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. 1)
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
- ----------------------------------------------------------------------------------------------------------------
</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.
12
<PAGE>
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.
13
<PAGE>
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,
14
<PAGE>
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.
16
<PAGE>
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
<PAGE>
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
18
<PAGE>
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.
-----------------------------------------------------------------------
(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.
<PAGE>
APPENDIX
ONTRACK DATA INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
SECTION CONTENTS PAGE
- ------- -------- ----
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Eligibility 4
5. Stock Options 4
6. Stock Appreciation Rights 8
7. Restricted Stock 9
8. Deferred Stock Awards 10
9. Transfer, Leave of Absence, etc. 11
10. Amendments and Termination 11
11. Unfunded Status of Plan 12
12. General Provisions 12
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the ONTRACK Data International, Inc. 1996 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to enable ONTRACK Data
International, Inc. (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.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company as it may be
comprised from time to time.
b. "Cause" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, willful
misconduct, dishonesty or intentional violation of a statute, rule
or regulation, any of which, in the judgment of the Company, is
harmful to the business or reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
d. "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be exercised
by the Board, unless the Plan specifically states otherwise.
e. "Consultant" means any person, including an advisor, engaged by the
Company or a Parent of the Subsidiary of the Company to render
services and who is compensated for such services and who is not an
employee of the Company or any Parent Corporation or Subsidiary of
the Company. A Non-Employee Director may serve as a Consultant.
f. "Company" means ONTRACK Data International, Inc., a corporation
organized under the laws of the State of Minnesota (or any successor
corporation).
g. "Deferred Stock" means an award made pursuant to Section 8 below of
the right to receive stock at the end of a specified deferral
period.
h. "Disability" means permanent and total disability as determined by
the Committee.
i. "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the Company
and any Subsidiary or Parent Corporation of the Company.
j. "Fair Market Value" of Stock on any given date shall be determined
by the Committee as follows: (a) if the Stock is listed for trading
on one of more national securities exchanges, or is
<PAGE>
traded on the Nasdaq Stock Market, the last reported sales price on
the principal such exchange or the Nasdaq Stock Market on the date
in question, or if such Stock shall not have been traded on such
principal exchange on such date, the last reported sales price on
such principal exchange or the Nasdaq Stock Market on the first day
prior thereto on which such Stock was so traded; or (b) if the Stock
is not listed for trading on a national securities exchange or the
Nasdaq Stock Market, but is traded in the over-the-counter market,
including the Nasdaq Small Cap Market, the closing bid price for
such Stock on the date in question, or if there is no such bid price
for such Stock on such date, the closing bid price on the first day
prior thereto on which such price existed; or (c) if neither (a) or
(b) is applicable, by any means fair and reasonable by the
Committee, which determination shall be final and binding on all
parties.
k. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
l. "Non-Employee Director" shall have the meaning set forth in rule
16b-3(b)(3) as promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or any successor
definition adopted by the Commission.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
n. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on
or after age 65.
o. "Parent Corporation" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if each
of the corporations (other than the Company) owns stock possessing
50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
p. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
q. "Retirement" means Normal Retirement or Early Retirement.
r. "Stock" means the Common Stock of the Company.
s. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all or a
portion of a Stock Option in exchange for an amount equal to the
difference between (i) Fair Market Value, as of the date such Stock
Option or such portion thereof is surrendered, of the shares of
Stock covered by such Stock Option or such portion thereof, and (ii)
the aggregate exercise price of such Stock Option or such portion
thereof.
t. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
u. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last
<PAGE>
corporation in the unbroken chain) owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a Committee
of not less than two Non-Employee Directors, who shall be appointed by the Board
of Directors of the Company and who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to eligible
employees or Consultants, pursuant to the terms of the Plan: (i) Stock Options,
(ii) Stock Appreciation Rights, (iii) Restricted Stock, or (iv) Deferred Stock
awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company
and its Subsidiaries and other eligible persons to whom Stock
Options, Stock Appreciation Rights, Restricted Stock and
Deferred Stock awards may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Deferred Stock awards, or a
combination of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto), which authority shall be exclusively vested in the
Committee (and not the Board) for purposes of establishing
performance criteria used with Restricted Stock and Deferred
Stock awards provided, however, in the event of a merger or
asset sale, the applicable provisions of Sections 5(c) and
7(c) of the Plan shall govern the acceleration of the vesting
of any Stock option or awards;
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to executive officers of the Company the authority to exercise the
powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons
who are not executive officers of the Company.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
<PAGE>
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,000,000. Such shares may consist, in
whole or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that have
been optioned cease to be subject to Stock Options, or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without a payment being made to the participant,
such shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries,
Non-Employee Directors, and Consultants who are responsible for or contribute to
the management, growth and profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards under the Plan. The optionees
and participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after August 6, 2006.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such
<PAGE>
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of Fair Market Value on the date the option is
granted. If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted to such employee, the option
price shall be no less than 110% of the Fair Market Value of the Stock on the
date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding anything contained in the Plan to the contrary, the
Committee may, in its discretion, extend or vary the term of any Stock Option or
any installment thereof, whether or not the optionee is then employed by the
Company, if such action is deemed to be in the best interests of the Company;
provided, however, that in the event of a merger or sale of assets, the
provisions of this section 5(c) shall govern vesting acceleration.
Notwithstanding the foregoing, unless the Stock Option provides otherwise,
any Stock Option granted under this Plan shall be exercisable in full, without
regard to any installment exercise provisions, for a period specified by the
Committee, but not to exceed sixty (60) days, prior to the occurrence of any of
the following events: (i) dissolution or liquidation of the Company other than
in conjunction with a bankruptcy of the Company or any similar occurrence, (ii)
any merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity, or (iii) the
transfer of substantially all of the assets of the Company or 75% or more of the
outstanding Stock of the Company.
The grant of an option pursuant to the Plan shall not limit in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by check, or
<PAGE>
by any other form of legal consideration deemed sufficient by the Committee and
consistent with the Plan's purpose and applicable law, including promissory
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of Stock
already owned by the optionee (which in the case of Stock acquired upon exercise
of an option have been owned for more than six months on the date of surrender)
or, in the case of the exercise of a Non-Qualified Stock Option, Restricted
Stock or Deferred Stock subject to an award hereunder (based, in each case, on
the Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. If the terms of an
option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 12.
(e) Non-transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable,
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of twelve months from the date of
such death or until the expiration of the stated term of the option, whichever
period is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability,
but may not be exercised after twelve months from the date of such termination
of employment or the expiration of the stated term of the option, whichever
period is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement and the terms of the Stock Option so provide, any Stock Option held
by such optionee may thereafter be exercised to the extent it was exercisable at
the time of such Retirement, but may not be exercised after twelve months from
the date of such termination of employment or the expiration of the stated term
of the option, whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, the option will thereafter be treated as a Non-Qualified Stock
Option.
<PAGE>
(i) Other Termination. In the event an Optionee's continuous status as an
Employee or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Committee, and only to the extent that
the Optionee was entitled to exercise it at the date of termination (but in no
event later than the expiration of the term of such Option as set forth in the
Notice of Grant). In the case of an Incentive Stock Option, the Committee shall
determine such period of time (in no event to exceed ninety (90) days from the
date of termination) when the Option is granted. In the event an Optionee's
employment with the Company is terminated for Cause, or under such other
circumstances as the Committee shall define in the Option Grant, all Options
granted to such Optionee shall immediately terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) Directors. Each person who is not an employee of the Company, any
Parent Corporation or Subsidiary, serving as a Director of the Company on the
effective date of the Company's initial public offering shall automatically be
granted an Option to purchase 10,000 shares of Stock at an option price per
share equal to 100% of the offering price per share of the Company's common
stock on the effective date of the registration statement for the Company's
initial public offering. Each person who is elected as a Director of the Company
subsequent to the effective date of the Company's initial public offering and
who was not serving as a Director at such date, and who is not an employee of
the Company, any Parent Corporation or Subsidiary, shall automatically be
granted an Option to purchase 10,000 shares of Stock at an option price per
share equal to 100% of the Fair Market Value of a share of Stock on the date of
election (whether or not such election is by the Board of Directors or the
shareholders of the Company). All such Options shall be designated as
Non-Qualified Stock Options and shall be subject to the same terms and
provisions as are then in effect with respect to the grant of Non-Qualified
Stock Options to officers and key employees of the Company, except that (i) the
term of each such Option shall be equal to ten years and (ii) the Option shall
become exercisable as to one-fourth of the shares subject to the Option
beginning one year after the date the Option is granted, the second fourth
beginning two years after the date the Option is granted, the third fourth
beginning three years after the date the Option is granted, and the final fourth
beginning four years from the date the Option is granted. Upon termination of
such person's service as a Director of the Company, the unvested portion of an
Option held by such Director shall terminate immediately and such Director will
be allowed to exercise the vested portion of such Option for a period of one
year after the date on which such person ceased to be a Director, after which
date the vested portion of the Option, if not exercised, shall terminate. Any
person who is elected as a Director of the Company at an Annual Meeting of
Shareholders after the fourth anniversary date of the granting of an Option to
such Director pursuant to this Section 5(k) who is not an employee of the
Company, any Parent Corporation or Subsidiary shall be automatically granted an
Option to purchase an additional 10,000 shares of Stock at an option price equal
to 100% of the fair market value of a share of stock on such date. Subject to
the foregoing, all provisions of this Plan not inconsistent with the foregoing
shall apply to Options granted under this Section 5(k). The maximum number of
shares as to which Options may be granted to any Director under this Section
5(k) shall be 20,000 shares. The maximum aggregate number of shares as to which
Options may be granted to Non-Employee Directors under this Section 5(k) shall
be 160,000 shares.
SECTION 6. Stock Appreciation Rights.
<PAGE>
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash
or shares of Stock equal in value to the excess of the Fair Market Value
of one share of Stock over the option price per share specified in the
related option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be transferable under
Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the number of shares of Stock to be
issued under the Plan, but only to the extent of the number of shares
issued or issuable under the Stock Appreciation Right at the time of
exercise based on the value of the Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price
of the Stock subject to the Incentive Stock Option exceeds the exercise
price of such Option.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers, key employees and Consultants of the Company and
Subsidiaries to whom, and the time or times at which, grants of Restricted
<PAGE>
Stock will be made, the number of shares to be awarded, the time or times within
which such awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in respect
of shares of Restricted Stock awarded under the Plan. Such certificate
shall be registered in the name of the participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the ONTRACK Data International, Inc. 1996
Stock Incentive Plan and an Agreement entered into between the
registered owner and ONTRACK Data International, Inc. Copies of such
Plan and Agreement are on file in the offices of ONTRACK Data
International, Inc., 6321 Bury Drive, Eden Prairie, MN 55346."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such
award (the "Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge or assign shares of Restricted Stock awarded
under the Plan. Within these limits, the Committee may provide for the
lapse of such restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a shareholder of the Company, including the right to
vote the shares and the right to receive any cash dividends. The
Committee, in its sole discretion, may permit or require the payment of
cash dividends to be deferred and, if the Committee so determines,
reinvested in additional shares of Restricted Stock (to the extent shares
are available under Section 3 and subject to paragraph (f) of Section 12).
Certificates for shares of unrestricted Stock shall be delivered to the
grantee promptly after, and only after, the period of forfeiture shall
have expired without forfeiture in respect of such shares of Restricted
Stock.
(iii) Subject to the provisions of the award agreement and paragraph
(C)(iv) of this Section 7, upon termination of employment for any reason
during the Restriction Period, all shares still subject to restriction
shall be forfeited by the participant.
<PAGE>
(iv) In the event of special hardship circumstances of a participant
whose employment is unforeseeable emergency of a participant still in
service, the Committee may, in its sole terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
discretion, when it finds that a waiver would be in the best interest of
the Company, waive in whole or in part any or all remaining restrictions
with respect to such participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with respect to
any participant's shares of Restricted Stock shall lapse, on the date
determined by the Committee, prior to, but in no event more than sixty
(60) days prior to, the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity, or (iii)
the transfer of substantially all of the assets of the Company or 75% or
more of the outstanding Stock of the Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, key employees and Consultants of the Company and Subsidiaries to
whom and the time or times at which Deferred Stock shall be awarded, the number
of Shares of Deferred Stock to be awarded to any participant or group of
participants, the duration of the period (the "Deferral Period") during which,
and the conditions under which, receipt of the Stock will be deferred, and the
terms and conditions of the award in addition to those contained in paragraph
(b) of this Section 8. The Committee may also condition the grant of Deferred
Stock upon the attainment of specified performance goals. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred Stock
award will be paid to the participant currently or deferred and deemed to
be reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole
discretion.
(iii) Subject to the provisions of the award agreement and paragraph
(b)(iv) of this Section 8, upon termination of employment for any reason
during the Deferral Period for a given award, the Deferred Stock in
question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause) including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of the participant's Deferred
Stock.
<PAGE>
(v) A participant may elect to further defer receipt of the award
for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period
for a Deferred Stock award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of,
a Deferred Stock agreement executed by the Company and the participant.
SECTION 9. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from
one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or such longer period as
the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in writing
by the Committee, but only if the employee's right to reemployment is guaranteed
either by a statute or by contract, and provided that, in the case of any leave
of absence, the employee returns to work within 30 days after the end of such
leave.
SECTION 10. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Restricted Stock or other
Stock-based award theretofore granted, without the optionee's or participant's
consent, or (ii) which without the approval of the stockholders of the Company
would cause the Plan to no longer comply with Rule 16b-3 under the Securities
Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock Options for
previously granted options, including previously granted options having higher
option prices.
SECTION 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is
<PAGE>
consistent with the unfunded status of the Plan.
SECTION 12. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to a repurchase right in favor of the Company, pursuant
to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee may, at the time
of the grant of an award
<PAGE>
under the Plan, provide the Company with the right to repurchase, or require the
forfeiture of, shares of Stock acquired pursuant to the Plan by any participant
who, at any time within two years after termination of employment with the
Company, directly or indirectly competes with, or is employed by a competitor
of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
(g) The Plan is expressly made subject to the approval by shareholders of
the Company. If the Plan is not so approved by the shareholders on or before one
year after this Plan's adoption by the Board of Directors, this Plan shall not
come into effect. The offering of the shares hereunder shall be also subject to
the effecting by the Company of any registration or qualification of the shares
under any federal or state law or the obtaining of the consent or approval of
any governmental regulatory body which the Company shall determine, in its sole
discretion, is necessary or desirable as a condition to or in connection with,
the offering or the issue or purchase of the shares covered thereby.
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
JANUARY 27, 1999
RESOLVED, that under the ONTRACK Data International, Inc. 1996 Stock Incentive
Plan, an additional authorization of 400,000 shares of the authorized and
unissued common stock of the Company is hereby adopted and reserved for said
Plan.
RESOLVED, FURTHER, that the first sentence of Section 3 of the ONTRACK Data
International, Inc. 1996 Stock Incentive Plan is hereby amended to read as
follows:
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,400,000.
RESOLVED, FURTHER, that the last two sentences of Section 5.(k) shall be
deleted, so as to eliminate the limitations on the maximum numbers of shares as
to which options may be granted to any director and to all non-employee
directors as a group.
RESOLVED, FURTHER, a new Section 5.(l) shall be added following Section 5.(k),
with Section 5.(l) to read as follows:
The maximum aggregate number of shares as to which Options may be
granted to any Participant in any calendar year shall be 500,000.
RESOLVED, FURTHER, that the foregoing resolutions and actions are hereby
recommended for approval by the Shareholders of the Company, which approval
shall be requested at the next available opportunity for Shareholder action, but
no later than within one (1) year of the effective date of these resolutions.
