SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ONTRACK DATA INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1999
-------------------
Notice is hereby given that the Annual Meeting of Shareholders of
ONTRACK Data International, Inc. (the "Company") will be held at Hennepin
Technical College Auditorium, 9200 Flying Cloud Drive, Eden Prairie, Minnesota
55347 on May 20, 1999 at 3:00 p.m. for the following purposes:
1. To elect six directors.
2. To amend the Company's 1996 Stock Incentive Plan to increase
the number of shares reserved for issuance under the plan and
to permit compliance with Section 162(m) of the Internal
Revenue Code of 1986, as amended.
3. To ratify and approve the selection of independent accountants
for the Company for the current fiscal year.
4. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 25,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the meeting.
By Order of the Board of Directors
Michael W. Rogers
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Eden Prairie, Minnesota
April 15, 1999
================================================================================
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD
TODAY, WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON. IF YOU ATTEND THE MEETING,
YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU WISH.
================================================================================
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
-------------------
PROXY STATEMENT
-------------------
This Proxy Statement is furnished to the shareholders of ONTRACK Data
International, Inc. (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the Annual
Meeting of Shareholders to be held on May 20, 1999, or any adjournments thereof.
The Company's principal offices are located at 6321 Bury Drive, Eden Prairie,
Minnesota, 55346. The mailing of this Proxy Statement to shareholders of the
Company commenced on or about April 15, 1999.
Any proxy may be revoked at any time before it is voted by signing and
returning a proxy bearing a later date, by giving written notice to the
Secretary of the Company, or by attending the Annual Meeting of Shareholders and
voting in person. If a proxy is not so revoked, the shares represented by such
proxy will be voted according to your directions. If your proxy card is signed
and returned without specifying a vote or an abstention on any proposal, it will
be voted according to the recommendation of the Board of Directors on each
proposal.
Under Minnesota law, each item of business properly presented at a
meeting of shareholders generally must be approved by the affirmative vote of
the holders of a majority of the voting power of the shares present, in person
or by proxy, and entitled to vote on that item of business. However, if the
shares present and entitled to vote on that item of business would not
constitute a quorum for the transaction of business at the meeting, then the
item must be approved by a majority of the voting power of the minimum number of
shares that would constitute such a quorum. Votes cast by proxy or in person at
the Annual Meeting of Shareholders will determine whether or not a quorum is
present. Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of the matter submitted to the shareholders
for a vote. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
The total number of shares of stock outstanding and entitled to vote at
the Annual Meeting as of March 25, 1999 consisted of 9,697,234 shares of $.01
par value common stock. Each share of common stock is entitled to one vote and
there is no cumulative voting. Only shareholders of record at the close of
business on March 25, 1999 will be entitled to vote at the meeting. The
presence, in person or by proxy, of holders of a majority of the shares of
common stock entitled to vote at the Annual Meeting of Shareholders constitutes
a quorum for the transaction of business.
2
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 25, 1999 by (a) each person
known to the Company to beneficially own more than five percent (5%) of Common
Stock, (b) each director of the Company and nominee to serve as a director, (c)
each executive officer named in the table on page 7 and (d) all directors and
executive officers of the Company as a group. Except as otherwise indicated
below, to the knowledge of the Company, all shareholders have sole voting and
investment power over the shares beneficially owned, except to the extent
authority is shared by spouses under applicable law.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ---------------- --------------------- --------
Michael W. Rogers (2)(3).................... 1,754,550 18.0%
6321 Bury Drive
Eden Prairie, MN 55346
Gary S. Stevens (3)(4)...................... 1,830,550 18.9%
6321 Bury Drive
Eden Prairie, MN 55346
John E. Pence (3)(5)........................ 1,743,751 17.9%
HCR 52
Box 102-A6
Hot Springs, SD 57747
Kopp Investment Advisors, Inc. (6).......... 809,300 8.3%
7701 France Avenue South, Suite 500
Edina, MN 55435
Wellington Management Co. LLP (7)........... 660,100 6.8%
75 State Street
Boston, MA 02109
John M. Bujan .............................. 25,000 *
Lee B. Lewis................................ 0 -
Thomas P. Skiba ........................... 84,750 *
Richard J. Runbeck.......................... 7,500 *
Roger D. Shober ............................ 57,500 *
Robert M. White, Ph.D ...................... 11,500 *
All executive officers and directors as
a group (10 persons)...................... 5,540,354 55.3%
- ------------------
* Less than 1%
3
<PAGE>
(1) Includes the following number of shares which could be purchased under
stock options exercisable within 60 days of the date hereof: Mr.
Rogers, 36,250 shares; Mr. Pence, 65,000 shares; Mr. Stevens, 32,250
shares; Mr. Shober, 57,500 shares; Dr. White, 7,500 shares; Mr.
Runbeck, 7,500 shares; Mr. Bujan, 22,750 shares; Mr. Skiba, 84,750
shares; and all executive officers and directors as a group, 328,453
shares.
(2) Includes 621,430 shares of Common Stock owned by the Rogers Family
Limited Partnership, of which Mr. Rogers is the General Partner.
(3) See "Certain Transactions" for a description of the Stock Transfer
Agreement among these individuals.
(4) Includes 29,946 shares of Common Stock owned by the Stevens Family
Limited Partnership, of which Mr. Stevens is the General Partner.
(5) Includes 262,996 shares of Common Stock owned by the Pence Family
Limited Partnership, of which Mr. Pence is the General Partner, and
4,150 shares of Common Stock owned by the Pence Family Foundation, of
which Mr. Pence is the Director with sole dispositive power.
(6) Kopp Investment Advisors, Inc. is a registered investment adviser which
is wholly owned by Kopp Holding Company, which in turn is wholly owned
by LeRoy C. Kopp. According to the Schedule 13G filed with the
Securities and Exchange Commission on February 4, 1999, these persons
had sole voting power over 282,000 of these shares and had sole
dispositive power over 180,000 shares and shared dispositive power over
629,300 shares.
(7) These shares are held by Wellington Management Co. as investment
adviser to its clients. According to the Schedule 13G filed with the
Securities and Exchange Commission on February 8, 1999, Wellington
Management Co. had shared voting power over 435,100 shares and shared
dispositive power over 660,100 shares.
1. ELECTION OF DIRECTORS
Six directors will be elected by the Company's shareholders at the
Annual Meeting, each to serve until the next annual meeting of shareholders or
until a successor is elected. The Bylaws of the Corporation provide that the
Board of Directors may consist of not less than three nor more than nine
directors. One current director, Richard J. Runbeck, will not seek reelection.
The Board of Directors also has nominated Lee B. Lewis, the current President
and Chief Operating Officer of the Company, to serve as a director, to maintain
the size of the Board at six members.
The Board of Directors has nominated for election the six persons named
below. The Company believes that each nominee named below will be able to serve,
but should any such nominee be unable to serve as a director, the persons named
in the proxies have advised that they will vote for the election of such
substitute nominee as the Board of Directors may propose. The names and ages of
the nominees and their principal occupations are set forth below, based upon
information furnished to the Company by such persons.
4
<PAGE>
DIRECTOR
NAME AND AGE PRINCIPAL OCCUPATION SINCE
- ------------ -------------------- -----
CURRENT DIRECTORS:
Michael W. Rogers (43) Chairman and Chief Executive Officer 1985
of the Company
John E. Pence (52) Retired President of the Company 1985
Gary S. Stevens (42) Senior Vice President, Engineering 1985
of the Company
Robert M. White, Ph.D. (60) Professor and Head of the Department 1994
of Electrical and Computer Engineering
Carnegie Mellon University
Roger D. Shober (60) Retired Executive 1995
NEW DIRECTOR NOMINEE:
Lee B. Lewis (52) President and Chief Operating Officer --
BUSINESS EXPERIENCE OF NOMINEES
Michael W. Rogers has served as Chief Executive Officer of the Company
since 1986 and as Chairman since 1989. Additionally, Mr. Rogers has served as a
Director of the Company since 1985 and from 1989 to May 1996 as Chief Financial
Officer. From 1980 to 1985, Mr. Rogers was employed by Control Data Corporation
("CDC"), where he served as a Senior Developer of diagnostic software routines
and as a Senior Electrical Engineer and an Electrical Engineer for software and
hardware development. From 1978 to 1980, he was an Associate Engineer with
Westinghouse Bettis Atomic Power Laboratory, a subsidiary of Westinghouse
Electric Corporation.
John E. Pence served as President of the Company from 1985 until 1998
and has served as a Director of the Company since 1985. From 1971 to 1985, he
was employed by CDC, where he served as Department Head for the Program
Management Office for CDC's mini-micro peripheral development (1984 to 1985),
managed the Technical Support organization for worldwide support of CDC's plug
compatible peripheral business (1981 to 1984) and served in various other
capacities related to software development and computer programming (1971 to
1981).
Gary S. Stevens has served as Senior Vice President, Engineering and as
a Director of the Company since 1985. From 1979 to 1985, Mr. Stevens was a
designer and diagnostic programmer of disk subsystems for CDC.
Robert M. White, Ph.D. is a University Professor and has served as the
Head of the Department of Electrical and Computer Engineering at Carnegie Mellon
University since 1993. He previously served as
5
<PAGE>
Vice President and Chief Technical Officer of CDC, and in 1990 was appointed by
President Bush and served as the first Under Secretary of Commerce for
Technology until 1993. He is also a director of ENSCO, Inc., a contract research
firm, and STMicroelectronics, a manufacturer of semiconductors. He is
a member of the National Academy of Engineering.
Roger D. Shober served as President and Chief Operating Officer of the
Company from September 21, 1998 until February 11, 1999. He is a retired
executive with 38 years of management experience within the computer industry.
Most recently, he served as Executive Vice President of World Wide Operations at
Control Data Systems from 1991 to 1994, as President and Chief Operating Officer
of Rigidyne, Inc., a hard disk drive research and development company that was
subsequently acquired by Seagate, from 1988 to 1991 and as Executive
Vice-President of Micom Systems, Inc., a manufacturer of data communications
equipment, from 1986 to 1988.
Lee B. Lewis has served as President and Chief Operating Officer of the
Company since February 1999. From 1993 to 1998, Mr. Lewis was employed by Ancor
Communications, Inc., most recently as Vice President, Administration. From 1982
to 1993 Mr. Lewis was employed by Magnetic Data, Inc. in various positions, most
recently as Vice President/General Manager of the Minnesota Division.
OTHER INFORMATION REGARDING THE BOARD
MEETINGS. During 1998, the Board of Directors met four times and held
three telephonic meetings. Each director attended more than 75% of the meetings
of the Board of Directors or any Committee on which such director served.
BOARD COMMITTEES. The Audit Committee, consisting of Mr. Runbeck
(Chairman), and Dr. White, met once in 1998. Among other duties, the Audit
Committee reviews the Company's accounting, auditing and reporting practices,
makes recommendations concerning the work of the Company's independent auditors
and reviews the adequacy of internal controls.
The Compensation Committee, consisting of Mr. Shober (Chairman) and Dr.
White, met three times in 1998. The Compensation Committee's duties include
establishing salaries, bonuses and other compensation for the Company's
executive officers, and for the administration of the Non-Qualified Stock Option
Plan, the 1996 Stock Incentive Plan and the Employee Stock Purchase Plan.
COMPENSATION OF DIRECTORS. Directors who are not employees of the
Company receive $2,500 for each meeting of the Board of Directors attended in
person (plus reimbursement of travel expenses). No additional fees are paid for
attendance at telephonic meetings or committee meetings. Directors who are
officers of the Company do not receive any additional compensation for serving
on the Board of Directors.
Directors are also eligible to receive options under the Company's 1996
Stock Incentive Plan. In January 1998, each non-employee director received an
option to purchase 10,000 shares at $20.38 per share, equal to the closing sale
price of the common stock on the date of grant. The options have a ten year term
and vest equally over the first four years. In September 1998, these options
were amended to change the exercise price to $7.88 per share, equal to the
closing sale price of the common stock on the date of the amendment.
6
<PAGE>
In 1998, the Company entered into a six-month Consulting Agreement with
Roger D. Shober under which Mr. Shober served as interim president and chief
operating officer of the Company from September 21, 1998 through February 11,
1999. Under the agreement, Mr. Shober received cash consulting fees and waived
any fees to which he was otherwise entitled as a director of the Company. Mr.
Shober was entitled to receive none of the benefits accorded other executive
management of the Company other than reimbursement of reasonable out-of-pocket
expenses. As compensation for his services, in September 1998, Mr. Shober
received a fully-vested option to purchase up to 50,000 shares of common stock
of the Company at an exercise price of $7.125.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table
sets forth, for the years ended December 31, 1998, 1997 and 1996, the
compensation earned by the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 for the year ended December 31, 1998 (collectively, the "Named
Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION NO. OF SECURITIES ALL OTHER
NAME AND --------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
- ------------------ ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Michael W. Rogers 1998 $241,000 $ 0 25,000 $ 3,600
Chairman and Chief 1997 230,000 250,000 25,000 10,500
Executive Officer 1996 190,000 190,000 50,000 9,000
John E. Pence(2) 1998 125,000 0 20,000 3,600
President (retired) 1997 200,000 205,000 15,000 10,500
1996 185,000 185,000 50,000 9,000
Gary S. Stevens 1998 212,000 0 25,000 3,600
Senior Vice President, 1997 200,000 225,000 15,000 10,500
Engineering 1996 180,000 180,000 50,000 9,000
John M. Bujan(3) 1998 133,000 0 15,000 3,600
General Counsel and 1997 125,000 145,000 15,000 10,500
Secretary 1996 92,000 92,000 13,750 --
Thomas P. Skiba(4) 1998 143,000 0 15,000 3,600
Vice President and 1997 135,000 152,000 15,000 10,500
Chief Financial Officer 1996 78,000 118,000(5) 75,000 --
</TABLE>
- ------------------
(1) Amounts indicated represent contributions by the Company to the
Company's 401(k) Profit Sharing Plan on behalf of the named
individuals.
(2) Mr. Pence retired as an officer of the Company effective September 18,
1998 and as an employee on December 31, 1998.
7
<PAGE>
(3) Mr. Bujan became General Counsel and Secretary in March 1996 and
received a salary for only ten months in 1996.
(4) Mr. Skiba became Vice President and Chief Financial Officer in May 1996
and received a salary for only 8 months in 1996.
(5) Includes a signing bonus of $20,000 paid to Mr. Skiba upon joining the
Company in May 1996.
The following table summarizes option grants in 1998 to each of the
Named Executives:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED --------------------
UNDERLYING OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION OPTION TERM(1)
NAME GRANTED (#) IN 1998 (%) PER SHARE DATE 5% 10%
- ---- -------------------- ----------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rogers........... 25,000(2) 6.5% $7.88(3) 01/22/08 $124,000 $314,000
John E. Pence............... 20,000(4) 5.2% 7.25 09/18/08 91,000 231,000
Gary S. Stevens............. 25,000(2) 6.5% 7.88(3) 01/22/08 124,000 314,000
John M. Bujan............... 15,000(2) 3.9% 7.88(3) 01/22/08 74,000 188,000
Thomas P. Skiba............. 15,000(2) 3.9% 7.88(3) 01/22/08 74,000 188,000
</TABLE>
- ----------------------
(1) Potential realizable value is based on the assumption that the price
per share of Common Stock appreciates at the assumed annual rate of
stock appreciation for the option term. For options granted and
repriced in 1998, appreciation is calculated from the date of
repricing. The actual value of these option grants is dependent on
future performance of the Common Stock and overall stock market
conditions. There is no assurance that the values reflected in this
table will be achieved.
(2) The options vest as follows: 25% on each of January 20, 1999, 2000,
2001 and 2002.
(3) These options were granted at an exercise price of $20.38 per share on
January 22, 1998 and were amended on September 3, 1998 to change the
exercise price to $7.88 per share. See "Compensation Committee Report
on Option Repricing."
(4) The options vest as follows: 25% on each of September 18, 1999, 2000,
2001 and 2002.
The following table summarizes the exercises of options by the Named
Executives in 1998 and the value of options held at December 31, 1998 by the
Named Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 (#) DECEMBER 31, 1998 ($)(1)
SHARES ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Rogers 0 $ 0 25,000 75,000 $ 0 $ 0
John E. Pence 0 0 65,000 20,000 0 0
Gary S. Stevens 0 0 23,000 67,000 0 0
John M. Bujan 0 0 16,000 30,750 29,325 0
Thomas P. Skiba 0 0 78,000 27,000 179,250 0
</TABLE>
- -----------------------
(1) The amounts set forth represent the difference between the closing sale
price of $6.38 per share of Common Stock on December 31, 1998 and the
exercise price of the options, multiplied by the applicable number of
shares underlying the options.
8
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of Messrs.
Rogers, Pence and Stevens (the "Founders") in 1996. If the Company terminates a
Founder for cause, such Founder will receive severance payments equal to two
times his base salary payable in the then-current fiscal year. Upon the
termination of a Founder without cause, the Founder shall receive severance
payments equal to two times his base salary payable in the then-current fiscal
year, plus an amount equal to his prior year's base salary and bonus. The
Founders are also prohibited from competing for two years after termination of
their employment. Mr. Pence retired as an officer and employee in 1998.
The Company entered into letter agreements with each of Messrs. Bujan
and Skiba upon the commencement of each officer's employment in 1996. The
agreements generally provide for severance payments upon their termination for
reasons other than gross misconduct equal to twelve and 6 months of base salary,
respectively.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee (the "Committee"). The role of the Committee, which is
currently comprised of two non-employee directors, is to review and approve the
base salaries, bonuses, stock options and other compensation of the executive
officers of the Company. The Committee also has the power to prescribe, amend,
and rescind rules relating to the Company's 1995 Non-Qualified Stock Option
Plan, 1996 Employee Stock Purchase Plan, and 1996 Stock Incentive Plan
(collectively, the "Plans"), to grant options and other awards under the Plans
and to interpret the Plans.
The Committee's executive compensation policies are designed to attract
and retain executives capable of leading the Company in a rapidly evolving
computer service and software marketplace and to motivate such executives to
maximize profitability and stockholder value. The Committee has designed the
Company's Executive Performance Plan with three principal components to achieve
this objective - base salary; quarterly and annual cash incentives; and
long-term incentive compensation in the form of stock options. A significant
portion of each executive's total compensation is dependent on the attainment of
predefined performance objectives which are designed to be consistent with the
maximization of shareholder value. The Committee believes this philosophy will
enable the Company to attract and retain management personnel with the talents
and skills required to meet the challenges of a highly competitive industry.
BASE SALARY. In determining salaries for executive officers for fiscal
1998, the Committee considered the individual experience and performance of its
executive officers, the achievements of the executive officers in bringing the
Company to its present place of worldwide prominence in the disk subsystem
software and data recovery service fields, the competitive environment in which
the Company must recruit and retain quality executive talent, the Company's
operating performance in 1997 and attainment of specific financial, strategic
and individual objectives. The Committee compared the salaries of its executive
officers with salaries of executive officers of other companies of similar
revenue size and profitability and considered the cost of recruiting executives
with experience in large, high tech organizations with international
distribution experience. The Committee tried to establish compensation packages,
which in total, would be competitive in the Company's marketplace. The base
salary of the executive officers, excluding Mr. Pence, increased by
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<PAGE>
an average of 5.7% (on an annualized basis) from 1997 to 1998. Mr. Pence's
salary was reduced to $125,000 in 1998 from $200,000 in 1997 to reflect his
part-time status. Mr. Pence retired as an officer in September 1998 and as an
employee effective December 31, 1998.
BONUSES. For 1998, the Committee approved the Executive Performance
Plan, in which cash bonuses for executive officers were determined with
reference to specified financial performance targets for the Company, both on a
quarterly and annual basis, and also with reference to the attainment of
predefined individual performance objectives consistent with the maximization of
shareholder value. The Company's 1998 Executive Performance Plan established
specific percentages for three categories: annual earnings per share, quarterly
earnings per share, and Management By Objectives ("MBO") individual goals. The
bonuses under the plan equal 100% of base salary for achievement of certain
targeted levels, which can be exceeded if the performance objectives are
exceeded. The quarterly and annual earnings per share components were determined
by comparison between actual results and the 1998 budget. The MBO individual
goals were established by the Committee for the Chief Executive Officer, and by
the Chief Executive Officer with respect to all other executive officers. As a
result of the Company's performance in 1998, the Committee determined in January
1999 that no bonuses would be paid for 1998.
EQUITY-BASED COMPENSATION. For 1998, the Committee also considered and
awarded equity-based compensation, in the form of stock options, as a component
of the Company's Executive Performance Plan. Equity awards are typically set by
the Committee based on each officer's individual performance and achievements,
and the recommendations of management. In 1998, executive officers were eligible
to receive grants of stock options under the Company's 1996 Stock Incentive Plan
("SIP"). In addition, certain executive officers were eligible to participate in
the Company's Employee Stock Purchase Plan.
In 1998, five executive officers of the Company received new option
grants under the 1996 SIP. The Committee determined the number of options
granted to each officer based on the officer's level of responsibility and team
performance. The options granted in 1998 had an exercise price equal to the fair
market value of the Common Stock on the date of grant, and generally vest in
equal installments over a four-year period after grant, subject to the
participant's continued employment with the Company. In September 1998, the
Committee amended each of the option agreements to reduce the exercise price to
the then-current market value. See "Compensation Committee Report on Option
Repricing."
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. In setting Mr. Rogers'
base salary for 1998, the Committee considered his contributions to the Company,
the Company's operating performance for 1997 and attainment of specific
objectives. The Committee also compared his salary with salaries of chief
executive officers of other companies of similar revenue size and profitability.
Mr. Rogers' salary increased approximately 4.8% from 1997 to 1998, which
included a market adjustment based on the Committee's review of salaries of
other chief executive officers. With respect to bonus, Mr. Rogers' performance
objectives related to the hiring of a senior marketing/sales executive,
achievement of specified revenue
10
<PAGE>
growth, establishment of a structured performance review process for the
Company, and management of international operations and growth. Mr. Rogers
received no bonus for his 1998 performance, principally because of the Company's
financial performance in 1998. Mr. Rogers also received options to purchase
25,000 shares of Common Stock.
MEMBERS OF THE COMPENSATION COMMITTEE
JOHN E. PENCE ROBERT M. WHITE, PH.D.
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
Over its history, the Company has believed that the granting of stock
options to employees has provided a significant incentive to the Company
employees to align their interest with those of the Company's shareholders. At
December 31, 1998, the Company had outstanding options to purchase 1,018,750
shares, which was equal to approximately 10.5% of the Company outstanding common
stock on that date. In September 1998, the Committee reviewed the Company's
outstanding options and noted that virtually all of these options had exercise
prices significantly greater than the current market value of the common stock.
The Committee believed that because of the significant decrease in the
price of the Company's stock, it was unlikely that these options will provide
significant incentive for employees, particularly in the short term.
Accordingly, on September 3, 1998, the Board, upon the recommendation of the
Committee, amended all outstanding options with exercise prices in excess of
$7.88 per share, so that these options now have an exercise price of $7.88 per
share. The Committee believed that it was the best interests of the Company and
its shareholders to reprice the stock options to provide an additional incentive
for employees and result in increased shareholder value. The Committee believed
this was especially important in light of the intense competition among computer
software and service companies for executive management and engineering
personnel. Accordingly, the Committee authorized the repricing.
11
<PAGE>
The table below provides information with respect to the option
repricing. There has been no other repricing of options within the past ten
fiscal years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
MARKET PRICE LENGTH OF
SECURITIES OF STOCK AT ORIGINAL OPTION
UNDERLYING TIME OF EXERCISE PRICE TERM REMAINING
NUMBER OF REPRICING OR AT TIME OF NEW AT DATE OF
OPTIONS REPRICED AMENDMENT REPRICING OR EXERCISE REPRICING OR
NAME DATE OR AMENDED(#) ($) AMENDMENT($) PRICE($) AMENDMENT
------------ ---- ------------- ----- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael W. 9/3/98 50,000 $7.88 $12.00 $7.88 7 yrs. 11 months
Rogers, CEO 9/3/98 25,000 7.88 14.00 7.88 8 yrs. 4 months
9/3/98 25,000 7.88 20.38 7.88 9 yrs. 4 months
John E. Pence, 9/3/98 50,000 7.88 12.00 7.88 7 yrs. 11 months
President 9/3/98 15,000 7.88 14.00 7.88 8 yrs. 4 months
Gary S. 9/3/98 50,000 7.88 12.00 7.88 7 yrs. 11 months
Stevens, Sr. 9/3/98 15,000 7.88 14.00 7.88 8 yrs. 4 months
Vice President, 9/3/98 25,000 7.88 20.38 7.88 9 yrs. 4 months
Engineering
John M. Bujan, 9/3/98 6,250 7.88 12.00 7.88 8 yrs. 0 months
General 9/3/98 15,000 7.88 14.00 7.88 8 yrs. 4 months
Counsel and 9/3/98 15,000 7.88 20.38 7.88 9 yrs. 4 months
Secretary
Thomas P. 9/3/98 15,000 7.88 14.00 7.88 8 yrs. 4 months
Skiba, 9/3/98 15,000 7.88 20.38 7.88 9 yrs. 4 months
Vice President
and CFO
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</TABLE>
MEMBERS OF THE COMPENSATION COMMITTEE
JOHN E. PENCE ROBERT M. WHITE, PH.D.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Roger D. Shober was a member of the Compensation Committee through
September 21, 1998. On that date, Mr. Shober was appointed as interim president
and chief operating officer of the Company, positions in which he served until
February 11, 1999.
On September 21, 1998, John E. Pence became a member of the
Compensation Committee. Mr. Pence was a founder of the Company and served as its
President until September 18, 1998. Mr. Pence was an employee of the Company
through December 31, 1998.
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PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company
include in this Proxy Statement a line graph presentation comparing cumulative,
five-year shareholder returns on an indexed basis with a broad market index and
either a nationally-recognized industry standard or an index of peer companies
selected by the Company. The Company has chosen the use of the Nasdaq Stock
Market (U.S. Companies) Index as its broad market index and the Nasdaq Computer
and Data Processing Index as its peer group index. The table below compares the
cumulative total return as of the end of each of the Company's last three fiscal
years on $100 invested as of October 21, 1996 (the date of the Company's initial
public offering) in the Common Stock of the Company, the Nasdaq Stock Market
Index and the Nasdaq Computer and Data Processing Index, assuming the
reinvestment of all dividends. The performance graph is not necessarily
indicative of future investment performance.
[REPRESENTATION OF DATA POINTS IN PRINTED GRAPHIC]
10/21/96 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
The Company $100.00 $125.00 $207.81 $53.125
Nasdaq Composite 100.00 104.80 128.40 180.93
Computer and Data Processing 100.00 104.30 128.14 229.64
The Company's Common Stock closed at $6.375 per share on December 31,
1998 and closed at $4.06 per share on March 25, 1999.
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2. APPROVAL OF AMENDMENTS TO 1996 STOCK INCENTIVE PLAN
In January 1999, the Company's Board of Directors approved two
amendments to the Company's 1996 Stock Incentive Plan (the "Plan"), subject to
shareholder approval. The first amendment increases the number of shares
reserved for issuance under the Plan from 1,000,000 shares to 1,400,000 shares.
The second amendment limits the number of shares subject to options that may be
granted to certain executive officers under the Plan in a single fiscal year to
500,000 shares.
SUMMARY OF THE 1996 STOCK INCENTIVE PLAN
On August 6, 1996, the Board adopted the Plan, which was approved by
the shareholders on September 20, 1996. The purpose of the Plan is to enable the
Company to retain and attract executives and other key employees, non-employee
directors and consultants who contribute to the Company's success by their
ability, ingenuity and industry, and to enable such individuals to participate
in the long-term success and growth of the Company by giving them a proprietary
interest in the Company. The Plan permits the granting of stock options, stock
appreciation rights, restricted stock and deferred stock awards; however, only
stock options have been granted under the Plan.
ELIGIBILITY. All salaried officers and key employees, non-employee
directors, consultants and advisors of the Company or any subsidiary of the
Company are eligible to receive awards under the Plan. The Company currently has
approximately 300 employees and has three non-employee directors.
TERM. Incentive stock options may be granted pursuant to the Plan
through August 6, 2006. This date will be extended to January 27, 2009 assuming
the shareholders adopt the proposed increase in the number of shares reserved
under the Plan. Non-qualified stock options and other awards may be granted
pursuant to the Plan until the Plan is discontinued or terminated by the Board
of Directors.
ADMINISTRATION. The Plan is administered by a Committee (the
"Committee") appointed by the Board from time to time which shall consist of not
less than two members of the Board who are non-employee directors within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 or any successor
rule. The Plan vests broad powers in the Committee to administer and interpret
the Plan, including the authority to select the individuals to be granted awards
and to prescribe the type, form and conditions of the awards (which may vary
among participants). The Board has appointed the Compensation Committee to serve
as the Committee administering the Plan.
OPTIONS. When an option is granted under the Plan, the Committee in its
discretion specifies the number of shares of Common Stock which may be purchased
upon exercise of the option, the option price (which may not be less than 100%
of the fair market value of the Company's Common Stock on the date the option is
granted), the term of the option and whether it will be an incentive or
nonqualified stock option. The closing sale price of the Company's Common Stock
was $4.06 on March 25, 1999.
The term during which the option may be exercised and whether the
option will be exercisable immediately, in stages, or otherwise will be set by
the Committee when the option is granted, but in no event will the term of an
incentive stock option exceed ten years. Each option granted under the Plan is
nontransferable during the lifetime of the optionee. The Committee may impose
additional or alternative conditions and restrictions on the incentive or
nonqualified stock options granted under the Plan; however,
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each incentive stock option must contain such limitations and restrictions upon
its exercise as are necessary to ensure that the option will be an incentive
stock option as defined under the Code.
Upon exercise of an option under the Plan, the exercise price is to be
paid by check, by other forms of consideration deemed sufficient by the
Committee, or by surrender of previously acquired shares of Common Stock of the
Company which, in the case of stock acquired upon exercise of an option, has
been owned for more than six months on the date of surrender, valued at its then
fair market value.
Each non-employee director who is elected to the Board for the first
time will automatically be granted an option under the Plan to purchase 10,000
shares of stock at the fair market value of common stock on the date of
election, with the option vesting in equal installments over four years.
OTHER AWARDS. The Plan also provides for the following awards in
addition to stock options: (1) Stock appreciation rights, which may be granted
in conjunction with a stock option to permit the holder to elect to receive the
difference between the option exercise price and the market price of the stock
in cash and/or stock. (2) Restricted stock awards, consisting of shares that are
issued subject to forfeiture if specified performance goals are not achieved.
(3) Deferred stock awards, consisting of shares that may be issued conditioned
upon the performance of specified goals. No benefits other than stock options
have been granted under the Plan to date.
AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment shall impair the terms and conditions of any
option or other award without the consent of the participant. The Plan may not,
without approval of the Company's shareholders, be amended in any manner which
will cause the Plan to no longer comply with Rule 16b-3 under the Securities Act
of 1934, Section 422 of the Internal Revenue Code or other regulatory
requirements.
The Committee may adjust the maximum number of shares of Common Stock
reserved for issuance under the Plan, the number of shares covered by each
outstanding option and the option price per share in the event of any merger,
reorganization, consolidation, stock dividend or other change in corporate
structure affecting the Common Stock.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Some of the options to be granted to employees pursuant to the Plan may
be intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code. Under such Section, the optionee realizes no taxable
income when the incentive stock option is granted. In addition, an optionee
generally will not realize taxable compensation income upon the exercise of an
incentive stock option if he or she exercises it as an employee or within three
months after termination of employment (or within one year after termination if
the termination results from a permanent and total disability). The amount by
which the fair market value of the shares purchased exceeds the aggregate option
price at the time of exercise will be alternative minimum taxable income for
purposes of applying the alternative minimum tax. If the optionee does not
dispose of the shares acquired upon such exercise for a period of two years from
the granting of the incentive stock option and one year after exercise of the
option, the optionee will not realize any taxable income until he or she sells
the shares. If the applicable holding periods are not satisfied, then any gain
realized in connection with the disposition of such stock will generally be
taxable as ordinary compensation income in the year in which the disposition
occurred, to the extent of the difference between the fair market
15
<PAGE>
value of such stock on the date of exercise and the option exercise price. The
Company is entitled to a tax deduction only to the extent, and at the time, the
participant realizes compensation income. The balance of any gain will be
characterized as a capital gain.
Nonqualified stock options granted under the Plan are not intended to
and do not qualify for the tax treatment described above for incentive stock
options. Under present law, an optionee will not realize any taxable income on
the date an option is granted to the optionee pursuant to the Plan. Upon
exercise of the option, however, the optionee will realize, in the year of
exercise, ordinary compensation income to the extent of the difference between
the option price and the fair market value on the date of exercise. Upon the
sale of shares, any resulting gain or loss will be treated as capital gain or
loss. The Company will receive a deduction in its fiscal year in which options
are exercised, equal to the amount of compensation required to be included as
ordinary income by those optionees exercising options.
PROPOSED AMENDMENTS TO THE 1996 STOCK INCENTIVE PLAN
The first proposed amendment increases the maximum aggregate number of
shares issuable for stock grants under the Plan from 1,000,000 shares to
1,400,000 shares. As of December 31, 1998, without giving effect to this
amendment, 867,654 shares had been reserved for issuance under the Plan and a
total of 132,346 shares remained available for further option grants.
The second proposed amendment limits the number of shares of Common
Stock that may be covered by option grants to any participant during any
calendar year to 500,000 shares. This amendment is intended to permit
compensation under the Plan to be excluded from the calculation of the $1
million cap on deductibility of compensation to the most highly compensated
executive officers under Section 162(m) under the Internal Revenue Code.
However, even after shareholder approval of the amendment, options under the
Plan will not immediately comply with Section 162(m), because the Company does
not have at least two non-employee directors who qualify as "outside" directors
under Section 162(m). Shareholder approval of the amendment will enable the
Company to bring the Plan into compliance with Section 162(m) when another
qualifying non-employee director is elected to the Board. This will enable the
Company to maximize the deductibility of compensation of executive officers upon
exercise of their future stock option grants under the 1996 Stock Incentive
Plan.
VOTE REQUIRED
The Board recommends that the shareholders approve the amendments to
the 1996 Stock Incentive Plan. The affirmative vote of a majority of the shares
represented at the annual meeting is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENTS TO THE COMPANY'S 1996 STOCK INCENTIVE PLAN.
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3. RATIFICATION OF INDEPENDENT ACCOUNTANTS
The accounting firm of Grant Thornton LLP has been the Company's
auditing firm since July 1998. Grant Thornton LLP has been re-appointed by the
Board of Directors as the Company's auditing firm for the current year. Although
shareholder approval is not required, the Board of Directors requests
shareholder ratification of Grant Thornton LLP's reappointment.
A representative from Grant Thornton LLP will be available at the
Annual Meeting of Shareholders to answer any appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE RE-APPOINTMENT OF GRANT THORNTON LLP
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by issuer action in accordance with the
proxy rules. The Company's annual meeting for the fiscal year ending December
31, 1999 is expected to be held on or about May 19, 2000, and proxy materials in
connection with that meeting are expected to be mailed on or about April 14,
2000. The deadline for submission of shareholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended, for inclusion in
the Company's proxy statement for its 2000 Annual Meeting of Shareholders is
December 17, 1999. Additionally, if the Company receives notice of a shareholder
proposal after January 24, 2000, such proposal will be considered untimely
pursuant to Rules 14a-4 and 14a-5(e) and the persons named in proxies solicited
by the Board of Directors of the Company for its 2000 Annual Meeting of
Shareholders may exercise discretionary voting power with respect to such
proposal.
The Bylaws of the Company establish an advance notice procedure with
regard to (i) certain business to be brought before an annual meeting of
shareholders of the Company; and (ii) the nomination by shareholders of
candidates for election as directors.
PROPERLY BROUGHT BUSINESS. The Bylaws provide that at the annual
meeting only such business may be conducted as is of a nature that is
appropriate for consideration at an annual meeting and has been either specified
in the notice of the meeting, otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or otherwise properly brought
before the meeting by a shareholder who has given timely written notice to the
Secretary of the Company of such shareholder's intention to bring such business
before the meeting. To be timely, the notice must be given by such shareholder
to the Secretary of the Company not less than 60 days nor more than 90 days
prior to the meeting. Notice relating to the conduct of such business at an
annual meeting must contain certain information as described in Article II of
the Company's Bylaws, which are available for inspection by shareholders at the
Company's principal executive offices pursuant to Section 302A.461, subd. 4 of
the Minnesota Statutes. Nothing in the Bylaws precludes discussion by any
shareholder of any business properly brought before the annual meeting in
accordance with the Company's Bylaws.
17
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SHAREHOLDER NOMINATIONS. The Bylaws provide that a notice of proposed
shareholder nominations for the election of directors must be timely given in
writing to the Secretary of the Company prior to the meeting at which directors
are to be elected. To be timely, the notice must be given by such shareholder to
the Secretary of the Company not less than 60 days nor more than 90 days prior
to the meeting. The notice to the Company from a shareholder who intends to
nominate a person at the meeting for election as a director must contain certain
information as described in Article III of the Company's Bylaws, which are
available for inspection by shareholders at the Company's principal executive
offices pursuant to Section 302A.461, subd. 4 of the Minnesota Statutes. If the
presiding officer of a meeting of shareholders determines that a person was not
nominated in accordance with the foregoing procedure, such person will not be
eligible for election as a director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers to file with the Securities and Exchange Commission reports
of ownership and changes in ownership of the Company's common stock, and the
Company is required to identify any of those persons who fail to file such
reports on a timely basis. To the Company's knowledge, all insiders of the
Company filed in a timely manner all such reports for 1998.
GENERAL
All proxies properly executed will be voted in the manner directed by
shareholders. If no direction is made, proxies will be voted "FOR" the election
of the Board of Director's nominees for directors and "FOR" proposals 2 and 3.
The management of the Company knows of no matter other than the
foregoing to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event any additional matters should be presented.
All expenses in connection with solicitation of proxies will be borne
by the Company. The Company will pay brokers, nominees, fiduciaries, or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies by mail, but directors, Officers, and
other employees of the Company may also solicit in person, by telephone, by
facsimile or by mail.
The Annual Report of the Company for the year ended December 31, 1998
is enclosed herewith. Shareholders may receive without charge a copy of the
Company's Form 10-K Annual Report, including financial statements and schedules
thereto, as filed with the Securities and Exchange Commission, by writing to:
Thomas P. Skiba, ONTRACK Data International, Inc., 6321 Bury Drive, Eden
Prairie, Minnesota, 55346.
By Order of the Board of Directors
John M. Bujan
GENERAL COUNSEL AND SECRETARY
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ONTRACK DATA INTERNATIONAL, INC.
6321 BURY DRIVE, EDEN PRAIRIE, MINNESOTA 55346 PROXY
- --------------------------------------------------------------------------------
The undersigned, a stockholder of ONTRACK Data International, Inc. (the
"Company"), hereby appoints Michael W. Rogers and John M. Bujan, and each of
them as proxies, with full power of substitution, to vote on behalf of the
undersigned the number of shares which the undersigned is then entitled to vote,
at the Annual Meeting of the Stockholders of ONTRACK Data International, Inc. to
be held at Hennepin Technical College Auditorium, 9200 Flying Cloud Drive, Eden
Prairie, Minnesota, on Thursday, May 20, 1999, at 3:00 p.m., and any
adjournments or postponements thereof, upon any and all matters which may
properly be brought before the meeting or any adjournments thereof, with all the
powers which the undersigned would possess if personally present.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and acknowledges receipt of the Notice and Proxy Statement
relating to the Annual Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. It will be voted on
the matters set forth on the reverse side of this form as directed by the
stockholder, but if no direction is made in the space provided, it will be voted
FOR proposals (1), (2) and (3).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors:
[ ] Vote FOR all nominees (except as [ ] Vote WITHHELD from all nominees
marked to the contrary below)
Michael W. Rogers John E. Pence Gary S. Stevens Robert M. White, Ph.D.
Roger D. Shober Lee B. Lewis
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NOMINEE'S NAME IN THE SPACE PROVIDED.
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(CONTINUED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
2. Approval of Amendment to the Company's 1996 Stock Incentive Plan to increase
the number of shares reserved for issuance under the Plan and permit
compliance with IRC Section 162(m).
[ ] For [ ] Against [ ] Abstain
3. Approval of Grant Thornton LLP as independent accountants for the Company
for the current fiscal year.
[ ] For [ ] Against [ ] Abstain
4. Upon such other business as may properly come before the meeting and any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [ ] Indicate changes below:
Date ___________________________________
________________________________________
________________________________________
Signature(s)
Stockholder must sign exactly as the
name appears at left. When signed as a
corporate officer, executor,
administrator, trustee, guardian, etc.,
please give full title as such. Both
joint tenants must sign.
