues should
increase in the future. Our business model depends upon signing agreements with
additional OEM customers, further developing our reseller sales channel, and
expanding our direct sales force. Any difficulty in obtaining these OEM and
reseller customers or in attracting qualified sales personnel will hinder our
ability to generate additional revenues and achieve or maintain profitability.
FAILURE TO ACHIEVE ANTICIPATED GROWTH COULD HARM OUR BUSINESS AND OPERATING
RESULTS.
Achieving our anticipated growth will depend on a number of factors,
some of which include:
o retention of key management, marketing and technical personnel;
o our ability to increase our customer base and to increase the
sales of our products; and
o competitive conditions in the storage networking infrastructure
software market.
We cannot assure you that the anticipated growth will be achieved.
The failure to achieve anticipated growth could harm our business, financial
condition and operating results.
DUE TO THE UNCERTAIN AND SHIFTING DEVELOPMENT OF THE NETWORK STORAGE
INFRASTRUCTURE SOFTWARE MARKET, WE MAY HAVE DIFFICULTY ACCURATELY PREDICTING
REVENUE FOR FUTURE PERIODS AND APPROPRIATELY BUDGETING FOR EXPENSES.
Due to the early stage of our product, we have only a limited
history from which to predict our revenue. This limited operating experience,
combined with the rapidly evolving nature of the network storage infrastructure
software market in which we sell our products and other factors that are beyond
our control, reduces our ability to accurately forecast our quarterly and annual
revenue. However, we use our forecasted revenue to establish our expense budget.
Most of our expenses are fixed in the short term or incurred in advance of
anticipated revenue. As a result, we may not be able to decrease our expenses in
a timely manner to offset any shortfall in revenue.
GLOBAL ECONOMIC CONDITIONS MAY CONTINUE TO ERODE, WHICH COULD RESULT IN
DECREASED REVENUES.
The macroeconomic environment and capital spending on information
technology have continued to erode, resulting in continued uncertainty in our
revenue expectations. The operating results of our business depend on the
overall demand for network storage infrastructure software. Because our sales
are primarily to major corporate customers whose businesses fluctuate with
general economic and business conditions, continued soft demand for network
storage infrastructure software caused by a weakening economy and budgetary
constraints may result in decreased revenues. Customers may continue to defer or
to reconsider purchasing our software if they continue to experience a lack of
growth in their business or if the general economy fails to significantly
improve, resulting in a lack of demand for our product.
3
THE MARKETS FOR STORAGE AREA NETWORKS, NETWORK ATTACHED STORAGE, AND DIRECT
ATTACHED STORAGE ARE NEW AND UNCERTAIN, AND OUR BUSINESS WILL SUFFER IF THEY DO
NOT DEVELOP AS WE EXPECT.
The rapid adoption of Storage Area Networks (SAN), Network Attached
Storage (NAS), and Direct Attached Storage (DAS) storage solutions is critical
to our future success. The markets for SAN, NAS and DAS solutions are still
unproven, making it difficult to predict their potential sizes or future growth
rates. Most potential customers have made substantial investments in their
current storage networking infrastructure, and they may elect to remain with
current network architectures or to adopt new architecture, in limited stages or
over extended periods of time. We are uncertain whether a viable market for our
products will develop or be sustainable. If these markets fail to develop, or
develop more slowly than we expect, our business, financial condition and
results of operations would be adversely affected.
IF WE ARE UNABLE TO DEVELOP AND MANUFACTURE NEW PRODUCTS THAT ACHIEVE ACCEPTANCE
IN THE NETWORK STORAGE INFRASTRUCTURE SOFTWARE MARKET, OUR OPERATING RESULTS MAY
SUFFER.
The network storage infrastructure software market continues to
evolve and as a result there is continuing demand for new products. Accordingly,
we may need to develop and manufacture new products that address additional
network storage infrastructure software market segments and emerging
technologies to remain competitive in the data storage software industry. We are
uncertain whether we will successfully qualify new network storage
infrastructure software products with our customers by meeting customer
performance and quality specifications or quickly achieve high volume production
of storage networking infrastructure software products. Any failure to address
additional market segments could harm our business, financial condition and
operating results.
OUR PRODUCTS MUST CONFORM TO INDUSTRY STANDARDS IN ORDER TO BE ACCEPTED BY
CUSTOMERS IN OUR MARKETS.
Our current products are only one part of a SAN, NAS or DAS storage
system. All components of these systems must comply with the same industry
standards in order to operate together efficiently. We depend on companies that
provide other components of these systems to conform to industry standards. Some
industry standards may not be widely adopted or implemented uniformly, and
competing standards may emerge that may be preferred by OEM customers or end
users. If other providers of components do not support the same industry
standards as we do, or if competing standards emerge, our products may not
achieve market acceptance, which would adversely affect our business.
OUR COMPLEX PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT COULD RESULT IN REDUCED
DEMAND FOR OUR PRODUCTS OR COSTLY LITIGATION.
Our IPStor platform is complex and is designed to be deployed in
large and complex networks. Many of our customers have unique infrastructures,
which may require additional professional services in order for our software to
work within their infrastructure. Because our products are critical to the
networks of our customers, any significant interruption in their service as a
result of defects in our product within our customers' networks could result in
lost profits or damage to our customers. These problems could cause us to incur
significant service and warranty costs, divert engineering personnel from
product development efforts and significantly impair our ability to maintain
existing customer relationships and attract new customers. In addition, a
product liability claim, whether successful or not, would likely be time
consuming and expensive to resolve and would divert management time and
attention. Further, if we are unable to fix the errors or other problems that
may be identified in full deployment, we would likely experience loss of or
delay in revenues and loss of market share and our business and prospects would
suffer.
OUR OEM CUSTOMERS REQUIRE OUR PRODUCTS TO UNDERGO A LENGTHY AND EXPENSIVE
QUALIFICATION PROCESS THAT DOES NOT ASSURE PRODUCT SALES.
Prior to offering our products for sale, our OEM customers require
that each of our products undergo an extensive qualification process, which
involves interoperability testing of our product in the OEM's system as well as
rigorous reliability testing. This qualification of a product by an OEM does not
assure any sales of the product to the OEM. Despite this uncertainty, we devote
substantial resources, including sales, marketing and management efforts, toward
qualifying our products with OEMs in anticipation of sales to them. If we are
unsuccessful or delayed in qualifying any products with an OEM, such failure or
delay would preclude or delay sales of that product to the OEM, which may impede
our ability to grow our business.
4
THE NETWORK STORAGE INFRASTRUCTURE SOFTWARE MARKET IS HIGHLY COMPETITIVE AND
INTENSE COMPETITION COULD NEGATIVELY IMPACT OUR BUSINESS.
The network storage infrastructure software market is intensely
competitive even during periods when demand is stable. Some of our current and
potential competitors have longer operating histories, significantly greater
resources, broader name recognition and a larger installed base of customers
than we have. Those competitors and other potential competitors may be able to
establish or to expand network storage infrastructure software offerings more
quickly, adapt to new technologies and customer requirements faster, and take
advantage of acquisition and other opportunities more readily.
Our competitors also may:
o consolidate or establish strategic relationships among
themselves to lower their product costs or to otherwise compete
more effectively against us; or
o bundle their products with other products to increase demand for
their products.
In addition, some OEMs with whom we do business, or hope to do business, may
enter the market directly and rapidly capture market share. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results may suffer.
OUR FUTURE QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.
Our future performance will depend on many factors, including:
o the timing of securing software license contracts and the
delivery of software and related revenue recognition;
o the average unit selling price of our products;
o existing or new competitors introducing better products at
competitive prices before we do;
o our ability to manage successfully the complex and difficult
process of qualifying our products with our customers;
o our customers canceling, rescheduling or deferring significant
orders for our products, particularly in anticipation of new
products or enhancements from us or our competitors;
o import or export restrictions on our proprietary technology; and
o personnel changes.
Many of our expenses are relatively fixed and difficult to reduce or
modify. As a result, the fixed nature of our expenses will magnify any adverse
effect of a decrease in revenue on our operating results.
OUR BOARD OF DIRECTORS MAY SELECTIVELY RELEASE SHARES OF OUR COMMON STOCK FROM
LOCK-UP RESTRICTIONS.
Currently, approximately 1.9 million shares of our common stock are
subject to contractual lock-up restrictions expiring on April 30, 2003, and
approximately 26.8 million shares of our common stock are subject to contractual
lock-up restrictions expiring on April 30, 2004. Our board of directors may, in
its sole discretion, release any or all of the shares of our common stock from
lock-up restrictions at any time with or without notice. Any release of such
shares from lock-up restrictions may be applied on a proportionate or selective
basis. If the release is selectively applied, the stockholders whose shares are
not released will be forced to hold such shares while other stockholders may
sell. In addition, the release of any of such shares could depress our stock
price. Our board of directors has agreed to a phased release of up to
approximately 2.0 million shares between November 1, 2002 and April 1, 2004,
from the shares that are subject to contractual lock-up restrictions expiring on
April 30, 2004.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock has been volatile in the past
and may be volatile in the future. For example, during the year ended December
31, 2002, the market price of our common stock as quoted on the NASDAQ National
Market System fluctuated between $3.61 and $11.97. The market price of our
common stock may be significantly affected by the following factors:
o actual or anticipated fluctuations in our operating results;
5
o failure to meet financial estimates;
o changes in market valuations of other technology companies,
particularly those in the storage networking infrastructure
software market;
o announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint
ventures or capital commitments;
o loss of one or more key OEM customers; and
o departures of key personnel.
The stock market has experienced extreme volatility that often has been
unrelated to the performance of particular companies. These market fluctuations
may cause our stock price to fall regardless of our performance.
WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH
MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.
Our Board of Directors has the authority, without further action by
the stockholders, to issue up to 2,000,000 shares of preferred stock on such
terms and with such rights, preferences and designations, including, without
limitation restricting dividends on our common stock, dilution of the voting
power of our common stock and impairing the liquidation rights of the holders of
our common stock, as the Board may determine without any vote of the
stockholders. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof may have the effect of delaying, deterring
or preventing a change in control. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of our stockholders to authorize a merger, business
combination or change of control. Finally, we have entered into change of
control agreements with certain executives.
WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS, THE EXERCISE OF WHICH WOULD
DILUTE THE THEN-EXISTING STOCKHOLDERS' PERCENTAGE OWNERSHIP OF OUR COMMON STOCK.
As of December 31, 2002, we have outstanding options to purchase an
aggregate of 9,387,579 shares of our common stock at a weighted average exercise
price of $3.55 per share.
The exercise of all of the outstanding options would dilute the
then-existing stockholders' percentage ownership of common stock, and any sales
in the public market of the common stock issuable upon such exercise could
adversely affect prevailing market prices for the common stock. Moreover, the
terms upon which we would be able to obtain additional equity capital could be
adversely affected because the holders of such securities can be expected to
exercise or convert them at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable than those provided by such
securities.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER.
Our success is dependent upon our proprietary technology. Currently,
the IPStor software suite is the core of our proprietary technology. We have
nine pending patent applications and multiple pending trademark applications
related to our IPStor product. We cannot predict whether we will receive patents
for our pending or future patent applications, and any patents that we own or
that are issued to us may be invalidated, circumvented or challenged. In
addition, the laws of certain countries in which we sell and manufacture our
products, including various countries in Asia, may not protect our products and
intellectual property rights to the same extent as the laws of the United
States.
We also rely on trade secret, copyright and trademark laws, as well
as the confidentiality and other restrictions contained in our respective sales
contracts and confidentiality agreements to protect our proprietary rights.
These legal protections afford only limited protection.
OUR TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT COULD HARM OUR
BUSINESS.
We may become subject to litigation regarding infringement claims
alleged by third parties. If an action is commenced against us, our management
may have to devote substantial attention and resources to defend these claims.
An unfavorable result for the Company could have a material adverse effect on
our business, financial condition and operating results and could limit our
ability to use our intellectual property.
6
OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY CAUSE US TO BECOME INVOLVED
IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SERIOUSLY HARM OUR BUSINESS.
In recent years, there has been significant litigation in the United
States involving patents, trademarks and other intellectual property rights.
Legal proceedings could subject us to significant liability for damages or
invalidate our intellectual property rights. Any litigation, regardless of its
outcome, would likely be time consuming and expensive to resolve and would
divert management's time and attention. Any potential intellectual property
litigation against us could force us to take specific actions, including:
o cease selling our products that use the challenged intellectual
property;
o obtain from the owner of the infringed intellectual property
right a license to sell or use the relevant technology or
trademark, which license may not be available on reasonable
terms, or at all; or
o redesign those products that use infringing intellectual
property or cease to use an infringing product or trademark.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.
Our success depends upon the continued contributions of our key
employees, many of whom would be extremely difficult to replace. We do not have
key person life insurance on any of our personnel Worldwide competition for
skilled employees in the network storage infrastructure software industry is
extremely intense. If we are unable to retain existing employees or to hire and
integrate new employees, our business, financial condition and operating results
could suffer. In addition, companies whose employees accept positions with
competitors often claim that the competitors have engaged in unfair hiring
practices. We may be the subject of such claims in the future as we seek to hire
qualified personnel and could incur substantial costs defending ourselves
against those claims.
NETWORK PERIPHERALS INC. HAS LIABILITIES AND ONGOING OBLIGATIONS TO CERTAIN
CUSTOMERS AND SUPPLIERS AS A RESULT OF THE WINDING DOWN OF ITS BUSINESS.
Network Peripherals Inc. had existing agreements with certain
suppliers and customers. NPI may have liabilities to certain existing customers
and suppliers as a result of the termination of these agreements. We cannot be
sure that our efforts to remove all such liability will be successful.
WE MAY NOT SUCCESSFULLY INTEGRATE THE PRODUCTS, TECHNOLOGIES OR BUSINESSES FROM,
OR REALIZE THE INTENDED BENEFITS OF ACQUISITIONS.
We have made, and may continue to make, acquisitions of other
companies or their assets. Integration of the acquired products, technologies
and businesses, could divert management's time and resources. Further, we may
not be able to properly integrate the acquired products, technologies or
businesses, with our existing products and operations, train, retain and
motivate personnel from the acquired businesses, or combine potentially
different corporate cultures. If we are unable to fully integrate the acquired
products, technologies or businesses, or train, retain and motivate personnel
from the acquired businesses, we may not receive the intended benefits of the
acquisitions, which could harm our business, operating results and financial
condition.
LONG TERM CHARACTER OF INVESTMENTS.
We made an investment in Network-1 Security Solutions, Inc., and
were required to record an impairment charge of $2.3 million from this
investment in the year ended December 31, 2002. Despite this loss, we may
continue to make equity investments in other entities (although we have no
agreements, commitments or understandings with respect to equity investments
other than our investment in Network-1 Security Solutions, Inc.). Our present
and future equity investments may never appreciate in value, and are subject to
normal risks associated with equity investments in businesses. These investments
may involve technology risks as well as commercialization risks and market
risks. As a result, we may be required to write down some or all of these
investments in the future.
7
UNKNOWN FACTORS
Additional risks and uncertainties of which we are unaware or which
currently we deem immaterial also may become important factors that affect us.
8
THE COMPANY
FalconStor was incorporated in Delaware for the purpose of
developing, manufacturing and selling network storage infrastructure software
solutions and providing related maintenance, implementation and engineering
services. Our unique approach to storage networking enables companies to embrace
state-of-art equipment (based on SCSI, Fibre Channel or iSCSI) from any storage
manufacturer without rendering their existing or legacy solutions obsolete.
Several strategic partners have recognized the industrial strength of our
flagship software, IPStor(R), and utilized it to power their special purpose
storage appliances to perform Real Time Data Migration, Data Replication, and
other advanced storage services. IPStor leverages high performance IP or FC
based networks to help corporate IT aggregate storage capacity and contain the
run-away cost of administering mission-critical storage services such as
snapshot, backup, data replication, and other storage services, in a distributed
environment. Over 300 customers around the world have deployed IPStor in the
production environment to manage storage infrastructure with minimal TCO (Total
Cost of Ownership) and optimal ROI (Return on Investment).
Our principal executive offices are located at 125 Baylis Road,
Melville, New York 11747. Our telephone number is (631) 777-5188.
USE OF PROCEEDS
The shares of Common Stock offered hereby are being registered for
the account of the selling stockholders identified in this prospectus. See
"Selling Stockholders." All net proceeds from the sale of the Common Stock will
go to the stockholders who offer and sell their shares. We will not receive any
part of the proceeds from such sales of Common Stock. We will, however, receive
the exercise price of the options at the time of their exercise. Such proceeds
will be contributed to working capital and will be used for general corporate
purposes.
SELLING STOCKHOLDERS
This Prospectus relates to the reoffer and resale of shares issued
or that may be issued to the selling stockholders under our 2000 Stock Option
Plan and our 1994 Outside Directors Stock Option Plan.
The following table sets forth (i) the number of shares of Common
Stock beneficially owned by each selling stockholder at February 28, 2003, (ii)
the number of shares to be offered for resale by each selling stockholder (i.e.,
the total number of shares underlying options held by each selling stockholder
irrespective of whether such options are presently exercisable or exercisable
within sixty days of February 28, 2003), and (iii) the number and percentage of
shares of our Common Stock to be held by each selling stockholder after
completion of the offering.
9
Number of
shares of Number of
Common Stock shares of Percentage
Beneficially Common Stock of Class to be
Owned at Number of Shares After Owned After
February 28, to be Offered for Completion of Completion of
Name 2003 (1) Resale (2) the Offering the Offering
Lawrence S. Dolin (3) 45,000 60,000 40,000 *
Steven R. Fischer (4) 9,500 60,000 4,500 *
Steven H. Owings (5) 63,030 60,000 58,030 *
Jacob Ferng (6) 190,570 368,458 95,285 *
Wayne Lam (7) 238,572 513,743 48,003 *
*Less than one percent
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after the date hereof upon
the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such person
(but not those held by any other person) and that are currently
exercisable (i.e., that are exercisable within 60 days from the date
hereof) have been exercised. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with
respect to all shares beneficially owned by them.
(2) Consists of shares issuable upon the exercise of options both currently
and not currently exercisable.
(3) Based on information contained in a Form 5 filed by Mr. Dolin and certain
other information. Consists of (i) 40,000 shares held by Northern Union
Club and (ii) 5,000 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of February 28, 2003. Mr. Dolin is a general partner of Mordo
Partners, which is a general partner of Northern Union Club. Mr. Dolin
disclaims beneficial ownership of the securities held by Northern Union
Club, except to the extent of his equity interest therein. Mr. Dolin has
been a Director of the Company since August 2001.
(4) Based on information contained in a Form 5 filed by Mr. Fischer and
certain other information. Consists of (i) 4,500 shares held by Mr.
Fischer and (ii) 5,000 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of February 28, 2003. Excludes 1,000 shares of Common Stock held by
Mr. Fischer as a custodian for his daughter. Mr. Fischer disclaims
beneficial ownership of the securities held as a custodian for his
daughter, except to the extent of his equity interest therein. Mr. Fischer
has been Director of the Company since August 2001.
10
(5) Based on information contained in a Form 5 filed by Mr. Owings and certain
other information. Consists of (i) 58,030 shares held by Mr. Owings and
(ii) 5,000 shares of Common Stock issuable upon exercise of options that
are currently exercisable or will be exercisable within 60 days of
February 28, 2003. Mr. Owings has been a Director of the Company since
August 2001.
(6) Based on information contained in a Form 4 filed by Mr. Ferng and certain
other information. Consists of (i) 95,285 shares held by Mr. Ferng and
(ii) 95,285 shares of Common Stock issuable upon exercise of options that
are currently exercisable or will be exercisable within 60 days of
February 28, 2003. Mr. Ferng has served as a vice president and chief
financial officer of the Company and its predecessor entity since August
2000.
(7) Based on information contained in a Form 4 filed by Mr. Lam and certain
other information. Consists of (i) 48,003 shares held by Mr. Lam and (ii)
190,569 shares of Common Stock issuable upon exercise of options that are
currently exercisable or will be exercisable within 60 days of February
28, 2003. Mr. Lam has served as vice president of marketing of the Company
and its predecessor entity since April 2000.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither we nor the selling
stockholders have employed an underwriter for the sale of Common Stock by the
selling stockholders. We will bear all expenses in connection with the
preparation of this Prospectus. The selling stockholders will bear all expenses
associated with the sale of the Common Stock.
The selling stockholders may offer their shares of Common Stock
directly or through pledgees, donees, transferees or other successors in
interest in one or more of the following transactions:
o On any stock exchange on which the shares of Common Stock may be
listed at the time of sale
o In negotiated transactions
o In the over-the-counter market
o In a combination of any of the above transactions
The selling stockholders may offer their shares of Common Stock at
any of the following prices:
o Fixed prices which may be changed
o Market prices prevailing at the time of sale
o Prices related to such prevailing market prices
o At negotiated prices
11
The selling stockholders may effect such transactions by selling
shares to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders and/or the purchasers of shares of Common Stock for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring Common Stock from the selling
stockholders may sell the shares either directly, in its normal market-making
activities, through or to other brokers on a principal or agency basis or to its
customers. Any such sales may be at prices then prevailing on the Nasdaq
National Market or at prices related to such prevailing market prices or at
negotiated prices to its customers or a combination of such methods. The selling
stockholders and any broker-dealers that act in connection with the sale of the
Common Stock hereunder might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act; any commissions received by them and any
profit on the resale of shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. Any such commissions, as
well as other expenses incurred by the selling stockholders and applicable
transfer taxes, are payable by the selling stockholders.
The selling stockholders reserve the right to accept, and together
with any agent of the selling stockholder, to reject in whole or in part any
proposed purchase of the shares of Common Stock. The selling stockholders will
pay any sales commissions or other seller's compensation applicable to such
transactions.
We have not registered or qualified offers and sales of shares of
the Common Stock under the laws of any country, other than the United States. To
comply with certain states' securities laws, if applicable, the selling
stockholders will offer and sell their shares of Common Stock in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the selling stockholders may not offer or sell
shares of Common Stock unless we have registered or qualified such shares for
sale in such states or we have complied with an available exemption from
registration or qualification.
The selling shareholders have represented to us that any purchase or
sale of shares of Common Stock by them will comply with Regulation M promulgated
under the Securities Exchange Act of 1934, as amended. In general, Rule 102
under Regulation M prohibits any person connected with a distribution of our
Common Stock (a "Distribution") from directly or indirectly bidding for, or
purchasing for any account in which he or she has a beneficial interest, any of
our Common Stock or any right to purchase our Common Stock, for a period of one
business day before and after completion of his or her participation in the
distribution (we refer to that time period as the "Distribution Period").
During the Distribution Period, Rule 104 under Regulation M
prohibits the selling shareholders and any other persons engaged in the
Distribution from engaging in any stabilizing bid or purchasing our Common Stock
except for the purpose of preventing or retarding a decline in the open market
price of our Common Stock. No such person may effect any stabilizing transaction
to facilitate any offering at the market. Inasmuch as the selling shareholders
will be reoffering and reselling our Common Stock at the market, Rule 104
prohibits them from effecting any stabilizing transaction in contravention of
Rule 104 with respect to our Common Stock.
12
There can be no assurance that the selling shareholders will sell
any or all of the shares offered by them hereunder or otherwise.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the shares
of Common Stock offered hereby have been passed upon for the Company by Olshan
Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York
10022. Steven Wolosky, a member of Olshan Grundman Frome Rosenzweig & Wolosky
LLP, holds 67,674 shares of Common Stock in the Company.
EXPERTS
The consolidated financial statements of FalconStor Software, Inc.
as of December 31, 2002, and 2001, and for the period from inception (February
10, 2000) through December 31, 2000, and each of the years in the 2-year period
ended December 31, 2002, have been incorporated by reference in this Prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC two Registration Statements on Form S-8
under the Securities Act with respect to the Shares offered hereby. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statements. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statements,
each such statement being qualified in all respects by such reference.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company, the Company has been advised that it is the SEC's opinion that such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
13
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, until the sale of all the shares of Common Stock that are
part of this offering. The documents we are incorporating by reference are as
follows:
(1) Our Annual Report on Form 10-K for the year ended December 31,
2002;
(2) Our Current Report on Form 8-K filed on January 29, 2003;
(3) The description of our Common Stock contained in our
registration statement on Form 8-A declared effective by the SEC on June 28,
1994, including any amendments or reports filed for the purpose of updating that
description.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTEREST OF NAMED EXPERTS AND COUNSEL
Steven Wolosky, a member of Olshan Grundman Frome Rosenzweig &
Wolosky LLP, holds 67,674 shares of Common Stock of the Company.
ITEM 6. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director or officer to the Company for monetary damages for
breach of fiduciary duty of care as a director. Liability is not eliminated for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchase or redemptions pursuant to Section 174 of the DGCL,
or (iv) any transaction from which the director derived an improper personal
benefit.
II-1
DELAWARE LAW
The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions), or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.
The provisions of Section 203 of the DGCL could have the effect of
delaying, deferring or preventing a change in the control of the Company.
FalconStor Software, Inc. maintains a directors and officers
insurance and company reimbursement policy. The policy insures directors and
officers against unindemnified loss arising from certain wrongful acts in their
capacities and reimburses FalconStor Software, Inc. for such loss for which
FalconStor Software, Inc. has lawfully indemnified the directors and officers.
The policy contains various exclusions, none of which relate to the offering
hereunder. FalconStor Software, Inc. also has agreements with its directors and
officers providing for the indemnification thereof under certain circumstances.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
ITEM 8. EXHIBITS
4.1 2000 Stock Option Plan, as amended, incorporated herein by
reference to the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2002, filed on March 17, 2003.
4.2 1994 Outside Directors Stock Option Plan, as amended,
incorporated herein by reference to the Company's annual report
on Form 10-K for the fiscal year ended December 31, 2002, filed
on March 17, 2003.
*5.1 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky as to the
legality of the stock covered by this registration statement.
II-2
*23.1 Consent of KPMG LLP, independent public accountants.
*23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included in exhibit 5.1).
*24.1 Powers of Attorney (included on signature page).
------------------
* Filed herewith.
ITEM 9. UNDERTAKINGS.
A. The undersigned 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:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) 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;
(iii) 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 (i) and (ii) 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 the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;
(2) That, for the purposes of determining any liability under
the Securities Act of 1933, 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; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
II-3
B. The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 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 a
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 of
1933 and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-8 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Melville, State of New York, on the 19th day of
March, 2003.
FALCONSTOR SOFTWARE, INC.
-------------------------
(Registrant)
By: /s/ ReiJane Huai
------------------------------------
ReiJane Huai
President and Chief Executive Officer
II-5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of ReiJane Huai and Jacob Ferng his
true and lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his
or her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ ReiJane Huai Director, President and Chief March 17, 2003
-------------------------- Executive Officer (Principal
ReiJane Huai Executive Officer)
/s/ Jacob Ferng Vice President and Chief Financial March 17, 2003
-------------------------- Officer (Principal Financial
Jacob Ferng Officer and Principal Accounting
Officer)
II-6
/s/ Lawrence S. Dolin Director March 17, 2003
--------------------------
Lawrence S. Dolin
/s/ Steven H. Owings Director March 17, 2003
-------------------------
Steven H. Owings
/s/ Steven R. Fischer Director March 17, 2003
-------------------------
Steven R. Fischer
II-7
EXHIBIT INDEX
4.1 2000 Stock Option Plan, as amended, incorporated herein by reference
to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 2002, filed on March 17, 2003.
4.2 1994 Outside Directors Stock Option Plan, as amended, incorporated
herein by reference to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2002, filed on March 17, 2003.
*5.1 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky as to the
legality of the stock covered by this registration statement.
*23.1 Consent of KPMG LLP, independent public accountants.
*23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included in exhibit 5.1).
*24.1 Powers of Attorney (included on signature page).
------------------
* Filed herewith.