SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[Amendment No. _________]
Filed by the Registrant _X_
Filed by a Party other than the Registrant ___
Check the appropriate box:
___ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
DATALINK SYSTEMS CORPORATION
(Name of Registrant as Specified in Its Charter)
DATALINK SYSTEMS CORPORATION
(Name of Person(s) Filing Proxy Statement)
DATALINK SYSTEMS CORPORATION
1735 TECHNOLOGY WAY, SUITE 790
SAN JOSE, CALIFORNIA 95110
(408) 367-1700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 4, 1998
TO THE SHAREHOLDERS OF DATALINK SYSTEMS CORPORATION:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of
Datalink Systems Corporation, a Nevada corporation, will be held at the
Company's offices at 1735 Technology Way, Suite 790, San Jose, California
95110, on Friday, December 4, 1998, at 2:00 p.m., Pacific Time, and at any and
all adjournments thereof, for the purpose of considering and acting upon the
following matters.
1. The election of five (5) Directors of the Company to serve until the
next Annual Meeting of Shareholders and until their successors have been duly
elected and qualified.
2. Ratification of the selection of BDO Seidman LLP as the Company's
independent accountants for the fiscal year ending March 31, 1999.
3. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of the $.01 par value Common Stock of the Company of record
at the close of business on November 6, 1998, will be entitled to notice of
and to vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Corporation.
All shareholders, whether or not they expect to attend the Annual Meeting
of Shareholders in person, are urged to sign and date the enclosed Proxy and
return it promptly in the enclosed postage-paid envelope which requires no
additional postage if mailed in the United States. The giving of a proxy will
not affect your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
ANTHONY N. LAPINE, PRESIDENT
San Jose, California
November 6, 1998
DATALINK SYSTEMS CORPORATION
1735 TECHNOLOGY WAY, SUITE 790
SAN JOSE, CALIFORNIA 95110
(408) 367-1700
______________________________
PROXY STATEMENT
______________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 4, 1998
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of Datalink Systems Corporation, a Nevada corporation (the
"Company"), for use at the Company's Annual Meeting of Shareholders to be held
at the Company's offices at 1735 Technology Way, Suite 790, San Jose,
California 95110, on Friday, December 4, 1998, at 2:00 p.m., Pacific Time, and
at any adjournment thereof. It is anticipated that this Proxy Statement and
the accompanying Proxy will be mailed to the Company's shareholders on or
about November 9, 1998.
Any person signing and returning the enclosed Proxy may revoke it at any
time before it is voted by giving written notice of such revocation to the
Company, or by voting in person at the Meeting. The expense of soliciting
proxies, including the cost of preparing, assembling and mailing this proxy
material to shareholders, will be borne by the Company. It is anticipated
that solicitations of proxies for the Meeting will be made only by use of the
mail; however, the Company may use the services of its Directors, Officers and
employees to solicit proxies personally or by telephone, without additional
salary or compensation to them. Brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the proxy soliciting materials to the
beneficial owners of the Company's shares held of record by such persons, and
the Company will reimburse such persons for their reasonable out-of-pocket
expenses incurred by them in that connection.
All shares represented by valid proxies will be voted in accordance
therewith at the Meeting.
The Company's Annual Report on Form 10-KSB is being simultaneously mailed
to the Company's shareholders, but does not constitute part of these proxy
soliciting materials.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Company's
$.01 par value Common Stock and Series A Convertible Preferred Stock. Each
share of Common Stock entitles the holder to one (1) vote and each share of
Series A Convertible Preferred Stock is entitled to one (1) vote. The Common
Stock and Series A Preferred Stock vote together as a single class. Only
shareholders of record at the close of business on November 6, 1998, are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
On November 6, 1998, the Company had 2,033,499 shares of $.01 par value Common
Stock and 2,739,973 shares of Series A Convertible Preferred Stock
outstanding.
A majority of the Company's outstanding Common and Preferred Stock,
considered as a single class, represented in person or by proxy shall
constitute a quorum at the Meeting.
The Company's Articles of Incorporation provide that a holder of any
class or series of stock entitled to vote in the election of Directors shall
be entitled to cumulate his votes, and may cast votes equal to the number of
votes which (except for cumulative voting) he would be entitled to cast for
the election of Directors with respect to his shares of stock multiplied by
the number of Directors to be elected, and such shareholder may cast all such
votes for a single Director or allocate such votes to two or more Directors as
such shareholder sees fit.
Under Nevada law, to exercise the right to cumulative voting, a
shareholder must give the Company written notice of his intent to do so at
least 48 hours before the time fixed for the Annual Meeting. Such written
notice must be given to the President or Secretary of the Company.
The person named in the form of proxy included herewith does not
presently intend to exercise cumulative voting rights with respect to such
proxies. If the proxy holder determines to exercise such rights and gives due
notice, the proxy holder (if authority to vote for one or more nominees is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the Board of Directors nominees as he may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares
entitled to vote owned beneficially, as of November 6, 1998, by any person,
who is known to the Company to be the beneficial owner of 5% or more of the
Company's Common and Preferred Stock considered as a single class, and, in
addition, by each Director of the Company and by all Directors and Officers of
the Company as a group. Information as to beneficial ownership is based upon
statements furnished to the Company by such persons.
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- -------------------- ---------------- --------
Anthony LaPine 915,000 (1) 17.5%
1735 Technology Drive
San Jose, California 95110-1333
Orbis Pension Trustees Ltd. 399,960 (2) 8.2%
One Connaught Place
London, England W11DY
J.F. Shea Co. Inc. as Nominee 399,990 (3) 8.2%
1997-60
Edmund H. Shea Jr. VP
655 Brea Canyon Road
Walnut, CA 91789
2
Commonwealth Associates 594,284 (4) 11.0%
830 Third Avenue
New York, NY 10022
Marshall Geller 46,640 (5) 1.0%
1875 Century Park East, Suite 2200
Los Angeles, CA 90067
Frederick M. Hoar 10,000 (6) *
555 Twin Dolphin Drive, Suite 650
Redwood City, CA 94065
David Ladd 10,000 (6) *
2800 Sand Hill Road
Menlo Park, CA 94025
Robert L. Priddy 10,000 (6) *
3435 Kingsboro Road, Apt. 1601
Atlanta, GA 30326
Peter A. Allard 324,917 (7) 6.7%
Seawatch, The Garden
St. James, Barbados
British West Indies
All Officers and Directors 1,061,640 (8) 19.9%
as a Group (7 Persons)
___________________
* Less than one percent.
(1) Includes 200,000 shares owned directly by Mr. LaPine; 280,000 shares of
Series A Convertible Preferred Stock; 70,000 shares of Common Stock underlying
currently exercisable options held by Mr. LaPine; 25,000 shares of Common
Stock underlying currently exercisable options held by Mr. LaPine's wife,
Pamela LaPine; and 340,000 shares of Common Stock underlying warrants held by
Mr. LaPine.
(2) Includes 266,640 shares of Series A Convertible Preferred Stock; and
133,320 shares of Common Stock underlying warrants.
(3) Includes 266,660 shares of Series A Convertible Preferred Stock; and
133,330 shares of Common Stock underlying warrants.
(4) Includes 100,000 shares of Common Stock; 40,000 shares of Series A
Convertible Preferred Stock; and 454,284 shares of Common Stock underlying
warrants.
(5) Includes 10,000 shares of Common Stock underlying currently exercisable
options; 17,760 shares of Series A Convertible Preferred Stock; and 18,880
shares of Common Stock underlying warrants.
(6) Represents shares underlying currently exercisable options.
(7) Includes 214,917 shares of Common Stock held directly by Mr. Allard;
10,000 shares of Common Stock held by Euphemia Trust; and 100,000 shares of
Common Stock underlying currently exercisable warrants.
3
(8) Includes the shares listed above as beneficially owned by Messrs. LaPine,
Geller, Hoar, Ladd and Priddy, and 70,000 shares of Common Stock underlying
currently exercisable options held by other executive officers.
ELECTION OF DIRECTORS
The Board of Directors is currently set at five (5) members. The Board
of Directors recommends the election as Directors of the five (5) nominees
listed below, to hold office until the next Annual Meeting of Shareholders and
until their successors are elected and qualified or until their earlier death,
resignation or removal. Each member of the present Board of Directors has
been nominated for reelection. The person named as "Proxy" in the enclosed
form of Proxy will vote the shares represented by all valid returned proxies
in accordance with the specifications of the shareholders returning such
proxies. If at the time of the Meeting any of the nominees named below should
be unable to serve, which event is not expected to occur, the discretionary
authority provided in the Proxy will be exercised to vote for such substitute
nominee or nominees, if any, as shall be designated by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company presently
held, and the period during which each person has served as a Director:
Positions and Offices Held
Name Age and Term as a Director
- ---------------- --- --------------------------------------------
Anthony N. LaPine 55 President, Chief Executive Officer and
Director since June 1996
Marshall Geller 58 Director since November 1997
Frederick M. Hoar 60 Director since March 1998
David Ladd 51 Director since March 1998
Robert L. Priddy 52 Director since October 1998
There is no family relationship between any Director or executive officer
of the Company.
The following sets forth biographical information as to the business
experience of each Director, Nominee for Director and Executive Officer of the
Company for at least the past five years.
ANTHONY N. LAPINE has served as President, Chief Executive Officer and a
Director of the Company since June 27, 1996. Mr. LaPine's career began at IBM
in 1964, where his technical achievements earned him several patents and
"outstanding contribution" awards. His Data Synchronization invention (Patent
3,701,039) remains the state of the art in today's disk drives. In 1969, he
was recruited as one of the founders of Memorex's Equipment Group where he was
instrumental in giving birth to the floppy disk drive. After Memorex's first
billion dollar revenue year, he was instrumental in the sale of Memorex to
Burroughs, now Unisys. In 1981 Mr. LaPine was recruited to re-engineer
Irwin/Olivetti where he orchestrated the invention of the first removal
cartridge tape backup in personal computers. This development opened a new
billion dollar market catapulting the company to profitability and an initial
public offering. In 1983, he formed LaPine Technology, raising $30 million
4
and launched the new 3-1/2 inch Winchester disk drive technology. He led his
company's growth to a profitable $60 million in sales before selling the
company to his alliance partners, Prudential and Kyocera, in 1987. In 1987 he
formed The LaPine Group, a private investment and turnaround management firm
which he owned and operated until December 1994. From December 1994 to June
1996, he served as CEO of Andor International, a company launched by Gene
Amdahl. After reorganizing the company, Mr. LaPine negotiated its sale to the
Fortel Group where he now serves as Chairman. He lectures in the Graduate
School of Business at the University of San Francisco. He has served as
Chairman of the Hoover Institution's Council on Economic Development. He
received a BSEE Cum Laude from San Jose State University in 1965, an MSEE from
Santa Clara University in 1971, and an MBA from the University of San
Francisco in 1986.
MARSHALL GELLER has served as a Director of the Company since November
1997. He is currently the Chairman, Chief Executive Officer and Founding
Partner of Geller & Friend Capital Partners, Inc., which was formed in
November 1995. From 1991 to October 1995, Mr. Geller was the Senior Managing
Partner and founder of Golenberg & Geller, Inc., a merchant banking and
investment company. From 1988 to 1990, he was the Vice-Chairman of Gruntal &
Company, a New York Stock Exchange investment banking firm. From 1967 through
1988, Mr. Geller was Senior Managing Director for Bear Stearns & Company.
FREDERICK M. HOAR has served as a Director of the Company since March
1998. He has over 35 years of experience in public affairs, financial
relations and marketing. He has shaped and implemented communications
strategies for some of America's seminal technology-based companies, including
Apple, Fairchild, Genentech and RCA.
Mr. Hoar joined Boston-based Miller Communications, a leading
international high-tech public relations agency, in 1989. He subsequently
became president of Miller/Shandwick Technologies West, with responsibility
for offices in Silicon Valley, Los Angeles and Dallas. In 1997 he was named
to the additional position of chairman of Shandwick Technologies. In the early
1980's, Mr. Hoar was vice president of communications for Apple Computer. He
also served as vice president, communication and marketing services for
Fairchild Camera & Instrument; vice president, corporate communications for
Genentech; director, worldwide communications for Raychem; and division vice
president, public affairs and advertising for RCA.
Mr. Hoar holds a B.A. degree cum laude in American history and literature
from Harvard College and an M.A. in editorial journalism from the University
of Iowa. He began his career with the Associated Press and as an instructor
in English and journalism at the University of Northern Iowa.
DAVID LADD has served as a Director of the Company since March 1998. He
is a telecommunications expert, who finds and cultivates new
telecommunications companies. He is currently Vice President in the New
Ventures Group of Lucent Technologies, where his primary responsibility is to
help commercialize Bell Labs technology in partnerships with Silicon Valley
venture capitalists and entrepreneurs. He joined Mayfield fund in 1998 as a
partner. In addition, he has also held senior management positions at a
number of telecommunications companies, including Rolm Corp., Octel
Communications Corp. and VMX Inc.
5
ROBERT L. PRIDDY has served as a Director of the Company since October
1998. He has been Chief Executive Officer and Chairman of the Board of RMC
Capital, LLC, which holds a number of investments, since its inception in
October 1995. In addition, he was one of the four founding partners of
ValueJet Airlines. Mr. Priddy served as Chief Executive Officer, director and
Chairman of the airline, the wholly-owned subsidiary of ValueJet, Inc., from
July 1992 to November 1996. Mr. Priddy is also on the Board of Director of
Accumed International and Advamtel. From December 1991 to April 1993, he
assisted Mesa Airlines in the founding of its subsidiary, Florida Gulf
Airlines, for which Mr. Priddy served as President. From July 1991 to January
1993, he also served as a director of Mesa Airlines, Inc. From January 1998
to November 1991, he served as President and Chief Executive Officer of Air
Midwest, Inc., a regional airline headquartered in Wichita, Kansas, for which
he also served as a director from November 1987 to November 1991. From 1979
to 1987, he served as Vice President and Chief Financial Officer of Atlantic
Southeast Airlines, Inc. ("ASA"), a regional airline headquartered in Atlanta,
Georgia, for which he also served as a director from 1981 to 1987. He was one
of the three founding stockholders of ASA. From 1966 to 1979, he worked for
Southern Airways in various capacities, his last responsibilities being
manager of scheduling.
SARA A. FISCUS has served as the Company's Corporate Secretary since
March 31, 1998 and has been the Company's In-House Counsel since October 1,
1997. Prior to joining the Company, Ms. Fiscus served as the Director of
International Business Development at PC Quote, Inc. from January 1, 1997 to
September 9, 1997 and the program manager of PC Quote International from
February 22, 1996 to December 31, 1996. Ms. Fiscus received her law degree
form the University of Wisconsin Law School in August of 1995 while on an
exchange program at Diego Portales University in Santiago, Chile and became a
member of the Wisconsin State Bar in February of 1996. She received Bachelor
of Arts Degrees in English Literature and Classics from the University of
Kansas in December of 1990. Ms. Fiscus is 30 years old.
WILLIAM A. MAHAN became the Company's Chief Financial Officer and
Treasurer effective October 5, 1998. Mr. Mahan, age 57, has extensive
experience in corporate finance, operations, shareholder reporting and
investor services and has served as chief financial officer or chief
accounting officer for various public and privately held companies for the
last 30 years, including New York Stock Exchange and American Stock Exchange
listed companies. From 1995 to 1998, Mr. Mahan was a principal in W.A. Mahan
Associates, which provided interim and part-time chief financial officer
services. Clients included a manufacturer of emergency power generating
equipment and a mortgage banker. From 1993 to 1995, he was Vice President of
Finance of Information Network Corporation, a privately-held, Phoenix, Arizona
based, provider of information systems and services to managed health care
organizations. Additionally, Mr. Mahan was President and Chief Executive
Officer of a privately held technology company from 1989 to 1993, prior to its
acquisition by a New York Stock Exchange listed company. Mr. Mahan started
his career with the Los Angeles office of Haskins & Sells, CPA's (now Deloitte
& Touche, LLP), where he was a senior accountant working in auditing and tax
for clients in a wide variety of industries. He received his degree in
Finance and Accounting from Arizona State University in 1964, and earned his
CPA certificate in 1966 while at Haskins & Sells.
6
The Company does not have a nominating or compensation committee, but
does have an audit committee which consists of all non-employee Directors of
the Company, and therefore presently consists of Marshall Geller, Frederick M.
Hoar, David Ladd and Robert L. Priddy. The Committee was first established on
January 15, 1998, and did not hold any meetings during the fiscal year ended
March 31, 1998.
The Company's Board of Directors held three (3) meetings during the year
ended March 31, 1998. Each Director attended at least 75% of the aggregate
number of meetings held by the Board of Directors during the time each such
Director was a member of the Board.
There are no known arrangements or understandings between any director or
executive officer and any other person pursuant to which any of the
above-named executive officers or directors was selected as an officer or
director of the Company.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President and each other Executive Officer who
received compensation in excess of $100,000 for the fiscal years ended March
31, 1998 and 1997. No executive officer received any compensation for the
fiscal year ended March 31, 1996.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ---------------------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- -------- ----- ------ -------- -------- ------- -------
Anthony LaPine, 1998 $140,000 -0- 11,000 -0- 200,000 -0- -0-
President and 1997 $195,000 -0- 11,000 -0- 70,000 -0- -0-
Chairman of the <FN2> <FN3>
Board
Nicholas Miller 1998 $135,000 -0- 9,000 -0- 50,000 -0- -0-
<FN1> 1997 $180,000 -0- 12,000 -0- 70,000 -0- -0-
<FN2> <FN3>
----------------
7
<FN>
<FN1>
Mr. Miller resigned as Director and Secretary of the Company and as Chief
Executive Officer, President and Director of DSC DataLink Systems, the
Company's wholly owned Canadian subsidiary in February 1998.
<FN2>
Represents car allowance.
<FN3>
Represents warrants to purchase shares of the Company's stock at $3.75 which
vest over a three-year period.
</FN>
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants made to the above officers during the last
fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/WARRANTS/ OPTIONS/WARRANTS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- --------------- ------- -------- ---------------- ----------------
Anthony LaPine -0- -0- 70,000 / 0 0 / 0
Nicholas Miller -0- -0- 70,000 / 0 0 / 0
EMPLOYMENT AGREEMENTS
Effective May 1, 1996, the Company entered into a three year employment
agreement with Anthony LaPine, the Company's President, pursuant to which he
receives a base salary of $140,000 per year, plus discretionary increases in
accordance with the Company's normal review procedures. In addition, subject
to the achievement of certain mutually agreed upon performance goals, Mr.
LaPine will be paid an annual bonus equal to 86% of his base salary. Mr.
LaPine also receives a $1,000 per month car allowance. In the event that the
Company terminates this agreement prior to the expiration of the three year
term for other than cause or disability, or if Mr. LaPine terminates the
agreement for "good reason" (as defined in the agreement), the Company is
required to continue paying the salary and other benefits for the remainder of
the term of the agreement. Mr. LaPine also receives full health, dental,
vision and disability insurance.
Concurrently with the execution of the employment agreement, Mr. LaPine
entered into a Stock Purchase Agreement pursuant to which he purchased 200,000
shares of the Common Stock of Datalink Communications Corporation (which were
later exchanged for 200,000 shares of the Company's Common Stock), and as
payment therefor, Mr. LaPine executed a non-recourse promissory note in the
amount of $1,500,000. The note bears interest at 5% per annum and the
principal plus interest are due on or before April 1, 2001. As security for
the note, Mr. LaPine granted the Company a security interest in the 200,000
shares of Common Stock.
8
On May 20, 1996, the Company entered into a Loan Forgiveness Agreement
with Mr. LaPine which provided that Mr. LaPine's $1,500,000 promissory note
would be forgiven if Mr. LaPine has continued to serve as the Company's Chief
Executive Officer through May 1, 1999, and there are no uncured defaults by
Mr. LaPine under his Employment Agreement on May 1, 1999.
On January 2, 1997, the Company entered into a three year lease with Mr.
LaPine and his wife whereby the Company leases from the LaPine's 4,000 square
feet of office space located in the LaPine's home at an annual rate of
$100,000 or $8,333.37 per month. The lease terminates if Mr. LaPine's
employment with the Company is terminated.
The Company and Arundel Holdings, Inc., a company owned by Nicholas R.
Miller and his wife, are parties to an Advisor Agreement having a three-year
term which commenced May 1, 1996. The Advisor Agreement provided that Mr.
Miller would receive a base salary of $180,000 per year, plus discretionary
increases in accordance with the Company's normal review procedures. In
addition, subject to the achievement of certain mutually agreed upon
performance goals, Mr. Miller was to be paid an annual bonus equal to 100% of
his base salary. Mr. Miller also received a $1,000 per month car allowance.
On September 17, 1996, the Company entered into a Directors Agreement
with Mr. Miller pursuant to which Mr. Miller served as a Director of the
Company. The agreement provided that the Company would indemnify Mr. Miller to
the fullest extent permitted by the Company's Articles of Incorporation and
applicable laws. The agreement also granted Mr. Miller options to purchase
70,000 shares of the Company's Common Stock at $4.40 per share.
On February 12, 1998, the Company and Mr. Nicholas Miller, former
Chairman, terminated the Advisor Agreement with Arundel Holdings, Inc. The
termination was effected by a mutual release agreement which provides for the
following:
a) full payment of past due advisory fees and expenses;
b) modification to the warrants granted to Mr. Miller under the November
5, 1997 private placement so that Mr. Miller is to receive only 50,000
warrants of the 200,000 warrants originally agreed upon;
c) continuance until April 30, 1999 of Mr. Miller's right to exercise
the 70,000 shares in his option grant.
EMPLOYEE STOCK OPTION PLAN
During June 1996, the Board of Directors adopted the Employee Stock
Option Plan (the "Plan") which was approved by the Company's shareholders on
June 14, 1996. The Plan initially authorized the issuance of options to
purchase up to 300,000 shares of the Company's $.01 par value Common Stock,
and was amended on January 8, 1998 to authorize options to purchase up to
500,000 shares of the Company's $.01 par value Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers and directors of the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions are determined by the Board at the time options
are granted. The option price for any option will be no less than the fair
market value of the Common Stock on the date the option is granted.
9
During the fiscal year ended March 31, 1998, the Company's Board of
Directors granted a total of 144,555 options to a total of 35 employees,
directors and consultants.
On June 17, 1997, the Board of Directors of the Company approved the
repricing of Mr. LaPine's and Mr. Miller's outstanding options from an
exercise price of $22.00 per share to an exercise price of $4.40 per share.
On the same date, the Board also approved the repricing of all of the options
held by the other employees of the Company from an exercise price of $20.00
per share to an exercise price of $4.00 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF DATALINK COMMUNICATIONS CORPORATION
On June 27, 1996, the Company issued 1,646,532 shares of its $0.01 par
value Common Stock to the holders of 100% of the outstanding common stock of
Datalink Communications Corporation ("DCC") in an exchange transaction in
which DSC became a wholly-owned subsidiary of the Company.
The stock issuances were made pursuant to an Agreement Concerning the
Exchange of Common Stock ("Agreement") between the Company and DSC. The terms
of the Agreement were the result of negotiations between the managements of
the Company and DCC. However, the Company's Board of Directors did not obtain
any independent "fairness" opinion or other evaluation regarding the terms of
the Agreement, due to the cost of obtaining such opinions or evaluations.
Pursuant to the Agreement, Mark Moldenhauer, the former President and a
Director of the Company, sold back to the Company at closing 153,333 shares of
the Company's Common Stock for $10,000.
Pursuant to the Agreement, at Closing, the Company issued to Westridge
Capital Limited, as a finder's fee, a Debenture in the principal amount of
$130,000 which was convertible into 130,000 shares of the Company's Common
Stock at $1.00 per share. On October 11, 1996, Westridge Capital Limited
converted its Debenture into 130,000 shares of the Company's Common Stock.
TRANSACTIONS INVOLVING THE COMPANY
During July 1996, the Company completed a transaction in which it sold to
an unaffiliated investor Peter Allard a Convertible Debenture in the principal
amount of $2,000,000. The Debenture matures on July 1, 1998, and is
convertible at any time prior thereto into shares of the Company's Common
Stock at $20.00 per share. Mr. Allard was also issued a warrant to purchase
up to 100,000 shares of the Company's Common Stock at $25.00 per share at any
time prior to July 15, 1998. Mr. Allard also received certain registration
rights. On October 14, 1996, Peter Allard exercised his right to convert the
Debentures and the Company issued for 100,000 shares of its Common Stock. In
connection with the closing of the Peter Allard transaction in July 1996, the
Company issued 10,000 shares of its Common Stock to the Euphemia Trust for
services rendered in connection with the transaction. Peter Allard
beneficially owns the shares issued to Euphemia Trust.
10
In September 1997, the Company entered into a settlement agreement with
Peter Allard which recomputed the stock issued to Mr. Allard in the July 1996
Convertible Debenture. The settlement agreement provided for the issuance of
an additional 10,000 shares of the Company's fully-paid non-assessable Common
Stock and a five year warrant, commencing on December 1, 1997, to purchase
10,000 shares of the Company's Common Stock at $3.75 per share.
In August 1997, the Board of Directors approved the issuance of warrants
to Anthony N. LaPine and Nicholas R. Miller as of the Initial Closing Date of
the private offering of Series A Convertible Preferred Stock and Warrants.
Mr. LaPine received warrants to purchase 200,000 shares of Common Stock at
$3.75 per share. These will vest over a three-year period in equal
installments of one-third of the total shares on each anniversary of the date
of grant, and expire five years from the Initial Closing of the Offering. Mr.
Miller received Warrants to purchase 200,000 shares of Common Stock at $3.75
per share; however, the number of Warrants was subsequently reduced to 50,000
when Mr. Miller's Advisory Agreement was terminated. The above Warrants were
approved pursuant to the requirements of the Company's letter of intent with
the placement agent for the private offering.
Anthony LaPine purchased seven (7) Units in the Company's 1997 private
offering in exchange for a promissory note in the amount of $1,050,000 payable
to the Company and secured by certain of Mr. LaPine's assets other than his
personal residence and contents. The 7 Units included a total of 280,000
shares of preferred stock and 140,000 Warrants.
PROPOSAL TO RATIFY THE SELECTION OF
BDO SEIDMAN LLP
The independent accounting firm of BDO Seidman LLP is currently
reauditing the financial statements of the Company for the years ended March
31, 1998 and 1997, and has been selected to audit the Company's financial
statements for the current fiscal year. At the direction of the Board of
Directors, this appointment is being presented to the shareholders for
ratification or rejection at the Annual Meeting of Shareholders. If the
shareholders do not ratify the appointment of BDO Seidman LLP, the appointment
of auditors will be reconsidered by the Board of Directors.
It is expected that representatives of BDO Seidman LLP will be present at
the meeting and will be given an opportunity to make a statement if they
desire to do so. It is also expected that the representatives will be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
SELECTION OF BDO SEIDMAN LLP AS AUDITORS.
On July 17, 1998, the Company received notification from Pricewaterhouse
Coopers LLP ("PwC"), formerly Coopers & Lybrand L.L.P., the Company's
independent accountants for the fiscal years ended March 31, 1996, 1997 and
1998 stating that the client-auditor relationship had ceased. The reports of
PwC on the Company's financial statements for the fiscal years ended March 31,
1996, 1997 and 1998 did not contain an adverse opinion or disclaimer of an
opinion nor were they qualified or modified as to uncertainty, audit scope or
accounting principles or practices.
11
PwC submitted a response letter, as required by Item 304(a) of Regulation
S-B, to the Company's 8-K filing made on July 24, 1998 which was filed as
Exhibit 16 to the Company's Form 8-K/A Amendment No. 1 filed on August 5,
1998. The Company agrees with the statement of PwC made therein that,
"Other than this matter, in connection with its audits for the
two most recent fiscal years and through July 17, 1998, there
have been no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved
to the satisfaction of PwC would have caused them to make reference
in their report on the financial statements for such years."
The PwC "matter" referred to above concerns a disagreement the Company had
with PwC regarding the application of Emerging Issues Task Force abstract
88-18 (hereinafter "EITF 88-18") to revenues from certain sales of technology
in fiscal years 1997 and 1998.
Subsequent to filing Form 8-K/A Amendment No. 1 on August 5, 1998,
disclosing the PwC response letter referred to above, the Company received a
second response letter (the "PwC Letter") which was filed as Exhibit 16.1 to
the Company's Form 8-K/A Amendment No. 2 on August 18, 1998. The Company read
the PwC Letter and agreed with the statements made therein, except as set
forth below:
Paragraph 2 of the PwC Letter states: "The Company filed on September
11, 1996 an amended 8-K/A, which included the audited financial statements of
DSC Datalink Systems Corporation, as of December 31, 1995 and 1994 and for the
years ended December 31, 1995 and 1994 and for the period from June 15, 1993
(date of inception) to December 1995. Note 9 to the aforementioned financial
statements discloses the applicability of EITF 88-18 to the sale of
technology. In addition, the applicability of EITF 88-18 was discussed in
detail with senior management of the Company in August 1996."
Although PwC did recommend the application of EITF 88-18 to the sale of
technology in the financial disclosures made in the Company's September 11,
1996 8-K/A and the 10-QSB for the quarter ending September 30, 1996, after
these filings were made, the senior PwC audit partner informed the Company
that PwC had changed its position regarding the applicability of EITF 88-18 to
the technology sale transaction. The Company was then instructed to prepare
its 10-QSB for the quarter ended December 31, 1996 using an accounting
treatment that did not apply EITF 88-18.
All financial disclosure contained in such Quarterly Report were reviewed
and concurred in by PwC.
Subsequently PwC informed the Company that it had again changed its
position and recommended that EITF 88-18 be applied to treatment of such
revenues for purposes of the Company's financial disclosure in its 1997 10-KSB
and future reports filed with the Commission. Although the Company did not
resist complying with PwC's recommendation, there was concern over PwC's
inconsistent direction regarding this EITF 88-18 issue and accordingly Company
management met with the PwC Senior Audit Partner in September 1997 to discuss
said concern.
Subsequent financial disclosures were made consistent with PwC's
recommendations, as documented by PwC's correspondence dated September 29,
1997, to the Company's Board of Directors:
12
"Recognition of the Shalcor transaction in accordance with EITF
88-18 is required and though management disagreed with the account-
ing treatment it did record the transaction in accordance with
EITF 88-18."
The same EITF 88-18 issue arose during the audit for the fiscal year 1998
concerning a similar sale of technology. Once again, the Company and PwC
revisited the applicability of this treatment to the sale of technology. The
Company asked PwC to explain the rationale for using EITF 88-18 and had
discussions with PwC regarding the meaning of the term "investor" as used in
the application of EITF 88-18.
Paragraph 3 of the PwC Letter states: "Senior management of the Company
had advised PwC, that the Company had sought the advice of several accounting
firms, including an accounting firm that provides tax consulting to the
Company, and an economic consulting firm."
With the intention of researching the EITF 88-18 treatment, the Company
did seek the advice of accounting and consulting professionals regarding
clarification of the foregoing issue. None of such professionals was engaged
in rendering public accounting services, nor did they perform any auditing
services for the Company; the Company's Board of Directors considered
undertaking such research to be appropriate and consistent with its fiduciary
duties to the Company and its stockholders. The Company reaffirms its prior
statement that it did not, and disclaims any suggestion that it did, seek the
formal opinion of any accountant or accounting firm other than PwC.
Although alternative sale of technology accounting treatments were
suggested by the Company, none were found acceptable to PwC. Consequently,
the Company acquiesced in favor of PwC. All financial disclosures in the
Company's SEC filings for the fiscal years 1997 and 1998 have been made in
accordance with PwC's direction and approval.
In September 1997, PwC advised the Company's Board of Directors of
certain "internal control weaknesses." The Company's management has addressed
and rectified each of these issues, set forth in the PwC response letter as
Exhibit 16 with the Company's Form 8-K/A Amendment No. 1 filed on August 5,
1998, as described below:
PWC ISSUE: Failure to timely file periodic reports as required by
the Securities Exchange Act of 1934, as amended (the "Exchange Act.")
COMPANY RESOLUTION: The Company was late in filing the 1997 10-KSB.
This was in large part due to requirements made by PwC during July
1997 to make last minute adjustments to the 10-KSB as required by
the unexpected application of EITF 88-18. PwC delivered its original,
manually-executed report on the Company's financial statements for the
year ended March 31, 1997 under a cover letter dated August 12, 1997.
This is the same date of PwC's consent to refer to and include its
report in the 1997 10-KSB. The 1997 10-KSB was subsequently filed
on August 12, 1997. The last minute adjustments required for the
1997 10-KSB also applied to the report for the quarter ended June 30,
1997 and caused this report to be filed one date late. The Company
has since filed all reports required to be filed by it pursuant to
the Exchange Act on a timely basis.
13
Paragraph 4 of the PwC Letter states: "The delay in the Company's filing
of the 1997 Form 10-KSB was the result of the Company's inability to reconcile
certain common stock and stock option activity on a timely basis and the
Company's continued resistance with respect to the previously reported
disagreement."
The Company had completely reconciled its stock option and common stock
activity for the year ended March 31, 1997 when it was directed by PwC to
revise the financial disclosure in the 1997 Form 10-KSB and re-apply the EITF
88-18 treatment to the sale of technology. The Company had prepared the 1997
Form 10-KSB consistent with the sale of technology treatment directed by PwC
in the Company's prior Form 10-QSB for the quarter ended December 31, 1996.
Upon learning of the new application of EITF 88-18, the Company tried to
quickly revise its 1997 Form 10-KSB and file it with the Commission; however,
due to the extensive nature of the revision required by the EITF 88-18
treatment, the Company was unable to file the Form 10-KSB until August 12,
1997.
The Company's concerns regarding the inconsistent direction from PwC on
the EITF 88-18 issue were discussed with the PwC senior partner after the 1997
Form 10-KSB filing was made. The Company maintains that all stock
transactions have been properly accounted for and fully audited by PwC.
PWC ISSUE: Material Audit adjustments related to the sale of tech-
nology, accounts payable and accrued liabilities and common stock
transaction.
COMPANY RESOLUTION: All adjustments related to the sale of tech-
nology were made as a result of the implementation of EITF 88-18.
Adjustments to accounts payable, accrued liabilities, and common
stock transactions were required due to Company practices occurring
prior to the Company becoming publicly-held. After the Company
became public, all required adjustments were completed. PwC has
since audited and issued its report on the Company's financial
statements for the fiscal year ended March 31, 1998.
Paragraph 5 of the PwC Letter states: "The Company practices in question
also dealt with transactions subsequent to the Company becoming publicly
held."
The Company maintains that all subsequent stock and option transactions
have been properly accounted for and fully audited by PwC.
PWC ISSUE: Adequacy of records maintained by the Company related
to certain prior common stock transactions.
COMPANY RESOLUTION: The claimed inadequacy of records maintain by
the Company related to certain prior common stock transactions were
considered to be the result of past practices prior to the date the
Company became a public company. Since the Company became publicly-
held, such records have also been maintained by the Company's trans-
fer agent, American Securities Transfer & Trust, Inc. PwC has since
audited and issued its report on the Company's financial statements
for the fiscal year ended March 31, 1998.
Paragraph 6 of the PwC Letter states: "The Company practices in question
also dealt with transactions subsequent to the Company becoming publicly
held."
14
Again the Company maintains that all subsequent stock and option
transactions have been properly accounted for and fully audited by PwC.
Although there are no documents in support of this statement, nor does
senior management at the Company have any recollection of being informed of
the need to amend its Form 10-QSB for the quarter ended December 31, 1997, the
Company prepared an amended Form 10-QSB and filed it on August 20, 1998.
Finally, the report of PwC dated June 19, 1997 on the Company's financial
statements as of March 31, 1997 and for the year then ended, which contained a
paragraph stating that the Company's recurring losses from operations raised
substantial doubt as to the Company's ability to continue as a going
concerning, was filed with the Commission in August 1997 as required.
The Company was surprised by PwC's repeated reversals of its position on
the applicability of EITF 88-18 to treatment of the transaction and revenues
in question; however, it denies any failure on its part to cooperate fully
with PwC regarding this issue and strongly objects to any suggestion to the
contrary.
Subsequent to filing Form 8-K/A Amendment No. 2 on August 18, 1998,
disclosing the PwC Letter discussed above, the Company received a third
response letter, which was filed as Exhibit 16.2 to the Company's Form 8-K/A
Amendment No. 3 on August 25, 1998, wherein PwC asserts that it never changed
its position with respect to the applicability of EITF 88-18. For the reasons
discussed above, the Company does not agree with the statements made by PwC in
its third response letter.
On September 3, 1998, the Company engaged BDO Seidman LLP as its
independent accountants to audit the Company's financial statements.
Neither the Company nor any person acting on its behalf consulted with
BDO Seidman LLP with regard to the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on the Company's financial statements. In addition,
neither the Company nor any person acting on its behalf consulted with BDO
Seidman LLP with regard to any disagreement or event identified in the
Company's Report on Form 8-K dated July 17, 1998, and the amendments thereto.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was not
aware of any other matter to be presented at the Meeting other than as set
forth herein. However, if any other matters are properly brought before the
Meeting, the shares represented by valid proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting them. A
majority vote of the shares represented at the meeting is necessary to approve
any such matters.
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB for the year ending March 31,
1998, accompanies this Proxy Statement. The Annual Report is not incorporated
into this Proxy Statement and is not to be considered part of the solicitation
material.
15
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN DECEMBER 1999
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in December 1999 must be received at
the offices of the Company, Datalink Systems Corporation, 1735 Technology Way,
Suite 790, San Jose, California 95110, on or before July 9, 1999, in order to
be included in the Company's proxy statement and proxy relating to that
meeting.
ANTHONY N. LAPINE, PRESIDENT
San Jose, California
November 6, 1998
16
P R O X Y
DATALINK SYSTEMS CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony N. LaPine with the power to
appoint his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of Common and Preferred Stock of Datalink
Systems Corporation held of record by the undersigned on November 6, 1998, at
the Annual Meeting of Shareholders to be held on December 4, 1998, or any
adjournment thereof.
1. The election of five (5) Directors of the Company to serve until the
next Annual Meeting of Shareholders and until their successors have been duly
elected and qualified:
___ FOR all nominees listed below (except as marked
to the contrary).
___ WITHHOLD authority to vote for all the nominees listed
below:
Anthony N. LaPine Marshall Geller
Frederick M. Hoar David Ladd
Robert L. Priddy
INSTRUCTION: To withhold authority to vote for any individual nominee, cross
out that nominee's name above.]
2. The ratification of the appointment of BDO Seidman LLP as the
Company's independent accountants for the fiscal year ending March 31, 1999:
___ FOR ___ AGAINST ___ ABSTAIN
3. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DATALINK
SYSTEMS CORPORATION. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED
PRE-ADDRESSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO
VOTE IN PERSON IF YOU ATTEND THE MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, Proxy Statement and Annual Report.
Dated: ______________, 1998 _______________________________________
Signature(s) of Shareholder(s)
_______________________________________
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians and attorneys should indicate when
signing. Attorneys should submit powers of attorney.