SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
DIGITAL LINK CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
Digital Link Corporation
217 Humboldt Court
Sunnyvale, California 94089
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Digital
Link Corporation (the "Company") will be held at the Sheraton Four Points Hotel
located at 1100 North Mathilda Avenue, Sunnyvale, California 94089 on Monday,
June 7, 1999, at 2:00 p.m Pacific Daylight Time, for the following purposes:
1. To elect five directors of the Company, each to hold office until the
next Annual Meeting of Shareholders and until his or her successor has
been elected and qualified or until his or her earlier resignation or
removal. The following persons are the nominees for election as
directors:
Richard C. Alberding Louis Golm
Narendra K. Gupta Vinita Gupta
Stephen L. Von Rump
2. To amend the Company's 1993 Employee Stock Purchase Plan to increase
the number of shares of Common Stock and reserved for issuance
thereunder by 300,000 shares to a total of 600,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors for the Company for the current fiscal year.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 22, 1999 are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Stanley E. Kazmierczak
Stanley E. Kazmierczak
Vice President, Finance and Operations,
Chief Financial Officer and Secretary
Sunnyvale, California
April 28, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
DIGITAL LINK CORPORATION
217 Humboldt Court
Sunnyvale, California 94089
-------------------
PROXY STATEMENT
-------------------
April 28, 1999
The accompanying proxy is solicited on behalf of the Board of Directors
of Digital Link Corporation, a California corporation (the "Company" or "Digital
Link"), for use at the Annual Meeting of Shareholders of the Company to be held
at the Sheraton Four Points Hotel located at 1100 North Mathilda Avenue,
Sunnyvale, California 94089 on Monday, June 7, 1999, at 2:00 p.m. Pacific
Daylight Time (the "Meeting"). All proxies will be voted in accordance with the
instructions contained therein, and, if a proxy is executed and no choice is
specified, the proxy will be voted in favor of the nominees and the proposals
set forth in the accompanying Notice of Meeting and this Proxy Statement. This
Proxy Statement and the accompanying form of proxy were first mailed to
shareholders on or about April 28, 1999. An annual report for the year ended
December 31, 1998 is enclosed with the Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of the Company's Common Stock are entitled to one vote for each
share held as of April 22, 1999 (the "Record Date"). At the close of business on
the Record Date, the Company had 8,127,622 shares of Common Stock outstanding
and entitled to vote. Only holders of record of the Company's Common Stock at
the close of business on the Record Date will be entitled to vote at the
Meeting. A majority of the shares outstanding on the Record Date will constitute
a quorum for the transaction of business.
With respect to proposal no. 1, the affirmative vote of a plurality of
the votes of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote on the election of directors is
required to approve the election of the five directors. Cumulative voting for
directors is not permitted. Proposals no. 2 and 3 require for approval the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Meeting and entitled to vote. For purposes of
such calculations (i) the aggregate number of votes entitled to be cast by all
shareholders present in person or represented by proxy at the Meeting, whether
such shareholders vote "for," "against," "abstain" or give no instructions, will
be counted for purposes of determining the minimum number of affirmative votes
required to approve proposals no. 2 and 3, (ii) the total number of shares cast
for a proposal or giving no instructions will be considered to have been voted
in favor of the proposal, and (iii) an abstention from voting on a matter by a
shareholder present in person or by proxy at the Meeting has the same effect as
a vote against the proposal. In addition, the affirmative votes for proposals
no. 2 and 3 must constitute at least a majority of the required quorum. In the
event that a broker indicates on a proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business but will not be considered present and entitled to
vote with respect to that matter.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments or postponements of the Meeting to permit further
solicitations of proxies. Any such adjournment or postponement would require the
affirmative vote of the majority of the outstanding shares present in person or
represented by proxy at the Meeting.
The cost of preparing, assembling, printing and mailing the Proxy
Statement, the Notice of Annual Meeting of Shareholders and the enclosed form of
<PAGE>
proxy, as well as the cost of soliciting proxies relating to the Meeting, will
be borne by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company will request that the brokers, custodians,
nominees and other record holders forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Common Stock and
request authority for the exercise of proxies. In such cases, the Company, upon
the request of the record holders, will reimburse such holders for their
reasonable expenses. The official solicitation of proxies may also be
supplemented by telephone, telegram and personal solicitation by directors,
officers and regular employees of the Company.
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Meeting or at the Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by a written
instrument delivered to the Company stating that the proxy is revoked, by a
subsequent proxy that is signed by the person who signed the earlier proxy and
is presented at the Meeting or by attendance at the Meeting and voting in
person. Please note, however, that if a shareholder's shares are held of record
by a broker, bank or other nominee and that shareholder wishes to vote at the
Meeting, the shareholder must bring to the Meeting a letter from the broker,
bank or other nominee confirming that shareholder's beneficial ownership of the
shares.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Nominees
A board of five directors is to be elected at the Meeting. Each
director will be elected to hold office until the next annual meeting of
shareholders or until his or her successor is duly elected and qualified or
until such director's earlier resignation or removal. Shares represented by the
accompanying proxy will be voted for the election of each of the five nominees
named below unless the proxy is marked in such a manner as to withhold authority
so to vote. If any nominee for any reason is unable to serve or for good cause
will not serve, the proxies may be voted for such substitute nominee as the
proxy holder may determine.
<TABLE>
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them as of April 22, 1999, are set forth
below:
<CAPTION>
Name of Director Age Principal Occupation Director Since
---------------- --- -------------------- --------------
<S> <C> <C> <C>
Vinita Gupta 48 Chairman of the Board, President and Chief 1985
Executive Officer of the Company
Richard C. Alberding 1, 2 68 Executive Vice President, Hewlett Packard 1994
Company (Retired)
Louis Golm 1 57 President, AirTouch International (Retired) 1998
Narendra K. Gupta 50 Chairman of the Board, Integrated Systems, 1985
Inc.
Stephen L. Von Rump 2 41 Chief Operating Officer, VTEL Corporation 1998
- --------------------
<FN>
1 Member of the Audit Committee
2 Member of the Compensation Committee
</FN>
</TABLE>
Mrs. Gupta is a founder of the Company. She has served as Chairman of the
Board since its formation in May 1985. She has also served as Chief Executive
Officer of the Company from May 1985 to September 1996 and from January 1999 to
the present and President of the Company from May 1985 to March 1995, from
October 1995 to September 1996 and from January 1999 to present. From March 1998
to January 1999, Ms. Gupta was interim Chief Executive Officer and President of
the Company. From March 1978 to February 1985, Mrs. Gupta held various
engineering management positions at Bell Northern Research Inc., a research and
development arm of Northern Telecom, Ltd. Mrs. Gupta also serves as a director
of Integrated Systems, Inc., which develops and markets real-time software
products, and as a Trustee on the Board of Trustees of Palo Alto
<PAGE>
Medical Foundation. Mrs. Gupta holds a Bachelor of Engineering degree in
Electronics and Communications from the University of Roorkee (Roorkee, India)
and a Master of Science degree in Electrical Engineering from the University of
California, Los Angeles. Dr. Narendra K. Gupta, also a director of the Company,
is the husband of Mrs. Gupta.
Mr. Alberding has served as a director of the Company since December 1994.
Since 1991, Mr. Alberding has served on the boards of a number of public and
private companies. He retired from the Hewlett Packard Company ("Hewlett
Packard") in 1991, at which time he was serving as an Executive Vice President.
Mr. Alberding is a director of Kennametal, Inc., Walker Interactive Systems,
Digital Microwave Corp., Paging Network Inc., SYBASE, Inc., Quickturn Design
Systems, Inc., Storm Technology, Inc., JLK Direct, and several privately held
corporations. Mr. Alberding holds a Bachelor of Arts degree in Business
Administration from Augustana University and an engineering degree from Devry
Technical Institute.
Mr. Golm has served as a director of the Company since November 1998. Mr.
Golm retired from AirTouch International and AirTouch Corporation in 1999, at
which time he was serving as President of AirTouch International and Vice
President of AirTouch Corporation. Prior to joining AirTouch, Mr. Golm served as
President of AT&T, Japan and Vice President, AT&T from 1994 to 1997. Mr. Golm
holds a Bachelor of Science degree in Business Administration and a Master of
Business Administration degree from the University of Denver and a Master of
Science degree in Management from the Massachusetts Institute of Technology
("MIT").
Dr. Gupta has served as a director of the Company since 1985. Dr. Gupta
founded Integrated Systems, Inc., a company that develops and markets real-time
software products and is currently Chairman of its Board of Directors. Dr. Gupta
is a Fellow of the Institute of Electrical and Electronic Engineers (IEEE). Dr.
Gupta holds a Bachelors degree from I.I.T. Delhi (Delhi, India), a Master of
Science degree from the California Institute of Technology and a Ph.D. degree
from Stanford University, all in Engineering. Mrs. Gupta, founder, Chairman of
the Board of Directors, President and Chief Executive Officer of the Company, is
the wife of Dr. Gupta.
Mr. Von Rump has served as a director of the Company since November 1998.
He is currently the Chief Operating Officer of VTEL Corporation ("VTEL"), a
manufacturer of visual communication products and services. Mr. Von Rump joined
VTEL in October 1998. Prior to that he served as a Vice President for MCI
WorldCom ("MCI"). Mr. Von Rump holds Bachelor of Science degrees in electrical
engineering and systems science and a Master of Science degree in electrical
engineering.
Board of Directors' Meetings and Committees
The Board of Directors met eight times and acted by written consent two
times during fiscal 1998. No director, other than Greg Avis who ceased to be a
director of the Company in November 1998 and Alan I. Fraser who ceased to be a
director of the Company in November 1998, attended fewer than 75% of the
aggregate of the total number of meetings of the Board of Directors (held during
the period for which he or she was a director) and the total number of meetings
held by all committees of the Board of Directors on which he or she served
(during the period that he or she served).
Standing committees of the Board of Directors include an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
From January 1998 to November 1998, Messrs. Alberding and Avis served
on the Company's Audit Committee and since November 1998, Messrs. Alberding and
Golm have served on such Committee. The Audit Committee met three times during
fiscal 1998. The Audit Committee meets with the Company's independent
accountants to review the adequacy of the Company's internal control systems and
financial reporting procedures, reviews the general scope of the Company's
annual audit and the fees charged by the independent accountants, reviews and
monitors the performance of non-audit services by the Company's auditors,
reviews the fairness of any proposed transaction between any officer, director
or other affiliate of the Company and the Company, and after such review, makes
recommendations to the full Board of Directors and performs such further
functions as may be required by any stock exchange or over-the-counter market
upon which the Company's Common Stock is listed.
<PAGE>
From January 1998 to July 1998, Mr. Alberding and Lance B. Boxer served
on the Company's Compensation Committee. From July 1998 to November 1998,
Messrs. Alberding, Boxer and Fraser served on such committee. From November 1998
to January 1999, Messrs. Alberding and Boxer served such committee and since
January 1999, Messrs. Alberding and Von Rump have served on such committee. The
Compensation Committee met six times and acted by written consent one time
during fiscal 1998. The Compensation Committee administers the Company's 1992
Equity Incentive Plan and 1993 Employee Stock Purchase Plan and determines the
salaries and other compensation for officers and certain other employees of the
Company except that during the period over which the Stock Option Committee
existed, the administration of such plans and determinations regarding
stock-based compensation were made by the Stock Option Committee.
In July 1998, the Company established a Stock Option Committee. While
it was in effect, the Stock Option Committee was responsible for decisions
regarding the grant of all forms of stock compensation provided to officers,
directors, employees, consultants, independent contractors and advisors of the
Company and for the administration of the Company's 1992 Equity Incentive Plan
and the 1993 Employee Stock Purchase Plan. From July 1998 to December 1998,
Messrs. Alberding and Boxer served on the Company's Stock Option Committee. The
Stock Option Committee was combined with the Company's Compensation Committee
effective December 1998.
Director Compensation
The Company's compensation policy for its directors includes a $5,000
annual retainer for all non-employee directors. In addition to this annual
payment, each non-employee director receives $1,000 per meeting attended, $500
per committee meeting attended and $250 per meeting via teleconference, and each
director is reimbursed for his reasonable expenses in attending meetings of the
Board of Directors. In accordance with this policy, Mr. Alberding received
$13,000, Mr. Golm received $1,000, Dr. Gupta received $11,500 and Mr. Von Rump
received $1,000 for their services as directors of the Company during fiscal
1998.
In October 1994, the Company adopted the Directors Stock Option Plan,
which provides for a grant of 10,000 shares to each non-employee director who
was serving on the Board at the time of the Board's adoption of the Directors
Plan and for the grant of 15,000 shares for each new non-employee director on
the date such director is appointed to the Board. In addition, the Directors
Plan provides for annual grants in the amount of 5,000 shares to each
non-employee director on the anniversary of such director joining the Board, as
long as he remains a member of the Board. In accordance with the Directors Plan,
Mr. Alberding was granted a nonqualified stock option to purchase 5,000 shares
of Common Stock with an exercise price of $5.375 per share in December 1998; Mr.
Golm was granted a nonqualified stock option to purchase 15,000 shares of Common
Stock with an exercise price of $3.813 per share in November 1998; Dr. Gupta was
granted a nonqualified stock option to purchase 5,000 shares of Common Stock
with an exercise price of $3.5625 per share in October 1998; and Mr. Von Rump
was granted a nonqualified stock option to purchase 15,000 shares of Common
Stock with an exercise price of $4.25 per share in November 1998. Each of these
options becomes exercisable with respect to 2.08% of the shares each calendar
month after the grant date so long as the director remains a member of the
Board.
The Board of Directors recommends a vote FOR the election of each of
the nominees listed above.
<PAGE>
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO
THE 1993 EMPLOYEE STOCK PURCHASE PLAN
The 1993 Employee Stock Purchase Plan (the "Plan") was adopted by the
Board of Directors on December 3, 1993 and approved by the shareholders on
December 23, 1993. On February 12, 1997, the Compensation Committee of the Board
of Directors approved an amendment to the Plan that, among other things,
included certain adjustments to the enrollment criteria and amendments to
reflect changes in Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended. On February 8, 1999, the Board of Directors approved an
amendment to the Plan that addressed what is included as "compensation" for
calculating purchase amounts under the Plan. These amendments did not require
shareholder approval. In addition, on February 8, 1999, the Board approved an
amendment to the Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 300,000 to 600,000, subject to shareholder approval.
The Board believes that this increase in the number of shares reserved for
issuance under the Plan is in the best interests of the Company. If approved,
the number of shares of Common Stock reserved for issuance under the Plan, as
amended, should be sufficient to meet the Company's requirements for offering
periods commencing immediately after the date of approval. The Company's
executive officers have an interest in approval of this proposal because they,
along with all other individuals eligible to participate in the Plan, will be
eligible to purchase shares under the Plan from the additional 300,000 shares
being approved for issuance.
Summary of the Plan. The following summary of the Plan is subject to the
specific provisions of the Plan.
Purpose. The purpose of the Plan is to provide employees of the Company and its
subsidiaries, designated by the Board of Directors of the Company (the "Board")
as eligible to participate in the Plan, with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and its
subsidiaries, and to provide an incentive for continued employment.
Shares Subject to Employee Stock Purchase Plan. The stock reserved for issuance
pursuant to the Plan consists of shares of the Company's authorized and unissued
Common Stock. The aggregate number of shares that may be issued pursuant to the
Plan is currently 300,000, and, if the Company's shareholders approve the
amendment to the Plan, will be increased to 600,000.
Administration. The Plan is currently administered by the Compensation
Committee. All questions of interpretation or application of the Plan are
determined by the Compensation Committee, and its decisions are final and
binding upon all participants.
Eligibility. Any regular, full-time employee of the Company or its subsidiaries
who (i) works at least twenty (20) hours per week, (ii) works at least five (5)
months per year, (iii) is employed one (1) day prior to the beginning of the
offering period and (iv) does not own or hold, and would not own or hold
following participation in the Plan, stock or options for 5% or more of the
outstanding stock of the Company or any subsidiary, is eligible to participate
in the Plan. As of April 22, 1999, approximately 200 persons were eligible to
participate in the Plan, 204,317 shares had been issued under the Plan and
95,683 shares were available for future purchases, not including the proposed
amendment to the Plan to increase the shares available for issuance. The fair
market value of the Common Stock on that date was $7.875. Over the term of the
Plan, each of the following Named Officers (as that term is defined under
"Executive Compensation" below) has purchased shares of the Company's Common
Stock under the Plan: Toni M. Bellin (3,766 shares); Kent A. Bossange (1,020
shares); Alan I. Fraser (803 shares); Stanley E. Kazmierczak (5,113 shares); and
Steven T. Tabaska (3,342 shares). All current executive officers as a group have
purchased 5,113 shares and all employees as a group other than executive
officers have purchased 190,270 shares.
Offering Periods. Each offering of Common Stock under the Plan is for a period
of six months (the "Offering Period"). Offerings commence on the first day of
May and November of each year and end on the last day of April and October of
each year. The first day of each Offering Period is the "Offering Date" for such
Offering Period. The Board has the power to change the duration of Offering
Periods with respect to future offerings without stockholder approval if the
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected.
<PAGE>
Amount of Contribution. Participating employees will participate in the Plan
during each pay period through payroll deductions. A participating employee sets
the rate of such payroll deductions, which may not be less than 2% nor more than
10% of the participating employee's W-2 compensation, or such lower limit set by
the Compensation Committee. Compensation is defined to include base salary and
commission (not reduced by the amount by which the participating employee's
salary is reduced pursuant to Sections 125 or 401(k) of the Code), excluding
overtime, shift premiums and bonuses.
Enrollment. Participating employees may elect to participate in any Offering
Period by enrolling as provided under the terms of the Plan. Once enrolled, a
participating employee will automatically participate in each succeeding
Offering Period unless the participating employee withdraws from the Offering
Period or the Plan is terminated. After the rate of payroll deductions for an
Offering Period has been set by a participating employee, the rate continues to
be effective for the remainder of the Offering Period (and for all subsequent
Offering Periods in which the participating employee is automatically enrolled)
unless otherwise changed by the participating employee. The participating
employee may increase or lower the rate of payroll deductions for any subsequent
Offering Period, but may only lower the rate of payroll deductions for an
ongoing Offering Period. Not more than one change may be made during a single
Offering Period.
Purchase Price. The purchase price of shares that may be acquired in any
Offering Period under the Plan shall be 85 percent of the lesser of (i) the fair
market value of the shares on the Offering Date; or (ii) the fair market value
of the shares on the last day of the Offering Period. While listed on the Nasdaq
National Market, the fair market value of the shares of the Company's Common
Stock under the Plan is the closing price for the Common Stock of the Company on
the last trading day prior to the date of determination as quoted on the Nasdaq
National Market and reported in The Wall Street Journal.
Purchase of Stock Under the Employee Stock Purchase Plan. The number of whole
shares a participating employee is able to purchase in any Offering Period is
determined by dividing the total amount withheld from the participating employee
during the Offering Period pursuant to the Plan by the purchase price for each
share determined as described above, subject to certain maximum amounts. For
each calendar year, no participant may purchase stock under the Plan that
exceeds $25,000 in fair market value, determined as of the Offering Date. In
addition, no more than 200% of the number of shares determined by using 85% of
the fair market value of a share of the Company's Common Stock on the Offering
Date may be purchased by a participant on any eligible purchase date. The
purchase takes place automatically on the last day of the Offering Period.
Withdrawal. Each participant may withdraw from an Offering Period. Upon
withdrawal from the Plan, the accumulated payroll deductions are returned to the
withdrawn participant, without interest, and his or her interest in the Plan
terminates. No further payroll deductions for the purchase of shares will be
made for the succeeding Offering Period unless the participating employee
enrolls in the new Offering Period in the same manner as for initial
participation in the Plan.
Amendment of the Employee Stock Purchase Plan. The Board may at any time amend,
terminate or extend the term of the Plan, except that any such termination
cannot affect the terms of shares previously granted under the Plan, nor may any
amendment make any change in the terms of shares previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without shareholder approval if such amendment would: (a) increase the number of
shares that may be issued under the Plan; or (b) change the designation of the
employees (or class of employees) eligible for participation in the Plan.
Term of the Employee Stock Purchase Plan. The Plan will continue until the
earlier to occur of: (i) termination of the Plan by the Board; (ii) the issuance
of all the shares of Common Stock reserved for issuance under the Plan; or (iii)
December 3, 2003, ten years after the date the Plan was adopted by the Board.
Certain Federal Income Tax Information. THE FOLLOWING IS A GENERAL SUMMARY AS OF
THIS DATE OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND EMPLOYEES
PARTICIPATING IN THE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL,
<PAGE>
STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND UPON
HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE IS ENCOURAGED
TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES FOR
PARTICIPATION IN THIS PLAN.
The Plan, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Section 423 of the Internal Revenue
Code. The Plan is not subject to any provisions of the Employees Retirement
Income Security Act of 1974. Under these provisions, no income will be taxable
to a participant until the sale or other disposition of the shares purchased
under the Plan. Upon such sale or disposition, the participant will generally be
subject to tax in an amount that depends upon the holding period. If the shares
are sold or disposed of more than two years from the first day of the Offering
Period and one year from the date of purchase, the participant will recognize
ordinary income measured as the lesser of (i) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price or (ii) an amount equal to 15% of the fair market value of the shares as
of the first day of the Offering Period. Any additional gain will be treated as
long-term capital gain. If the shares are held for the periods described above,
are sold and the sale price is less than the purchase price, there is no
ordinary income and the participating employee has a long-term capital loss for
the difference between the sale price and the purchase price. If the shares are
sold or otherwise disposed of before the expiration of the holding periods
described above, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized upon a sale or disposition of shares prior
to the expiration of the holding periods described above. The Company will treat
any transfer of record ownership of shares as a disposition, unless it is
notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, participating employees will be required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the Plan. The Plan is not subject to any provision of the Employees Retirement
Income Security Act of 1974.
The Board of Directors Recommends a vote FOR the Approval of
Amendment to The 1993 Employee Stock Purchase Plan
PROPOSAL NO. 3 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent auditors to perform the audit of the Company's financial
statements for the fiscal year ending December 31, 1999, and the shareholders
are being asked to ratify such selection. Notwithstanding the selection, the
Board, in its discretion, may direct the appointment of new independent auditors
at any time during the year, if the Board feels that such a change would be in
the best interests of the Company and its shareholders. In the event of a
negative vote for such ratification, the Board of Directors will reconsider its
selection.
Representatives of PricewaterhouseCoopers LLP will be present at the
Meeting, will have the opportunity to make a statement at the Meeting if they
desire to do so and will be available to respond to appropriate questions.
The Board of Directors Recommends a vote FOR the Ratification of
the Selection of PricewaterhouseCoopers LLP
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information known to the Company,
as of April 22, 1999, with respect to beneficial ownership of the Company's
Common Stock by (i) each shareholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each present nominee
for director, (iii) each executive officer named in the Summary Compensation
Table below (the "Named Officers") and (iv) all current executive officers and
directors as a group.
<CAPTION>
Common Stock(1)
-----------------------------------------
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership of Class
- ---------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Vinita Gupta (2).......................................... 4,055,519 49.7%
Narendra K. Gupta (2)..................................... 4,055,519 49.7
Kopp Investment Advisors, Inc. (3)........................ 1,013,525 12.4
Wellington Management Company, LLP (4).................... 860,000 10.5
Stanley E. Kazmierczak (5)................................ 37,783 *
Richard C. Alberding (6).................................. 33,333 *
Louis Golm (7)............................................ 1,875 *
Stephen L. Von Rump (8)................................... 1,875 *
Steven T. Tabaska (9) .................................... 1,056 *
Alan I. Fraser (10) ...................................... 803 *
Kent A. Bossange (11) .................................... 676 *
Toni M. Bellin (12)....................................... -- --
All current executive officers and directors as a group
(8 persons) (13)..................................... 4,132,385 50.3
- --------------------
</TABLE>
* Less than 1%.
(1) Based upon information supplied by officers, directors and principal
shareholders. Beneficial ownership is determined in accordance with
rules of the Securities and Exchange Commission ("SEC") that deem
shares to be beneficially owned by any person who has or shares voting
or investment power with respect to such shares. Unless otherwise
indicated, the persons named in this table have sole voting and sole
investment power with respect to all shares shown as beneficially
owned, subject to community property laws where applicable. Shares of
Common Stock subject to options that are currently exercisable or
exercisable within 60 days of April 22, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(2) Represents 3,109,187 shares of Common Stock held of record by Vinita
and Narendra K. Gupta, as trustees for The Narendra and Vinita Gupta
Living Trust, dated 2 December 1994, 862,500 shares held of record by
Vinita and Narendra K. Gupta, together with a third party, as trustees
for their minor children, an aggregate of 63,000 shares held of record
by Mrs. Gupta as custodian for each of her two minor children (31,500
on behalf of each child), and 20,832 shares subject to options granted
to Dr. Gupta, which are exercisable within 60 days of April 22, 1999.
Mrs. Gupta is Chairman of the Board, President and Chief Executive
Officer of the Company. Dr. Gupta is a director of the Company. The
address of Dr. and Mrs. Gupta is c/o Digital Link Corporation, 217
Humboldt Court, Sunnyvale, California 94089.
(3) Based on the joint report on Schedule 13G dated March 18, 1999 for
Kopp Investment Advisors, Inc. ("KIA"), Kopp Holding Company ("KHC")
and LeRoy C. Kopp. KIA is an investment advisor managing discretionary
accounts owned by numerous third party clients which beneficially owns
877,525 shares of the Company's Common Stock. Of these shares, KIA has
sole voting power as to 419,000 shares, sole dispositive power as to
290,000 shares and shared dispositive power as to 587,525 shares. KHC
is the parent corporation of KIA, and LeRoy C. Kopp is the president
<PAGE>
of both KHC and KIA. By virtue of these relationships to KIA, both KHC
and Mr. Kopp may be deemed to have indirect beneficial ownership of
the shares beneficially owned by KIA. In addition, Mr. Kopp has
beneficial ownership, and sole voting and dispositive power, of
136,000 shares of the Company's Common Stock. The address of the
foregoing persons is 7701 France Avenue South, Suite 500, Edina,
Minnesota 55435.
(4) Based on the Schedule 13G dated December 31, 1998 for Wellington
Management Company, LLP ("WMC"). WMC beneficially owns 860,000 shares
of the Company's Common Stock. Of these shares, WMC has shared voting
power as to 620,000 shares and shared dispositive power as to 860,000
shares. The address of the foregoing persons is 75 State Street,
Boston, Massachusetts 02109.
(5) Includes 21,550 shares subject to options exercisable within 60 days
of April 22, 1999. Mr. Kazmierczak is Vice President, Finance and
Operations, Chief Financial Officer and Secretary of the Company.
(6) Represents shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Alberding is a director of the Company.
(7) Represents shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Golm is a director of the Company.
(8) Represents shares subject to options exercisable within 60 days of
April 22, 1999. Mr. Von Rump is a director of the Company.
(9) Mr. Tabaska ceased to be an officer and employee of the Company in
January 1999.
(10) Mr. Fraser ceased to be an officer and employee of the Company in
February 1998 and a director of the Company in November 1998.
(11) Mr. Bossange ceased to be an officer and employee of the Company in
April 1999.
(12) Ms. Bellin ceased to be an officer and employee of the Company in
January 1999.
(13) Includes the shares held of record and shares subject to options
described in footnotes 2 and 5 through 8 and an additional 2,000
shares held of record by an executive officer not named in the table.
EXECUTIVE OFFICERS
<TABLE>
The following table lists certain information regarding the Company's
executive officers as of April 22, 1999.
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Vinita Gupta.................. 48 Chairman of the Board, President and Chief Executive Officer
Stanley E. Kazmierczak........ 39 Vice President, Finance and Operations, Chief Financial Officer
and Secretary
Sherman Silverman............. 59 Vice President, Sales and Marketing, Worldwide
Lana Vaysburd................. 50 Vice President, Engineering
</TABLE>
Information regarding Vinita Gupta is listed under "Proposal No. 1 -
Election of Directors."
Mr. Kazmierczak has served as Vice President, Finance and Operations of the
Company since January 1999, Chief Financial Officer of the Company since
December 1992 and Secretary of the Company since December 1993. He served as
Vice President, Finance from December 1993 to March 1996 and Vice President,
Finance and Administration from March 1996 to January 1999. He joined the
Company in August 1987 and until December 1992 held various financial management
positions with the Company that included responsibilities for financial planning
and analysis. From May 1986 to August 1987, Mr. Kazmierczak was Cost Accounting
Manager with Verilink Corporation, a manufacturer of communications equipment.
Prior to that, he was employed by Security Pacific Bank for one year. Mr.
Kazmierczak holds a Bachelor of Science degree in Business Administration from
San Jose State University.
Mr. Silverman has served as Vice President, Sales and Marketing, Worldwide
since March 1999. From May 1994 to November 1998, he was Senior Vice President,
Sales and Marketing of StorMedia Corporation, a designer, developer,
manufacturer and marketer of thin film hard disks. From September 1970 to May
<PAGE>
1994, he held several management and executive management positions with Nashua
Computer Products. Mr. Silverman holds a Bachelor of Arts degree in Business
from Tulane University.
Ms. Vaysburd has served as Vice President, Engineering since December 1998.
From April 1997 to August 1998, she was General Manager of Adaptec, Satellite
Networking Group, a start-up division. From April 1996 to April 1997, she was
Broadband Program Director for Intel Corporation Business Development. From
August 1994 to March 1996, she was a Director-General Manager for Sprint
Corporation. From 1980 to 1994, she held various executive positions both in
engineering and marketing with British Telecom North America and McDonnell
Douglas. Ms. Vaysburd holds a Master of Science degree in Computer Science from
Lvov State University, Ukraine.
EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth all compensation awarded to, earned by,
or paid for services rendered in all capacities to the Company during the fiscal
years ended December 31, 1998, 1997 and 1996 by (i) each individual who served
as the Company's Chief Executive Officer during 1998 and (ii) the Company's four
other most highly compensated executive officers whose total annual salary and
bonuses exceeded $100,000 during, and who were serving as executive officers at
the end of 1998 (together the "Named Officers"). This information includes the
dollar values of the base salaries, bonus awards, the number of stock options
granted and certain other compensation, if any, whether paid or deferred. The
Company does not grant SARs and has no long-term compensation benefits other
than options.
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ---------------
------------------- Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position Year ($) ($)(1) Options (#) ($)(2)
----------------------------------- ---------- ----------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Vinita Gupta .................. 1998 150,000 -- -- 4,362
Chairman, President and Chief 1997 150,000 -- -- 2,737
Executive Officer 1996 200,000 60,000 -- 3,166
Alan I. Fraser (3)............. 1998 57,695 -- -- 1,731
Former President and Chief 1997 300,000 41,297 -- 4,750
Executive Officer 1996 69,234 45,000 370,000 --
Toni M. Bellin (4)............. 1998 185,000 -- 130,000(5) 4,065
Former Vice President, Operations 1997 170,000 24,516 -- 3,827
1996 160,000 32,000 10,000 3,138
Kent A. Bossange (6)........... 1998 173,700(7) -- 129,000(5) 3,750
Former Vice President, Marketing 1997 200,550(7) -- -- --
1996 182,384(7) -- 10,000 --
Stanley E. Kazmierczak ........ 1998 170,000 -- 157,500(5) 4,230
Vice President, Finance and 1997 145,000 19,010 -- 4,020
Operations, Chief Financial 1996 130,000 26,000 40,000 3,166
Officer and Secretary
Steven T. Tabaska (8).......... 1998 200,000 40,000 264,000(5) 3,000
Former Vice President, 1997 168,007 72,418(9) 100,000 33,081(10)
Engineering and Chief Technical 1996 -- -- -- --
Officer
</TABLE>
(1) Represents bonuses for services rendered in the fiscal year indicated
but paid in the succeeding fiscal year.
(2) Except as otherwise indicated, "All Other Compensation" for 1998, 1997
and 1996 represents Company contributions to match amounts deferred by
such executives pursuant to the Digital Link Corporation 401(k)
Savings Plan.
(3) Mr. Fraser ceased to be an officer and employee of the Company in
February 1998.
<PAGE>
(4) Ms. Bellin ceased to be an officer and employee of the Company in
January 1999.
(5) Represents (i) options for 130,000 shares for Ms. Bellin, of which
options to purchase 19,000 shares were granted in 1995 and 10,000 were
granted in 1996 and each of which were repriced in February 1998 and
again in October 1998, options to purchase 500 shares were granted in
1994, 7,500 shares were granted in 1995 and 32,000 shares were granted
in 1998 and each of which were repriced in October 1998; (ii) options
for 129,000 shares for Mr. Bossange, of which options to purchase
4,000 shares were granted in 1995 and 10,000 shares were granted in
1996 and each of which were repriced in February 1998 and again in
October 1998, options to purchase 1,000 shares were granted in 1995
and 40,000 shares were granted in 1998 and each of which were repriced
in October 1998, and options to purchase 20,000 shares were granted in
1998; (iii) options for 157,500 shares for Mr. Kazmierczak, of which
options to purchase 40,000 shares were granted in 1996 and repriced in
February 1998 and again in October 1998, options to purchase 17,500
shares were granted in 1995 and 30,000 shares were granted in 1998 and
each of which were repriced in October 1998; (iv) options for 264,000
shares for Mr. Tabaska, of which options to purchase 100,000 shares
were granted in 1997 and were repriced in February 1998 and again in
October 1998, options to purchase 32,000 shares were granted in 1998
and were repriced in October 1998.
(6) Mr. Bossange became an officer of the Company in March 1999 and ceased
to be an officer and employee of the Company in April 1999.
(7) Includes commissions.
(8) Mr. Tabaska became an officer and employee of the Company in February
1998 and ceased to be an officer and employee of the Company in
January 1999.
(9) Includes hiring bonus.
(10) Includes expenses of $30,658 paid in connection with Mr. Tabaska's
relocation to California.
Executive Retention and Severance Agreements
Effective December 1998, the Company entered into Executive Retention
and Severance Agreements with several of its executives and employees, including
Ms. Gupta, Ms. Mastilock, Ms. Vaysburd and Messrs. Bossange, Kazmierczak and
Silverman. These agreements provide, among other things, that, if terminated in
connection with a change of control (such terms are defined in the agreement) of
the Company, the executive will receive 100% of his or her targeted annual base
salary and annual bonus pay and a pro rated portion of any bonus payable for the
year in which termination occurs. In addition, upon a change of control, the
vesting of some or all of the executive's unvested options will be accelerated.
The amount of acceleration ranges from 100% for Mr. Kazmierczak and Ms. Gupta to
50% for the other executives and employees who are parties to the agreement. In
addition, options not assumed or fully substituted in connection with the change
of control become fully vested prior to the effective date of the change of
control or, at the election of the Company, the Company will deliver a cash
payment to the executive equal to the difference between the exercise price of
the unexercised options and the value of the consideration deliverable for an
equivalent number of shares in connection with the change of control. The
executive officer is also entitled to continued medical and welfare benefit
coverage for 12 months following termination in connection with a change of
control. The agreement allows the executive officer and the Company to make
adjustments in the benefits received in certain circumstances as described in
the agreement.
<PAGE>
Option Grants in Fiscal 1998
<TABLE>
The following table sets forth information regarding individual option
grants pursuant to the Company's equity incentive plans during 1998 to each of
the Named Officers. In accordance with the rules of the Securities and Exchange
Commission, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their respective ten-year terms. These
gains are based on assumed rates of annual compound stock appreciation of 5% and
10% from the date the option was granted to the end of the option terms. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
Option Grants in Fiscal 1998
<CAPTION>
Percent of
Total Potential
Number of Options Realizable Value at Assumed
Securities Granted to Exercise Annual Rates of
Underlying Employees Price Stock Price Appreciation
Options in Fiscal Per Expiration For Option Term($)(4)
Name Granted(#) 1998(%) Share($) Date 5%($) 10%($)
- ----------------------------- --------------- ------------ ---------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Vinita Gupta............ -- -- -- -- -- --
Alan I. Fraser............ -- -- -- -- -- --
Toni M. Bellin ......... 10,000(1) 0.38 11.00 02/10/08 69,178 175,312
19,000(1) 0.72 11.00 02/10/08 131,439 333,092
12,000(1) 0.45 11.00 02/10/08 83,014 210,374
20,000(1) 0.75 11.00 02/10/08 138,357 350,623
20,000(2) 0.75 3.22 10/20/08 40,485 102,597
500(2) 0.02 3.22 10/20/08 1,012 2,565
7,500(2) 0.28 3.22 10/20/08 15,182 38,474
10,000(2) 0.38 3.22 10/20/08 20,243 51,299
19,000(2) 0.72 3.22 10/20/08 38,461 97,467
12,000(2) 0.45 3.22 10/20/08 24,291 61,558
Kent A. Bossange........ 10,000(3) 0.38 11.00 12/17/06 59,396 145,676
4,000(3) 0.15 11.00 11/03/05 20,153 47,911
5,000(1) 0.19 11.00 02/10/08 34,589 87,656
35,000(3) 1.32 10.25 04/21/08 225,616 571,755
1,000(2) 0.04 3.22 10/20/08 2,024 5,130
10,000(2) 0.38 3.22 10/20/08 20,243 51,299
4,000(2) 0.15 3.22 10/20/08 8,097 20,519
5,000(2) 0.19 3.22 10/20/08 10,121 25,649
35,000(2) 1.32 3.22 10/20/08 70,849 179,545
20,000(3) 0.75 3.50 10/08/08 44,023 111,562
Stanley E. Kazmierczak.. 40,000(1) 1.51 11.00 02/10/08 276,714 701,247
10,000(1) 0.38 11.00 02/10/08 69,178 175,312
20,000(1) 0.75 11.00 02/10/08 138,357 350,623
2,500(2) 0.09 3.22 10/20/08 5,060 12,825
15,000(2) 0.57 3.22 10/20/08 30,364 76,948
40,000(2) 1.51 3.22 10/20/08 80,970 205,194
10,000(2) 0.38 3.22 10/20/08 20,243 51,299
20,000(2) 0.75 3.22 10/20/08 40,485 102,597
Steven T. Tabaska ...... 100,000(1) 3.78 11.00 02/10/08 691,784 1,753,117
12,000(1) 0.45 11.00 02/10/08 83,014 210,374
20,000(1) 0.75 11.00 02/10/08 138,357 350,623
100,000(2) 3.77 3.22 10/20/08 202,425 512,986
12,000(2) 0.45 3.22 10/20/08 24,291 61,558
20,000(2) 0.75 3.22 10/20/08 40,485 102,567
- -----------
</TABLE>
(1) These options represent nonqualified stock options that had been granted
in prior years and were repriced on February 10, 1998. These options
<PAGE>
become exercisable with respect to 25% of the shares after one year from
the date of repricing and with respect to 2.084% of the shares for each
full month thereafter that the optionee renders services to the Company.
These options will expire ten years from the date of grant, subject to
earlier termination upon termination of employment. The exercise price
may be paid, among other things, by delivery of shares already owned,
and tax-withholding obligations related to exercise may be paid by
offset of the underlying shares, subject to certain conditions.
(2) These options represent nonqualified stock options that had been granted
in prior years and were repriced on October 20, 1998. These options
become exercisable with respect to 33.3% of the shares after one year
from the date of repricing and with respect to 2.78% of the shares for
each full month thereafter that the optionee renders services to the
Company. These options will expire ten years from the date of grant,
subject to earlier termination upon termination of employment. The
exercise price may be paid, among other things, by delivery of shares
already owned, and tax-withholding obligations related to exercise may
be paid by offset of the underlying shares, subject to certain
conditions.
(3) These options represent nonqualified stock options that were granted at
fair market value. At the time of grant, these options had a vesting
schedule that provided for exercisability with respect to 25% of the
shares after the first full year that the optionee renders services to
the Company after the date of grant and with respect to 2.084% of the
shares for each full month thereafter that the optionee renders services
to the Company. These options will expire ten years from the date of
grant, subject to earlier termination upon termination of employment.
The exercise price may be paid, among other things, by delivery of
shares already owned, and tax-withholding obligations related to
exercise may be paid by offset of the underlying shares, subject to
certain conditions.
(4) The 5% and 10% assumed rates of annual compound stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projection of future Common
Stock prices.
Option Exercises in Fiscal 1998 and December 31, 1998 Option Values
<TABLE>
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options held on December 31, 1998 by each of
the Named Officers. Also reported are values for "in-the-money" stock options
that represent the positive spread between the respective exercise prices of
outstanding stock options and the fair market value of the Common Stock as of
December 31, 1998 (as determined by the closing price of the Company's Common
Stock on that date as reported by the Nasdaq National Market ($5.125)). No
options were exercised by the Named Officers in 1998.
Fiscal Year End Option Values
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-The-Money Options
Fiscal Year-End (#) at Fiscal Year-End($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Vinita Gupta........... -- -- -- --
Alan I. Fraser......... 2,500 -- -- --
Toni M. Bellin ........ 7,500 69,000 $3,438 $131,531
Kent A. Bossange....... -- 75,000 -- 137,344
Stanley E. Kazmierczak. 21,500 89,500 37,777 166,797
Steven T. Tabaska ..... -- 132,000 -- 251,625
- --------------
</TABLE>
(1) These values have not been, and may never be, realized.
<PAGE>
Compensation Committee and stock option committee
Interlocks and Insider Participation
From January 1998 to July 1998, Messrs. Alberding and Boxer served on the
Company's Compensation Committee. From July 1998 to November 1998, Messrs.
Alberding, Boxer and Fraser served on such committee. From November 1998 to
January 1999, Messrs. Alberding and Boxer served such committee. Thereafter
through the present, the Compensation Committee has consisted of Messrs.
Alberding and Von Rump. From July 1998 to December 1998, Messrs. Alberding and
Boxer served on the Company's Stock Option Committee. The Stock Option Committee
was combined with the Company's Compensation Committee effective December 1998.
Mr. Fraser formerly served as the Company's President and Chief Executive
Officer. During fiscal 1998, Vinita Gupta, Chairman of the Board of the Company,
served as a member of the Board of Directors and of the Compensation Committee
of the Board of Directors of Integrated Systems, Inc., whose Chairman of the
Board, Dr. Narendra K. Gupta, is a director of the Company. Mrs. Gupta is the
wife of Dr. Gupta.
CERTAIN TRANSACTIONS
Since January 1, 1998, there have been the following transactions or
series of transactions involving more than $60,000 between the Company and any
current executive officer, director, 5% beneficial owner of the Company's Common
Stock or any member of the immediate family of any of the foregoing in which one
or more of the foregoing individuals or entities had a material interest, in
addition to those indicated in "Executive Compensation" and "Director
Compensation" above.
In fiscal 1998, the Company paid $61,700 to lease office space from
Integrated Systems, Inc., an entity that is approximately 20% owned by Dr.
Narendra Gupta, a director of the Company, and of which Dr. Gupta is Chairman of
the Board. Mrs. Vinita Gupta, President, Chief Executive Officer and Chairman of
the Board of Directors and founder of the Company, is a director of Integrated
Systems, Inc.
Pursuant to a Secured Promissory Note dated September 30, 1996 and
related Security Agreement dated September 30, 1996, the Company loaned $250,000
(at an interest rate of 6.02% per annum, compounded annually) to Alan I. Fraser,
then President, Chief Executive Officer and a director of the Company. Such Note
and accrued interest, in the amount of $274,958, was paid in full on May 27,
1998.
Pursuant to a Secured Promissory Note dated March 31, 1997 and related
Security Agreement dated March 31, 1997, the Company loaned $300,000 to Steven
T. Tabaska, a former Vice President, Engineering and Chief Technology Officer of
the Company. Such loan is due and payable on or before March 31, 2001 and bears
interest at a rate of 6.42% per annum, compounded annually. As of the Record
Date, the entire principal amount of such promissory note and all accrued
interest thereon remained outstanding. Mr. Tabaska ceased to be an officer and
employee of the Company in January 1999.
Lance Boxer, a former director of the Company, was the Chief
Information Officer of MCI Telecommunications ("MCI"), which is a customer of
the Company. During 1998, the Company derived 11% of its revenues from MCI in
connection with the purchase of the Company's products by MCI. Mr. Boxer left
MCI in October 1998. He ceased to be a director of the Company in January 1999.
<PAGE>
COMPENSATION COMMITTEE
AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee and Stock Option Committee Report on
Executive Compensation shall not be deemed to be incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
To the Board of Directors
Final decisions regarding executive compensation and stock option
grants to executives are made by the Compensation Committee of the Board of
Directors, except that from July 1998 to December 1998, decisions regarding the
grant of all forms of stock compensation provided to executive officers as well
as administration of the Company's 1992 Equity Incentive Plan and 1993 Employee
Stock Purchase Plan, were made by the Stock Option Committee. The Stock Option
Committee was combined with the Company's Compensation Committee effective
December 1998. Although Mrs. Gupta attends the meetings of the Compensation
Committee, she does not vote on any matters that relate to compensation. While
President and Chief Executive Officer, Mr. Fraser attended the meetings of the
Compensation Committee, but he did not vote on any matters that related to
compensation.
General Compensation Policy
The Compensation Committee acts on behalf of the Board to establish the
general compensation policy of the Company for all employees of the Company. The
Compensation Committee typically reviews base salary levels and target bonuses
for the Chief Executive Officer ("CEO"), other executive officers and other
management of the Company at or about the beginning of each year. Except for the
period from July 1998 to December 1998, the Compensation Committee administered
the 1986 Stock Option Plan, the 1992 Equity Incentive Plan, as amended, and the
1993 Employee Stock Purchase Plan, as amended. From July 1998 to December 1998,
the administration of these plans was performed by the Stock Option Committee.
In addition, the Compensation Committee evaluates and makes determinations with
respect to any other incentive compensation for executive officers.
The Compensation Committee's philosophy in compensating executive
officers, including the CEO, is to relate compensation directly to corporate
performance. Thus, the Company's compensation policy, which applies to
management of the Company, relates a portion of each individual's total
compensation to the Company's corporate objectives set forth at the beginning of
the Company's fiscal year, as well as to individual contributions. Consistent
with this policy, a designated portion of the compensation of the executive
officers and other management of the Company is contingent on corporate
performance and adjusted based on the individual officer's performance as
measured against personal objectives established by the Compensation Committee.
Long-term equity incentives for executive officers are effected through the
granting of stock options under the 1992 Equity Incentive Plan, as amended.
Stock options generally have value for the executive only if the price of the
Company's stock increases above the fair market value on the grant date and the
executive remains in the Company's employ for the period required for the shares
to vest.
The base salaries, target bonuses, stock option grants and other
incentive compensation of the executive officers are determined in part by the
Compensation Committee (and, as applicable for the period in which it existed,
the Stock Option Committee) by reviewing the Radford Survey and certain other
surveys of the prevailing salaries in related industries of similar positions
and evaluating the base salary, bonus and stock option grant standards included
in such surveys against the achievement by the Company of its corporate goals.
The Radford survey is nationally known for its database of high technology
company compensation practices. Only some of the companies in the Radford survey
and the other surveys considered by the Company are included within the indices
used by the Company in its Performance Graph. The compensation of the Company's
executive officers is compared to the compensation of executives in comparable
positions within the relevant surveys and to competitive market compensation
<PAGE>
levels in order to determine base salary, target bonuses and target total cash
compensation. In addition to their base salaries, the Company's executive
officers, including the CEO, are each eligible to receive an annual cash bonus
and are entitled to participate in the 1992 Equity Incentive Plan, as amended.
1998 Executive Compensation
Base Compensation. The foregoing information was presented to the
Compensation Committee in December 1997. The Compensation Committee reviewed the
recommendations and performance and market data outlined above and established a
base salary level to be effective January 1, 1998 for each executive officer,
including the CEO.
Incentive Compensation. Cash bonuses are awarded if the Company meets
certain financial corporate objectives that are set by the Board of Directors in
the beginning of the year. The CEO's objective judgment of executives'
performance (other than his or her own) after the end of the year is taken into
account in determining whether those goals have been satisfied and may be
adjusted accordingly. These objectives include revenue and operating income, as
well as other business related goals. The specific Company objectives, which are
considered by the Company to be confidential business information, do not
necessarily have an immediate or direct effect on the trading price of the
Common Stock of the Company.
Stock Options. Stock options typically have been granted to executive
officers when the executive first joins the Company, to stay competitive,
recognize outstanding achievements on an ongoing basis and, occasionally, to
achieve equity within a peer group. The Compensation Committee (and the Stock
Option Committee, while it existed) may, however, grant additional stock options
to executives for other reasons. The number of shares subject to each stock
option granted is based on anticipated future contribution and ability to impact
corporate and/or business unit results, past performance or consistency within
the executive's peer group. In February 1998, options were granted to Toni M.
Bellin, Stanley E. Kazmierczak and Steven T. Tabaska in order to provide an
incentive to increase the value of the Company's stock. In April 1998, options
were granted to Kent A. Bossange in connection with his appointment as the
Company's Vice President, Marketing in March 1998, as part of the Company's
standard practices in order to remain competitive as an employer and provide an
incentive to increase the value of the Company's stock. Options were again
granted to Mr. Bossange in October 1998 to provide an incentive to increase the
value of the Company's stock. In December 1998, options were granted to Lana
Vaysburd when she was hired by the Company as Vice President, Engineering as
part of the Company's standard practices in order to remain competitive as an
employer and provide an incentive to increase the value of the Company's stock.
The options of various executive officers were repriced in February 1998 and
October 1998 as discussed under "Repricing of Options" below.
Company Performance and CEO Compensation. In September 1996, Alan I.
Fraser was hired as the Company's President and Chief Executive Officer, and the
Compensation Committee recommended a base salary of $300,000, with a sign-on
bonus of $45,000. This base salary was effective through February 1998, when Mr.
Fraser resigned from the Company. In determining Mr. Fraser's base salary for
1998, the Compensation Committee considered the various factors discussed above,
in particular his ability to impact corporate results. No bonus was paid to Mr.
Fraser for 1998. In February 1998, Vinita Gupta resumed service, on an interim
and part-time basis, as the Company's President and Chief Executive Officer. At
that time, the Compensation Committee recommended a base salary for Ms. Gupta of
$250,000, of which as a part-time employee, Ms. Gupta was paid 60% for 1998. In
determining Ms. Gupta's base salary, the Compensation Committee considered the
various factors discussed above, in particular her ability to impact corporate
results. In January 1999, Ms. Gupta accepted service as the Company's President
and Chief Executive Officer on a full-time basis, at which time her base
compensation was reevaluated by the Compensation Committee, which determined to
maintain her base salary at $250,000. After careful review of the Company's
performance as measured against its objectives for 1998, the Compensation
Committee did not grant a bonus to Ms. Gupta.
Compliance with Section 162(m) of the Internal Revenue Code of 1986.
The Company intends to comply with the requirements of Section 162(m) of the
<PAGE>
Internal Revenue Code of 1986 for 1999. The 1992 Equity Incentive Plan, as
amended, is currently in compliance with Section 162(m) by virtue of the
inclusion of a limitation on the number of shares that an executive officer may
receive under the 1992 Equity Incentive Plan. The Company does not expect cash
compensation for 1999 to be affected by the requirements of Section 162(m).
Repricing of Options. The Compensation Committee believes that stock
options are a critical component of the compensation offered by the Company to
promote long-term retention of its employees and to motivate their performance.
In January 1998, the Company offered to all executive officers the opportunity
to amend outstanding options issued on or after November 2, 1995 to reduce the
exercise price of such options to an amount equal to the closing price of the
Company's stock on February 9, 1998 and to adjust the vesting of the options
over a four year period to begin on such date. In addition, the Company offered
to all other employees of the Company the same repricing option, with the
exception that in lieu of restarting vesting, any repriced options would not be
exercisable for a 12-month period. The above described option amendment was an
acknowledgment of the importance to the Company of providing adequate equity
incentives to its employees. Given the decline in the Company's stock price
since the initial grant of the options, the exercise prices of such options were
significantly in excess of the trading price of the Company's Common Stock at
the time of the repricing. Stock options whose exercise prices are significantly
above the trading price of the Company's Common Stock do not provide meaningful
incentives for continued employment with the Company or motivation toward
increasing the value of the Company's Common Stock. The renewed vesting period
and the exercise period blackout included in the option amendments were viewed
as a means of retaining the services of valued employees for a longer period of
time and as a way for the Company to receive something in exchange for the
repricing of options.
In October 1998, the Company again offered to its employees, including
its executive officers, the opportunity to amend outstanding options to reduce
the exercise price of such options to an amount equal to the closing price of
the Company's stock on October 19, 1998. In connection with such repricing, the
vesting schedule of each option was amended to a three-year vesting period
beginning on October 20, 1998, with no option being exercisable until October
20, 1999. The number of shares subject to the amended options that were
originally granted prior to November 1, 1995 was reduced to 25% of the number of
shares subject to the original grant, provided such amount remained unexercised
as of the repricing, with any remaining shares being forfeited. This additional
repricing was a further acknowledgment of the importance to the Company of
providing adequate equity incentives to its employees. Given the further
significant decline in the Company's stock price since the February 1998
repricing, the exercise prices of the Company's outstanding options were
significantly in excess of the trading price of the Company's Common Stock at
the time of the repricing. As indicated above, stock options whose exercise
prices are significantly above the trading price of the Company's Common Stock
do not provide meaningful incentives for continued employment with the Company
or motivation toward increasing the value of the Company's Common Stock. The
renewed vesting period, the exercise blackout period and the forfeiture of
certain options originally granted prior to November 1, 1995 included as part of
the option amendments, were viewed as a means of retaining the services of
valued employees for a longer period of time and as a way for the Company to
receive something in exchange for the repricing of the options.
<PAGE>
Options held by any executive officer of the Company that were repriced
during the period from January 31, 1994, the effective date of the Company's
initial public offering, to December 31, 1998 are listed in the following table.
<TABLE>
Ten-Year Option Repricings
<CAPTION>
Number of
Securities Market Price Exercise Length of
Underlying of Stock at Price at Time Original Option
Options Time of of Repricing New Term Remaining at
Name Date Repriced or Repricing or or Exercise Date of Repricing
Amended(#) Amendment($) Amendment($) Price($) or Amendment
- --------------------------------- ---------- ---------------- --------------- --------------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Toni M. Bellin
Former Vice President, Operations 2/10/98 19,000 11.00 15.25 11.00 7 years, 266 days
2/10/98 10,000 11.00 21.75 11.00 8 years, 310 days
10/20/98 500 $3.21875 $9.25 $3.21875 5 years, 296 days
10/20/98 7,500 3.21875 24.00 3.21875 6 years, 141 days
10/20/98 10,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 19,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 12,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 20,000 3.21875 11.00 3.21875 9 years, 113 days
Kent A. Bossange
Former Vice President, Marketing 2/10/98 4,000 11.00 15.25 11.00 7 years, 266 days
2/10/98 10,000 11.00 21.75 11.00 8 years, 310 days
10/20/98 1,000 3.21875 28.00 3.21875 6 years, 242 days
10/20/98 10,000 3.21875 11.00 3.21875 8 years, 58 days
10/20/98 4,000 3.21875 11.00 3.21875 7 years, 14 days
10/20/98 5,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 35,000 3.21875 10.25 3.21875 9 years, 184 days
Stanley E. Kazmierczak
Vice President, Finance and
Operations, Chief Financial
Officer and Secretary 2/10/98 40,000 11.00 16.50 11.00 8 years, 233 days
10/20/98 2,500 3.21875 24.00 3.21875 6 years, 141 days
10/20/98 15,000 3.21875 15.25 3.21875 7 years, 14 days
10/20/98 40,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 10,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 20,000 3.21875 11.00 3.21875 9 years, 113 days
Dianne Mastilock
Former Vice President,
Human Resources 2/10/98 2,500 11.00 15.25 11.00 7 years, 266 days
2/10/98 1,000 11.00 17.25 11.00 8 years, 79 days
2/10/98 3,500 11.00 15.25 11.00 8 years, 172 days
2/10/98 5,200 11.00 21.75 11.00 8 years, 310 days
10/20/98 1,000 3.21875 15.125 3.21875 5 years, 358 days
10/20/98 5,200 3.21875 11.00 3.21875 8 years, 58 days
10/20/98 2,500 3.21875 11.00 3.21875 7 years, 14 days
10/20/98 3,500 3.21875 11.00 3.21875 7 years, 285 days
10/20/98 1,000 3.21875 11.00 3.21875 7 years, 192 days
10/20/98 20,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 20,000 3.21875 11.00 3.21875 9 years, 113 days
Jack A. Musgrove
Former Vice President, Marketing 2/10/98 60,000 11.00 15.25 11.00 7 years, 266 days
2/10/98 10,000 11.00 21.75 11.00 8 years, 310 days
Steven T. Tabaska
Former Vice President,
Engineering and Chief Technical 2/10/98 100,000 11.00 21.625 11.00 8 years, 333 days
Officer 10/20/98 100,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 12,000 3.21875 11.00 3.21875 9 years, 113 days
10/20/98 20,000 3.21875 11.00 3.21875 9 years, 113 days
</TABLE>
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
Richard C. Alberding Richard C. Alberding
Lance B. Boxer Lance B. Boxer
Stephen L. Von Rump
Alan I. Fraser
<PAGE>
PERFORMANCE GRAPH
The stock price performance graph below includes indices required by
the Securities and Exchange Commission and shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed soliciting material or filed under such Acts.
The following graph demonstrates a comparison of cumulative total
returns based upon an initial investment of $100.00 in the Company's Common
Stock as compared with the Nasdaq Stock Market (US) Index and the Nasdaq
Telecommunications Stock Index. The stock price performance shown on the graph
below is not necessarily indicative of future price performance and only
reflects the Company's relative stock price on January 31, 1994 (as offered by
the Company pursuant to its initial public offering of Common Stock on such
date) and on December 30, 1994, December 29, 1995, December 31, 1996, December
31, 1997 and December 31, 1998.
(Graphic Omitted)
Nasdaq Stock Nasdaq
Digital Link Market - US Index Telecommunications Index
01/31/94 $100.00 $100.00 $100.00
12/30/94 191.89 94.79 82.89
12/29/95 100.89 134.16 99.73
12/31/96 169.64 165.03 111.91
12/31/97 168.75 202.60 165.34
12/31/98 137.50 284.50 270.60
<PAGE>
SHAREHOLDER PROPOSALS AND ANNUAL REPORT ON FORM 10-K
Proposals of shareholders intended to be presented at the Company's 2000
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices no later than December 30, 1999 in order to be included in the
Company's Proxy Statement and form of proxy relating to that meeting. The proxy
holders designated by the Company will have discretionary authority to vote the
proxies they receive for use at the 2000 Annual Meeting of Shareholders with
respect to any proposal presented at that meeting of which the Company does not
receive notice by March 14, 2000.
The Company's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission for the year ended December 31, 1998 is available
without charge by writing to or calling the Company's headquarters. Requests
should be directed to the Company's Investor Relations Department at 217
Humboldt Court, Sunnyvale, California 94089 or by calling (408) 745-6200.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission and the Nasdaq National Market. Such persons are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of such reports furnished to the
Company, all directors and officers of the Company filed with the SEC on a
timely basis all reports required with respect to the Company's most recent
fiscal year, except as set forth below. The initial reports on Form 3 of (i)
Louis Golm, upon becoming a director of the Company; (ii) Stephen L. Von Rump,
upon becoming a director of the Company; (iii) Dianne Mastilock, former Vice
President, Human Resources, upon becoming an executive officer of the Company;
and (iv) Lana Vaysburd, Vice President, Engineering, upon becoming an executive
officer of the Company, were filed late. In addition, one change in ownership
report on Form 4 for each of Toni M. Bellin, former Vice President, Operations,
reflecting one sale of shares, and Stanley E. Kazmierczak, Vice President,
Finance and Operations and Chief Financial Officer, reflecting one sale of
shares, were filed late. Additionally, one change in ownership report on Form 4
for Steven T. Tabaska, former Vice President, Engineering and Chief Technical
Officer, reflecting one purchase of shares, was not filed.
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other
business before the Meeting, and, so far as is known to the Board of Directors,
no matters are to be brought before the Meeting except as specified in the
notice of the Meeting. As to any business that may properly come before the
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
Dated: April 28, 1999 By Order of the Board of Directors
/s/ Stanley E. Kazmierczak
Stanley E. Kazmierczak
Vice President, Finance and Operations,
Chief Financial Officer and Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
Appendix A
DIGITAL LINK CORPORATION
1993 EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors on December 3, 1993
Amended February 12, 1997 and February 8, 1999
1. Establishment of Plan. Digital Link Corporation (the "Company")
proposes to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Subsidiaries (as hereinafter defined) pursuant
to this Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan,
"Parent Corporation" and "Subsidiary" (collectively, "Subsidiaries") shall have
the same meanings as "parent corporation" and "subsidiary corporation" in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code"). The Company intends the Plan to qualify as an "employee
stock purchase plan" under Section 423 of the Code (including any amendments to
or replacements of such section), and the Plan shall be so construed. Any term
not expressly defined in the Plan but defined for purposes of Section 423 of the
Code shall have the same definition herein. A total of 300,000 shares of the
Company's Common Stock is reserved for issuance under the Plan. Such number
shall be subject to adjustments effected in accordance with Section 14 of the
Plan.
2. Purpose. The purpose of the Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "Board") as eligible to participate in the Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. Administration. This Plan may be administered by the Board or a
committee of not less than two members of the Board appointed to administer the
Plan (the "Committee"). As used in this Plan, references to the "Committee"
shall mean either such committee or the Board if no committee has been
established. Subject to the provisions of the Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of the Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of the Plan, other than standard fees as established from time to
time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of the
Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Subsidiaries
designated by the Board as eligible to participate in the plan is eligible to
participate in an Offering Period under the Plan except the following:
(a) employees who are not employed by the Company or Subsidiaries one (1)
day prior to the beginning of such Offering Period;
(b) employees who are customarily employed for less than 20 hours per week;
(c) employees who are customarily employed for less than 5 months in a
calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock or who, as a result of being granted an option
under the Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing 5 percent or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. Offering Dates. The Offering Periods of the Plan (the "Offering
Period") shall be of 6 months duration commencing May 1 and November 1 of each
year and ending on October 31 and April 30 respectively, during which payroll
deductions of the participant are accumulated under this Plan. The first
Offering Period will begin on May 1, 1994. The first day of each Offering Period
is referred to as the "Offering Date". The last business day of each Offering
Period is referred to as the "Purchase Date". The Board shall have the power to
change the duration of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
<PAGE>
6. Participation in the Plan. Eligible employees may become
participants in an Offering Period under the Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's or Subsidiary's (whichever employs such employee)
treasury department (the "Treasury Department") not later than the one day prior
to such Offering Date unless a later time for filing the subscription agreement
authorizing payroll deductions is set by the Board for all eligible employees
with respect to a given Offering Period. An eligible employee who does not
deliver a subscription agreement to the Treasury Department by such date after
becoming eligible to participate in such Offering Period shall not participate
in that Offering Period or any subsequent Offering Period unless such employee
enrolls in the Plan by filing a subscription agreement with the Treasury
Department not later than one day preceding a subsequent Offering Date. Once an
employee becomes a participant in an Offering Period, such employee will
automatically participate in the Offering Period commencing immediately
following the last day of the prior Offering Period unless the employee
withdraws from the Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation in
the Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
the Plan with respect to an Offering Period will constitute the grant (as of the
Offering Date) by the Company to such employee of an option to purchase on the
Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing the amount accumulated in such employee's payroll
deduction account during such Offering Period by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Offering Date or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Purchase Date; provided,
however, that the number of shares of the Company's Common Stock subject to any
option granted pursuant to this Plan shall not exceed the lesser of (a) the
maximum number of shares set by the Board pursuant to Section 10(c) below with
respect to the applicable Offering Period, or (b) 200% of the number of shares
determined by using 85% of the fair market value of a share of the Company's
Common Stock on the Offering Date as the denominator. Fair market value of a
share of the Company's Common Stock shall be determined as provided in Section 8
hereof.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be 85 percent of the
lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of the Plan, the term "fair market value" on a
given date shall mean the fair market value of the Company's Common Stock as
determined by the Committee from time to time in good faith. If a public market
exists for the shares, the fair market value shall be the closing price for the
Common Stock of the Company on the last trading day prior to the date of
determination, or, in the event the Common Stock of the Company is listed on the
Nasdaq National Market, the fair market value shall be the closing price of the
Common Stock on the last trading day prior to the determination date as quoted
on the Nasdaq National Market and reported in The Wall Street Journal.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance
Of Shares.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent increments not
less than 2 percent nor greater than 10 percent, or such lower limit set by the
Committee. Compensation shall mean base salary and commissions, excluding
overtime, shift premiums and bonuses; provided, however, that for purposes of
determining a participant's compensation, any election by such participant to
reduce his or her regular cash remuneration under Sections 125 or 401(k) of the
Code shall be treated as if the participant did not make such election. Payroll
deductions shall commence on the first payday following the Offering Date and
shall continue to the end of the Offering Period unless sooner altered or
terminated as provided in the Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than 15 days after
the Treasury Department's receipt of the authorization and shall continue for
the remainder of the Offering Period unless changed as described below.
<PAGE>
Such change in the rate of payroll deductions may be made at any time during an
Offering Period, but not more than one change may be made effective during any
Offering Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Treasury
Department a new authorization for payroll deductions not later than the 15th
day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to
his or her account under the Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as the Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under the Plan and have all payroll
deductions accumulated in the account maintained on behalf of the participant as
of that date returned to the participant, the Company shall apply the funds then
in the participant's account to the purchase of whole shares of Common Stock
reserved under the option granted to such participant with respect to the
Offering Period to the extent that such option is exercisable on the Purchase
Date. The purchase price per share shall be as specified in Section 8 of the
Plan. Any cash remaining in a participant's account after such purchase of
shares shall be refunded to such participant in cash, without interest;
provided, however, that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Offering Period. In the event that the Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in the Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under the Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. Limitations on Shares to be Purchased.
(a) No employee shall be entitled to purchase stock under the Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in the Plan.
(b) No more than 200% of the number of shares determined by using
85% of the fair market value of a share of the Company's Common Stock on the
Offering Date as the denominator may be purchased by a participant on any single
Purchase Date.
(c) No employee shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty days prior to the commencement of any Offering Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen days prior to the commencement of the next Offering Period. Once the
Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in the Plan exceeds the number of shares then
available for issuance under the Plan, the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Board shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each participant affected thereby.
<PAGE>
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
Offering Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under
the Plan by signing and delivering to the Treasury Department notice on a form
provided for such purpose. Such withdrawal may be elected at any time at least
15 days prior to the end of an Offering Period.
(b) Upon withdrawal from the Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in the Plan shall terminate. In the event a participant
voluntarily elects to withdraw from the Plan, he or she may not resume his or
her participation in the Plan during the same Offering Period, but he or she may
participate in any Offering Period under the Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
the Plan.
12. Termination of Employment. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in the Plan. In such event, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of his or
her death, to his or her legal representative, without interest. For purposes of
this Section 12, an employee will not be deemed to have terminated employment or
failed to remain in the continuous employ of the Company in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest
in the Plan is terminated by withdrawal, termination of employment or otherwise,
or in the event the Plan is terminated by the Board, the Company shall promptly
deliver to the participant all payroll deductions credited to his account. No
interest shall accrue on the payroll deductions of a participant in the Plan.
14. Capital Changes. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under the Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under the Plan but have not
yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under the Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of substantially all of the assets of the Company, or (iv) the
acquisition, sale, or transfer
<PAGE>
of more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the participant shall have the right to exercise the option as to all of
the optioned stock. If the Board makes an option exercisable in lieu of
assumption or substitution in the event of a merger, consolidation or sale of
assets, the Board shall notify the participant that the option shall be fully
exercisable for a period of twenty (20) days from the date of such notice, and
the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each
participant in the Plan. Each participant shall receive promptly after the end
of each Offering Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Offering Period.
17. Notice of Disposition. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two years from the
Offering Date or within one year from the Purchase Date on which such shares
were purchased (the "Notice Period"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to the Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary, or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. Equal Rights And Privileges. All eligible employees shall have
equal rights and privileges with respect to the Plan so that the Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
the Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. This Plan shall become effective on the
date that it is adopted by the Board of the Company. This Plan shall be approved
by the stockholders of the Company, in any manner permitted by applicable
corporate law, within twelve months before or after the date this Plan is
adopted by the Board. No purchase of shares pursuant to the Plan shall occur
prior to such stockholder approval. The Plan shall continue until the earlier to
occur of termination by the Board, issuance of all of the shares of Common Stock
reserved for issuance under the Plan, or ten (10) years from the adoption of the
Plan by the Board.
<PAGE>
22. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of an Offering Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or automated quotation
system upon which the shares may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of the Plan. The Board may at any time
amend, terminate or the extend the term of the Plan, except that any such
termination cannot affect options previously granted under the Plan, nor may any
amendment make any change in an option previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
approval of the stockholders of the Company obtained in accordance with Section
21 hereof within 12 months of the adoption of such amendment (or earlier if
required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in the Plan.
<PAGE>
Appendix B
PROXY DIGITAL LINK CORPORATION PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
June 7, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The undersigned hereby appoints Vinita Gupta and Stanley E. Kazmierczak, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, of Digital Link Corporation (the "Company"), held of record by the
undersigned on April 22, 1999, at the Annual Meeting of Shareholders of the
Company to be held at the Sheraton Four Points Hotel located at 1100 North
Mathilda Avenue, Sunnyvale, California 94089 on Monday, June 7, 1999, at 2:00
p.m. Pacific Daylight Time, and at any adjournments or postponements thereof.
(Continued, and to be signed on the other side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
|X| Please mark
your vote
as this
1. Election of Directors Withhold 2. To approve an amendment to the Company's For Against Abstain
Instruction: To withhold For For All 1993 Employee Stock Purchase Plan to |_| |_| |_|
authority to vote for any |_| |_| increase the number of shares for issuance
individual nominee, write that from 300,000 to 600,000.
nominee's name in the space
provided below: 3. The ratification of the selection of For Against Abstain
PricewaterhouseCoopers, L.L.P. |_| |_| |_|
Richard C. Alberding, Louis Golm, Vinita Gupta, as the Company's Independent Auditors
Narendra K. Gupta and Stephen L. Von Rump for the current fiscal year.
- ----------------------------------------- 4. The transaction of such other business
as may properly come before the meeting
or any adjournments or postponements of
the meeting.
The Board of Directors recommends that you vote
FOR the election of all nominees and FOR
proposals 2 and 3.
</TABLE>
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES AND FOR PROPOSALS
2 AND 3. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly come before the meeting or any adjournments or
postponements thereof to the extent authorized by Rule 14a-4(c) promulgated
under the Securities Exchange Act of 1934, as amended.
Signature (s) ________________________________________ Dated: ________,1999
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased shareholder should give
their full title. Please date the proxy.
