<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DATALINK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MINNESOTA 7373 41-0856543
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
7423 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439
(612) 944-3462
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GREG R. MELAND
CHIEF EXECUTIVE OFFICER
DATALINK CORPORATION
7423 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439
(612) 944-3462
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JEFFREY C. ROBBINS, ESQ. JAMES C. MELVILLE, ESQ.
PAUL L. SCHULTZ, ESQ. MARY S. GIESLER, ESQ
MESSERLI & KRAMER P.A. KAPLAN, STRANGIS AND KAPLAN, P.A.
150 SOUTH FIFTH STREET, SUITE 1800 90 SOUTH SEVENTH STREET,SUITE 5500
MINNEAPOLIS, MINNESOTA 55402 MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 672-3600 TELEPHONE: (612) 375-1138
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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=========================================================================================================
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value.............................. $32,890,000 $9,703.00
=========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
2,600,000 Shares
Datalink Corporation
Common Stock
------------------
All of the 2,600,000 shares of Common Stock offered hereby are being
offered by Datalink Corporation ("Datalink" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$9.00 and $11.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Company
has applied for quotation of the Common Stock on the Nasdaq National Market
under the symbol "DTLK."
------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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===============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Per Share.................. $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3)................... $ $ $
===============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.
(3) The Company and a selling stockholder have granted to the Underwriters a
30-day option to purchase up to 320,000 and 70,000 additional shares of
Common Stock, respectively, on the same terms per share solely to cover
over-allotments, if any. The Company will not receive any proceeds from the
sale of shares by the selling stockholder. If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York, on or about , 1998.
------------------
Needham & Company, Inc.
CRUTTENDEN ROTH
INCORPORATED
John G. Kinnard and Company, Incorporated
The date of this Prospectus is , 1998.
<PAGE> 3
[PICTURES]
Inside Front Cover: Caption which reads as follows: "Access to and
Management of Data is Increasingly Critical and Represents a Key Competitive
Advantage."
Gatefold layout: Pictures arranged within three circles depicting the links
between the Company's products and services and its customers' needs. Captions
within the pictures depicting the services provided by the Company read as
follows "Analysis," "Technical Support," "Training," "Installation,"
"Maintenance, "Integration/Assembly" and "Design." Caption at bottom of page
will read as follows: "Datalink is an Independent Storage Solutions Provider
that Matches Quality Products With its Technical Expertise and Comprehensive
Service and Support to Meet Each Customer's Specific Needs."
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise specified or the context
otherwise requires, shares and per share information contained in this
Prospectus gives effect to the 690-for-1 stock split effected by the Company in
June 1998. Unless otherwise indicated, the information in this Prospectus does
not give effect to (i) 950,000 shares of Common Stock reserved for issuance
under the Company's Incentive Compensation Plan, including 214,750 shares of
Common Stock reserved for issuance upon the exercise of stock options to be
granted under the Incentive Compensation Plan contemporaneously with the closing
of this offering; (ii) 250,000 shares of Common Stock reserved for issuance
under the Company's Employee Stock Purchase Plan and (iii) 320,000 shares of
Common Stock which may be purchased by the Underwriters from the Company to
cover over-allotments, if any. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed under the heading "Risk Factors," which investors
should carefully consider.
THE COMPANY
Datalink Corporation ("Datalink" or the "Company") analyzes, custom
designs, integrates or assembles, installs and supports high-end Open Systems
data storage solutions for end-users, value-added resellers ("VARs") and
original equipment manufacturers ("OEMs"). The Company has developed
engineering, sales and support capabilities to become an expert in applying the
best available storage technologies manufactured by the leading data storage
hardware and software companies to solve its customers' growing data storage
needs. These technologies include hard disk, RAID, magnetic tape, CD-ROM and
optical products. The Company also matches storage management software
technologies, including backup and recovery, archive, high availability and near
on-line storage to the specific needs of its customers. The Company's net sales
have grown from $24.1 million in 1993 to $71.3 million in 1997, a 31% annual
compound growth rate, and the Company's Subchapter S corporation net income has
grown from $1.0 million to $6.1 million, a 56% annual compound growth rate, over
the same period.
With the ongoing introduction of more advanced and powerful computers,
application software developers have introduced powerful, easier to use,
graphically oriented, memory intensive software packages. These software
applications have resulted in the enterprise-wide automation of an increasing
number of mission-critical business applications, including on-line transaction
processing, the Internet, intranets, pre-press, multimedia, imaging and data
warehousing. This automation has expanded the need for on-line storage,
uninterrupted access to data and fail-safe methods to backup and archive such
data. Accordingly, several independent market research firms have projected
significant growth over the next several years for the markets addressed by the
Company. According to Dataquest, Inc., an independent market research firm, the
worldwide RAID storage market for UNIX and Windows NT operating platforms was
approximately $12.8 billion in 1997 and is expected to grow at an annual
compound rate of 24% to approximately $37.0 billion by 2002. According to
Strategic Research Corp., an independent market research firm ("SRC"), the
worldwide market for tape automation backup storage products was approximately
$1.6 billion in 1996 and is expected to grow at an annual compound rate of 18%
to approximately $4.4 billion by 2002. According to SRC, the worldwide storage
management software market was approximately $1.4 billion in 1997 and is
expected to grow at an annual compound rate of 38% to approximately $3.7 billion
by 2000.
The need to distribute mission-critical data across an enterprise has led
organizations to increasingly rely upon complex Open Systems computing platforms
that link multiple application, file, database and communications servers of
differing vendors to networked computers. Despite this growing complexity,
corporate downsizing has led organizations to reduce their MIS staffs and has
led hardware and software suppliers to reduce their sales and marketing forces.
As a result of their more limited internal resources, organizations and
suppliers are turning to external providers, such as the Company, to research,
design, implement and support information storage solutions that incorporate the
best available hardware and software technologies.
<PAGE> 5
The Company's storage solutions are designed to provide its customers with
the optimal combination of performance, capacity, high availability, disaster
recovery, multi-platform support, permanence, scalability, centralized
management and cost. For end-users and VARs, Datalink's technical sales and
engineering teams assess each customer's information and storage retrieval
requirements and then design, integrate, install and support information storage
solutions incorporating the best available hardware and software products on the
market. For OEMs, Datalink's design and application engineers custom design and
test storage subsystems which the Company assembles for integration into the
OEM's own products.
Datalink's customers are located throughout the United States and span a
diverse group of data-intensive industries, including computer technology,
consumer products, education, financial services, government, health care,
insurance, professional services, telecommunications, transportation and
utilities. The Company's customers include Abbott Laboratories, American Express
Company, Andersen Worldwide, S.C., The Boeing Company, Dominion Resources, Inc.,
Gateway 2000, Inc., GE Medical Systems, Grand Metropolitan PLC, The Kemper
Insurance Companies, KPMG Peat Marwick L.L.P., Lucent Technologies, Inc., the
National Aeronautics Space Administration and the University of Chicago.
Datalink's broad industry experience enables the Company to understand
application and business issues specific to its customers and to design and
implement appropriate storage solutions.
The Company believes it differentiates itself from its competitors in
several ways. Because of Datalink's established, strong relationships with the
major information storage hardware and software suppliers, the Company often
participates in suppliers' new product development, evaluation, introduction,
marketing and quality control programs. The Company also believes that the
longevity of service of its engineering staff and sales force is a key factor to
earning and retaining the trust and confidence of the Company's customers and
suppliers. Sales to existing customers has exceeded 77% of the Company's net
sales in each of the last three years. Datalink further differentiates itself by
being an ISO 9001 registered organization that utilizes such standards to
consistently maintain high quality design, development, integration and
assembly, installation and service processes.
The Company's objective is to grow at a rate exceeding that of the industry
and enhance its position as a leading independent Open Systems storage solutions
provider. To achieve its objective, Datalink intends to build upon its record of
successfully addressing the evolving information storage management needs of its
customers. Key elements of the Company's business strategy are to (i) broaden
relationships with existing customers and leverage the Company's significant
market presence to attract new customers; (ii) continue to develop leading-edge
storage solutions for customers; (iii) expand its offering of professional
consulting services; (iv) expand geographically through internal growth and
potential acquisitions; and (v) maintain and continually improve the Company's
high standards for superior technical and sales service and support. The
Company's senior management team, which has worked together since 1991, has
assembled an experienced team of professionals to execute the Company's business
strategy.
The Company was incorporated in Minnesota in 1963 under the name Stan
Clothier Co., Inc. In April 1987, the Company changed its name to Datalink
Corporation. The Company's executive offices are located at 7423 Washington
Avenue South, Minneapolis, Minnesota 55439. Datalink's telephone number is (612)
944-3462.
2
<PAGE> 6
RECENT DEVELOPMENT
In June 1998, the Company entered into a nonbinding letter of intent to
acquire Direct Connect Systems, Inc. ("DCSI"), a Marietta, Georgia-based firm
engaged in the analysis, custom design, integration and support of high-end Open
Systems data storage solutions principally for end-users located in the
Southeastern portion of the United States. In addition to its Marietta
headquarters, DCSI has field sales offices in Herndon, Virginia, Charlotte,
North Carolina, and Melbourne and Tampa, Florida.
Under the terms of the proposed acquisition, the Company would acquire all
of DCSI's capital stock in exchange for $2 million cash and 200,000 shares of
the Company's Common Stock, subject to certain adjustments. DCSI's key employees
would also be paid $500,000 in the aggregate under noncompetition agreements.
The acquisition is subject to various conditions, including the Company's due
diligence investigation of DCSI's business and financial affairs and prospects
and negotiation and execution of a definitive agreement.
THE OFFERING
Common Stock offered by the Company..... 2,600,000 shares
Common Stock to be outstanding after
this offering........................... 9,500,000 shares(1)
Use of Proceeds......................... The net proceeds to the Company
from this offering will be used to
(i) distribute to the current
stockholders the previously taxed,
but undistributed, S corporation
earnings estimated at $8.2 million
had the termination occurred on
March 31, 1998; (ii) repay certain
outstanding indebtedness of
approximately $1.1 million and
(iii) fund the Company's growth and
expansion plans, including
potential acquisitions, working
capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.................................. DTLK
- ------------
(1) Excludes (i) 950,000 shares of Common Stock reserved for issuance under the
Company's Incentive Compensation Plan, including 214,750 shares of Common
Stock reserved for issuance upon the exercise of options to be granted under
the Incentive Compensation Plan contemporaneously with the closing of this
offering, (ii) 250,000 shares of Common Stock reserved for issuance under
the Company's Employee Stock Purchase Plan and (iii) 320,000 shares of
Common Stock which may be purchased by the Underwriters from the Company to
cover over-allotments, if any.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $24,146 $32,333 $38,048 $54,652 $71,255 $15,266 $16,599
Cost of sales......................... 19,405 25,907 30,356 42,872 55,719 12,006 12,723
------- ------- ------- ------- ------- ------- -------
Gross profit........................ 4,741 6,426 7,692 11,780 15,536 3,260 3,876
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................. 1,495 1,891 2,487 3,607 5,191 1,237 1,427
General and administrative.......... 1,764 1,912 2,118 2,382 3,010 695 961
Engineering......................... 269 343 467 633 926 251 315
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 3,528 4,146 5,072 6,622 9,127 2,183 2,703
------- ------- ------- ------- ------- ------- -------
Operating income...................... 1,213 2,280 2,620 5,158 6,409 1,077 1,173
Interest expense, net................. 192 243 306 286 333 73 55
------- ------- ------- ------- ------- ------- -------
Net income(1)......................... $ 1,021 $ 2,037 $ 2,314 $ 4,872 $ 6,076 $ 1,004 $ 1,118
======= ======= ======= ======= ======= ======= =======
Historical net income per share, basic
and diluted......................... $ 0.15 $ 0.30 $ 0.34 $ 0.71 $ 0.88 $ 0.15 $ 0.16
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding,
basic and diluted................... 6,900 6,900 6,900 6,900 6,900 6,900 6,900
------- ------- ------- ------- ------- ------- -------
Pro forma income taxes(2)............. 2,430 402 447
------- ------- -------
Pro forma net income.................. $ 3,646 $ 602 $ 671
======= ======= =======
Pro forma net income per share, basic
and diluted(3)...................... $ 0.47 $ 0.08 $ 0.09
======= ======= =======
Shares used in computing pro forma
net income per share(3)............. 7,786 7,786 7,786
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------------------------------------------
PRO FORMA
--------------------------------------------------
TERMINATION OF TERMINATION OF
PUT S CORPORATION
ACTUAL OPTIONS(4) STATUS(5) AS ADJUSTED(6)
----------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................... $ 143 $ 143 $ 143 $14,528
Working capital........................... 6,660 6,660 (1,353) 22,327
Total assets.............................. 15,435 15,435 15,675 30,060
Common stock subject to put option........ 14,774 -- -- --
Stockholders' equity (deficiency)......... (6,534) 8,240 240 23,920
</TABLE>
- ------------
(1) For the periods presented, the Company was an S corporation and,
accordingly, was not subject to federal and state income taxes.
(2) Pro forma income taxes have been computed as if the Company was subject to
federal and state income taxes for the periods presented, based on the tax
laws in effect during those periods. See Notes 2 and 3 of the Notes to the
Company's Financial Statements.
(3) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the period, after
giving effect to the estimated number of shares that would be required to be
sold at the initial public offering price (after deducting the underwriting
discount) to fund a distribution to the current stockholders of all
previously taxed, but undistributed, S corporation earnings, estimated at
$8.2 million had the termination occurred on March 31, 1998. The Company
does not have any common stock equivalents. See "Termination of S
Corporation Status and Put Option and Dividend Policy" and Note 3 of the
Notes to the Company's Financial Statements.
(4) Adjusted to give pro forma effect to the reclassification of the Company's
Common Stock subject to put option into stockholders' equity, reflecting
termination of these put options upon the closing of this offering. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Note 9 of the Notes to the Company's Financial Statements.
(5) Adjusted to give pro forma effect upon the closing of this offering to (i)
the pro forma adjustment described in (4) above, (ii) a final S corporation
distribution payable to the current stockholders, representing all
previously taxed, but undistributed, S corporation earnings, estimated at
$8.2 million had the termination occurred on March 31, 1998 and (iii) a net
deferred tax asset which will be recorded by the Company as a result of the
termination of its S corporation status, estimated at $240,000 had such
termination occurred on March 31, 1998. See "Termination of S Corporation
Status and Put Option and Dividend Policy" and Note 3 of the Notes to the
Company's Financial Statements.
(6) Adjusted to give effect to (i) the pro forma adjustments described in (5)
above and (ii) the sale by the Company of 2,600,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
4
<PAGE> 8
RISK FACTORS
This Prospectus contains certain forward-looking statements, including the
plans and objectives of management for the business, operations and economic
performance of the Company. The forward-looking statements and associated risks
set forth in this Prospectus may include or relate to, among other things, the
ability of the Company to maintain its close working relationships with its
suppliers, expand its customer base, consummate strategic acquisitions of
businesses and integrate such acquisitions into the Company's operations, the
projected growth in the market for data storage solutions and competition. These
forward-looking statements may be identified by qualifiers such as "intends,"
"believes" and "anticipates," among other terms. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved. Further, and in addition to the other information contained in this
Prospectus, the following risk factors should be carefully considered in
evaluating the Company and its business prospects before purchasing shares
offered by this Prospectus.
DEPENDENCE ON SUPPLIER RELATIONSHIPS
The Company relies on its relationships with its suppliers to provide
access to products and new technology necessary to design and implement
leading-edge storage solutions for its customers. The Company does not have
long-term contracts with any of its suppliers and relies upon a limited number
of suppliers for several key products and components. For example, the Company
purchases disk drives manufactured primarily by Quantum Corporation ("Quantum")
and Seagate Technology, Inc. ("Seagate"), digital linear tape products
manufactured primarily by Storage Technology Corporation, Quantum and ATL
Products, Inc. and redundant array of independent disks ("RAID") products
manufactured primarily by CLARiiON, a division of Data General Corporation. The
Company's reliance on its suppliers involves several risks, including an
inadequate supply of required products and components, price increases, late
deliveries and poor product and component quality. These risks are particularly
significant with respect to the Company's suppliers of disk drives because, in
order to meet product performance requirements, the Company must obtain disk
drives with extremely high quality and capacity. In addition, there is currently
a significant market demand for disk drives, tape drives and RAID controllers,
and from time to time the Company may experience product and component
shortages, selective supply allocations and increased prices of such products
and components. Although to date the Company has been able to purchase its
requirements of such products and components, there can be no assurance that the
Company will be able to obtain its full requirements of such products and
components in the future or that prices of such products and components will not
increase. In addition, there can be no assurance that problems with respect to
quantity and quality of such products and components and timeliness of
deliveries will not occur. Disruption or termination of the supply of products
and components from suppliers for any reason could delay shipments of the
Company's products and could have a material adverse effect on the Company's
business, operating results or financial condition. See "Business -- Business
Strategy" and "-- Products."
COMPETITION
The market for Open Systems storage is intensely competitive. The Company
competes primarily with traditional suppliers of computer systems such as Compaq
Computer Corporation ("Compaq"), Digital Equipment Corporation ("Digital"),
Hewlett-Packard Company ("Hewlett-Packard"), International Business Machines
Corp. ("IBM"), Silicon Graphics, Inc. ("Silicon Graphics") and Sun Microsystems,
Inc. ("Sun"), which market storage systems as well as other computer products.
The Company also competes with independent storage system suppliers to the
high-end Open Systems market, including Box Hill Systems Corp., EMC Corporation,
MTI Technology Corporation and numerous VARs, resellers, distributors and
consultants. In addition, the Company's customers and prospective customers may
elect to develop in-house storage systems expertise.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company and, as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to
5
<PAGE> 9
the development, promotion and sale of products than the Company or to deliver
competitive products at a lower end-user price. Some of the Company's
competitors include its suppliers, who may dedicate or acquire greater sales and
marketing resources in the future to provide Open Systems storage solutions than
at present and could terminate their relationships with the Company. Other
suppliers may also enter the market and compete with the Company. The Company
expects competition will increase as a result of industry consolidation. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. See "Business --
Competition."
COMPETITIVE PRICING
Competitive pricing pressures in the data storage market have had and may
have an adverse effect on the Company's business, operating results or financial
condition. There also has been, and may continue to be, a willingness on the
part of certain large competitors to reduce prices in order to preserve or gain
market share, which cannot be foreseen by the Company. The Company believes that
pricing pressures are likely to continue as competitors develop more competitive
product offerings. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its executive officers, other key management and
sales, engineering and other technical personnel, many of whom would be
difficult to replace. In particular, the Company is highly dependent upon the
services of Greg R. Meland, Chief Executive Officer; Robert D. DeVere, Chief
Financial Officer; Scott D. Robinson, Vice President of Engineering and Stephen
M. Howe, Vice President of Sales. The Company does not have employment,
noncompetition or nondisclosure agreements with any of its officers or
employees. Accordingly, the Company's employees may voluntarily terminate their
employment with the Company at any time. The loss of any employee who is
critical to the Company's success could have a material adverse effect on the
Company's business, operating results or financial condition. In addition, the
Company's future operating results depend in part upon its ability to attract,
train, retain and motivate qualified management, technical, sales and support
personnel for its operations. Competition for qualified employees in the data
storage industry, and particularly with respect to engineers with Open Systems
storage solutions experience, is intense. Competitive factors that could affect
the Company's ability to attract and retain such personnel include compensation,
benefits, equity incentives and geographic location. There can be no assurance
that the Company will be successful in attracting or retaining such key
personnel, and the failure of the Company to recruit and retain additional key
personnel could materially and adversely affect the Company's business,
operating results or financial condition. See "Business -- Technical Services."
MANAGEMENT OF GROWTH
The Company's growth and expansion may place a significant strain on the
Company's administrative, operational and financial resources and increase
demands on the Company's professional and technical services, assembly,
integration, sales and marketing and customer service and support functions,
especially as the Company attempts to expand its geographic reach. To manage its
growth effectively, the Company will need to hire, train, motivate and manage
new management, technical, sales and administrative employees. In connection
with its planned geographic expansion, the Company will incur travel,
telecommunications and other incremental costs, as well as increased human
resource costs. The failure by the Company to generate sufficient revenues to
offset the costs of geographical expansion could have a material adverse effect
on the Company's business, operating results or financial condition. If the
growth in demand for products and services offered by the Company increases at a
significantly higher rate than anticipated, the Company may lack the technical
services and capacity necessary to satisfy such demand in a timely fashion, and
its customers may
6
<PAGE> 10
experience delivery delays or interruptions in technical service and support.
This risk may be exacerbated by the fact that the Company does not have
long-term purchase agreements with suppliers and may not have sufficient
inventory levels to support customer demand. There can be no assurance that the
Company will be able to manage expansion successfully or that the Company's
infrastructure, including but not limited to its systems, procedures and
controls, will be adequate to support such expansion. In addition, there can be
no assurance that the Company will be able to achieve commercial success and
maintain client service and support in a geographically expanded area of
operations at levels that it historically achieved and provided in its current
geographical areas. Failure to manage growth may have a material adverse effect
on the Company's business, operating results or financial condition. See
"Business -- Business Strategy."
RAPID TECHNOLOGICAL CHANGE
The Open Systems storage market in which the Company operates is
characterized by rapid technological change, frequent new product introductions
and evolving industry standards. Customer preferences in that market are
difficult to predict. As an independent solutions provider, the Company is
dependent upon its suppliers' hardware, software and interface products to meet
the needs of the Company's customers. The introduction of products embodying new
technologies by the Company's competitors and the emergence of new industry
standards could render hardware, software and interface products currently
marketed by the Company obsolete and unmarketable. The Company's success will
depend upon its ability to address the increasingly sophisticated needs of its
customers and to identify and introduce, on a timely basis, new competitive
products and applications of existing and new suppliers (including new software
and enhancements to existing software) that keep pace with technological
developments and emerging industry standards. There can be no assurance that the
Company will be successful in identifying, managing, developing, integrating or
assembling and marketing product enhancements or new products of its suppliers
that respond to technical change or evolving industry standards, that the
Company and its suppliers will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of such products
or that its suppliers' new products and product enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. Further
risks inherent in its suppliers' new product introductions include the
uncertainty of price performance relative to products of competitors, including
competitors' responses to these new product introductions. The Company's
business, operating results or financial condition could be materially and
adversely affected if the Company or its suppliers were to be unsuccessful, or
to incur significant delays, in developing and introducing new products or
enhancements. See "Business -- Products."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to pursue strategic acquisitions of businesses that
either expand or complement its business, including the proposed acquisition of
DCSI. A substantial portion of the Company's capital resources, including a
portion of the proceeds from this offering, could be used for acquisitions. The
Company will evaluate specific acquisition opportunities based on prevailing
market and economic conditions. Acquisitions could result in the integration of
dissimilar operations or assets, assimilation of new employees, diversion of
management time and resources, increases in administrative costs, potential loss
of key employees of an acquired company and additional costs associated with
obtaining any necessary financing. These factors and the Company's lack of
experience in negotiating, consummating and integrating acquisitions could
adversely affect the Company's business, operating results or financial
condition. This risk may be compounded by the Company's geographic expansion or
product diversification. Acquisitions also could result in dilution to existing
stockholders, including those purchasing shares of Common Stock in this
offering. The Company may encounter increased competition for acquisitions in
the future, which could result in acquisition prices that the Company does not
consider acceptable. An increase in acquisition prices could adversely affect
the Company's acquisition strategy. There can be no assurance that the Company
will be able to identify suitable acquisition candidates at acceptable prices or
succeed in integrating any acquired business into the Company's existing
business or in retaining key customers of acquired businesses. There also can be
no assurance that the Company will have or be able to obtain sufficient capital
to execute its acquisition strategy. See "Prospectus Summary -- Recent
Development," "Use of Proceeds" and "Business -- Business Strategy."
7
<PAGE> 11
FLUCTUATIONS IN OPERATING RESULTS
The Company may experience significant fluctuations in future annual and
quarterly operating results because of a number of factors including, among
other things, the size and timing of customer orders, new product introductions
by suppliers and the market acceptance thereof, delays in product shipments or
other quality control difficulties, the ability of the Company to integrate any
acquired businesses, product returns, seasonality in storage system product
purchases, trends in the Open Systems storage industry in general, the
geographic and industry specific markets in which the Company is presently
active, or may be in the future, and the opening of new sales offices. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The Company has not designated any specific use for approximately $14.4
million of the net proceeds to the Company from the sale of Common Stock
described in this Prospectus (assuming an initial public offering price of
$10.00 per share). The Company intends to use these net proceeds to fund its
growth and expansion, to increase the Company's working capital and for general
corporate purposes which the management of the Company will determine from time
to time. Accordingly, the Board of Directors and management of the Company will
have significant flexibility in applying such remaining proceeds of this
offering. The failure of the Company's management to use such funds effectively
could have a material adverse effect on the Company's business, operating
results or financial condition. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRIOR S CORPORATION STATUS AND DISTRIBUTION TO CURRENT STOCKHOLDERS
The Company historically has been treated as an S corporation for federal
and state income tax purposes. Unlike a C corporation, an S corporation is
generally not subject to income tax at the corporate level; instead, the S
corporation's income is taxed on the personal income tax returns of its
stockholders. The Company's status as an S corporation will terminate upon the
closing of this offering. If S corporation status were denied for any periods
prior to this termination by reason of a failure to satisfy the S corporation
election or eligibility requirements of the Internal Revenue Code, as amended
(the "Code"), the Company would be subject to tax on its income as if it were a
C corporation for those periods.
In connection with the termination of the Company's S corporation status,
the Company intends to make a distribution to the current stockholders of all
previously taxed, but undistributed, S corporation earnings of the Company. As
of March 31, 1998, this amount was approximately $8.2 million. The Company will
adjust the actual amount of the distribution to reflect the taxable income and
any stockholder distributions from April 1, 1998 through the termination of the
S corporation status upon the closing of this offering. Purchasers of Common
Stock in this offering will not receive any of this distribution. See "Use of
Proceeds," "Termination of S Corporation Status and Put Option and Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 12 of the Notes to the Company's Financial
Statements.
THIRD PARTY YEAR 2000 COMPLIANCE
In connection with the approach of the Year 2000, industry experts have
predicted a variety of adverse consequences, including catastrophic system
failures, that may result from organizations' computer systems having been
programmed to record and process year dates by two, rather than four, digits.
Although the Company believes that its new computer system will not experience
any Year 2000 problems, it cannot predict whether its suppliers, customers and
other organizations with whom the Company conducts business will in a timely
fashion bring their computer systems or product offerings into Year 2000
compliance. If the Company's suppliers or customers fail to complete any
required Year 2000 remediation of their computer systems or product offerings,
the Company could suffer delays in product delivery or in processing of payments
owed to the Company. In addition, if any products or components sold by the
Company to its customers were to fail, the Company could be liable to its
customers for damages and costs to the extent that the Company's
8
<PAGE> 12
suppliers do not cover such liability. Any such Year 2000 failures could have a
material adverse effect on the Company's business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WARRANTY EXPOSURE
Products offered by the Company may contain defects in hardware, software
or workmanship that remain undetected or that may not become apparent until
after commercial shipment. Any loss or delay in customer or market acceptance
attributable to such defects or any material replacement or repair expenses due
to any such defects could have a material adverse effect on the Company's
business, operating results or financial condition.
As a solutions provider, the Company supports and administers the
pass-through of its suppliers' own standard warranties which run from one to
five years. The Company contracts with a number of its suppliers and other
independent service organizations to provide on-site maintenance and repair
services. If a supplier were to fail to meet its warranty obligations to the
Company, the Company might be liable to its customers. There can be no assurance
that suppliers will be willing or able to honor their warranties, that the
Company may not incur its own warranty costs or that the Company's repair and
maintenance subcontractors will perform their services in a timely and proper
manner. See "Business -- Technical Services."
RESTRICTIONS ON DIVIDENDS
Other than the planned S Corporation distribution, the Company does not
anticipate paying any dividends in the foreseeable future. In addition, the
Company's credit agreement with Norwest Bank Minnesota, N.A. (the "Credit
Agreement"), prohibits the Company from paying dividends to C corporation
stockholders. Accordingly, investors who have a need for current income should
not purchase the shares offered hereby.
DILUTION
Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution of $7.48 per share, or 74.8%, in the net tangible book
value per share of Common Stock from the assumed initial public offering price
of $10.00 per share. If the Company issues additional shares of capital stock
for any reason, purchasers of the shares offered hereby may incur additional
dilution. See "Dilution."
CONTROL BY CURRENT STOCKHOLDERS
Immediately following this offering, the six current stockholders of the
Company will beneficially own approximately 72.6% of the outstanding Common
Stock (approximately 69.6% if the Underwriters' over-allotment option is
exercised in full). As a result, the six current stockholders will continue to
be able to elect the entire Board of Directors and to control the outcome of all
other matters requiring stockholder approval. Such voting concentration may have
the effect of delaying or preventing a change in management or control of the
Company. See "Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF
TRADING PRICE
Prior to this offering, there has been no public market for the Common
Stock. Although the Company has applied for the quotation and trading of the
Common Stock on the Nasdaq National Market, there can be no assurance that an
active public market will develop or that the initial public offering price will
correspond to the price at which the Common Stock will trade in the public
market subsequent to this offering. The initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Representatives. See "Underwriting."
The market price of the Common Stock may be volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's operating results, announcements of technical innovations, new
products or services by the Company, its suppliers or its competitors, changes
in estimates by
9
<PAGE> 13
securities analysts of the Company's future financial performance, general
market conditions and other factors. In addition, the stock market has from time
to time experienced significant price and volume fluctuations which, in no
relationship to operating performance, have adversely affected the market prices
of securities of some companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock after this offering could
adversely affect the market price of the Common Stock. Although only the
2,600,000 shares (2,990,000 shares if the Underwriters' over-allotment option is
exercised in full) being sold in this offering will be available for sale in the
public market immediately after the offering, 6,900,000 shares of Common Stock
owned by the six current stockholders will be eligible for sale in the public
market beginning 180 days after the date of this Prospectus, subject to the
volume and manner of sale limitations imposed by Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). Rule 144 generally provides that
beneficial owners of Common Stock who have held such Common Stock for one year
may sell within a three-month period a number of shares not exceeding the
greater of 1% of the total outstanding shares or the average weekly trading
volume of the shares during the four calendar weeks preceding such sale. Future
sales of restricted Common Stock under Rule 144 could negatively impact the
market price of the Common Stock. Pursuant to the terms of the underwriting
agreement between the Company and the Representatives of the Underwriters,
Common Stock owned by the six current stockholders, as well as option holders,
may not be sold for 180 days from the date of this Prospectus, but Needham &
Company, Inc. may waive this requirement. See "Shares Eligible for Future Sale."
UNDESIGNATED SHARES; CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of 50 million undesignated shares. The Company's Board of Directors has
the authority to issue any or all of the undesignated shares, including the
authority to establish the rights, preferences and classes of the undesignated
shares, without stockholder approval. In addition, the Company is subject to
certain anti-takeover provisions of the Minnesota Business Corporation Act.
These provisions may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of the Company not approved by the Board
of Directors. See "Description of Capital Stock."
10
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,600,000 shares of Common Stock offered by the Company hereby at an assumed
initial offering price of $10.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses, are estimated to
be approximately $23.7 million ($26.7 million if the Underwriters'
over-allotment option is exercised in full). In addition to the purposes set
forth below, this offering is intended to provide a public market for Datalink's
Common Stock and to facilitate future access to the public capital markets. The
Company anticipates that it will use the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF NET PROCEEDS AMOUNT
--------------------------- ------
<S> <C>
Distribution of S corporation earnings to current
stockholders.............................................. $ 8.2 million
Repayment of certain indebtedness........................... 1.1 million
Growth and expansion, working capital and general corporate
purposes.................................................. 14.4 million
-------------
Total....................................................... $23.7 million
=============
</TABLE>
The Company plans to use a portion of the net proceeds of this offering to
fund the final S corporation distribution to the current stockholders. This
distribution will constitute all of the previously taxed, but undistributed, S
corporation earnings. As of March 31, 1998, such earnings were approximately
$8.2 million. See "Termination of S Corporation Status and Put Option and
Dividend Policy." See Note 12 of the Notes to the Company's Financial
Statements.
The Company also intends to use a portion of the net proceeds of this
offering to repay all borrowings under the Credit Agreement. As of March 31,
1998, the balance under the Credit Agreement was $1.1 million. The Company will
have up to $10.0 million available under the Credit Agreement following the
offering subject to limitations based on percentages of eligible accounts
receivable and inventories. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 5 of the Notes to the Company's Financial Statements.
Approximately $14.4 million of the net proceeds of this offering will be
used to fund the Company's growth and expansion plans and for working capital
and general corporate purposes. As part of its growth and expansion plans, the
Company intends to pursue strategic acquisitions that either expand or
complement its business. See "Business -- Business Strategy."
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities.
11
<PAGE> 15
TERMINATION OF S CORPORATION STATUS AND PUT OPTION AND DIVIDEND POLICY
In January 1988, the Company elected to be treated as an S corporation and
since then has been, and through the closing date of the offering will be,
subject to taxation under Subchapter S of the Code and comparable state tax
regulations. As a result, the Company's earnings have been taxed for federal and
state income tax purposes directly to the stockholders rather than to the
Company. Upon conversion from S corporation to C corporation status, the Company
will become subject to federal and state corporate income taxes.
In connection with the termination of the Company's S corporation status
upon the closing of this offering, the Company will make a distribution to the
current stockholders of all previously taxed, but undistributed, S corporation
earnings of the Company. As of March 31, 1998, such earnings were approximately
$8.2 million. The actual amount of the distribution will be adjusted to reflect
the taxable income and any stockholder distributions from April 1, 1998 through
the termination of the S corporation status. Following the termination of its S
corporation status, the Company will record a net deferred tax asset on its
balance sheet which will ultimately increase retained earnings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" and Note 12 of the Notes to the Company's
Financial Statements.
The Company and its current stockholders entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement') effective April 1, 1992 that
restricts the right of stockholders to dispose of or encumber any shares of the
Company's Common Stock and dictates the terms for transfer of the shares. The
Stock Purchase Agreement originally provided that upon the death, disability or
termination of employment, each stockholder is required to put his shares to the
Company and the Company is obligated to purchase all shares owned by that
stockholder at a price determined pursuant to the terms of the Stock Purchase
Agreement. In November 1996, the Stock Purchase Agreement was amended to allow a
retired stockholder to retain his shares until the retired stockholder or his
legal representative exercises the put option which requires the Company to
purchase his shares, or until such stockholder's death. Because the Company's
Common Stock is subject to these put options, the accreted value of the Common
Stock (determined pursuant to the terms of the Stock Purchase Agreement) has
been excluded from stockholders' equity. The Stock Purchase Agreement, including
the put options, will be terminated contemporaneously with the closing of this
offering. See "Selected Historical and Pro Forma Financial Data,"
"Capitalization" and Notes 3 and 9 of the Notes to the Company's Financial
Statements.
The Company currently intends to retain any net income for use in its
business and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future other than in connection with the termination of the
Company's S corporation status. Any future declaration and payment of dividends
will be subject to the discretion of the Company's Board of Directors, will be
subject to applicable law and will depend upon the Company's results of
operations, earnings, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors. In addition, the
Credit Agreement prohibits the Company from paying dividends to C corporation
stockholders.
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, on an actual basis, on a pro forma basis to give effect to the
termination of the put options on the Company's Common Stock, on a pro forma
basis to give effect to the termination of the Company's S Corporation status
and on a pro forma basis as adjusted to give effect to the sale of the 2,600,000
shares of Common Stock offered by the Company hereby based upon an assumed
initial public offering price of $10.00 per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------------------------
PRO FORMA
--------------------------------------------
TERMINATION TERMINATION OF
OF PUT S CORPORATION AS
ACTUAL OPTIONS(2) STATUS(3) ADJUSTED(4)
------ ----------- -------------- -----------
<S> <C> <C> <C> <C>
Common Stock, subject to put option,
$0.001 par value; 50,000,000 shares
authorized; 6,900,000 shares issued and
outstanding............................. $14,774 $ -- $ -- $ --
Stockholders' equity (deficiency):
Common Stock, $0.001 par value;
50,000,000 shares authorized;
6,900,000 shares issued and
outstanding actual and 9,500,000
shares issued and outstanding as
adjusted(1).......................... -- 7 7 10
Additional paid-in capital.............. -- -- -- 23,677
Retained earnings (accumulated
deficit)............................. (6,534) 8,233 233 233
------- ------ ---- -------
Total stockholders' equity
(deficiency)......................... (6,534) 8,240 240 23,920
------- ------ ---- -------
Total capitalization...................... $ 8,240 $8,240 $240 $23,920
======= ====== ==== =======
</TABLE>
- ------------
(1) Excludes (i) 950,000 shares of Common Stock reserved for issuance under the
Company's Incentive Compensation Plan, including 214,750 shares of Common
Stock reserved for issuance upon the exercise of options to be granted under
the Incentive Compensation Plan contemporaneously with the closing of this
offering, (ii) 250,000 shares of Common Stock reserved for issuance under
the Company's Employee Stock Purchase Plan and (iii) 320,000 shares of
Common Stock which may be purchased by the Underwriters from the Company to
cover over-allotments, if any.
(2) Adjusted to give pro forma effect to the reclassification of the Company's
Common stock subject to put options into stockholders' equity, reflecting
termination of these put options upon the closing of this offering. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Notes 3 and 9 of the Notes to the Company's Financial Statements.
(3) Adjusted to give pro forma effect to (i) the pro forma adjustment described
in (2) above, (ii) a final S corporation distribution to the current
stockholders, representing all previously taxed, but undistributed, S
corporation earnings, estimated at $8.2 million had the termination occurred
on March 31, 1998, (iii) a net deferred tax asset which will be recorded by
the Company as a result of the termination of its S corporation status,
estimated at $240,000 had such termination occurred on March 31, 1998. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Notes 2 and 3 of Notes to the Company's Financial Statements.
(4) Adjusted to give pro forma effect to (3) above and the sale by the Company
of 2,600,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds," and Notes 2 and 3
of the Notes to the Company's Financial Statements.
13
<PAGE> 17
DILUTION
The net tangible book value (deficit) of the Company as of March 31, 1998
was $(6.5) million, or $(0.95) per share. Net tangible book value (deficit) per
share is equal to the Company's total tangible assets less total liabilities and
the Company's Common Stock subject to put option, divided by the total number of
shares of Common Stock outstanding. After giving effect to (i) the termination
of the put option on the Company's Common Stock, (ii) the final S corporation
distribution to the current stockholders, estimated at $8.2 million had the
termination occurred on March 31, 1998, (iii) the net deferred tax asset which
will be recorded by the Company as a result of the termination of its S
corporation status, estimated at $240,000 had such termination occurred on March
31, 1998 and (iv) the sale by the Company of 2,600,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per share
and after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, the adjusted net tangible
book value of the Company as of March 31, 1998 would have been $23.9 million, or
$2.52 per share. This represents an immediate increase in net tangible book
value of $3.47 per share to the existing stockholders and an immediate dilution
in net tangible book value of $7.48 per share to investors purchasing shares of
Common Stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.00
Net tangible book value (deficit) per share at March 31,
1998................................................... $(0.95)
Increase attributable to termination of put option on
Common Stock........................................... 2.14
Decrease attributable to the final S corporation
distribution, net of increase attributable to deferred
tax asset recognition.................................. (1.16)
Increase in net tangible book value per share attributable
to new investors....................................... 2.49
Net tangible book value per share after the offering........ 2.52
------
Dilution per share to new investors......................... $ 7.48
======
</TABLE>
The following table summarizes as of March 31, 1998, the number of shares
purchased from the Company, the total consideration paid to the Company and the
average price per share paid by the Company's existing stockholders and by the
new investors after the sale of 2,600,000 shares of Common Stock by the Company
at an assumed initial public offering price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 6,900,000 72.6% $ 100 --% $ --
New investors............................ 2,600,000 27.4 26,000,000 100.0 10.00
--------- ----- ----------- ----- ------
Total............................... 9,500,000 100.0% $26,000,100 100.0% $ 2.74
========= ===== =========== ===== ======
</TABLE>
The foregoing calculations do not give effect to (i) 950,000 shares of
Common Stock reserved for issuance under the Company's Incentive Compensation
Plan, including 214,750 shares of Common Stock reserved for issuance upon the
exercise of options to be granted under the Incentive Compensation Plan
contemporaneously with the closing of this offering, (ii) 250,000 shares of
Common Stock reserved for issuance under the Company's Employee Stock Purchase
Plan and (iii) 320,000 shares of Common Stock which may be purchased by the
Underwriters from the Company to cover over-allotments, if any.
14
<PAGE> 18
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain selected historical financial and
pro forma data of Datalink as of and for each of the five years in the period
ended December 31, 1997 and as of March 31, 1998 and for each of the three month
periods ended March 31, 1997 and 1998. The selected historical financial data as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 have been derived from the historical financial
statements of Datalink, audited by Coopers & Lybrand L.L.P., independent
accountants, and included elsewhere in this Prospectus. The selected historical
financial data as of December 31, 1995 has been derived from the historical
financial statements of Datalink, audited by Coopers & Lybrand L.L.P. The
selected historical financial data as of December 31, 1993 and 1994 and for each
of the two years in the period ended December 31, 1994 have been derived from
the historical financial statements of Datalink, audited by Hansen, Jergenson,
Nergaard & Co., L.L.P. The selected historical financial data as of March 31,
1998 and for the three-month periods ended March 31, 1997 and 1998 have been
derived from unaudited financial statements of the Company which have been
prepared on the same basis as the audited financial statements and, in the
opinion of the Company, reflect all adjustments necessary (consisting only of
normal recurring adjustments) for the fair presentation of the Company's
financial position and results of operations for such periods. Results for
interim periods are not necessarily representative of the results to be expected
for a full year, and historical results are not necessarily indicative of the
results of operations to be expected in the future. The information contained in
the following table should also be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $24,146 $32,333 $38,048 $54,652 $71,255 $15,266 $16,599
Cost of sales................................... 19,405 25,907 30,356 42,872 55,719 12,006 12,723
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 4,741 6,426 7,692 11,780 15,536 3,260 3,876
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........................... 1,495 1,891 2,487 3,607 5,191 1,237 1,427
General and administrative.................... 1,764 1,912 2,118 2,382 3,010 695 961
Engineering................................... 269 343 467 633 926 251 315
------- ------- ------- ------- ------- ------- -------
Total operating expenses........................ 3,528 4,146 5,072 6,622 9,127 2,183 2,703
------- ------- ------- ------- ------- ------- -------
Operating income................................ 1,213 2,280 2,620 5,158 6,409 1,077 1,173
Interest expense, net........................... 192 243 306 286 333 73 55
------- ------- ------- ------- ------- ------- -------
Net income(1)................................... $ 1,021 $ 2,037 $ 2,314 $ 4,872 $ 6,076 $ 1,004 $ 1,118
======= ======= ======= ======= ======= ======= =======
Historical net income per share, basic and
diluted....................................... $ 0.15 $ 0.30 $ 0.34 $ 0.71 $ 0.88 $ 0.15 $ 0.16
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding, basic and
diluted....................................... 6,900 6,900 6,900 6,900 6,900 6,900 6,900
------- ------- ------- ------- ------- ------- -------
Pro forma income taxes(2)....................... 2,430 402 447
------- ------- -------
Pro forma net income............................ $ 3,646 $ 602 $ 671
======= ======= =======
Pro forma net income per share, basic and
diluted(3).................................... $ 0.47 $ 0.08 $ 0.09
======= ======= =======
Shares used in computing pro forma net income
per share(3).................................. 7,786 7,786 7,786
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
PRO FORMA
--------------
AS OF DECEMBER 31,
---------------------------------------------- TERMINATION OF
1993 1994 1995 1996 1997 ACTUAL PUT OPTIONS(4)
---- ---- ---- ---- ---- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ 142 $ 294 $ 111 $ 222 $ 1,163 $ 143 $ 143
Working capital............ 1,605 2,424 3,003 5,330 6,761 6,660 6,660
Total assets............... 6,028 9,314 8,689 15,355 18,705 15,435 15,435
Common stock subject to put
option................... 1,698 3,425 5,351 9,339 13,874 14,774 --
Stockholders' equity
(deficiency)............. (483) (1,331) (2,286) (3,296) (5,744) (6,534) 8,240
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
PRO FORMA
----------------------------
TERMINATION OF
S CORPORATION AS
STATUS(5) ADJUSTED(6)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ 143 $14,528
Working capital............ (1,353) 22,327
Total assets............... 15,675 30,060
Common stock subject to put
option................... -- --
Stockholders' equity
(deficiency)............. 240 23,920
</TABLE>
- ------------
(1) For the periods presented, the Company was an S corporation and,
accordingly, was not subject to federal and state income taxes.
15
<PAGE> 19
(2) Pro forma income taxes have been computed as if the Company was subject to
federal and state income taxes for the periods presented, based on the tax
laws in effect during those periods. See Notes 2 and 3 of the Notes to the
Company's Financial Statements.
(3) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the period, after
giving effect to the estimated number of shares that would be required to be
sold at the initial public offering price (after deducting the underwriting
discounts) to fund a distribution to the current stockholders of all
previously taxed, but undistributed, S Corporation earnings, estimated at
$8.2 million had the termination occurred on March 31, 1998. The Company
does not have any common stock equivalents. See "Termination of S
Corporation Status and Put Option and Dividend Policy" and Note 3 of the
Notes to the Company's Financial Statements.
(4) Adjusted to give pro forma effect to the reclassification of the Company's
Common Stock subject to put option into stockholders' equity, reflecting
termination of these put options upon the closing of this offering. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Note 9 of the Notes to the Company's Financial Statements.
(5) Adjusted to give pro forma effect to (i) the pro forma adjustment described
in (4) above, (ii) a final S corporation distribution payable to the current
stockholders, representing all previously taxed, but undistributed, S
corporation earnings, estimated at $8.2 million had the termination occurred
on March 31, 1998 and (iii) a net deferred tax asset which will be recorded
by the Company as a result of the termination of its S corporation status,
estimated at $240,000 had such termination occurred on March 31, 1998. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Note 3 of the Notes to the Company's Financial Statements.
(6) Adjusted to give effect to (i) the pro forma adjustments described in (5)
above and (ii) the sale by the Company of 2,600,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements, including the Notes thereto, and the other information
included herein. The following information also includes forward-looking
statements, the realization of which may be impacted by certain important
factors discussed under "Risk Factors."
OVERVIEW
Datalink analyzes, custom designs, integrates or assembles, installs and
supports high-end Open Systems storage solutions using products and components
manufactured by various suppliers in order to meet its customers' requirements.
The Company has developed engineering, sales and support capabilities to become
an expert in applying the best available storage technologies manufactured by
the leading data storage hardware and software companies to solve its customers'
growing data storage needs. These technologies include hard disk, RAID, magnetic
tape, CD-ROM and optical products. The Company also matches storage management
software technologies, including backup and recovery, archive, high availability
and near on-line storage, to the specific needs of its customers. The Company's
net sales and net income have grown at a compound annual rate of 31% and 56%,
respectively, over the past five years.
The Company was founded in 1963 as Stan Clothier Co., Inc. and operated as
a manufacturer's representative for technology products and components. In 1987,
the Company was renamed Datalink Corporation to reflect the Company's transition
to a distributor of data storage products. Beginning with the hiring of Greg R.
Meland in 1991, the current management team recognized that rapid and complex
changes in data storage technology would lead businesses and organizations
increasingly to seek external expertise to address their data storage needs.
Accordingly, the Company made the strategic decision to focus on providing its
customers with complete data storage solutions encompassing the best technology
available. By developing engineering expertise and high quality customer service
and support, Datalink became a leader in providing data storage solutions.
Datalink's customers include end-users, VARs and OEMs. The Company works
closely with end-users and VARs to assess their informational storage and
retrieval requirements and to design, integrate, install, and support
information storage solutions incorporating the best hardware and software
products on the market. For OEM customers, the Company's team of design and
application engineers custom design storage subsystems, which are integrated
into the OEM's own products. In general, the Company realizes higher gross
margins on net sales to end-users and OEMs based on the high value-added nature
of such sales.
The Company realizes substantial repeat business from its existing
customers. During 1997, 1996 and 1995, sales to existing customers represented
79.9%, 77.7% and 82.6%, respectively, of net sales. Management believes that
this repeat business is attributable to the Company's high level of technical
expertise and customer service and support.
Datalink sells its products through its direct sales force located in
Minneapolis and 11 field offices. The Company has continued to grow its sales
force and open new sales office locations in anticipation of increased demand
for the Company's products and services. The Company selects new sales office
locations based upon perceived demand for the Company's products and services.
Datalink has experienced, and expects to continue to experience, an increase in
sales and marketing expenses disproportionate to the increase of net sales in
connection with the opening of new sales offices. This is due primarily to the
lead time (six months or longer) generally associated with generating business
in the new territory.
As an independent storage solutions provider, Datalink updates its product
offerings to match advancements by its suppliers of hardware and software
technology. Although the Company often has advance knowledge of forthcoming
product releases because of its close working relationship with its suppliers,
the impact of these advancements on the Company's results of operations are
often difficult to predict. The Company's customers may delay purchases upon
learning of actual or rumored new product introductions. In addition, changes in
technology may significantly affect the pricing or profitability of products.
17
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
financial data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 79.8 78.4 78.2 78.7 76.6
----- ----- ----- ----- -----
Gross profit............................... 20.2 21.6 21.8 21.3 23.4
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing........................ 6.5 6.6 7.3 8.1 8.6
General and administrative................. 5.6 4.4 4.2 4.6 5.8
Engineering................................ 1.2 1.2 1.3 1.6 1.9
----- ----- ----- ----- -----
Total operating expenses................ 13.3 12.2 12.8 14.3 16.3
----- ----- ----- ----- -----
Operating income............................. 6.9% 9.4% 9.0% 7.0% 7.1%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net Sales. Net sales include sales of products and software integrated for
end-user and VAR customers, products assembled by the Company for OEM customers
and revenues from billable installation, repair and maintenance services.
Datalink recognizes product revenues as its products are shipped or following
customer acceptance for products under evaluation. Net sales increased $1.3
million or 8.7% to $16.6 million for the three months ended March 31, 1998, from
$15.3 million for the comparable period in 1997. The increase primarily resulted
from an increase in volume, principally attributable to increases in sales of
products to end-user customers and revenues from maintenance contracts partially
offset by decreases in sales to VAR and OEM customers.
Gross Profit. Cost of sales consists primarily of the cost of components
purchased from suppliers. Gross profit as a percentage of net sales increased to
23.4% for the three months ended March 31, 1998, from 21.3% for the comparable
period in 1997. This increase was principally attributable to the Company's
increasing sales of large storage systems to end-user customers.
Sales and Marketing. Sales and marketing expenses include wages and
commissions paid to the Company's sales and marketing personnel, travel and
entertainment costs and advertising, promotion and trade show expenses. Sales
and marketing expense increased $190,000 or 15.4% to $1.4 million, or 8.6% of
net sales, for the three months ended March 31, 1998, from $1.2 million, or 8.1%
of net sales, for the comparable period in 1997. This increase was primarily
attributable to additional sales commission associated with sales growth, the
hiring of new marketing personnel and increased advertising costs.
General and Administrative. General and administrative expenses include
wages for administrative personnel, profit sharing contributions, professional
fees, communication expenses and rent and related facility expenses. General and
administrative expenses increased $267,000 or 38.4% to $961,000, or 5.8% of net
sales, for the three months ended March 31, 1998, as compared to $695,000, or
4.6% of net sales, for the first quarter of 1997. This increase was principally
attributable to increases in administrative personnel and related expenses and
professional fees.
Engineering. Engineering expenses include employee wages, travel and
training expenses for the Company's professional engineers and technicians and
professional fees to obtain various independent laboratory certifications of
storage subsystems designed by the Company for OEM customers. Engineering
expenses increased $64,000 or 25.3% to $315,000, or 1.9% of net sales, for the
three months ended March 31,
18
<PAGE> 22
1998, from $251,000, or 1.6% of net sales, for the comparable period in 1997.
This increase was primarily attributable to the addition of new engineering
personnel and increased travel expenses.
Operating Income. Operating income increased $96,000 or 8.9% to $1.2
million, or 7.1% of net sales, for the three months ended March 31, 1998, from
$1.1 million, or 7.0% of net sales, for the comparable period in 1997. The
increase as a percentage of net sales was principally attributable to the
increase in gross profit without a commensurate increase in operating expenses.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net Sales. Net sales increased 30.4% to $71.3 million in 1997, increased
43.6% to $54.7 million in 1996 and increased 17.7% to $38.0 million in 1995.
These increases were principally attributable to an increase in sales of large
RAID and tape backup storage systems to end-user customers.
Gross Profit. Gross profit as a percentage of net sales increased to 21.8%
in 1997 from 21.6% in 1996 and 20.2% in 1995. These increases were primarily due
to the Company's increasing sales of large storage systems to end-user
customers.
Sales and Marketing. Sales and marketing expenses increased 43.9% to $5.2
million in 1997 and increased 45.0% to $3.6 million in 1996. Sales and marketing
expenses were $2.5 million in 1995. As a percentage of net sales, sales and
marketing expenses were 7.3% in 1997, 6.6% in 1996 and 6.5% in 1995. The
increases as a percentage of net sales over these years were principally
attributable to an increase in commissions paid to the Company's sales
representatives on large storage system sales to end-user customers and to the
hiring of new sales representatives in anticipation of future growth.
General and Administrative. General and administrative expenses increased
26.4% to $3.0 million in 1997 compared to 1996 and increased 12.5% to $2.4
million in 1996 compared to $2.1 million in 1995. As a percentage of net sales,
general and administrative expenses were 4.2% in 1997, 4.4% in 1996 and 5.6% in
1995. The dollar increase in general and administrative expenses was primarily
attributable to increases in administrative personnel and related expenses. The
decrease as a percentage of net sales over such periods was principally
attributable to the significant increase in net sales over these periods.
Engineering. Engineering expenses increased 46.4% to $926,000 in 1997 as
compared to 1996 and increased 35.6% to $633,000 in 1996 as compared to $467,000
in 1995. Engineering expenses as a percentage of net sales were 1.3% in 1997 and
1.2% in both 1996 and 1995. The dollar increase over these years was primarily
attributable to the addition of new engineering personnel and increased travel
expenses.
Operating Income. Operating income increased 24.2% to $6.4 million in 1997
as compared to 1996 and 96.8% to $5.2 million in 1996 as compared to $2.6
million in 1995. As a percentage of net sales, operating income was 9.0% in
1997, 9.4% in 1996 and 6.9% in 1995. The decrease in operating income as a
percentage of net sales in 1997 was principally attributable to the investment
in sales and marketing expenses in anticipation of future sales growth. The
increase in operating income as a percentage of net sales in 1996 was
principally attributable to the significant increase in net sales.
19
<PAGE> 23
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly financial data
of the Company for each quarter of 1996 and 1997 and the first quarter of 1998.
In the opinion of the Company's management, this unaudited information has been
prepared on the same basis as the audited information and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
1996 1997 1998
---------------------------------------- ---------------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $10,842 $12,686 $13,871 $17,253 $15,266 $15,999 $19,269 $20,721 $16,599
Gross profit......... 2,190 2,784 3,033 3,773 3,260 3,544 4,044 4,688 3,876
Operating income..... 834 1,351 1,141 1,832 1,077 1,555 1,710 2,067 1,173
Net income........... 771 1,271 1,075 1,755 1,004 1,481 1,617 1,974 1,118
Pro forma net
income(1).......... 457 753 638 985 602 889 970 1,185 671
</TABLE>
- ------------
(1) Pro forma net income has been computed as if the Company was a C corporation
and had been subject to federal and state income taxes during all of the
periods presented. See Notes 2 and 3 of the Notes to the Company's Financial
Statements.
The Company has experienced and expects to continue to experience quarterly
variations in its net sales as a result of a number of factors including, among
other things, the length of the sales cycle with end-user customers for large
storage system evaluations and purchases, the significant lead time in designing
storage subsystems for OEM customers, new product introductions by suppliers and
the market acceptance thereof, delays in product shipments or other quality
control difficulties, the ability of Datalink to integrate any acquired
businesses, product returns, trends in the Open Systems storage industry in
general, the geographic and industry specific market in which Datalink is
presently active, or may be in the future, and the opening of new field sales
offices. Net sales also tend to be lower in the summer months and higher in the
quarter ending December 31 reflecting the timing of purchase decisions by the
Company's customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital
requirements through cash flows generated from operations and supplemental bank
borrowings. Working capital was $6.7 million, $6.8 million and $5.3 million at
March 31, 1998 and December 31, 1997 and 1996, respectively. The increase was
primarily attributable to an increase in cash and net accounts receivable offset
by a decrease in inventories and an increase in borrowings under the Credit
Agreement.
Cash provided by operating activities for 1997, 1996 and 1995 was $4.6
million, $2.5 million and $2.3 million, respectively, reflecting the Company's
increasing sales and net income. Cash used in investing activities during 1997,
1996 and 1995 was $766,000, $337,000 and $286,000, respectively. These uses
reflected expenditures for computer and office equipment and improvements to
support increasing sales volumes, including the opening of new field sales
offices. Cash used in financing activities in 1997, 1996 and 1995 was $2.8
million, $2.0 million and $2.2 million, respectively. These uses of cash relate
primarily to net repayments of borrowings under the Company's Credit Agreement
and to dividends paid to the stockholders. These dividends totaled $4.0 million,
$1.9 million and $1.3 million in 1997, 1996 and 1995, respectively, and were
distributed to the stockholders primarily to provide liquidity to pay their
income tax liabilities resulting from the Company's S corporation taxable
income.
At March 31, 1998, the Company's borrowings consisted of $1.1 million owed
under the Credit Agreement. The Credit Agreement permits the Company to borrow
up to $10.0 million on a revolving basis with borrowings limited by eligible
accounts receivable and inventories. Upon the closing of this offering, the
borrowings under the Credit Agreement will bear interest at the bank's reference
rate; however, the Company may periodically borrow funds under the Credit
Agreement at LIBOR plus 1.95%. The Credit Agreement
20
<PAGE> 24
terminates on May 31, 2000. Borrowings under the Credit Agreement are
collateralized by the Company's cash, accounts receivable, intangibles,
inventories and equipment. The Company intends to use a portion of the net
proceeds of this offering to repay all borrowings under the Credit Agreement.
The Company plans to use a portion of the net proceeds of this offering to
fund the final S corporation distribution to the current stockholders. This
distribution will constitute all of the previously taxed, but undistributed, S
corporation earnings. As of March 31, 1998, such earnings were approximately
$8.2 million. The actual amount of the distribution will be adjusted to reflect
the taxable income and any stockholder distributions from April 1, 1998 through
the termination of the S corporation status upon the closing of this offering.
The Company has entered into a nonbinding letter of intent to acquire DCSI.
Under terms of the letter of intent, the Company would acquire all of DCSI's
capital stock in exchange for $2 million of cash and 200,000 shares of the
Company's Common Stock, subject to adjustment, and the Company would pay an
aggregate amount of $500,000 of cash to certain employees of DCSI in connection
with noncompetition agreements.
The Company believes that funds generated from operations, together with
the net proceeds of this offering, available credit under its Credit Agreement
and trade credit from suppliers will be sufficient to finance its current
operations and planned capital expenditure requirements for at least the next
twelve months.
Inflation. The Company does not believe that inflation has had a material
effect on its results of operations in recent years; however, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.
Year 2000 Compliance. The Company has completed an assessment of its
internal systems and believes that these systems will not experience any Year
2000 problems. The Company is in the process of assessing the Year 2000
compliance of its supplier and customer systems and supplier products installed
at customer sites. If the Company's suppliers or customers fail to complete any
required Year 2000 remediation of their computer systems or product offerings,
the Company could suffer delays in product delivery or could experience delays
in customer payments. In addition, if any products or components sold by the
Company to its customers were to fail, the Company could be liable to its
customers for damages and costs to the extent that the Company's suppliers do
not cover such liabilities. Any such Year 2000 failures could have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
Recently Issued Accounting Standards. Effective at year-end 1998, the
Company will adopt Statement of Financial Accounting Standard No. 131 (SFAS No.
131), "Disclosure About Segments of an Enterprise and Related Information,"
which requires disclosure of segment data in a manner consistent with that used
by an enterprise for internal management reporting and decision making. The
Company believes that it will report its operations as a single segment under
SFAS No. 131.
21
<PAGE> 25
BUSINESS
THE COMPANY
Datalink analyzes, custom designs, integrates or assembles, installs and
supports high-end Open Systems storage solutions for end-users, VARs and OEMs.
Datalink has become a leading independent storage solutions provider by matching
its technical expertise and quality products with comprehensive service and
support to meet each customer's specific needs. The Company's storage solutions
are designed to provide the optimal combination of performance, capacity, high
availability, disaster recovery, multi-platform support, permanence,
scalability, centralized management and cost.
INDUSTRY OVERVIEW
The reliable access to and management of data is increasingly critical and
represents a key competitive advantage to business, government, educational and
nonprofit organizations. In recent years, organizations ranging from small
businesses and nonprofit entities to large, multinational enterprises have
increased their use of computers for collecting, analyzing and distributing
information to improve productivity. Historically, most computing environments
were controlled by expensive, host-based mainframes and minicomputers having
proprietary operating systems ("Closed Systems"). This limited the ability of
these computers to communicate outside their own environment. The selection of
these Closed Systems was largely based upon the processing power generated by
the computer's central processing unit ("CPU"). This CPU centered architecture
was considered the most important aspect of designing an organization's
management information system ("MIS"). In a Closed Systems computing
environment, end-user applications were limited by the hardware and operating
system architectures offered by the manufacturer. As the number of applications
grew and the need to distribute computing power directly to users became
increasingly important, organizational demand for an appropriate systems
solution dictated operating architectures linking multiple application, file,
database and communications servers to networked computers ("Open Systems").
The increased use of Open Systems hardware and software computing
environments creates the need for flexible and comprehensive data storage
solutions capable of serving multiple and evolving computer platforms.
Consequently, organizations are changing the way they manage data from a CPU
centered view to a new information centered model that requires the sharing,
management and protection of mission critical information across the enterprise.
Open Systems architecture permits organizations to utilize hardware and software
products and components available from various suppliers.
In addition to the challenges presented by the Open Systems computing
environment, computer processing power has continued to increase at a rapid rate
with the ongoing introduction of new and more powerful CPUs. Application
software developers are taking advantage of CPU advancements by introducing
powerful, easier to use, graphically oriented, memory intensive software
packages. These software applications have resulted in the automation of an
increasing number of mission-critical business applications, including on-line
transaction processing, the Internet, intranets, pre-press, multimedia, imaging
and data warehousing. This automation expands the need for on-line storage,
uninterrupted access to data and fail-safe methods to backup and archive such
data. Although substantial, the increase in storage device performance has
lagged the increase in processing power, creating an input/output performance
gap that continues to widen. This performance gap has increased the need for
high performance storage systems that accelerate on-line access to stored data
while providing continuous protection of this data.
Although demand for complex storage solutions is increasing, corporate
downsizing has led organizations to reduce their in-house MIS staffs.
Accordingly, organizations rely on external providers to research, design,
implement and support information storage solutions that incorporate the best
hardware and software technologies available and are compatible with
organizations' often large and complex distributed computer networks and Open
Systems operating system architectures. At the same time, reduced profit margins
have led suppliers to downsize their sales and marketing forces. As a result,
both customers and suppliers increasingly seek independent solutions providers,
such as Datalink, with knowledge and experience in Open Systems data storage.
According to Dataquest, Inc., an independent market research firm, the worldwide
RAID storage market for UNIX and Windows NT operating platforms was
approximately $12.8 billion in
22
<PAGE> 26
1997 and is expected to grow at an annual compound rate of 24% to approximately
$37.0 billion by 2002. According to SRC, an independent market research firm,
the worldwide market for tape automation backup storage products was
approximately $1.6 billion in 1996 and is expected to grow at an annual compound
rate of 18% to approximately $4.4 billion by 2002. According to SRC, the
worldwide storage management software market was approximately $1.4 billion in
1997 and is expected to grow at an annual compound rate of 38% to approximately
$3.7 billion by 2000.
THE DATALINK SOLUTION
Datalink analyzes, custom designs, integrates or assembles, installs and
supports high-end Open Systems storage solutions for end-users, VARs and OEMs.
Datalink has become a leading independent storage solutions provider by matching
its technical expertise and quality products with comprehensive service and
support to meet each customer's specific needs. The Company's storage solutions
are designed to provide the optimal combination of performance, capacity, high
availability, disaster recovery, multi-platform support, permanence,
scalability, centralized management and cost. Datalink's strengths include the
following:
Comprehensive Storage Solutions. Datalink delivers comprehensive,
state-of-the-art information storage solutions tailored to meet the specific
needs of each end-user, VAR and OEM. The Company works closely with end-users
and VARs to assess their information storage and retrieval requirements and to
design, integrate, install and support information storage solutions
incorporating the best available hardware and software products on the market.
For OEM customers, Datalink's team of design and application engineers custom
design and test storage subsystems. The Company assembles these products for
integration into the OEM's own products. Datalink's storage solutions
incorporate a broad range of scaleable and high-performance technologies
including hard disk, RAID, magnetic tape, CD-ROM and optical products. The
Company also matches storage management software technologies, including backup
and recovery, archive, high availability and near on-line storage management
products, to the specific needs of its customers. Datalink's Open Systems
expertise extends to all major operating systems and hardware platforms.
Technological Leadership. Datalink provides a high level of technical
expertise to its customers. The Company's engineers each specialize in one or
more Open Systems operating platforms and technologies, affording the in-depth
knowledge and hands-on experience required to provide comprehensive Open Systems
storage solutions. The engineers continually evaluate and test emerging and
existing technologies to ensure the Company consistently delivers the best
available hardware and software products to its customers. Because of Datalink's
established, strong relationships with the major information storage hardware
and software suppliers, the Company often participates in suppliers' new product
development, evaluation, introduction, marketing and quality control programs.
This collaboration with suppliers enables the Company to identify and market
innovative new hardware and software products, exchange critical information and
implement joint corrective action programs in order to maximize quality.
Superior Service and Technical Support. Datalink's engineers work closely
with the field account executives and inside sales representatives to provide
superior technical design and support services. To serve its customers' needs,
Datalink operates eleven locations throughout the United States, four of which
also serve as regional technical centers with in-house engineering capabilities.
Datalink further differentiates itself by being an ISO 9001 registered
organization. The Company utilizes ISO 9001 standards to consistently maintain
high quality design, development, integration and manufacturing, installation
and service processes. The Company's emphasis on providing high quality customer
services enhances its sales and marketing efforts and supplier relationships.
BUSINESS STRATEGY
Datalink's objective is to grow at a rate exceeding that of the industry
and to enhance its position as a leading independent Open Systems storage
solutions provider. To achieve this objective, the Company intends to build upon
its record of successfully addressing the evolving information storage
management needs of its customers. Key elements of this strategy are:
23
<PAGE> 27
Leverage Market Presence. Datalink intends to expand its business by
broadening its relationships with existing customers and by utilizing its
significant market presence and technical expertise to attract new customers.
The Company believes that the longevity of service of its sales representatives
and engineering staff will continue to be critical to building and maintaining
long-term, trusting relationships with Datalink's existing and prospective
customers. In addition, the Company's broad experience in a diverse group of
data intensive industries enables Datalink to understand application and
business issues specific to customers operating within a given industry and to
recommend and implement the appropriate storage solution.
Maintain Technological Leadership. Datalink intends to continue to develop
leading-edge storage solutions for its customers. Datalink intends to
continually develop and add expertise to its engineering staff and to continue
its close working relationships with its suppliers in order to maintain
expertise in Open Systems storage solution design and implementation.
Develop Professional Consulting Services. Datalink intends to continue to
develop and enhance its ability to provide its customers with comprehensive
professional consulting services. Utilizing the expertise of its professional
engineers, Datalink intends to assist its customers in the total assessment,
planning, design, implementation and ongoing management of enterprise-wide data
storage solutions.
Expand Geographically. Datalink intends to continue its geographic
expansion throughout the continental United States and believes significant
opportunity also exists to serve the global data storage needs of its
multinational corporate customers and prospective customers. The Company intends
to expand by opening new sales and regional technical center offices and by
evaluating potential acquisitions of businesses perceived by management to
complement the Company's strategic business objectives.
Maintain Superior Service and Support. Datalink intends to maintain and
continually improve its high standards for superior technical and sales service
and support. The Company intends to continue use of its ISO 9001 quality system
and procedures and to continue recruiting and retaining experienced sales and
technical team members.
TECHNICAL SERVICES
Datalink's engineers, technicians and customer support personnel take an
active role in all phases of designing, delivering and supporting storage
solutions for the Company's customers in a manner that maximizes system
availability and performance. The Company combines its Open Systems experience,
high level technical skills and responsiveness to provide its customers with the
utmost in comprehensive service, training and support. Datalink's technical
support and customer service functions operate under ISO 9001 standards of
operation to ensure the highest quality.
End-User and VAR Services. Datalink's engineers work closely with the field
account executives and inside sales representatives to determine each customer's
specific needs. After gaining a thorough understanding of the customers' needs,
Datalink's engineers analyze available hardware and software technologies and,
together with the field account executives, develop a specifically tailored,
state-of-the-art storage solution. In order to assure quality, the Datalink
technical team performs the installation, customer specific configuration and
functional testing of each storage solution. Once installation is complete,
Datalink's engineers conduct comprehensive, on-site storage solution training
for customers and provide ongoing technical support. In addition, the Company
periodically provides advanced in-house and out service training courses.
OEM Services. Datalink's engineering team enhances the capabilities of its
OEM customers by designing custom storage subassemblies and enclosures to each
customers' specifications. When requested by the customer, Datalink obtains the
necessary agency and governmental approvals relating to safety, emissions and
radio frequency immunity (including Underwriter's Laboratory and European "CE"
certifications) for the subassemblies it designs. Datalink fully documents all
custom subassemblies for ease of replication and service.
Technical Support. Datalink's technical support services provide
comprehensive, proactive and responsive assistance. The Company's customer help
desk acts as a single point of contact during regular business hours for all
ongoing support, repair and maintenance services. The help desk is staffed by
technical support
24
<PAGE> 28
analysts trained to solve technical issues and to assist the Company's
engineering staff in troubleshooting escalated problems. The help desk staff
also acts as Datalink's primary interface with suppliers' technical support
organizations.
Datalink's team of engineers augments the help desk staff in providing
advanced technical support when required. Each engineer specializes in one or
more Open Systems operating platforms and technologies, affording the in-depth
knowledge and hands-on experience required to provide comprehensive Open Systems
storage solutions.
Maintenance and Repair Services. Datalink supports and administers the
pass-through of its suppliers' own standard warranties which run from one to
five years. In addition, Datalink provides a suite of comprehensive maintenance
and repair service options under the Company's DataCare(TM) service program. The
Company offers a variety of on-site service options, including four-hour
guaranteed response time service seven days per week, 24 hours per day. The
Company contracts with a number of its suppliers and other independent service
organizations to provide on-site maintenance and repair services dispatched by
the Company. For customers that do not have on-site service, Datalink's Advance
Exchange program delivers replacement products and components on the next
business day.
PRODUCTS
Datalink continually updates its product offerings to match advancements by
its suppliers in storage technology. Datalink's creative engineering and sales
teams design solutions that incorporate hardware, software and interface
products selected in response to each customer's specific requirements. These
products include the following:
Hardware Products. Datalink selects from among a variety of storage
products and components sold by leading suppliers that offer differing
performance characteristics and costs. These storage products and components
include magnetic (hard) disk, magnetic tape and optical disk storage
technologies.
HARD DISK TECHNOLOGIES. Hard disk storage is a traditional, but
relatively expensive, on-line method to store and access large amounts of
information. Several hard disks can be combined to create a scaleable
storage system or a RAID storage system. RAID systems allocate data across
multiple hard disk drives and allow the server to access these drives
simultaneously, thus increasing system storage and input/output
performance. RAID algorithms allow lost data on any drive to be recreated,
thus ensuring the integrity of RAID-protected data even in the event of a
disk drive failure. In addition, RAID systems can incorporate redundant
power, cooling and processing components for additional fault tolerance.
System administrators normally consider magnetic or hard disks, whether
free-standing or integrated in RAID systems, to be at the top of the
storage class in terms of performance because of their fast access times
(in milliseconds) and fast transfer rates (5-16 MB per second). The
potential loss of data contained on magnetic or hard disks due to human
error or catastrophic failure necessitates the use of a backup storage
system to protect the stored information.
MAGNETIC TAPE TECHNOLOGIES. Magnetic tape storage technologies are
typically integrated into environments that require backing up large
amounts of information to protect from accidental data loss and facilitate
disaster recovery. Due to its high capacity and relatively lower cost,
magnetic tape storage is also effective for near on-line, archive and
hierarchical storage management ("HSM") activities. A variety of tape drive
technologies are available, including those utilizing digital linear tape,
advanced intelligent tape ("AIT"), 8 mm tape, 4 mm digital data storage
("DDS") and high performance helical scan technologies. Magnetic tape
autoloaders and libraries integrate multiple tape drives and media
cartridges with robotics to increase capacity and automation.
OPTICAL DISK TECHNOLOGIES. Although slower than magnetic disks in
terms of access and transfer speeds, optical disk technologies are a
cost-effective solution for near on-line and archive storage. Optical disk
technologies include magneto-optical ("MO"), write-once-read-many ("WORM")
and compact disk -- read only memory ("CD-ROM") products. Capacities range
from 650 megabytes (CD-ROM) to 2.6 GB (MO optical disk) per cartridge. MO
optical disk capacities are expected to increase to 5.2 GB
25
<PAGE> 29
in the near future. A developing optical technology, digital versatile disk
("DVD"), is expected to offer approximately 7.2 times the storage capacity
of a single CD-ROM. Similar to magnetic tape systems, multiple optical
disks can be combined in a jukebox to permit automated access and increased
capacity.
Software Products. Datalink integrates software management tools into its
customer solutions from leading storage software developers. The latest advances
include enterprise storage solutions for backup and recovery, HSM, archive,
management and configuration, high availability and media management
capabilities. These tools enable system administrators to allocate the use of
storage technologies among user groups or tasks, centrally manage distributed
storage technologies, retrieve, transfer and backup data from and between
several devices, perform "hot" database backups during business hours, run
management reports and establish standard policies. Software advancements also
enable these tools to integrate into centralized management frameworks. These
expanded management capabilities, as well as the ability to diagnose system
failures, increasingly will become important as Fibre Channel interfaces permit
the locating of backup storage devices in secure, remote facilities.
Interface Products. Systems administrators traditionally have connected
storage technologies directly to servers utilizing "point-to-point" connections
via the Small Computer Systems Interface ("SCSI"), and its successor, Ultra
SCSI. Because of distance limitations and limited bandwidth, SCSI-based
connections do not allow storage technologies to be easily shared with other
servers. With the innovation of Fibre Channel, a new serial interface, networks
can transfer data to disk and RAID storage subsystems at higher speeds, over
greatly increased distances and among a greater number of server and other
device connections than through the use of SCSI or Ultra SCSI interfaces.
Datalink currently deploys Fibre Channel interfaces with high-end, hard disk and
RAID storage systems and expects to integrate Fibre Channel interfaces with
other storage technologies in the future.
As Open Systems information storage needs continue to grow, industry
experts predict the rapid deployment of storage area networks ("SANs") which
will link physically separated storage and backup technologies to the other
servers via a dedicated, high-speed network. The Company believes that SANs will
be enabled principally by Fibre Channel technology and by "clustering" software.
Fibre Channel allows high speed connections (100-200 MB per second) between and
among a greater number of hosts and storage technologies on the SAN, while
clustering software allows for the interconnection of multiple hosts to multiple
storage devices. The Company expects that SANs will enable organizations to
implement scaleable storage and backup solutions that are faster, easier to
manage and protect, offer a higher degree of data availability and can be shared
by a greater multiple of servers than current distributed Open Systems storage
systems.
CUSTOMERS
Datalink serves large end-user, VAR and OEM customers throughout the United
States in a diverse group of data intensive industries. Datalink's broad
industry experience enables the Company to understand application and business
issues specific to each customer and to design and implement appropriate storage
solutions. The Company enjoys strong relationships with its customers, which is
reflected in significant repeat business. In each of the last three years sales
to existing customers has exceeded 77% of the Company's net sales. No single
customer represented more than 5% of the Company's net sales in 1997 or 1996,
nor 10% or more of the Company's net sales in 1995. Some of the customers of the
Company include the following:
END-USER CUSTOMERS
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY CONSUMER PRODUCTS EDUCATION
------------------- ----------------- ---------
<S> <C> <C>
Gateway 2000, Inc. Anheuser-Busch, Inc. University of Chicago
Imation, Inc. Dayton Hudson Corporation University of Minnesota
Silicon Graphics Grand Metropolitan PLC University of Washington
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES GOVERNMENT HEALTH CARE
------------------ ---------- -----------
<S> <C> <C>
American Express Company Fermi National Accelerator Laboratory Abbott Laboratories
Chicago Board of Trade National Aeronautics Space Administration Medtronic, Inc.
Swiss Bank Corporation United States Coast Guard Mayo Clinic Foundation
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
INSURANCE PROFESSIONAL SERVICES TELECOMMUNICATIONS
--------- --------------------- ------------------
<S> <C> <C>
Allstate Insurance Company A.G. Edwards, Inc. Lucent Technologies, Inc.
CNA Financial Corporation IBM Motorola, Inc.
The Kemper Insurance Companies KPMG Peat Marwick L.L.P. Sprint Corporation
</TABLE>
<TABLE>
<CAPTION>
TRANSPORTATION UTILITIES
-------------- ---------
<S> <C>
The Boeing Company The Detroit Edison Company
Northwest Airlines Corporation Dominion Resources, Inc.
UAL Corporation Northern States Power Company
</TABLE>
VAR CUSTOMERS
<TABLE>
<S> <C>
Andersen Worldwide, S.C. Forsythe McArthur Associates
DST Systems, Inc. IBM
Electronic Data Systems Corporation OPM Information Systems, Inc.
</TABLE>
OEM CUSTOMERS
<TABLE>
<S> <C>
GE Medical Systems National Computer Systems, Inc.
Lockheed Martin Corporation Rockwell International Corporation
Sagem Morpho, Inc. Siemens Medical Systems, Inc.
</TABLE>
SALES AND MARKETING
The Company markets and sells its products and services throughout the
United States primarily through a direct sales force. The field account
executives are complemented by a high (1.3 to 1) ratio of inside sales
representatives. In addition to its Minneapolis headquarters, the Company has
eleven field sales offices in order to serve its customers' needs more
efficiently. Three of the field sales offices serve as regional technical
centers and are staffed with their own engineers. These field sales offices are
located in the following metropolitan areas:
<TABLE>
<CAPTION>
FIELD LOCATION YEAR ESTABLISHED
-------------- ----------------
<S> <C>
Chicago, Illinois........................................... 1989
St. Louis, Missouri......................................... 1990
Milwaukee, Wisconsin........................................ 1992
Seattle, Washington......................................... 1992
Grand Rapids, Michigan...................................... 1995
Indianapolis, Indiana....................................... 1995
Washington, D.C............................................. 1996
Denver, Colorado............................................ 1997
New York, New York.......................................... 1997
San Jose, California........................................ 1998
Boston, Massachusetts....................................... 1998
</TABLE>
The field account executives and inside sales representatives work closely
with the Company's engineering team in evaluating the Open Systems storage needs
of existing and prospective customers and in designing high quality, cost
effective solutions. To ensure quality service, Datalink assigns each customer a
specific field account executive and inside sales representative. The inside
sales representatives proactively share responsibility with the field account
executives in soliciting new and repeat business and in maintaining consistent
customer contact. The Company believes that the longevity of service of its
sales force is a key factor to earning and retaining the trust and confidence of
the Company's customers and differentiates Datalink from many other storage
solution providers that have greater sales force turnover.
In addition to the efforts of its field account executives and inside sales
representatives, Datalink engages in a variety of other marketing activities
designed to attract new business and retain customer loyalty. The
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<PAGE> 31
Company regularly attends major trade shows, conducts in-house and out service
training and informational seminars, publishes a quarterly newsletter and
advertises its services in several targeted national business publications.
INTEGRATION AND ASSEMBLY OPERATIONS
Datalink assembles and integrates hardware and software products and
components acquired from the Company's various suppliers. The Company designs
customized enclosures for most OEM products. The assembled units are then
subjected to a system level test to ensure performance to specifications in the
anticipated end-user computing environment. The Company's integration and
assembly operations are also ISO 9001 registered. In accordance with these
standards, the Company has designed its integration and assembly operations with
similar quality procedures to those of its hardware suppliers. Datalink's close
working relationship with its suppliers generally enables the Company to
exchange critical information and implement joint corrective action programs to
ensure the quality of its finished products, to reduce costs and the investment
in inventory and to access critical products and components for large or
unanticipated orders when required. The Company believes that its current
facilities are adequate to meet its integration and assembly needs in the
foreseeable future.
ISO 9001 QUALITY SYSTEM
In May 1996, Datalink completed an approximately three-year process of
obtaining an ISO 9001 Certificate of Registration from KPMG Quality Registrar
for its quality system described under the American National Standards
Institute. This internationally recognized endorsement of ongoing quality
management is designed to assure consistent quality products and services. The
Company believes its ISO 9001 registration represents a substantial competitive
advantage to Datalink in attracting and retaining business.
Datalink employs ISO 9001 standards of operation for its design,
development, integration and assembly, installation and service processes. These
quality initiatives streamline the quality assurance programs and implementation
procedures for the Company's customers. Datalink's quality assurance team
constantly monitors the Company's processes and procedures, identifies areas for
improvement and efficiently implements corrective and preventive actions.
Suppliers to the Company are required to be ISO 9001 registered or otherwise
meet Datalink's rigid supplier qualification standards.
SUPPLIER RELATIONSHIPS
As an independent solutions provider, Datalink continually evaluates and
tests new and emerging technologies from other companies to ensure that the
Company's solutions incorporate state-of-the-art, high-end, cost-effective Open
Systems technologies. This enables Datalink to maintain its technological
leadership in Open Systems storage solutions, to identify new and innovative
products and applications and to maintain confidence among the Company's
customers and suppliers in the Company's expertise.
Datalink has strong, established relationships with the major information
storage hardware and software suppliers. The Company's expertise in Open System
environments, including UNIX, Windows NT and Novell NetWare, and in-depth
knowledge of all major hardware platforms, including Digital, Hewlett-Packard,
IBM, Silicon Graphics and Sun, has earned Datalink preferred status with its
principal suppliers. This enables the Company to often participate in these
suppliers' new product development, evaluation, introduction, marketing and
quality control programs. These collaborations enable the Company to identify
and market innovative new hardware and software products, exchange critical
information and implement joint corrective action programs in order to maximize
quality. In addition, the Company's close working relationships with its
principal suppliers fosters substantial cross-marketing opportunities.
COMPETITION
The market for Open Systems storage is intensely competitive. Datalink
competes primarily with traditional suppliers of computer systems such as
Compaq, Digital, Hewlett-Packard, IBM, Silicon Graphics and Sun, which market
storage systems as well as other computer products. The Company also competes
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<PAGE> 32
against independent storage system suppliers to the high-end Open Systems
market, including Box Hill Systems Corp., EMC Corporation, MTI Technology
Corporation and numerous VARs, resellers, distributors and consultants. In
addition, the Company's customers and prospective customers may elect to develop
in-house storage systems expertise.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to the development, promotion and sale of products than the Company or to
deliver competitive products at a lower end-user price. Some of Datalink's
competitors include its suppliers, who may dedicate or acquire greater sales and
marketing resources in the future to provide Open Systems storage solutions than
at present and could terminate their relationships with the Company. Other
suppliers may also enter the market and compete with the Company. Datalink
expects competition will increase as a result of industry consolidation. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. See "Risk Factors --
Competition."
EMPLOYEES
As of March 31, 1998, Datalink had a total of 77 full-time employees, of
whom 20 were engaged in engineering, technical support, customer service and
integration and assembly operations, 38 were engaged in sales and marketing and
19 were engaged in general management and administration. The Company's future
performance depends in significant part upon the continued service of its key
technical and senior management personnel. None of the Company's employees are
unionized or subject to a collective bargaining agreement. The Company has
experienced no work stoppages and believes that its employee relations are good.
FACILITIES
Datalink's principal engineering operations and its integration, assembly
and customer service operations are located at the Company's 26,653 square foot,
leased executive and administrative facility in Minneapolis, Minnesota. The
lease, which expires in December 1999, provides the Company with certain rights
to take additional space in the building. The Company's landlord is a
partnership whose partners consist of Datalink's current stockholders. See
"Certain Transactions." Datalink believes that the facility is adequate for its
needs in the foreseeable future. The Company also leases certain remote
facilities for its field sales and engineering personnel. Datalink believes that
these facilities are adequate for its needs in the foreseeable future and that
it will be able to locate suitable additional facilities as the Company expands
geographically.
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<PAGE> 33
MANAGEMENT
The names and ages of the executive officers and directors of the Company,
and their positions and offices presently held, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Greg R. Meland............................ 44 President, Chief Executive Officer and
Director
Robert D. DeVere.......................... 47 Chief Financial Officer
Stephen M. Howe........................... 40 Vice President-Sales
Scott D. Robinson......................... 38 Vice President-Engineering
Robert M. Price........................... 67 Chairman of the Board and Director
James E. Ousley*.......................... 52 Director
Margaret A. Loftus*....................... 53 Director
Paul F. Lidsky*........................... 45 Director
</TABLE>
- ------------
*Member of Audit and Compensation Committees.
Greg R. Meland joined Datalink in 1991 as its Vice President of Sales and
Engineering and became President and Chief Executive Officer in 1993. Between
1979 and 1991, Mr. Meland served in various sales and marketing positions with
the Imprimis disk drive subsidiary of Control Data Corporation (which was sold
to Seagate in 1989), most recently as the North Central U.S. Director of Sales.
Robert D. DeVere joined Datalink in 1990 as its Chief Financial Officer.
Between 1987 and 1989, Mr. DeVere was employed by Copal Systems, Inc., a
photofinishing equipment distributor, most recently as Operations Manager. He
was Controller of Crown Oil Company between 1986 and 1987. From 1983 to 1986,
Mr. DeVere worked for a subsidiary of Ecodyne Ltd., most recently as Controller.
He was a staff auditor with Ernst & Whinney between 1980 and 1983. Mr. DeVere is
a Certified Public Accountant.
Stephen M. Howe joined Datalink in 1989 as a field account executive and
became Vice President-Sales in 1997. Between 1982 and 1989, he was employed by
Teltrend Inc., a telecommunications equipment manufacturer, most recently as
Assistant Vice President of Operations. Mr. Howe was a sales representative for
Hamilton Avnet Corp., an electronics distributor, between 1980 and 1982.
Scott D. Robinson joined Datalink in 1989 as its Chief Engineer and became
Vice President - Engineering in 1993. Between 1983 and 1989, he was employed by
Minnesota Mining and Manufacturing Company, most recently as an Advanced
Electrical Engineer in the Digital Imaging Applications Center. Mr. Robinson
received his B.S. in Electrical Engineering in 1982 from Marquette University
and his M.S. in Electrical Engineering in 1989 from the University of Minnesota.
Robert M. Price was elected as the Chairman of the Board and a director of
Datalink in June 1998. Mr. Price has been President of PSV, Inc., a technology
consulting business located in Burnsville, Minnesota, since 1990. Between 1961
and 1990, he served in various executive positions, including as Chairman and
Chief Executive Officer, with Control Data Corporation. Mr. Price also serves on
the Board of Directors of International Multifoods Corporation, Tupperware
Incorporated, Fourth Shift Corporation, Affinity Technology Group, Inc., and
Public Service Company of New Mexico. Mr. Price is Mr. Meland's father-in-law.
James E. Ousley was elected as a director of Datalink in June 1998. Since
1992, Mr. Ousley has been Chief Executive Officer of Control Data Systems, Inc.,
a leading systems integrator and provider of electronic commerce solutions.
Between 1968 and 1992, Mr. Ousley served in various sales, marketing and
operational executive positions with Control Data Corporation, most recently as
President of the Computer Products Group. Mr. Ousley is also a director of Bell
Microproducts, Inc. and ActiveCard, Inc.
Margaret A. Loftus was elected as a director in June 1998. Ms. Loftus is an
owner in Loftus Brown-Wescott, Inc., a business consulting firm, which she
co-founded in 1989. Between 1976 and 1988, she was employed by Cray Research,
Inc., most recently as Vice President of Software. Ms. Loftus is also a director
of Analysts International Corporation.
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<PAGE> 34
Paul F. Lidsky was elected as a director of Datalink in June 1998. Since
1997, Mr. Lidsky has been the President and Chief Executive Officer of OneLink
Communications, Inc., a telecommunications company. Between 1992 and 1997, Mr.
Lidsky was employed by Norstan, Inc., a comprehensive technology services
company, most recently as Executive Vice President of Strategy and Business
Development. Mr. Lidsky is also a director of OneLink Communications, Inc. and
Ancor Communications, Incorporated.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Compensation Committee and an
Audit Committee. Mr. Ousley, Ms. Loftus and Mr. Lidsky are the members of the
Compensation and Audit Committees. The Compensation Committee will review on
behalf of, and make recommendations to, the Board of Directors with respect to
the compensation of executive officers and will administer the Company's
Incentive Compensation Plan and make recommendations to the Board of Directors
with respect to the plan and the grant of options to persons eligible under the
plan. The Audit Committee's functions will include assessing the independence
and recommending to the Board of Directors the engagement of the Company's
independent accountants and reviewing with such accountants the plans for and
the results and scope of their auditing engagement and certain other matters
relating to their services to the Company.
DIRECTOR COMPENSATION
Contemporaneously with the closing of this offering, the Company will grant
to each of Mr. Price, Mr. Ousley, Ms. Loftus and Mr. Lidsky stock options to
purchase 6,000 shares of the Company's Common Stock at an exercise price equal
to the initial public offering price per share on the cover page of this
Prospectus. These options will vest on the date of the closing of this offering
and will expire ten years from the date of grant. Additionally, commencing with
the Company's 1999 annual stockholders' meeting, the Company intends to
compensate each director who is neither an employee nor an affiliate of Datalink
with an annual grant of options to purchase 3,000 shares of the Company's Common
Stock. These options will be exercisable commencing one year after the date of
grant; provided, however, that if a director fails to serve until the annual
stockholder's meeting immediately succeeding the grant of the options, the
number of shares of Common Stock that may be purchased by such director shall be
pro rated based upon the length of time such departing director actually served.
The options will be exercisable at the fair market value of the Company's Common
stock on the date of grant and expire ten years after the date of grant. All
directors will be reimbursed for expenses incurred in connection with attendance
at Board and committee meetings.
INDEMNIFICATION AGREEMENTS
The Company has entered into an agreement with each director providing for
indemnification to the fullest extent permitted under Minnesota law against
liability for damages and expenses, including attorneys' fees, arising out of
threatened, pending or completed legal actions, suits or proceedings by reason
of the fact that such person is or was a director, officer or employee of the
Company. The agreement will permit the director to demand certain advances
against, or the creation of a trust for, expenses to be incurred in defending
any covered claim. Insofar as the indemnification agreement may cover
liabilities arising under the Securities Act, the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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<PAGE> 35
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
information regarding compensation paid during each of the Company's last three
years to (i) the Company's Chief Executive Officer and (ii) the Company's other
executive officers whose salary, bonus and other compensation exceeded $100,000
in 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) COMPENSATION(2)
--------------------------- ---- ------ --------------- ---------------
<S> <C> <C> <C> <C>
Greg R. Meland,.......................... 1997 $ 83,000 $141,000 $7,750
President(3) 1996 75,000 122,000 7,750
1995 67,000 102,000 7,120
Robert D. DeVere,........................ 1997 93,000 6,000 $5,786
Chief Financial Officer 1996 86,000 6,000 5,592
1995 76,000 6,000 4,795
Stephen M. Howe,......................... 1997 77,000 108,000 $7,750
Vice President -- Sales(3) 1996 69,000 94,000 7,706
1995 69,000 113,000 7,120
Scott D. Robinson,....................... 1997 102,000 6,000 $5,872
Vice President -- Engineering 1996 95,000 6,000 5,853
1995 84,000 6,000 5,033
</TABLE>
- ------------
(1) Includes car allowance of $6,000 for each named executive officer.
(2) Represents matching and profit sharing contributions made by the Company to
each named executive officers' account under the Company's 401(k) Plan.
(3) Other Annual Compensation includes sales commissions for each of these
executive officers.
Employment Arrangements. The Company does not have employment,
non-competition or non-disclosure agreements with any of its executive officers
or employees. Messrs. Meland, DeVere, and Robinson will be paid salaries in 1998
of $250,000, $125,000 and $130,000, respectively. Mr. Howe will receive a salary
in 1998 of $90,000 plus a sales commission payment based upon the Company's
profitability. Each of the Company's executive officers will also receive a car
allowance of $500 per month.
STOCK INCENTIVE PLANS
The Company's Employee Stock Purchase Plan (the "Purchase Plan") and the
Incentive Compensation Plan (the "Incentive Compensation Plan" and with the
Purchase Plan collectively referred to as the "Stock Incentive Plans") were
adopted by the Company and its stockholders in June 1998. The Stock Incentive
Plans provide the employees of the Company an opportunity to invest in shares of
Common Stock. In some instances, these purchases may be on terms more favorable
than would otherwise be available. The Company believes that, by aligning the
interests of the participants and the Company, the implementation of the Stock
Incentive Plans will strengthen the commitment of the participants to the
Company's success.
Purchase Plan. The Company has reserved 250,000 shares of Common Stock for
issuance under the Purchase Plan, subject to equitable adjustments as the
Compensation Committee (as defined above) may deem necessary to prevent dilution
or the enlargement of rights of participants as a result of, among other things,
changes in the Company's capitalization or corporate structure. The Purchase
Plan will be administered by the Compensation Committee and is intended to
qualify under Section 423 of the Code. Pursuant to the Purchase Plan, each
eligible employee, as of the start of any purchase period, will be granted an
option to purchase a designated number of shares of Common Stock. The purchase
price of shares of Common Stock to participating employees will be 85% of the
lower of the fair market value of the Company's Common Stock on the first and
last trading days of the relevant purchase period. Payments for shares purchased
under the
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<PAGE> 36
Purchase Plan will be made in the time and manner specified by the Compensation
Committee. An employee may terminate his or her participation in the Purchase
Plan by giving a notice of withdrawal to the Company sufficiently in advance of
the last trading day of the relevant purchase period, and all funds contributed
to date will be refunded to such employee.
Employees are eligible to participate in the Purchase Plan if they (i) are
customarily employed by the Company for more than twenty hours per week and five
months in any calendar year and (ii) will not, immediately upon purchasing
shares under the Purchase Plan, own directly or indirectly 5% or more of the
total combined voting power of all outstanding shares of all classes of stock of
the Company. Notwithstanding the foregoing, no employee may purchase shares
under the Purchase Plan (or any other plan of the Company intended to qualify
under Section 423 of the Code) in any calendar year with an aggregate fair
market value (as determined on the first day of the relevant purchase period) in
excess of the lesser of 10% of such employee's salary or the maximum value
allowed under the Code. Participation in the Purchase Plan ends automatically
upon termination of employment with the Company. Rights granted under the
Purchase Plan are not transferable other than by will or the laws of descent and
distribution.
The Board may at any time amend or terminate the Purchase Plan so long as
such amendment or termination does not result in the failure of rights issued
under the Purchase Plan to meet the requirements for employee stock purchase
plans as defined in Section 423 of the Code.
Incentive Compensation Plan. The Company has reserved 950,000 shares of
Common Stock for issuance under the Incentive Compensation Plan. The Incentive
Compensation Plan will be administered by the Compensation Committee. The
Compensation Committee will have full authority, subject to the provisions of
the Incentive Compensation Plan, to determine, among other things, the persons
to whom awards under the Incentive Compensation Plan ("Awards") will be made,
the exercise price, vesting, size and type of such Awards, and the specific
performance goals, restrictions on transfer and circumstances for forfeiture
applicable to Awards.
Awards may be made to employees and non-employee directors of the Company
or affiliates and other individuals designated by the Compensation Committee. A
variety of Awards may be granted under the Incentive Compensation Plan including
stock options, stock appreciation rights ("SARs"), restricted stock, performance
shares, performance units, cash-based awards, phantom shares and other
share-based awards as the Compensation Committee may determine. Stock options
granted under the Incentive Compensation Plan may be either incentive stock
options intended to qualify under Section 422 of the Code or nonqualified stock
options not so intended.
Provisions regarding the extent to which a participant shall have the right
to exercise and/or receive payment for any Award following termination of the
participant's employment, directorship or other relationship with the Company
shall be determined at the discretion of the Board. In the event of a "change of
control" (as defined in the Incentive Compensation Plan), (i) all outstanding
options and SARs granted under the Incentive Compensation Plan will become
immediately exercisable and remain exercisable throughout their entire term,
(ii) any performance-based conditions imposed with respect to outstanding Awards
shall be deemed to be fully earned and a pro rata portion of each such
outstanding Award granted for all outstanding performance periods shall become
payable in shares of Common Stock, in the case of Awards denominated in shares
of Common Stock, and in cash, in the case of Awards denominated in cash, with
the remainder of such Award being canceled for no value and (iii) all
restrictions imposed on restricted stock that are not performance-based shall
lapse. The Board may make equitable adjustments, including with respect to the
number and kind of shares issuable under, and the exercise price relating to,
Awards as the Board may deem necessary to prevent dilution or accretion of the
rights of participants under the Incentive Compensation Plan as a result of
changes in the Company's corporate structure or capitalization.
Awards under the Incentive Compensation Plan are not transferable other
than by will or by the laws of descent and distribution, unless otherwise
provided by the Board. The Board may amend or terminate the Incentive
Compensation Plan except that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any applicable regulatory
or tax requirements. Notwithstanding the foregoing, in no event may an Award be
granted under the Incentive Compensation Plan after June 2008.
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<PAGE> 37
Option Grants. Contemporaneously with the closing of this offering, the
Company will grant certain directors and employees of the Company stock options
to purchase an aggregate of 214,750 shares of Common Stock under the Incentive
Compensation Plan. These options will be exercisable at an exercise price equal
to the initial public offering price shown on the cover page of this Prospectus.
The options granted to the directors will vest on the date of the closing of
this offering. The options granted to the employees will vest over a five-year
period, with 20% of the options vesting each year, commencing on the first
anniversary of the closing of this offering. All of these options will expire
ten years from the date of grant.
THE 401(K) PLAN
The Company has a salary deferral plan, the Datalink Corporation 401(k)
Plan (the "401(k) Plan"), which is intended to qualify under Sections 401(a) and
401(k) of the Code. Company employees are eligible to participate in the 401(k)
Plan beginning on the first day of the quarter immediately succeeding the
commencement of their employment with the Company. Participants may make
elective salary reduction contributions to the 401(k) Plan up to a maximum of
10% of their eligible annual compensation, subject to a dollar limit established
by law (which limit was $9,500 in 1997). Pursuant to the terms of the 401(k)
Plan, the Company is required to match 50% of the participants contribution up
to the first 6% of the participants' eligible compensation. The cost of the
Company's contributions to the 401(k) Plan for the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1997 and 1998 were
approximately $79,000, $97,000, $126,000, $38,000 and $50,000, respectively. In
addition, at the discretion of the Board of Directors, the Company may
contribute to a profit sharing portion of the 401(k) Plan to the extent
permitted by the Code. The cost of contributions to the profit sharing portion
of the 401(k) Plan for the years ended December 31, 1995, 1996 and 1997 were
approximately $91,000, $157,000 and $164,000, respectively. The Company did not
make any profit sharing contributions to the 401(k) Plan for the three months
ended March 31, 1997 and 1998.
Participants are fully vested at all times in the amounts they contribute
to the 401(k) Plan and are always 100% vested upon early or normal retirement.
Participants vest at a rate of 20% per year and are fully vested in the
Company's matching and discretionary profit sharing contributions after five
years. Benefits under the 401(k) Plan generally are distributable after the age
of 59 1/2 or become payable upon separation from service, retirement, death or
disability.
CERTAIN TRANSACTIONS
In February 1997, the Company entered into a lease agreement for its
principal executive offices with Edina Southwest Partners, a Minnesota general
partnership ("Edina Partners"). In June 1997, Edina Partners sold the property
containing the Company's principal executive offices (the "Property") to 7423
Washington Avenue L.L.P., a Minnesota limited liability partnership ("Washington
Avenue L.L.P."), of which the Company's six current stockholders own, in the
aggregate, 100% of the units of interest. Contemporaneously with the purchase of
the Property, Washington Avenue L.L.P. executed promissory notes in favor of
Norwest Bank Minnesota, N.A. (the "Norwest Note") and Stanley I. Clothier,
Trustee of the Stanley I. Clothier Revocable Trust (the "Clothier Note"). The
Company has agreed to guarantee the payments under these notes.
Contemporaneously with the closing of this offering, the Company's obligations
to guarantee these notes will terminate. As of March 31, 1998, the balances on
the Norwest Note and Clothier Note were approximately $956,000 and $1.4 million,
respectively.
Additionally, the Washington Avenue L.L.P. agreement provides that in the
event that gross revenues of the partnership are insufficient to pay the
operating costs of the Property and other necessary business or administrative
expenses, the partners, individually and as current stockholders of Datalink,
agree to take any and all steps necessary to cause the Company to increase its
lease payments on the space it is occupying or to lease additional space in the
Property in order to fund such deficit. Contemporaneously with the closing of
this offering, the Company's obligations to fund such deficit will terminate.
The rent paid by the Company to Washington Avenue L.L.P. in 1997 and the first
quarter of 1998 was approximately $197,000 and $51,000, respectively.
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<PAGE> 38
The Company entered into a deferred compensation agreement with Mr.
Clothier, a current stockholder and a former officer and director of the
Company, whereby the Company is obligated to pay Mr. Clothier (or a designated
beneficiary) $7,000 per month for 60 months beginning January 1996. Interest
expense under this agreement was $27,794, $24,942 and $6,970 for the years ended
December 31, 1996 and 1997 and for the three months ended March 31, 1998,
respectively.
All material and affiliated transactions and loans made after the date of
this Prospectus will be made or entered into on terms that are no less favorable
to the Company than those that can be obtained from unaffiliated third parties,
and all such future material affiliated transactions and loans, and any
forgiveness of loans, must be approved by a majority of the independent,
non-affiliated members of the Board of Directors who do not have an interest in
the transaction.
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<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
for the sale of shares offered hereby, by: (i) each person who beneficially owns
5% or more of the Common Stock, (ii) each of the Company's executive officers
and directors, and (iii) by all executive officers and directors of the Company
as a group. Unless otherwise noted, each person or group identified has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF SHARES
BENEFICIALLY BENEFICIALLY OWNED(1)
OWNED PRIOR TO ---------------------------
AND AFTER THE PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OFFERING(1) THE OFFERING THE OFFERING
------------------------ -------------- ------------ ------------
<S> <C> <C> <C>
Greg R. Meland(2)....................................... 3,450,690 50.01% 36.32%
Robert D. DeVere(2)..................................... 1,095,720 15.88% 11.53%
Stephen M. Howe(2)...................................... 712,080 10.32% 7.50%
Joseph J. Kaye(2)....................................... 712,080 10.32% 7.50%
Scott D. Robinson(2).................................... 584,430 8.47% 6.15%
Stanley I. Clothier(2)(3)............................... 345,000 5.00% 3.63%
Robert M. Price(4)...................................... 6,000 * *
James E. Ousley(4)...................................... 6,000 * *
Margaret A. Loftus(4)................................... 6,000 * *
Paul F. Lidsky(4)....................................... 6,000 * *
All executive officers and directors as a group (8
persons).............................................. 5,866,920 84.73% 61.60%
</TABLE>
- ------------
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from the date hereof, are considered outstanding
for the purpose of calculating the percentage of Common Stock owned by such
person and owned by a group, but not for the purpose of calculating the
percentage of Common Stock owned by any other person.
(2) The address of each of these individuals is: c/o Datalink Corporation, 7423
Washington Avenue South, Minneapolis, Minnesota 55439.
(3) Assumes no exercise of the Underwriters' over-allotment option. The
agreement between the Company, Mr. Clothier and the Underwriters provides
that if the over-allotment option is exercised only in part, the
Underwriters will first purchase shares from Mr. Clothier, up to a maximum
amount of 70,000 shares, and then purchase any additional shares from the
Company. If the Underwriters purchase at least 70,000 shares pursuant to
their over-allotment option, then Mr. Clothier would beneficially hold
275,000 shares or 2.89%. See "Underwriting."
(4) Includes 6,000 options which such director may exercise upon the closing of
this offering.
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<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares, par value $0.001 of
undesignated capital stock. Until otherwise designated by the Board of directors
of the Company, all authorized shares are deemed to be Common Stock. As of the
date of this offering, 6,900,000 shares of Common Stock were outstanding and
upon closing of this offering, 214,750 shares will be subject to outstanding
options granted under the Company's Incentive Compensation Plan.
COMMON STOCK
Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders. Stockholders do not have cumulative voting
rights, the absence of which will, in effect, allow the holders of a majority of
the outstanding shares of Common Stock to elect all the directors then standing
for election. After the completion of the offering hereby and assuming no
exercise of any stock options or the Underwriters' over-allotment option, the
six current stockholders will own approximately 72.6% of the Common Stock.
Subject to the rights and preferences of the Preferred Stock, if any, each
share of Common Stock has an equal and ratable right to receive dividends, when,
as and if declared by the Company's Board of Directors, out of any funds legally
available for the payment thereof. In the event of the liquidation, dissolution
or winding up of the Company, after satisfaction of amounts payable to creditors
and distribution to the holders of outstanding Preferred Stock, if any, of
amounts to which they may be preferentially entitled, holders of the Common
Stock are entitled to share ratably, on a per share basis, in the assets
available for distribution to the stockholders.
Holders of Common Stock are not entitled to conversion or preemptive
rights. All outstanding shares of Common Stock are, and when issued, the shares
of Common Stock to be issued in connection with this offering, will be, fully
paid and nonassessable.
UNDESIGNATED STOCK
The Board of Directors of the Company generally has the power to issue
shares of capital stock without stockholder approval. The Board of Directors is
authorized to establish the rights, preferences and limitations of this
undesignated stock and to divide such shares into classes, with or without
voting rights. The ability of the Board of Directors to issue additional shares
could impede or deter an unsolicited tender offer or takeover proposal regarding
the Company. Shares of undesignated stock could be issued with terms, provisions
and rights which would make more difficult and, therefore, less likely, a
takeover of the Company not approved by the Board of Directors. The rights of
the holders of the Common Stock could be adversely affected by the future
issuance of undesignated stock.
CERTAIN PROVISIONS OF MINNESOTA LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. These anti-takeover provisions may
eventually operate to deny stockholders the receipt of a premium for their
Common Stock. Section 302A.671 basically provides that the shares of a
corporation acquired in a "control share acquisition" have no voting rights
unless voting rights are approved by the stockholders in a prescribed manner. A
"control share acquisition" is generally defined as an acquisition of beneficial
ownership of shares that would, when added to all other shares beneficially
owned by the acquiring person, entitle the acquiring person to have voting power
of 20% or more in the election of directors. Section 302A.673 prohibits a public
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an "interested shareholder," unless the "business
combination" is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions. An "interested
shareholder" is a person who is the beneficial owner of 10% or more of the
corporation's voting stock. Reference is made to the detailed terms of Sections
302A.671 and 302A.673 of the Minnesota Business Corporation Act.
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<PAGE> 41
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is Norwest Bank
Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,500,000 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised). Of these outstanding shares, the 2,600,000 shares of
Common Stock sold in this offering will be freely tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company (as that term is defined in the Securities Act), which will be
subject to the resale limitations under Rule 144 adopted under the Securities
Act. The 6,900,000 shares of Common Stock held by the six current stockholders
are "restricted" securities within the meaning of Rule 144 and may not be resold
in a public distribution except in compliance with the registration requirements
of the Securities Act or pursuant to Rule 144.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least one year but less than two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 95,000 shares immediately after the offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons) other than an "affiliate" who has beneficially owned his or her shares
for at least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person who directly, or indirectly through the use
of one or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer. Rule 144A under the Securities Act as currently in
effect permits the immediate sale by current holders of restricted shares of all
or a portion of their shares to certain qualified institutional buyers described
in Rule 144A, subject to certain conditions.
The current stockholders have agreed that they will not sell any shares of
capital stock of the Company, either publicly or privately, without the prior
consent of Needham & Company, Inc. for a period of 180 days from the date of
this Prospectus.
The Company has reserved an aggregate of 950,000 shares of Common Stock for
issuance pursuant to the Incentive Compensation Plan. Upon the closing of this
offering, options to purchase a total of 214,750 shares of Common Stock will be
granted to certain employees and directors of the Company under the Incentive
Compensation Plan. Additionally, the Company has reserved an aggregate of
250,000 shares of Common Stock for issuance pursuant to the Employee Stock
Purchase Plan. As of the date of this Prospectus, no shares of Common Stock have
been issued under the Employee Stock Purchase Plan. The Company intends to file
a registration statement on Form S-8 under the Securities Act within 30 days
after the date of this Prospectus to register the shares to be issued pursuant
to the Incentive Compensation Plan and Employee Stock Purchase Plan,
respectively. Shares of Common Stock issued under these plans after the
effective date of such registration statements will be freely tradeable in the
public market, subject to the lock-up restrictions and subject in the case of
sales by affiliates to the amount, manner of sale notice and public information
requirements of Rule 144.
There has been no prior market for the Common Stock and there can be no
assurance that a significant public market for the Common Stock will develop or
be sustained after the offering contemplated by this Prospectus. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock.
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<PAGE> 42
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Needham & Company, Inc.,
Cruttenden Roth Incorporated and John G. Kinnard and Company Incorporated are
acting as representatives (the "Representatives"), have severally agreed to
purchase an aggregate of 2,600,000 shares of Common Stock from the Company at
the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus, in the amounts set
forth opposite their respective names below.
<TABLE>
<CAPTION>
UNDERWRITER PARTICIPATION
----------- -------------
<S> <C>
Needham & Company, Inc......................................
Cruttenden Roth Incorporated................................
John G. Kinnard and Company, Incorporated...................
---------
Total.................................................. 2,600,000
=========
</TABLE>
The underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any of
such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain securities dealers at such price less a concession of not more
than $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the shares of Common Stock are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Underwriters. No change in such terms shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company and Stanley I. Clothier have granted to the Underwriters an
option, exercisable within 30 days after the date of this Prospectus, to
purchase up to 320,000 and 70,000 additional shares of Common Stock,
respectively, at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. The agreement
between the Company, Mr. Clothier and the Underwriters provide that if the
over-allotment option is exercised only in part, the Underwriters will first
purchase shares from Mr. Clothier, up to a maximum amount of 70,000 shares, and
then purchase any additional shares from the Company. The Underwriters may
exercise such option solely to cover over-allotments, if any, made in connection
with the sale of Common Stock offered hereby. To the extent that the
Underwriters exercise the over-allotment option, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock which is proportionate to such Underwriter's initial
commitment as set forth in the table above.
The Company, its officers and directors and current stockholders have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any securities of the Company which are substantially similar
to the shares of Common Stock or which are convertible or exchangeable for
securities which are substantially similar to the shares of Common Stock other
than pursuant to the Incentive Compensation Plan or the Purchase Plan without
the prior written consent of Needham & Company, Inc., except for the shares of
common Stock offered in connection with this offering.
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<PAGE> 43
The Representatives have informed the Company that they do not expect sales
to accounts over which the underwriters exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered by them.
Prior to this offering, there has not been a public market for the Common
Stock of the Company. Consequently, the initial public offering price of the
Common Stock was determined by arms-length negotiation between the Company and
the Representatives of the Underwriters. Among the factors to be considered by
the Company and the Representatives in pricing the Common Stock are the results
of operations, the current financial condition and future prospects of the
Company, the experience of management, the amounts of ownership to be retained
by the current stockholders, the general condition of the economy and the
securities markets, the demand for similar securities of companies considered
comparable to the Company and other factors deemed relevant.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Exchange Act pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Common Stock in connection with the offering than they are committed to
purchase from the Company, and in such case may purchase Common Stock in the
open market following completion of the offering to cover all or a portion of
such shares of Common Stock or may exercise the Underwriters' over-allotment
option referred to above. In addition, the Representatives, on behalf of the
Underwriters, may impose "penalty bids" under the contractual arrangements with
the Underwriters whereby the Representatives may reclaim from an Underwriter (or
dealers participating in the offering), for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in stabilization or syndicate covering transactions or otherwise.
Any of these activities may stabilize or maintain the price of the Common Stock
at a level above which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and if they are undertaken
they may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Messerli & Kramer P.A., Minneapolis, Minnesota. Certain legal matters
will be passed upon for the Underwriters by Kaplan, Strangis and Kaplan, P.A.,
Minneapolis, Minnesota.
EXPERTS
The balance sheets of Datalink Corporation as of December 31, 1996 and 1997
and the statements of operations, retained earnings (accumulated deficit) and
cash flows for each of the three years in the period ended December 31, 1997
included in this Prospectus have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In November 1997, the Company engaged Coopers & Lybrand L.L.P. as its
independent public accountants to audit the financial statements as of December
31, 1995, 1996 and 1997 and for each of the three years ended December 31, 1997.
The decision to change accountants was approved by the Board of Directors. The
report of Hansen, Jergenson, Nergaard & Co., L.L.P. as of December 31, 1996 and
for the year
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<PAGE> 44
then ended, not included herein, does not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. There were no disagreements with the former
auditors on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedures which, if not resolved to
the former auditor's satisfaction, would have caused them to make reference to
the subject matter in their report. Prior to retaining Coopers & Lybrand L.L.P.,
the Company did not consult with Coopers & Lybrand L.L.P. regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the Company's financial statements or
any other matter.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder.
Statements contained in this Prospectus regarding the contents of any contract
or any other document are not necessarily complete and, in each such instance,
reference is hereby made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street N.W., Judiciary
Plaza, Washington, D.C. 20549 at the prescribed rates. Also, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Web site is http://www.sec.gov.
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<PAGE> 45
GLOSSARY
AIT........................... Advanced Intelligent Tape. An 8 mm helical scan
tape technology developed by Sony Corporation.
ARCHIVE....................... A repository for information separate from the
primary storage system. Data is often deleted
from the primary storage system once placed in
the archive system.
CLOSED SYSTEMS................ Computers or computing environments that rely
on proprietary components and use software
often only available from a single source.
CLUSTERING SOFTWARE........... Software that allows a user's software
application to interact with a cluster of host
servers as if the cluster were a single host.
Clustering software is designed to increase
both availability (by providing alternative
processing capacity in the event of a host
failure) and scaleability (by sharing resources
among a number of hosts in the cluster).
CPU........................... Central Processing Unit. A microprocessor chip
or circuit board that performs the bulk of data
processing in a computer.
DDS........................... Digital Data Storage. A 4mm helical scan tape
technology developed by Sony Corporation. Also
known as digital audio tape ("DAT").
DIGITAL LINEAR TAPE........... A half-inch, serpentine linear tape technology
originally developed by Digital but is now
designed, manufactured and marketed by Quantum.
DISK ARRAY.................... A number of disk drives grouped together into a
storage system and attached to a host computer
as a single unit. This grouping can achieve
superior performance and reliability over
single disk drives while providing enhanced
management capabilities.
FIBRE CHANNEL................. A new high speed serial interface standard
developed and recently formalized by the
American National Standards Institute.
GB............................ Gigagbyte. 1,024 megabytes.
HIGH AVAILABILITY............. The capability of a system to perform its
functions with extremely little downtime by
incorporating redundant components and systems.
HOT BACKUP.................... The capability of a storage system to be backed
up while the system remains powered on and
operative.
HSM........................... Hierarchical Storage Management. An information
storage system which automatically migrates the
least used data to a lower cost storage medium.
This data is transparently recalled to primary
storage when accessed by users.
INTERFACE..................... The circuit board and cabling used to connect a
host computer with its storage system. SCSI,
Ultra SCSI and Fibre Channel are three
predominant interface technologies used in the
Open Systems market.
MB............................ Megabyte. 1,048,576 bytes, a unit of
measurement for data storage.
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<PAGE> 46
NEAR ON-LINE.................. Data appears on-line, but access is slower
(generally measured in seconds) than on-line
storage. Near on-line storage systems typically
use optical jukeboxes or tape-based libraries.
ON-LINE....................... Data stored in hard disk or disk array systems
using standard file systems that can be
accessed at speeds measured in milliseconds.
OPEN SYSTEMS.................. Computers or networked computing environments
based on published non-proprietary standards.
These environments are characterized by the
interoperability of computing and storage
systems from multiple suppliers.
PERMANENCE.................... The degree to which stored data is retained for
future access.
RAID.......................... Redundant Array of Independent Disks. A Disk
Array storage system with fault tolerance built
into its disk, power, cooling and/or processing
components.
SAN........................... Storage Area Network. A dedicated, high speed
network used to interconnect one or many shared
storage devices to multiple servers or cluster
servers.
SCSI.......................... Small Computer Systems Interface. A commonly
used interface standard developed by the
American National Standards Institute. This
standard defines the connection of peripheral
devices (primarily information storage) to host
computer systems.
ULTRA SCSI.................... The latest high performance version of the SCSI
specification which includes Ultra-1 (up to 40
MB per second) and Ultra-2 (up to 80 MB per
second) standards.
UNIX.......................... A multi-user, multi-tasking operating system
commonly used in Open Systems. Versions of UNIX
are available from a variety of suppliers.
WINDOWS NT.................... A multi-user, multi-tasking operating system
commonly used in Open Systems. Available only
from Microsoft Corporation.
43
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Retained Earnings (Accumulated Deficit)....... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Datalink Corporation:
We have audited the accompanying balance sheets of Datalink Corporation as
of December 31, 1996 and 1997, and the related statements of operations,
retained earnings (accumulated deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Datalink Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 25, 1998, except as to
the first paragraph of Note 5,
Note 11 and Note 12, as to
which the date is June 2, 1998
F-2
<PAGE> 49
DATALINK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED)
---------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
TERMINATION TERMINATION OF
DECEMBER 31, OF PUT S CORPORATION
------------------------- OPTIONS STATUS PRO FORMA
1996 1997 ACTUAL (NOTE 3) (NOTE 3) (NOTE 3)
---- ---- ------ ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................. $ 221,871 $ 1,163,107 $ 142,569 $ 142,569
Accounts receivable, net.......... 8,116,155 11,280,738 8,256,260 8,256,260
Inventories....................... 6,011,391 4,661,378 4,894,075 4,894,075
Other current assets.............. 75,151 78,705 427,247 427,247
Deferred income taxes............. $ 227,000 $ 227,000
----------- ----------- ----------- ----------- -----------
Total current assets............ 14,424,568 17,183,928 13,720,151 227,000 13,947,151
Property and equipment, net......... 898,515 1,478,122 1,669,811 1,669,811
Other assets........................ 31,587 42,503 44,550 44,550
Deferred income taxes............... 13,000 13,000
----------- ----------- ----------- ----------- -----------
Total assets.................... $15,354,670 $18,704,553 $15,434,512 $ 240,000 $15,674,512
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Book cash overdraft............... 546,432
Line of credit.................... 2,796,528 3,935,417 1,055,103 1,055,103
Accounts payable.................. 5,079,441 4,928,617 4,238,936 4,238,936
Accrued expenses.................. 1,160,078 1,493,317 1,158,217 1,158,217
Deferred compensation,
current portion................. 59,058 65,242 61,565 61,565
Distribution payable to
stockholders.................... 8,239,815 8,239,815
----------- ----------- ----------- ----------- -----------
Total current liabilities....... 9,095,105 10,422,593 7,060,253 8,239,815 15,300,068
Deferred compensation, less current
portion........................... 216,939 151,697 134,344 134,344
Commitments and contingencies
Common stock, subject to put option;
$0.001 par value, 50,000,000
shares authorized, 6,900,000
shares issued and outstanding..... 9,338,605 13,873,980 14,773,980 $(14,773,980)
Stockholders' equity (deficiency):
Common stock, $0.001 par value,
50,000,000 shares authorized,
6,900,000 shares issued and
outstanding..................... 6,900 6,900
Retained earnings (accumulated
deficit)........................ (3,295,979) (5,743,717) (6,534,065) 14,767,080 (7,999,815) 233,200
----------- ----------- ----------- ------------ ----------- -----------
Total stockholders' equity
(deficiency).................. (3,295,979) (5,743,717) (6,534,065) 14,773,980 (7,999,815) 240,100
----------- ----------- ----------- ------------ ----------- -----------
Total liabilities and
stockholders' equity
(deficiency).................. $15,354,670 $18,704,553 $15,434,512 $ $ 240,000 $15,674,512
=========== =========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 50
DATALINK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales..................... $38,047,884 $54,651,868 $71,255,299 $15,266,359 $16,598,745
Cost of sales................. 30,355,954 42,872,380 55,719,303 12,006,601 12,722,934
----------- ----------- ----------- ----------- -----------
Gross profit............. 7,691,930 11,779,488 15,535,996 3,259,758 3,875,811
Operating expenses:
Sales and marketing......... 2,487,295 3,606,567 5,191,040 1,237,004 1,426,889
General and
administrative........... 2,117,694 2,382,166 3,010,450 694,563 961,465
Engineering................. 466,445 632,660 926,008 251,187 314,844
----------- ----------- ----------- ----------- -----------
Operating income......... 2,620,496 5,158,095 6,408,498 1,077,004 1,172,613
Interest expense.............. 306,182 285,905 332,562 72,635 54,861
----------- ----------- ----------- ----------- -----------
Net income.................... $ 2,314,314 $ 4,872,190 $ 6,075,936 $ 1,004,369 $ 1,117,752
=========== =========== =========== =========== ===========
Historical net income per
share, basic and diluted.... $ 0.34 $ 0.71 $ 0.88 $ 0.15 $ 0.16
=========== =========== =========== =========== ===========
Weighted average shares
outstanding, basic and
diluted.................. 6,900,000 6,900,000 6,900,000 6,900,000 6,900,000
Pro forma data
(unaudited -- see Note 3):
Income before income
taxes.................... $ 6,075,936 $ 1,004,369 $ 1,117,752
Pro forma income taxes...... 2,430,374 401,748 447,101
----------- ----------- -----------
Pro forma net income........ $ 3,645,562 602,621 670,651
=========== =========== ===========
Pro forma net income per
share -- basic and
diluted.................. $ 0.47 $ 0.08 $ 0.09
=========== =========== ===========
Shares used in computing pro
forma net income per share
(see Note 3)................ 7,786,002 7,786,002 7,786,002
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 51
DATALINK CORPORATION
STATEMENTS OF RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
TOTAL
-----
<S> <C>
Balance, December 31, 1994 (see Note 9)..................... $(1,330,997)
Net income.................................................. 2,314,314
Cash dividends of $0.19 per share........................... (1,342,400)
Accretion of common stock value............................. (1,926,492)
-----------
Balance, December 31, 1995.................................. (2,285,575)
Net income.................................................. 4,872,190
Cash dividends of $0.27 per share........................... (1,894,600)
Accretion of common stock value............................. (3,987,994)
-----------
Balance, December 31, 1996.................................. (3,295,979)
Net income.................................................. 6,075,936
Cash dividends of $0.58 per share........................... (3,988,299)
Accretion of common stock value............................. (4,535,375)
-----------
Balance, December 31, 1997.................................. (5,743,717)
Net income (unaudited)...................................... 1,117,752
Cash dividends of $0.15 per share (unaudited)............... (1,008,100)
Accretion of common stock value (unaudited)................. (900,000)
Balance, March 31, 1998 (unaudited)......................... $(6,534,065)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 52
DATALINK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 2,314,314 $ 4,872,190 $ 6,075,936 $ 1,004,369 $ 1,117,752
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for bad debts... 11,034 69,109 27,235
Depreciation and
amortization............ 128,804 146,648 177,302 40,359 55,020
Loss on disposal of
property and
equipment............... 9,527 598
Changes in operating
assets and liabilities:
Accounts receivable..... 480,317 (3,321,609) (3,191,818) 973,636 3,024,478
Inventories............. 132,036 (2,921,963) 1,350,013 732,853 (232,697)
Other current assets.... (5,565) (36,031) (3,554) (70,665) (348,542)
Other assets............ (18,430) 4,556 (10,916) (10,651) (2,047)
Accounts payable........ (662,561) 3,106,571 (150,824) (1,890,802) (689,681)
Accrued expenses........ (105,164) 599,324 333,239 (202,007) (335,100)
Deferred compensation... 54,675 (56,206) (59,058) (19,036) (21,030)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities.... 2,329,460 2,462,589 4,557,082 558,056 2,568,750
------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and
equipment................. (286,325) (337,363) (766,436) (197,485) (247,307)
------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from borrowings on
line of credit............ 39,078,300 52,657,600 70,372,500 16,336,000 17,376,000
Principal payments on line of
credit.................... (39,712,195) (52,777,009) (69,233,611) (15,888,528) (20,256,314)
Dividends paid............... (1,342,400) (1,894,600) (3,988,299) (1,278,200) (1,008,100)
Principal payments on notes
payable, related
parties................... (250,000)
Book cash overdraft.......... 1,050,693 546,432
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by financing
activities.............. (2,226,295) (2,014,009) (2,849,410) 219,965 (3,341,982)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash.... (183,160) 111,217 941,236 580,536 (1,020,539)
Cash, beginning of year........ 293,814 110,654 221,871 221,871 1,163,107
------------ ------------ ------------ ------------ ------------
Cash, end of year.............. $ 110,654 $ 221,871 $ 1,163,107 $ 802,407 $ 142,569
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 53
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS:
Datalink Corporation (the Company) analyzes, custom designs, integrates or
manufactures, installs and supports high-end Open Systems data storage solutions
for end-users, value-added resellers and original equipment manufacturers. In
May 1996, the Company became an ISO 9001 registered organization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1998, and for the three months
ended March 31, 1997 and 1998, are unaudited. In the opinion of management, this
financial information includes all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial information set forth
herein. The results of operations for the three months ended March 31, 1998, are
not necessarily indicative of the results to be expected for the full year.
CASH:
The Company maintains its cash principally with one financial institution.
INVENTORIES:
Inventories, principally consisting of data storage products and
components, are valued at the lower of cost or market with cost determined on a
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT:
Property and equipment, including purchased software, are stated at cost.
Depreciation is provided by charges to operations using the straight-line method
over the estimated useful lives of the assets (ranging from 5 to 10 years).
Leasehold improvements are amortized on a straight-line basis over the shorter
of their estimated useful lives or the underlying lease term. The costs and
related accumulated depreciation and amortization on asset disposals are removed
from the accounts and any gain or loss is included in operations. Major renewals
and betterments are capitalized, while maintenance and repairs are charged to
current operations when incurred.
INCOME TAXES:
The Company has elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code (the Code) and comparable state income
tax law. Under those provisions, the Company's income is reported on the
individual tax returns of the Company's stockholders. As such, the Company is
generally not subject to corporate income taxes. Therefore, no provision or
liability for income taxes is reflected in the financial statements for the
Company.
Concurrent with the Company's proposed initial public offering (the
Offering), (see Note 11), the Company's S corporation status will terminate and
it will become subject to federal and state income taxes (see Note 3).
REVENUE RECOGNITION:
The Company recognizes product revenue as its products are shipped or
following customer acceptance for products under evaluation. The Company
provides an allowance for estimated returns when revenues are recognized.
Revenues and expenses related to sales of maintenance contracts fulfilled by
third parties are recognized upon execution of the contracts.
F-7
<PAGE> 54
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME PER SHARE:
Basic net income per share is computed using the weighted average number of
shares outstanding. The diluted net income per share includes the effect of
common stock equivalents, if any, for each period. The Company does not have any
common stock equivalents.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management's estimates relate to the
determination of the allowance for doubtful accounts receivable and reserves for
excess and obsolete inventories.
CONCENTRATION OF CREDIT RISK:
The Company's customer base is diversified; however, a substantial portion
of its customers are located in the upper Midwest. The Company does not require
collateral for customer accounts receivable. The Company performs ongoing credit
evaluations of its customers' financial condition and establishes allowances for
estimated uncollectible accounts when necessary.
BUSINESS SEGMENTS:
Effective at year end 1998, the Company will adopt SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which
requires disclosure of segment data in a manner consistent with that used by an
enterprise for internal management reporting and decision making. The Company
believes that it will report its operations as a single segment under SFAS No.
131.
3. PRO FORMA DATA (UNAUDITED):
PRO FORMA BALANCE SHEET DATA:
The pro forma balance sheet of the Company as of March 31, 1998 reflects
(i) the reclassification of common stock subject to put option to stockholders'
equity to reflect termination of the put options concurrent with the Offering
(see Note 9), (ii) a distribution payable to the stockholders of the Company of
all previously taxed, but undistributed, S corporation earnings (estimated at
$8,239,815 had the termination occurred on March 31, 1998), and (iii) a net
deferred tax asset which will be recorded by the Company upon termination of its
S corporation status as a result of the Offering (estimated at $240,000 as of
March 31, 1998).
The deferred income tax asset will represent the tax effect of the
cumulative differences between the financial reporting and income tax bases of
assets and liabilities as of the termination of the S corporation status, and
will be recorded as an income tax benefit in the quarter in which the Offering
is completed. Deferred income taxes result from temporary differences between
financial reporting and income tax reporting based on enacted rates in effect
for periods in which these differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to an
amount expected to be realized. Income tax expense is the tax payable for the
period plus the change during the period in deferred tax assets and liabilities.
The actual deferred tax asset recorded will be adjusted to reflect the
effect of operations from April 1, 1998 through the actual termination of the S
corporation status. In addition, the actual amount of the
F-8
<PAGE> 55
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
distribution will be adjusted to reflect the S corporation's pro rata portion of
the Company's 1998 taxable income and any stockholder distributions from April
1, 1998 through the termination of the S corporation status.
PRO FORMA STATEMENT OF OPERATIONS DATA:
Concurrent with the Offering, the Company will terminate its status as an S
corporation and will be subject to federal and state income taxes. Accordingly,
for informational purposes, the accompanying statements of operations for the
year ended December 31, 1997 and the three months ended March 31, 1997 and 1998,
include a pro forma adjustment for the income taxes which would have been
recorded if the Company had been a C corporation, based on the tax laws in
effect during the period. The pro forma adjustment for income taxes does not
include a one-time income tax benefit related to the recognition of a net
deferred tax asset which will be recorded by the Company upon terminating its S
corporation status (estimated at $240,000 as of March 31, 1998).
PRO FORMA NET INCOME PER SHARE:
Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding (6,900,000 shares) for the
period, after giving effect to the estimated number of shares that would be
required to be sold at the initial public offering price, after deducting the
underwriting discount, to fund the distribution to the current stockholders of
all previously taxed, but undistributed, S corporation earnings, estimated at
$8,239,815 (or 886,002 shares) had the termination occurred on March 31, 1998.
The Company does not have any common stock equivalents.
4. SELECTED BALANCE SHEET INFORMATION:
The following provides additional balance sheet information as of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 MARCH 31, 1998
---- ---- --------------
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable............................ $8,176,155 $11,340,738 $8,316,260
Less allowance for doubtful accounts........... 60,000 60,000 60,000
---------- ----------- ----------
$8,116,155 $11,280,738 $8,256,260
========== =========== ==========
Property and equipment:
Leasehold improvements......................... $ 132,784 $ 223,356 $ 225,167
Equipment...................................... 608,000 761,059 785,781
Computers and purchased software............... 914,652 1,262,249 1,481,529
---------- ----------- ----------
1,655,436 2,246,664 2,492,477
Less accumulated depreciation and
amortization................................ 756,921 768,542 822,666
---------- ----------- ----------
$ 898,515 $ 1,478,122 $1,669,811
========== =========== ==========
Accrued expenses:
Commissions.................................... $ 644,165 $ 942,051 $ 774,697
Other.......................................... 515,913 551,266 383,520
---------- ----------- ----------
$1,160,078 $ 1,493,317 $1,158,217
========== =========== ==========
</TABLE>
F-9
<PAGE> 56
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. BORROWING ARRANGEMENTS:
Effective June 1, 1998, the Company renewed its revolving credit agreement
with a bank (the Credit Agreement). Under the Credit Agreement, the Company may
borrow up to $10,000,000 ($8,000,000 as of December 31, 1997) with borrowings
limited to the sum of 80% of eligible accounts receivable plus 35% of eligible
inventories, as defined. Borrowings under the Credit Agreement were $1,055,103
and $3,935,417 as of March 31, 1998 and December 31, 1997, respectively, with
interest at the bank's reference rate. Borrowings under the Credit Agreement
were $2,796,528 with interest at the bank's reference rate plus 0.50% as of
December 31, 1996. The bank's reference rate was 8.25%, 8.5% and 8.5% as of
December 31, 1996 and 1997 and March 31, 1998, respectively.
The line of credit is collateralized by substantially all assets of the
Company. The agreement includes various covenants, including requirements to
maintain certain levels of net income and tangible net worth and limitations on
the payment of dividends and property and equipment acquisitions.
Included in cash on the balance sheet is $114,000, $260,000 and $119,231 as
of December 31, 1996 and 1997 and March 31, 1998, respectively, which was held
in a restricted collateral cash account. These amounts were applied to reduce
bank borrowings in the month following the period end.
6. DEFERRED COMPENSATION AGREEMENT:
The Company has a deferred compensation agreement with a retired officer
who is also a stockholder. The Company is obligated to pay the retired officer
(or a designated beneficiary) $7,000 per month for 60 months beginning January
1996. The Company's obligation under the agreement is not funded. The present
value of the Company's liability related to the deferred compensation agreement
was $275,997, $216,939 and $195,909 as of December 31, 1996 and 1997 and March
31, 1998, respectively, with interest computed at 10%.
Interest expense related to the agreement was $27,794, $24,942, $8,964 and
$6,970 for the years ended December 31, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998, respectively (none in 1995). The Company recorded
$54,675 of compensation expense related to the agreement in the year ended
December 31, 1995.
7. LEASE COMMITMENTS AND CONTINGENCIES:
The Company leases an office and warehouse facility under terms of an
operating lease with a partnership in which a stockholder of the Company is a
general partner. During 1997, the office and warehouse facility were sold to a
limited liability partnership in which all stockholders of the Company are
limited partners. In connection with the purchase of the property, the limited
liability partnership executed promissory notes in favor of a bank and a
stockholder of the Company. The Company has guaranteed payments due under these
notes. As of March 31, 1998, the balances of the notes payable to the bank and
the stockholder were $955,556 and $1,370,903, respectively. The lease expires in
December 1999. The Company also leases office space from nonaffiliated entities
under operating lease agreements that expire at various dates through 2000. In
addition to minimum rents, the leases require the Company to pay certain
operating costs of the lessor.
F-10
<PAGE> 57
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, future minimum lease payments due under
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDED PARTY OTHER TOTAL
---------- ------- ----- -----
<S> <C> <C> <C>
1998..................................................... $151,464 $ 82,743 $234,207
1999..................................................... 151,464 46,153 197,617
2000..................................................... 21,420 21,420
-------- -------- --------
$302,928 $150,316 $453,244
======== ======== ========
</TABLE>
Total rent expense, including certain lessor operating costs charged to the
Company, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
-------------------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Related party............................... $132,511 $128,573 $197,363 $55,625 $50,593
Other....................................... 71,818 90,361 119,620 28,766 33,472
-------- -------- -------- ------- -------
$204,329 $218,934 $316,983 $84,391 $84,065
======== ======== ======== ======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution retirement plan for eligible
employees. Employees may contribute up to 10% of their pretax compensation to
the 401(k) portion of the plan. The Company is required to match 50% of an
employee's contribution up to the first 6% of an employee's eligible
compensation. The cost of the Company's contributions to the 401(k) portion of
the plan for the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998, was $78,540, $97,350, $126,404, $38,033
and $49,872, respectively.
At the discretion of the Board of Directors, the Company may also make
profit sharing contributions to the plan, to the extent permitted by the
Internal Revenue Code. The cost of the Company's profit sharing contributions to
the plan for the years ended December 31, 1995, 1996 and 1997 was $91,044,
$156,500 and $164,350, respectively. The Company did not make any profit sharing
contributions to the plan for the three months ended March 31, 1997 and 1998.
9. COMMON STOCK BUY-SELL AGREEMENT:
The Company and its stockholders entered into a Stock Purchase Agreement
(the Agreement) effective April 1, 1992 that restricts the right of stockholders
to dispose of or encumber any shares of the Company's common stock and dictates
terms for transfer of the shares. Upon the death, disability or termination of
employment, each stockholder is required to put his shares to the Company, and
the Company is obligated to purchase all shares owned by that stockholder at a
price determined pursuant to terms of the Agreement. In connection therewith,
the value of the common stock subject to put options has been accreted to the
value determined according to terms of the Agreement. Effective November 1,
1996, the Agreement was amended to allow a retired stockholder to retain his
shares until either he or his legal representative require the Company to
purchase his shares, or until his death.
In connection with the Offering, and pursuant to accounting rules and
regulations applicable to public companies, the Company has adjusted its
financial statements to reclassify the carrying value of common stock pursuant
to the Agreement out of stockholders' equity. The effect of this restatement was
to increase the
F-11
<PAGE> 58
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of common stock subject to the put options, and decrease
stockholders' equity by $3,424,119, $5,350,611, $9,338,605, and $13,873,980 and
$14,773,980 as of December 31, 1994, 1995, 1996 and 1997, and March 31, 1998,
respectively.
The Company is the owner and beneficiary of term life insurance policies
with face values ranging from $1,605,000 to $9,472,000 insuring five of its
stockholders. The Company is also the owner and beneficiary of disability
insurance policies insuring five of its stockholders. Any proceeds from these
life and disability insurance policies would be used to fund at least a portion
of the Company's obligations under the Agreement in the event of death or
disability.
The Company is also the owner and beneficiary of two life insurance
policies with a combined face value of $1,000,000 insuring the life of the
retired stockholder. The cash surrender value of these policies was $26,587,
$25,547 and $25,547 as of December 31, 1996 and 1997 and March 31, 1998,
respectively, and is included in other assets.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following provides supplemental information concerning the statements
of cash flows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash paid for interest................... $314,919 $286,745 $327,496 $77,701 $49,372
Noncash transactions:
Purchase of property and equipment
included in accounts payable........ 158,000
</TABLE>
11. RECAPITALIZATION:
As discussed in Notes 2 and 3, the Company is contemplating an initial
public offering of 2,600,000 shares of its common stock (the Offering). In
connection therewith, on June 1, 1998, the Company's Board of Directors and
stockholders approved an amendment to the Company's Certificate of Incorporation
to be filed prior to the Offering to increase the number of authorized shares of
common stock to 50,000,000 and change the par value of the common stock to
$0.001. Pursuant to the Company's amended Certificate of Incorporation, all such
authorized shares are deemed to be common stock until otherwise designated by
the Board of Directors. Also, on June 1, 1998, the Company's Board of Directors
and stockholders authorized a 690-for-1 stock split of its common stock to be
effected prior to the Offering. The stock split has been retroactively reflected
in the accompanying financial statements.
In connection with the Offering, the Company has reserved an aggregate of
950,000 shares of common stock for issuance pursuant to the Company's Incentive
Compensation Plan. The terms of the plan allow for a variety of awards including
stock options, stock appreciation rights, restricted stock, performance shares,
performance units, cash-based awards, phantom shares and other share-based
awards as determined by the Company's Compensation Committee (the Committee).
Also, in connection with the Offering, the Company has reserved 250,000 shares
of common stock for issuance pursuant to the Company's Employee Stock Purchase
Plan. Under terms of the Employee Stock Purchase Plan, eligible employees will
be granted an option to purchase a designated number of shares of common stock
at a purchase price as determined by the Committee, but at no less than 85% of
the lower of the market price on the first or last day of the purchase period.
F-12
<PAGE> 59
DATALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS ACQUISITION:
In June 1998, the Company entered into a nonbinding letter of intent to
acquire Direct Connect Systems, Inc. ("DCSI"), a Marietta, Georgia-based firm
engaged in the analysis, custom design, integration and support of high-end Open
Systems data storage solutions principally for end-users located in the
Southeastern portion of the United States. In addition to its Marietta
headquarters, DCSI has field sales offices in Herndon, Virginia, Charlotte,
North Carolina, and Melbourne and Tampa, Florida.
Under terms of the proposed acquisition, the Company would acquire all of
DCSI's capital stock in exchange for $2 million cash and 200,000 shares of the
Company's Common Stock, subject to certain adjustments. Under terms of the
proposed acquisition, certain DCSI employees would also be paid $500,000 in the
aggregate under noncompetition agreements. The acquisition is subject to various
conditions, including the Company's due diligence investigation of DCSI's
business and financial affairs as well as execution of a definitive agreement.
13. SUBSEQUENT EVENT (UNAUDITED):
During April 1998, the Company paid dividends to its stockholders in the
amount of $863,700.
F-13
<PAGE> 60
GRAPHIC DESCRIPTION: MAP OF UNITED STATES SHOWING THE LOCATION OF EACH OF THE
COMPANY'S OFFICES AND THE AREAS SERVED BY EACH OF THE OFFICE LOCATIONS.
<PAGE> 61
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH THIS PROSPECTUS RELATES, OR AN
OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 5
USE OF PROCEEDS....................... 11
TERMINATION OF S CORPORATION STATUS
AND PUT OPTION AND DIVIDEND POLICY.. 12
CAPITALIZATION........................ 13
DILUTION.............................. 14
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA...................... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 17
BUSINESS.............................. 22
MANAGEMENT............................ 30
CERTAIN TRANSACTIONS.................. 34
PRINCIPAL STOCKHOLDERS................ 36
DESCRIPTION OF CAPITAL STOCK.......... 37
SHARES ELIGIBLE FOR FUTURE SALE....... 38
UNDERWRITING.......................... 39
LEGAL MATTERS......................... 40
EXPERTS............................... 40
CHANGE IN ACCOUNTANTS................. 40
ADDITIONAL INFORMATION................ 41
GLOSSARY.............................. 42
FINANCIAL STATEMENTS.................. F-1
</TABLE>
------------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,600,000 Shares
Datalink Corporation
Common Stock
---------------------
PROSPECTUS
---------------------
Needham & Company, Inc.
CRUTTENDEN ROTH
INCORPORATED
John G. Kinnard and
Company, Incorporated
---------------------
, 1998
======================================================
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the Representative's non-accountable
expense allowance, payable by the Company in connection with the sale of Common
Stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq Stock Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC Registration Fee........................................ $ 9,703.00
NASD Filing Fee............................................. 3,789.00
Nasdaq Stock Market Listing Fee............................. 81,625.00
Accounting Fees and Expenses................................ 180,000.00
Legal Fees and Expenses..................................... 150,000.00
Printing Expenses........................................... 45,000.00
Blue Sky Fees and Expenses.................................. 5,000.00
Transfer Agent Fees and Expenses............................ 1,000.00
Miscellaneous............................................... 23,883.00
-----------
Total.................................................. $500,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Articles of Incorporation limit the
liability of directors to the maximum extent permitted by the Minnesota Business
Corporation Act. Specifically, directors will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except for
liability due to (i) any breach of the duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) dividends or other
distributions of corporate assets that are in contravention of certain statutory
or contractual restrictions; (iv) violations of certain Minnesota securities
laws, or (v) any transaction from which the director derives an improper
personal benefit. Liability under the federal securities laws is not limited by
the Amended and Restated Articles of Incorporation.
The Minnesota Business Corporation Act requires that the Company indemnify
any director or officer made or threatened to be made a party to a legal
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. A "proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota indemnification statute (Minn. Stat. Section 302A.521) for a
complete statement of such indemnification rights. The Company's Amended and
Restated Articles of Incorporation also require the Company to provide
indemnification of these persons to the fullest extent of the Minnesota
indemnification statute.
The Company has entered into an indemnification agreement with each of its
directors and executive officers to provide him or her with specific contractual
assurances that the indemnification protection provided by the Minnesota
Business Corporation Act and the Company's Amended and Restated Articles of
Incorporation will be available to such director or officer and to provide for
the indemnification of and the advancing of expenses to such director or officer
to the fullest extent permitted by law. The Company also presently maintains
insurance to protect itself and its directors and officers against certain
liabilities, costs, and expenses arising out of claims or suits against such
directors and officers resulting from their service in such capacity.
II-1
<PAGE> 63
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Contemporaneously with the closing of this offering, the Company will grant
the four non-employee directors and 68 employees of the Company options to
purchase an aggregate of 214,750 shares of the Company's Common Stock, which
options are exercisable at the initial public offering price shown on the cover
page of the Prospectus. The Company believes that the grant of these options are
exempt from registration under the Securities Act because no sale of securities
occurred.
ITEM 16. EXHIBITS.
(a) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
Amended and Restated Articles of Incorporation of
3.1 Registrant.
3.2 Restated Bylaws of Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Messerli & Kramer P.A.
10.1 Employee Stock Purchase Plan.
10.2 Incentive Compensation Plan.
10.3 Credit Agreement with Norwest Bank Minnesota, N.A.
10.4 Form of Indemnification Agreement.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Hansen, Jergenson, Nergaard & Co., L.L.P.
23.3* Consent of Messerli & Kramer P.A. (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>
- ------------
* to be filed by amendment
(b) Financial Statement Schedule
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officers or controlling persons of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 64
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on June 3, 1998.
DATALINK CORPORATION
By: /s/ GREG R. MELAND
------------------------------------
Greg R. Meland
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Greg R. Meland as his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS, IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GREG R. MELAND President and Chief Executive Officer June 3, 1998
- --------------------------------------------- and Director (Principal Executive
Greg R. Meland Officer)
/s/ ROBERT D. DEVERE Chief Financial Officer (Principal June 3, 1998
- --------------------------------------------- Financial and Accounting Officer)
Robert D. DeVere
/s/ ROBERT M. PRICE Director June 3, 1998
- ---------------------------------------------
Robert M. Price
/s/ JAMES E. OUSLEY Director June 3, 1998
- ---------------------------------------------
James E. Ousley
/s/ MARGARET A. LOFTUS Director June 3, 1998
- ---------------------------------------------
Margaret A. Loftus
/s/ PAUL F. LIDSKY Director June 3, 1998
- ---------------------------------------------
Paul F. Lidsky
</TABLE>
II-4
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Amended and Restated Articles of Incorporation of
Registrant..................................................
3.2 Restated Bylaws of Registrant...............................
*4.1 Specimen Common Stock Certificate...........................
*5.1 Opinion of Messerli & Kramer P.A............................
10.1 Employee Stock Purchase Plan................................
10.2 Incentive Compensation Plan.................................
10.3 Credit Agreement with Norwest Bank Minnesota, N.A...........
10.4 Form of Indemnification Agreement...........................
23.1 Consent of Coopers & Lybrand L.L.P..........................
23.2 Consent of Hansen, Jergenson, Nergaard & Co., L.L.P.........
*23.3 Consent of Messerli & Kramer P.A. (included in Exhibit
5.1)........................................................
24.1 Power of Attorney (included in signature page)..............
27.1 Financial Data Schedule (Edgar filing only).................
</TABLE>
- ------------
* to be filed by amendment
II-5
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of Datalink
Corporation as of December 31, 1996 and 1997, and for each of the three years in
the period ended December 31, 1997, which financial statements are included in
the Prospectus, we have audited the financial statement schedule listed in Item
16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 25, 1998, except as
to the first paragraph of
Note 5, Note 11 and
Note 12, as to which the date
is June 2, 1998
S-1
<PAGE> 68
DATALINK CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF (1) END OF
DESCRIPTION PERIOD ADDITIONS DEDUCTIONS PERIOD
- ------------------------------------------------------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts................ 1995 $ 60,000 $ 11,034 $ 26,034 $ 45,000
1996 45,000 69,109 54,109 60,000
1997 60,000 27,235 27,235 60,000
Allowance for Inventory Obsolescence........... 1995 $ 15,000 $113,713 $118,713 $ 10,000
1996 10,000 181,661 91,661 100,000
1997 100,000 -- 75,000 25,000
</TABLE>
- ------------
(1) Deductions reflect write-offs of customer accounts receivable, net of
recoveries or disposals of inventories, net of obsolescence reserve
adjustments.
S-2
<PAGE> 1
EXHIBIT 1.1
Draft of June 1, 1998
2,600,000 Shares*
Datalink Corporation
Common Stock
UNDERWRITING AGREEMENT
, 1998
--------
NEEDHAM & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
JOHN G. KINNARD AND COMPANY, INCORPORATED
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
445 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Datalink Corporation, a Minnesota corporation (the "Company"), proposes
to issue and sell 2,600,000 shares (the "Company Firm Shares") of the Company's
Common Stock, $.001 par value per share (the "Common Stock"), to you and to the
several other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company and the stockholder of the Company named in
Schedule II hereto (the "Selling Stockholder") have also agreed to grant to you
and the other Underwriters an option (the "Option") to purchase up to an
additional 320,000 shares of Common Stock (the "Company Option Shares") and
70,000 shares of Common Stock (the "Selling Stockholder Option Shares"),
respectively, on the terms and for the purposes set forth in Section 1(b). The
Company Option Shares and the Selling Stockholder Option Shares are referred to
collectively herein as the "Option Shares," and the Firm Shares and the Option
Shares are referred to collectively herein as the "Shares."
The Company and the Selling Stockholder confirm as follows their
respective agreements with the Representatives and the several other
Underwriters.
- ---------------------
* Plus an option to purchase up to an additional 390,000 shares to cover
over-allotments.
1
<PAGE> 2
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of
the Company and the Selling Stockholder herein contained and subject to all the
terms and conditions of this Agreement, (i) the Company agrees to issue and sell
the Company Firm Shares to the several Underwriters and (ii) each of the
Underwriters, severally and not jointly, agrees to purchase from the Company the
respective number of Firm Shares set forth opposite that Underwriter's name in
Schedule I hereto, at the purchase price of $____ for each Firm Share.
(b) Subject to all the terms and conditions of this Agreement, the
Company and the Selling Stockholder grant the Option to the several Underwriters
to purchase, severally and not jointly, up to the maximum number of Option
Shares set forth in Schedule II hereto at the same price per share as the
Underwriters shall pay for the Firm Shares. The Option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company and
the Selling Stockholder no later than 12:00 noon, New York City time, at least
two and no more than five business days before the date specified for closing in
the Option Shares Notice (the "Option Closing Date"), setting forth the
aggregate number of Option Shares to be purchased and the time and date for such
purchase. On the Option Closing Date, the Company will issue and sell and the
Selling Stockholder will sell to the Underwriters the number of Option Shares
set forth in the Option Shares Notice (all Option Shares will be purchased from
the Selling Stockholder before any Option Shares are purchased from the
Company), and each Underwriter will purchase such percentage of the Option
Shares as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representatives for the accounts of the Underwriters against payment of the
purchase price by certified or official bank checks or by wire transfers payable
in same-day funds to the order of the Company for the Company Firm Shares to be
sold by it at the office of Needham & Company, Inc., 445 Park Avenue, New York,
New York 10022, at 10:00 a.m., New York City time, on the third (or, if the
purchase price set forth in Section 1(b) hereof is determined after 4:30 p.m.,
Washington D.C. time, the fourth) business day following the commencement of the
offering contemplated by this Agreement, or at such time on such other date, not
later than seven business days after the date of this Agreement, as may be
agreed upon by the Company and the Representatives (such date is hereinafter
referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above for the
Company and, in the case of Options Shares, if any, to be sold by the Selling
Stockholder, the Selling Stockholder) will take place at the offices specified
above for the Closing Date at the time and date (which may be the Closing Date)
specified in the Option Shares Notice. Payment for the Selling Stockholder
Option Shares, if any, to be sold by the Selling Stockholder shall be made
pursuant to the terms of the Selling Stockholder's Letter of Transmittal and
Custody Agreement between the Selling Stockholder and Messerli and Kramer P.A.
as custodian.
2
<PAGE> 3
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No. 333-___) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a preliminary
prospectus as contemplated by Rule 430 or Rule 430A of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments and of each related preliminary prospectus
have been delivered to the Representatives. If such registration statement has
not become effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the Company with the
Commission. If such registration statement has become effective, a final
prospectus containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will be filed promptly
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A and includes any registration statement
relating to the offering contemplated by this Agreement and filed pursuant to
Rule 462(b) of the Rules and Regulations. The term "Prospectus" means the
prospectus as first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, if no such filing is required, the form of final
prospectus included in the Registration Statement at the Effective Date. Any
reference herein to the terms "amend," "amendment" or "supplement" with respect
to the Registration Statement, any preliminary prospectus or the Prospectus
shall be deemed to refer to and include the filing of any document under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") after the
Effective Date, the date of any preliminary prospectus or the date of the
Prospectus, as the case may be, and deemed to be incorporated therein by
reference.
3
<PAGE> 4
(b) No order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission. On the Effective Date, the date
the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if
required), at all times subsequent to and including the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did and will comply with all applicable
provisions of the Act and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement, the Prospectus or any such amendment or supplement did
or will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto.
(c) The Company does not own, and at the Closing Date and, if later,
the Option Closing Date, will not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity. The Company is, and at the Closing Date and, if
later, the Option Closing Date, will be, a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company has, and at the Closing Date and, if later, the
Option Closing Date, will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus. The Company is, and at the Closing Date and, if later, the Option
Closing Date, will be, duly licensed or qualified to do business and in good
standing as a foreign corporation in all jurisdictions in which the nature of
the activities conducted by it or the character of the assets owned or leased by
it makes such license or qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not materially and
adversely affect the Company or its business, properties, business prospects,
condition (financial or other) or results of operations. The Company is not, and
at the Closing Date and, if later, the Option Closing Date, will not be, engaged
in any discussions or a party to any agreement or understanding, written or
oral, regarding the acquisition of an interest in any corporation, firm,
partnership, joint venture, association or other entity where such discussions,
agreements or understandings would require amendment to the Registration
Statement pursuant to applicable securities laws other than as described in the
Prospectus. Complete and correct copies of the articles of incorporation and of
the by-laws of the Company and all amendments thereto have
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<PAGE> 5
been delivered to the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date or, if later, the
Option Closing Date. The Company's Articles of Incorporation, as amended and
restated on June 1, 1998, were duly adopted by the Company's shareholders on
June 1, 1998.
(d) All of the outstanding shares of capital stock of the Company
(including the Selling Stockholder Option Shares to be sold by the Selling
Stockholder under this Agreement) have been duly authorized, validly issued and
are fully paid and nonassessable and were issued in compliance with all
applicable state and federal securities laws; the Company Firm Shares and the
Option Shares issued by the Company (if any) have been duly authorized and when
issued and paid for as contemplated herein will be validly issued, fully paid
and nonassessable; no preemptive or similar rights exist with respect to any of
the Shares or the issue and sale thereof. The description of the capital stock
of the Company in the Registration Statement and the Prospectus is, and at the
Closing Date and, if later, the Option Closing Date, will be, complete and
accurate in all respects. Except as set forth in the Prospectus, the Company
does not have outstanding, and at the Closing Date and, if later, the Option
Closing Date, will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible into,
or any contracts or commitments to issue or sell, any shares of capital stock,
or any such warrants, convertible securities or obligations. No further approval
or authority of stockholders or the Board of Directors of the Company will be
required for the transfer and sale of the Company Firm Shares and the Option
Shares as contemplated herein.
(e) The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise disclosed in
the Prospectus. No other financial statements or schedules of the Company are
required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Coopers & Lybrand, L.L.P. (the
"Accountants"), who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing Date
and, if later, the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company (other than
in connection with the exercise of options to purchase the Company's Common
Stock granted pursuant to the Company's stock option plans from the shares
reserved therefor as described in the Registration Statement), or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company, arising for
any reason whatsoever, (ii) the Company has not incurred nor will it incur,
except in the ordinary course of business as described in the Prospectus, any
material liabilities or
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<PAGE> 6
obligations, direct or contingent, nor has the Company entered into nor will it
enter into, except in the ordinary course of business as described in the
Prospectus, any material transactions other than pursuant to this Agreement and
the transactions referred to herein, (iii) the Company has not sustained any
material loss or interference with the business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance, (iv)
the Company has not and will not have paid or declared any dividends or other
distributions of any kind on any class of its capital stock and (v) there has
not been any issuance of warrants, options, convertible securities or other
rights to purchase or acquire capital stock of the Company.
(g) The Company is not, will not become as a result of the transactions
contemplated hereby, and does not intend to conduct its business in a manner
that would cause it to become, an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
(h) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened or contemplated against or affecting the
Company or any of its officers in their capacity as such, nor any basis
therefor, before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might, individually or in the
aggregate, materially and adversely affect the Company or the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company.
(i) The Company has, and at the Closing Date and, if later, the Option
Closing Date, will have, performed all the obligations required to be performed
by it, and is not, and at the Closing Date, and, if later, the Option Closing
Date, will not be, in default, under any contract or other instrument to which
it is a party or by which its property is bound or affected, which default might
materially and adversely affect the Company or the business, properties,
business prospects, condition (financial or other) or results of operations of
the Company. To the best knowledge of the Company, no other party under any
contract or other instrument to which it is a party is in default in any respect
thereunder, which default might materially and adversely affect the Company or
the business, properties, business prospects, condition (financial or other) or
results of operations of the Company. The Company is not and at the Closing Date
and, if later, the Option Closing Date, will not be, in violation of any
provision of its articles of incorporation or by-laws or other organizational
documents.
(j) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
execution and delivery by the Company of this Agreement and consummation by the
Company of the transactions on its part contemplated herein, except such as have
been obtained under the Act or the Rules and Regulations and such as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in connection with
the purchase and distribution by the Underwriters of the Shares.
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<PAGE> 7
(k) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with the terms hereof.
The performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company pursuant to the
terms or provisions of, or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, the articles of incorporation or by-laws of the Company, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company.
(l) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company. The Company has
valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it. The Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be conducted,
except where the failure to so own or lease would not materially and adversely
affect the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company.
(m) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company and are enforceable against and by the Company in
accordance with the terms thereof.
(n) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 6 of this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect in any material respect.
(o) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(p) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, which rights have not been waived by the holder thereof
as of the date hereof.
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<PAGE> 8
(q) The Company has filed a registration statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
to register the Common Stock, and has filed an application to list the Shares to
be sold by the Company hereunder on the Nasdaq National Market ("NNM"), and has
received notification that the listing has been approved, subject to notice of
issuance of such Shares. The Shares to be sold by the Selling Stockholder
hereunder are listed on the NNM.
(r) Except as disclosed in or specifically contemplated by the
Prospectus (i) the Company has sufficient trademarks, trade names, patent
rights, mask works, copyrights, licenses, approvals and governmental
authorizations to conduct its business as now conducted, (ii) the Company has no
knowledge of any infringement by it of trademarks, trade name rights, patent
rights, mask work rights, copyrights, licenses, inventions, trade secrets or
other similar rights of others, where such infringement could have a material
and adverse effect on the Company or the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company, and (iii) there is no claim being made against the Company, or to the
best of the Company's knowledge, any employee of the Company, regarding
trademark, trade name, patent, mask work, copyright, license, inventions, trade
secret or other infringement which could have a material and adverse effect on
the Company or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company.
(s) The Company has filed all federal, state, local and foreign income
tax returns which have been required to be filed and has paid all taxes and
assessments received by it to the extent that such taxes or assessments have
become due. The Company has no tax deficiency which has been or, to the best
knowledge of the Company, might be asserted or threatened against it which could
have a material and adverse effect on the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company.
(t) The pro forma financial information set forth in the Registration
Statement reflects, subject to the limitations set forth in the Registration
Statement as to such pro forma financial information, the results of operations
of the Company purported to be shown thereby for the periods indicated and
conforms to the requirements of Regulation S-X of the Rules and Regulations and
management of the Company believes (i) the assumptions underlying the pro forma
adjustments are reasonable, (ii) that such adjustments have been properly
applied to the historical amounts in the compilation of such statements, and
(iii) that such statements present fairly, with respect to the Company, the pro
forma financial position and results of operations and the other information
purported to be shown therein at the respective dates or for the respective
periods therein specified.
(u) The Company owns or possesses all authorizations, approvals,
orders, licenses, registrations, other certificates and permits of and from all
governmental regulatory officials and bodies, foreign and domestic necessary to
conduct its business as contemplated in the Prospectus, except where the failure
to own or possess all such authorizations, approvals, orders, licenses,
registrations, other certificates and permits would not materially and adversely
affect the Company or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company. There is no
proceeding pending or threatened (or any basis therefor known to the Company)
which may cause any such authorization, approval, order, license,
8
<PAGE> 9
registration, certificate or permit to be revoked, withdrawn, cancelled,
suspended or not renewed; and the Company is conducting its business in
compliance with all laws, rules and regulations applicable thereto (including,
without limitation, all applicable federal, state and local environmental laws
and regulations) except where such noncompliance would not materially and
adversely affect the Company or the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company.
(v) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, and consistent with insurance
coverage maintained by similar companies and businesses, and as required by the
rules and regulations of all governmental agencies having jurisdiction over the
Company, including, but not limited to, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(w) Neither the Company has nor, to the best of the Company's
knowledge, any of its employees or agents at any time during the last five years
(i) made any unlawful contribution to any candidate for foreign office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(x) The Company has obtained and delivered to the Representatives
written agreements, in form and substance satisfactory to the Representatives,
of each of its directors, executive officers and stockholders that no offer,
sale, assignment, transfer, encumbrance, contract to sell, grant of an option to
purchase or other disposition of any Common Stock or other capital stock of the
Company will be made for a period of 180 days after the date of the Prospectus,
directly or indirectly, by such holder otherwise than hereunder or with the
prior written consent of Needham & Company, Inc.
(y) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares other than any preliminary prospectus or the Prospectus or other
materials permitted by the Act to be distributed by the Company.
(z) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). The Company does not
do any business, directly or indirectly, with the government of Cuba or with any
person or entity located in Cuba.
(aa) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to records is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE> 10
(bb) Other than as contemplated by this Agreement, the Company has not
incurred any liability for any finder's or broker's fee or agent's commission in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(cc) There has been no unlawful storage, treatment or disposal of waste
by the Company (or any of its predecessors-in-interest) at any of the facilities
owned or leased thereby, except for such violations which would not have a
material adverse effect on the condition, financial or otherwise, or the
earnings, affairs or business prospects of the Company; there has been no
material spill, discharge, leak, emission, ejection, escape, dumping or release
of any kind onto the properties owned or leased by the Company, or into the
environment surrounding those properties, of any toxic or hazardous substances,
as defined under any federal, state or local regulations, laws or statutes,
except for those releases permissible under such regulations, laws or statutes
or otherwise allowable under applicable permits and except for such releases
which would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, affairs or business prospects of the Company.
(dd) No material labor dispute with the employees of the Company exists
or is imminent.
(ee) Each employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
("Employee Benefit Plan"), and each bonus, retirement, pension, profit sharing,
stock bonus, thrift, stock option, stock purchase, incentive, severance,
deferred or other compensation or welfare benefit plan, program, agreement or
arrangement of, or applicable to employees or former employees of, the Company
or with respect to which the Company could have any liability ("Benefit Plans"),
was or has been established, maintained and operated in all material respects in
compliance with all applicable federal, state, and local statutes, orders,
governmental rules and regulations, including, but not limited to, ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"). No Benefit Plan is or
was subject to Title IV of ERISA or Section 302 of ERISA or Section 412 of the
Code. The Company does not, either directly or indirectly as a member of a
controlled group within the meaning of Sections 414(b), (c), (m) and (o) of the
Code ("Controlled Group"), have any material liability that remains unsatisfied
or arising under Section 502 of ERISA, Subchapter D of Chapter 1 of Subtitle A
of the Code or under Chapter 43 of Subtitle D of the Code. No action, suit,
grievance, arbitration or other matter of litigation or claim with respect to
any Benefit Plan (other than routine claims for benefits made in the ordinary
course of plan administration for which plan administrative procedures have not
been exhausted) is pending or, to the Company's knowledge, threatened or
imminent against or with respect to any Benefit Plan, any member of a Controlled
Group that includes the Company, or any fiduciary within the meaning of Section
3(21) of ERISA with respect to a Benefit Plan which, if determined adversely to
the Company, would have a material adverse effect on the Company. Neither the
Company nor any member of a Controlled Group that includes the Company, has any
knowledge of any facts that could give rise to any action, suit, grievance,
arbitration or any other manner of litigation or claim with respect to any
Benefit Plan.
4. Representations, Warranties and Covenants of the Selling
Stockholder. The Selling Stockholder represents, warrants and covenants to each
Underwriter that:
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<PAGE> 11
(a) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement and the
Power-of-Attorney and Custody Agreement (hereinafter referred to as a
"Stockholder's Agreement") hereinafter referred to, and for the sale and
delivery of the Selling Stockholder Option Shares to be sold by such Selling
Stockholder hereunder, have been obtained; and such Selling Stockholder has full
right, power and authority to enter into this Agreement and the Stockholder's
Agreement, to make the representations, warranties and agreements hereunder and
thereunder, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder hereunder.
(b) Certificates in negotiable form representing all of the Selling
Stockholder Option Shares to be sold by such Selling Stockholder have been
placed in custody under the Stockholder's Agreement, in the form heretofore
furnished to you, duly executed and delivered by such Selling Stockholder to the
Custodian, and such Selling Stockholder has duly executed and delivered a
power-of-attorney, in the form heretofore furnished to you and included in the
Stockholder's Agreement (the Power-of-Attorney"), appointing Greg R. Meland and
Robert D. DeVere and each of them, as such Selling Stockholder's
attorney-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver
this Agreement on behalf of such Selling Stockholder, to determine (subject to
the provisions of the Stockholder's Agreement) the purchase price to be paid by
the Underwriters to the Selling Stockholder as provided in Section 2 hereof, to
authorize the delivery of the Selling Stockholder Option Shares, if any, to be
sold by such Selling Stockholder hereunder and otherwise to act on behalf of
such Selling Stockholder in connection with the transactions contemplated by
this Agreement and the Stockholder's Agreement.
(c) Such Selling Stockholder specifically agrees that the Selling
Stockholder Option Shares represented by the certificates held in custody for
such Selling Stockholder under the Stockholder's Agreement are for the benefit
of and coupled with and subject to the interests of the Underwriters, the
Custodian, the Attorneys-in-Fact, and the Company, that the arrangements made by
such Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power-of-Attorney, are to that
extent irrevocable, and that the obligations of such Selling Stockholder
hereunder shall not be terminated by operation of law, whether by the death,
disability, incapacity, liquidation or dissolution of the Selling Stockholder or
by the occurrence of any other event. If the individual Selling Stockholder or
any executor or trustee for a Selling Stockholder should die or become
incapacitated, or if any other such event should occur, before the delivery of
the Selling Stockholder Option Shares hereunder, certificates representing the
Selling Stockholder Option Shares shall be delivered by or on behalf of the
Selling Stockholder in accordance with the terms and conditions of this
Agreement and of the Stockholder's Agreement, and actions taken by the
Attorneys-in-Fact pursuant to the Powers-of-Attorney shall be as valid as if
such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity, termination,
dissolution or other event.
(d) This Agreement and the Stockholder's Agreement have each been duly
authorized, executed and delivered by such Selling Stockholder and each such
document constitutes a valid and binding obligation of such Selling Stockholder,
enforceable in accordance with its terms.
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<PAGE> 12
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the sale of the Selling Stockholder Option Shares by such
Selling Stockholder or the consummation by such Selling Stockholder of the
transactions on its part contemplated by this Agreement and the Stockholder's
Agreement, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky laws
or the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Stockholder.
(f) The sale of the Selling Stockholder Option Shares to be sold by
such Selling Stockholder hereunder and the performance by such Selling
Stockholder of this Agreement and the Stockholder's Agreement and the
consummation of the transactions contemplated hereby and thereby will not result
in the creation or imposition of any lien, charge or encumbrance upon any of the
assets of such Selling Stockholder pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to such Selling Stockholder.
(g) Such Selling Stockholder has, and at the Closing Date and, if
later, the Option Closing Date, will have, good and marketable title to the
Selling Stockholder Option Shares to be sold by such Selling Stockholder
hereunder, free and clear of all liens, encumbrances, equities or claims
whatsoever; and, upon delivery of such Selling Stockholder Option Shares and
payment therefor pursuant hereto, good and marketable title to such Selling
Stockholder Option Shares, free and clear of all liens, encumbrances, equities
or claims whatsoever, will be delivered to the Underwriters.
(h) On the Option Closing Date, all stock transfer or other taxes
(other than income taxes) that are required to be paid in connection with the
sale and transfer of the Shares to be sold by such Selling Stockholder to the
several Underwriters hereunder will be have been fully paid or provided for by
such Selling Stockholder and all laws imposing such taxes will have been fully
complied with.
(i) Other than as permitted by the Act and the Rules and Regulations,
such Selling Stockholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares. Such Selling Stockholder
has not taken and will not at any time take, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or result in, or which
will constitute, stabilization of the price of shares of Common Stock to
facilitate the sale or resale of any of the Shares.
(j) All information with respect to such Selling Stockholder contained
in the Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or
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<PAGE> 13
supplement thereto complied or will comply in all material respects with all
applicable requirements of the Act and the Rules and Regulations and does not
and will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Such Selling Stockholder has no knowledge of any material fact or
condition not set forth in the Registration Statement or the Prospectus that has
adversely affected, or may adversely affect, the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company, and the sale of the Shares proposed to be sold by such Selling
Stockholder is not prompted by any such knowledge.
(l) Such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 3 hereof are
not true and correct.
(m) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 with respect to the transactions herein contemplated, such Selling
Stockholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
5. Agreements of the Company and the Selling Stockholder. Each of the
Company and the Selling Stockholder respectively covenants and agrees with the
several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (iv) of the happening of any event
during the period mentioned in the second sentence of Section 5(e) that in the
judgment of the Company makes any statement made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein, in the light of the circumstances in which they are made, not
misleading and (v) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue
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any order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible moment. If the Company has omitted any information from
the Registration Statement pursuant to Rule 430A of the Rules and Regulations,
the Company will comply with the provisions of and make all requisite filings
with the Commission pursuant to said Rule 430A and notify the Representatives
promptly of all such filings.
(c) The Company will furnish to each Representative, without charge,
one signed copy of each of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto and will furnish to the Representatives, without charge, for
transmittal to each of the other Underwriters, a copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules but without exhibits.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of any preliminary prospectus and the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. The Company consents to
the use of the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be delivered in
connection therewith. During the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, the Company will comply with all
requirements imposed upon it by the Act and the Rules and Regulations, as from
time to time in force, so far as necessary to permit the continuance of sales of
or dealings in the Shares as contemplated by the provisions hereof or the
Prospectus. If during such period of time any event shall occur which in the
judgment of the Company or counsel to the Underwriters should be set forth in
the Prospectus in order to make any statement therein, in the light of the
circumstances under which it was made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to each of the Underwriters, without charge,
such number of copies of such supplement or amendment to the Prospectus as the
Representatives may reasonably request. The Company will not file any document
under the Exchange Act or the Exchange Act Rules and Regulations before the
termination of the offering of the Shares by the Underwriters, if such document
would be deemed to be incorporated by reference into the Prospectus, that is not
approved by the Representatives after reasonable notice thereof. In case any
Underwriter is required to deliver a prospectus in connection with sales of any
Shares at any time nine months or more after the effective date of the
Registration Statement, upon the request of the Representatives but at the
expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as the Representatives may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act.
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<PAGE> 15
(f) Prior to any public offering of the Shares, the Company will
cooperate with the Representatives and counsel to the Underwriters in connection
with the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the Representatives may
request; provided, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
(g) The Company will, so long as required under the Rules and
Regulations, furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flow of the Company and its consolidated
Subsidiaries, if any, certified by independent public accountants) and, as soon
as practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), consolidated summary financial information of the
Company and its Subsidiaries, if any, for such quarter in reasonable detail.
(h) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the National
Association of Securities Dealers ("NASD") or any securities exchange pursuant
to the requirements of the NASD or with the Commission pursuant to the Act or
the Exchange Act.
(i) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(j) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay or reimburse
if paid by the Representatives, in such proportions as they may agree upon
themselves, all costs and expenses incident to the performance of the
obligations of the Company and the Selling Stockholder under this Agreement and
in connection with the transactions contemplated hereby, including but not
limited to costs and expenses of or relating to (i) the preparation, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, Prospectus and any amendment or supplement to the Registration
Statement or Prospectus, (ii) the preparation and delivery of certificates
representing the Shares, (iii) the printing of this Agreement, the Agreement
Among Underwriters, any Selected Dealer Agreements, any Underwriters'
Questionnaires, the Stockholder's Agreements, any Underwriters' Powers of
Attorney, and any invitation letters to prospective Underwriters, (iv)
furnishing (including costs of shipping and mailing) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or
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<PAGE> 16
by dealers to whom Shares may be sold, (v) the listing of the Shares on the NNM,
(vi) any filings required to be made by the Underwriters with the NASD, and the
fees, disbursements and other charges of counsel for the Underwriters in
connection therewith, (vii) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(f), including the fees, disbursements and other
charges of counsel to the Underwriters in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (viii) fees, disbursements and other charges of counsel to the
Company (but not those of counsel for the Underwriters, except as otherwise
provided herein), (ix) accounting fees of the Company and (x) the transfer agent
for the Shares. In addition, the Company will pay all travel and lodging
expenses incurred by management of the Company in connection with any
informational "road show" meetings held in connection with the offering and will
also pay for the preparation of all materials used in connection with such
meetings. The Company shall not, however, be required to pay for any of the
Underwriters' expenses (other than those related to qualification of the Shares
under state securities or Blue Sky laws and those incident to securing any
required review by the NASD of the terms of the sale of the shares) except that,
if this Agreement shall not be consummated because the conditions in Section 6
hereof are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 9 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms shall be due to the default or omission
of any Underwriter, then the Company shall promptly upon request by the
Representatives reimburse the several Underwriters for all out-of-pocket
accountable expenses, including fees and disbursements of counsel, incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company
shall not in any event be liable to any of the several Underwriters for damages
on account of loss of anticipated profits from the sale by them of the Shares.
The Selling Stockholder will pay (directly or by reimbursement) all fees and
expenses incident to the performance of his obligations under this Agreement
that are not otherwise specifically provided for herein, including but not
limited to any fees and expenses of counsel for such Selling Stockholder, any
fees and expenses of the Attorneys-in-Fact and the Custodian, and all expenses
and taxes incident to the sale and delivery of the Shares to be sold by such
Selling Stockholder to the Underwriters hereunder.
(k) The Company will not at any time, directly or indirectly, take any
action designed or which might reasonably be expected to cause or result in, or
which will constitute, stabilization of the price of the shares of Common Stock
to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company substantially in the manner set forth in
the Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(m) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, without the
prior written consent of Needham & Company, Inc., the Company will not offer,
sell, contract to sell, grant options to purchase or
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<PAGE> 17
otherwise dispose of any of the Company's equity securities of the Company or
any other securities convertible into or exchangeable with its Common Stock or
other equity security (other than pursuant to employee stock option plans or the
conversion of convertible securities or the exercise of warrants outstanding on
the date of this Agreement).
(n) During the period of 180 days after the date of the Prospectus, the
Company will not, without the prior written consent of Needham & Company, Inc.,
grant options to purchase shares of Common Stock that will vest in such period
at a price less than the initial public offering price. During the period of 180
days after the date of the Prospectus, the Company will not file with the
Commission or cause to become effective any registration statement relating to
any securities of the Company without the prior written consent of Needham &
Company, Inc.
(o) The Selling Stockholder will, and the Company will cause each of
its officers, directors and certain stockholders designated by the
Representatives to, enter into lock-up agreements with the Representatives to
the effect that they will not, without the prior written consent of Needham &
Company, Inc., sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares according to the terms set forth
in Schedule III hereto.
(p) The Company will not file with the Commission any registration
statement on Form S-8 relating to shares of its Common Stock prior to 90 days
after the effective date of the Registration Statement, other than a
registration statement on Form S-8 with respect to the Company's employee stock
purchase plan which registration statement may not be relied upon for resales
during such 90 day period.
6. Conditions of the Obligations of the Underwriters. The obligations
of each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by Rule
424 and Rule 430A of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Representatives and the Representatives do not object thereto
in good faith, and the Representatives shall have received certificates, dated
the Closing Date and, if later, the Option Closing Date and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company (who may, as to
proceedings
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<PAGE> 18
threatened, rely upon the best of their information and belief), to the effect
of clauses (i), (ii) and (iii) of this paragraph.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as described in or
contemplated by the Registration Statement and the Prospectus, and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, which is not described in the
Registration Statement and the Prospectus, if in the judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its officers or
directors in their capacities as such, before or by any Federal, state or local
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding would, in the judgment of the Representatives,
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company.
(e) Each of the representations and warranties of the Company and the
Selling Stockholder contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company or the Selling Stockholder and all
conditions contained herein to be fulfilled or complied with by the Company or
the Selling Stockholder at or prior to the Closing Date and, with respect to the
Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters from Messerli & Kramer P.A., counsel to the Company and the Selling
Stockholder, with respect to the following matters (except that the matters set
forth in subparagraphs (xix)-(xxi) need not be addressed in the opinion
delivered at the Option Closing Date, if later than the Closing Date):
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; has full corporate power and authority to conduct all
the activities conducted by it, to own or lease all the assets owed or
leased by it and to conduct its business as described in the
Registration Statement and Prospectus; and is duly licensed or
qualified to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities
conducted by it
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or the character of the assets owned or leased by it makes such license
or qualification necessary and where the failure to be licensed or
qualified would have a material and adverse effect on the business or
financial condition of the Company.
(ii) All of the outstanding shares of capital stock of the
Company (including the Selling Stockholder Shares) have been duly
authorized, validly issued and are fully paid and nonassessable, to
such counsel's knowledge, were issued pursuant to exemptions from the
registration and qualification requirements of federal and applicable
state securities laws, and were not issued in violation of or subject
to any preemptive or, to such counsel's knowledge, similar rights;
(iii) The specimen certificate evidencing the Common Stock
filed as an exhibit to the Registration Statement is in due and proper
form under Minnesota law, the Shares to be sold by the Company
hereunder have been duly authorized and, when issued and paid for as
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable; and no preemptive or similar rights exist with respect
to any of the Shares or the issue and sale thereof.
(iv) To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any shares of stock or any other
equity or long-term debt securities of any corporation or have any
equity interest in any corporation, firm, partnership, joint venture,
association or other entity.
(v) The number of shares of authorized and outstanding
capital stock of the Company is as set forth in the Registration
Statement and the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement or pursuant to reservations, agreements,
employee benefit plans or the exercise of convertible securities,
options or warrants referred to in the Prospectus). To such counsel's
knowledge, except as disclosed in or specifically contemplated by the
Prospectus, there are no outstanding options, warrants of other rights
calling for the issuance of, and no commitments, plans or arrangements
to issue, any shares of capital stock of the Company or any security
convertible into or exchangeable or exercisable for capital stock of
the Company. The description of the capital stock of the Company in
the Registration Statement and the Prospectus conforms in all material
respects to the terms thereof.
(vi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company is
a party or to which any of its properties is subject that are required
to be described in the Registration Statement or the Prospectus but are
not so described.
(vii) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part contemplated under this Agreement, except such as have been
obtained or made under the Act or the Rules and Regulations and such as
may be
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<PAGE> 20
required under state securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and distribution by
the Underwriters of the Shares.
(viii) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The execution and delivery of this Agreement, the
compliance by the Company with all of the terms hereof and the
consummation of the transactions contemplated hereby does not
contravene any provision of applicable law or the Articles of
Incorporation or By-Laws of the Company, and to the best of such
counsel's knowledge will not result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company
pursuant to the terms and provisions of, result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or give any party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to
such counsel to which the Company is a party or by which the Company or
any of its properties is bound or affected, or violate or conflict with
(i) any judgment, ruling, decree or order known to such counsel or (ii)
any statute, rule or regulation of any court or other governmental
agency or body, applicable to the business or properties of the Company
except for such liens, charges, encumbrances, breaches, violations or
terminations as would not reasonably be expected to have a material and
adverse effect on business, properties or results of operations of the
Company.
(x) To such counsel's knowledge, there is no document or
contract of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed or incorporated
by reference as required, and each description of such contracts and
documents that is contained in the Registration Statement and
Prospectus fairly presents in all material respects the information
required under the Act and the Rules and Regulations.
(xi) The statements under the captions "Risk Factors -- Shares
Eligible for Future Sale," "Risk Factors -- Undesignated Shares,
Certain Anti-Takeover Provisions, "Management -- Stock Incentive
Plans," "Management -- Indemnification Agreements," "Certain
Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale" in the Prospectus, insofar as the statements constitute a
summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present, in all material
respects, the information called for with respect to such documents and
matters (provided, however, that such counsel may rely on
representations of the Company with respect to the factual matters
contained in such statements, and provided further that such counsel
shall state that nothing has come to the attention of such counsel
which leads them to believe that such representations are not true and
correct in all material respects).
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(xii) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for,
and immediately upon completion of the sale of Shares contemplated
hereby will not be, an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended.
(xiii) The Selling Stockholder Shares are duly listed on the
NNM and the Company Shares have been duly authorized for listing on the
NNM, subject to notice of issuance.
(xiv) To such counsel's knowledge, no holder of securities of
the Company has rights, which have not been waived, to require the
Company to register with the Commission shares of Common Stock or other
securities, as part of the offering contemplated hereby.
(xv) The Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or is
pending, threatened or contemplated.
(xvi) The Registration Statement and the Prospectus comply as
to form in all material respects with the requirement of the Act and
the Rules and Regulations (other than the financial statements,
schedules and other financial and statistical data contained in the
Registration Statement or the Prospectus, as to which such counsel need
express no opinion).
(xvii) Such counsel has participated in the preparation of the
Registration Statement and Prospectus and has no reason to believe
that, as of the Effective Date the Registration Statement, or any
amendment or supplement thereto, (other than the financial statements,
schedules and other financial and statistical data contained therein,
as to which such counsel need express no opinion) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or that the Prospectus, or any amendment or supplement
thereto, as of its date and the Closing Date and, if later, the Option
Closing Date, contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (other than the financial statements,
schedules and other financial and statistical data contained therein,
as to which such counsel need express no opinion). Such counsel may
express the statements set forth in this clause (xvii) in a letter
separate from its opinion.
(xviii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date or the Option Closing Date, as the
case may be, (other than the financial statements, schedules and other
financial and statistical data contained therein, as to which such
counsel need express no opinion), when they became effective or were
filed with the Commission, as the case
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may be, complied as to form in all material respects with the
requirements of the Exchange Act and the Exchange Act Rules and
Regulations.
(xix) This Agreement and the Stockholder's Agreement have each
been duly executed and delivered by or on behalf of the Selling
Stockholder; the Stockholder's Agreement constitutes a valid and
binding agreement of such Selling Stockholder in accordance with its
terms, except as enforceability may be limited by the application of
bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity; the Attorneys-in-Fact and
the Custodian have been duly authorized by such Selling Stockholder to
deliver the Shares on behalf of such Selling Stockholder in accordance
with the terms of this Agreement; and the sale of the Shares to be sold
by such Selling Stockholder hereunder, the performance by such Selling
Stockholder of this Agreement and the Stockholder's Agreement and the
consummation of the transactions contemplated hereby and thereby will
not result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration
of any obligation under any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, lease, contract or other agreement or
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound or affected
known to counsel, or violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to such Selling Stockholder
known to such counsel.
(xx) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Selling Stockholder of the
transactions on his part contemplated by this Agreement, except such as
have been obtained or made under the Act or the Rules and Regulations
and such as may be required under state securities or Blue Sky laws or
the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares.
(xxi) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement and the Stockholder's Agreement
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder hereunder and, upon payment for such Shares and
assuming that the Underwriters are purchasing such Shares in good faith
and without notice of any other adverse claim within the meaning of the
Uniform Commercial Code, the Underwriters will have acquired all rights
of such Selling Stockholder in such Shares free of any adverse claim,
any lien in favor of the Company and any restrictions on transfer
imposed by the Company.
(xxii) To the knowledge of such counsel, the Company holds and
is operating in compliance with all licenses, approvals, certificates
and permits from governmental and regulatory authorities, foreign and
domestic, which are necessary to the conduct of its business as
currently being conducted and as described in the Prospectus. To the
knowledge of such counsel, the Company has not received notice of or
has knowledge of any basis for any proceeding or action relating
specifically to the Company for the
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revocation or suspension of any such consent, authorization, approval,
order, license, certificate, permit or any other action or proposed
action by any regulatory authority having jurisdiction over the Company
that would have a material adverse effect on the Company.
(xxiii) To the knowledge of such counsel, the Company owns or
licenses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and other similar
rights necessary for the conduct of its business as currently being
conducted and as described in the Prospectus. To the knowledge of such
counsel, no aspect of the business of the Company involves or gives
rise to any infringement of or license or similar fees for any patents,
patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of others, and the
Company has not received any notice or claim of conflict with the
asserted rights of others with respect to any of the foregoing.
In rendering the opinions in subparagraphs (xix) - (xxi), such counsel
may rely upon opinions of other counsel retained by the Selling Stockholder
reasonably acceptable to the Representatives and as to matters of fact on
certificates of the Selling Stockholder, officers of the Company and
governmental officials and the representations and warranties of the Company and
the Selling Stockholder contained in this Agreement and the Stockholder's
Agreement, provided that the opinion of counsel to the Company and Selling
Stockholder shall state that they are doing so, that they have no reason to
believe that they and the Underwriters are not entitled to rely on such opinions
or certificates and that copies of such opinions or certificates are attached to
the opinion.
In rendering such opinion, such counsel may rely upon as to matters of
local law on opinions of counsel satisfactory in form and substance to the
Representatives and counsel for the Underwriters, provided that the opinion of
counsel to the Company and the Selling Stockholder shall state that they are
doing so, that they have no reason to believe that they and the Underwriters are
not entitled to rely on such opinions and that copies of such opinions are
attached to the opinion.
(g) The representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Kaplan, Strangis and Kaplan,
P.A., counsel to the Underwriters, with respect to the Registration Statement,
the Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to the Representatives.
(h) Concurrently with the execution and delivery of this Agreement, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations and with respect to certain financial and statistical information
contained in the Registration Statement. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall have furnished to
the Representatives a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with the procedures set forth in
the letter from the Accountants, that nothing has come to their attention during
the period from the date
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<PAGE> 24
of the letter referred to in the prior sentence to a date (specified in the
letter) not more than five days prior to the Closing Date and the Option Closing
Date, as the case may be, which would require any change in their letter dated
the date hereof if it were required to be dated and delivered at the Closing
Date and the Option Closing Date.
(i) Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of
such certificate, such documents are true and correct in all material
respects and do not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not untrue or
misleading, (B) in the case of the certificate delivered at the Closing
Date and the Option Closing Date, since the Effective Date no event has
occurred as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not untrue or misleading, (C)
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, the Company has not
incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions, not in the ordinary course
of business, or declared or paid any dividends or made any distribution
of any kind with respect to its capital stock, and except as disclosed
in the Prospectus, there has not been any change in the capital stock
(other than a change in the number of outstanding shares of Common
Stock due to the issuance of shares upon the exercise of outstanding
options or warrants), or any material change in the short-term or
long-term debt, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the
Company, or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the
ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects,
net worth or results of operations of the Company, and (D) except as
stated in the Registration Statement and the Prospectus, there is not
pending, or, to the knowledge of the Company, threatened or
contemplated, any action, suit or proceeding to which the Company is a
party before or by any court or governmental agency, authority or body,
or any arbitrator, which might result in any material adverse change in
the condition (financial or otherwise), business, prospects or results
of operations of the Company.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct.
(iii) Each of the covenants required to be performed by the
Company herein on or prior to the date of such certificate has been
duly, timely and fully performed and each
24
<PAGE> 25
condition herein required to be satisfied or fulfilled on or prior to
the date of such certificate has been duly, timely and fully satisfied
or fulfilled.
(j) Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, as to the Option Shares, the Option Closing Date, there
shall be furnished to the Representatives a certificate, dated the date of its
delivery, signed by the Selling Stockholder (or the Attorneys-in-Fact on his
behalf), in form and substance satisfactory to the Representatives, to the
effect that the representations and warranties of the Selling Stockholder
contained herein are true and correct in all material respects on and as of the
date of such certificate as if made on and as of the date of such certificate,
and each of the covenants and conditions required herein to be performed or
complied with by the Selling Stockholder on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(o).
(l) The Shares shall be qualified for sale in such jurisdictions as the
Representatives may reasonably request and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the NNM upon official notice of issuance.
(n) The Company and the Selling Stockholder shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company and the Selling Stockholder herein, as to the
performance by the Company and the Selling Stockholder of its and his respective
obligations hereunder, or as to the fulfillment of the conditions concurrent and
precedent to the obligations hereunder of the Representatives.
(o) Prior to the Closing Date, the Company shall have furnished the
Representatives with signed copies of the S Corporation Indemnification
Agreements entered into between the Company and each stockholder of the Company
under which the stockholders of the Company indemnify the Company for certain
potential income tax liabilities incurred by the Company as a result of any
failure of the Company to qualify as an S corporation under the Internal Revenue
Code of 1986, as amended (the "Code") for any taxable period ending on or prior
to the Closing Date.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case
25
<PAGE> 26
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5(j) and 7
hereof).
7. Indemnification.
(a) The Company and the Selling Stockholder, jointly and severally, will
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, liabilities, expenses
and damages (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based on
(i) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus, or the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading in the light of the circumstances in which they were made,
(ii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Common Stock
or the offering contemplated hereby, and which is included as part of or
referred to in any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arising out of or based upon matters covered by
clause (i) above, and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or defending any
such action or claim as such expenses are incurred; or arise out of or are based
in whole or in part on any inaccuracy in the representations and warranties of
the Company or the Selling Stockholder contained herein or any failure of the
Company or the Selling Stockholder to perform its or his obligations hereunder
or under law in connection with the transactions contemplated hereby, or (iii)
any failure of the Company's qualification as an S corporation under the Code
for any taxable period ending on or prior to the Closing Date; provided,
however, that (i) the Company and the Selling Stockholder will not be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person by an Underwriter and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives, on
behalf of any Underwriter, expressly for inclusion in the Registration
Statement, the preliminary prospectus or the Prospectus; (ii) the Company and
the Selling Stockholder will not be liable to any Underwriter, the directors,
officers, employees or agents of such Underwriter or any person controlling such
Underwriter with respect to any loss, claim, liability, expense, or damage
arising out of or based on any untrue statement or omission or alleged untrue
statement or omission or alleged omission to state a material fact in the
preliminary prospectus which is corrected in the Prospectus if the person
asserting any such loss, claim, liability, charge or damage purchased Shares
from such Underwriter but was not sent or given a copy of the Prospectus at or
prior to the written confirmation of the sale of such Shares to such person; and
(iii) the liability of the Selling Stockholder under this Section 7(a) shall not
exceed the product of the purchase price for each Share set forth in Section
1(a) hereof multiplied by the
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<PAGE> 27
number of Shares sold by such Selling Stockholder hereunder. This indemnity
agreement will be in addition to any liability that the Company and the Selling
Stockholder might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and the Selling
Stockholder to the same extent as the foregoing indemnity from the Company and
each Selling Stockholder to each Underwriter, as set forth in Section 7(a), but
only insofar as losses, claims, liabilities, expenses or damages arise out of or
are based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives, on
behalf of such Underwriter, expressly for use in the Registration Statement, the
preliminary prospectus or the Prospectus. The Company and the Selling
Stockholder acknowledge that the statements set forth under the heading
"Underwriting" in the preliminary prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of the Underwriters expressly for inclusion in
the Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 7 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (ii)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(iii) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (iv) the indemnifying
party has not in fact employed counsel to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
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<PAGE> 28
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm admitted to practice in such jurisdiction at any one time for all
such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. Any indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 7 is applicable
in accordance with its terms but for any reason is held to be unavailable to or
insufficient to hold harmless an indemnified party under paragraphs (a), (b) and
(c) of this Section 7 in respect of any losses, claims, liabilities, expenses
and damages referred to therein, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company or the Selling Stockholder from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) by such indemnified
party as a result of such losses, claims, liabilities, expenses and damages in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholder, on the one hand, and the
Underwriters, on the other hand. The relative benefits received by the Company
and the Selling Stockholder, on the one hand, and the Underwriters, on the other
hand, shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholder bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company and the Selling Stockholder, on the one hand, and
the Underwriters, on the other hand, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by
the Company, the Selling Stockholder or the Representatives on behalf of the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholder and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 7(d) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 7(d) shall be deemed to include, for purposes of this Section 7(d),
any legal or other expenses reasonably incurred by such
28
<PAGE> 29
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 7(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each officer of the Company who
signed the Registration Statement will have the same rights to contribution as
the Company, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 7(d), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(d). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section
7 and the representations and warranties of the Company and the Selling
Stockholder contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor or (iii)
any termination of this Agreement.
8. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7(a) of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon,
in whole or in part, any statement or omission or alleged statement or omission,
or any inaccuracy in the representations and warranties of the Company or the
Selling Stockholder contained herein or failure of the Company or the Selling
Stockholder to perform its or his respective obligations hereunder or under law,
all as described in Section 7(a), notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 8 and the possibility that such payment might later be held to be
improper; provided, however, that, to the extent any such payment is ultimately
held to be improper, the persons receiving such payments shall promptly refund
them.
9. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company and the Selling Stockholder from the Representatives,
without liability on the part of any Underwriter to the Company if, prior to
delivery and payment for the Firm Shares or Option Shares, as the case may be,
in the sole judgment of the Representatives, (i) trading in any of the equity
securities of the Company shall have been suspended by the Commission or by The
Nasdaq Stock Market, (ii) trading in securities generally on The Nasdaq Stock
Market shall have been suspended or limited or minimum or maximum prices shall
have been generally established on such exchange, or additional material
29
<PAGE> 30
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange, by
order of the Commission or any court or other governmental authority, or by the
New York Stock Exchange, (iii) a general banking moratorium shall have been
declared by either Federal or Minnesota state authorities or (iv) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or other calamity or crisis shall have
occurred, the effect of which is such as to make it, in the sole judgment of the
Representatives, impracticable or inadvisable to proceed with completion of the
public offering or the delivery of and payment for the Shares.
If this Agreement is terminated pursuant to Section 10 hereof, neither
the Company nor the Selling Stockholder shall be under any liability to any
Underwriter except as provided in Sections 5(j), 7 and 8 hereof.
10. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate number of Firm Shares,
the other Underwriters shall be obligated, severally, to purchase the Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Firm Shares which
they have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Firm Shares which all such non-defaulting Underwriters have
so agreed to purchase, or in such other proportions as the Representatives may
specify; provided that in no event shall the maximum number of Firm Shares which
any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 10 by more than one-ninth of such number of
Firm Shares without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholder for the purchase or sale of any Shares under this Agreement.
In any such case either the Representatives or the Company shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken pursuant to this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
11. Written Information. For all purposes under this Agreement each of
the Company and the Selling Stockholder understands and agrees with each of the
Underwriters that the following constitutes the only written information
furnished to the Company by or through the Representatives specifically for use
in preparation of the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto: (i) the per share "Price to
Public" and per share "Underwriting Discounts and Commissions" set forth on the
cover page of
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<PAGE> 31
the Prospectus, (ii) the information relating to stabilization set forth in the
last paragraph on page two of the preliminary prospectus and the Prospectus, and
(iii) the information set forth under the caption "Underwriting" in the
preliminary prospectus and the Prospectus.
12. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company or the Selling Stockholder, at the
office of the Company, 7423 Washington Avenue South, Minneapolis, Minnesota
55439, Attention: Greg R. Meland, with a copy to Messerli & Kramer P.A., 150
South Fifth Street, Suite 1800, Minneapolis, Minnesota 55402, Attention: Jeffrey
C. Robbins, Esq., or (b) if to the Underwriters, to the Representatives at the
offices of Needham & Company, Inc., 445 Park Avenue, New York, New York 10022,
Attention: Corporate Finance Department, with a copy to Kaplan, Strangis and
Kaplan, P.A., 5500 Norwest Center, 90 South Seventh Street, Minneapolis,
Minnesota 55402, Attention: James C. Melville, Esq. Any such notice shall be
effective only upon receipt. Any notice under such Section 9 or 10 may be made
by telex or telephone, but if so made shall be subsequently confirmed in
writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, the Selling Stockholder and the controlling
persons, directors and officers referred to in Section 7, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as used
in this Agreement shall not include a purchaser, as such purchaser, of Shares
from any of the several Underwriters.
Any action required or permitted to be made by the Representatives
under this Agreement may be taken by them jointly or by Needham & Company, Inc.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors and officers and (c) delivery of and payment for the Shares under
this Agreement.
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<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
DATALINK CORPORATION
By:
----------------------------------------
Greg R. Meland, Chief Executive Officer
SELLING STOCKHOLDER
(named in Schedule II hereto)
By:
----------------------------------------
Attorney-in-Fact
Confirmed as of the date first above mentioned:
NEEDHAM & COMPANY, INC.
CRUTTENDEN ROTH INCORPORATED
JOHN G. KINNARD AND COMPANY, INCORPORATED
Acting on behalf of themselves
and as the Representatives of
the other several Underwriters
named in Schedule I hereto.
By: NEEDHAM & COMPANY, INC.
By:
-----------------------------------
Title:
-----------------------------
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<PAGE> 33
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares
Underwriters to be Purchased
- ------------ ---------------
Needham & Company, Inc..........................................
Cruttenden Roth Incorporated....................................
John G. Kinnard and Company, Incorporated.......................
---------
Total................................................
==========
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<PAGE> 34
SCHEDULE II
Total Number Total Number of
of Firm Shares Option Shares
to be Sold to be Sold
-------------- ---------------
Datalink Corporation.............................2,600,000 320,000
Stanley I. Clothier.............................. --- 70,000
--------- ------
TOTALS..................................2,600,000 390,000
========= =======
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<PAGE> 35
SCHEDULE III
FORM OF LOCK-UP AGREEMENT
[AND DIRECTORS, OFFICERS AND STOCKHOLDERS
OF THE COMPANY WHO SHALL SIGN SUCH AGREEMENT]
The undersigned is a holder of securities of Datalink Corporation, a
Minnesota corporation (the "Company"), and wishes to facilitate the public
offering of shares of the Common Stock (the "Common Stock") of the Company (the
"Offering"). The undersigned recognizes that such Offering will be of benefit to
the undersigned.
In consideration of the foregoing and in order to induce you to act as
underwriters in connection with the Offering, the undersigned hereby agrees that
he, she or it will not, without the prior written approval of Needham & Company,
Inc., acting on its own behalf and/or on behalf of other representatives of the
underwriters, directly or indirectly, sell, contract to sell, make any short
sale, pledge, or otherwise dispose of, or enter into any hedging transaction
that is likely to result in a transfer of, any shares of Common Stock, options
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock of the Company which he, she or it may own,
exclusive of any shares of Common Stock purchased in connection with the
Company's public offering for a period commencing as of the date hereof and
ending on the date which is one hundred eighty (180) days after the date of the
final Prospectus relating to the Offering. The undersigned confirms that he, she
or it understands that the underwriters and the Company will rely upon the
representations set forth in this Agreement in proceeding with the Offering. The
undersigned further confirms that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of securities held by the undersigned except in compliance
with this Agreement.
This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns.
---------------------------------
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
DATALINK CORPORATION
The undersigned, being the Chief Executive Officer of Datalink Corporation, a
Minnesota corporation (the "Company"), subject to the provisions of Chapter
302A of the Minnesota Statutes, known as the Minnesota Business Corporation
Act, does hereby certify that the Board of Directors and shareholders of the
Company adopted the following resolutions by joint action of the Board of
Directors and shareholders effective as of June 1, 1998:
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
RESOLVED: That the Articles of Incorporation of the Company be, and the same
hereby are, amended and restated, and the following Amended and Restated
Articles of Incorporation take the place of and supersede the existing Articles
of Incorporation and all amendments thereto, pursuant to Minnesota Statutes
Section 302A.135, as follows:
ARTICLE I.
NAME
The name of the corporation is Datalink Corporation.
ARTICLE II.
REGISTERED OFFICE
The registered office of this corporation is located at 7423 Washington
Avenue South, Minneapolis, Minnesota 55439.
ARTICLE III.
CAPITAL
3.01. The aggregate number of shares which this corporation shall have the
authority to issue is 50,000,000 shares, having par value of $.001.
3.02. The Board of Directors may, from time to time, establish by resolution
different classes or series of shares and may fix the relative rights and
preferences of said shares in any class or series.
3.03. The Board of Directors shall have the authority to issue shares of a
class or series to holders of shares of another class or series to effectuate
share dividends, splits, or conversion of its outstanding shares.
3.04. No shareholder of the corporation shall have any pre-emptive rights.
<PAGE> 2
3.05. No shareholder shall be entitled to any cumulative voting rights.
3.06. The shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of all voting shares represented at a
duly held meeting of the shareholders, except where a larger proportion is
required by law, these Articles, or a shareholder control agreement.
ARTICLE IV.
DIRECTOR LIABILITY LIMITATION
No director of the corporation shall be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that this Article shall not eliminate or limit any
liability of a director to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under section
302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction from
which the director derived an improper personal benefit, or (v) for any act or
omission occurring prior to the effective date of this Article. No amendment
to or repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the corporation for or with respect to
such amendment or repeal.
ARTICLE V.
WRITTEN ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting by written action signed by a majority
of the directors then in office, except as to those matters which require
shareholder approval, in which case the written action shall be signed by all
directors then in office.
IN WITNESS WHEREOF, I have subscribed my name to these Amended and Restated
Articles of Incorporation this 1st day of June, 1998.
/s/ Greg R. Meland
---------------------------------------
Greg R. Meland, Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 3.2
RESTATED BY-LAWS
OF
DATALINK CORPORATION
<PAGE> 2
CONTENTS OF RESTATED BY-LAWS
OF
DATALINK CORPORATION
<TABLE>
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ARTICLE 1. OFFICES ...................................................................... 1
1.01 Registered Office..................................................... 1
1.02 Other Offices......................................................... 1
ARTICLE II. MEETINGS OF SHAREHOLDERS....................................................... 1
2.01 Place of Meetings..................................................... 1
2.02 Time of Meetings...................................................... 1
2.03 Regular Meetings...................................................... 1
2.03-a Frequency of Meetings.......................................... 1
2.03-b Demand by Shareholders for
a Regular Meeting.................................... 1
2.03-c Election of Directors......................................... 1
2.04 Special Meetings...................................................... 2
2.05 Notice of Meetings.................................................... 2
2.06 Waiver of Notice...................................................... 2
2.07 Purpose of Special Meetings........................................... 2
2.08 Quorum; Adjournment................................................... 2
2.09 Vote Required......................................................... 2
2.10 Voting Rights......................................................... 3
2.11 Proxies............................................................... 3
2.12 Action in Writing..................................................... 3
2.13 Closing of Books; Record Date......................................... 3
ARTICLE III. DIRECTORS...................................................................... 4
3.01 General Powers........................................................ 4
3.02 Number and Qualification.............................................. 4
3.03 Vacancies............................................................. 4
3.04 Meetings.............................................................. 4
3.04-a Place of Meeting............................................... 4
3.04-b Regular Meetings............................................... 4
3.04-c Special Meetings............................................... 4
3.04-d Notice......................................................... 4
3.04-e Quorum; Voting Requirements; Adjournment....................... 5
3.04-f Organization of Meetings....................................... 5
3.04-g Action in Writing.............................................. 5
3.04-h Absent Directors............................................... 5
3.05 Committees............................................................ 6
3.05-a Executive Committee........................................... 6
</TABLE>
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<TABLE>
<S> <C> <C>
3.05-b Committee of Disinterested Persons............................ 6
3.05-c Other Committees.............................................. 6
3.05-d Limitations on Authority...................................... 6
3.05-e Minutes of Committee Meetings................................. 7
3.06 Telephone Conference Meetings......................................... 7
3.07 Compensation.......................................................... 7
3.08 Limitation of Director's Liabilities.................................. 7
3.09 Removal............................................................... 7
ARTICLE IV. OFFICERS ...................................................................... 7
4.01 Selection; Qualification.............................................. 7
4.01-a Election; Qualifications...................................... 7
4.01-b Additional Officers........................................... 7
4.02 Salaries.............................................................. 8
4.03 Term of Office........................................................ 8
4.04 Chair of the Board of Directors....................................... 8
4.05 Chief Executive Officer............................................... 8
4.06 Vice-President........................................................ 8
4.07 Secretary............................................................. 8
4.08 Treasurer............................................................. 8
4.08-a Custody of Funds and Accounting............................... 8
4.08-b Disbursements and Reports..................................... 9
4.08-c Bond.......................................................... 9
ARTICLE V. CERTIFICATES FOR SHARES........................................................ 9
5.01 Issuance of Shares and Fractional Shares.............................. 9
5.02 Form of Certificate................................................... 9
5.03 Facsimile Signatures.................................................. 10
5.04 Lost, Stolen, or Destroyed Certificates............................... 10
5.05 Transfers of Stock.................................................... 10
5.06 Uncertificated Shares................................................. 10
5.07 Closing of Books; Record Date......................................... 11
5.08 Registered Stockholders............................................... 11
5.09 Stock Options and Agreements.......................................... 11
ARTICLE VI. DIVIDENDS...................................................................... 11
6.01 Method of Payment..................................................... 11
6.02 Closing of Books; Record Date......................................... 11
6.03 Reserves.............................................................. 11
6.04 Determining Fair Market Value......................................... 12
ARTICLE VII. CHECKS ...................................................................... 12
7.01 ...................................................................... 12
ARTICLE VIII. CORPORATE SEAL................................................................. 12
8.01 ...................................................................... 12
ARTICLE IX. FISCAL YEAR.................................................................... 12
9.01 ...................................................................... 12
</TABLE>
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<TABLE>
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ARTICLE X. AMENDMENTS..................................................................... 12
10.01 ............................................................. 12
ARTICLE XI: BOOKS AND RECORDS ............................................................. 12
11.01 Books and Records..................................................... 12
11.02 Documents Kept at Principal Executive
or Registered Office........................................... 13
11.03 Financial Statements.................................................. 13
11.04 Computerized Records.................................................. 13
ARTICLE XII INSPECTION OF BOOKS ........................................................... 14
12.01 Examination and Copying by Shareholder ............................... 14
12.02 Information to Shareholders .......................................... 14
ARTICLE XIII LOANS AND ADVANCES............................................................. 14
13.01 Loans, Guarantees, and Suretyship..................................... 14
13.02 Advances to Officers, Directors, and Employees........................ 14
ARTICLE XIV INDEMNIFICATION ............................................................. 14
14.01 ............................................................. 14
ARTICLE XV DEFINITIONS AND USAGE.......................................................... 15
15.01 Singular, Plural; Masculine
Feminine, and Neuter.................................................. 15
</TABLE>
iii
<PAGE> 5
RESTATED BY-LAWS
OF
DATALINK CORPORATION
ARTICLE I: OFFICES
Section 1.01. Registered Office. The registered office of the Corporation
in Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or in a certificate
prepared by the Board of Directors and filed with the Secretary of State of
Minnesota changing the registered office.
Section 1.02. Other Offices. The Corporation may also have offices and
places of business at such other places of business both within and without the
State of Minnesota as the Board of Directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II. MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. All meetings of the shareholders of the
Corporation shall be held in its registered office or at such other place within
or without the State of Minnesota as shall be stated by the Board of Directors
in the notice of the meeting. In the absence of designation otherwise, meetings
shall be held at the registered office of the Corporation in the State of
Minnesota.
Section 2.02. Time of Meetings. The Board of Directors shall designate the
time and day for each meeting. In the absence of such designation, every meeting
of the shareholders shall be held at ten o'clock A.M.
Section 2.03. Regular Meetings.
Section 2.03-a. Frequency of Regular Meetings. Regular meetings of
shareholders may be held on an annual or less frequent basis, but need not
be held unless required by Section 2.03-b hereof or by applicable law.
Section 2.03-b. Demand by Shareholders for a Regular Meeting. A
shareholder or shareholders holding three percent (3%) or more of the
voting power of all shares entitled to vote may demand that a regular
meeting of the shareholders be held within ninety (90) days of such demand
in the county where the principal executive office of the Corporation is
located if a regular meeting of the shareholders has not been held during
the fifteen (15) months immediately preceding such demand. The demand shall
be in writing and shall be delivered to the Chief Executive Officer or
Secretary. The Board shall call for such a shareholders' meeting on notice
within thirty (30) days of receipt of the demand.
Section 2.03-c. Election of Directors. At the regular meeting the
shareholders, voting as provided in the Articles of Incorporation or in
these Restated By-Laws, may designate any change in the number of Directors
to constitute the Board of Directors, shall elect a Board of Directors, and
shall transact such other business as may properly come before the meeting.
1
<PAGE> 6
Section 2.04. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Chief Executive Officer or the
Board of Directors and shall be called by the Chief Executive Officer or
Secretary at the request in writing of any two or more members of the Board of
Directors or at the request in writing of one or more shareholders owning a
total of ten percent (10%) or more of the voting power of all shares entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 2.05. Notice of Meetings. Notice of meetings shall be in writing.
Such notice shall state the place, date and time of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called. A
copy of such notice shall be either delivered personally or mailed, postage
prepaid, to each shareholder of record entitled to vote at such meeting pursuant
to Section 2.13 hereof not less than ten (10) nor more than sixty (60) days
before such meeting. If mailed, it shall be directed to each shareholder at his
address as it appears upon the records of the Corporation, and upon such mailing
of any such notice, the service thereof shall be complete, and the time of the
notice shall begin to run from the date that such notice is deposited in the
mail for transmission to such shareholder. Personal delivery of any such notice
to a corporation, an association, or a partnership shall be accomplished by
personal delivery of such notice to any officer of a corporation or an
association or to any member of a partnership.
Section 2.06. Waiver of Notice. Notice of any meeting of the shareholders
may be waived before, at, or after such meeting in a writing signed by the
shareholder or representative thereof entitled to vote the shares so
represented. Such waiver shall be filed with the Secretary or entered upon the
records of the meeting.
Section 2.07. Purpose of Special Meeting. Business transacted at any
special meeting of the shareholders shall be limited to the matters stated in
the notice, or other matters necessarily incidental therefor.
Section 2.08. Quorum; Adjournment. The holders of a majority of the voting
power of all shares entitled to vote, present in person or represented by proxy,
shall constitute a quorum for the transaction of all meetings of the
shareholders, except as may be otherwise provided by statute or by the Articles
of Incorporation. If, however, such quorum shall not be present or represented
at any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the original meeting in
accordance with the notice thereof. If a quorum is present when a duly called or
held meeting is convened, the shareholders present in person or represented by
proxy may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders originally present in person or by proxy to
leave less than a quorum, and for the purposes of voting pursuant to Section
2.09 hereof, shareholders holding a majority of the voting power of all shares
entitled to vote shall be deemed to be present in person.
Section 2.09. Vote Required. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the voting power of all shares
entitled to vote present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one that by express
provision of statute or of the Articles of Incorporation or of these Restated
By-Laws requires a different vote, in which case such express provision shall
govern the vote required.
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<PAGE> 7
Section 2.10. Voting Rights. Except as may be otherwise required by statute
or the Articles of Incorporation or these Restated By-Laws, every shareholder of
record of the Corporation shall be entitled at each meeting of the shareholders
to one vote for each share of stock standing in his name on the books of the
Corporation.
Section 2.11. Proxies. At any meeting of the shareholders, any shareholder
may be represented and vote by a proxy or proxies appointed by an instrument in
writing, signed by the shareholder, and filed with the Secretary at or before
the meeting. In addition, a shareholder of a publicly held corporation may cast
or authorize the casting of a vote by a proxy by transmitting to the Corporation
or the Corporation's duly authorized agent before the meeting, an appointment of
a proxy by means of a telegram, cablegram, or any other form of electronic
transmission, including telephonic transmission, whether or not accompanied by
written instructions of the shareholder. The electronic transmission must set
forth or be submitted with information from which it can be determined that the
appointment was authorized by the shareholder. If it is determined that a
telegram, cablegram, or other electronic transmission is valid, the inspectors
of election or, if there are no inspectors, the other persons making that
determination shall specify the information upon which they relied to make that
determination.
An appointment of a proxy or proxies for shares held jointly by two or more
shareholders is valid if signed by any one of them, unless and until the
Corporation receives from any one of those shareholders written notice denying
the authority of such other person or persons to appoint a proxy or proxies or
appointing a different proxy or proxies, in which case no proxy shall be
appointed unless the instrument shall otherwise provide. If the proxies present
at the meeting are equally divided on an issue, the shares represented by such
proxies shall not be voted on such issue. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution unless coupled
with an interest or unless the person executing it specifies therein the length
of time for which it is to continue in force, which in no case shall exceed
three (3) years from the date of its execution. Subject to the above, any duly
executed proxy shall continue in full force and effect and shall not be revoked
unless written notice of its revocation or a duly executed proxy bearing a later
date is filed with the Secretary of the Corporation.
Section 2.12. Action in Writing. Except as may be otherwise required by
statute or the Articles of Incorporation, any action required or permitted to be
taken at any meeting of shareholders of the Corporation may be taken without a
meeting, without prior notice, and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock that would be entitled to vote thereon at a meeting of the shareholders.
Section 2.13. Closing of Books; Record Date. The Board of Directors may
fix, or authorize an officer to fix, a date, not exceeding sixty (60) days
preceding the date of any meeting of the shareholders of the Corporation, as a
record date for the determination of the shareholders of record on the date so
fixed or their legal representatives shall be entitled to notice of and to vote
at such meeting, notwithstanding any transfer of shares on the books of the
Corporation against the transfer of shares during the whole or any part of such
period. If the Board of Directors or an authorized officer fails to fix such a
record date, the record date shall be the twentieth (20th) day preceding the
date of such meeting.
3
<PAGE> 8
ARTICLE III. DIRECTORS
Section 3.01. General Powers. The business of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are by statute or by the
Articles of Incorporation or by these Restated By-Laws directed or required to
be exercised or done by the shareholders.
Section 3.02. Number and Qualification. The number of Directors that shall
constitute the whole Board shall be at least one (1). In the absence of a
resolution of the Directors, the number of Directors shall be the number last
fixed by the shareholders or the Directors; provided, however, that the Board of
Directors may not decrease the number of Directors below the number last
designated by the shareholders. Directors need not be shareholders. Each of the
Directors shall hold office until the next succeeding regular meeting of
shareholders and until his successor shall have been duly elected and qualified,
or until his earlier resignation or removal from office as hereinafter provided.
Section 3.03. Vacancies. In the event that any member of the Board of
Directors shall resign, die, be removed from office, become disqualified, or
refuse to act during his term of office, or any vacancy or vacancies in the
Board of Directors shall occur for any other reason, such vacancy or vacancies
may be filled by a majority vote of the remaining members of the Board of
Directors, although less than a quorum, the provisions of Section 3.04-e hereof
notwithstanding. However, in the event that there are no duly elected and
qualified Directors remaining in office, then the shareholders shall elect by
majority vote a new Director or new Directors to fill such vacancy or vacancies.
The voting by the shareholders to fill such vacancy or vacancies shall be
conducted as provided in the Articles of Incorporation and these Restated
By-Laws. When one or more Directors shall give notice of his or their
resignation to the Board, effective at a future date, the Board shall have power
to fill such vacancy or vacancies to take effect when such resignation or
resignations shall become effective. Each Director elected to hold office as
provided in this Section 3.03 shall hold office until the next succeeding
regular meeting of the shareholders and until his successor shall have been
elected and qualified, or until his earlier resignation or removal from office
as hereinafter provided.
Section 3.04. Meetings.
Section 3.04-a. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Minnesota.
Section 3.04-b. Regular Meetings. As soon as practicable after each
regular election of Directors, the Board of Directors shall meet at the
registered office of the Corporation, or at such other place within or
without the State of Minnesota as may be designated by the Board of
Directors, for the purpose of electing the officers of the Corporation and
for the transaction of such other business as shall come before the
meeting. Other regular meetings of the Board of Directors may be held
without notice at such time and place within and without the State of
Minnesota as shall from time to time be determined by resolution of the
Board of Directors.
Section 3.04-c. Special Meetings. Special meetings of the Board of
Directors may be called by the Chief Executive Officer or Secretary or by
one or more Directors and shall be held at such time and place as shall be
designated in the notice of such meeting.
Section 3.04-d. Notice. Notice of a special meeting shall be given to
each Director at least 24 hours before the time of the meeting, or at the
earliest time possible thereafter, but prior
4
<PAGE> 9
to such meeting, if it is impractical to give such notice 24 hours in
advance. Notice may be given by any means calculated to apprise the
Directors of the time, place and subject matter of the special meeting.
Notice by mail shall be deemed to be given at the time when the same shall
be mailed, such mailing to take place at least three (3) business days
prior to such meeting. Whenever any provision of law, the Articles of
Incorporation, or the Restated By-Laws require notice to be given, any
Director may, in writing, either before or after the meeting, waive notice
thereof. Without notice, any Director, by his attendance at and
participation in the action taken at the meeting, shall be deemed to have
waived notice thereof.
Section 3.04-e. Quorum; Voting Requirements; Adjournment. A majority
of the Board of Directors then in office shall be necessary to constitute a
quorum for the transaction of business, and the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors, except as may be otherwise specifically
provided by statute or by the Articles of Incorporation or these Restated
By-Laws.
If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting to another
time or place, and no notice as to such adjourned meeting need be given
other than by announcement at the meeting at which such adjournment is
taken. If a quorum is present at the call of a meeting, the Directors may
continue to transact business until adjournment notwithstanding the
withdrawal of enough Directors to leave less than a quorum.
Section 3.04-f. Organization of Meetings. At all meetings of the Board
of Directors, the Chair of the Board, if appointed, or in his absence, the
Chief Executive Officer, or in his absence, any Director appointed by the
Chief Executive Officer, shall preside, and the Secretary, or in his
absence, any person appointed by the Chief Executive Officer, shall act as
Secretary.
Section 3.04-g. Action in Writing. Except as may be otherwise required
by statute or the Articles of Incorporation, any action required or
permitted to be taken at any meeting of the Board of Directors of the
Corporation may be taken without a meeting, without prior notice, and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the number of Directors that would be necessary to
authorize or take such action at a meeting at which all Directors entitled
to vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous consent shall be
given to those Directors who have not consented in writing.
Section 3.04-h. Absent Directors. A Director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the
Board of Directors. Such advance written consent or opposition shall be
ineffective unless the writing is delivered to the Chief Executive Officer
or Secretary of the Corporation prior to the meeting at which such proposal
is to be considered. If the Director is not present at the meeting, consent
or opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but such consent or opposition shall
be counted as a vote in favor of or against the proposal and shall be
entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the Director has
consented or objected, such substantial similarity to be determined in the
sole judgment of the presiding officer at the meeting.
5
<PAGE> 10
Section 3.05. Committees.
Section 3.05-a. Executive Committee. The Board of Directors may, by
affirmative action of a majority of the Directors present, establish an
Executive Committee consisting of two (2) or more Directors of the
Corporation. Such Committee may meet at stated times or on notice by any
Committee member to all other members. The Executive Committee, to the
extent determined by such action of the Board, shall have and exercise the
authority of the Board and the management of the business of the
Corporation. Any such Executive Committee shall act only in the interval
between meetings of the Board and shall be subject at all times to the
control and direction of the Board.
Section 3.05-b. Committee of Disinterested Persons. The Board of
Directors may establish a Committee composed of two (2) or more
disinterested Directors or other disinterested persons to determine whether
it is in the best interests of the Corporation to pursue a particular legal
right or remedy of the Corporation or whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or
remedy on behalf of the Corporation. For purposes of this Section 3.05-b, a
Director or other person is "disinterested" if the Director or other person
is not the owner of more than one percent (1%) of the outstanding shares of
stock of the Corporation, is not currently an officer, employee, or agent
of the Corporation or of a related corporation, has not been an officer
within the immediately preceding two (2) years, and has not been made or
threatened to be made a party to the proceeding in question. The Committee,
once established, is not subject to the direction or control of, or
termination by, the Board of Directors. A vacancy on the Committee may be
filled by a majority vote of the remaining members. The good faith
determination of the Committee is binding upon the Corporation and its
Directors, officers, and shareholders. The Committee shall be dissolved
upon the issuance of a final written report of its determinations to the
Board of Directors.
Section 3.05-c. Other Committees. The Board of Directors may
establish, by affirmative action of a majority of the Directors present,
other committees from time to time (including a Compensation and an Audit
Committee), making such regulations as it deems advisable with respect to
the membership, authority, and procedures of such committees.
Section 3.05-d. Limitations on Authority. No committees of the
Corporation shall have authority as to any of the following matters:
(a) The submission to shareholders of any action as to which
shareholders' authorization is required by law;
(b) The filling of vacancies on the Board of Directors or on any
committees;
(c) The fixing of compensation of any Director for serving on the
Board or on any committee;
(d) The amendment or repeal of these Restated By-Laws or the adoption
of new Bylaws; or
(e) The amendment or repeal of any resolution of the Board, which by
its terms shall not be so amendable or repealable.
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<PAGE> 11
Section 3.05-e. Minutes of Committee Meetings. The committees
shall keep regular minutes of their proceedings and report the same to
the Board of Directors when required.
Section 3.06. Telephone Conference Meetings. Any Director or any
member of a duly constituted committee of the Board of Directors may
participate in any meeting of the Board of Directors or of any duly
constituted committee thereof my means of a conference telephone or other
comparable communication technique whereby all persons participating in
such a meeting can hear and communicate with each other. For the purpose of
establishing a quorum and taking any action at such a meeting, the members
participating in such a meeting pursuant to this Section 3.06 shall be
deemed present in person at such meeting.
Section 3.07. Compensation. Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors. Directors who
are not also salaried officers may be paid a fixed sum for attendance at
each meeting of the Board of Directors. Nothing herein contained shall
preclude any Director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee
meetings.
Section 3.08. Limitation of Directors' Liabilities. A Director shall
not be liable to the Corporation or its shareholders for dividends
illegally declared, distributions illegally made to shareholders, or any
other actions taken in good faith reliance upon financial statements of the
Corporation represented to him to be correct by the Chief Executive Officer
of the Corporation or the officer having charge of its books of account or
certified by an independent or certified public accountant to fairly
reflect the financial condition of the Corporation; nor shall he be liable
if in good faith in determining the amount available for dividends or
distributions the Board values the assets in a manner allowable under
applicable law.
Section 3.09. Resignation and Removal. Any director may resign at any
time by giving written notice to the Secretary. Such resignation shall take
effect on the date of the Secretary's receipt of such notice or at such
later date as specified therein. Except as otherwise provided by law, the
entire Board of Directors or any individual Director may be removed from
office with or without cause by a vote of the shareholders holding a
majority of the shares entitled to vote at an election of the Directors.
ARTICLE IV. OFFICERS
Section 4.01. Selection; Qualifications.
Section 4.01-a. Election: Qualifications. The Board of Directors at
its next meeting after each regular meeting of the shareholders shall
choose a Chief Executive Officer and a Chief Financial Officer, and such
other officers or agents as it deems necessary, none of whom need be
members of the Board. Any two or more of the offices, except those of Chief
Executive Officer and Vice President, may be held by the same person.
Section 4.01-b. Additional Officers. The Board of Directors may choose
a Secretary, additional Vice Presidents, Assistant Secretaries, and
Assistant Treasurers and such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to
time by the Board.
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<PAGE> 12
Section 4.02. Salaries. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 4.03. Term of Office. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time
with or without cause by the affirmative vote of a majority of the Board of
Directors. Any officer may resign at any time by giving written notice to
the Chief Executive Officer or the Secretary of the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal, or otherwise shall be filled by the Board of Directors. However,
in the event that there should be no duly elected and qualified Directors
remaining in office, then the shareholders shall elect a new Director or
new Directors to fill such vacancy or vacancies.
Section 4.04. Chair of the Board. If the Board shall appoint a Chair
of the Board of Directors, such Chair shall preside at all meetings of the
Board of Directors and of the shareholders and shall perform such other
duties as he may be directed to perform by the Board of Directors.
Section 4.05. Chief Executive Officer. The Chief Executive Officer
shall have general supervision over the affairs of the Corporation and over
the other officers. Unless the Board has appointed a Chair of the Board of
Directors, the Chief Executive Officer shall preside at all meetings of the
Board of Directors and of the shareholders. The Chief Executive Officer
shall, subject to approval of or review by the Board of Directors, appoint
and discharge employees and agents of the Corporation and fix their
compensation and make and sign contracts and agreements in the name and on
behalf of the Corporation. The Chief Executive Officer shall put into
operation such business policies of the Corporation as shall be decided
upon by the Board.
Section 4.06. Vice-Presidents. Unless otherwise determined by the
Board of Directors, the Vice Presidents, if any, shall, in the absence or
disability of the Chief Executive Officer, perform the duties and exercise
the powers of the Chief Executive Officer. They shall also generally assist
the Chief Executive Officer and exercise such other powers and perform such
other duties as are delegated to them by the Chief Executive Officer or as
the Board of Directors shall prescribe.
Section 4.07. Secretary. The Secretary, if any, shall attend all
meetings of the shareholders and of the Board of Directors and shall record
all the proceedings of the meetings of the shareholders and of the Board of
Directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required, and shall give, or cause
to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or the President, under whose
supervision he shall be.
Section 4.08. Chief Financial Officer.
Section 4.08-a. Custody of Funds and Accounting. The Chief
Financial Officer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit
all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board
of Directors.
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Section 4.08-b. Disbursements and Reports. The Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the
Board of Directors, at the regular meetings of the Board, or when the
Board of Directors so requires, an account of all his transactions as
Chief Financial Officer and of the financial condition of the
Corporation.
Section 4.08-c. Bond. If required by the Board of Directors, the
Chief Financial Officer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office
and for the restoration, upon the expiration of his term of office or
his resignation, retirement, or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
ARTICLE V. CERTIFICATES FOR SHARES
Section 5.01. Issuance of Shares and Fractional Shares. The Board of
Directors is authorized to issue shares and fractional shares of stock of the
Corporation up to the full amount authorized by the Articles of Incorporation in
such amounts as may be determined by the Board of Directors and as permitted by
law. No shares shall be allotted except in consideration of cash or other
property, tangible or intangible, received or to be received under a written
agreement by the Corporation, or services rendered or to be rendered under a
written agreement to the Corporation, or an amount transferred from surplus to
stated capital upon a share dividend. At the time of each such allotment of
shares, the Board of Directors shall state by resolution its determination of
the fair market value to the Corporation in monetary terms of any consideration
other than cash for which shares are allotted. The amount of consideration to be
received in cash or otherwise shall not be less than the par value of the shares
so allotted nor less than the stated capital to be represented by shares without
par value so allotted.
Section 5.02. Form of Certificate. The shares of the Corporation shall be
represented by a certificate or shall be uncertificated. Certificates shall be
signed by the Chief Executive Officer, a Vice President, the Chief Financial
Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of
the Corporation, certifying the number of shares of capital stock owned by him
in the Corporation. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the designations,
preferences, and relative, participating, optional, or other special rights of
the various classes of stock or series thereof and the qualifications,
limitations, or restrictions of such rights, together with a statement of the
authority of the Board of Directors to determine the relative rights and
preferences of subsequent classes or series, shall be set forth in full on the
face or back of the certificate which the Corporation shall issue to represent
such stock, or, in lieu thereof, such certificate shall contain a statement that
the stock is, or may be, subject to certain rights, preferences, or restrictions
and that a statement of the same will be furnished without charge by the
Corporation upon request by any shareholder. Certificates representing the
shares of the capital stock of the Corporation shall be in such form not
inconsistent with law or the Articles of Incorporation or these Restated By-Laws
as shall be determined by the Board of Directors.
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<PAGE> 14
Section 5.03. Facsimile Signatures. Whenever any certificate is
countersigned or otherwise authenticated by a transfer agent, transfer clerk, or
registrar, then a facsimile of the signatures of the officers or agents of the
Corporation may be printed or lithographed upon such certificate in lieu of the
actual signatures. In case any officer or officers who shall have signed, or
whose facsimile signature shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation, or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be signed and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be the officer or officers of the Corporation.
Section 5.04. Lost, Stolen, or Destroyed Certificates. The Board of
Directors may direct a new certificate or new certificates or uncertificated
shares to be issued in place of a certificate or certificates previously issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate or new certificates or uncertificated shares, the Board of Directors
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his legal representative, to advertise the same in such manner as it shall
require and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5.05. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books; except that the Board of Directors may, by
resolution duly adopted, establish conditions upon the transfer of shares of
stock to be issued by the Corporation, and the purchasers of such shares shall
be deemed to have accepted such conditions on transfer upon the receipt of the
certificate representing such shares, provided that the restrictions shall be
referred to on the certificates or the purchaser shall have otherwise been
notified thereof.
Section 5.06. Uncertificated Shares. Unless prohibited by the Articles of
Incorporation or these Restated By-Laws, some or all of any or all classes and
series of the Corporation's shares may be uncertificated shares. Upon receipt of
proper transfer instructions from the registered owner of uncertificated shares
such uncertificated shares shall be canceled and issuance of new equivalent
uncertificated shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
Corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the Corporation shall send to the new shareholder the
information required by Section 5.02 to be stated on certificates. If this
Corporation becomes a publicly held corporation which adopts, in compliance with
Section 17 of the Securities Exchange Act of 1934, a system of issuance,
recordation, and transfer of its shares by electronic or other means not
involving an issuance of certificates, this information is not required to be
sent to new shareholders.
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Section 5.07. Closing of Transfer Books; Record Date. The Board of
Directors or an officer of the Corporation authorized by the Board may close the
stock transfer books of the Corporation for a period not exceeding sixty (60)
days preceding the date of any meeting of shareholders as provided in Section
2.13 hereof or the date for payment of any dividend as provided in Section 6.02
hereof or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect. In lieu of closing
the stock transfer books as aforesaid, the Board of Directors or an officer of
the Corporation authorized by the Board may fix, in advance, a date, not
exceeding sixty (60) days preceding the date for payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the shareholders entitled to receive payment.
Section 5.08. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of the persons registered on its books as the
owners of shares to receive dividends and to vote as such owners and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided in the laws of Minnesota.
Section 5.09. Stock Options and Agreements. In addition to any stock
options, plans, or agreements into which the Corporation may enter, any
shareholder of the Corporation may enter into an agreement giving at any other
shareholder or shareholders or any third party an option to purchase any of his
stock in the Corporation, and such shares of stock shall thereupon be subject to
such agreement and transferable only upon proof of compliance therewith;
provided, however, that a copy of such agreement shall be filed with the
Corporation and reference thereto placed upon the certificates representing said
shares of stock.
ARTICLE VI. DIVIDENDS
Section 6.01. Method of Payment. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Articles of
Incorporation.
Section 6.02. Closing of Books; Record Date. The Board of Directors or an
officer of the Corporation authorized by the Board may fix a date not exceeding
sixty (60) days preceding the date fixed for the payment of any dividend as the
record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend
notwithstanding any transfer of shares on the books of the Corporation after the
record date. The Board of Directors or an officer of the Corporation authorized
by the Board may close the books of the Corporation against the transfer of
shares during the whole or any part of such period. If the Board of Directors or
an officer of the Corporation authorized by the Board fails to fix such a record
date, the record date shall be the twentieth (20th) day preceding the date of
such payment.
Section 6.03. Reserves. Before payment of any dividend, there may be set
aside out of the funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves for meeting contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall think conducive to the
interest of the Corporation, and the Board may modify or abolish any such
reserve in the manner in which it was created.
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Section 6.04. Determining Fair Market Value. The Board of Directors in
computing the fair market value of the assets of the Corporation to determine
whether the Corporation may pay a dividend or purchase its shares shall not
include unrealized appreciation of assets, except that readily marketable
securities of other issuers may be valued at not more than market value.
ARTICLE VII: CHECKS
Section 7.01. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
ARTICLE VIII: CORPORATE SEAL
Section 8.01. The Corporation shall have no corporate seal.
ARTICLE IX: FISCAL YEAR
Section 9.01. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
ARTICLE X. AMENDMENTS
Section 10.01. These by-laws may be altered, amended or repealed at any
regular meeting of the stockholders or any special meeting of the shareholders
if notice of such alternation or repeal shall be contained in the notice of such
special meeting. These by-laws may be altered or amended by action of the Board
of Directors at any regular or special meeting, provided that such alternations
and/or amendments shall be subject to the power of the holders of a majority of
the outstanding stock to change or repeal such by-laws, and, provided, further,
that the Board of Directors shall not make, alter, or repeal any by-laws fixing
a quorum for meetings or shareholders, prescribing procedures for removing
Directors or filling vacancies on the Board of Directors, or fixing the number
of Directors or their classifications, qualifications, or terms of office,
except that the Board of Directors may adopt or amend a by-law to increase the
number of Directors or to decrease such number to not less than the number last
designated by the shareholders.
ARTICLE XI: BOOKS AND RECORDS
Section 11.01. Books and Records. The Board of Directors of the Corporation
shall cause to be kept:
(a) a share register not more than one year old, giving the names and
addresses of the shareholders, the number and classes held by
each, and the dates on which the certificated or uncertificated
shares were issued;
(b) records of all proceedings of shareholders and Directors; and
(c) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
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Section 11.02. Documents kept at Principal Executive or Registered Office.
The Board of Directors shall cause to be kept at the principal executive or
registered office of the Corporation originals or copies of:
(a) records of all proceedings of shareholders and Directors for
the past three (3) years;
(b) Articles and Bylaws of the Corporation and all amendments
thereto;
(c) reports made to any or all shareholders within the
immediately preceding three (3) years;
(d) a statement of the names and usual business addresses of the
Directors and principal officers of the Corporation;
(e) voting trust agreements;
(f) shareholder control agreements; and
(g) financial statements as described in Section 11.03 hereof,
if such statements have been prepared by or for the
Corporation.
Section 11.03. Financial Statements. To the extent that they have been
prepared by or for the Corporation, the financial statements required to be kept
by the Board of Directors at the principal executive or registered office of the
Corporation pursuant to Section 11.02(g) hereof are as follows:
(1) Annual Financial Statements. The Corporation shall keep
annual financial statements for the Corporation, including
at least a balance sheet as of the end of, and a statement
of income for, each fiscal year.
(2) Interim Financial Statements. The Corporation shall keep
financial statements for the most recent interim period
prepared in the course of the operations of the Corporation
for distribution to the shareholders or to a governmental
agency as a matter of public record.
Section 11.04. Computerized Records. The records maintained by the Company,
including its share register, financial records, and minute books, may utilize
any information storage technique, including, for example, punched holes,
printed or magnetized spots, or micro-images, even though that makes them
illegible visually, if the records can be converted, by machine and within a
reasonable time, into a form that is legible visually and whose contents are
assembled by related subject matter to permit convenient use by persons in the
normal course of business. The Company shall convert any such records to
legible form upon the request of a person entitled to inspect them under
Section 12.01 hereof, and the expense of the conversion shall be borne by the
person who bears the expense of copying pursuant to Section 12.01.
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ARTICLE XII. INSPECTION OF BOOKS
Section 12.01. Examination and Copying by Shareholders. Every shareholder
of the Corporation and every holder of a voting trust certificate shall have a
right to examine, in person or by agent or attorney, at any reasonable time or
times, and at the place or places where usually kept, the share register and
all documents identified in Section 11.02 hereof. Other documents may be
examined and copied (at the expense of the examining party) only upon the
showing of a proper purpose. The expense of copying all documents identified in
Section 11.02 hereof shall be borne by the Corporation. The Corporation shall
bear the expense of copying the share register only if the shareholder shows a
proper purpose.
Section 12.02. Information to Shareholders. Upon the written request by a
shareholder of the Corporation, the Board of Directors shall furnish to him the
most recent annual financial statement of the Corporation described in Section
11.03(1) hereof.
ARTICLE XIII. LOANS AND ADVANCES
Section 13.01. Loans, Guarantees, and Suretyship. The Corporation may lend
money to, guarantee an obligation of, become a surety for, or otherwise
financially assist a person, if the transaction, or a class of transactions to
which the transaction belongs, is approved by the affirmative vote of a majority
of the Directors present at a lawfully convened meeting and such action (a) is
in the usual and regular course of business of the Corporation, (b) is with, or
for the benefit of, a related corporation, an organization with which the
Corporation has the power to make donations, (c) is with, or for the benefit of,
an officer or other employee of the Corporation or a subsidiary, including an
officer or employee who is a Director of the Corporation or a subsidiary, and
may reasonably be expected, in the judgment of the Board of Directors, to
benefit the Corporation, or (d) has been approved by the affirmative vote of the
holders of two-thirds (2/3) of the outstanding shares of the Corporation. The
loan, guarantee, or other assistance may be with or without interest and may be
unsecured or may be secured in any manner that a majority of the Board of
Directors approves, including, without limitation, a pledge of or other security
interest in shares of the Corporation.
Section 13.02. Advances to Officers, Directors, and Employees. The
Corporation may, without a vote of the Directors, advance money to its
Directors, officers, or employees to cover expenses that can reasonably be
anticipated to be incurred by them in the performance of their duties and for
which they would be entitled to reimbursement in the absence of an advance.
ARTICLE XIV: INDEMNIFICATION
Section 14.01. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceedings, wherever brought, whether civil,
criminal, arbitration, administrative, or investigative, whether or not by or in
the right of the Corporation, by reason of such person's being or having been a
Director, officer, member of a committee, employee, or agent of the Corporation,
against expenses, including without limitation, attorney's fees and
disbursements, judgments, fines, penalties, excise taxes assessed against the
person with respect to an employee benefit plan, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
proceeding to the fullest extent allowable pursuant to and in accordance with
the provisions of the Minnesota Business Corporation Act, as amended from time
to time; provided, however, that in the event said Act shall be amended to
increase or expand the permitted indemnification of persons provided for
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therein, the Corporation shall be deemed to have adopted such amendment as of
its effective date, and provided that such indemnification shall be limited by
other applicable law.
ARTICLE XV: DEFINITIONS AND USAGE
Section 15.01. Singular, Plural, Masculine, Feminine, and Neuter. Whenever
the context of these Restated By-Laws requires, the plural shall be read to
include the singular, and vice versa; and words of the masculine gender shall
refer to the feminine gender, and vice versa; and words of the neuter gender
shall refer to any gender.
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Secretary of the
Corporation, does hereby certify that the foregoing Restated By-Laws
constituting pages numbered one through 15 were duly adopted as the by-laws of
the Corporation in accordance with law.
/s/ Jeffrey C. Robbins
-----------------------
Secretary
<PAGE> 1
EXHIBIT 10.1
DATALINK CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors and Shareholders effective as
of June 1, 1998, and effective upon the initial
closing of the Initial Public Offering
of the Common Stock of Datalink Corporation
ARTICLE I
PURPOSE
The purpose of this Datalink Corporation Employee Stock Purchase
Plan (this "Plan") is to provide a convenient and practical means through which
employees of Datalink Corporation (the "Company") may participate in stock
ownership of the Company. The Company believes this Plan will be to the mutual
benefit of the employees and the Company by creating a greater community of
interest between the Company's stockholders and its employees and by permitting
the Company to compete with other companies in obtaining and retaining the
services of competent employees. The Company intends for this Plan to constitute
an "employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code of 1986.
ARTICLE II
DEFINITIONS
The following terms, when capitalized, shall have the meanings
specified below unless the context clearly indicates to the contrary:
2.1 ACCOUNT shall mean each separate account maintained for a Participant under
this Plan, collectively or singly as the context requires. Each Account shall be
credited with a Participant's contributions. A Participant shall be fully vested
in the cash contributions to his or her Account at all times. The Plan
Administrator may create special types of Accounts for administrative
convenience or other reasons.
2.2 BENEFICIARY shall mean a person or entity entitled under Section 6.2 to
receive Shares purchased by, and any remaining balance in, a Participant's
Account on the Participant's death.
2.3 BOARD shall mean the Board of Directors of the Company.
2.4 CODE shall mean the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMITTEE shall mean the Compensation Committee, if any, appointed by the
Board of Directors of the Company.
2.6 COMPENSATION shall mean the total cash compensation (except as otherwise set
forth below) paid to the Employee in the period in question for services
rendered to the Employer while a Participant. Compensation shall include the
salary and wages deferred by an Employee pursuant to a salary reduction
arrangement under any cash or deferred or cafeteria plan that is maintained by
the Employer and that is intended to qualify under Sections 401(k) or 125 of the
Code. An Employee's Compensation shall not include (a) severance pay, (b) hiring
or relocation bonuses, or (c) pay in lieu of vacations or sick leave.
<PAGE> 2
2.7 COMMON STOCK shall mean the Common Stock, .001 par value, of the Company.
2.8 DISABILITY shall refer to a mental or physical impairment that is expected
to result in death or which has lasted or is expected to last for a continuous
period of twelve (12) months or more and which prevents the Employee, in the
opinion of the Company and two independent physicians, to perform his or her
duties as an employee of the Company and to engage in any substantial gainful
activity. Disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians furnish their opinion of Disability
to the Plan Administrator.
2.9 EMPLOYEE shall mean an individual who renders services to his or her
Employer pursuant to a continuing, regular employment relationship. A person
rendering services to an Employer purportedly as an independent contractor or
consultant shall not be an Employee for purposes of this Plan.
2.10 EMPLOYER shall mean, both individually and collectively, the Company and
any Subsidiary, or any successor entity that continues this Plan. All Employees
of entities that constitute the Employer shall be treated as employed by a
single entity for all Plan purposes, except that:
(a) No person shall become a Participant except while employed by
an entity that is an Employer;
(b) A Participant shall cease to be a Participant if he or she
transfers to an entity that is not an Employer and ceases to be
employed by an Employer;
(c) An Employer shall cease to be an Employer for purposes of this
Plan, and a Participant who is an Employee of such an Employer shall
cease to be a Participant, upon the happening of any event, or the
consummation of any transaction, which causes the Employer to cease
being an Employer, as defined above; and
(d) Amounts paid by entities other than the Employer shall be ignored
in determining Compensation under this Plan.
In contexts in which actions are required or permitted to be taken
or notices to be given, the Employer shall mean the Company or any successor
corporation.
2.11 EMPLOYMENT shall mean the period during which an individual is an Employee.
Employment shall commence on the day the individual first performs services for
the Employer as an Employee and shall terminate on the day such services cease
as determined under Article VI.
2.12 ENROLLMENT DATE shall mean the first day of the applicable Offering.
2.13 OFFERING shall mean a period of time established by the Plan Administrator
for the accumulation of payroll deductions for the purchase of Shares. Offerings
shall be each calendar quarter, commencing with the effective date of the
Registration Statement referred to in Section 11.7.
2.14 PARTICIPANT shall mean any Employee who is participating in any Offering
under this Plan pursuant to Article III.
2.15 PAYROLL DEDUCTION AUTHORIZATION FORM shall mean the form provided by the
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<PAGE> 3
Company for eligible Employees to elect to participate by designating the rate
of his or her Compensation to be contributed to his or her Account through
payroll deductions.
2.16 PLAN ADMINISTRATOR shall mean the Board or the Committee, whichever shall
be administering the Plan from time to time in the discretion of the Board, as
described in Article VIII.
2.17 PURCHASE DATE shall mean the last day of the applicable Offering.
2.18 RETIREMENT shall mean a Participant's termination of Employment on or after
attaining the age of 59 1/2 or after the Plan Administrator has determined
that he or she has suffered a Disability.
2.19 SHARE shall mean one share of Common Stock adjusted in accordance with
Section 9.2 (if applicable).
2.20 SUBSIDIARY shall mean any corporation, association or other business entity
at least fifty percent (50%) or more of the total combined voting power of all
classes of stock of which is owned or controlled directly or indirectly by the
Company or one or more of such subsidiary entities or both.
2.21 VALUATION DATE shall mean the date upon which the fair market value of
Shares is to be determined for purposes of setting the price of Shares under
Section 5.3 (that is, the Enrollment Date or the Purchase Dates for each
Offering). If the Enrollment Date is not a date on which the fair market value
may be determined in accordance with Section 5.3, the Valuation Date shall be
the first day after the Enrollment Date for which such fair market value may be
determined. If the Purchase Date is not a date on which the fair market value
may be determined in accordance with Section 5.3, the Valuation Date shall be
the first date prior to the Purchase Date on which such fair market value may be
determined.
2.22 VESTED shall mean non-forfeitable.
ARTICLE III
EMPLOYEE PARTICIPATION
3.1 PARTICIPATION. Subject to the provisions of this Article III, an Employee
may elect to participate in this Plan, effective as of any Enrollment Date, by
completing and filing a Payroll Deduction Authorization Form as provided in
Section 4.1.
3.2 REQUIREMENTS FOR PARTICIPATION.
(a) An Employee shall be eligible to participate in this Plan on the
first Enrollment Date on which he or she first meets all of the
following requirements:
(i) The Employee's customary period of Employment is for more
than twenty (20) hours per week; and
(ii) The Employee's customary period of Employment is for more
than five (5) months in any calendar year.
(b) Employees who are also directors or officers of the Company may
participate only in accordance with section 16(b) of the Securities
Exchange Act of 1934, as amended,
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particularly Rule 16b-3 issued thereunder, as in effect from time to
time.
(c) Any eligible Employee may enroll or re-enroll in this Plan as of
the first trading day of any Offering by filing timely written notice
of such participation, subject to the following provisions:
(i) In order to enroll in this Plan initially, an eligible
employee must complete, sign and submit to the Company a
Payroll Deduction Authorization Form. Any Payroll Deduction
Authorization Form received by the Company before the 15th day
of the month preceding an Enrollment Date, or such other
deadline established by the Plan Administrator from time to
time, will be effective on that Enrollment Date.
(ii) Absent withdrawal from this Plan pursuant to Section 6.4,
a Participant will automatically be re-enrolled in this Plan
on the next Enrollment Date immediately following the Offering
of which he or she is then a Participant.
(d) A Participant shall become ineligible to participate in this Plan
and shall cease to be a Participant when any of the following occurs:
(i) His or her Employment terminates;
(ii) He or she owns Shares possessing five percent (5%)
or more of the combined voting power or value of all
classes of stock of the Company or a parent or
Subsidiary of the Company. For purposes of determining
share ownership, the rules of Section 424(d) of the Code
shall apply and Shares that the Employee may purchase
under any Vested options or rights to purchase shall be
treated as Shares owned by the Employee; or
(iii) Upon the happening of any event or the
consummation of any transaction which causes the entity
of which the Participant is an Employee to cease being
an Employer as defined in Section 2.10.
(e) A Participant shall cease to be a Participant, but shall be
eligible to participate in this Plan with respect to any subsequent
Offering, if he or she notifies the Company in writing of his or her
desire to withdraw from participation in this Plan.
3.3 CESSATION OF PARTICIPATION. A Participant whose participation has ceased in
accordance with Sections 3.2(d) and (e) shall have the rights provided in
Article VI.
3.4 VOLUNTARY PARTICIPATION. Participation in this Plan shall be voluntary.
ARTICLE IV
PAYROLL DEDUCTIONS
4.1 PAYROLL DEDUCTION AUTHORIZATION. An Employee may contribute to this Plan
only by means of payroll deductions. Other than as set forth in Section
3.2(c)(ii), a Payroll Deduction Authorization Form must be filed with the
enrolling individual's payroll office no later than the fifteenth (15th) day of
the month prior to the Enrollment Date as of which the payroll deductions are to
take effect.
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4.2 AMOUNT OF DEDUCTIONS. A Participant may specify the rate at which he or she
desires to contribute to this Plan, which rate shall not be less than one
percent (1%) and not more than ten percent (10%) of the Participant's
Compensation during each pay period in the Offering. For administrative
convenience, the Company may round off Participant contributions to an even
dollar amount, such as the nearest $1.00 increment. A Participant's particular
election shall apply during any period of continuous participation in the Plan,
unless modified or discontinued as provided in Section 4.5 or as otherwise
provided in this Plan. If a payroll deduction cannot be made in whole or in part
because the Participant's pay for the period in question is insufficient to fund
the deduction after having first withheld all other amounts deductible from his
or her pay, the amount that was not withheld cannot be made up by the
Participant nor will it be withheld from subsequent pay checks.
4.3 COMMENCEMENT OF DEDUCTIONS. Payroll deductions for a Participant shall
commence on the Enrollment Date of the Offering for which his or her Payroll
Deduction Authorization Form is effective and shall continue for future
Offerings, unless modified or discontinued as provided in Section 4.5 or as
otherwise provided in this Plan.
4.4 ACCOUNTS. All payroll deductions made for a Participant shall be credited
to his or her Account.
4.5 MODIFICATION OF AUTHORIZED DEDUCTIONS.
(a) A Participant may at any time discontinue his or her payroll
deductions, effective for all subsequent payroll periods, by completing
an amended Payroll Deduction Authorization Form and filing it with his
or her payroll office. At such time, the Participant may elect to
retain previous payroll deductions in his or her Account and continue
participation in this Plan for subsequent offering or to withdraw from
this Plan pursuant to Section 6.4.
(b) For purposes of this Section 4.5, an amended Payroll Deduction
Authorization Form shall be effective for a specific pay period when
filed 15 days prior to the start of such period.
ARTICLE V
PURCHASES OF SHARES
5.1 PURCHASE DATE. Unless a Participant terminates participation, as described
in Section 4.5(b), or gives written notice to the Company as provided in Section
6.4, the Company shall purchase, as of the Purchase Date, the number of Shares
determined pursuant to this Article V.
5.2 PURCHASE OF SHARES. On each Purchase Date, the Company shall, subject to the
limitations of Article VI, apply the amount credited to each Participant's
Account to the purchase of as many full Shares that may be purchased with such
amount at the price set forth in Section 5.3, and shall issue such Shares to the
Participant. Payment for Shares purchased under this Plan will be made only
through payroll withholding in accordance with Article IV.
5.3 PRICE. The price of Shares to be purchased under Section 5.2 shall be the
lower of:
(a) Eighty-five percent (85%) of the fair market value of the
Shares on the Enrollment Date of the Offering; or
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(b) Eighty-five percent (85%) of the fair market value of the
Shares on any Purchase Date of the Offering.
5.4 FAIR MARKET VALUE.
(a) The fair market value of the Shares on any date shall be equal to
the bid price of the Company's Common Stock at the close of business on
the Valuation Date, as reported on the Nasdaq National Market system or
such other quotation system that supersedes it.
(b) If (a) is not applicable, the fair market value of the Shares shall
be determined by the Plan Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
5.5 UNUSED CONTRIBUTIONS.
(a) Subject to the limitations of Sections 3.2(e) and 11.3, a
Participant may withdraw from any Offering and apply any or all amounts
then credited to his or her Account to the Offering commencing on the
next occurring Enrollment Date following such withdrawal by
re-enrolling in such subsequent Offering pursuant to Section
3.2(c)(ii).
(b) Provided that a Participant's Employment with the Company has not
terminated and the Participant has not withdrawn from the Plan pursuant
to Article VI, and subject to Section 7.1(b), any amount credited to a
Participant's Account and remaining therein immediately after a
Purchase Date shall be carried forward in such Participant's Account
for application on the next succeeding Purchase Date, subject to the
notice provisions of Section 5.1.
ARTICLE VI
TERMINATION AND WITHDRAWAL
6.1 TERMINATION OF EMPLOYMENT. Upon termination of a Participant's Employment
for any reason other than as set forth in Section 6.2, the payroll deductions
credited to such Participant's Account shall be returned to the Participant.
Except as provided in Section 6.2, a Participant shall have no right under this
Plan to acquire Shares upon or after termination of his or her Employment.
6.2 TERMINATION UPON DEATH, RETIREMENT OR DISABILITY WITHIN THREE MONTHS OF
PURCHASE DATE. Upon termination of the Participant's Employment within the
three-month period preceding a Purchase Date because of his or her death,
Retirement or Disability, the payroll deductions credited to his or her Account
shall be used to purchase Shares as provided in Article V on the next Purchase
Date. Any remaining balance in the Participant's Account shall be returned to
him or her or, in the case of death, any Shares purchased and any remaining
balance shall be transferred to the deceased Participant's Beneficiary, or if
none, to his or her estate.
6.3 DESIGNATION OF BENEFICIARY. Each Participant may designate, revoke and
redesignate Beneficiaries. This action shall be taken in writing on a form
provided by the Plan Administrator and shall be effective upon delivery of the
election to the Plan Administrator.
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6.4 WITHDRAWAL. A Participant whose Employment with the Company is continuing
(i.e., has not been terminated as described in Sections 6.1 and 6.2) may elect
to withdraw the entire amount credited to his or her Account and cease further
participation at any time by giving written notice to the Company at least 15
days prior to the next Purchase Date. The amount withdrawn shall be paid to the
Participant promptly after receipt of proper notice of withdrawal and no further
payroll deductions shall be made from his or her compensation unless and until a
new Payroll Deduction Authorization Form is submitted in accordance with Section
4.1.
ARTICLE VII
SHARES PURCHASED UNDER THE PLAN
7.1 SOURCE AND LIMITATION OF SHARES.
(a) The Company has reserved for sale under this Plan 250,000
shares of its Common Stock, subject to adjustment upon changes in
capitalization of the Company as provided in Section 9.2. Shares
sold under this Plan shall be newly issued Shares.
(b) If there is an insufficient number of Shares to permit the full
exercise of all existing rights to purchase Shares, or if the legal
obligations of the Company prohibit the issuance of all Shares
purchasable upon the full exercise of such rights, the Plan
Administrator shall make a pro rata allocation of the Shares remaining
available in as nearly a uniform and equitable manner as possible,
based pro rata on the aggregate amounts then credited to each
Participant's Account. In such event, payroll deductions to be made
shall be reduced accordingly and the Plan Administrator shall give
written notice of such reduction to each Participant affected thereby.
Any amount remaining in a Participant's Account immediately after all
available Shares have been purchased will be promptly remitted to such
Participant. Determination by the Plan Administrator in this regard
shall be final, binding and conclusive on all persons. No deductions
shall be permitted under this Plan at any time when no Shares are
available.
7.2 DELIVERY OF SHARES. As promptly as practicable after the Purchase Date, the
Company shall deliver to the Participant the full Shares purchased with his or
her payroll deductions.
7.3 INTEREST IN SHARES. The rights to purchase Shares granted pursuant to this
Plan will in all respects be subject to the terms and conditions of this Plan,
as interpreted by the Plan Administrator from time to time. The Participant
shall have no interest in Shares purchasable under this Plan until payment for
the Shares has been completed at the close of business on the relevant Purchase
Date. This Plan provides only an unfunded, unsecured promise by the Employer to
pay money or property in the future. Except with respect to the Shares purchased
on a Purchase Date, an Employee choosing to participate in this Plan shall have
no greater rights than an unsecured creditor of the Company. After the purchase
of the Shares, the Participant shall be entitled to all rights of a stockholder
of the Company.
ARTICLE VIII
PLAN ADMINISTRATION
This Plan shall be administered by the Company's Compensation
Committee, if any, and otherwise by the Board of Directors. The Plan
Administrator shall be vested with full authority to make, administer and
interpret all rules and regulations applicable to this Plan as it deems
necessary for
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<PAGE> 8
purposes of administering this Plan. This Plan is intended to qualify for the
"Stock Purchase Plan" exemption of Rule 16b-3 of the regulations promulgated
under the Securities Exchange Act. Any determination, decision or action of the
Plan Administrator with respect to the construction, interpretation,
administration or application of this Plan shall be final, conclusive and
binding upon all Participants and any and all persons claiming benefits under
this Plan. The provisions of this Plan shall also be construed so as to extend
and limit participation in a manner consistent with the requirements of Section
423 of the Code.
ARTICLE IX
CHANGES IN CAPITALIZATION, MERGER, ETC.
9.1 RIGHTS OF THE COMPANY. The grant of a right to purchase Shares pursuant to
this Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or other changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or
transfer all or any part of its divisions, subsidiaries, business or assets.
9.2 RECAPITALIZATIONS. Subject to any required action by the stockholders, the
number of Shares covered by this Plan as provided in Section 7.1 and the price
per share shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of the Company resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend (but only on the
Shares) or any other increase or decrease in the number of such Shares affected
without receipt of consideration by the Company; but only for such increase or
decrease occurring after the initial closing of the Company's initial public
offering of Common Stock.
9.3 CONSOLIDATION OR MERGER. In the event of the consolidation or merger of the
Employer with or into any other business entity, or the sale by the Employer of
substantially all of its assets, the successor may continue this Plan by
adopting the same by resolution of its board of directors or agreement of its
partners or proprietors. If, within 90 days after the effective date of a
consolidation, merger or sale of assets, the successor corporation, partnership
or proprietorship does not adopt this Plan, this Plan shall be terminated and
all amounts held by this Plan under the Participants' Account shall be returned
to the Participants.
ARTICLE X
TERMINATION OF EMPLOYMENT
10.1 VACATION, LEAVE OR LAYOFF. A person's Employment shall not terminate on
account of an authorized leave of absence, sick leave or vacation, or on account
of a military leave described in Section 10.2, or a direct transfer between
Employers. Failure to return to work upon expiration of any leave of absence,
sick leave or vacation shall be considered a resignation effective as of the
expiration of such leave of absence, sick leave or vacation.
10.2 MILITARY LEAVE. Any Employee who leaves the Employer directly to perform
services in the Armed Forces of the United States or in the United States Public
Health Service under conditions entitling the Employee to re-employment rights
provided by the laws of the United States, shall be on military leave. An
Employee's military leave shall expire if the Employee voluntarily resigns from
the Employer during the leave or if he or she fails to make application for
re-employment within the period specified by such law for the preservation of
employment rights. In such event, the individual's employment shall terminate by
resignation on the day the military leave expires.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 AMENDMENT AND TERMINATION.
(a) The Board of Directors of the Company may at any time amend this
Plan. An amendment shall require the approval of the Stockholders of
the Company if the amendment would permit the sale of more Shares than
are authorized under Section 7.1, or the amendment otherwise requires
shareholder approval under Section 423 of the Code or Rule 16b of the
Securities Exchange Act.
(b) This Plan is intended to be a permanent program, but an Employer
shall have the right at any time to declare this Plan terminated
completely as to it or as to any of the Employer's divisions,
facilities, operational units or job classifications. Upon such
termination, amounts credited to the Accounts of Participants with
respect to whom the Plan has been terminated shall be returned to such
Participants.
11.2 NON-TRANSFERABILITY. Neither payroll deductions credited to a Participant's
Account nor any rights with regard to the purchase of Shares under this Plan may
be assigned, transferred, pledged or otherwise disposed of in any way by the
Participant except as provided in Section 6.2, and any attempted assignment,
transfer, pledge, or other disposition shall be null and void. The Company may
treat any such act as an election to withdraw funds in accordance with Section
6.4.
11.3 LIMITATION ON PURCHASE. No Participant may obtain a right to purchase
Shares under this Plan if such right would, upon immediate exercise for shares,
result in that Participant:
(a) owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company
or its Subsidiaries as determined under Section 423(b) of the Code; or
(b) obtain rights to purchase stock under this Plan or under any other
employee stock purchase plan of the Company or any of its Subsidiaries
or its parents that will accrue at a rate which exceeds the maximum
fair market value of the stock as permitted to accrue by
Section 403(b)(8) of the Code (determined as of the Enrollment Date)
for each calendar year in which he or she is a Participant;
11.4 USE OF FUNDS. All payroll deductions received or held by the Company under
this Plan may be used by the Company for any corporate purposes and the Company
shall not be obligated to segregate the payroll deductions.
11.5 EXPENSES. All expenses of administering this Plan shall be borne bythe
Company and its Subsidiaries.
11.6 NO INTEREST. No Participant shall be entitled, at any time, to any payment
or credit for interest with respect to or on the payroll deductions contemplated
herein, or on any other assets held hereunder for the Participant's Account.
11.7 REGISTRATION AND QUALIFICATION OF SHARES. The offering of the Shares
hereunder shall be subject to the effecting by the Company of a Registration
Statement on form S-8 and
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any other 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. The Company shall make every reasonable
effort to effect such registration or qualification or to obtain such consent or
approval.
11.8 PLAN NOT A CONTRACT OF EMPLOYMENT. This Plan is strictly a voluntary
undertaking on the part of the Employer and shall not constitute a contract
between the Employer and any Employee, or consideration for an inducement or a
condition of, the employment of an Employee. Except as otherwise required by law
or any applicable collective bargaining agreement, nothing contained in this
Plan shall give any Employee the right to be retained in the service of the
Employer or to interfere with or restrict the right of the Employer, which is
hereby expressly reserved, to discharge or retire any Employee at any time, with
or without cause and with or without notice. Except as otherwise required by
law, inclusion under this Plan will not give any Employee any right or claim to
any benefit hereunder except to the extent such right has specifically become
fixed under the terms of the Plan.The doctrine of substantial performance shall
have no application to any Employee, Participant or Beneficiary. Each condition
and provision, including numerical items, has been carefully considered and
constitutes the minimum limit on performance which will give rise to the
applicable right.
11.9 NOTICE. All notices or other communications by a Participant to the Company
under or in connection with this Plan shall be deemed to have been duly given
when received by the Plan Administrator. Any notice required by this Plan to be
received by the Company prior to an Enrollment Date, payroll period or other
specified date, and received by the Plan Administrator subsequent to such date,
shall be effective on the next occurring Enrollment Date, payroll period or
other specified date to which such notice applies.
11.10 GOVERNING LAW. This Plan shall be interpreted, administered and enforced
in accordance with the Code, and the rights of Participants, former
Participants, Beneficiaries and all other persons shall be determined in
accordance with it. To the extent that state law is applicable, however, the
laws of the State of Minnesota shall apply.
11.11 PLURALS. Where the context so indicates, the singular shall include the
plural and vice versa.
11.12 TITLES. Titles of Articles and Sections are provided herein for
convenience only and are not to serve as the basis for interpretation or
construction of this Plan.
11.13 REFERENCES. Unless the context clearly indicates to the contrary,
reference to a Plan provision, statute, regulation or document shall be
construed as referring to any subsequently enacted, adopted or executed
counterpart.
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EXHIBIT 10.2
DATALINK CORPORATION
INCENTIVE COMPENSATION PLAN
ARTICLE 1.
ESTABLISHMENT, OBJECTIVES AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Datalink Corporation, a Minnesota
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Datalink Corporation Incentive
Compensation Plan" (hereinafter referred to as the "Plan"), as set forth in
this document. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares, Performance Units, Cash-Based Awards, Phantom Shares and
Share-Based Awards.
The Plan was approved by the Board of Directors and the Stockholders
of the Company on June 1, 1998 (the "Effective Date") in contemplation of
a restatement of the Company's Articles of Incorporation that, among other
matters, will split the 10,000 issued and outstanding shares of Common Stock of
the Company, par value $.01 into 6,900,000 shares, par value $.001 per share.
Accordingly, this Plan assumes the filing of the Restated Articles of
Incorporation and such stock split. The plan shall remain in effect as
provided in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through annual and long-term
incentives which are consistent with the Company's goals and which link the
personal interests of Participants to those of the Company's stockholders; to
provide Participants with an incentive for excellence in individual
performance; and to promote teamwork among Participants. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of Participants who make significant
contributions to the Company's success and to allow Participants to share in
the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date
as set forth in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 17 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions under Awards
denominated in Shares, and with respect to all Awards, in no event may an Award
be granted under the Plan on or after the tenth anniversary of the Effective
Date.
ARTICLE 2.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1. "AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations of the Exchange Act.
<PAGE> 2
2.2. "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, Performance Units, Cash-Based
Awards, Phantom Shares or Other Share-Based Awards.
2.3. "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.6 "CASH-BASED AWARD" means an Award granted to a Participant, as
described in Article 9 herein.
2.7. "CHANGE IN CONTROL" of the Company shall be deemed to have occurred as
of the first day (the "Date of Determination") that any one or more of the
following conditions shall have been satisfied:
(a) Any Person (other than those Persons owning stock of the
Company as of the day before the IPO Date, or other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownerships of stock of the Company): (i) becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power
of the Company's then outstanding securities; and (ii) such Person's
ownership as of the Date of Determination exceeds the combined voting
power beneficially owned as of the Date of Determination by the
stockholders who were also stockholders of the Company on the day
before the IPO Date; or
(b) During any period of two (2) consecutive years (not including
any period prior to the IPO Date), individuals who at the beginning of
such period constitute the Board (and any new Director, whose election
was approved by a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the beginning of the
period or whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan of
complete liquidation of the Company; or (ii) an agreement for the sale
or disposition of all or substantially all the Company's assets; or
(iii) a merger, consolidation, or reorganization of the Company with
or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least
sixty-five percent (65%) of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
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However, in no event shall a "Change in Control" be deemed to have
occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change-in-Control transaction. A
Participant shall be deemed "part of a purchasing group" for purposes of the
preceding sentence if the Participant is an equity participant in the
purchasing company or group (except for: (i) passive ownership of less than
three percent (3%) of the stock of the purchasing company; or (ii) ownership of
equity participant in the purchasing company or group which is otherwise not
significant, as determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).
2.8. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.9. "COMMITTEE" means any committee appointed by the Board to administer
Awards to Employees, as specified in Article 3 herein. Any such committee
shall be comprised entirely of Directors who are considered "outside directors"
under Section 162(m) of the Code.
2.10. "COMPANY" means Datalink Corporation, a Minnesota corporation,
including any and all Subsidiaries and Affiliates, and any successor thereto as
provided in Article 20 herein.
2.11. "COVERED EMPLOYEE" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of "covered
employees," as defined in the regulations promulgated under Code Section
162(m), or any successor statute.
2.12. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate; provided, however,
that any Director who is employed by the Company or any Subsidiary or Affiliate
shall be considered an Employee under the Plan and shall not be considered a
Director.
2.13 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.14 "EMPLOYEE" means any employee of the Company or its Subsidiaries or
Affiliates. Directors who are employed by the Company shall be considered
Employees under this Plan.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16 "FAIR MARKET VALUE" shall be determined on the basis of the opening
sale price on the principal securities exchange on which the Shares are traded
or, if there is no such sale on the relevant date, then on the last previous
day on which a sale was reported; if the security is not listed for trading on
a national securities exchange, the fair market value of a security as
determined in good faith by the Board.
2.17 "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
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2.18. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.19. "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or more than ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.20."IPO DATE" means the first day on which Shares are publicly traded on the
Nasdaq National Market.
2.21. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.22. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.23. "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24. "PARTICIPANT" means an Employee, Director, or other individual
designated by the Board who has been selected to receive an Award or who has an
outstanding Award granted under the Plan.
2.25. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.26. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.27. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.28. "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Board, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
2.29. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
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2.30. "PHANTOM SHARES" means an Award granted to a Participant pursuant to
Article 10 herein.
2.31. "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
2.32. "SHARE -BASED AWARD" means an Award granted to a Participant pursuant
to Article 11 herein.
2.33. "SHARES" means the shares of Common Stock of the Company.
2.34. "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
2.35. "SUBSIDIARY" means any corporation, partnership, joint venture, or
other entity in which the Company has a fifty percent (50%) or greater voting
interest.
2.36. "TANDEM SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when
a Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).
ARTICLE 3.
ADMINISTRATION
3.1. GENERAL. The Plan shall be administered by the Board, or (subject to
the following) by any Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors. The Board may delegate to the Committee
any or all of the administration of the Plan; provided, however, that the
administration of the Plan with respect to Awards granted to Directors may not
be so delegated. To the extent that the Board has delegated to the Committee
any authority and responsibility under the Plan, all applicable references to
the Board in the Plan shall be to the Committee. The Committee shall have the
authority to delegate administrative duties to employees, officers or Directors
of the Company.
3.2. AUTHORITY OF THE BOARD. Except as limited by law or by the Articles of
Incorporation or Bylaws of the Company, and subject to the provisions herein,
the Board shall have full power to select Employees and Directors and other
individuals who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 17
herein) amend the terms and conditions of any outstanding Award as provided in
the Plan. Further, the Board shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law
(and subject to Section 3.1 herein), the Board may delegate its authority as
identified herein.
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3.3. DECISIONS BINDING. All determinations and decisions made by the Board
pursuant to the provisions of the Plan and all related orders and resolutions
of the Board shall be final, conclusive and binding on all persons, including
the Company, its stockholders, Directors, Employees, Participants, and their
estates and beneficiaries.
ARTICLE 4.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be nine hundred fifty thousand
(950,000).
4.2. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under Section 4.1, in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and in the Award limits
set forth in Section 4.1 as may be determined to be appropriate and equitable
by the Board, in its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5.
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees, Directors, and other individuals designated by the Board.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Board may, from time to time, select from all eligible Employees, Directors,
and other individuals designated by the Board, those to whom Awards shall be
granted and shall determine the nature and amount of each Award.
ARTICLE 6.
STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Board,
provided, however, that no Director shall be granted any ISO.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, termination and transferability
rights, and such other provisions as the Board shall
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determine. The Award Agreement also shall specify whether the Option is
intended to be an ISO within the meaning of Code Section 422, or an NQSO whose
grant is intended not to fall under the provisions of Code Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be determined by the Board.
6.4. DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Board shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6. PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting
forth the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares. The Option Price upon exercise of
any Option shall be payable to the Company in full either: (a) in cash or its
equivalent, or (b) by tendering previously acquired Shares having an aggregate
Fair Market Value at the time of exercise equal to the total Option Price
(provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price), or (c) by a combination of (a) and (b). The Board also may
allow cashless exercise as permitted under Federal Reserve Board's Regulation
T, subject to applicable securities law restrictions, or by any other means
which the Board determines to be consistent with the Plan's purpose and
applicable law. Subject to any governing rules or regulations, as soon as
practicable after receipt of a written notification of exercise and full
payment, the Company shall deliver to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Board may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 ANNUAL DIRECTOR GRANTS. Commencing with the Company's 1999 annual
stockholders' meeting and on the date of each subsequent annual stockholders'
meeting occurring while the Plan remains in effect each Director then serving
on the Board on the date of any such meeting shall be granted Nonqualified
Stock Options to purchase 3,000 Shares. These Nonqualified Stock Options shall
be exercisable commencing one year after the date of grant; provided, however,
that if a Director fails to serve until the annual stockholders' meeting
immediately succeeding a grant of such Options, the number of Shares that may
be purchased by such Director shall be determined by multiplying 3,000 by a
fraction (i) the numerator of which is the number of days between the date such
Options were granted and the date the Director ceased
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serving on the Board and (ii) the denominator of which is the number of days
between the date such Options were granted and the date of the annual
stockholders' meeting immediately succeeding the date of grant. The Option
Price of each Nonqualified Stock Option granted pursuant to this Section 6.8
shall be the Fair Market Value of a Share on the date of grant. These
Nonqualified Stock Options will expire ten years after the date of grant.
ARTICLE 7.
STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Board. The Board may grant Freestanding SARs, Tandem SARs,
or any combination of these forms of SAR. The Board shall have complete
discretion in determining the number of SARs granted to each Participant
(subject to Article 4 herein) and, consistent with the provisions of the Plan,
in determining the terms and conditions pertaining to such SARs. The grant
price of a Freestanding SAR shall equal the Fair Market Value of a Share on the
date of grant of the SAR. The grant price of Tandem SARs shall equal the
Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. Notwithstanding any other provision of this Plan to the contrary,
with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem
SAR will expire no later than the expiration of the underlying ISO; (ii) the
value of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Board, in its sole discretion, imposes
upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Board shall determine.
7.5. TERM OF SARs. The term of an SAR granted under the Plan shall be
determined by the Board, in its sole discretion; provided, however, that such
term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
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(b) The number of Shares with respect to which the SAR is
exercised.
At the discretion of the Board, the payment upon SAR exercise may be in cash,
in Shares of equivalent value, or in some combination thereof. The Board's
determination regarding the form of SAR payout shall be set forth in the Award
Agreement pertaining to the grant of the SAR.
ARTICLE 8.
RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Board shall determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted, and
such other provisions as the Board shall determine.
8.3. OTHER RESTRICTIONS. Subject to Article 12 herein, the Board shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable federal or state securities laws.
The Company may retain the certificates representing Shares of Restricted Stock
in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied. Except as
otherwise provided in this Article 8, Shares of Restricted Stock covered by
each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.4. VOTING RIGHTS. Participants holding Shares of Restricted Stock
granted hereunder may be granted the right to exercise full voting rights with
respect to those Shares during the Period of Restriction.
8.5. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the Shares while they
are so held. The Board may apply any restrictions to the dividends that the
Board deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Restricted Shares granted to a Covered
Employee is designed to comply with the requirements of the Performance-Based
Exception, the Board may apply any restrictions it deems appropriate to the
payment of dividends declared with respect to such Restricted Shares,
including, without limitation, that the dividends and/or the Restricted Shares
maintain eligibility for the Performance-Based Exception.
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ARTICLE 9.
PERFORMANCE UNITS, PERFORMANCE SHARES, AND CASH-BASED AWARDS
9.1. GRANT OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Subject to
the terms of the Plan, Performance Units, Performance Shares, and/or Cash-Based
Awards may be granted to Participants in such amounts and upon such terms, and
at any time and from time to time, as shall be determined by the Board.
9.2. VALUE OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Each
Performance Unit shall have an initial value that is established by the Board
at the time of grant. Each Performance Share shall have an initial value equal
to the Fair Market Value of a Share on the date of grant. Each Cash-Based
Award shall have a value as may be determined by the Board. The Board shall
set performance goals in its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance
Units/Shares and Cash-Based Award that will be paid out to the Participant.
For purposes of this Article 9, the time period during which the performance
goals must be met shall be called a "Performance Period."
9.3. EARNING OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Subject to
the terms of this Plan, after the applicable Performance Period has ended, the
holder of Performance Units/Shares and Cash-Based Awards shall be entitled to
receive payout on the number and value of Performance Units/Shares and of
Cash-Based Awards earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES AND CASH-BASED
AWARDS. Payment of earned Performance Units/Shares and Cash-Based Awards
shall be made in lump-sum payments at such time or times designated by the
Board following the close of the applicable Performance Period. Subject to the
terms of this Plan, the Board, in its sole discretion, may pay earned
Performance Units/Shares and Cash-Based Awards in the form of cash or in Shares
(or in a combination thereof) which have an aggregate Fair Market Value equal
to the value of the earned Performance Units/Shares and Cash-Based Awards at
the close of the applicable Performance Period plus or minus any investment
return from the close of the Performance Period to the date of payment as
determined by the Board in its discretion. Such Shares may be granted subject
to any restrictions deemed appropriate by the Board. The determination of the
Board with respect to the form and timing of payout of such Awards shall be set
forth in the Award Agreement pertaining to the grant of the Award. At the
discretion of the Board, Participants may be entitled to receive any dividends
declared with respect to Shares which have been earned in connection with
grants of Performance Units and/or Performance Shares which have been earned,
but not yet distributed to Participants (such dividends shall be subject to the
same accrual, forfeiture, and payout restrictions as apply to dividends earned
with respect to Shares of Restricted Stock, as set forth in Section 8.5
herein). In addition, Participants may, at the discretion of the Board, be
entitled to exercise their voting rights with respect to such Shares.
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ARTICLE 10.
PHANTOM SHARES
10.1 GRANT OF PHANTOM SHARES. Subject to the terms of the Plan, Phantom
Shares may be granted to Participants in such amounts and upon such terms, and
at any time and from time to time, as shall be determined by the Board.
10.2 VALUE OF PHANTOM SHARES. Each Phantom Share shall have an initial
value equal to the Fair Market Value of a Share on the date of grant. The
Board shall establish the terms and conditions of such Award, including any
vesting provisions.
10.3 EARNING OF PHANTOM SHARES. Subject to the terms of this Plan, the
holder of any vested Phantom Shares shall be entitled to receive payout on the
number and value of Phantom Shares earned by the Participant over the
Performance Period, to be determined by the extent to which the corresponding
performance goals have been achieved.
10.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Phantom Shares shall be made in a single lump sum at such time as
designated by the Board. Subject to the terms of this Plan, the Board, in its
sole discretion, may pay earned Phantom Shares in the form of cash or in Shares
(or in a combination thereof) which have an aggregate Fair Market Value equal
to the value of the earned Phantom Shares at such time as designated by the
Board. Such Shares may be granted subject to any restrictions deemed
appropriate by the Board. The determination of the Board with respect to the
form of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award. At the discretion of the Board,
Participants may be entitled to receive any dividends declared with respect to
Shares which have been earned in connection with grants of Phantom Shares which
have been earned, but not yet distributed to Participants (such dividends shall
be subject to the same accrual, forfeiture, and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth in
Section 8.5 herein).
ARTICLE 11.
OTHER SHARE-BASED AWARDS
Subject to the terms of the Plan, the Board may grant other
Share-Based Awards under this Plan, including without limitation, those Awards
pursuant to which Shares are acquired or may in the future be acquired. The
Board, in its sole discretion, shall determine the terms and conditions of such
other Share-Based Awards.
ARTICLE 12.
PERFORMANCE MEASURES
Unless and until the Board proposes for stockholder vote and
stockholders approve a change in the general performance measures set forth in
this Article 12, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees
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which are designed to qualify for the Performance-Based Exception, the
performance measure(s) to be used for purposes of such grants shall be chosen
from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on
assets, equity, or sales);
(d) Cash flow return on investments which equals net cash flows
divided by owners equity;
(e) Earnings before or after taxes;
(f) Gross revenues;
(g) Share price (including, but no limited to, growth measures and
total stockholder return); and
(h) Economic value added.
The Board shall have the discretion to adjust the determinations of the degree
of attainment of the preestablished performance goals; provided, however, that
Awards which are designed to qualify for the Performance-Based Exception, and
which are held by Covered Employee, may not be adjusted upward (the Board shall
retain the discretion to adjust such Awards downward). In the event that
applicable tax and/or securities laws change to permit Board discretion to
alter the governing performance measures without obtaining stockholder approval
of such changes, the Board shall have sole discretion to make such changes
without obtaining stockholder approval. In addition, in the event that the
Board determines that it is advisable to grant Awards which shall not qualify
for the Performance-Based Exception, the Board may make such grants without
satisfying the requirements of Code Section 162(m).
ARTICLE 13.
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
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ARTICLE 14.
DEFERRALS
The Board may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares. If any such deferral election is required or
permitted, the Board shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 15.
RIGHTS OF EMPLOYEES/DIRECTORS
15.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of
the Company.
15.2. PARTICIPATION. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
15.3 TERMINATION OF EMPLOYMENT/DIRECTORSHIP RELATIONSHIP. Each
Participant's Award Agreement shall set forth the extent to which the
Participant shall have the right to exercise and/or receive payment for any
Award following termination of the Participant's employment or directorship
with the Company, or termination of relationship with the Company. Such
provisions shall be determined in the sole discretion of the Board, shall be
included in the Award Agreement entered into with each Participant, need not be
uniform among Awards and may reflect distinctions based on the reasons for
termination.
15.4 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Awards may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
decent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.
ARTICLE 16.
CHANGE IN CONTROL
16.1. TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable, and shall remain exercisable throughout their
entire term;
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(b) Any restriction periods and restrictions imposed on Restricted
Shares which are not performance-based shall lapse;
(c) The target payout opportunities attainable under all
outstanding Awards of performance-based Restricted Stock, Performance
Units, Performance Shares, and Cash-Based Awards and Share-Based
Awards shall be deemed to have been fully earned for the entire
Performance Period(s) as of the effective date of the Change in
Control. The vesting of all Awards denominated in Shares shall be
accelerated as of the effective date of the Change in Control, and
there shall be paid out to Participants within thirty (30) days
following the effective date of the Change in Control a pro rata
number of shares based upon an assumed achievement of all relevant
targeted performance goals and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control.
Awards denominated in cash shall be paid pro rata to participants in
cash within thirty (30) days following the effective date of the
Change in Control, with the proration determined as a function of the
length of time within the Performance Period which has elapsed prior
to the Change in Control, and based on an assumed achievement of all
relevant targeted performance goals.
16.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan (but subject to
the limitations of Section 17.3 hereof) or any Award Agreement provision, the
provisions of this Article 16 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant
with respect to said Participant's outstanding Awards; provided, however, the
Board may terminate, amend, or modify this Article 16 at any time and from time
to time prior to the date of a Change in Control.
16.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using pooling of interests accounting methodology, the
Board may take any action necessary to preserve the use of pooling of interests
accounting.
ARTICLE 17.
AMENDMENT, MODIFICATION, AND TERMINATION
17.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 17.3 and
17.4, the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any applicable tax or regulatory requirements. Prior to such approval, Awards
may be made under the Plan expressly subject to such approval.
17.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Board may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or
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accounting principles, whenever the Board determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority would
be inconsistent with the Plan's meeting the requirements of Section 162(m) of
the Code.
17.3. AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of the
Plan to the contrary (but subject to Sections 4.2 and 16.3 hereof), no
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.
17.4. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made
to Code Section 162(m) to permit greater flexibility with respect to any Award
or Awards available under the Plan, the Board may, subject to this Article 17,
make any adjustments it deems appropriate.
ARTICLE 18.
WITHHOLDING
18.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
18.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising as a result of Awards granted
hereunder, Participants may elect, subject to the approval of the Board, to
satisfy the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All such elections shall be irrevocable, made in writing,
signed by the Participant, and shall be subject to any restrictions or
limitations that the Board, in its sole discretion, deems appropriate.
ARTICLE 19.
INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
which he or she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's
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approval, or paid by him or her in satisfaction of any judgment in any such
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation of Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
ARTICLE 20.
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 21.
LEGAL CONSTRUCTION
21.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
21.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
21.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
21.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to be exempt from the application of Section 16(b)
of the Exchange Act by virtue of compliance with all applicable conditions of
Rule 16b-3 of the General Rules and Regulations of the Exchange Act.
21.5. GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Minnesota.
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EXHIBIT 10.3
[NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION LOGO] CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is executed this 1st day of June, 1998
to be effective as of the date described in the first paragraph of the
Background section set forth immediately below (the "Effective Date"), and is
between Norwest Bank Minnesota, National Association (the "Bank") and Datalink
Corporation (the "Borrower").
BACKGROUND
The Borrower has asked the Bank to renew its existing line of credit (the
"Line") in the amount of Ten Million and 00/100 Dollars ($10,000,000.00), to be
effective as of the date that the treasurer of the Borrower has received at
least a net $23,000,000.00 in available funds from the initial public offering
of its common stock offered through certain underwriters led by Needham &
Company, Inc., Cruttenden Roth Incorporated, and John G. Kinnard and Company,
Incorporated. (The date that net funds in this amount have been received to be
referred to as the "Effective Date".)
The obligations of the Borrower to the Bank with respect to the Line prior to
the Effective Date of this Agreement were evidenced by a Credit Agreement dated
June 1, 1998 (the "June 1998 Credit Agreement"), which June 1998 Credit
Agreement is to be replaced by this Agreement and will have no further effect.
Borrowings under the Line are currently evidenced by a promissory note dated
June 1, 1998 (the "June 1998 Revolving Note").
The Bank is agreeable to meeting the Borrower's request provided that the
Borrower agrees to the terms and conditions of this Agreement.
The Revolving Note, this Agreement, and all "Security Documents" described in
Exhibit B shall be referred to collectively as the "Documents."
In consideration of the above premises, the Bank and the Borrower agree as
follows:
1. LINE OF CREDIT
1.1 LINE OF CREDIT AMOUNT. During the Line Availability Period defined
below, the Bank agrees to provide a revolving line of credit
(the "Line") to the Borrower. Outstanding amounts under the Line shall
not, at any one time, exceed the lesser of the Borrowing Base or Ten
Million and 00/100 Dollars ($10,000,000.00). The Borrowing Base is
defined in Exhibit A-1 to this Agreement.
1.2 LINE AVAILABILITY PERIOD. The "Line Availability Period" shall mean
the period of time from the Effective Date or the date on which
all conditions precedent described in this Agreement have been met,
whichever is later, to the Line Expiration Date of May 31, 2000.
1.3 THE REVOLVING NOTE. The Borrower's obligation to repay advances under
the Line shall be evidenced by a single promissory note (the
"Revolving Note") dated as of the Effective Date, and in form and
content acceptable to the Bank. The Revolving Note shall replace, but
not be deemed to satisfy, the June 1998 Revolving Note. Reference is
made to the Revolving Note for interest rate and repayment terms.
<PAGE> 2
1.4 MANDATORY PREPAYMENT. If at any time the principal outstanding under
the Revolving Note plus the face amount of any outstanding Standby
L/Cs and Documentary L/Cs (as defined below) exceed the lesser of the
Borrowing Base or $10,000,000.00, the Borrower must immediately prepay
the Revolving Note in an amount sufficient to eliminate the excess. If
after making this prepayment the face amount of outstanding Standby
L/Cs and Documentary L/Cs continue to exceed this amount, then the
Borrower shall deposit sufficient cash into a non-interest bearing
account to collateralize the excess. The Borrower hereby grants the
Bank a security interest in these funds as security for all of the
Borrower's obligations to the Bank.
1.5 STANDBY LETTERS OF CREDIT
(a) Issuance and Expiration. During the Line Availability Period, the Bank
may in its sole discretion issue standby letters of credit for the
account of the Borrower ("Standby L/Cs"), provided that the Borrower is
in compliance with the terms of this Agreement. Each Standby L/C must
expire no later than the Line Expiration Date. Prior to the issuance
of a Standby L/C, the Borrower will execute the Bank's standard
Application and Agreement for Irrevocable Standby Letter of Credit
("Standby L/C Agreement") and such other documents as the Bank deems
necessary.
(b) Fees. The Borrower will pay a standby letter of credit fee of 1.00% per
annum on the face amount of each Standby L/C subject to a minimum fee of
$200. This fee will be paid annually in advance and is in addition to
all other fees or expenses provided for in the Standby L/C Agreement.
(c) Reduction of Line Availability and Line Advances. The availability under
the Line will be reduced dollar for dollar by the face amount of all
outstanding Standby L/Cs plus any unreimbursed draws. Without limiting
any rights and remedies available to the Bank under any Standby L/C
Agreement, any draw under a Standby L/C may, at the Bank's option, be
repaid through an automatic advance under the Line and the advance will
be repayable per the terms of this Agreement.
(d) Cash Collateralization of Outstanding Standby L/Cs. Should a default
occur under this Agreement, the Bank may require the Borrower to
deposit with it in a non-interest bearing account, immediately
available funds equal to the face amount of outstanding Standby L/Cs.
The Borrower hereby grants the Bank a security interest in the funds
which will be security for all of the Borrower's obligations to the
Bank.
1.6 DOCUMENTARY LETTERS OF CREDIT
(a) Issuance and Expiration. During the Line Availability Period, the Bank
agrees to issue documentary letters of credit for the account of the
Borrower ("Documentary L/Cs"), provided that the Borrower is in
compliance with the terms of this Agreement. Each Documentary L/C must
expire prior to the Line Expiration Date. Prior to the issuance of a
Documentary L/C, the Borrower will execute the Bank's standard Master
Security Agreement for Irrevocable Documentary Letters of Credit (the
"Documentary L/C Agreement") and such other documents as the Bank deems
necessary.
(b) Fees and Expenses. Fees and expenses related to each Documentary L/C
will be agreed upon at issuance.
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<PAGE> 3
(c) Reduction of Line Availability and Line Advances. The availability under
the Line will be reduced dollar for dollar by the face amount of all
outstanding Documentary L/Cs, plus any unreimbursed draws. Without
limiting any rights and remedies available to the Bank under the
Documentary L/C Agreement and related documents, any draw under a
Documentary L/C may, at the Bank's option, be repaid through an
automatic advance under the Line and the advance will be repayable
according to the terms of this Agreement.
(d) Cash Collateralization of Outstanding Documentary L/Cs. Should a default
occur under this Agreement, the Bank may require the Borrower to
deposit with it in a non-interest bearing account, immediately available
funds equal to the face amount of the outstanding Documentary L/Cs. The
Borrower hereby grants the Bank a security interest in the funds which
will be security for all of the Borrower's obligations to the Bank.
2. FEES AND EXPENSES
2.1 COMMITMENT FEE. During the Line Availability Period the Borrower shall
pay the Bank a commitment fee of 0.125% per annum on the average daily
unused amount of the Line. This fee shall be calculated on the basis of
actual days elapsed in a 360 day year and paid quarterly in arrears
beginning the first fiscal quarter end after the Effective Date.
2.2 COLLECTION EXPENSES. In the event the Borrower fails to pay the Bank
any amounts due under this Agreement or under the Documents, the
Borrower will pay all costs of collection, including reasonable
attorneys' fees and legal expenses incurred by the Bank.
2.3 AUDIT EXPENSE. The Borrower agrees to reimburse the Bank for the cost
of periodic audits of all collateral pledged to the Bank which may be
conducted no more frequently than twice each calendar year and at a
cost of no more than $2,000.00 per audit. The audits may be performed
by employees of the Bank or independent contractors retained by the
Bank.
3. ADVANCES AND PAYMENTS
3.1 REQUESTS FOR ADVANCES. Any Line advance permitted under this Agreement
must be requested by telephone or in a writing delivered to the Bank
(or transmitted via facsimile) by any person reasonably believed by the
Bank to be an authorized officer of the Borrower. The Bank will
not consider any such request if there is an event which is, or with
notice or the lapse of time would be, an event of default under this
Agreement. Proceeds will be deposited into the Borrower's account at
the Bank or disbursed in such other manner as the parties agree.
3.2 INTEREST RATE OPTIONS. In addition to interest rates based on the Base
Rate Option defined in the Revolving Note, the Borrower may elect a
fixed rate of interest for a fixed time period and principal amount
agreeable to the Bank and Borrower that is based upon any applicable
margin stated in said promissory note and an interest rate derived from
the current LIBOR rate available to the Bank on national or
international money markets for a similar time period and dollar
amount.
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<PAGE> 4
To elect the LIBOR Rate Option, as defined in the Revolving Note, the
Borrower must request a quote from the Bank two days prior to funding.
This request must designate an amount (the "LIBOR Rate Portion") and a
period (the "LIBOR Interest Period"). The LIBOR Rate Portion must be
at least $100,000 and the LIBOR Interest Period will be for 30, 60 or
90 days or such other period to which the parties may agree. The Bank
shall not be obligated to provide a LIBOR rate quote if it determines
that no deposits with an amount and maturity equal to those for which a
quotation has been requested are available to it in the London
interbank market. The Borrower must orally accept a quote when
received or it will be deemed rejected. If accepted, the LIBOR Rate
Option will remain in effect for the LIBOR Interest Period specified in
the quote. At the end of each LIBOR Interest Period the principal
amount subject to the LIBOR Rate Option shall bear interest at the
Base Rate Option (as defined in the Revolving Note).
3.3 PAYMENTS. All principal, interest and fees due under the Documents
will be paid to the Bank by the direct debit of available funds on
deposit in the Borrower's account with the Bank. The Bank will debit
the account on the dates the payments become due. If a due date
does not fall on a day on which the Bank is open for substantially all
of its business (a "Banking Day", except as otherwise provided), the
Bank will debit the account on the next Banking Day, and interest will
continue to accrue during the extended period. If there are
insufficient funds in the account on the day the Bank enters any debit
authorized by this Agreement, the debit will be reversed and the
payment will be due immediately without necessity of demand by direct
remittance of immediately available funds. For amounts bearing
interest at the LIBOR Rate (if any) a Banking Day is a day on which the
Bank is open for business and on which dealings in U.S. dollar deposits
are carried on in the London interbank market.
4. SECURITY
During the time period that credit is available under this Agreement,
and afterward until all amounts due under the Documents are paid in
full, unless the Bank shall otherwise agree in writing, all amounts
due under this Agreement and the Documents shall be secured at all
times as provided in Exhibit B. The Borrower also hereby grants the
Bank a security interest (independent of the Bank's right of set-off)
in its deposit accounts at the Bank and in any other debt obligations
of the Bank to the Borrower.
5. CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the documents described in
Exhibit B, properly executed and in form and content acceptable to the
Bank, prior to the Bank's initial advance under this Agreement. The
Borrower must also deliver to the Bank, prior to the initial advance
and any subsequent Line advances under this Agreement, a Borrowing Base
Certificate in the form of Exhibit A-2, at the intervals provided in
Section 7.1(d).
6. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the
best of its knowledge and upon due inquiry, makes the representations
and warranties contained in Exhibit C. Each request for an advance
under this Agreement constitutes a reaffirmation of these
representations and warranties.
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<PAGE> 5
7. COVENANTS
7.1 FINANCIAL INFORMATION AND REPORTING. Except as otherwise
stated in this Agreement, all financial information provided to the
Bank shall be compiled using generally accepted accounting principles
consistently applied. During the time period that credit is available
under this Agreement, and afterward until all amounts due under the
Documents are paid in full, unless the Bank shall otherwise agree in
writing, the Borrower agrees to:
(a) Annual Financial Statements. Provide the Bank within 120 days of the
Borrower's fiscal year end, the Borrower's annual financial
statements. The statements must be audited with an unqualified opinion
by a certified public accountant acceptable to the Bank.
(b) Interim Financial Statements. Provide the Bank within 45 days of each
quarter end, the Borrower's interim financial statements prepared by
the Borrower, certified as correct by an officer of the Borrower and in
form acceptable to the Bank.
(c) Compliance Certificate. Provide the Bank concurrently with the interim
financial statements required above, a Compliance Certificate in the
form of Exhibit D, signed by an officer of the Borrower for the
quarterly periods ending on the last day of March, June, September and
December, which: 1) certifies that the statements have been
accurately prepared in accordance with generally accepted accounting
principles applied consistently with the last annual financial
statements provided by the Borrower; 2) demonstrates that the Borrower
remains in compliance with all financial covenants that must be
complied with as of the date of the financial statements; and 3)
certifies that the officer has no knowledge of any event of default
under the Agreement.
(d) Borrowing Base Certificate. Provide the Bank within 45 days of each
quarter end, a Borrowing Base Certificate in the form of Exhibit
A-2 and certified as correct by an officer of the Borrower.
(e) Accounts Receivable Aging. Provide the Bank within 45 days of each
quarter end, an accounts receivable aging report in form acceptable to
the Bank and certified as correct by an officer of the Borrower
acceptable to the Bank.
(f) Inventory List. Provide the Bank within 120 days of each fiscal year
end, an inventory list certified as correct by an officer of the
Borrower and in form acceptable to the Bank.
(g) Notices. Provide the Bank prompt written notice of: 1) any event which
has or might after the passage of time or the giving of notice, or
both, constitute an event of default under the Documents, or 2) any
event that would cause the representations and warranties contained in
this Agreement to be untrue.
(h) Additional Information. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
7.2 FINANCIAL COVENANTS
During all the time periods that credit is available under this
Agreement, and afterward until all amounts due under the Documents are
paid in full, unless the Bank shall otherwise agree in writing, the
Borrower agrees to comply with the financial covenants described below,
which shall be calculated using generally accepted accounting
principles consistently applied, except as they may be otherwise
modified by the following capitalized definitions:
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<PAGE> 6
(a) Tangible Net Worth plus Subordinated Debt. Maintain a minimum Tangible
Net Worth plus Subordinated Debt of at least $12,000,000.00 as of the
Effective Date, increasing by $1.00 each fiscal quarter thereafter.
"Tangible Net Worth" means total assets less total liabilities and less
the following types of assets: (1) leasehold improvements and computer
software; (2) receivables and other investments in or amounts due from
any shareholder, director, officer, employee or other person or entity
related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other
like assets properly classified as intangible.
"Subordinated Debt" means debt that is expressly subordinated to the
Bank in a writing acceptable to the Bank.
(b) Total Liabilities to Tangible Net Worth plus Subordinated Debt.
Maintain a ratio of total liabilities less Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of less than 2.00 to 1.0 as
of the end of each fiscal quarter.
7.3 OTHER COVENANTS
(a) Additional Borrowing. Refrain from incurring any indebtedness except:
(1) Trade credit incurred in the ordinary course of business.
(2) Indebtedness in existence on the date of this Agreement
and disclosed in advance to the Bank in writing.
(3) Purchase money indebtedness (including capitalized leases)
for the acquisition of fixed assets, provided that the total
principal amount outstanding at any one time does not exceed
$1,000,000.00.
(b) Other Liens. Refrain from allowing any security interest or lien on
property it owns now or in the future, except:
(1) Liens in favor of the Bank.
(2) Liens for taxes not delinquent or which the Borrower is
contesting in good faith.
(3) Liens outstanding on the date of this Agreement and
disclosed in advance to the Bank in writing.
(4) Liens which secure obligations in a total principal
amount not exceeding $5,000.00.
(5) Liens which secure purchase money indebtedness allowed
under this Agreement.
(c) Capital Expenditures. Refrain from making, or committing to make,
capital expenditures (including the total amount of any capital leases
and the purchase money indebtedness referenced in section 7.3(a)(3))
in an aggregate amount exceeding $1,000,000.00 in any one fiscal year.
(d) Dividends. Refrain from making any cash distributions to its
shareholders.
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<PAGE> 7
(e) Loans to Officers. Refrain from making any loans or advances to any of
its executives, officers, directors, or shareholders.
(f) Sale of Assets. Refrain from selling or leasing during any fiscal year
all or a substantial part of its assets, other than sales of inventory
in the ordinary course of business.
(g) Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other
insurance (including business interruption insurance) as is usually
carried by persons engaged in the same or similar business. Such
insurance must include a lender's loss payable endorsement in favor of
the Bank in form acceptable to the Bank.
(h) Business Acquisition. Refrain from purchasing or otherwise acquiring
during any fiscal year, all or substantially all, of the assets of any
other person, firm, corporation or other entity in an amount in excess
of $5,000,000.00 for any one acquisition in any single fiscal year,
and in an amount in excess of $15,000,000.00 in the aggregate for all
such acquisitions in any single fiscal year.
(i) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(j) Guaranties. Refrain from assuming, guaranteeing, endorsing, or
otherwise becoming contingently liable for any obligations of any other
person, except for those guaranties outstanding as of the Effective
Date and disclosed to the Bank in writing.
(k) Deposit Accounts. Maintain its principal deposit accounts with the
Bank.
(l) Form of Organization. Refrain from changing its legal form of
organization.
(m) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(n) Books and Records. Maintain adequate books and records in accordance
with generally acceptable accounting principles consistently applied
and refrain from making any material changes in its accounting
procedures whether for tax purposes or otherwise.
(o) Compliance with Laws. Comply in all material respects with all laws
applicable to its business and the ownership of its property.
(p) Preservation of Rights. Maintain and preserve all rights, privileges,
charters and franchises it now has.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a
covenant is an indication that the risk of the transaction has
increased. As consideration for any waiver or modification of these
covenants, the Bank may require: additional collateral, guaranties or
other credit support; higher fees or interest rates; and possible
modifications to the Documents and the monitoring of the Agreement.
The waiver or modification of any covenant that has been violated by
the Borrower will be made in the sole discretion of the Bank. These
options do not limit the Bank's right to exercise its rights under
Section 8 of this Agreement.
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<PAGE> 8
8. EVENTS OF DEFAULT AND REMEDIES
8.1 DEFAULT
Upon the occurrence of any one or more of the following events
of default, or at any time afterward unless the default has been cured,
the Bank may declare the Line to be terminated and in its discretion
accelerate and declare the unpaid principal, accrued interest and all
other amounts payable under the Revolving Note to be immediately due
and payable:
(a) Default by the Borrower in the payment when due of any principal or
interest due under the Revolving Note or the Documents, including any
Standby L/C Agreement or Documentary L/C Agreement and continuance for
10 days.
(b) Default by the Borrower in the observance or performance of any
covenant or agreement contained in this Agreement, and continuance
for more than 30 days.
(c) Default by the Borrower in the observance or performance of any
covenant or agreement contained in the Documents, or any of them,
excluding this Agreement, after giving effect to any applicable grace
period.
(d) Default by the Borrower in any agreement with the Bank or any other
lender that relates to indebtedness or contingent liabilities which
would allow the maturity of such indebtedness to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect.
(f) Any litigation or governmental proceeding against the Borrower seeking
an amount in excess of $1,000,000.00 which is not insured or subject
to indemnity by a solvent third party either 1) results in a judgment
equal to or in excess of that amount against the Borrower or 2)
remains unresolved on the earlier of the completion of discovery or
the 270th day following its commencement, unless as of that date no
judgment has been rendered and contingent liability arising as a
result is classified as "remote" by the Borrower's counsel as defined
in FASB 5 in a signed opinion addressed to the Bank.
(g) A garnishment, levy or writ of attachment, or any local, state, or
federal notice of tax lien or levy is served upon the Bank for the
attachment of property of the Borrower in the Bank's possession or
indebtedness owed to the Borrower by the Bank.
(h) A material adverse change occurs in the Borrower's financial condition
or ability to repay its obligations to the Bank.
8.2 IMMEDIATE DEFAULT
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal, accrued interest and all other amounts payable under
the Revolving Note and the Documents will become immediately due
and payable without notice or demand.
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<PAGE> 9
9. MISCELLANEOUS.
(a) 360 Day Year. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using generally accepted
accounting principles consistently applied ("GAAP").
(c) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are
cumulative and not exclusive of any remedies provided by law.
(d) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed
by the Bank.
(e) Binding Effect; Assignment. This Agreement and the Documents are
binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement and the
Documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the Documents and
exchange financial information about the Borrower with actual or
potential participants or assignees.
(f) Minnesota Law. This Agreement and the Documents will be governed by the
substantive laws of the State of Minnesota.
(g) Severability of Provisions. If any part of this Agreement or the
Documents are unenforceable, the rest of this Agreement or the Documents
may still be enforced.
(h) Integration. This Agreement and the Documents describe the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing.
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<PAGE> 10
ADDRESS FOR NOTICES TO BANK: ADDRESS FOR NOTICES TO BORROWER:
Norwest Bank Minnesota, Datalink Corporation
National Association 7423 Washington Avenue South
Sixth and Marquette Minneapolis, Minnesota 55439
Minneapolis, Minnesota 55479-0091
Attention: Mike Krutsch, Attention: Robert D. DeVere,
Vice President Treasurer
NORWEST BANK MINNESOTA, DATALINK CORPORATION
NATIONAL ASSOCIATION
By: /s/ Michael W. Krutsch By: /s/ Robert D. DeVere
---------------------------------- ----------------------------
MICHAEL W. KRUTSCH, VICE PRESIDENT ROBERT D. DEVERE, TREASURER
By: /s/ Greg Meland
-----------------------------
Its: President & CEO
-----------------------------
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<PAGE> 11
EXHIBIT A-1
BORROWING BASE DEFINITION
Borrowing Base means the sum of 80% of Eligible Accounts Receivable (as defined
below) plus 35% of Eligible Inventory or $1,250,000.00, whichever is less (as
defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater Than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed
to the Borrower are more than 90 days past the invoice date.
3) Owed by a shareholder, subsidiary, affiliate, officer or
employee of the Borrower.
4) Due from a unit of the federal government or any foreign
governmental entity.
5) Due from an account debtor located outside the United States or
Canada and not supported by standby letter of credit acceptable
to the Bank.
6) Subject to offset or dispute, contra accounts or accounts owed
by a shareholder, subsidiary, affiliate, officer or employee of
the Borrower.
Eligible Inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principals, except
inventory which is:
1) In transit; or located at any warehouse not approved by the
Bank.
2) Evaluation Inventory
<PAGE> 12
EXHIBIT A-2
DATALINK CORPORATION
BORROWING BASE CERTIFICATE
TO: Norwest Bank Minnesota,
National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0091
(the "Bank")
Datalink Corporation (the "Borrower") certifies that the following
computation of the Borrowing Base was performed as of ___________________ in
accordance with the Borrowing Base definitions set forth in Exhibit A-1 to the
Credit Agreement entered into between the Bank and the Borrower dated
______________.
Total A/R $
------------------
Less: 1) Greater than 90 days $
------------------
2) Other ineligibles $
------------------
Eligible A/R $
------------------
80% of Eligible Accts. Receivable $
==================
Total Inventory $
------------------
Less: Ineligible Inventory $
------------------
Eligible inventory $
------------------
Lesser of 35% of Eligible Inventory $
Or $1,250,000.00 ==================
Total Borrowing Base $
==================
Total Line Outstandings ($ )
==================
Excess (Deficit) $
==================
DATALINK CORPORATION
By:
---------------------------
Its:
--------------------------
<PAGE> 13
EXHIBIT B
CONDITIONS PRECEDENT TO INITIAL ADVANCE AND SECURITY
PLEASE NOTE: This Exhibit describes each Note, Security Document,
Authorizations, Organizational Documents, and all miscellaneous documents,
reports, certificates and other information required as a condition to each
advance or disbursement under the Agreement, whether or not they have
previously been delivered to the Bank.
NOTE
The Revolving Note
SECURITY DOCUMENTS
Each Security Document described below must continue in full force and effect
at all times in accordance with its terms during the time period that credit is
available under this Agreement, and afterward until all amounts due under the
Documents are paid in full. THE FAILURE OF ANY SECURITY DOCUMENT TO MEET THESE
REQUIREMENTS MAY RESULT IN AN EVENT OF DEFAULT UNDER THE AGREEMENT AND THE
ACCELERATION OF ALL OF THE BORROWER'S OBLIGATIONS TO THE BANK EVIDENCED BY THE
DOCUMENTS.
Security Agreement. A Security Agreement dated June 1, 1998 signed by the
Borrower granting the Bank a first lien security interest in the Borrower's
accounts, inventory, equipment and general intangibles. The Borrower will also
execute financing statements sufficient to perfect the security interest
granted to the Bank.
AUTHORIZATION
Corporate Certificate of Authority. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the
Borrower signing the Documents and containing a copy of resolutions of the
Borrower's board of directors authorizing execution of the Documents and
performance in accordance with the terms of the Agreement.
ORGANIZATION
Articles of Incorporation And By-Laws. A certified copy of the Borrower's
Articles of Incorporation and By-Laws and any amendments, if applicable.
Certificate of Good Standing. A copy of the Borrower's Certificate of Good
Standing, recently certified by the Minnesota Secretary of State.
OTHER
Evidence of Insurance. Evidence that the insurance required under the Covenant
Section of this Agreement is in force.
DC138211
<PAGE> 14
EXHIBIT C
REPRESENTATIONS AND WARRANTIES
Organizational Status. The Borrower is a corporation duly formed and in good
standing under the laws of the State of Minnesota.
Authorization. This Agreement, and the execution and delivery of the Documents
required hereunder, is within the Borrower's powers, and has been duly
authorized, and does not conflict with any of its organizational papers or any
other agreement by which the Borrower is bound.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated December 31, 1998 and its unaudited interim financial
statement dated April 31, 1998, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with GAAP.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time
would be, an event of default under this Agreement.
ERISA. The Borrower is in compliance in all material respects with ERISA and
has received no notice to the contrary from the PBGC or other governmental
area.
Environmental Matters. 1) The Borrower is in compliance in all material
respects with all health and environmental laws applicable to the Borrower and
its operations and knows of no conditions or circumstances that could interfere
with such compliance in the future; 2) the Borrower has obtained all
environmental permits and approvals required by law for the operation of its
business; and 3) the Borrower has not identified any "recognized environmental
conditions", as that term is defined by the American Society for Testing and
Materials in its standards for environmental due diligence, which could
subject the Borrower to enforcement action if brought to the attention of
appropriate governmental authorities.
<PAGE> 15
EXHIBIT D
DATALINK CORPORATION
OFFICER'S CERTIFICATE OF COMPLIANCE
TO: Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0091
(the "Bank")
I am an officer of Datalink Corporation (the "Borrower") and under the
terms of a Credit Agreement (the "Agreement") between the Bank and the Borrower
dated ________________, and certify that:
(1) The attached financial statements of the Borrower from ______________
through _______________ (the "Statement Date") are true and correct and have
been accurately prepared in accordance with generally accepted accounting
principles applied consistently with the Borrower's most recent annual
financial statement; and
(2) I have read and am familiar with the Agreement and have no knowledge of an
existing event of default or of any event which after the lapse of time or the
delivery of notice would constitute an event of default under the Agreement.
The calculations regarding each financial covenant, as of the Statement Date,
and regardless of whether the Borrower must be in compliance with each covenant
as of the Statement Date, are as follows:
<TABLE>
<CAPTION>
COVENANT ACTUAL REQUIRED
<S> <C> <C>
TANGIBLE NET WORTH PLUS SUB DEBT
Net Worth
---------------
(-) Intangible Assets
---------------
(+) Subordinated Debt
---------------
Tangible Net Worth plus Sub Debt $ at least $12,000,000 as of
=============== the Effective Date increasing
$1 each fiscal quarter thereafter.
TOTAL LIABILITIES TO TNW
PLUS SUB DEBT RATIO
Total liabilities
(-) Subordinated Debt
---------------
Total Liabilities
---------------
Tangible Net Worth
---------------
(+) Subordinated Debt
---------------
TNW plus Sub Debt
---------------
Total Liabilities/TNW plus Sub Debt maximum of 2.00 to 1.0 as
--------------- of each fiscal quarter end
</TABLE>
DATALINK CORPORATION
BY:
-------------------------------
ITS:
------------------------------
DC138211
<PAGE> 16
[NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION LOGO] REVOLVING NOTE
$10,000,000.00 June 1, 1998
FOR VALUE RECEIVED, Datalink Corporation (the "Borrower") promises to pay to the
order of Norwest Bank Minnesota, National Association (the "Bank"), at its
principal office or such other address as the Bank or holder may designate from
time to time, the principal sum of Ten Million and 00/100 Dollars
($10,000,000.00), or the amount shown on the Bank's records to be outstanding,
plus interest (calculated on the basis of actual days elapsed in a 360-day
year) accruing on the unpaid balance at the annual interest rate defined
below. Absent manifest error the Bank's records will be conclusive evidence of
the principal and accrued interest owing hereunder.
This Revolving Note is issued pursuant to a Credit Agreement of even date
herewith between the Bank and the Borrower (the "Agreement") and replaces but
shall not be deemed to satisfy the June 1998 Revolving Note as defined in the
Agreement. The Agreement, and any amendments or substitutions thereto, contain
additional terms and conditions including default and acceleration provisions.
The terms of the Agreement are incorporated into this Revolving Note by
reference. Capitalized terms not expressly defined herein shall have the
meanings given them in the Agreement.
INTEREST RATE.
BASE RATE OPTION. Unless the Borrower chooses the LIBOR Interest Rate Option
as defined below, the principal balance outstanding under this Revolving Note
shall bear interest at an annual rate equal to the Base Rate, floating (the
"Base Rate Option"). Base Rate means the rate of interest established by the
Bank from time to time as its "base" or "prime" rate of interest at its
principal office in Minneapolis, Minnesota.
LIBOR INTEREST RATE OPTION. Subject to the terms and conditions of the
Agreement the Borrower may elect that all or portions of the principal balance
of this Revolving Note bear interest at the LIBOR Interest Rate plus 1.95% (the
"LIBOR Interest Rate Option"). Specific reference is made to the Interest Rate
Options section of the Agreement for terms governing the designation of interest
periods and rate portions.
The LIBOR Interest Rate shall be computed in accordance with the following
formula.
LIBOR Interest Rate = London Interbank Offered Rate
-----------------------------
1.00 - Reserve Requirement
Where,
(1) "London Interbank Offered Rate" means the Bank's cost of funds as
determined by the Bank's Treasury Division, based upon the average rate
at which U.S. Dollar deposits with a term equal to the applicable LIBOR
Interest Rate Period and in an amount equal to the LIBOR Interest Rate
Portion are available to the Bank at the time or determination on the
London Interbank Market.
(2) "Reserve Requirement" means the Federal Reserve System requirement
(expressed as a percentage) applicable to the dollar deposits used in
calculating the LIBOR Interest Rate above.
<PAGE> 17
REPAYMENT TERMS
INTEREST. Interest will be payable on the first day of each month, beginning
July 1, 1998.
PRINCIPAL. Principal and any unpaid interest, will be due on May 31, 2000.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorney's fees and legal expenses incurred
by the Bank if this Revolving Note is not paid as provided above. This
Revolving Note shall be governed by the substantive laws of the State of
Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person
who signs, guarantees or endorses this Revolving Note, to the extent allowed
by law, hereby waives presentment, demand for payment, notice of dishonor,
protest, and any notice relating to the acceleration of the maturity of this
Revolving Note.
DATALINK CORPORATION
BY: Greg Meland
----------------------------
ITS: President & CEO
---------------------------
DC138221
<PAGE> 1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made effective as of the _____ day of
__________, 1998, by and between DATALINK CORPORATION, a Minnesota corporation
(the "Company"), and ___________________________ ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
the most capable persons available;
WHEREAS, Indemnitee has recently become, or continues to serve as, a
director of the Company;
WHEREAS, the Bylaws of the Company require the Company to indemnify its
directors to the full extent permitted by law and Indemnitee is serving as a
director of the Company, in part, in reliance on such Bylaws; and
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to maintain Indemnitee's continued service
to the Company in an effective manner and Indemnitee's reliance on the aforesaid
Bylaws and, in part, to provide Indemnitee with specific contractual assurance
that the protection promised by such Bylaws will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Bylaws or any change in the composition of the Company's Board of Directors or
any acquisition transaction relating to the Company), the Company desires to
provide in this Agreement for the indemnification of and the advance of expenses
to Indemnitee to the full extent (whether partial or complete) permitted by law,
as set forth in this Agreement and, to the extent officers' and directors'
liability insurance is maintained by the Company, to provide for the continued
coverage of Indemnitee under the Company's officers' and directors' liability
insurance policies;
NOW, THEREFORE, in consideration of the covenants contained herein and of
Indemnitee's continuing service to the Company directly or, at its request,
other enterprises, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS.
(a) CHANGE IN CONTROL. A Change in Control shall be deemed to have
occurred if (i) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 20% or more of the total voting
power represented by the Company's then outstanding Voting Securities, or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
<PAGE> 2
Company, and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were (x) directors at the beginning of the period or (y) whose
election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority of the Board of Directors, or (iii) the
stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior to such a merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets. A "Change of Control" shall not be deemed to occur as a
result of transactions in contemplation of or in connection with the
Company's initial public offering of Common Stock, including without
limitation, the election of Class I, Class II and Class III directors or
the issuance of Common Stock to the public in the offering.
(b) CLAIM. Any threatened, pending, or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation, or
proceeding, and any appeal thereof, whether civil, criminal,
administrative, or investigative and/or any inquiry or investigation,
whether conducted by the Company or any other party that Indemnitee in good
faith believes might lead to the institution of any such action.
(c) EXPENSES. Include attorneys' fees and all other costs, expenses,
and obligations, including retainers, court costs, transcript costs, expert
fees, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, and delivery services fees, paid
or incurred in connection with investigating, defending, being a witness in
or participating in (including on appeal), or preparing to defend, be a
witness in or participate in any claim relating to any Indemnifiable Event.
(d) INDEMNIFIABLE EVENT. Any event, occurrence, or circumstance
related to the fact that Indemnitee is or was a director, officer,
employee, trustee, agent, or fiduciary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, trustee,
agent or fiduciary of any other corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, or by reason of anything
done or not done by Indemnitee in any such capacity.
(e) POTENTIAL CHANGE IN CONTROL. Shall be deemed to have occurred if
(i) the Company enters into an agreement or arrangement, the consummation
of which would
-2-
<PAGE> 3
result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or
to consider taking actions which if consummated would constitute a Change
in Control; (iii) any person (other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company acting in
such capacity or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company's then outstanding
Voting Securities increases his beneficial ownership of such securities by
5% or more over the percentage so owned by such person on the date
hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred. A
"Potential Change of Control" shall not be deemed to occur as a result of
transactions in contemplation of or in connection with the Company's
initial public offering of Common Stock, including without limitation, the
election of Class I, Class II and Class III directors or the issuance of
Common Stock to the public in the offering.
(f) REVIEWING PARTY. Any appropriate person or body consisting of a
member or members of the Company's Board of Directors including the Special
Independent Counsel referred to in Section 4 (or, to the fullest extent
permitted by law, any other person or body appointed by the Board), who is
not a party to the particular claim for which Indemnitee is seeking
indemnification.
(g) VOTING SECURITIES. Any securities of the Company which vote
generally in the election of directors.
2. AGREEMENT TO SERVE. Indemnitee agrees to continue to serve as a
director of the Company. Indemnitee may at any time and for any reason resign
from such position (subject to any other contractual obligation or any
obligation imposed by operation of law). The Company shall have no obligation
under this Agreement to continue Indemnitee in any position with the Company.
3. BASIC INDEMNIFICATION AGREEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or airing in party
out of), an Indemnifiable Event, the Company shall indemnify Indemnitee to
the fullest extent permitted by law, as soon as practicable but in any
event no later than thirty days after written demand is presented to the
Company against any and all expenses, judgments, fines, penalties, and
amounts paid in settlement (including all interest, assessments, and other
charges paid or payable in connection with or in respect of such expenses,
judgments, fines, penalties, or amounts paid in settlement) of such
Claim. Notwithstanding anything in this Agreement to the contrary, prior
to a Change in Control, Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any Claim
initiated by Indemnitee against the Company or any director
-3-
<PAGE> 4
or officer of the Company unless the Company has joined in or consented
to the initiation of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request)
any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 3(a) shall be subject to the condition that any Reviewing
Party shall not have determined in a written opinion (in any case in which
the Special Independent Counsel referred to in Section 4 hereof is
involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance pursuant to Section 3(a) shall be subject to the condition that
if, when and to the extent that any Reviewing Party determines that
Indemnitee would not be permitted to be so indemnified under applicable
law, the Company shall be entitled to be reimbursed by Indemnitee (who
hereby agrees to reimburse the Company, without interest) for all such
amounts theretofore paid; provided, however, that if Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure
a determination that Indemnitee should be indemnified under applicable
law, any determination made by a Reviewing Party that Indemnitee would not
be permitted to be indemnified under applicable law shall not be binding
and Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, a Reviewing Party
shall be selected by the Board of Directors, and if there has been such a
Change in Control, a Reviewing Party shall be the Special Independent
Counsel referred to in Section 4 hereof. If there has been no appointment
or no determination by a Reviewing Party or if a Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the State of
Minnesota having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any
such determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual
basis therefor, and the Company hereby (i) consents to service of process
and to appear in any such proceeding, (ii) shall be precluded from
asserting that the procedures and presumptions of this Agreement are not
valid, binding, and enforceable, and (iii) shall stipulate in any
such proceeding that the Company is bound by all the provisions of this
Agreement. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
4. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to
all matters thereafter arising concerning the rights of Indemnitee to
indemnity payment and Expense Advances under this Agreement or any other
agreement, the Company's Articles of Incorporation, or the Company's Bylaws
now or hereafter in effect relating to Claims for Indemnifiable Events, the
Company shall seek legal advice only from "Special Independent
-4-
<PAGE> 5
Counsel" selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company or Indemnitee within the last five years
(other than in connection with such matters). Such Special Independent
Counsel, among other things, shall render its written opinion to the Company
and Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the Special Independent Counsel referred to above
and may fully indemnify such Special Independent Counsel against any and all
expenses (including attorney's fees), claims, liabilities, and damages
arising out of or relating to this Agreement or its engagement pursuant
hereto.
5. ESTABLISHMENT OF TRUST. In the event of Potential Change in Control, the
Company shall, upon written request by Indemnitee, create a "Trust" for
the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such Trust in an amount sufficient to satisfy any
and all Expenses reasonably anticipated at the time of each such request
to be incurred in connection with investigating, preparing for and defending
any Claim relating to an Indemnifiable Event, and any and all judgments,
fines, penalties, and settlement amounts of any and all Claims relating to an
Indemnifiable Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited
in the Trust pursuant to the foregoing funding obligation shall be
determined by a Reviewing Party, in any case in which the Special Independent
Counsel referred to above is involved. The Terms of the Trust shall provide
that upon a Change in Control (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee,
(ii) the Trustee shall advance, within two business days of a request by the
Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby
agrees to reimburse the Trust under the circumstances under which the
Indemnitee would be required to reimburse the Company under Section 3(b) of
this Agreement, (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the Trustee
shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement
or otherwise, and (v) all unexpended funds in such Trust shall revert to
the Company upon a final determination by the Reviewing Party or a
court of competent jurisdiction, as the case may be, that the Indemnitee has
been fully indemnified under the terms of this Agreement. The Trustee shall
be a bank or trust company or other individual or entity chosen by the
Indemnitee and acceptable and approved by the Company. Nothing in this
Section 5 shall relieve the Company of any of its obligations under this
Agreement.
6. INDEMNIFICATION FOR ADDITIONAL EXPENSES. To the fullest extent permitted
by law, the Company shall indemnify against any and all Expenses
(including attorney's fees) and, if requested by Indemnitee, shall (within
two business days of such request) advance such Expenses to Indemnitee,
which are incurred by Indemnitee in connection with any Claim asserted
against or action brought by Indemnitee for (i) indemnification or advance
payment of Expenses by the Company under this Agreement or any other agreement,
the Company's Bylaws, or Articles of Incorporation hereafter in effect
relating to Claims for Indemnifiable Events and/or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the
Company,
-5-
<PAGE> 6
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, Expense advance or insurance recovery, as the case may be.
7. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
the expenses, judgments, fines, penalties, and amounts paid in settlement of a
claim but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement, all Claims relating in whole or in part to any Indemnifiable Event
or in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
8. CONTRIBUTION. If the indemnification provided in this Agreement is
unavailable and may not be paid to Indemnitee because such indemnification is
not permitted by law, then in respect of any threatened, pending, or completed
Claim in which the Company is jointly liable with Indemnitee (or would be if
joined in such Claim), the Company shall contribute, to the full extent
permitted by law, to the amount of expenses, judgments, fines, penalties, and
amounts paid in settlement (including all interest, assessments, and other
charges paid or payable in connection with or in respect of such expenses,
judgments, fines, penalties, or amounts paid in settlement) actually incurred
and paid or payable by Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other hand from the transaction from which such Claim arose,
and (ii) the relative fault of the Company on the one hand and Indemnitee on the
other in connection with the events which resulted in such expenses, judgments,
fines, penalties, and amounts paid in settlement, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand and
of Indemnitee on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgment, fines, penalties, and amounts paid in settlement. The Company agrees
that it would not be just and equitable if contribution pursuant to this
paragraph were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
9. NO PRESUMPTION. For purposes of this Agreement, to the fullest
extent permitted by law, the termination of any Claim, action, suit, or
proceeding, by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a
court has determined that indemnification is not permitted by applicable
law.
10. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's Articles
of Incorporation or Bylaws or the Minnesota Business Corporation Act or
otherwise. To the extent that a change in the
-6-
<PAGE> 7
Minnesota Business Corporation Act (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Articles of Incorporation or Bylaws or this Agreement, to
the fullest extent permitted by law it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change immediately upon the occurrence of such change without further
action by the Company or Indemnitee.
11. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any director
or officer of the Company. The Board of Directors of the Company shall determine
the amount and coverage of such directors' and officers' liability insurance
from time to time.
12. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, and any claim or cause of action of the
Company or its affiliate shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
13. AMENDMENTS, ETC.. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
14. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
15. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaws, or otherwise) of the amounts otherwise
indemnifiable hereunder.
16. BINDING EFFECT, ETC.. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successors by purchase,
merger, consolidation, or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or
-7-
<PAGE> 8
indirect by purchase, merger, consolidation, or otherwise) to all, substantially
all or a substantial part, of the business and/or assets of the Company, by
written agreement in form and substance satisfactory to the Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as an officer or director of the
Company or of any other enterprise at the Company's requests.
17. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph, or sentence) are held by a court of competent
jurisdiction to be invalid, void, or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired, and shall
remain enforceable to the fullest extent permitted by law.
18. TERM. All obligations of the Company contained herein shall
continue during the period Indemnitee serves the Company in a capacity referred
to in Section 2 hereof, and shall continue thereafter so long as Indemnitee
shall be subject to any possible Claim relating to an Indemnifiable Event.
19. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Minnesota applicable to
contracts made and to be performed in such State without giving effects to the
principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.
DATALINK CORPORATION
By:_______________________________________
Greg R. Meland, Chief Executive Officer
INDEMNITEE
__________________________________________
-8-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated February 25, 1998, except as to the first paragraph of Note 5,
Note 11 and Note 12, as to which the date is June 2, 1998, on our audits of
the financial statements and financial statement schedule of Datalink
Corporation. We also consent to the references to our firm under the captions
"Experts" and "Selected Historical and Pro Forma Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
June 3, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the references to our firm under the captions "Change in
Accountants" and "Selected Historical and Pro Forma Financial Data" in this
registration statement on Form S-1.
/s/ Hansen, Jergenson, Nergaard & Co. L.L.P.
Minneapolis, Minnesota
June 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 1,163,107 142,569
<SECURITIES> 0 0
<RECEIVABLES> 11,340,738 8,316,260
<ALLOWANCES> 60,000 60,000
<INVENTORY> 4,661,378 4,894,075
<CURRENT-ASSETS> 17,183,928 13,720,151
<PP&E> 2,246,664 2,492,477
<DEPRECIATION> 768,542 822,666
<TOTAL-ASSETS> 18,704,553 15,434,512
<CURRENT-LIABILITIES> 10,422,593 7,060,253
<BONDS> 0 0
13,873,980 14,773,980
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 18,704,553 15,434,512
<SALES> 71,255,299 16,598,745
<TOTAL-REVENUES> 71,255,299 16,598,745
<CGS> 55,719,303 12,722,934
<TOTAL-COSTS> 9,127,498 2,703,198
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 332,562 54,861
<INCOME-PRETAX> 6,075,936 1,117,752
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 6,075,936 1,117,752
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,075,936 1,117,752
<EPS-PRIMARY> 0.88 0.16
<EPS-DILUTED> 0.88 0.16
</TABLE>
