As filed with the Securities and Exchange Commission on September 27, 1999
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ONTRACK DATA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1521650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9023 COLUMBINE ROAD
EDEN PRAIRIE, MINNESOTA 55347
(612) 937-1107
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
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MICHAEL W. ROGERS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ONTRACK DATA INTERNATIONAL, INC.
9023 COLUMBINE ROAD
EDEN PRAIRIE, MINNESOTA 55347
(612) 937-1107
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
Copies to:
MARTIN R. ROSENBAUM, ESQ.
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER
80 SOUTH 8TH STREET
MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 371-3211
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Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
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|
<PAGE>
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: |_| Registration No._________.
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 earliest effective registration statement
for the same offering: |_|
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Proposed
Title of each class of Proposed maximum
securities to be Amount to be maximum offering aggregate Amount of
registered registered price per share(1) offering price registration fee
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 215,345 $5.0785 $1,093,630 $304
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c). The price and fee are based upon the average of
the high and low sales prices of the registrant's common stock on September
22, 1999, as reported on The Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999
PROSPECTUS
ONTRACK DATA INTERNATIONAL, INC.
215,345 SHARES OF
COMMON STOCK
ONTRACK Data International, Inc. issued 215,345 shares of its common stock
to five individuals when Ontrack acquired Mijenix Corporation in July 1999.
Ontrack agreed to register the shares for resale. The selling shareholders
agreed not to sell or transfer the shares until January 15, 2000. This
prospectus offers the shares for resale after the restriction on resale expires.
Ontrack will pay all expenses of the offering, except that the selling
shareholders will pay any underwriting discounts and commissions the
shareholders incur. Ontrack's common stock is quoted on The Nasdaq National
Market under the symbol "ONDI." On September 22, 1999, the last reported sale
price of Ontrack common stock on The Nasdaq National Market was $5.00.
FOR INFORMATION CONCERNING RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED IN THIS PROSPECTUS, SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
The selling shareholders have informed Ontrack that, when they can sell the
shares, they intend to sell the shares in one or more transactions on The Nasdaq
National Market at market prices at the time of the sale, or otherwise as
described in this prospectus. The selling shareholders have also informed
Ontrack that they have made no arrangement with any brokerage firm in advance
for the sale of the shares. See "Plan of Distribution."
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SHARES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
__________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY............................................................ 1
RISK FACTORS.................................................................. 4
USE OF PROCEEDS............................................................... 6
SELLING SHAREHOLDERS.......................................................... 6
PLAN OF DISTRIBUTION.......................................................... 7
LEGAL MATTERS................................................................. 8
EXPERTS....................................................................... 8
WHERE YOU CAN FIND MORE INFORMATION
AND INCORPORATION BY REFERENCE.............................................. 8
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS AND SHOULD
CAREFULLY CONSIDER, AMONG OTHER THINGS, THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE, BEFORE YOU DECIDE TO PURCHASE OUR STOCK.
As used in this prospectus, "we," "Ontrack," "Company," "us" and "our"
refer to ONTRACK Data International, Inc. and our subsidiaries, unless the
context requires otherwise. The term "Mijenix" refers to Mijenix Corporation, a
subsidiary of the Company, unless the context requires otherwise.
THE COMPANY
Ontrack, a world leader in data recovery, provides a wide range of
computer services and software products that enable users to maintain constant
access to their critical data and permit fast recovery from system failure.
Our principal business is data recovery. We can recover lost or
corrupted data from nearly all operating systems and types of storage devices,
using hundreds of proprietary tools and techniques. We perform data recoveries
for Fortune 500 corporations, governmental agencies, educational and financial
institutions, small businesses and individuals. We can perform remote data
recovery via a modem in many cases. In other cases, customers ship disk drives
or other storage media to us for data recovery. We also offer a do-it-yourself
data recovery software product and other data access and protection software. We
believe we are the only company in the world offering this complete range of
data recovery products and services. Ontrack also offers services in related
areas such as computer evidence services for both civil and criminal cases.
We also offer proactive solutions to help prevent system failures and
enable users to maintain access to data. We will develop or acquire technology
that lets us offer a comprehensive single source for client and laptop data
access and recovery:
* We acquired Mijenix Corporation in July 1999. This was our biggest
acquisition to date and lets us offer proactive software tools and
diagnostics to help our customers avoid system failure. Mijenix has
developed several award-winning software products that enhance the use
of Windows-based personal computer systems, including ZipMagic 98 and
FreeSpace compression tools, the PowerDesk Utilities 98 file manager
and Fix-It Utilities 99, a general purpose utility for Windows 95, 98
and NT operating systems. Mijenix also recently released a software
update management tool called EasyUpdate. Mijenix had $4 million in
revenues in 1998.
* We acquired the TIRAMISU(TM) product line in December 1998 from the
German company Plug'n Play Computerberatung GbR. TIRAMISU(TM) is a
do-it-yourself data recovery software product. We sell TIRAMISU(TM)
primarily over the Internet. TIRAMISU(TM) is effective in cases where
the lost data is relatively easy to recover and does not require the
expertise of a data recovery engineer. We are expanding promotion of
the software and integrating the product line into our wide array of
data recovery solutions.
1
<PAGE>
* In July 1999, we signed a worldwide product licencing agreement with
Connected Corporation. Connected is a leader in data backup and
recovery software and services for personal computers. Many of these
products and services are Internet-based. Ontrack will license
Connected's award-winning network backup and online backup solutions.
We will sell these solutions through our direct and Internet sales
channels. We will private-label an Ontrack product with the "Powered by
Connected" tag line for added validity and recognition.
We also continue to market DISK MANAGER(R), our first software product.
DISK MANAGER(R) is a hard disk drive installation and partitioning utility for
personal computers. The product facilitates the process of installing
replacement or upgrade hard disk drives on personal computers. It also optimizes
storage capacity on hard disk drives. We generally sell DISK MANAGER(R) through
hard disk drive manufacturers on an original equipment manufacturer (OEM) basis.
Our main office is in Minneapolis, Minnesota. We also have offices in
Los Angeles, Washington, D.C., New York, London, England, Stuttgart, Germany,
and Paris, France. Each office has stand-alone data recovery capabilities,
except for the Paris office, which is strictly a sales office. We also offer
data recovery, data conversion and consulting services in Japan through a
licensing arrangement with a division of a major Japanese company. Mijenix also
maintains its office in Boulder, Colorado.
Ontrack was incorporated in 1985 under the laws of the State of
Minnesota. Our main office is located at 9023 Columbine Drive, Eden Prairie,
Minnesota 55347, and our telephone number is (612) 937-1107.
2
<PAGE>
THE OFFERING
Common stock offered by selling shareholders................... 215,345 shares
Common Stock outstanding after offering (1).................... 9,944,064 shares
Nasdaq symbol.................................................. ONDI
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(1) Excludes up to 1,543,728 shares of Common Stock issuable under the
Company's stock option plans, of which options covering 1,535,950
shares were outstanding as of September 23, 1999.
FORWARD-LOOKING STATEMENTS
The information we have provided in this prospectus, and in our public
documents to which we refer, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include information about
possible or assumed future results of operations and are subject to risks and
uncertainties. Also, when we use the words "believe," "expect," "intend,"
"anticipate" or similar expressions, we are making forward-looking statements.
Many possible events or factors could affect our future financial results and
performance, including the risks described under "Risk Factors" on page 4. This
could cause our actual results or performance to differ significantly from those
we express in our forward-looking statements. You should consider these risks,
and carefully review the risk factors described in this prospectus, before you
purchase shares of our common stock.
3
<PAGE>
RISK FACTORS
IF YOU ARE CONSIDERING A PURCHASE OF OUR COMMON STOCK OFFERED BY THIS
PROSPECTUS, YOU SHOULD CONSIDER CAREFULLY ALL THE INFORMATION CONTAINED IN THIS
PROSPECTUS. YOU SHOULD ESPECIALLY CONSIDER THE FOLLOWING RISK FACTORS:
WE MAY NOT ACHIEVE THE DESIRED RESULTS FROM OUR ACQUISITIONS AND OTHER
PROJECTS. We have started to diversify our business in order to increase our
revenues. We purchased the TIRAMISU(TM) software product line in December 1998,
and we acquired Mijenix Corporation in July 1999. We also entered into a
licensing agreement with Connected Corporation in July 1999 to allow us to offer
Connected network backup and online backup solutions to our customers. These
changes in our business are all fairly new, and we can't be certain how
successful any of the changes will be. To make the Mijenix acquisition succeed,
we must successfully integrate the business of Mijenix into our existing
business. We have not completed a significant acquisition before, and we may not
be able to integrate Mijenix's business successfully. Mijenix's products are
sold through retail software channels, and the revenues from these sales may
fluctuate. Also, the retail software business is unpredictable, and product
returns can affect net revenues significantly. Our new product offerings from
Connected also represent a new business area for us. Online back-up is new
technology, and there is no guarantee that customers will accept it.
We may make other acquisitions and participate in joint ventures and
other projects in the future, and we will continue to develop new products and
services. These acquisitions and other projects may not yield the desired growth
in revenues and earnings.
DEVELOPMENTS IN TECHNOLOGY MAY REDUCE THE NEED FOR OUR SERVICES. Other
businesses are making major investments in development of automatic data backup
systems, improved data storage technology and other data protection techniques.
These businesses are constantly making new developments in these areas. Future
developments in computer technology may reduce the demand for our data recovery
services, and this factor may reduce our service revenues.
OUR MARKETING APPROACHES MAY NOT BE SUCCESSFUL. We are expanding and
changing our marketing efforts to achieve growth in data recovery revenues. We
continue to develop and support our Web site, and we hope to develop further
products to serve the needs of a range of potential customers visiting the Web
site. We also have dedicated resources to obtain referral relationships with
other computer service companies, among other strategies. These strategies have
been slower to increase our revenues than we expected, and there is no guarantee
that our marketing strategies will have a greater impact in the future.
INTENSE COMPETITION WILL CONTINUE. In recent years, competition for our
data recovery services has increased sharply, especially at the lower end of the
data recovery market. New competitors who seek to offer data recovery services
can start their business and penetrate the market relatively quickly and
cheaply. The Internet offers these new competitors increased access to potential
customers. This increased competition may continue in the future, and this could
restrict future revenue growth or reduce revenues.
4
<PAGE>
Mijenix sells software products that enhance the use of personal
computer systems. These products must compete with products offered by much
larger companies such as Network Associates, Inc. and Symantec Corporation.
These competitors have greater economic resources and name recognition than
Ontrack or Mijenix, and there is no guarantee that Mijenix products will compete
successfully in the future.
WE MUST ADAPT OUR PRODUCTS AND SERVICES TO TECHNOLOGICAL CHANGE. In the
computer industry there are rapid technological changes and frequent
introductions of new and enhanced products. Customer demands are continually
changing, and industry standards are constantly evolving. To stay competitive,
we must constantly adapt our data recovery techniques to adapt to this
technological change. We must also develop enhancements and upgrades to our
software products. There is no guarantee that we will make these changes
successfully. If we fail to do so, we may be unable to compete and our sales
will suffer.
WE DEPEND ON OUR TECHNICAL PERSONNEL. Our success depends on our
ability to hire and train qualified technical personnel. We depend on our
software developers and data recovery engineers for our continued success in the
data recovery business and the commercial software business. Competition for
these personnel in the computer industry is intense. If we cannot hire and
retain qualified personnel, this may restrict our future growth.
5
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USE OF PROCEEDS
The Shares will be offered solely by the selling shareholders, who will
receive all of the proceeds from the sale of the Shares offered with this
prospectus. We will not receive any of the proceeds from the sale of the Shares.
SELLING SHAREHOLDERS
The selling shareholders, who were formerly the majority shareholder
and some of the option holders of Mijenix, acquired the Shares from Ontrack in a
private transaction on July 15, 1999 as part of the purchase price for the
acquisition of Mijenix. The following table provides information about the
beneficial ownership of Ontrack common stock by the selling shareholders as of
the date of this prospectus, and as adjusted to reflect the possible sale of the
shares under this prospectus.
Number of Maximum Shares to be
Shares Beneficially Number of Beneficially
Owned Prior Shares to Owned After
Name to Offering be Sold The Offering(1)
---- ------------------- --------- ---------------
Jennifer Kronenberg (2)......... 163,414 163,414 0
Alex Eckelberry................. 32,683 32,683 0
Pierre Michel Kronenberg (2).... 3,995 3,995 0
Derek Zahn ..................... 10,895 10,895 0
Francis Salmon.................. 4,358 4,358 0
------- ------- ---
Total................... 215,345 215,345 0
======= ======= ===
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(1) Assumes the sale of all the shares offered by this prospectus.
(2) Jennifer Kronenberg and Pierre Michel Kronenberg are married. Each
disclaims beneficial ownership of the shares held by the other.
In the table above, the share ownership information includes shares
held in an escrow account to satisfy indemnification obligations to Ontrack, if
any, under the stock purchase agreement for the purchase of Mijenix. The
following numbers of shares are held in the escrow account: Ms. Kronenberg,
20,521 shares; Mr. Eckelberry, 4,026 shares; Mr. Kronenberg, 492 shares; Mr.
Zahn, 1,342 shares; Mr. Salmon, 537 shares; total, 26,918 shares. The table does
not include additional shares of Ontrack stock that may be issued to these
shareholders as contingent consideration, depending on the revenues of Mijenix
for the period from July 15, 1999 through December 31, 1999.
6
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders have informed Ontrack that the common stock
may be sold or distributed from time to time by the selling shareholders, or by
pledgees, donees or transferees of, or other successors in interest to the
selling shareholders, directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as agents or may
acquire common stock 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 shares may be sold by one or more of the following:
* ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
* purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
* transactions involving cross or block trades or otherwise on the Nasdaq
National Market;
* "at the market" to or through market makers or into an existing market
for the shares;
* in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
* through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); or
* any combination of the foregoing.
In addition, the selling shareholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage in short
sales of the common stock in the course of hedging the positions they assume
with the selling shareholders. The selling shareholders or their successors in
interest may also enter into option or other transactions with broker-dealers
that require the broker-dealers to deliver common stock, which may be resold
thereafter pursuant to this prospectus. The selling shareholders or their
successors in interest may also pledge the common stock in connection with
hedging transactions or other transactions.
The selling shareholders have informed Ontrack that, as of the date of
this prospectus, the selling shareholders have made no arrangement with any
broker for the sale of the shares. Underwriters, brokers or dealers may
participate in such transactions as agents and may receive brokerage commissions
in that capacity from the selling shareholders or purchasers of the shares
(which compensation as to a particular broker-dealer may be less than or in
excess of customary commissions). These underwriters, brokers or dealers may
also purchase shares and resell these shares for their own account as described
above. The selling shareholders and the underwriters, brokers or dealers may be
considered underwriters as that term is defined by the Securities Act of 1933.
However, the selling shareholders disclaim any status as underwriters. Any
commissions, discounts or profits received by underwriters, brokers or dealers
in the foregoing transactions described above may be considered underwriting
discounts and commissions under the Securities Act of 1933.
7
<PAGE>
LEGAL MATTERS
Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota will give its
opinion about the validity of the issuance of the common stock offered under
this prospectus.
EXPERTS
The consolidated financial statements of Ontrack as of December 31,
1998 and for the year then ended, incorporated by reference in this prospectus
and elsewhere in the Registration Statement have been audited by Grant Thornton
LLP, independent certified public accountants, as indicated in their report
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing.
The financial statements as of December 31, 1997 and for each of the
two years in the period ended December 31, 1997 incorporated in this prospectus
by reference to the Annual Report on Form 10-K for the year ended December 31,
1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
AND INCORPORATION BY REFERENCE
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You can also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities.
We "incorporate by reference" into this prospectus the information we
file with the SEC (File No. 000-21375), which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus.
Information that we file subsequently with the SEC will automatically update
this prospectus. We incorporate by reference the documents listed below, and any
filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 after the initial filing of the registration
statement that contains this prospectus and before the time that the selling
shareholders sell all the securities offered by this prospectus:
* Annual Report on Form 10-K for the year ended December 31,
1998;
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<PAGE>
* Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 and June 30, 1999;
* Current Report on Form 8-K filed July 27, 1999; and
* The description of our common stock in our Form 8-A
registration statement filed on September 17, 1996, which
incorporated the material under "Description of Capital Stock"
in our registration statement on Form SB-2 filed on August 21,
1996 (Registration No. 333-05470C), including any amendment or
report filed for the purpose of updating such description.
Our Common Stock is quoted on The Nasdaq National Market, and some of our
reports, proxy materials and other information may also be available for
inspection at the offices of Nasdaq at 1735 K Street, N.W., Washington, D.C.
20006.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15 of the 1934 Act after the date of this prospectus and prior to the
termination of the offering of securities contemplated hereby shall also be
deemed to be incorporated by reference in this prospectus and to be a part of
this prospectus from the date of filing of such documents or reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this prospectus shall be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modifies or supersedes
that statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
This prospectus is part of a registration statement on Form S-3 which
we have filed with the SEC. As permitted by SEC rules, this prospectus does not
contain all of the information contained in the registration statement and
accompanying exhibits and schedules filed with the SEC. You may refer to the
registration statement, the exhibits and schedules for more information about us
and our shares. The registration statement, exhibits and schedules are also
available at the SEC's public reference rooms or through its web site on the
Internet. These documents (other than exhibits to the documents, unless the
exhibits are specifically incorporated by reference to the documents) are also
available, without charge, to any person, including any beneficial owner, to
whom this prospectus is delivered, on written or oral request, to ONTRACK Data
International, Inc., 9023 Columbine Drive, Eden Prairie, Minnesota 55347,
Attention: Investor Relations, or by telephone at (612) 937-1107. You may also
contact us via our Internet web site at http://www.ontrack.com.
9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee................................ $ 304
Accounting fees and expenses........................ 2,500
Legal fees and expenses............................. 7,500
Miscellaneous....................................... 696
-------
Total......................................... $11,000
-------
Except for the SEC fee, all of the foregoing expenses have been
estimated.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 302A.521 of the Minnesota Statutes requires, among other
things, the indemnification of persons made or threatened to be made a party to
a proceeding by reason of acts or omissions performed in their official capacity
as an officer, director, employee or agent of the corporation against judgments,
penalties and fines (including attorneys' fees) if such person is not otherwise
indemnified, acted in good faith, received no improper benefit, reasonably
believed that such conduct was in the best interests of the corporation, and, in
the case of criminal proceedings, had no reason to believe the conduct was
unlawful. In addition, Section 302A.521, subd. 3, of the Minnesota Statutes
requires payment by the corporation, upon written request, of reasonable
expenses in advance of final disposition in certain instances if a decision as
to required indemnification is made by a disinterested majority of the Board of
Directors present at a meeting at which a disinterested quorum is present, or by
a designated committee of the Board, by special legal counsel, by the
shareholders or by a court.
The Ontrack Restated and Amended Bylaws provide for the indemnification
of its directors, officers, employees, and agents, in accordance with, and to
the fullest extent permitted by, the provisions of the Minnesota Business
Corporation Act, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have 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.
II-1
<PAGE>
ITEM 16. EXHIBITS
2.1 Stock Purchase Agreement dated as of July 7, 1999 by and among the
registrant, Mijenix Corporation and Jennifer Kronenberg
5.1 Opinion of Lindquist & Vennum P.L.L.P.
23.1 Consent of Lindquist & Vennum P.L.L.P. (included in Exhibit 5.1).
23.2 Consent of Grant Thornton LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on the signature page to this
registration statement).
ITEM 17. 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;
(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;
and
(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 the undertakings set forth in 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 Section 15(d) of the
Securities 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.
II-2
<PAGE>
(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 purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities 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.
(b) 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 provisions summarized in Item 15 above, 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
directors, 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 on 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Eden Prairie, State of Minnesota, on September
27, 1999.
ONTRACK DATA INTERNATIONAL, INC.
By: /s/ Michael W. Rogers
-------------------------------------
Michael W. Rogers
Chairman and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of ONTRACK Data
International, Inc., do hereby constitute and appoint Michael W. Rogers and
Thomas P. Skiba, or either of them, our true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for us and in
our name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective 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 upon
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below on the 27th day of September,
1999, by the following persons in the capacities indicated.
Signature Title
- --------- -----
/s/Michael W. Rogers Chairman of the Board and Chief Executive Officer
- -------------------------- (principal executive officer)
Michael W. Rogers
/s/Thomas P. Skiba Vice President and Chief Financial Officer
- -------------------------- (principal financial and accounting officer)
Thomas P. Skiba
/s/Lee B. Lewis President and Chief Operating Officer, Director
- --------------------------
Lee B. Lewis
II-4
<PAGE>
/s/Gary S. Stevens Senior Vice President, Engineering, Director
- --------------------------
Gary S. Stevens
/s/John E. Pence Director
- --------------------------
John E. Pence
/s/Robert M. White, Ph.D. Director
- --------------------------
Robert M. White, Ph.D.
/s/Roger D. Shober Director
- --------------------------
Roger D. Shober
II-5
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of July 7,
1999, is by and among ONTRACK Data International, Inc., a Minnesota corporation
(the "Buyer"), Mijenix Corporation, a Wisconsin corporation (the "Corporation"),
and Jennifer Kronenberg (the "Shareholder").
RECITALS
Shareholder owns and desires to sell, and Buyer desires to purchase,
all of the issued and outstanding capital stock of the Corporation, upon the
terms and subject to the conditions set forth in this Agreement.
Prior to the purchase of the Shares, Buyer and the individual holders
of options for the purchase of the Corporation's common stock listed on Schedule
A to this Agreement (the "Optionholders") will enter into the Large Option
Cancellation Agreement in the form of the attached Exhibit A or the Small Option
Cancellation Agreement in the form of the attached Exhibit B (collectively
referred to as the "Option Cancellation Agreements");
Buyer, Shareholder, and the Corporation intend that Buyer and
Shareholder will make an election for federal and state tax purposes under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Section 338(h)(10) Election"), with respect to the purchase and sale of the
Shares.
Buyer, Shareholder, and the Corporation wish to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained in this
Agreement, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
OF STOCK AND CANCELLATION OF OPTIONS
1.1. Sale of Common Stock and Cancellation of Options.
(a) Common Stock. Shareholder hereby agrees to sell, convey,
transfer, assign and deliver to Buyer on the Closing Date (as defined below),
6,750 shares (the "Shares") of duly and validly issued, fully paid and
non-assessable, common stock of the Corporation, which Shares represent all of
the issued and outstanding capital stock of the Corporation. On the Closing
Date, the Shareholder shall be paid by Buyer the amount described in Section
1.2(b), in consideration for
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a certificate or certificates representing the Shares, endorsed in blank or
accompanied by stock powers duly executed in blank to permit transfer of the
Shares to the Buyer.
(b) Stock Options. Immediately prior to the closing of the
purchase of the Shares and in accordance with the Option Cancellation
Agreements, the Optionholders will deliver to Buyer for cancellation, that
number of stock purchase options appearing opposite each such Optionholder's
name on Schedule A (the "Options") which Options represent all of the duly and
validly issued options for the purchase of common stock of the Corporation. On
the Closing Date, each Option shall be canceled, and each holder of such Option
shall be paid the amount described in Section 1.2(c) in consideration for the
cancellation of such Option.
1.2. Purchase Price.
(a) Components of Purchase Price. Subject to the terms and
conditions of this Agreement and in reliance upon the representations,
warranties and covenants of Shareholder contained herein and of the
Optionholders contained in the Option Cancellation Agreements, and in full
consideration of such sale of the Shares to Buyer and the cancellation of the
Options, Buyer agrees to pay to Shareholder and the Optionholders, in the
aggregate, a purchase price (the "Purchase Price") consisting of (i) Six Million
and No/100 Dollars ($6,000,000.00) payable in cash at the Closing, subject to
adjustment as provided in Sections 1.2(b) and 1.2(d) of this Agreement; (ii)
shares of the common stock of Buyer having a Closing Trading Value (as defined
below) of One Million and No/100 Dollars, subject to adjustment as provided in
Sections 1.2(b) and 1.2(d) of this Agreement; and (iii) up to Two Million, Five
Hundred Thousand and No/100 Dollars ($2,500,000.00), payable in cash and/or
common stock of Buyer, as provided in Section 1.3. The payments described in (i)
and (ii) above are referred to collectively herein as the "Closing Payment", and
the payment described in (iii) above is referred to herein as the "Contingent
Consideration". The Purchase Price payable to the Optionholders shall be paid in
satisfaction of the Corporation's obligations under the Option Cancellation
Agreements. The parties agree that the Purchase Price set forth in Section 1.2
below that is being paid to the Shareholder for the Shares reflects a reduction
for (i) amounts being paid to the Optionholders pursuant to the Option
Cancellation Agreements and (ii) payables and other liabilities that are not the
responsibility of Shareholder pursuant to this Agreement.
(b) Payment of Closing Payment. The cash portion of the
Closing Payment will be payable by wire transfer or check to Shareholder and the
Optionholders, allocated as described in Section 1.2(c). The common stock
portion of the Closing Payment will be payable to Shareholder and certain of the
Optionholders as described in Article V and in the Large Option Cancellation
Agreement attached as Exhibit A. The number of shares of the Buyer's common
stock to be issued at Closing shall be based on the average daily closing share
price for the ten trading days preceding the date of this Agreement, unless the
transactions described in this Agreement are publicly announced before the date
of this Agreement, in which case the average daily closing share price will be
calculated for the ten trading days preceding the date of such announcement (the
"Closing
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<PAGE>
Trading Value"). The Closing Payment will be reduced by the following amounts
paid into the following escrow accounts:
(i) $75,000 in cash (the "Balance Sheet Adjustment
Escrow Amount"), which will be delivered to Norwest Bank Minnesota, National
Association (the "Adjustment Escrow Agent") for purposes of the Post-Closing
Adjustment described in Section 1.2(d) and according to the Adjustment Escrow
Agreement in the form attached hereto as Exhibit C; and
(ii) $750,000, consisting of (A) $625,000 in cash and
(B) shares of the common stock of Buyer having a Closing Trading Value of
$125,000 (the "Indemnity Escrow Amount"), which amount shall be delivered to and
held by Norwest Bank Minnesota, National Association (the "Indemnity Escrow
Agent") according to the Indemnity Escrow Agreement in the form attached hereto
as Exhibit D.
(iii) The parties agree that, for all purposes, cash
or stock held in escrow shall be treated as owned by Buyer until such time as
such amounts are actually paid or transferred to Shareholder and the
Optionholders.
(c) Allocation of Closing Payment. The Closing Payment shall
be allocated between the Shareholder and Optionholders as determined in
accordance with Schedule 1.2. The Balance Sheet Adjustment Escrow Amount and the
Indemnity Escrow Amount will be deducted from the respective payments to the
Shareholder and the Optionholders as described on Schedule 1.2.
(d) Post-Closing Adjustment.
(i) Within 45 days after the Closing Date (as defined
below), the Shareholder shall deliver to the Buyer a balance sheet of the
Corporation as of the close of business on the Closing Date (the "Closing Date
Balance Sheet") audited by Arthur Andersen LLP, the Corporation's auditors, and
showing the Corporation's working capital as of the Closing Date (the "Closing
Working Capital"). Working capital is defined as current assets less current
liabilities. The Closing Date Balance Sheet shall be prepared in accordance with
generally accepted accounting principles consistently applied. Grant Thornton
LLP, the auditors for Buyer, shall have up to 45 days to review and comment on
the Closing Date Balance Sheet based on generally accepted accounting principles
in advance of the determination of the adjustment of the Purchase Price. If
Grant Thornton objects to the Closing Date Balance Sheet and the parties cannot
reach agreement within 10 days, then Grant Thornton and Arthur Andersen shall
have up to 10 days to designate another mutually acceptable accounting firm. The
designated accounting firm shall have 45 days to complete the Closing Date
Balance Sheet. The fees of the designated accounting firm shall be paid by the
party whose auditors' formulation of the Closing Date Balance Sheet departs to
the greatest degree from the final Closing Date Balance Sheet. If the parties
cannot agree on the party responsible for the fees, the responsibility for the
fees will be determined under Section 10.14.
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<PAGE>
(ii) If the Closing Working Capital of the
Corporation is greater than the projected working capital of the Corporation as
set forth in the Corporation's projected June 30, 1999 balance sheet prepared in
April 1999 and attached as Schedule 1.2(d), reduced by $50,000 (the amount as so
reduced is referred to herein as the "Target Working Capital"), the Purchase
Price shall be adjusted upward. In this case, within three days after the
parties have agreed on the Closing Date Balance Sheet or on another date agreed
to by the parties, (A) all amounts held by the Adjustment Escrow Agent will be
released and delivered to Shareholder and the Optionholders, and (B) the
Purchase Price will be increased dollar-for-dollar by the excess of the Closing
Working Capital over the Target Working Capital, and Buyer will deliver the
additional amount of the Purchase Price to Shareholder and the Optionholders. If
the Closing Working Capital is less than the Target Working Capital, the
Purchase Price shall be adjusted downward dollar-for-dollar. In this case,
within three days after the parties have agreed on the Closing Date Balance
Sheet or on another date agreed to by the parties, (A) the amount of the
adjustment will be released to Buyer by the Adjustment Escrow Agent and any
remaining amounts will be released by the Adjustment Escrow Agent to Shareholder
and the Optionholders according to the allocation described in Schedule 1.2 and
(B) if this is not sufficient to cover the adjustment, Shareholder individually
agrees to pay promptly to Buyer a portion of the Closing Payment sufficient to
cover the remainder of the adjustment. Shareholder agrees and acknowledges that
Buyer need look only to Shareholder, and not the Optionholders, to pay the
entire remainder of the adjustment not covered by the Adjustment Escrow Amount.
1.3 Contingent Consideration; Computation and Payment.
(a) Shareholder and the Optionholders shall receive an
aggregate amount of up to Two Million Five Hundred Thousand and No/100 Dollars
($2,500,000.00) in additional consideration (the "Contingent Consideration").
The Contingent Consideration will be payable in the form of cash and, in Buyer's
sole discretion, up to one half in Buyer's common stock, the number of shares of
which shall be determined based on the average daily closing share price for the
ten trading days starting on the date the audit report is completed by Grant
Thorton LLP pursuant to Section 1.3(d). Allocation of the Contingent
Consideration among the Shareholder and the Optionholders, including the
determination of which individuals will receive the shares of Buyer's common
stock, will be made in the manner described on Schedule 1.2.
(b) The Contingent Consideration shall be paid, if at all,
based on the amount by which the Corporation's Actual Revenues for the period
from the Closing Date through December 31, 1999 (the "Contingent Period"), meet
or exceed the Corporation's Projected Revenues as stated in the projected income
statements prepared in April 1999 and attached as Schedule 1.3(b), subject to
the adjustment for Corporation Marketing Expenses described in Section 1.3(c):
(1) If the Actual Revenues for the Contingent Period are less than or equal to
70% of the Projected Revenues, the Contingent Consideration shall be $0.00. (2)
If the Actual Revenues during the Contingent Period are less than or equal to
100% but greater than 70% of the Projected Revenues, the Contingent
Consideration shall be equal to $66,666.66 multiplied by the number of
percentage points that the Actual Revenues during that period exceed 70% of the
Projected Revenues. (3) If the Actual Revenues during the Contingent Period are
greater than 100% of the Projected Revenues, the
4
<PAGE>
Contingent Payment shall be equal to $2,000,000, PLUS $33,333.33 multiplied by
the number of percentage points that the Actual Revenues during that period
exceed 100% of the Projected Revenues, up to a maximum amount of $500,000. For
purposes of this Agreement, the term "Actual Revenues" shall be defined as all
sales of the Corporation's products either through the Corporation's sales and
marketing channels or through Buyer's sales and marketing channels, net of
discounts, refunds and allowances, each as determined based on the audit
described in Section 1.3(d).
(c) If the total variable marketing expenses relating to the
Corporation's products, the components of which are described on the attached
Schedule 1.3(c) ("Corporation Marketing Expenses"), during the Contingent Period
exceed 25% of Actual Revenues for that period, the Contingent Payment, if any,
will be reduced by the excess of Corporation Marketing Expenses over 25% of
Actual Revenues, on a dollar-for-dollar basis.
(d) The Contingent Consideration, if any, will be payable
after the completion of an audit of the Corporation's Actual Revenues and
Corporation Marketing Expenses during the Contingent Period by Grant Thorton,
prepared in accordance with generally accepted accounting principles. Such audit
will be completed on or before May 15, 2000. Arthur Andersen shall have up to 45
days to review and comment on the audit based on generally accepted accounting
principles in advance of the determination of the adjustment of the Contingent
Consideration. If Arthur Andersen objects to the audit and the parties cannot
reach agreement within 10 days, then Grant Thornton and Arthur Andersen shall
have up to 10 days to designate another mutually acceptable accounting firm. The
designated accounting firm shall have 45 days to complete the Closing Date
Balance Sheet. The fees of the designated accounting firm shall be paid by the
party whose auditors' formulation of the Closing Date Balance Sheet departs to
the greatest degree from the final Closing Date Balance Sheet. If the parties
cannot agree on the party responsible for the fees, the responsibility will be
determined under Section 10.14. The Contingent Consideration will be paid within
three days after the parties have agreed on the audit or on another date agreed
to by the parties, with interest accruing from May 15, 2000 at a rate equal to
the reference rate of U.S. Bank National Association.
(e) Buyer may reduce the Contingent Consideration payable to
the Shareholder as a setoff to satisfy Shareholder's indemnification obligations
under Section 9.1, subject to the limitations on indemnification under Section
9.3.
(f) Notwithstanding the foregoing, the Contingent
Consideration due and owing to Shareholder and the Optionholders, if it can be
calculated, shall be immediately due and payable to Shareholder and the
Optionholders in the event of a sale of all or substantially all of the assets
of Buyer. Otherwise, Buyer will make adequate provision in the applicable
agreement for payment of the Contingent Consideration by the acquiror when due.
In the event of a merger or consolidation involving Buyer in which Buyer is not
the surviving corporation, Buyer will make adequate provision in the applicable
agreement for payment of the Contingent Consideration by the successor
corporation when due.
5
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDER
To induce Buyer to enter into this Agreement, Shareholder represents
and warrants to Buyer that (i) notwithstanding any investigation Buyer may
undertake, and (ii) except as otherwise specifically stated in the Disclosure
Schedule attached hereto as Schedule 2 ("Shareholder's Disclosure Schedule"),
the following are true and correct on the date hereof and will be true and
correct as of the Closing Date:
2.1. Ownership of the Shares. Shareholder is the record and beneficial
owner of all of the Shares free and clear of all liens, encumbrances, purchase
rights, claims, pledges, mortgages, security interests, or other limitations or
restrictions whatsoever. Shareholder is not subject to, or a party to, any
articles of incorporation or bylaw provisions, shareholder control agreements,
buy-sell agreements, contracts, instruments or other restrictions of any kind or
character which directly or indirectly restrict or otherwise limit in any manner
the voting, sale or other disposition of the Shares.
2.2. Authority of Shareholder. Shareholder has full and unrestricted
legal right, power and authority to enter into this Agreement, and to sell,
assign, transfer, and deliver to Buyer valid, lawful and marketable title to the
Shares to be sold, assigned and transferred by Shareholder pursuant to this
Agreement. Shareholder represents that neither the execution and delivery of
this Agreement or any other agreements contemplated hereby nor the consummation
of the transactions contemplated hereby will, except as set forth on Section 2.2
of the Shareholder's Disclosure Schedule, conflict with or result in any
violation of, or default under, any contract, agreement or commitment or any law
applicable to Shareholder or the Corporation or any of its assets or property or
its business. No action, consent or approval by, or filing by Shareholder or the
Corporation with, any federal, state, municipal, foreign or other court or
governmental body or agency, or any other regulatory body, is required in
connection with the execution and delivery by the Shareholder of this Agreement
or the consummation by Shareholder of the transactions contemplated hereby.
2.3. Title. Upon delivery to Buyer at Closing of certificates duly
endorsed or accompanied by duly executed stock powers representing all the
Shares, Buyer will acquire lawful, valid and marketable title to the Shares free
and clear of all liens, encumbrances, purchase rights, claims, pledges,
mortgages, security interests, or other limitations or restrictions whatsoever,
except for any that may be created by Buyer.
2.4. Organization and Qualifications of the Corporation. The
Corporation is a corporation lawfully existing and in good standing under the
laws of Wisconsin with full power and authority to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased or such business is conducted by it.
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2.5. Capitalization of the Corporation. The authorized capital stock of
the Corporation consists of 9,000 shares of common stock, of which 6,750 shares
are issued and outstanding, fully paid and non-assessable. Except as disclosed
in Section 2.5 of the Shareholder's Disclosure Schedule, there are no
outstanding warrants, options, preemptive rights, or other rights or securities
to purchase or acquire newly issued shares of the Corporation's capital stock.
There are no stock appreciation, phantom or similar rights based on the book
value or any other attribute of any capital stock of the Corporation.
2.6. Subsidiaries. The Corporation does not have any subsidiaries or
own any securities issued by any other business organization or governmental
authority. The Corporation is not a partner or joint venturer in any partnership
or joint venture.
2.7. Title to Properties; Condition of Properties. The Corporation owns
and has good and marketable title to all of the assets listed on the Latest
Balance Sheet (defined in Section 2.10) or acquired since then, free and clear
of any lien or encumbrance of any kind (collectively, "Encumbrances"). All
machinery and equipment owned by the Corporation is in good repair, has been
well maintained and is in good working order, normal wear and tear excepted. All
assets necessary for the continued operation of the Corporation's business as it
is currently being conducted and as it has been conducted since January 1, 1999
are owned by the Corporation or subject to valid leasehold interests.
2.8. Real Property. All real property leased by the Corporation is
described in Section 2.8 of the Shareholder's Disclosure Schedule (the "Leased
Real Property"). The Corporation owns no real property.
2.9. Environmental Matters.
(a) Neither the Leased Real Property nor any property
previously owned or operated by the Corporation has been used by the
Corporation, or to the best knowledge of Shareholder, by any other party, for
the purpose of storing, disposing or treating any hazardous, toxic or dangerous
substance, waste or material ("Hazardous Materials") as defined under or
regulated by any federal, state or local laws relating to pollution, protection
of the environment or worker health and safety (collectively, the "Environmental
Laws"). There has been no release or threatened release of Hazardous Materials
on the Leased Real Property or any property previously owned or operated by the
Corporation or Shareholder or, to the best knowledge of Shareholder, by any
other party. Neither the Corporation nor the Shareholder has received any notice
of any asserted present or past failure by the Corporation or by any other party
to comply with any Environmental Laws or any rule or regulation adopted pursuant
to such laws in connection with the Leased Real Property or any property
previously owned or operated by the Corporation or the Shareholder.
(b) The Corporation has not transported Hazardous Materials,
or arranged for the transportation of Hazardous Materials to any disposal,
treatment or storage site which is the subject of federal, state or local
enforcement actions, or, to the best knowledge of Shareholder, other
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governmental or private investigations, or which may lead to claims against the
Corporation for clean up costs, remedial work, or for damages.
(c) Except as provided in Section 2.9 of the Shareholder's
Disclosure Schedule, to the best of Shareholder's knowledge, there are no
underground storage tanks, as defined under federal or applicable state law,
located on the Leased Real Property, and none have been placed on the Leased
Real Property during the Corporation's operation of the Leased Real Property.
(d) To the best knowledge of Shareholder, there are no
material expenditures required to bring the Leased Real Property in compliance
with the Environmental Laws.
2.10. Financial Statements. Shareholder has delivered to Buyer the
following financial statements:
(a) Financial statements of the Corporation dated December 31,
1998 and 1997, and related statements of income and retained earnings, and cash
flows for the years then ended, as audited by Arthur Andersen LLP; and
(b) Unaudited balance sheet of the Corporation as of May 31,
1999 (the "Latest Balance Sheet").
All of the financial statements referred to in this Section 2.10 have
been prepared in accordance with generally accepted accounting principles
("GAAP") (except as set forth in Section 2.10 of the Shareholder's Disclosure
Schedule) applied on a consistent basis, and present fairly the financial
condition of the Corporation at the dates of said statements and the results of
its operations for the periods covered. All accruals for liabilities and
reserves for contingent liabilities have been established by the Corporation as
required to be established and maintained under generally accepted accounting
principles.
2.11. Payment of Taxes. The Corporation has filed all material federal,
state and local income, excise or franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and other tax returns
and reports required to be filed by it and has paid all material taxes owing by
it except taxes for which adequate provision has been made in the Latest Balance
Sheet. The Corporation has maintained a valid S election since its inception.
The Corporation has received no notice of any impending audit by any taxing
authority. The Corporation has not received notice of any tax deficiency
proposed or assessed against it, and it has not executed any waiver of any
statute of limitations on the assessment or collection of any tax.
2.12. Absence of Undisclosed Liabilities. The Corporation has no
material liabilities of any nature, whether accrued, absolute or contingent that
are required by generally accepted accounting principles to be disclosed on a
balance sheet, other than and to the extent reflected or reserved against on the
Latest Balance Sheet and liabilities incurred in the ordinary course of
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<PAGE>
business since the date of the Latest Balance Sheet and liabilities disclosed on
Section 2.12 of the Shareholder's Disclosure Schedule or any other schedule of
the Shareholder's Disclosure Schedule.
2.13. Accounts Receivable. All of the accounts receivable of the
Corporation reflected on the Closing Date Balance Sheet will be valid and
enforceable claims, except as set forth on Section 2.13 of the Shareholder's
Disclosure Schedule, fully collectible within 90 days of their respective
invoice dates, and subject to no setoff or counterclaim in the recorded amounts,
subject only to the allowance for doubtful accounts and returns and allowances
reflected on the Closing Date Balance Sheet.
2.14. Inventories. The inventory of the Corporation reflected on the
Closing Date Balance Sheet will consist of items of a quantity consistent with
normal inventory levels of the Corporation and of a quality and condition that
is usable and saleable in the ordinary course of business for the purposes for
which intended. Such inventory is carried on the Corporation's books of account
in accordance with generally accepted accounting principles, subject to
appropriate reserves for obsolescence, excess quantities, and the like.
2.15. Conduct of Business in the Ordinary Course. Except as provided on
Section 2.15 of the Shareholder's Disclosure Schedule, the Corporation has
conducted its business since January 1, 1999 only in the usual and ordinary
course consistent with past practice, and since such date, the Corporation has
not (i) sold or transferred any of its assets, except inventory in the ordinary
course of business; (ii) changed any method of accounting or accounting
practice; (iii) increased or promised to increase the compensation payable to
any employee, except in accordance with annual wage reviews consistent with past
practices; (iv) made any direct or indirect payments, dividends, distributions,
sales or transfers of assets, other than normal compensation and the
distributions reflected on the Latest Balance Sheet, to any officer, director,
shareholder or employee of the Corporation or any of their affiliates; (v)
changed its outstanding shares of capital stock or repurchased, redeemed or
acquired any outstanding shares of capital stock or other ownership interest in
securities of the Corporation other than option grants in the ordinary course of
business; or (vi) suffered any damage or casualty to its assets.
2.16. Intellectual Property. For purposes of this Agreement, the term
"Intellectual Property" means all United States and other patents and
registrations and applications therefor; copyrights and copyright registrations
and applications therefor; trademarks, brand names, trade names and
registrations and applications therefor; computer software; trade secrets;
confidential business information; and licenses of or other contract rights with
respect to any of the foregoing. Intellectual Property does not include the
Corporation's rights under "shrink-wrap" licenses with respect to commercially
available software.
(a) All Intellectual Property used in the business of the
Corporation is listed on Section 2.16 of the Shareholder's Disclosure Schedule
and, except for third party embedded software listed on Section 2.16 of the
Shareholder's Disclosure Schedule, is now or will as of the Closing Date be
owned by the Corporation. Section 2.16 of the Shareholder's Disclosure Schedule
lists all
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<PAGE>
assignments or agreements to assign Intellectual Property to or by the
Corporation, settlement agreements relating to disputes over Intellectual
Property, and development agreements with respect to Intellectual Property of
the Corporation.
(b) The Intellectual Property is free of any liens or
encumbrances and is subject to only such licenses for third party software
listed Section 2.16 of the Shareholder's Disclosure Schedule. To the best
knowledge of Shareholder, no one is infringing upon any rights of the
Corporation with respect to any Intellectual Property.
(c) The Corporation does not require any Intellectual Property
that it does not already have in order to conduct its business as currently
conducted or currently proposed to be conducted, except for third party software
licenses and the "Fix-It" mark listed in Section 2.16 of the Shareholder's
Disclosure Schedule.
(d) To the best knowledge of Shareholder, no actions for
annulment or cancellation are pending or threatened with respect to the
Intellectual Property and no actions for recovery have been made nor threatened.
(e) To the best knowledge of Shareholder, neither Shareholder
nor the Corporation is infringing on Intellectual Property rights of third
parties, nor has Shareholder or the Corporation been accused of doing so by a
third party. To the best knowledge of Shareholder, other than listed in Section
2.16 of the Shareholder's Disclosure Schedule, there exists no circumstance
which might entitle a licensor of any Intellectual Property required in order to
conduct the Corporation's business as currently conducted or proposed to be
conducted to terminate such license.
(f) Neither Shareholder, nor any director, officer, or
employee of the Corporation, or any other person, owns, directly or indirectly,
in whole or in part, any intellectual property rights which the Corporation uses
or has used in the conduct of its business as presently conducted.
(g) Neither Shareholder nor the Corporation is subject to any
right to compensation belonging to former or current employees or any other
person for inventions used in the business of the Corporation.
(h) All charges, fees and taxes relating to the Intellectual
Property have been duly and timely paid, except for sales taxes which have
accrued in the normal course of business during the 60 day period prior to the
date of this Agreement.
(i) Except as otherwise disclosed on Section 2.16(j) of the
Shareholder's Disclosure Schedule, the Intellectual Property and other assets of
the Corporation, including all products and services provided by and on behalf
of the Corporation and all internal operating and business systems are "Year
2000 Compliant." For purposes of this Agreement "Year 2000 Compliant" means the
ability to (i) consistently handle date information before, during and after
January 1, 2000, including, but not limited to accepting date input, providing
date output, and
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performing calculations on dates or portions of dates; (ii) function accurately
in accordance with all specifications and without interruption before, during
and after January 1, 2000, without any change of operations associated with the
advent of the new century; (iii) respond to two-digit date input in a way that
resolves any ambiguity as to century in a disclosed, defined and predetermined
manner; and (iv) for any date element represented without century, the correct
century is unambiguous for all manipulations involving that element.
2.17. Commitments. Except as described on Sections 2.17 or 2.23 of the
Shareholder's Disclosure Schedule, the Corporation is not a party to or subject
to any of the following contracts, commitments, understandings, agreements or
licenses, oral or written (the "Commitments"):
(a) any Commitment creating any obligation of the Corporation
of $25,000 or more (other than sales and purchase commitments in the ordinary
course of business for less than $25,000 each);
(b) any Commitment providing for the purchase of all or
substantially all of the Corporation's requirements of a particular product from
a supplier, or for periodic minimum purchases of a particular product from a
supplier;
(c) any Commitment in excess of $10,000 not terminable on
30-days notice without penalty to the Corporation, other than sales and purchase
commitments entered into in the ordinary course of business;
(d) any Commitment in excess of $10,000 with any employee,
consultant, sales agent or distributor;
(e) any Commitment containing covenants limiting the
Corporation's freedom to compete in any line of business or with any person or
entity;
(f) any Commitment for the purchase of any fixed asset for a
price in excess of $10,000, whether or not such purchase is in the ordinary
course of business;
(g) any license agreement (as licensor or licensee), except
software licenses used in the ordinary course of business in compliance with
their respective terms;
(h) any Commitment with any present or former officer,
director or shareholder of the Corporation or with any persons or organizations
controlled by or affiliated with any of them; or
(i) any other Commitment not described above which involves
total consideration in excess of $1,000 per month, other than utilities
purchased in the ordinary course of business, salaries and employee benefits
described on Section 2.23 of the Shareholder's Disclosure Schedule.
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True, correct and complete copies of the Commitments have been provided
or made available to Buyer prior to the execution of this Agreement. All
Commitments are in full force and effect and have not been amended, extended or
otherwise modified. Neither the Corporation nor, to the best knowledge of
Shareholder, any other party is in material default under any Commitments. None
of the Commitments related to funded debt require prepayment penalties. The
Corporation has all necessary software licenses to conduct its business as
currently conducted and the Corporation is in material compliance with such
licenses.
2.18. Litigation. Except as provided in Schedule 2.18 of the
Shareholder's Disclosure Schedule, there are no legal, administrative,
arbitration or other proceedings or governmental investigations pending or, to
the best knowledge of Shareholder, threatened against the Corporation.
2.19. Compliance with Laws. The Corporation is in compliance in all
material respects with any laws, regulations or permits which apply to the
conduct of its business or the Leased Real Property.
2.20. Permits. The Corporation holds all licenses, permits and
franchises which are required to permit it to conduct its business, except where
failure to do so would not have a material adverse effect on the Corporation,
and all such licenses, permits and franchises are listed on Section 2.20 of the
Shareholder's Disclosure Schedule.
2.21. Transactions with Interested Persons. Shareholder does not own
directly or indirectly any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of the Corporation, or any
organization which has a material contract or arrangement with the Corporation.
2.22. Suppliers; Customers. There are no existing disputes with any of
the Corporation's suppliers, other than normal disputes in the ordinary course
of business. Shareholder has no reason to believe that any supplier will
discontinue business with the Corporation following the Closing. Except as
disclosed in Section 2.22 of Shareholder's Disclosure Schedule, no customer has
notified the Corporation, and Shareholder has no knowledge that a customer
intends to discontinue business with or significantly reduce its business with
the Corporation or materially change the terms or price of its jobs. To the best
knowledge of Shareholder, the Corporation is not a party to any contract or
series of contracts with any one customer to sell products which, in the
aggregate with respect to such customer, is to be performed at a price which is
less than the Corporation's cost of sales for such products or to buy supplies
at prices higher than the prevailing market prices at the time the contracts
were entered into.
2.23 Employee Benefit Plans. Section 2.23 of the Shareholder's
Disclosure Schedule sets forth a list of all health care plans or other similar
arrangements; life insurance or other death benefit plans; deferred compensation
or other pension or retirement plans; or other fringe or employee benefit plans
or arrangements; any employment or consulting contract or executive compensation
agreements; whether written or otherwise, formal or informal, voluntary or
required by law
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("Employee Plan") (i) which the Corporation has any time maintained for the
benefit of or relating to present or former employees, directors, leased
employees, consultants and/or their dependents or beneficiaries; or (ii) with
respect to which the Corporation or any ERISA Affiliate has made any payments or
contributions. For purposes of this Section, "ERISA Affiliate" means all trades
or businesses (whether or not incorporated) which are, or any time during the
six years prior to the Closing Date, were members of a group of which the
Corporation is or was a member which are or were under common control within the
meaning of Code Section 414(b) or (c) or which are or were treated, together
with the Corporation, as a single corporation under Code Section 414(m) or (o).
Except as specifically set forth in Section 2.23 of the Shareholder's Disclosure
Schedule:
(a) Each Employee Plan has been consistently administered in
substantial compliance with its terms and provisions and with the Code, ERISA
and all other applicable laws and regulations, including, without limitation,
Code Section 4980B and ERISA Section 601, et. seq. Each Employee Plan which is
an employee pension plan as defined in Section 3(2) of ERISA meets the
applicable requirements for qualification under Section 401(a) and for exemption
under Section 501(a) of the Code. All reports required under ERISA or any other
law or regulation to be filed by the Corporation or any ERISA Affiliate have
been duly filed with the relevant governmental body, and all such reports are
true and correct as of the date given in all material respects, and all Employee
Plans have timely complied in all material respects with the disclosure of
information regarding the Employee Plans required under Title 1 of ERISA.
(b) All contributions required to be made prior to the Closing
Date to any Employee Plan have been paid or accrued for and neither the
Corporation nor any ERISA Affiliate has any liability for any Employee Plan that
has arisen or accrued prior to the Closing which has not been provided for
through contributions, insurance or by appropriate accrual on the Closing Date.
(c) Neither the Corporation nor any ERISA Affiliate has
engaged in any nonexempt "prohibited transaction" within the meanings of
Sections 503 and 4975 of the Code or Section 406 of ERISA.
(d) Neither the Corporation nor any ERISA Affiliate has ever
been a party or contributor to, or incurred liability in connection with any
plan subject to Title IV of ERISA.
(e) There are no lawsuits or claims brought by any present or
former employee against the Corporation or any ERISA Affiliate or any of their
respective Employee Plans, other than claims for benefits in the normal course,
which have not been finally resolved, and there are no claims or assessments
pending or threatened against the Corporation or any ERISA Affiliate or any of
their respective Employee Plans.
(f) Except as otherwise expressly provided in any Employee
Plan or as otherwise required by applicable law, no condition exists that would
materially increase the expense to the employer whose employees are covered
under any of the Corporation's or any ERISA Affiliate's
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Employee Plans nor does any condition exist which would prevent the amendment or
termination of any such Employee Plan.
(g) Section 2.23 of the Shareholder's Disclosure Schedule sets
forth (i) the names of all former employees of the Corporation whose employment
has terminated either voluntarily or involuntarily during the preceding
twelve-month period to which the Corporation has any continuing obligation or
liability for any cash severance payments; and (ii) the names of all employees
of the Corporation who are on a short or long term disability, workers'
compensation disability, sick leave, personal leave or is otherwise unable to
return to work prior to Closing, the expected duration of their disability or
leave, and any benefits to which such individuals are entitled as of the
Closing.
2.24 Employee Matters. None of the employees of the Corporation are
represented by any union or subject to any collective bargaining agreement and,
to the best knowledge of Shareholder, none of such employees are engaged in any
organizational activities. The Corporation is in substantial compliance with all
applicable federal, state, and local laws relating to the employment of labor,
including the provisions thereof relating to wages, hours, occupational health
and safety, health and welfare insurance, collective bargaining, discrimination,
and the payment of withholding and social security taxes, and the Corporation is
not liable for any arrears of wages, or any tax or penalties, for failure to
comply with any of the foregoing. The Corporation is not in receipt of any
complaint, demand letter or charge issued by any federal, state or local agency
alleging a violation of any law, regulation or ordinance respecting employment
or employment practices, nor has the Corporation heretofore incurred any
liability under the Workers Adjustment and Retraining Notification Act or
similar state law or regulation. To the best knowledge of Shareholder, none of
the employees of the Corporation has suffered or is suffering from any illness
or disease caused directly or indirectly by any employment related condition or
by contract with any Hazardous Materials within the scope of such employee's
employment with the Corporation.
2.25. Bank Accounts. Section 2.25 of the Shareholder's Disclosure
Schedule is a complete list of all bank accounts of the Corporation, listing all
authorized signatories thereto.
2.26. Insurance. The Corporation currently has in effect the policies
of insurance identified in Section 2.26 of the Shareholder's Disclosure
Schedule, which policies are in full force and effect. All premiums with respect
thereto that are currently due have been paid or are properly accrued as a
current liability on the books of the Corporation as of the Closing. The
Corporation has not been denied or had revoked or rescinded any policy of
insurance.
2.27. Brokers or Agents. Except as set forth on Section 2.27 of the
Shareholder's Disclosure Schedule, no person, firm or corporation has or shall
have, as a result of any act or omission of either the Corporation or the
Shareholder, or any representative or agent of either of them, any right,
interest or valid claim against Buyer or the Corporation, for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
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2.28. Compliance With Debt Agreements. The Corporation is in compliance
with all agreements related to indebtedness of the Corporation, including, but
not limited to all indebtedness for borrowed money and capital leases, and all
other indebtedness of the Corporation evidenced by notes, bond, debentures and
similar obligations, and whether scheduled as a Commitment under Section 2.17 of
this Agreement (the "Debt Agreements"). Except as otherwise disclosed in Section
2.28 of the Shareholder's Disclosure Schedule, all Debt Agreements are in full
force and effect and have not been amended, extended or otherwise modified.
Neither the Corporation nor, to the best knowledge of Shareholder, any other
party is in default under any such Debt Agreements. None of the Debt Agreements
related to funded debt require prepayment penalties.
2.29. Investment Representations. In acquiring the shares of Buyer's
common stock to be issued to the Shareholder in accordance with this Agreement,
the Shareholder represents:
(a) That she is acquiring such shares for her own account and
not as a nominee or agent for any other person and with no present intention of
distributing or reselling such shares or any part of them in any transactions
except pursuant to (i) an effective registration statement under the Securities
Act of 1933 and registration or qualification under any applicable state
securities or "blue sky" laws or (ii) a transaction that does not require
registration or qualification under the Securities Act or applicable state
securities or blue sky laws or is otherwise exempted therefrom;
(b) That she understands such shares have not been registered
for sale under the Securities Act or any state securities or blue sky laws in
reliance upon exemptions therefrom, in the case of the Securities Act or any
state securities or blue sky laws, and that such shares shall not be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of except as
contemplated in this Agreement and in the Lock-Up Agreement attached as Exhibit
E, and then only pursuant to an effective registration statement under the
Securities Act and registration or qualification under any applicable state
securities or blue sky laws, or pursuant to a transaction that does not require
such registration or qualification or is otherwise exempted therefrom;
(c) That she has been furnished with, and has had the
opportunity to read and review the Buyer's annual registrations and other
documents it is required to file with the Securities and Exchange Commission,
has had an opportunity to ask questions of the officers of the Buyer or persons
acting on the Buyer's behalf concerning the Buyer and the terms and conditions
of an investment in Buyer's common stock;
(d) That she has such knowledge and experience in financial
and business matters that she is capable of evaluating the merits and risks of
acquiring and holding shares of the common stock of the Buyer;
(e) That she has acquired sufficient information about the
Buyer to reach an informed and knowledgeable decision to acquire the shares of
Buyer's common stock to be issued to her in accordance with this Agreement; and
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(f) That she is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Securities Act.
2.30. Material Omissions. To the best knowledge of Shareholder, no
representation or warranty in this Article contains or will contain any untrue
statement of material fact or omits or will omit a material fact necessary to
make the statements contained therein not misleading in light of the
circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Shareholder and Optionholders to enter into this Agreement,
Buyer represents and warrants to Shareholder and Optionholders that (i)
notwithstanding any investigation Shareholder or any Optionholder may undertake,
and (ii) except as otherwise specifically stated in the Disclosure Schedule
attached hereto as Schedule 3 ("Buyer's Disclosure Schedule"), the following are
true and correct on the date hereof and will be true and correct as of the
Closing Date:
3.1. Organization and Qualification of Buyer. Buyer is a corporation
lawfully existing and in good standing under the laws of Minnesota with full
power and authority to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
such business is conducted by it.
3.2. Approval. Buyer has all necessary corporate power and is duly
authorized to purchase, acquire and accept the Shares and Options as specified
in this Agreement. Buyer has taken all action required to authorize and approve
the execution and delivery of this Agreement and the consummation by Buyer of
the transactions contemplated hereby.
3.3. Prohibitions of Transactions. There is no pending or threatened
action, suit, proceeding or investigation before any court or governmental body,
or by any government agency, which would restrain or prevent Buyer from carrying
out the transactions contemplated by this Agreement.
3.4 Issuance of Shares. Upon issuance to Shareholder of the shares of
Buyer's common stock to be delivered to Shareholder in accordance with this
Agreement, whether at Closing or thereafter, the shares will be duly authorized,
validly issued and fully-paid shares of common stock, and Shareholder shall
receive good and marketable title to such stock, free and clear of all liens,
encumbrances, claims, charges, assessments and restrictions, except for those
provided under federal securities laws and under the Lock-Up Agreement. The
shares of Buyer's common stock will be free of any pre-emptive rights. The
shares will be listed for trading on Nasdaq upon issuance.
3.5. Litigation. There is no litigation proceeding or investigation of
any claim pending, or to the best knowledge of the Buyer, threatened against the
Buyer, its business, or against the transaction contemplated by Buyer under this
Agreement which, if adversely determined, would
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affect the execution, delivery or performance of this Agreement on the part of
the Buyer, and there is no basis known to Buyer for any such action which would
have a material adverse effect on Buyer.
3.6. Broker. No person, firm or corporation has, or shall have, as a
result of any act or omission of Buyer, any right, interest or valid claim
against the Shareholder, any Optionholder or the Corporation for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
3.7. No Conflicts; Approvals. Buyer represents that neither the
execution and delivery of this Agreement or any other agreement contemplated
hereby by Buyer nor the consummation of the transactions hereby by Buyer will
conflict with or result in any violation of, or default under, any contract,
agreement or commitment or any law applicable to Buyer or any of its assets or
property or its business. No action, consent or approval by, or filing by Buyer
with, any federal, state, municipal, foreign or other court or governmental body
or agency, or any other regulatory body, is required in connection with the
execution and delivery by Buyer of this Agreement or the consummation by Buyer
of the transactions contemplated hereby, except such filings as may be necessary
under federal securities laws.
3.8 SEC Filings. Buyer has timely filed all required forms, reports,
statements and documents with the Securities and Exchange Commission (the
"SEC"), all of which have complied in all material respects with all applicable
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934 (the "Exchange Act"). As of their respective dates, all such forms,
reports, statements and documents filed after December 31, 1998 (the "Reports")
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Buyer included or
incorporated by reference in the Reports were prepared in accordance with GAAP
applied on a consistent basis with prior periods (except as otherwise stated in
such financial statements or, in the case of audited statements, the related
report thereon of independent certified public accountants) and present fairly
the consolidated financial position and consolidated results of operations, cash
flows and of changes in shareholders' equity of Buyer and its consolidated
subsidiaries as of the dates and for the periods indicated, subject, in the case
of unaudited interim financial statements, to normal recurring year-end audit
adjustments, none of which either singly or in the aggregate are or will be
material, and except that the unaudited interim financial statements do not
contain all of the disclosures required by GAAP. Buyer is and has been subject
to the reporting requirements of the Exchange Act and has timely filed with the
SEC all periodic reports required to be filed by it pursuant thereto and all
reports required to be filed under Sections 13, 15 or 15(d) of the Exchange Act
since October 21, 1996.
3.9. Material Omissions. No representation or warranty in this Article
contains or will contain any untrue statement of material fact or omits or will
omit a material fact necessary to make the statements contained therein not
misleading in light of the circumstances.
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ARTICLE IV
COVENANTS
4.1. Access to Properties, Records and Personnel. Between the date of
this Agreement and the Closing Date, Shareholder and the Corporation shall (i)
provide Buyer and its accountants, counsel and other representatives, full
access, during reasonable business hours, to any and all premises, properties,
commitments, books, records, and other information relating to assets or
liabilities of the Corporation, and shall cause the Corporation's officers and
employees to furnish to Buyer and its authorized representatives any and all
financial, technical, and operating data and other information respecting the
assets and liabilities and the business of the Corporation as Buyer and such
representatives may from time to time reasonably request; and (ii) instruct the
Corporation's officers, insurers, and accountants to discuss with Buyer and its
representatives any and all information pertaining to its assets and liabilities
and the business of the Corporation. Buyer shall schedule all employee meetings
through the Shareholder. Buyer shall have the right to contact the Corporation's
customers after consultation with Shareholder as to specific persons to be
contacted and the manner of the customer contact.
4.2. Preservation of Relationships. Until the Closing Date, Shareholder
and the Corporation shall use all reasonable efforts to keep available for the
benefit of Buyer the services of persons presently employed in the business of
the Corporation and to preserve for Buyer the goodwill and existing
relationships which the Corporation has with its customers, suppliers,
distributors and sales representatives and others whom the Corporation has
existing relationships for purposes of the conduct of its business.
4.3. Conduct of Business Prior to the Closing Date; Transition
Following Closing. Prior to the Closing, Shareholder and the Corporation shall,
except as the Buyer otherwise consents in writing: (a) conduct the business of
the Corporation only in the usual and ordinary course, which shall include
without limitation the continuation in the ordinary and customary course of
marketing and sales activities; and (b) refrain from any act or omission which
would cause any of the representations and warranties in this Agreement to be or
become untrue in any material respect, including without limitation the entry
into, termination or material amendment of any material agreement or commitment
of the Corporation other than in the ordinary course and consistent with past
practice. Following Closing, Shareholder shall assist Buyer with transitioning
the business of the Corporation from Shareholder to Buyer, particularly with
respect to key customers of the Corporation. On or before the Closing Date,
Buyer and Shareholder will agree on the scope of Shareholder's duties and her
reasonable compensation for these duties.
4.4 Updating of Representations and Warranties. Between the date of
this Agreement and the Closing Date, the Shareholder shall give notice to Buyer
promptly upon becoming aware of (a) any inaccuracy of a representation or
warranty set forth in this Agreement or (b) any event or state of facts that, if
it had occurred or existed on or prior to the date of this Agreement, would have
caused any such representation and warranty to be inaccurate, any such notice to
describe such inaccuracy, event or state of facts in reasonable detail.
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4.5. Distributions and Payments. Prior to the Closing, neither the
Shareholder nor the Corporation shall make any payments to any of the
Corporation's shareholders, officers or directors, or any of their affiliates,
except for normal distributions for the purpose of covering Shareholder's tax
liabilities consistent with past practice, and except for compensation for
services provided which is paid in the ordinary course of business consistent
with past practice.
4.6. Satisfaction of Closing Conditions. Prior to the Closing, the
parties shall use all reasonable efforts to satisfy the conditions precedent to
the Closing provided in Articles VI and VII, including obtaining all permits,
approvals, authorizations, and consents of all third parties necessary for the
consummation of the transactions contemplated hereby.
4.7. No Shopping. Prior to the earlier of the Closing or the
termination of this Agreement in accordance with its terms, neither Shareholder
nor the Corporation shall (i) solicit or encourage submission of, any proposals
or offers by any person, entity or group (other than the Buyer and its
affiliates, agents and representatives), or (ii) participate in any discussions
or negotiations with, or disclose any non-public information concerning the
Corporation or any of its subsidiaries to, or afford any access to the
properties, books or records of the Corporation or any of its subsidiaries to,
or otherwise assist or facilitate, or enter into any agreement or understanding
with, any person, entity or group (other than the Buyer and its affiliates,
agents and representatives), in connection with any Acquisition Proposal with
respect to the Corporation. For purposes of this Agreement, the term
"Acquisition Proposal" with respect to an entity means any proposal or offer
relating to (i) any merger, consolidation, sale of substantial assets or similar
transactions involving the entity or any subsidiaries of the entity (other than
sales of assets or inventory in the ordinary course of business), (ii) the
acquisition by any person of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of, 20% or more of the then outstanding shares of capital
stock of the entity; or (iii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. The Corporation will (i) notify Buyer as promptly as practicable if
any inquiry or proposal is made or any information or access is requested in
connection with an Acquisition Proposal or potential Acquisition Proposal and
(ii) as promptly as practicable notify the Buyer of the terms and conditions of
any such Acquisition Proposal. In addition, subject to the other provisions of
this Section, the Corporation and its subsidiaries will not, and will instruct
its respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, make or authorize
any public statement, recommendation or solicitation in support of any
Acquisition Proposal made by any person, entity or group (other than the Buyer).
4.8. Confidentiality. Each of the parties to this Agreement and their
representatives will treat all information furnished them pursuant to this
Agreement with care and discretion; however, it is understood that such
information must be revealed to various employees and authorized representatives
of Buyer and the Corporation for analysis and evaluation. Buyer and the
Corporation will use their best efforts properly to instruct their respective
employees and authorized representatives to keep such information confidential.
If the transactions contemplated by this
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Agreement are not consummated, the parties will return to the provider of any
information all information received pursuant to this Agreement (and all copies
thereof) then in their possession. Notwithstanding the foregoing, the parties
agree that those certain confidentiality agreements dated February 25, 1999 and
May 19, 1999, between the parties shall remain in full force and effect until
the Closing of the transactions contemplated in this Agreement or the expiration
of such agreements pursuant to their respective terms, whichever occurs first.
4.9. Publicity. Between the date of this Agreement and the Closing
Date, Shareholder, the Corporation and Buyer shall, and the Shareholder shall
cause the Corporation to discuss and coordinate communications with respect to
any public filing or announcement concerning the transactions contemplated in
this Agreement.
4.10 Option Pool. Effective as of the Closing Date, Buyer will
establish or otherwise reserve an option pool consisting of options for the
purchase of an aggregate of 100,000 shares of Buyer's common stock, which
options shall be distributed at the discretion of Shareholder to the
Corporation's employees other than Shareholder and Pierre Michel Kronenberg
following the successful closing of the transactions contemplated in this
Agreement. Such options shall be incentive stock options and have an exercise
price equal to the fair market value of Buyer's stock as of the date the option
is granted, a three-year vesting period, a ten-year exercise term, and such
other terms, conditions and restrictions as are ordinary under the
circumstances. A list detailing the employees whom Shareholder wishes to receive
such options together with the number of options to be received by each employee
shall be delivered to Buyer at least five (5) days in advance of the Closing
Date.
4.11 Board Position. Upon cessation of her duties as a regular employee
of the Corporation or Buyer, Shareholder will be invited to join the Board of
Directors of Buyer and will have a period of 30 days to accept or reject the
position. Upon acceptance of such invitation and due election to the Board by
the Board of Directors, Shareholder shall be immediately eligible for all
benefits (such as compensation, payment of travel and lodging and other related
expenses, outside director options, and inclusion under Buyer's Directors' and
Officers' Liability Insurance Program) then applicable to Buyer's outside
Directors generally.
4.12. 338(h)(10) Election and Sharing of Costs and Benefits; Tax
Returns.
(a) Shareholder agrees to join Buyer in making an election
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"338(h)(10) Election") with respect to the purchase and sale of the Shares. At
least three days before the Closing Date, Buyer will deliver to Shareholder a
statement of principles to be used in the allocation of the modified aggregate
deemed sale price ("MADSP") as defined in Treasury Regulation Section
1.338(h)(10)-1(f), among the assets of the Corporation, and Shareholder and
Buyer shall in good faith resolve any disagreement regarding this statement of
principles on or before the Closing Date. Within five days after the date the
final Closing Date Balance Sheet is prepared and agreed upon by the parties
pursuant to Section 1.2(d), the Buyer will deliver to the Shareholder a proposed
form of
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IRS Form 8023 (or other applicable form), including any required schedules,
prepared in accordance with the statement of principles described above.
Shareholder and Buyer shall in good faith use commercially reasonable efforts to
agree promptly on such forms and the allocation of the MADSP among the assets of
the Corporation (the "Allocation Schedule") within three days after delivery by
the Buyer of the proposed IRS Form. Shareholder and Buyer will file all relevant
tax returns in accordance with the Allocation Schedule as finally agreed upon by
the parties.
(b) Shareholder shall be responsible for preparing and causing
to be filed all tax returns of the Corporation filed on or prior to the Closing
Date (or due without penalty prior to the Closing Date) and all S Corporation
tax returns of the Corporation, which returns shall be prepared in a manner
consistent with prior tax returns of the Corporation, and Buyer shall cooperate
with such preparation and filing as reasonably requested by Shareholder.
(c) Buyer shall not amend any tax return of or with respect to
the Corporation if the effect of the amendment could be to increase the
liability of Shareholder for taxes or indemnity therefor, without the advance
written consent of Shareholder (not to be unreasonably withheld).
(d) If there is an audit of the tax returns of the Corporation
or the Shareholder by a taxing authority, and in connection with such audit
there are one or more adjustments relating to the 338(h)(10) Election that
result in the Shareholder's aggregate tax liability (including interest,
penalties and additions to tax) arising from her interest in the Corporation
exceeding the Shareholder's aggregate tax liability (including interest,
penalties and additions to tax) arising from her interest in the Corporation
that would have resulted without the 338(h)(10) Election, then Buyer shall pay
to the Shareholder an amount equal to (1) 50% of such additional taxes relating
to such audit adjustments and 50% of any interest, penalties and additions to
tax relating to such adjustments and (2) an amount equal to the taxes the
Shareholder is required to pay as a result of the receipt of payments under this
Section 4.12(d), including but not limited to this clause (2). Buyer shall also
pay to the Shareholder 50% of all reasonable professional fees incurred by the
Shareholder in connection with the determination of the amount owed to
Shareholder pursuant to this Section 4.12(d) and in connection with an audit as
it relates to the 338(h)(10) Election. For purposes of applying this Section
4.12(d), it shall be assumed that (A) absent the Section 338(h)(10) Election,
deductions relating to the Options would have been allowable (to the extent
otherwise allowable without regard to the Section 338(h)(10) Election) in the S
corporation period of the Corporation including the day before the Closing Date,
and (B) the Shareholder and the Corporation would have properly reported the
transactions contemplated by this Agreement if no Section 338(h)(10) Election
had been made. Any dispute regarding the amount payable under this Section 4.12
will be resolved pursuant to Section 10.14.
4.13 Exemption from Section 16. Buyer will use its best efforts, upon
advice of counsel, to cause all issuances of Buyer's common stock to Shareholder
under this Agreement to qualify for an exemption from the short-swing profit
restrictions of Section 16 under the Exchange Act.
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ARTICLE V
AGREEMENT REGARDING ISSUANCE OF
BUYER'S COMMON STOCK
5.1. Rights. The shares of Buyer's common stock to be issued to
Shareholder and certain of the Optionholders shall have the rights, preferences,
privileges, and restrictions set forth in Buyer's Articles of Incorporation and
the provisions of Minnesota law.
5.2. Legend. Shareholder warrants and agrees that each certificate
representing the shares of Buyer's common stock to be issued to Shareholder
under this Agreement shall be endorsed with substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
5.3. Taxes on Transfer. The Shareholder shall be responsible for any
taxes resulting from any transfer of the shares of Buyer's common stock issued
to her under this Agreement.
5.4. Effective Registration Statement. Subject to Section 5.5 hereof,
Buyer agrees to file as soon as practicable, but within 30 days following the
Closing Date, a registration statement on Form S-3 with the Securities and
Exchange Commission ("SEC") covering the shares of Buyer's common stock to be
issued to Shareholder pursuant to this Agreement. It is understood that Buyer
cannot and does not warrant or represent that such registration statement filed
with the SEC will be declared effective, but Buyer agrees to use its reasonable
best efforts to file all documents and to take all other reasonable steps
possible in order to have such registration declared effective prior to the
expiration of the Lock-Up Agreement. Buyer agrees that it will follow its normal
procedure in connection with the filing of the subject registration statement
and will make all reasonable changes in response to comments of the SEC so as to
enable such registration statement to become effective. Buyer further agrees
that once the registration statement has been declared effective it will file
post-effective amendments to such registration statement as are necessary to
cause such registration statement to remain effective for a period of one (1)
year after the expiration of the Lock-Up Agreement.
5.5 Indemnification.
(a) The Buyer will indemnify and hold harmless each holder of
its shares which are included in a registration statement pursuant to the
provisions of Section 5.4 and any underwriter (as defined in the Securities Act
of 1933, as amended (the "Securities Act")) for such holder and
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each person, if any, who controls such holder or such underwriter within the
meaning of the Securities Act, from and against any and all loss, damage,
liability, cost and expense to which such holder or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Buyer will not be liable in any such case to the extent that such loss,
damage, liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with written information furnished by such holder, such underwriter
or such controlling person specifically for use in the preparation thereof.
(b) Each holder of shares which are included in a registration
pursuant to the provisions of Section 5.4 will indemnify and hold harmless
Buyer, any controlling person and any underwriter from and against any and all
loss, damage, liability, cost or expense to which Buyer or any controlling
person and/or any underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue or alleged untrue statement or any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by such holder specifically
for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party except to the extent
the indemnifying party is prejudiced thereby. In case such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the defendants in
any action include both the indemnified party and the indemnifying party and
there is a conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice
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from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (a) or (b) for
any legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the proviso of the preceding sentence, (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
5.6 Conditions to Buyer's Obligation to File Registration Statement.
Buyer's obligation to file a registration statement shall, in all cases, be
subject to the following provisions:
(a) Buyer shall have furnished, and Shareholder shall have
agreed to furnish any and all agreements, consents, representations, etc.,
required of her by the SEC in connection with the filing or as a condition of
having the subject registration statement declared effective.
(b) Buyer shall not be obligated to file any registration
statement if Buyer shall have delivered to Shareholder an opinion of its counsel
to the effect that all of the shares delivered pursuant to this Agreement may
lawfully be sold to the public without registration under the Act and has
delivered to its transfer agent instructions to register the transfer of any
shares sold in reliance on such opinion.
(c) Buyer shall have the right to include in any such
registration statement any of its securities which it or any holder or holders
of its securities desire to register or to include the shares delivered pursuant
to this Agreement in any registration statement filed or to be filed for other
securities of Buyer, provided that such inclusion does not unreasonably delay
the effectiveness of the registration of said shares and provided further that
such registration will continue in effect as provided in Section 5.4 unless such
requirement is waived by the security holders.
(d) With respect to such registration statement, Buyer shall
bear the expense of any registration and qualification fees, state blue sky
fees, fees of Buyer's outside counsel and independent public accountants,
printing costs and the salaries and expenses of its employees, and all other
costs of preparing and filing the registration statement. Shareholder shall pay
all attorneys fees for her counsel incurred as a part of such registration and
any other costs related to the sale of any of the shares of Buyer's common stock
issued to her under this Agreement, including commissions. Buyer agrees to
furnish Shareholder with such number of prospectuses or other documents incident
to any such registration as may from time to time be reasonably requested.
(e) Either before or after the effective date of such
registration statement, if the Buyer shall furnish to Shareholder a certificate
signed by an executive officer of the Buyer stating that Buyer is in possession
of material information that it deems advisable, in its reasonable discretion
upon advice of counsel, not to disclose in a registration statement, then (i) if
the registration statement has not yet been declared effective, Buyer's
obligations under Section 5.4 to enable such registration statement to become
effective shall be deferred for a period not to exceed
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sixty (60) days from the date the registration statement was required to be
filed pursuant to Section 5.4, and (ii) if the registration statement has been
declared effective, Shareholder will refrain from making any sales of Buyer's
common stock pursuant to the registration statement for a period not more than
sixty (60) days specified in the notice to Shareholder; provided, that any
suspension of sales pursuant to clause (ii) of this Section shall result in an
equivalent increase in the period of time the registration statement is required
to be kept effective pursuant to Section 5.4.
5.7. Contingent Consideration. Upon the issuance of any shares of
Buyer's common stock as Contingent Consideration under Section 1.3, Buyer agrees
to file as soon as practicable, but within 30 days following the issuance of the
shares, a post-effective amendment to the registration statement described in
Section 5.4 or a new registration statement covering the additional shares
issued to Shareholder and the Optionholders. The provisions of Sections 5.4, 5.5
and 5.6 will apply to the post-effective amendment or new registration
statement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to
fulfillment prior to or at Closing of each of the following conditions, unless
waived in writing by Buyer:
6.1. Representations and Warranties. Each of the representations and
warranties made by Shareholder and the Optionholders in this Agreement, or in
any instrument, schedule, certificate or writing delivered by Shareholder or the
Optionholders pursuant to this Agreement, shall be true and correct in all
material respects when made and as of the Closing Date.
6.2. Approvals; Absence of Certain Legal Proceedings. All required
approvals of any governmental authority shall have been obtained, and no suit or
other legal proceeding shall have been commenced seeking to restrict or prohibit
the transactions contemplated by this Agreement.
6.3. Satisfactory Completion of Due Diligence . The Buyer shall have
completed its due diligence investigation of the Corporation, and the results of
such investigation shall have been satisfactory to the Buyer in its sole
discretion.
6.4. No Material Adverse Change. There shall have been no material
adverse change in the business, operations, condition (financial or otherwise)
or prospects of the Corporation since the date of this Agreement.
6.5. Ancillary Agreements. All of the ancillary agreements (the
"Ancillary Agreements") referenced in or otherwise required by this Agreement
(such as the Option Cancellation Agreements, attached as Exhibit A and B; the
Adjustment Escrow Agreement, attached as Exhibit C; the Indemnity Escrow
Agreement, attached as Exhibit D; the Lock-Up Agreement, attached as Exhibit E,
to be entered into by Shareholder, the Optionholders and Buyer; the
Non-Competition, Non-Solicitation and Assignment of Inventions Agreement,
attached as Exhibit F, to be entered by Shareholder and Buyer; the Employment,
Non-Competition, Non-Solicitation and Assignment of Inventions Agreement
attached as Exhibit G, to be entered by Pierre Michel Kronenberg and Buyer;
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the Employment and Assignment of Inventions Agreements, in the form of Exhibit
H, to be entered by Buyer and the Corporation's employee, Derek Zahn; and such
other Employment or other agreements as Buyer shall reasonably require of other
key employees of the Corporation) shall have been executed and delivered as
contemplated.
6.6. Legal Opinion. The Buyer shall have received an opinion addressed
to Buyer of legal counsel to Shareholder and the Corporation covering the
matters referred to in Exhibit I to this Agreement.
6.7. Deliveries of Optionholders; Appointment of Shareholder as Option
Agent. Each Optionholder shall have caused to be delivered to Buyer on or before
the Closing Date (a) one of the Option Cancellation Agreements, (b) the
instrument representing the Options held by the Optionholder and (c) all other
documents, instruments or writings required to be delivered to Buyer at or prior
to Closing pursuant to this Agreement, and such other documents as Buyer may
reasonably request, executed as appropriate.
6.8. Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinions, agreements, instruments and documents mentioned herein
or incident to any such transactions shall have been delivered and shall be
reasonably satisfactory in form and substance to Buyer and its counsel.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SHAREHOLDER
The obligations of Shareholder under this Agreement are subject to
fulfillment prior to or at the Closing of each of the following conditions,
unless waived in writing by Shareholder:
7.1. Representations and Warranties. Each of the representations and
warranties made by Buyer in this Agreement or in any instrument, schedule,
certificate or writing delivered by Buyer pursuant to this Agreement, shall be
true and correct when made and shall be true and correct at and as of the
Closing Date as though such representation and warranties were made or given on
and as of the Closing Date.
7.2. Approvals; Absence of Certain Legal Proceedings. All required
approvals of any governmental authority shall have been obtained, and no suit or
other legal proceeding shall have been commenced seeking to restrict or prohibit
the transactions contemplated by this Agreement.
7.3. Ancillary Agreements. All of the Ancillary Agreements shall have
been entered as contemplated.
7.4. Legal Opinion. The Shareholder shall have received an opinion
addressed to her of legal counsel to the Buyer covering the matters referred to
in Exhibit J to this Agreement.
7.5. Other Matters. All corporate and other proceedings and actions
taken in connection with the transactions contemplated hereby and all
certificates, opinion, agreements, instruments and
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documents mentioned herein or incident to any such transactions shall have been
delivered and shall be reasonably satisfactory in form and substance to
Shareholder and her counsel.
7.6. Release of Shareholder from Guaranty. Shareholder shall have been
released from her Guaranty of the Corporation's line of credit with Bank One.
ARTICLE VIII
CLOSING AND CLOSING DELIVERIES
8.1. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Lindquist & Vennum
P.L.L.P. at 10:00 a.m. Central Daylight Time on July 14, 1999, or at such other
time or place as agreed by the parties. The date and time of the Closing are
herein referred to as the "Closing Date." The Closing shall be effective as of
12:01 a.m. on the Closing Date.
8.2. Deliveries of Shareholder and the Corporation. Shareholder and the
Corporation shall deliver or cause to be delivered to Buyer on the Closing Date
all of the following, executed as appropriate:
(a) a Certificate executed by Shareholder stating that the
representations and warranties made by Shareholder in this Agreement are true
and correct on and as of the Closing Date, and that Shareholder has performed
and complied with all of her obligations under this Agreement which are to be
performed or complied with on or prior to the Closing Date;
(b) a Certificate executed by the Secretary of the Corporation
certifying as to attached copies of the Corporation's articles of incorporation,
bylaws and resolutions of the Corporation's board of directors and shareholder
approving this Agreement and setting forth the names of each of the officers of
the Corporation authorized to execute this Agreement and all documents,
certificates and agreements ancillary hereto, together with their specimen
signatures;
(c) a Certificate of Good Standing of the Corporation from the
Wisconsin Secretary of State or other appropriate authority, dated no more than
ten days prior to the Closing Date;
(d) the Ancillary Agreements, including but not limited to the
Employment, Non-Competition, Non-Solicitation and Assignment of Inventions
Agreement attached as Exhibit G, to be entered by Pierre Michel Kronenberg and
Buyer, which includes a $500,000 "stay-put" bonus for Mr. Kronenberg, payable
quarterly;
(e) the resignations of the officers and directors of the
Corporation;
(f) the opinion of Shareholder's, the Corporation's and the
Optionholders' legal counsel covering the matters referred to in Exhibit I;
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(g) the certificate or certificates representing the Shares,
accompanied by a duly executed stock power, executed in blank; and
(h) all other documents, instruments or writings required to
be delivered to Buyer at or prior to Closing pursuant to this Agreement, and
such other certificates of authority and documents as Buyer may reasonably
request.
8.3. Deliveries of Buyer. Buyer shall deliver to Shareholder on the
Closing Date all of the following, executed as appropriate:
(a) the portion of the Purchase Price payable to Shareholder
at Closing and to the Optionholders in accordance with Article I and the Option
Cancellation Agreements;
(b) a Certificate executed by an officer of Buyer stating that
the representations and warranties made by Buyer in this Agreement are true and
correct in all material respects on and as of the Closing Date, that Buyer has
performed and complied with all of its respective obligations under this
Agreement which are to be performed or complied with on or prior to the Closing
Date;
(c) a Certificate executed by the Secretary of Buyer
certifying as to attached copies of the Buyer's articles of incorporation,
bylaws and resolutions of Buyer's board of directors approving this Agreement
and setting forth the names of each of the officers of Buyer authorized to
execute this Agreement and all documents, certificates and agreements ancillary
hereto, together with their specimen signatures;
(d) the Ancillary Agreements;
(e) the opinion of Buyer's legal counsel covering the matters
referred to in Exhibit G; and
(f) all other documents, instruments or writings required to
be delivered to Shareholder at or prior to Closing pursuant to this Agreement,
and such other certificates of authority and documents as Shareholder may
reasonably request.
ARTICLE IX
INDEMNIFICATION AND RELEASE
9.1. Indemnification of Buyer. Shareholder shall defend, indemnify and
hold harmless Buyer and the Corporation from and against any and all claims,
causes of action, losses, costs, damages, deficiencies or expenses (including
reasonable attorneys' fees) (collectively "Damages") arising from or related to
(a) any and all misrepresentations or breaches of representations, warranties or
covenants of Shareholder set forth in this Agreement; (b) any tax payable by the
Corporation with respect to any taxable period ending on or prior to the Closing
Date, and any tax deficiencies of the Corporation, including interest and
penalties, arising from any audit by any tax authority with respect to any
period ending on or prior to the Closing Date, except in either case to the
extent that such taxes (i) are included as a current liability on the Closing
Date Balance Sheet,
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(ii) arise as a result of actions taken outside of the ordinary course of
business of the Corporation following the Closing Date or (iii) arise as a
result of the transactions contemplated by this Agreement, including the
338(h)(10) Election (except as provided in Section 10.16), and such amount shall
not be considered a liability for purposes of computing the Closing Working
Capital; or (c) any costs and expenses associated with defending against any of
the foregoing claims, liabilities, obligations, costs, damages, losses and
expenses and seeking indemnification therefor. The indemnification obligations
of Shareholder under this Article shall first be satisfied out of the Indemnity
Escrow Amount; provided, however, that Buyer shall have recourse against
Shareholder under this Section to the extent that the Indemnity Escrow Amount is
not sufficient to fund such obligations or in the event that the Indemnity
Escrow has been terminated.
9.2. Indemnification of Shareholder. Buyer shall defend, indemnify and
hold harmless Shareholder from and against any and all claims, causes of action,
losses, costs, damages, deficiencies or expenses (including reasonable
attorneys' fees) (collectively "Damages") arising from or related to (a) any and
all misrepresentations or breaches of representations, warranties or covenants
of Buyer set forth in this Agreement; or (b) any costs and expenses associated
with defending against any of the foregoing claims, liabilities, obligations,
costs, damages, losses and expenses and seeking indemnification therefor. In
addition, the Corporation (after the Closing) shall defend, indemnify and hold
harmless Shareholder from and against any and all Damages arising from or
related to (a) any tax payable by the Corporation with respect to any taxable
period beginning after the Closing Date, and any tax deficiencies of the
Corporation, including interest and penalties, arising from any audit by any tax
authority with respect to any period beginning after the Closing Date; (b)
except to the extent indemnifiable by Shareholder as provided in Section 9.1
above, any liability under any Environmental Law arising out of, resulting from
or relating to (1) the operation by the Corporation of the Leased Real Property
after the Closing Date, or (2) Hazardous Materials generated, released or
disposed of by the Corporation after the Closing Date; (c) liabilities of the
Corporation reflected on the Closing Date Balance Sheet but solely to the extent
of any accruals for such liabilities reflected on the Closing Date Balance
Sheet; or (d) any costs and expenses associated with defending against any of
the foregoing claims, liabilities, obligations, costs, damages, losses and
expenses in seeking indemnification therefor.
9.3. Limitations.
(a) Notwithstanding the provisions of Section 9.1, Buyer and
the Corporation shall not be entitled to recover Damages for which Buyer or the
Corporation is entitled to indemnification as a result of or arising out of
matters described in Section 9.1(a) until such Damages exceed $75,000, and if
such Damages exceed such amount, Buyer and the Corporation shall be entitled to
recover all such Damages in excess of $75,000 up to the amount of 50% of the
total amount of the consideration actually received by Shareholder from Buyer;
PROVIDED, that Damages resulting from the breach of the representations and
warranties in Section 2.3 (Title), the first sentence of Section 2.7
(Properties) and Section 2.11 (Payment of Taxes) shall not be subject to the
limitations contained in this Section, but shall be limited to the amount of
consideration actually received by Seller from Buyer.
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(b) Any proceeds from insurance or any other third party
obligor paid to or on account of the Buyer or Shareholder, as the case may be,
as a direct result of any fact, event or circumstance requiring indemnity
pursuant to Section 9.1 or 9.2, as the case may be, shall constitute a credit
which shall be offset against the total Damage (before the application of
Section 9.3(a)). Any tax benefit to such party as a result of any fact, event or
circumstance requiring indemnity pursuant to Section 9.1 or 9.2 shall be offset
against the total Damage (before the application of Section 9.3 (a)).
(c) On the second anniversary of the Closing Date, the parties
shall be released from the agreements of indemnification contained in Sections
9.1 and 9.2 in respect of any claims which have not been made, in writing, prior
to such date; provided, however, that the Shareholder shall not be released from
the agreements of indemnification arising under Section 9.1(a) with respect to
breaches of representations and warranties contained in Section 2.3 (Title), the
first sentence of Section 2.7 (Properties) or Section 2.11 (Payment of Taxes),
or breaches of covenants in this Agreement, all of which shall continue until
the applicable statute of limitations has expired. Notwithstanding the
foregoing, all agreements of indemnification under Sections 9.1 and 9.2 shall
remain effective in respect of claims made in writing by giving notice as
provided in this Agreement prior to such respective dates until such claims are
finally determined and satisfied in full.
9.4. General Release. On the Closing Date, Shareholder shall release
the Corporation and its directors, officers, agents and employees and discharges
them from any and all obligations and claims which have arisen or might arise
out of facts or actions existing or taken on or prior to the Closing Date,
except obligations or claims which may be made under this Agreement. In the
event that Buyer is entitled to any claim for indemnification under this
Agreement against the Shareholder, the Shareholder agrees that she shall not
have the right to seek indemnity or contribution with respect to any such claim
from, or have any similar right with respect to, the Corporation, Buyer or their
affiliates whether by contract, agreement, bylaw, corporate law statute, common
law or otherwise.
ARTICLE X
MISCELLANEOUS
10.1. Survival of Representations and Warranties. The representations,
warranties, covenants and agreements set forth in this Agreement or in any
writing delivered to Buyer or Shareholder in connection with this Agreement will
survive the Closing Date and the consummation of the transactions contemplated
hereby as provided in Section 9.3(c).
10.2. Expenses. Buyer and Shareholder will each pay all of their own
legal and other expenses incurred in the preparation of this Agreement and the
performance of the terms and conditions hereof. Shareholder represents that all
such expenses of the Corporation shall be paid or accrued prior to the Closing.
10.3. Governing Law. This Agreement shall be construed and enforced in
accordance with the internal laws (and not the law of conflicts) of the State of
Minnesota.
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10.4. Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and undertakings between the parties
with respect to such subject matter, except certain confidentiality agreements
to the extent described in Section 4.8. No waiver and no modification or
amendment of any provision of this Agreement shall be effective unless
specifically made in writing and duly signed by the party to be bound thereby.
10.5. Severability of Invalid Provision. If any one or more covenants
or agreements provided in this Agreement should be contrary to law, then such
covenant or covenants, agreement or agreements shall be null and void and shall
in no way affect the validity of the other provisions of this Agreement.
10.6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement.
10.7. Section Headings. Section headings contained in this Agreement
are inserted only as a matter of convenience and in no way define, limit, extend
or describe the scope of this Agreement or the intent of any of the provisions
hereof.
10.8. Counterparts. This Agreement may be executed in one or more
counterparts, by facsimile or otherwise, and shall become effective when one or
more counterparts have been signed by each of the parties.
10.9. Waiver. Waiver by Shareholder or Buyer of any breach of or
failure to comply with any provision of this Agreement by the other party shall
not be construed as, or constitute a continuing waiver of, or a waiver of any
other breach of, or failure to comply with, any other provision of this
Agreement.
10.10. Non-exclusivity. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive and shall be in
addition to any and all other rights, remedies, powers and privileges granted by
law, rule, regulation or instrument; PROVIDED, HOWEVER, that rights, remedies,
powers and privileges of Buyer with respect to the accuracy of Shareholder's
representations and warranties are subject to the limitations in Section 9.3,
except to the extent that they relate to claims of fraud.
10.11. Financial Statements. Shareholder and Buyer acknowledge that
Buyer may need to report this transaction in a Form 8-K filing with the SEC and,
in connection therewith, Buyer may be required to file audited financial
statements of the Corporation for the past three years. Shareholder agrees to
the inclusion of such financial statements in the Form 8-K and further agrees to
provide all necessary assistance, including management letters, as may
reasonably be required to complete such audited financial statements within the
time required by the SEC.
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10.12. Notices. All notices and replies thereto required hereunder
shall be in writing, properly addressed to the other party, signed by the party
giving notice, and may be delivered by hand or sent by facsimile transaction or
certified mail, return receipt requested. Notices shall be effective upon
receipt. Notices sent by mail shall be deemed received on the date of receipt
indicated by the return verification provided by the U.S. Postal Service.
Notices sent by facsimile transaction shall be deemed received the day on which
sent and shall be conclusively presumed to have been received in the event that
the sender's copy of the facsimile transaction contains the "confirmation" of
the other party's facsimile transaction. Notice shall be given, mailed or sent
to the parties at the following addresses, or at such other address as may be
given by proper notice.
If to Buyer: ONTRACK Data International, Inc.
6321 Bury Drive, Suites 13-21
Eden Prairie, MN 55346
Attention: John M. Bujan, General Counsel
with copy to: Lindquist & Vennum P.L.L.P.
4200 IDS Center
80 South 8th Street
Minneapolis, MN 55402
Attention: Martin R. Rosenbaum, Esq.
If to Shareholder: Ms. Jennifer Kronenberg
c/o Mijenix Corporation
3030 Sterling Circle
Boulder, CO 80301
with copy to: Bradley D. Schwartz, Esq.
Strategic Law Partners, LLP
333 S. Grand Ave., 39th Floor
Los Angeles, CA 90071
10.13. Employee Matters. Except for key employees and others who shall
enter employment agreements in accordance with this Agreement, which employees
and others shall be employed according to such agreements, Buyer intends to, but
shall not be obligated to, continue the employment of substantially all persons
who were employed by the Corporation on a full-time basis as of June 30, 1999,
and who continue to be employed by the Corporation at the Closing Date, at
current wages or salaries and on an "employment at will" basis.
10.14. Dispute Resolution. Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with this Section.
(a) Either Buyer or Shareholder for herself or on behalf of
the Optionholders may give the other party written notice of a dispute not
resolved in the normal course of business. Buyer and Shareholder shall meet at a
mutually acceptable time and place within 10 days after the delivery
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of such notice, and thereafter as often as they reasonably believe necessary to
attempt to resolve the dispute.
(b) Any dispute that has not been resolved by non-binding
means within 45 days of the delivery of a written notice of dispute as provided
in this Section shall be finally settled by arbitration conducted expeditiously
in accordance with the rules of the American Arbitration Association by a sole
arbitrator. Any arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ss.ss. 1-16, and judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. The location
of any arbitration will be in Minneapolis, Minnesota.
(c) The arbitrator is empowered to award consequential damages
and other damages in addition to compensatory damages for breaches of this
Agreement. If it is determined by the arbitrator that one party has generally
prevailed on the issues, then the other party shall bear the cost of the
arbitration proceedings, including, without limitation, the arbitration fees,
arbitrator's compensation and expenses and the other party's legal fees and
expenses; otherwise, such arbitration costs, fees and expenses shall be borne by
the parties equally and each party shall bear its own legal fees and expenses.
(d) Notwithstanding any other provision in this Section to the
contrary, either the Buyer or the Shareholder may bring court proceedings or
claims against the other party(ies) (i) as part of separate litigation commenced
by an unrelated third party, or (ii) if not first sought from the arbitrator,
solely to obtain temporary or preliminary injunctive relief or other interim
remedies pending conclusion of the arbitration.
10.15. Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual consent of the Buyer and the Shareholder;
(b) by either the Buyer, on the one hand, or the Shareholder,
on the other hand, if there has been a misrepresentation or breach of warranty
on the part of the other party in the representations and warranties set forth
in this Agreement, or if the conditions precedent to the terminating party's
obligations to consummate the transactions contemplated hereby have not been
satisfied on or prior to Closing Date (other than as a result of the willful
acts or omissions of the terminating party); or
(c) by either the Buyer, on the one hand, or the Shareholder,
on the other hand, if the transactions contemplated hereby have not been
consummated on or before September 30, 1999; provided that neither the Buyer nor
the Shareholder will be entitled to terminate pursuant to this Section if the
Buyer's or the Shareholder's willful breach of this Agreement, respectively, has
prevented the consummation of the transactions contemplated hereby.
(d) In the event of termination of this Agreement by either
the Buyer or the Shareholder as provided above, this Agreement will forthwith
become void, and there will be no
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liability on the part of either the Buyer or the Shareholder, except for
breaches of this Agreement prior to the time of such termination.
10.16. Taxes. Except as provided in Section 4.12, Shareholder and the
Optionholders will be responsible for any and all taxes payable by them as a
result of the purchases described in this Agreement. The Corporation will be
responsible for the employer's portion of all taxes payable with respect to the
payments to the Shareholder and the Optionholders; provided, however, that any
such taxes shall be reflected on the Corporation's Closing Date Balance Sheet.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first above written.
ONTRACK DATA INTERNATIONAL, INC.
By: /s/ Michael W. Rogers
-------------------------------------
Its: CEO
MIJENIX CORPORATION
By: /s/ Jennifer Kronenberg
-------------------------------------
Its: President
/s/ Jennifer Kronenberg
-----------------------------------------
Jennifer Kronenberg, Individually
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Form of Large Option Cancellation Agreement
Exhibit B Form of Small Option Cancellation Agreement
Exhibit C Form of Adjustment Escrow Agreement
Exhibit D Form of Indemnity Escrow Agreement
Exhibit E Lock-Up Agreement
Exhibit F Non-Competition, Non-Solicitation and Assignment of
Inventions Agreement for Jennifer Kronenberg
Exhibit G Employment, Non-Competition, Non-Solicitation and Assignment
of Inventions Agreement for Pierre Michel Kronenberg
(including $500,000 "Stay-Put" bonus)
Exhibit H Employment and Assignment of Inventions Agreement for
Derek Zahn
Exhibit I Matters to be Covered in Legal Opinion of Counsel to
Shareholder, the Corporation, and the Optionholders
Exhibit J Matters to be Covered in Legal Opinion of Counsel to Buyer
SCHEDULES
Schedule A Optionholders
Schedule 1.2 Allocation of Closing and Contingent Payments
Schedule 1.2(d) Target Working Capital (as described in Corporation's
projected June 30, 1999 balance sheet prepared in April 1999)
Schedule 1.3(b) Projected Revenues (as described in Corporation's projected
income statements prepared in April 1999)
Schedule 1.3(c) Corporation Marketing Expenses
Schedule 2 Shareholder's Disclosure Schedule
EXHIBIT 5.1
[Lindquist & Vennum P.L.L.P. Letterhead]
September 27, 1999
ONTRACK Data International, Inc.
9023 Columbine Drive
Eden Prairie, Minnesota 55347
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 filed by ONTRACK Data
International , Inc., (the "Company") with the Securities and Exchange
Commission on September 27, 1999 relating to the public offering of 215,345
shares of Common Stock, $.01 par value, to be offered by the Selling
Shareholders, please be advised that as counsel to the Company, upon examination
of such corporate documents and records as we have deemed necessary or advisable
for the purposes of this opinion, it is our opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.
2. The shares of Common Stock offered by the Selling Shareholders have
been validly issued and are fully-paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to reference to our firm under the heading "Legal
Matters" in the Prospectus comprising a part of the Registration Statement.
Very truly yours,
/s/ LINDQUIST & VENNUM P.L.L.P.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 3, 1999, accompanying the
consolidated financial statements of ONTRACK Data International, Inc. and
subsidiaries included in the Annual Report on Form 10-K for the year ended
December 31, 1998, which is incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned report and to the use of our name as it appears
under the caption "Experts."
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
September 27, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our report dated February 4, 1998 relating
to the financial statements, which appears in ONTRACK Data International, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
September 27, 1999
