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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1997
Commission file number: 0-21069
DATALINK SYSTEMS CORPORATION
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(Name of small business issuer in its Charter)
Nevada 36-3574355
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2105 Hamilton Avenue, Suite 240, San Jose, California 95125
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(Address of principal executive offices, including zip code)
(408) 558-0801
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(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $196,891.
As of July 15, 1997, 19,182,925 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $4,950,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
Datalink Systems Corporation (the "Company") was formed under the laws
of the State of Colorado on August 15, 1986, for the purpose of creating a
corporate vehicle to seek and acquire a business opportunity. On June 19,
1996, the Company changed its name from Lord Abbott, Inc. to Datalink Systems
Corporation and changed its domicile to Nevada.
In August of 1988, the Company completed a public offering in which it
received net proceeds of approximately $240,000.
On June 19, 1996, the Company effected a one for three hundred reverse
split of the shares of the Company's Common Stock outstanding. All financial
information and share data in this Prospectus gives retroactive effect to this
reverse split.
On June 27, 1996, the Company issued 16,465,316 shares of its $.001 par
value Common Stock to the holders of 100% of the outstanding common stock of
Datalink Communications Corporation ("DCC") in an exchange transaction in
which DSC became a wholly owned subsidiary of the Company.
Unless the context otherwise requires, the term "Company" as used herein
refers to Datalink Systems Corporation and its wholly owned subsidiaries
Datalink Communications Corporation, and DSC Datalink Systems Corporation.
The Company is in the business of developing and marketing information
services for business and personal use, utilizing wireless and other emerging
information delivery technologies. The Company has developed an information
filtering, matching and messaging software engine which is utilized in each of
the Company's services.
DESCRIPTION OF BUSINESS
GENERAL
Except for the historical information contained herein, this Report
contains forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in this section under "General" and
"Risk Factors" as well as in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's corporate mission is to be the market leader in the
delivery of Personal Information Services, specializing in the notification
and delivery of a wide variety of information for both the business and
personal markets, using wireless and other emerging information delivery
technologies. The Company's core strategy is to offer a variety of personal
information services that provide information filtered according to individual
customers' criteria, and deliver it using a variety of wireless data
communications media. Information delivered using wireless media will
typically be either short form, or will simply be notification of more
lengthy information, which will be subsequently delivered using a less costly
wire-line connection. Initially, one-way alphanumeric paging will be
primarily utilized for wireless delivery, with other wireless data services
including two-way messaging and PCS and digital
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cellular short message service being supported as these technologies are
rolled out. Wire-line based delivery mechanisms will include fax and the
Internet, with future technologies such as addressable cable TV being
supported as they become available.
INDUSTRY BACKGROUND
With over 42% of the work force mobile, or roughly 40 million people,
wireless data communications is emerging as one of the most important
strategic technologies of the 1990s. The Pelorus Group forecasts that with
the increase in mobile workers there will be a significant increase in demand
for wireless data services. They predict the number of mobile workers will
increase from 40.5 million to 62.5 million workers by 2001.
According to a report by the Yankee Group, there will be 62 million
cellular/PCS subscribers and 55 million paging subscribers by the end of the
decade. This report contends that there is considerable pent-up demand for
wireless services. For example, of 871 non-cellular users surveyed, 24% said
they wished they had wireless of any form. And, within that group, 16% said
they are considering a wireless purchase, such as cellular or two-way
messaging via PCS. The Pelorus Group corroborates the Yankee Group's
predictions. Currently, according to the Pelorus Group, the total number of
all business subscriptions in wireless data communications is 23 million
subscribers. This is further divided into 19 million business subscribers for
pagers (alerting only); 1.4 million for text messaging (short text messages on
alphanumeric pagers); 680,000 data users (a subset of cellular users); 489,000
specialized data networks; and 1.45 million corporate private networks. The
total 1995 revenue base for wireless data was nearly $2.5 billion. One-way
paging was $1.7 billion (or 68% of the total). Messaging-computing support
was $536 million (21%) and private networks accounted for 11%. According to
the Pelorus Group, projected revenue for alerting and message/computing will
be $10.9 billion. This represents a 374% increase from 1995 revenues of $2.3
billion. Alerting revenues will be $5.6 billion (54%) and Messaging/Computing
will be $5.3 billion (48.6%). Wireless technology breaks down into one-way
data, and two-way voice and/or data communications. One-way communications is
best typified by current paging services. Some 31 million Americans carry
pagers today, with more than half of those consumers using pagers for personal
reasons. Opportunities also exist for to deliver its services using a
variety of other existing and future personal communications technologies.
New services and enhanced versions of the Company s initial services will be
subsequently offered, and will utilize the capabilities of future one-way and
two-way mobile data technologies such as Digital Cellular Short Message
Service (SMS), Addressable Cable TV and other emerging communications
technologies as they become available.
Future technology developments in the wireless messaging industry are
expected to evolve and drive subscriber growth as users demand more
sophisticated services and devices. Wireless technology breaks down into
one-way and two-way communications.
One-way communications is best typified by paging services. Industry
sources indicate that there are approximately 34 million pagers in service in
the United States--representing a penetration rate in excess of 13% of the
population.
Although the paging and messaging industry continues to be characterized
by technological advances, certain basic characteristics are common to most
one-way wireless messaging services. Paging is a one-way wireless messaging
technology that uses an assigned frequency to contact a paging customer within
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a geographic service area. Each customer who subscribes to a paging service
is assigned a specific telephone number (or a personal information number).
The subscriber is contacted through this telephone number (or a personal
information number) when the caller is connected, through the public-switched
telephone network, with the paging service.
While paging has been historically a one-way communications service,
technology advances are now providing two-way capability for wireless
messaging. In 1994, the FCC enhanced the potential for two-way messaging by
allocating and auctioning new frequencies for two-way paging services. With
the advent of two-way technology, the opportunity exists for the development
of two-way messaging products and services that will include inexpensive
stored voice and data acknowledgment paging services that complement the
cellular and broadband personal communication services offerings.
It is expected that the enhanced functionality of two-way messaging will
attract new subscribers through value-added services such as voice messaging,
wireless origination and delivery of e-mail, integration of wireless devices
into corporate wide area and local area networks, database access and
transaction services.
The wireless industry in general and wireless messaging in particular
are expected to experience significant subscriber growth into the next decade.
RISK FACTORS
Shareholders or investors in shares of the Company's common stock should
consider the following risk factors, in addition to other information in this
Report.
1. LIMITED OPERATING HISTORY, OPERATING LOSSES AND FLUCTUATIONS. The
Company's operating results historically have been, and may continue to be,
subject to significant quarterly and annual fluctuations. For example, for
the year ended March 31, 1997, the Company had a net loss of approximately
$5.3 million and had an accumulated deficit of approximately $6.9 million. As
a result, the Company's operating results in any quarter may not be indicative
of its future performance. Factors affecting operating results include:
market acceptance of new products; timing of significant orders; changes in
pricing by the Company or its competitors; timing of product announcements by
the Company, its customers or its competitors; order cancellations, increases
in production and engineering costs associated with new products. The impact
of these and other factors on the Company's revenues and operating results in
any future period cannot be forecasted with certainty. The Company's expense
levels are based, in part, on its expectations as to future revenues.
Management anticipates that the Company's average monthly revenue per
subscription will decline in the foreseeable future due to increased
competition and a higher mix of subscribers added through third party
resellers.
2. RESEARCH AND DEVELOPMENT EXPENDITURES. The Company expects that its
net sales of existing information services may achieve approximate break-even
within the next eighteen months. However, any positive cash flow from the
Company's existing information services will be substantially used to fund
development of the Company's next generation of information services,
including
without limitation, adapting existing information services to two-way
messaging technology. There can be no assurance that revenue growth will be
sufficient to fund research and development activities of the Company. Any
failure to achieve revenue projections will have a material adverse effect on
the Company's business, operating results and financial condition.
Consequently, there can be
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no assurance that the Company's consolidated operations will ever become
profitable.
3. NO ASSURANCE THAT GROWTH STRATEGY WILL BE ACHIEVED. The Company has
recently commenced operations in the United States and as of June 30, 1997 had
a customer base of approximately 1,300 users. The Company anticipates it will
be profitable if it can expand its customer base to 10,000 users. However,
there can be no assurances the Company can achieve the desired growth.
4. FUTURE CAPITAL NEEDS. The Company's capital requirements will
depend on numerous factors, including the progress of the Company's research
and development efforts with regard to next generation information services,
market acceptance of the Company's products, and resources the Company devotes
to marketing and distribution of its products. The Company's capital
requirements will also depend on the extent of the resources required to
expand engineering and development capacity and facilities, the extent to
which the Company generates market acceptance and demand, and other factors.
The timing and amount of such capital requirements cannot accurately be
predicted. The Company may be required to raise additional funds through
private or public financing, collaborative arrangements or other
relationships. There can be no assurance that the Company will not require
additional funding or that such additional funding, if required, will be
available on terms attractive to the Company, if at all. Additional equity
financing may be dilutive to stockholders, and debt financing, if available,
may involve restrictive covenants. Collaborative arrangements may require the
Company to relinquish rights to certain of its technologies, products or
marketing territories.
5. MARKET ACCEPTANCE. As stated above, the Company's customer base in
the United States was approximately 1,300 on June 30, 1997. The Company's
success will be dependent upon the consumers and third party resellers' active
acceptance of the current information technology as developed by the Company
and future generations developed by the Company. The Company is unable to
predict how quickly, if at all, its products will be accepted. Any delay in
market acceptance may have a material adverse effect on the Company's
business, operating results and financial condition.
6. INTENSE COMPETITION. The telecommunications and information
services industry is a very competitive industry, and the Company will be
competing with larger companies with greater resources, including such
companies as Interpage Network Services, Inc. and InterNet Pager. The
telecommunication and information services industry is characterized by rapid
technological progress and intense competition from numerous organizations.
New developments are expected to continue at a rapid pace. Many of the
Company's competitors have significantly greater research and development,
marketing, financial and human resources than the Company and represent
significant long-term competition. If any of such competitors were to devote
additional resources to the wireless information business or focus its
strategy on the Company's marketing and product niches, the Company's results
of operations could be adversely affected. There can be no assurance that in
the future the Company will be able to develop and market products on a timely
basis with sufficient features in order to remain competitive. Furthermore,
there can be no assurance that other current and potential customers will not
acquire or develop capacity to compete directly with the Company. Any such
factors may have a material adverse effect on the Company's business,
operating results and financial condition.
Continuing technological advances in the communications industry and
regulatory and legislative developments make it impossible to predict the
extent
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of future competition in the businesses in which the Company operates. Such
technological advances and regulatory and legislative developments may, for
example, make available other alternatives to the services provided by the
Company, thereby creating additional sources of competition.
Certain competitors may also be able to use their substantial financial
resources to increase the already substantial pricing competition in the
markets in which the Company operates, which may have an adverse effect on the
Company's results of operations. There can be no assurance that the Company's
competitors will not succeed in developing services which are more effective
than those developed by the Company or which would render the Company's
technology and products less competitive or even obsolete.
7. ADVERSE EFFECT OF SUBSCRIBER DISCONNECTIONS. The Company expects
subscriber turnover as subscribers cancel for various reasons. Some industry
analysts believe that both existing and prospective users will examine the
World Wide Web and the Internet as an alternative to Company provided
services. The results of operations of information service providers such as
the Company are significantly adversely affected by subscriber disconnections.
In order to realize net growth in active subscribers, disconnected users must
be replaced, and additional users must be added. However, the sales and
marketing costs associated with attracting new subscribers are substantial
relative to the costs of providing service to existing customers, and expenses
associated with each new subscription exceed the sales price and service
initiation fee received by the Company. There can be no assurance that the
Company can replace subscribers that discontinue service and as such the loss
of subscribers and the uncertainty regarding attracting and retaining new
subscribers may have a material adverse effect on the Company's business,
operating results and financial condition.
8. ABILITY TO DEVELOP NEW PRODUCTS AND TECHNOLOGICAL CHANGES. The
markets served by the Company are characterized by rapid technological change
resulting in dynamic customer demands and frequent new product and service
introductions. The Company's markets can change rapidly as a result of
innovation in computer hardware, software and communication technology. The
Company's future results will depend in part on its ability to make timely and
cost-effective enhancements and additions to its technology and introduce new
services that meet customer demands. Maintaining flexibility to respond to
technological and market dynamics may require substantial expenditures.
An integral part of the Company's technology has been its proprietary
software. Early releases of software often contain errors or defects. There
can be no assurance that, despite extensive testing by the Company, errors
will not be found in the Company's new product releases and services prior to
or after commencement of commercial deployment, resulting in product
redevelopment costs and loss of, or delay in, market acceptance. Once these
products, processes and initiatives are introduced, no assurance can be given
that they will be generally accepted and used, or that they will fill the
strategic role that the Company intends for them.
9. DEPENDENCE ON KEY PERSONNEL. Since the first fiscal quarter of
1997, the Company has experienced a significant expansion in its overall level
of business, including research and development, marketing, technical support
and sales. This expansion in the scope of the Company's business and
operations has resulted in a need for significant investment in infrastructure
and systems. The Company's future operating results will therefore depend on
its ability to successfully implement operating and financial procedures and
controls, to improve coordination among different operating functions, to
strengthen management information systems and to continue to hire additional
personnel,
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particularly in its customer service and engineering organizations. Although
new management has taken actions intended to improve these areas, there can be
no assurance that the Company will be able to manage these activities and
implement these additional systems and controls successfully, and any failure
to do so could have a material adverse effect upon the Company's operating
results. In addition, the Company has recently effected changes in its
management team. The success of the Company will be dependent, to a
significant extent, upon the continued services of Nicholas Miller and Anthony
LaPine. The loss or unavailability of Mr. Miller or Mr. LaPine in the future
could have an adverse effect upon the Company's operating results.
There can be no assurance that the Company's new management team and
other new personnel can successfully manage the Company's rapidly evolving
business, and failure to do so would have a material adverse effect upon the
Company's operating results.
10. RISK OF INTERNATIONAL OPERATIONS. The Company intends to expand
internationally. The Company may seek joint venture partners in Australia and
other Pacific Rim Countries. The success of such joint venture operations
will depend substantially on the efforts of the Company's venture partner and
may be impeded if disputes arise between the parties. International
operations are subject to various risks not present in domestic operations
such as fluctuations in currency exchange ratios, nationalization or
variations in the protection of intellectual property rights, limitations on
foreign investment, restrictions on the ability to convert currency and the
additional expenses and risks inherent in conducting operations in
geographically distant locations, with customers speaking different languages
and different cultural approaches to the conduct of business.
11. OWNERSHIP OF MAILXPRESS TECHNOLOGY. On or about August 21, 1996,
the Company entered into an agreement with Shalcor Investments, Inc.
("Shalcor"), whereby the Company sold, and Shalcor purchased, MailXpress
software. In connection with the transaction, Shalcor granted to the Company
an exclusive, worldwide right to use, modify and sublicense the MailXpress
software during the term of the agreement. The term of the agreement
continues until August 31, 2001, and can be extended for two additional
two-year terms. However, Shalcor may terminate the agreement before such
time, if the Company is in material default of the agreement and fails to cure
such default. Any termination of such agreement could have a material adverse
effect on the operations of the Company.
12. OWNERSHIP OF QUOTEXPRESS TECHNOLOGY. On or about May 6, 1997, the
Company entered into an agreement with 605285 Ontario, Inc. ("Ontario "),
whereby the Company sold, and Ontario purchased, QuoteXpress software. In
connection with the transaction, Ontario granted to the Company an exclusive,
worldwide right to use, modify and sublicense the QuoteXpress software during
the term of the agreement. The term of the agreement continues until August
31, 2007, and can be extended for two additional two-year terms. However,
Ontario may terminate the agreement before such time, if the Company is in
material default of the agreement and fails to cure such default. Any
termination of such agreement could have a material adverse effect on the
operations of the Company.
13. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Although the Company
attempts to protect its intellectual property rights through patents,
copyrights, trade secrets and other measures, there can be no assurance that
the Company will be able to protect its technology adequately or that
competitors will not be able to develop similar technology independently.
Patents may not be issued with respect to the Company's pending patent
applications, and its issued patents may not be sufficiently broad to protect
the Company's technology. No assurance can
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be given that any patent issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
adequate protection to the Company's products. In addition, the Company has
only limited patent rights outside the United States, and the laws of certain
foreign countries may not protect the Company's intellectual property rights
to the same extent as do the laws of the United States.
The Company may from time to time be notified by third parties that it
may be infringing patents owned by such third parties. If necessary, the
Company may have to seek a license under such patent or modify its products
and processes in order to avoid infringement of such patents. There can be no
assurance that such a license would be available on acceptable terms, if at
all, or that the Company could so avoid infringement of such patents, in which
case the Company's business, operating results and financial condition could
be materially adversely affected.
14. LIMITED PUBLIC MARKET FOR COMPANY'S COMMON STOCK. Although there
presently exists a limited market for the Company's Common Stock, there can be
no assurance that the market will become more active or that the market can be
sustained. The investment community could show little or no interest in the
Company in the future. As a result of this limited liquidity purchasers of
the Company's securities may have difficulty in selling such securities should
they desire to do so. The Common Stock currently trades on the NASD's
Bulletin Board. The Company intends to apply for listing on the NASDAQ Small
Cap Market if and when it meets the listing requirements; however, before it
could qualify, the Company must complete additional equity financing and its
share price must be at least $3.00.
15. COMPANY'S COMMON STOCK SUBJECT TO PENNY STOCK RULES. Broker-dealers
who sell the Company's Common Stock are subject to the Securities and
Exchange Commission Rules 15g-1 through 15g-9 of the Securities Exchange Act
of 1934 that impose additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). These rules require various disclosure documents to be delivered to
the customer and impose various transaction related disclosure requirements
concerning the market and the compensation of the broker-dealer and its sales
personnel. For transactions covered by the rules, the broker-dealer must make
a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the rules may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of shareholders to sell
their shares in the secondary market. The Company's securities will be exempt
from these rules once the Company has completed an audit of a recent balance
sheet showing that the Company has in excess of $2,000,000 in net tangible
assets. There is no assurance when this audit will be completed or that it
will show the necessary amount of assets.
16. DIVIDENDS. No dividend has been paid on the Common Stock since
inception and none is contemplated at any time in the foreseeable future.
17. SHARES ELIGIBLE FOR FUTURE SALE. Of the shares of the Company's
Common Stock outstanding, 16,738,683 are "restricted securities" and under
certain circumstances may in the future be sold in compliance with Rule 144
adopted under the Securities Act of 1933, as amended. Future sales of those
shares under Rule 144 could depress the market price of the Common Stock in
any market which may exist.
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18. PREFERRED STOCK. The Company is authorized to issue 5,000,000
shares of Preferred Stock, $.001 par value. The Preferred Stock may be issued
in series from time to time with such designation, rights, preferences and
limitations as the Board of Directors of the Company may determine by
resolution. The potential exists, therefore, that preferred stock might be
issued which would grant dividend preferences and liquidation preferences to
preferred shareholders over common shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, the
Board of Directors has the authority to issue these shares without shareholder
approval. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company without any further action by
shareholders. There are currently no shares of Preferred Stock outstanding.
THE BUSINESS
The Company is in the business of developing and marketing information
services for business and personal use, utilizing wireless and other emerging
information delivery technologies. The Company has developed an information
filtering, matching and messaging software engine which is utilized in each of
the Company's services.
The Company's current information services include QuoteXpress and
MailXpress. Each of the services provide information filtered according to
individual customers' criteria, and deliver it using a variety of wireless and
wire-line based data communications media.
Information delivered using wireless media will typically be either
short form, or will simply be notification of more lengthy information which
will be subsequently delivered using a less costly wire-line connection.
Initially, one-way alphanumeric paging will be primarily utilized for
wireless delivery, with other wireless data services including two-way
messaging and PCS and digital cellular short message service being supported
as these technologies are rolled out.
Wire-line based delivery mechanisms will include fax and the Internet,
with future technologies such as addressable cable TV being supported as they
become available.
THE PRODUCTS
QUOTEXPRESS
QuoteXpress provides detailed financial market quotations to investors
via an alphanumeric pager within seconds of the specified event. Each end user
may customize their service to his or her own portfolio and track a variety of
indices or valuation characteristics, trading volume fluctuations, price
fluctuations or price floors or ceilings.
The QuoteXpress system monitors world wide financial market information,
which potentially extends to over 200,000 issues traded on more than 100
exchanges in 30 countries. Monitored data include market index information
and business company news from a variety of sources. This information is
compared with customer profiles which indicate the specific issues, market
indices and other information that each customer wishes to track together with
customer specific reporting criteria that trigger the generation and
transmission of messages. These reporting criteria include customer specific
high and low
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threshold values, price change values, and daily levels for each issue. When
QuoteXpress determines a match between the customer reporting criteria and the
financial market information, it automatically transmits a message to the
customer's alphanumeric pager.
One of the most significant features of QuoteXpress is that the system
monitors real time ticker data for all North American exchanges and generates
and transmits customer messages virtually instantaneously. As a result,
messages are typically received by users close to real time, within less than
two minutes of the triggering event being reported on the ticker, with typical
reporting delays of less than 60 seconds (this delay being due almost entirely
to the message processing delays inherent in most paging and wireless data
networks).
QuoteXpress quotation messages can include the following information:
* Stock symbol
* Last trade price
* Bid and ask prices
* Daily high and low
* Volume traded
* Daily price change and price change indicator from
previous day's close
* Last trade size
* QuoteXpress message code (indicated why message was sent -
i.e. which "alert" threshold was exceeded)
* Time of message receipt
QuoteXpress also provides users with news headline information relating
to press release or general news of companies in which a user is interested.
The system receives news data from a variety of sources and transmits the
headlines of news items to users concerning companies in which they have an
interest.
To date, the principal users of real time financial markets information
have been professionals involved in the financial industry such as stock
brokers and fund managers. These individuals typically require instant access
to a wide variety of data for the purpose of providing price quotations to
clients or performing detailed analysis of historical market data. For
example, a stock broker is often called upon to provide an instant price
quotation to a client for an issue traded on any of the North American, Asian
or European markets. It is to meet these requirements, that traditional
financial markets information systems such as brokers quotation terminals,
have been designed.
In contrast, individual investors are typically interested in a
relatively small number of issues which comprise their portfolio, and
additional issues that they may be considering buying or trading. Rather than
requiring price quotations on demand, individual investors require to be
alerted whenever unusual price movement occurs, or threshold prices
representing buy or sell targets are achieved.
QuoteXpress is primarily targeted at the individual investor market
sector, and in particular at investors who trade their investments frequently.
The Company's research has indicated that a high percentage of the Company's
initial customer base will be comprised of upwardly mobile business
professionals in the 30 to 50 year age bracket, having above average incomes,
who are early adopters of technology.
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The Company intends to make future enhancements to QuoteXpress that will
include (i) the ability to monitor additional financial markets and
information, including futures and options; and (ii) enhanced functionality to
utilize the capabilities of two-way wireless data and allowing users to adjust
their filtering criteria, utilizing their wireless device.
MAILXPRESS
MailXpress caters specifically to e-mail users, and allows an e-mail
user to be notified of incoming computer mail via an alphanumeric pager. The
service also allows a customer to filter incoming e-mail, so that he or she is
only notified of mail that meets defined criteria such as the name of the
sender, subject matter, etc. MailXpress also offers the ability for users to
retrieve their e-mail by having it sent to a fax machine or by using the world
wide web. The Company currently offers three versions of MailXpress--the
MailXpress Personal Edition, MailXpress Corporate Edition and MailXpress Lite.
MailXpress Personal Edition. MailXpress Personal Edition is designed
for individual users of e-mail who obtain e-mail service from an Internet or
On-line services provider. MailXpress offers two types of alerts to an
alphanumeric pager, a once-a-day alert for non-critical e-mail, and an
individual alert for each piece of critical e-mail. The MailXpress system
defines critical e-mail as mail that meets user defined filtering criteria in
the form of keywords that may appear in the "From:", the "Subject:", or the
body of the e-mail.
MailXpress Corporate Edition. MailXpress Corporate Edition is scheduled
for release in the fall of 1977, and is designed for corporate users of both
internal and Internet based e-mail systems. MailXpress Corporate Edition
differs from MailXpress Personal Edition in that it requires that e-mail be
forwarded from the corporate mail server to the Company so that the Company
can provide the MailXpress functionality.
MailXpress Lite. MailXpress Lite is an entry level version of
MailXpress personal edition, designed for existing users of numeric and
alphanumeric pagers. MailXpress Lite notifies users that new e-mail has been
delivered to their electronic mail box. The Company's strategy with respect
to MailXpress Lite is to offer the service to existing pager users at nominal
or no cost, and then subsequently upgrade them to a full featured version of
MailXpress.
The Company intends to develop additional functionality for MailXpress,
including (i) the ability for users to adjust their e-mail filtering criteria
using their wireless device; and (ii) the ability for users to request that a
portion or the entire text of an e-mail message be delivered directly to their
wireless device.
MessageX. MessageX allows anyone with Internet access to send text
messages directly to a MessageX user's alphanumeric pager or PCS phone. The
sender does not need to know complex account numbers, PIN numbers or access
codes. By eliminating the requirement of the sender to know PIN numbers or
carrier specific message sending details, MessageX greatly simplifies the
process of sending messages to users of PCS phones or pagers. All the sender
needs to know is the MessageX user's e-mail address. MessageX uses
proprietary patent pending technology developed by Datalink.
FUTURE INFORMATION AND COMMUNICATION SERVICES
The Company plans to build on its current product line, and to develop a
variety of new one-way and two-way services and receiver devices which offer
more
-11-
<PAGE>
capabilities at increasingly lower prices. The Company's core technologies
have been developed with the future in mind.
The Company's information filtering, matching and messaging software
engine, which is utilized in each of the Company's services, has been
developed in a manner to facilitate development of a variety of one-way and
two-way information services. As a result, the Company is able to develop new
information systems in significantly less time than if such systems were
designed from the conceptual stage.
The Company has a variety of future products planned or under
development, which are designed to utilize one and two-way alphanumeric paging
technology and other two-way wireless technologies as they become available
for the consumer market. These products will address a variety of areas
including the following:
* Additional financial markets information including futures,
options and currencies
* Voice mail notification
* ChargeAlert - provides instant notification of charges to a
credit card
* Flight arrival and departure information
* Personalized traffic updates
* Weather reports including general and specialty weather
information for a variety of areas including agriculture
and aviation
* General news clipping notification and fax-back or e-mail
(Internet) services
* Real Estate related services
* Horse racing odds and results
* General sports results and odds
* Local entertainment information
* Telephone directory information
* Time or event driven retrieval of user defined Internet
based information.
OWNERSHIP OF MAILXPRESS TECHNOLOGY
On or about August 21, 1996, the Company entered into an agreement with
Shalcor Investments, Inc. ("Shalcor"), whereby the Company sold, and Shalcor
purchased, MailXpress software. In connection with the transaction, Shalcor
granted to the Company an exclusive, worldwide right to use, modify and
sublicense the MailXpress software during the term of the agreement. The term
of the agreement continues until August 31, 2001, and can be extended for two
additional two-year terms. However, Shalcor may terminate the agreement
before such time, if the Company is in material default of the agreement and
fails to cure such default. Any termination of such agreement could have a
material adverse effect on the operations of the Company.
-12-
<PAGE>
ONERSHIP OF QUOTEXPRESS
On or about May 6, 1997 the Company entered into an agreement with
605285 Ontario, Inc. ("Ontario"), whereby the Company sold, and Ontario
purchased Quotexpress software. In connection with the transaction, Ontario
granted to the Company an exclusive, worldwide right to use, modify and
sublicense the Quotexpress software during the term of the agreement. The
term of the agreement continues until August 31, 2007, and can be extended for
two additional two-year terms. However, Ontario may terminate the agreement
before such time, if the Company is in material default of the agreement and
fails to cure such default. Any termination of such agreement could have a
material adverse effect on the operations of the Company.
SALES AND MARKETING STRATEGY
The Company's customers include individuals, corporations and other
organizations that desire affordable communication services offering
substantial mobility, accessibility and the ability to receive timely
information. With respect to the QuoteXpress Service, the target markets are
professionals and individual investors interested in monitoring the financial
markets. With respect to the MailXpress Service, the target markets are all
individuals and corporations who utilize e-mail.
The Company utilizes a number of distribution channels to market its
services, including direct response advertising, direct mail, trade shows,
news letters, the world wide web and strategic alliances. Management believes
that a diversified approach to marketing and sales is important to accomplish
penetration of the United States market, especially the consumer market.
In order to expand its customer base as rapidly as possible, the Company
has established, and intends to continue to establish, strategic alliances
with key suppliers of complementary products or services to those offered by
the Company, and other major players in the wireless communications industry.
Certain of these strategic alliances are discussed below.
PAGENET RESELLER AGREEMENT. The Company has entered into a re-seller
agreement with PageNet Inc., the largest paging carrier in North America. The
PageNet network utilizes the latest alphanumeric flex paging technology, and
uses frequencies in the 900 MHZ band, which enable superior and extensive
coverage extending to all of the major centers of population. The re-seller
agreement enables the Company to re-sell paging services to its customers
either under the Company or PageNet brand names. The agreement offers the
Company pricing and terms which are on par with those offered to other major
PageNet re-sellers such as MCI and Sprint.
STOCK BROKERAGE FIRMS. The Company has entered into an agreement with TD
Green Line Investor Services which enables the Company to advertise
QuoteXpress to the TD Green Line customer base throughout Canada. TD Green
Line Investor Services is one of the largest discount brokerage firms in
Canada with over 450,000 client accounts of which over 250,000 are active.
The agreement provides for joint marketing and advertising campaigns with TD
Green Line, and further provides that TD Green Line clients subscribing to
QuoteXpress are billed through their brokerage account, with TD remitting the
QuoteXpress billing revenues (less a 5% processing fee) to the Company on a
monthly basis. The current term of the Agreement is one year, subject to
earlier termination for cause.
The Company has also entered into a verbal agreement with Hongkong Bank
Discount Trading, a subsidiary of Hongkong Bank ("HBDT") to enable the Company
-13-
<PAGE>
to market QuoteXpress to HBDT's clients. The agreement provides for joint
marketing and advertisement campaigns. The agreement further authorizes HBDT
to distribute pre-payment coupons for the QuoteXpress service. The Company
will credit HBDT clients' accounts with the value of the coupon when they
subscribe for QuoteXpress service, and HBDT reimburses the Company for 50% of
the value of the coupon. The Company's relationship with HBDT is
predominantly a verbal agreement, and may be terminated by either party at any
time.
COMPETITION
The Company is participating in a highly competitive industry, with
competition from both large and small service providers. Certain of the
companies have substantially greater financial, technical and other resources
than the Company.
Industry participants offering a service which competes with MailXpress
include Interpage Network Services, Inc., InterNet Pager, CompuServe,
PageMart, Metrocall, Inc., CID Technologies, Infinite Technologies, Innosoft
International, inc., Norwood ltd. and GTE Socket Communications.
The Company believes it can distinguish MailXpress from competing
products based upon MailXpress' filtering capabilities--the alerting criteria
for signaling receipt of e-mail, such as key word, sender and/or topic.
Industry participants which provide services which compete with
QuoteXpress include Data Broadcasting Corporation, Notable Technologies,
Intelligent Information Incorporated and Reuters.
Technological advances in the telecommunications industry have created,
and are expected to continue to create, new services and products competitive
with the services offered by the Company. There can be no assurance that the
Company will not be adversely affected as new competitive technologies become
available and are implemented in the future.
EMPLOYEES
At March 31, 1997, the Company had 25 full-time employees, approximately
9 of whom were engaged in sales and marketing, 3 in customer service, and 6 in
finance and administration. No employees of the Company are covered by a
collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's sales, marketing and customer support facilities are
located in San Jose, California. The Company occupies a 2,000 square foot
headquarters facility under a lease which expires in September of 1999. The
monthly rent for this facility is approximately $5,000. The Company's
research and development group is located in Vancouver, British Columbia,
where the Company leases approximately 2,200 square feet for a monthly rent of
approximately $5,000 under a lease which expires August 31, 2000. The rent
for the Vancouver office increases approximately 10% per year.
The Company believes its existing facilities will be adequate to meet
the Company's needs for the foreseeable future, however, the Company
anticipates further expansion and development within its space to accommodate
its increased activities. Should the Company need additional space,
management believes it will be able to secure such additional space at
commercially reasonable rates.
-14-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings in which the Company is a party,
and the Company is not aware of any threatened legal proceedings involving the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock trades in the
over-the-counter market, under the symbol "DASY". The following table sets
forth the high and low bid quotations for the Company's Common Stock for the
periods indicated as reported by the OTC Bulletin Board since June 25, 1996,
when the Company's common stock resumed trading for the first time in the last
three years. These prices are believed to be inter-dealer quotations and do
not include retail mark-ups, mark-downs, or other fees or commissions, and may
not necessarily represent actual transactions.
QUARTER ENDED HIGH BID LOW BID
------------------ -------- -------
June 30, 1996 $4.00 $3.00
September 30, 1996 $4.00 $1.125
December 31, 1996 $3.125 $1.625
March 31, 1997 $3.437 $1.375
(b) HOLDERS. As of March 31, 1997, the Company had approximately 370
beneficial holders of the Company's common stock.
(c) DIVIDENDS. The Company has never paid a cash dividend on its
common stock and does not expect to pay a cash dividend in the foreseeable
future.
(d) RECENT SALES OF UNREGISTERED SECURITIES. During June 1996, the
Company issued a total of 16,465,316 shares of its common stock, which
securities were not registered under the Securities Act of 1933, as amended,
to the shareholders of Datalink Communications Corporation ("DCC") in
connection with the acquisition of DSC in a transaction which was closed on
June 27, 1996.
The Company relied on Section 4(2) of the Securities Act of 1933,
as amended. No advertising or general solicitation was employed in offering
the shares. The securities were offered for investment only and not for the
purpose of resale or distribution, and each certificate was issued with a
standard Rule 144 restrictive legend. Each shareholder executed an investment
letter in which they represented, among other things, that they were acquiring
the shares for investment only. All of the U.S. residents who received shares
were "accredited investors."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
Net sales increased from $ 0 in 1996 to $196,891 in 1997. The net sales
increased primarily from higher sales of the QuoteXpress product. The Company
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<PAGE>
successfully brought the QuoteXpress product to market during 1997. Sales
during 1997 were predominantly in Canada, with the remainder in the United
States. Initially all sales were in Canada, but over the course of the fiscal
year sales have increased at a higher rate for United States sales than for
Canadian sales.
Cost of sales are the costs of providing paging services to subscribers.
These costs primarily consist of pager rental fees, stock exchange fees,
telecommunication charges and an allocation of overhead such as salaries,
rent, and utilities. These costs increased from $0 in 1996 to $159,058 in
1997. The gross margin percentage of 19% in 1997 should improve as sales
volumes increase, and fixed overhead costs are spread over more subscribers.
Research and development expenses were $65,482 in 1996 and $544,585 in
1997, and represented 277% of net sales in 1997. Most of the Company s product
development efforts during these periods were focused on QuoteXpress,
MailXpress and MessageX products. The Company anticipates that the dollar
amount of research and development expenses will increase in the future as a
result of its continuing commitment to the development of new products.
Sales and marketing expenses were $113,070 in 1996 and $1,023,492 in
1997, and represented 520% of net sales in 1997. Sales and marketing expenses
have increased due to increases in the number of marketing and sales
personnel, additional sales and advertising promotional expenses, and
facilities related expenses needed to address sales opportunities and better
support customers using the products. Sales and marketing expenses will
increase in the future as a result of the Company s continuing commitment to
increase sales and expand the subscriber base.
General and administrative expenses were approximately $1.2 million in
1996 and $3.9 million in 1997. General and administrative expenses have
increased due to the Company establishing the necessary infrastructure. These
expenses should increase as the Company grows, but the marked increase
experienced from the prior year should not occur in future years.
Technology owners fee of $273,750 represents amounts due the buyers of
the technology under provisions of the sale agreement dated August 21, 1996.
Amount represents a portion of the annual fee for the quarter ended March 31,
1997. The fee due owners commences January 1, 1997.
Amortization of the technology advance was $136,201 in 1997. The
increase in other income is due principally to the amortization of the advance
on the sale of technology for $2,200,000 partially offset by expenses
associated with the sale of approximately $290,000. The Company anticipates
that there will be additional technology sales in future years.
Interest income increased from $3,448 in 1996 to $409,820 in 1997. The
increase is due to interest earned on excess cash balances and on the note
receivable due from the technology sale. Interest earned related to the note
receivable approximated $273,750.
Income taxes payable to federal, state and local authorities were $0 in
both 1996 and 1997 due to the net loss position of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since inception the Company has funded its operations primarily through
issuances of capital stock, and through the sale of technology. Cash flows
used in operations were $(2,491,162) in 1997 and ($486,623) in 1996.
-16-
<PAGE>
As of March 31, 1997, the Company had $1,916,509 in cash and cash
equivalents. Working capital increased to $1,467,334 from $189,134. The
Company has a letter of credit with the Bank of California for $50,000 which
was required by the pager rental company as a part of the pager rental
agreement. The Company anticipates that additional sales of technology, and an
increased cash flow from operations will result in the continued strength of
the working capital balance.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-18 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No response required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
- ----------------- --- ------------------------------------
Nicholas Miller 45 Chairman of the Board, Secretary,
Treasurer and a Director
Anthony N. LaPine 54 President, Chief Executive Officer
and Director
Thomas C. Bland 45 Chief Financial Officer
There is no family relationship between any Director or executive
officer of the Company. All Directors and Officers will hold office until the
next Annual Meeting of Shareholders.
The following sets forth biographical information as to the business
experience of each Officer and Director of the Company for at least the past
five years.
NICHOLAS MILLER has served as Chairman of the Board, Secretary,
Treasurer and a Director of the Company since June 27, 1996. In June 1993,
Mr. Miller founded the Company's wholly-owned Canadian subsidiary and he has
continued to serve as its Chairman of the Board. From February 1987 until
June 1993, he was the owner and President of Arundel Holdings Inc., a
management consulting company which provided consulting services to emerging
growth companies in the United States and Canada. From June 1987 until May
1988, he served as President of two companies: Tai Capital Corporation, a U.S.
and Canadian based holding company specializing in the syndication of limited
partnerships and in the financing of emerging growth companies; and
Accessgroup, a company specializing in financial communications for public
emerging growth and resource based companies. From February 1984 until
February 1987, he was President and founder of Sona Systems Corporation, a
company engaged in developing and marketing microcomputer software products.
From March 1982 until February 1984, he was President and founder of Canada
Microsystems Ltd., a wholesale distributor and developer of microcomputer
based software products.
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<PAGE>
ANTHONY N. LAPINE has served as President, Chief Executive Officer and a
Director of the Company since June 27, 1996. Mr. LaPine's career began at IBM
in 1964, where his technical achievements earned him several patents and
"outstanding contribution" awards. His Data Synchronization invention (Patent
3,701,039) remains the state of the art in today's disk drives. In 1969, he
was recruited as one of the founders of Memorex's Equipment Group where he was
instrumental in giving birth to the floppy disk drive. He subsequently played
a major role in Memorex's turnaround. After Memorex's first billion dollar
revenue year, he was instrumental in the sale of Memorex to Burroughs, now
Unisys. In 1981 Mr. LaPine was recruited to re-engineer Irwin/Olivetti where
he orchestrated the invention of the first removal cartridge tape backup in
personal computers. This development opened a new billion dollar market
catapulting the company to profitability and an initial public offering. In
1983, he formed LaPine Technology, raising $30 million and launched the new
3-1/2 inch Winchester disk drive technology. He led his company's growth to a
profitable $60 million in sales before selling the company to his alliance
partners, Prudential and Kyocera, in 1987. In 1987 he formed The LaPine Group,
a private investment and turnaround management firm which he owned and
operated until December 1994. From December 1994 to June 1996, he served as
CEO of Andor International, a company launched by Gene Amdahl. After
reorganizing the company, Mr. LaPine negotiated its sale to the Fortel Group
where he now serves as Chairman. He lectures in the Graduate School of
Business at the University of San Francisco. He has served as Chairman of the
Hoover Institution's Council on Economic Development and as a strategic
advisor to the Russian government on the transition to capitalism. In 1993,
he received the San Jose State University "Alumni Award of Distinction" and is
the recipient of the Santa Clara University 1994 "Distinguished Engineering
Alumni Award." He received a BSEE Cum Laude from San Jose State University in
1965, an MSEE from Santa Clara University in 1971, and an MBA from the
University of San Francisco in 1986.
Thomas C. Bland has served as the Company's Chief Financial Officer
since March 15, 1997, after consulting for the Company since August 1996. Mr.
Bland spends approximately 50% of his time on the Company's business and he
spends the rest of his time as a self-employed financial consultant and
serving as chief financial officer for two development stage private
companies. From February 1993 until July 1996, he was employed by Coopers &
Lybrand LLP as a senior audit manager and from January 1986 until January
1993, he was employed by Ernst & Young LLP as a senior audit manager. Mr.
Bland received a Master of Science in Genetics from the University of Arizona
in 1974, and a Bachelor of Science in Genetics from the University of
California, Davis in 1973. He received his CPA license in 1989.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
Director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other Executive Officer who
received compensation in excess of $100,000 for the fiscal years ended March
31, 1997. No executive officer received any compensation for the fiscal years
ended March 31, 1996 and 1995.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ---------------------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- -------- ----- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony LaPine, 1997 $195,000 -0- 11,000 -0- 700,000 -0- -0-
President <FN1>
Nicholas Miller, 1997 $180,000 -0- 12,000 -0- 700,000 -0- -0-
Chairman of the <FN1>
Board
_______________
<FN>
<FN1>
Represents car allowance.
</FN>
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made to each of the Executive Officers named above
during the fiscal year ended March 31, 1997.
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
GRANTED(#) FISCAL YEAR PRICE($SH) DATE
------------ ------------ --------- ----------
Anthony LaPine 700,000 34.4% 2.20 9/17/01
Nicholas Miller 700,000 34.4% 2.20 9/17/01
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS SARs OPTIONS/SARs
ON AT FY-END AT FY-END
EXERCISE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- --------------- ------- -------- ------------- -------------
Anthony LaPine -0- -0- 700,000 / 0 0 / 0
Nicholas Miller -0- -0- 700,000 / 0 0 / 0
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<PAGE>
EMPLOYMENT AGREEMENTS
Effective May 1, 1996, Datalink Communications Corporation, the
Company's wholly owned subsidiary, entered into a three year employment
agreement with Arundel Holdings, Inc., a company owned by Nicholas Miller and
his wife, whereby Mr. Miller is to serve as the Company's Chairman of the
Board and Secretary. The agreement also provides that Mr. Miller will receive
a base salary of $180,000 per year, plus discretionary increases in accordance
with the Company's normal review procedures. In addition, subject to the
achievement of certain mutually agreed upon performance goals, Mr. Miller will
be paid an annual bonus equal to 100% of his base salary. Mr. Miller also
receives a $1,000 per month car allowance. In the event that the Company
terminates this agreement prior to the expiration of the three year term for
other than cause or disability, or if Mr. Miller terminates the agreement for
"good reason" (as defined in the Agreement), the Company is required to
continue paying the salary and other benefits for the remainder of the term of
the agreement. Mr. Miller also receives full health, dental, vision and
disability insurance.
On September 17, 1996, the Company entered into a Directors Agreement
with Mr. Miller pursuant to which Mr. Miller serves as a Director of the
Company. The Agreement provides that the Company will indemnify Mr. Miller
to the fullest extent permitted by the Company's Articles of Incorporation
and applicable laws. The Agreement also grants Mr. Miller options to
purchase 700,000 shares of the Company's Common Stock at $2.20 per share.
Effective May 1, 1996, Datalink Communications Corporation, the
Company's wholly owned subsidiary, entered into a three year employment
agreement with Anthony LaPine, the Company's President, pursuant to which he
receives a base salary of $240,000 per year, plus discretionary increases in
accordance with the Company's normal review procedures. In addition, subject
to the achievement of certain mutually agreed upon performance goals, Mr.
LaPine will be paid an annual bonus equal to 50% of his base salary. Mr.
LaPine also receives a $1,000 per month car allowance. In the event that the
Company terminates this agreement prior to the expiration of the three year
term for other than cause or disability, or if Mr. LaPine terminates the
agreement for "good reason" (as defined in the Agreement), the Company is
required to continue paying the salary and other benefits for the remainder of
the term of the agreement. Mr. LaPine also receives full health, dental,
vision and disability insurance.
Concurrently with the execution of the employment agreement, Mr. LaPine
entered into a Stock Purchase Agreement pursuant to which he purchased
2,000,000 shares of the Common Stock of Datalink Communications Corporation
(which were later exchanged for 2,000,000 shares of the Company's Common
Stock), and as payment therefor Mr. LaPine executed a non-recourse promissory
note in the amount of $1,500,000. The note bears interest at 5% per annum and
the principal plus interest are due on or before April 1, 2001. As security
for the note, Mr. LaPine granted the Company a security interest in the
2,000,000 shares of Common Stock.
On June 26, 1996, the Company entered into a Loan Forgiveness Agreement
with Mr. LaPine which provided that Mr. LaPine's $1,500,000 promissory note
would be forgiven if Mr. LaPine has continued to serve as the Company's Chief
Executive Officer through May 1, 1999, and there are no uncured defaults by
Mr. LaPine under his Employment Agreement on May 1, 1999.
On January 1, 1997, the Company and Mr. LaPine entered into an amendment
to Mr. LaPine's employment agreement pursuant to which Mr. LaPine's base
salary was dropped from $240,000 per year to $140,000 per year and the rate of
his annual bonus was changed from 50% of $240,000 to 80% of $140,000.
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<PAGE>
On January 2, 1997, the Company entered into a three year lease with Mr.
LaPine and his wife whereby the Company leases from the LaPine's 4,000 square
feet of office space located in the LaPine's home at an annual rate of
$100,000 or $8,333.37 per month.
The Board of Directors has agreed that no bonuses will be paid to
Messrs. LaPine and Miller until the Company has four consecutive profitable
quarters. The performance goals for Messrs. LaPine and Miller will be
established by a compensation committee of which a majority of the members
will be independent directors.
EMPLOYEE STOCK OPTION PLAN
During June 1996, the Board of Directors adopted the Employee Stock
Option Plan (the "Plan") which was approved by the Company's shareholders on
June 14, 1996. The Plan authorizes the issuance of options to purchase up to
3,000,000 shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers and directors of the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions are determined by the Board at the time options
are granted. The option price for any option will be no less than the fair
market value of the Common Stock on the date the option is granted.
During September 1996, the Company's Board of Directors granted a total
of 2,680,800 options to a total of 21 employees and consultants. Except as
disclosed below, all options have an exercise price of $2.00 to $4.00 per
share. Included among the recipients were Anthony L. LaPine and Nicholas
Miller, Officers and Directors of the Company, who received 700,000 options
each, and Pamela LaPine, the wife of Anthony LaPine, who received 250,000
options. The options for the LaPine's and Mr. Miller have an exercise price
of $2.20.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 1997, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each officer and director individually,
and all officers and directors as a group. Each person has sole voting and
investment power over the shares except as noted.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Anthony LaPine 3,200,000 <FN1> 15.8%
2105 Hamilton Avenue, Suite 240
San Jose, California 95125
Nicholas Miller 2,933,333 <FN2> 14.7%
1590-1500 West Georgia Street
Vancouver, B.C.
Canada V6G 2Z6
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<PAGE>
Silhouette Investments Ltd. 2,083,333 10.8%
4249 Hobson Road
Kelowna, B.C.
Canada V1W 1Y4
Melanor Ltd. 1,157,833 6.0%
c/o George Davis Law Corp.
1100-100 Park Royal South
West Vancouver, B.C.
Canada V7T 1A2
Medan Ltd. 1,041,667 5.4%
c/o George Davis Law Corp.
1100-100 Park Royal South
West Vancouver, B.C.
Canada V7T 1A2
Peter A. Allard 2,582,500 <FN3> 12.7%
Seawatch, The Garden
St. James, Barbados
British West Indies
All Officers and Directors 6,148,333 <FN1><FN2> 29.4%
as a Group (3 Persons)
___________________
<FN>
<FN1>
Includes 700,000 shares underlying currently exercisable options held by Mr.
LaPine, and 250,000 shares underlying currently exercisable options held by
Mr. LaPine's wife, Pamela LaPine.
<FN2>
Includes 700,000 shares underlying currently exercisable options held by Mr.
Miller, 150,000 shares held by Arundel Holdings, a company owned by Mr. Miller
and his wife, and 937,500 shares held by Mr. Miller's wife, Linda Fraser.
<FN3>
Includes 1,000,000 shares underlying warrants held by Mr. Allard, and 100,000
shares held by Euphemia Trust.
</FN>
</TABLE>
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ACQUISITION OF DATALINK COMMUNICATIONS CORPORATION
On June 27, 1996, the Company issued 16,465,316 shares of its Common
Stock to the holders of 100% of the outstanding common stock of Datalink
Communications Corporation ("DCC") in an exchange transaction in which DSC
became a wholly-owned subsidiary of the Company.
The stock issuances were made pursuant to an Agreement Concerning the
Exchange of Common Stock ("Agreement") between the Company and DSC. The terms
of the Agreement were the result of negotiations between the managements of
the Company and DCC. However, the Company's Board of Directors did not obtain
any independent "fairness" opinion or other evaluation regarding the terms of
the Agreement, due to the cost of obtaining such opinions or evaluations.
-22-
<PAGE>
Among those persons receiving stock in this exchange were the following
persons who became officers, directors or 5% shareholders of the Company:
Name Number of Shares
--------------------------- ----------------
Nicholas Miller 2,083,333
Anthony LaPine 2,000,000
Silhouette Investments Ltd. 2,083,333
Melanor Ltd. 2,157,833
Medan Ltd. 1,041,667
Peter Allard 482,500
Pursuant to the Agreement, Mark Moldenhauer, the former President and a
Director of the Company, sold back to the Company at closing 1,533,333 shares
of the Company's Common Stock for $10,000.
Pursuant to the Agreement, at Closing, the Company issued to Westridge
Capital Limited, as a finder's fee, a Debenture in the principal amount of
$130,000 which was convertible into 1,300,000 shares of the Company's Common
Stock at $0.10 per share. On October 11, 1996, Westridge Capital Limited
converted its Debenture into 1,300,000 shares of the Company's Common Stock.
TRANSACTIONS INVOLVING THE COMPANY
During July 1996, the Company completed a transaction in which it sold
to an unaffiliated investor Peter Allard a Convertible Debenture in the
principal amount of $2,000,000. The Debenture matures on July 1, 1998, and is
convertible at any time prior thereto into shares of the Company's Common
Stock at $2.00 per share. Mr. Allard was also issued a warrant to purchase up
to 1,000,000 shares of the Company's Common Stock at $2.50 per share at any
time prior to July 15, 1998. Mr. Allard also received certain registration
rights. On October 14, 1996, Peter Allard exercised his right to convert the
Debentures and the Company issued for 1,000,000 shares of its Common Stock.
In connection with the closing of the Peter Allard transaction in July 1996,
the Company issued 100,000 shares of its Common Stock to the Euphemia Trust
for services rendered in connection with the transaction. Peter Allard
beneficially owns the shares issued to Euphemia Trust.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------------------------- --------------------------------
3 Articles of Incorporation and Incorporated by reference to
Bylaws Exhibit Nos. 2 and 3 to the
Registrant's Form 8-A filed
on July 22, 1996 (No. 0-21069)
10.1 Agreement Concerning the Incorporated by reference to
Exchange of Common Stock Exhibit No. 10 to the Regis-
Between Datalink Systems trant's Form 8-K dated June 27,
Corporation and Datalink 1996
Communications Corporation
-23-
<PAGE>
10.2 Application Software Purchase Incorporated by reference to
Agreement between Datalink Exhibit No. 10.1 to the Regis-
Systems Corporation and trant's Form 8-K dated August 26,
Shalcor Investments 1996
10.3 Management and Marketing Incorporated by reference to
Agreement between Datalink Exhibit No. 10.2 to the Regis-
Systems Corporation and trant's Form 8-K dated August 26,
Shalcor Investments 1996
10.4 8% Secured Term Note Incorporation by reference to
Exhibit No. 10.3 to the Regis-
trant's Form 8-K dated August 26,
1996
10.5 Employment Agreement with Attached
Nicholas Miller, dated
May 1, 1996
10.6 Employment Agreement with Attached
Anthony LaPine dated May 1,
1996
10.7 Amendment No. 1 to Employment Attached
Agreement with Anthony LaPine
dated January 1, 1997
10.8 Lease Agreement with Anthony Attached
and Pamela LaPine dated
January 2, 1997
10.9 Loan Forgiveness Agreement Attached
with Anthony LaPine dated
June 28, 1996
10.10 Directors Agreement with Attached
Nicholas Miller dated Septem-
ber 17, 1996
10.11 Application Software Purchase Incorporated by reference to
Agreement between Datalink Exhibit No. 10.1 to the Regis-
Systems Corporation and trant's Form 8-K dated May 6,
605285 Ontario Inc. 1997
10.12 Management and Marketing Agree- Incorporated by reference to
ment between Datalink Systems Exhibit No. 10.2 to the Regis-
Corporation and 6045285 Ontario trant's Form 8-K dated May 6,
Inc. 1997
10.13 6% Secured Term Note Incorporated by reference to
Exhibit No. 10.3 to the Regis-
trant's Form 8-K dated May 6,
1997
22 Subsidiaries of the Attached
Registrant
24.1 Consent of Coopers & Lybrand, Attached
LLP
-24-
<PAGE>
(b) REPORTS ON FORM 8-K. Only one Report on Form 8-K was filed during
the fourth quarter of the Company's fiscal year ended March 31, 1997. A
report dated February 5, 1997 was filed to report the sale of 100,000 shares
of the Company's common stock under Regulation S.
-25-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets, March 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years
ended March 31, 1997 and 1996 and for the period
from June 15, 1993 (date of inception) to March 31,
1997 F-4
Consolidated Statements of Stockholders' Equity
for the period from June 15, 1993 (date of inception)
to March 31, 1997 F-5 and F-7
Consolidated Statements of Cash Flows for the years
ended March 31, 1997 and 1996 and for the period
from June 15, 1993 (date of inception) to March 31,
1997 F-8 and F-9
Notes to Financial Statements F-10 to F-18
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Datalink Systems Corporation:
We have audited the accompanying consolidated balance sheets of Datalink
Systems Corporation (a company in the development stage) as of March 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
deficiency and cash flows for the year then ended and for the cumulative
period from June 15, 1993 (date of incorporation) to March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Datalink
Systems Corporation (a company in the development stage) as of March 31, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended and for the cumulative period from June 15, 1993 (date of
inception) to March 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has an accumulated deficit of $6,935,606 at March 31, 1997
that raise substantial doubt about its ability to continue as a going concern.
Management plans in regard to those matters are also described in Note 2, to
the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
June 19, 1997
F-2
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED BALANCE SHEETS, March 31, 1997 and 1996
ASSETS 1997 1996
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 1,916,509 $ 357,556
Trade receivables (net of allowance for doubtful
accounts of $1,500 in 1997 and none in 1996) 49,685 7,263
Other receivables 4,733 13,532
Prepaid expenses 5,432 501
----------- -----------
Total current assets 1,976,359 378,852
Property and equipment, net 321,368 107,090
Other assets 14,741 4,933
----------- -----------
Total assets $ 2,312,468 $ 490,875
----------- -----------
LIABILITIES
Current liabilities:
Bank overdraft $ 21,521
Accounts payable 131,188 69,673
Accrued liabilities 93,024 47,045
Deferred revenue 73,000
Current portion on advance on technology sale 263,292 -
----------- -----------
Total current liabilities 509,025 189,718
----------- -----------
Advance on technology sale, net of current portion 1,531,154 -
----------- -----------
Total liabilities 2,040,179 -
----------- -----------
Commitments and contingencies (Notes 5 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock: $.001 par value:
Authorized: 5,000,000 shares in 1997 and 1996;
Issued and outstanding: none in 1997 and 1996
Common stock: $.001 par value in 1997 and no par
value in 1996;
Authorized: 50,000,000 shares in 1997 and
2,333,333 shares in 1996;
Issued and outstanding: 19,182,925 shares in
1997 and 14,535,009 shares in 1996 19,183 14,535
Additional paid-in capital 8,335,777 1,638,583
Common stock subscribed 271,049
Foreign currency translation adjustment (57,655) 3,185
Note receivable (1,089,410)
Deficit accumulated during the development stage (6,935,606) (1,626,195)
----------- -----------
Total shareholders' equity 272,289 301,157
----------- -----------
Total liabilities and shareholders' equity $ 2,312,468 $ 490,875
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
June 15,
1993 (date of
Year Ended March 31, inception) to
------------------------- March 31,
1997 1996 1997
----------- ----------- -------------
Revenue $ 196,891 $ 196,891
Cost of revenues 159,058 159,058
----------- -----------
Gross profit 37,833 37,833
Operating expenses:
Research and development 544,585 $ 65,482 $ 918,412
Sales and marketing 1,023,492 113,070 1,278,152
General and administrative 3,907,438 1,228,269 5,133,300
Technology owners fee 273,750 273,750
----------- ----------- -----------
5,749,265 1,406,821 7,603,620
----------- ----------- -----------
Loss from operations (5,711,432) (1,406,821) (7,565,787)
Amortization of technology advance 136,201 136,201
Interest income 409,820 3,448 413,268
Other (expense) income (144,000) 21,476 80,712
----------- ----------- -----------
Net loss $(5,309,411) $(1,381,897) $(6,935,606)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of shares
of common stock outstanding 17,636,380 3,918,035
Earnings (loss) per average
number of shares of common
stock outstanding (0.30) (0.35)
----------- -----------
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the period from June 15, 1993 (date of inception)
to March 31, 1997
Common Stock
------------------ Stock Sub- Paid in Accumulated
Shares Amount scription Capital Deficit
Balance-June 15, 1993 ---------- ------- ---------- ---------- -----------
Shares in DCC exchanged
For DSC Canada stock 11,000,000 $11,000 $ 513,799
Shareholders in Lord
Abbott now owning
shares in DCC/DSC 173,334 173
Net loss (70,954)
Balance-March 31, 1994 11,173,334 11,173 513,799 (70,954)
Stock issued in Lord
Abbott March 1995,
$.01 per share 1,533,408 1,533 8,467
Net loss (173,344)
Balance-March 31, 1995 12,706,742 12,706 522,266 (244,298)
Shares issued in DCC,
January 1996, $.50-.75
per share 761,317 762 $271,049 317,170
Shares issued-
finders fees,
February 1996, $.75
per share 1,066,950 1,067 799,147
Translation adjustment
Net loss (1,381,897)
Balance-March 31, 1996 14,535,009 14,535 271,049 1,638,583 (1,626,195)
Net loss (5,309,411)
Common stock subscrip-
tion exercised April,
May 1996, $.75 per
share 271,049 271 (271,049) 270,778
Shares issued April,
May 1996, $.75 per
share 359,333 359 296,641
Shares issued for
finders fee, May 1996,
$.75 per share 1,006,667 1,007 753,993
Shares repurchased for
June 1996, $.01 per
share (1,533,333) (1,533) (8,467)
Shares issued for
options exercised,
November 1996, to
February 1997, $2.00
per share 27,200 27 54,373
Debentures converted
for shares (Note 7) 2,400,000 2,400 3,397,600
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
for the period from June 15, 1993 (date of inception)
to March 31, 1997
Common Stock
------------------ Stock Sub- Paid in Accumulated
Shares Amount scription Capital Deficit
---------- ------- ---------- ---------- -----------
Stock issued for public
relations services,
February 1997, $1.00
per share 100,000 100 99,900
Compensation expense
for options granted
(Note 10) 152,892
Note receivable, May
1996 (Note 8) 2,000,000 2,000 1,568,750
Note receivable
amortization
Stock issued for ser-
vices, March 1997,
$2.27 per share 17,000 17 38,546
Compensation expense 72,188
Translation adjustments
---------- ------- -------- ---------- -----------
Balance at March 31,1997 19,182,925 $19,183 $ - $8,335,777 $(6,935,606)
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
for the period from June 15, 1993 (date of inception)
to March 31, 1997
Note Translation
Receivable Adjustment Total
---------- ---------- ----------
Balance-June 15, 1993
Shares in DCC exchanged
for DSC Canada stock $ 524,799
Shareholders in Lord Abbott now
owning shares in DCC/DSC 173
Net loss March 1995,
$.01 per share (70,954)
Balance-March 31, 1994 454,018
Stock issued in Lord Abbott 10,000
Net loss (173,344)
Balance-March 31, 1995 290,674
Shares issued in DCC, January
1996, $.50-$.75 per share 588,981
Shares issued-finders fees
February 1996, $.75 per share 800,214
Translation adjustment $ 3,185 3,185
Net loss (1,381,897)
Balance-March 31, 1996 3,185 301,157
Net loss (5,309,411)
Common stock subscription exercised,
April, May 1996, $.75 per share
Shares issued April, May 1996,
$.75 per share 297,000
Shares issued for finders fee,
May 1996, $.75 per share 755,000
Shares repurchased, June 1996,
$.001 per share (10,000)
Shares issued for options exercised,
November 1996 to February 1997,
$2.00 per share 54,400
Debentures converted
for shares (Note 7) 3,400,000
Stock issued for public relations
services, February 1997,
$1.00 per share 100,000
Compensation expense for
options granted (Note 10) 152,892
Note receivable, May 1996 (Note 8) (1,568,750) 2,000
Note receivable amortization 479,340 479,340
Stock issued for services,
March 1997, $2.27 per share 38,563
Compensation expense 72,188
Translation adjustments (60,840) (60,840)
Balance at March 31,1997 $(1,089,410) $(57,655) $ 272,289
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
June 15,1993
(date of in-
Year Ended March 31, ception)to
------------------------ March 31,
1997 1996 1997
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(5,309,411) $(1,381,897)
$(6,935,606)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of technology advance (136,201) (136,201)
Depreciation and amortization 537,413 9,818 548,078
Common stock issued for services 2,388,643 800,214 3,188,857
Changes in operating assets and
liabilities:
Other receivables (33,623) (19,682) (54,418)
Other 6,002 (3,609) 568
Accounts payable and accrued
liabilities 129,015 35,533 245,733
Deferred revenue (73,000) 73,000
---------- ---------- ---------
Net cash used in operating
activities (2,491,162) (486,623) (3,142,989)
---------- ---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (280,355) (100,623) (398,110)
Deposits (14,741) (14,741)
---------- ---------- ---------
Net cash used in investing
activities (295,096) (100,623) (412,851)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,430,564 845,916 3,557,702
Repurchase of common stock (10,000) (10,000)
Repayment of advances (182,500)
Proceeds from issuance of stock
subscription 271,049
Advance on technology fee 1,924,647 1,924,647
---------- ---------- ---------
Net cash provided by
financing activities 4,345,211 934,465 5,472,349
---------- ---------- ---------
Net increase in cash and cash equivalents 1,558,953 347,219 1,916,509
---------- ---------- ---------
Cash and cash equivalents, beginning
of period 357,556 10,337
---------- ---------- ---------
Cash and cash equivalents,end of period $1,916,509 $ 357,556 $1,916,509
---------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Period from
June 15,1993
(date of in-
Year Ended March 31, ception)to
------------------------ March 31,
1997 1996 1997
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange
for services performed $ 855,000 $ 800,214 $ 1,655,214
Issuance of stock option in exchange
for services performed 152,892 152,892
Issuance of common stock in exchange
for employee compensation 110,751 110,751
Common stock issued in exchange for
debentures exercised 1,270,000 1,270,000
Issuance of common stock in exchange
for stock subscription 271,049 271,049
Foreign currency translation
adjustment (60,840) 3,185 (57,655)
Common stock issued in exchange for
note receivable $1,568,750 $ 1,568,750
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
DATALINK SYSTEMS CORPORATION
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
DataLink Systems Corporation (formerly Lord Abbott, Inc., a publicly traded
shell corporation) (the Company), is engaged in research and development and
marketing of wireless communication technologies. The Company's primary
activities to date have been acquiring and developing certain wireless
technologies, marketing, recruiting personnel and obtaining capital. Such
activities have resulted in losses since inception. There can be no assurance
as to the commercial viability of such technologies or the successful
marketing of such.
The Company is a development stage organization and accordingly its principal
functions have been completion of research and development activities, and
establishment of market presence.
On June 27, 1996 the Company completed the acquisition of 100% of the
outstanding common stock of Datalink Communication Corporation (DCC) a U.S.
corporation in exchange for shares of the Company's common stock. The Company
issued a total of 16,465,316 shares of its common stock to the shareholders of
DCC. For accounting purposes, the acquisition has been treated as the
acquisition of the Company by DCC with DCC as the acquiror (reverse
acquisition). The historical financial statements prior to June 27, 1996 are
those of DCC. Since the Company prior to the reverse acquisition was a public
shell corporation no pro-forma information giving effect to the acquisition is
required. All shares and per share data have been restated to reflect the
stock issuance and stock split.
In anticipation of the above acquisition, the Company changed its domicile
from the State of Colorado to the State of Nevada, changed its name from Lord
Abbott, Inc. to Datalink Systems Corporation, and effected a 1-for-300 reverse
stock split.
On January 16, 1996, shareholders of DSC Datalink Systems Corporation (a
company in the development stage) (a Canadian Corporation) (DSC) exchanged
100% of their shares for 100% of the shares in DCC. As a result, DSC Datalink
Systems Corporation became a wholly owned subsidiary company of DCC. For
accounting purposes, the acquisition has been treated as the acquisition of
DCC by DSC with DSC as the acquiror (reverse acquisition).
Prior to the acquisition of DSC, there were no material operations in DCC;
consequently the historical information provided covering the period from June
15, 1993 to June 27, 1996 (date of the reverse acquisition) is that of DSC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following summary of significant accounting policies is presented to
assist the reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
BASIS OF PRESENTATION:
The Company's balance sheet has been prepared on a basis which contemplates
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has incurred operating losses since inception and the
accumulated deficit is $6,935,606.
F-10
<PAGE>
The Company's continued existence is dependent on its ability to complete its
research and development efforts, markets its technology, achieve profitable
operations and to obtain additional capital. The Company is currently
pursuing additional funding to further the development of its products and
markets. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRINCIPALS OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary DSC Datalink Systems Corporation. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with original
maturities of three months or less from the date of purchase to be cash
equivalents.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, trade and
other receivables, accounts and notes payable. The Company places
substantially all of its cash and cash equivalents in a demand deposit account
with one bank.
Trade receivables are with a large number of customers, dispersed across a
wide national and Canadian geographic base. The Company extends credit to its
customers in the ordinary course of business and periodically reviews the
credit levels extended to customers. Provision is made for estimated losses on
uncollectible accounts.
The Company rents pager inventory principally from one supplier. Management
believes that other suppliers could provide similar inventory on comparable
terms. A change in supplier, however, could cause a delay and a possible loss
of sales, which would affect operating results adversely.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets
which are generally three to five years. Maintenance and repairs are charged
to expense as incurred; expenditures for additions, improvements and
replacements are capitalized. Upon disposal of fixed assets, the accounts are
relieved of the related costs and accumulated depreciation and resulting gains
or losses are reflected in operations. The Company assesses its ability to
recover the net book value of property and equipment. The carrying value of
assets determined to be impaired are written down to net realizable value.
F-11
<PAGE>
LONG-LIVED ASSETS:
Effective April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121) "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires the
Company to review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might
not be recoverable.
In certain situations, an impairment loss would be recognized. The adoption
of SFAS 121 did not have a material impact on the Company's financial
condition or results of operations.
FOREIGN CURRENCY TRANSLATION:
Exchanged adjustments resulting from foreign currency transactions are
generally recognized in operations where adjustments resulting from
translation of financial statements are reflected as a separate component of
shareholders equity. Net foreign currency transaction gains or losses are not
material in any of the years presented.
INCOME TAXES:
Deferred income taxes have been recorded for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts using enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances reduce deferred tax assets to the amount
expected to be realized.
REVENUE RECOGNITION:
The Company recognizes revenues from transaction fees monthly charges and
pager rental income from its QuoteXpress system. Revenues are recognized when
the service is performed.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, receivables and payables are
a reasonable estimate of their fair value due to their short-term nature.
RESEARCH AND DEVELOPMENT EXPENDITURES:
Expenditures related to research, design and development of products are
charged to product development and engineering expenses as incurred. Software
development costs are capitalized beginning when a product's technological
feasibility has been established and ending when a product is available for
general release to customers. At March 31, 1997 and 1996, there were no
capitalized software development expenditures since the period between
technological feasibility and availability have coincided and products under
evelopment have not yet achieved technological feasibility.
Research and development expenditures are expensed as incurred and amounted to
$544,585 and $65,482 in 1997 and 1996, respectively.
ADVERTISING EXPENDITURES:
Advertising expenditures of $321,229 (1996 - $62,323) are charged to
operations as incurred.
F-12
<PAGE>
NET INCOME (LOSS) PER SHARE:
The net loss per share, is computed using the weighted average number of
shares of Common Stock outstanding during the period. Common equivalent
shares from stock options, warrants and preferred stock have not been included
since their inclusion would be antidilutive.
STOCK BASED COMPENSATION:
Effective April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123) "Accounting for Stock-Based Compensation," which
requires, companies to either record compensation cost for stock-based
compensation plans at fair value in the financial statements or disclosure
only provisions. The Company has elected the disclosure alternative and
continues to account for employee stock options using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
RECENT PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
specifies the computation presentation and disclosure requirements for
earnings per share. SFAS 128 supersedes Accounting Principles Board Opinion
No. 15 and is effective for financial statements issued for periods ending
after December 15, 1997. SFAS 128 requires restatement of all prior-period
earnings per share data presented after the effective date. SFAS 128 will not
have an impact on the Company's financial position, results of operations or
cash flow.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist principally of balances due from customers. The
customers are billed through their Visa and Mastercard accounts. Amounts due
from Visa and Mastercard were $30,493 and $14,231, respectively, (there were
no credit card receivables in 1996.)
4. PROPERTY AND EQUIPMENT:
Property and equipment comprise of the following:
March 31,
1997 1996
-------- --------
Furniture and fixtures $ 71,424 $ 14,826
Computer and office equipment 295,238 103,485
Software 14,021
Leasehold improvements 9,423 2,350
-------- --------
390,106 120,661
Less accumulated depreciation
and amortization (68,738) (13,571)
-------- --------
$321,368 $107,090
-------- --------
5. COMMITMENTS AND CONTINGENCIES:
The Company has a letter of credit agreement with Union Bank of California as
a condition of its pager rental agreement. Under the terms of the agreement,
the
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letter of credit is in the amount of $50,000. Borrowings under the letter of
credit bear interest at prime plus 2%. The letter of credit expires February
1, 1998, and is renewable. There were no amounts outstanding under this
arrangement as of March 31, 1997.
6. SALES OF TECHNOLOGY:
Effective August 21, 1996, Datalink completed a transaction with a Canadian
corporation (the Buyer) selling the Company's technology for cash and a note
under the terms of a sales agreement (sales agreement). At closing for
settlement Datalink received approximately $1,095,000, and an additional
payment of approximately $1,095,000 was received November 1996, and a note for
approximately $26,800,000. The note is due December 31, 2006 and bears
interest at 8% per annum. The note is collateralized by the technology.
Datalink and the Buyer entered into a "Management and Marketing Agreement"
dated August 21, 1996 (the Agreement). The Agreement expires August 31, 2001,
and may be extended for two additional two year terms. The extension of the
term will be automatic and Datalink or the Buyer during any extension can
terminate the agreement with 90 days notice to the other party. The
significant terms of the agreement are as follow:
Datalink will receive an annual fee of 10% of "Direct Cost Marketing,
Distributing and Selling" technology related services, as defined in the
Agreement, Datalink receives an exclusive worldwide right to use, modify and
sub license the source code for the technology, including application
software, intellectual property and documentation, Datalink has first right of
refusal in the event the Buyer desires to transfer all or part of the
application software,
The Buyer will receive, commencing January 1, 1997, an annual "owners fee" of
$1,095,000, the owners fee to be applied as follows: pay accrued interest and
the excess, if any; a) 60% of the remaining fee applied to the note balance,
and b) 40% of the remaining fee paid in cash to the Buyer until the note is
paid in full, Buyer will receive the "net revenue less owners fee payable," as
defined in the Agreement, related to the technology sold to be applied as
follow: a) 60% of the net revenue applied to the note balance, and b) 40% of
the net revenue paid in cash to the Buyer until the note is paid in full, and
After the note is paid, the "net revenue," as defined in the Agreement,
related to the technology sold to be applied as follows:
40% of the net revenue paid in cash to the Buyer, and 60% retained by the
Company.
The cash received by Datalink has been accounted for under the provisions of
the "Emerging Issues Task Force, 88-18: Sales of Future Revenues" (EITF 88-
18). It is expected that the owners fees and net revenue allocated to the
buyer will not be sufficient to service the note receivable principle and
interest payments due Datalink and as such the note has not been recorded.
Based on the criteria included within EITF 88-18, the amounts received under
the sales agreement have been included within the balance sheet caption
"Advance on Technology Sales" and is being amortized using the interest method
over the term of the agreement. The statement of operations for fiscal year
1997 includes within the caption "Amortization of Technlogy Advance" $136,201
relating to the cash received as required by the sales agreement.
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<PAGE>
The statement of operations for fiscal year 1997 includes as an expense within
the caption "Technology Owners Fee" of $273,750, representing a portion of the
owners fee earned through March 31, 1997. The sale agreement requires that
the owners fee be applied to the interest owed by the buyer on the note.
Interest, if accrued through March 31, 1997 would have approximated
$1,312,000. Since it is uncertain whether the interest and principal will be
collected over the term of the agreement, interest income on the note has been
recognized to the extent of the amounts due under the Technology Owners Fee
provision of the sales agreement. Within the caption in the statement of
operations "Interest Income" includes $273,750 relating to interest earned on
the note.
7. CONVERTIBLE DEBENTURES AND WARRANTS:
The Company issued a convertible debenture of $130,000 during the year as a
finders fee which was exercisable into shares of common stock. The debenture
was subsequently converted into 1.3 million shares in October 1996. The
Company recorded an expense of $1.17 million associated with the issuance.
The Company also issued a convertible debenture in the sum of $2 million which
was subsequently converted into 1,000,000 shares.
On July 1, 1996 the Company issued the same investor a warrant to purchase
1,000,000 shares of common stock at $2.50 per share exercisable at any time
prior to July 1, 1998. The warrants have not been exercised.
The common stock issued under these agreements were issued pursuant to the
exemption from registration under the Securities Act of 1933 (the Securities
Act) provided under regulation S; the Company was a "Reporting Issuer" under
the provisions of the Securities Act, as amended.
8. RELATED PARTY TRANSACTIONS:
Effective May 1, 1996, DCC, entered into a three year employment agreement
with the Company's Chief Executive Officer.
Concurrently with the execution of the employment agreement, the Company's
Chief Executive Officer entered into a Stock Purchase Agreement pursuant to
which he purchased 2,000,000 shares of the Common Stock of DCC (which were
later exchanged for 2,000,000 shares of the Company's Common Stock), and as
payment terms he executed a non-recourse promissory note in the amount of
$1,500,000. The note bears interest at 5% per annum and the principal plus
interest are due on or before April 1, 2001. As security for the note, the
Chief Executive Officer has granted the Company a security interest in the
2,000,000 shares of Common Stock.
On June 26, 1996, the Company entered into a Loan Forgiveness Agreement with
the Chief Executive Officer which provided that the $1,500,000 promissory note
would be forgiven if he continues to serve as the Company's Chief Executive
Officer through May 1, 1999, and there are no uncured defaults by him under
this Employment Agreement on May 1, 1999.
The note, together with interest accrued thereon has been incorporated in the
balance sheet. The note plus interest is being amortized over the period of
the contract as employment. Consequently, in the year ended March 31, 1997,
an expense of $479,340 has been recorded as compensation expense.
On January 2, 1997, the Company entered into a three year noncancelable lease
agreement with an officer of the Company where the Company leases office space
owned by the officer at an annual rate of $100,000 or $8,333.37 per month.
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<PAGE>
9. INCOME TAXES:
At March 31, 1997, the Company has approximately $1.1 million in Canadian net
operating loss carryforwards which expire in the years 2000 through 2003.
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities are as follows:
March 31, March 31,
1997 1996
Deferred tax assets: ---------- ---------
Net operating loss carryforwards $ 520,000 $ 162,000
Less: valuation allowance (520,000) (162,000)
--------- ---------
$ - $ -
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that
a tax benefit may be realized from the asset in the future. The Company has
established a valuation allowance to the extent of its deferred tax assets
since it is more likely than not that the benefit cannot be realized in the
future.
10. SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of Common Stock and Preferred
Stock. Shares of Preferred Stock are generally nonvoting except in
circumstances specified in the Company's charter documents or as otherwise
required by applicable corporate law. Accordingly, holders of Common Stock
are generally the only stockholders with voting rights.
STOCK OPTION PLAN:
In June 1996, the Company adopted the 1996 Stock Incentive Plan (the "Plan").
The "Plan" provides for the granting of stock options to acquire Common Stock
and/or the granting of stock appreciation rights to obtain, in cash or shares
of Common Stock, the benefit of the appreciation of the value of shares of
Common Stock after the grant date. The Company is currently authorized to
issue up to 3,000,000 shares of Common Stock under the Plan. The Plan expires
ten years after its adoption.
Under the Plan, the Board of Directors may grant incentive stock options to
purchase shares of the Company's common stock only to employees, directors,
officers, consultants and advisers of the Company. The Board of Directors may
grant options to purchase shares of the Company's common stock at prices not
less than fair market value at the date of grant for incentive stock options.
The Board of Directors also has the authority to set exercise dates (no longer
than ten years from the date of grant), payment terms and other provisions for
each grant. In addition, incentive options may be granted to persons owning
more than 10% of the voting power of all classes of stock, at a price no lower
than 110% of the fair market value at the date of grant, as determined by the
Board of Directors. Options granted under the Plan generally vest at a rate
of 20% per annum over 5 years from the date of grant.
1996 STOCK PURCHASE PLAN:
In September 1996, the Company adopted the 1996 Nonqualified Stock Purchase
Plan (the Nonqualified Plan). The Company has reserved 2,246,222 shares of
common stock for issuance to eligible persons under this plan. Stock granted
under this
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<PAGE>
plan are subject to a purchase option that expires over a five year period a
the original issuance price.
As of March 31, 1997, no shares had been granted under this plan.
Activity under the 1996 Stock Incentive Plan through March 31, 1997 is as
follows:
Weighted
Shares Number Aggregate Average
Available Of Price Per Exercise Exercise
For Grant Options Share Price Price
----------- --------- ----------- ---------- --------
Authorized 3,000,000
Granted (2,680,800) 2,680,800 $2.00-$4.00 $5,991,600 $2.24
Canceled 30,000 (30,000) $2.00 (60,000) $2.00
Exercised (27,200) $2.00 (54,400) $2.00
--------- --------- ---------- -----
Balance,
March 31, 1997 349,200 2,623,600 $2.00-$4.00 $5,877,200 $2.24
--------- --------- ---------- -----
The weighted average fair value of those options granted through March 31,
1997 was $2.24. Options to purchase 2,238,024 shares were exercisable with a
weighted average exercise price of $2.13 at March 31, 1997.
PRO FORMA STOCK-BASED COMPENSATION:
The Company accounts for the fair value of its grants under the 1996 stock
incentive plan, in accordance with APB 25. Accordingly, no compensation
expense has been recognized for these plans. Had compensation expense been
determined on the fair value at the grant dates for awards under these plans
consistent with the method of SFAS 123, the Company's net income in 1997 would
have been reduced to the pro forma amounts indicated below:
Net loss
As reported $(5,309,411)
Pro forma (5,938,181)
Net income (loss) per share
As reported (0.30)
Pro forma (0.34)
The fair value of each option is estimated on the date of grant using a type
of Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants under the Plan in 1997:
Dividend yield 0%
Expected life of option 1-5 years
Risk-free interest rate 6.01%-6.63%
Expected volatility 40%
The above pro forma disclosures are not likely to be representative of the
effects on reported net income for future years.
The options outstanding and currently exercisable by exercise price at March
31, 1997 are as follows:
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<PAGE>
Options
Options Outstanding Currently Exercisable
- ----------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
- ----------- ----------- ----------- -------- ----------- --------
$2.00-$4.00 2,238,024 immediate $2.13 2,238,024 $2.13
$2.00 196,318 1 year $2.00 196,318 $2.00
$2.00 95,750 2 years $2.00 95,750 $2.00
$2.00 85,333 3 years $2.00 85,333 $2.00
$2.00 35,375 4 years $2.00 35,375 $2.00
11. REVENUE:
The Company has sales to customers in both Canada and the U.S. Revenue from
Canadian Sales totaled $112,525 and $21,476 and sales from United States
customers totaled $74,366 and none in 1997 and 1996, respectively.
12. OPERATING LEASES:
The Company leases space for both its San Jose and Vancouver locations through
2000. Rental expense for these leases and for various equipment leases
totaled approximately $53,000 in 1997 and $34,000 in 1996.
Future minimum lease payments due under these agreements are as follows for
the years ending March 31:
1998 $106,176
1999 61,459
2000 19,778
--------
$187,413
13. SUBSEQUENT EVENTS:
Effective May 1997, the Company completed a transaction with a Canadian
corporation selling certain other of the Company's technology for cash and a
note. At closing, Datalink received approximately $2,900,000, and a note for
approximately $10,100,000. The note is due December 31, 2006 and bears
interest at 6% per annum. The note is collateralized by the technology. It
is anticipated that this transaction will be accounted for in the same manner
as the sale of technology agreement detailed in Note 6; the note receivable
will not be recorded as it is not expected that the fees and revenues
allocated to the buyer will be sufficient to service the note receivable
principal and interest payments due to Datalink.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: August 12, 1997 DATALINK SYSTEMS CORPORATION
By:/s/ Anthony N. LaPine
Anthony N. LaPine
Chief Executive Officer,
President and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Anthony N. LaPine Chief Executive Officer, August 12, 1997
Anthony N. LaPine President and Director
/s/ Nicholas Miller Chairman of the Board August 12, 1997
Nicholas Miller
/s/ Thomas C. Bland Chief Financial Officer August 12, 1997
Thomas C. Bland
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of May 1, 1996 (the
"Effective Date"), by and between DataLink Systems Corporation, a Nevada
corporation, located at 1500 West Georgia Street, Suite 1590, Vancouver, B.C.,
Canada V6G 2Z6 (the Company), and Nicholas Miller, residing at 4812 Marine
Drive, West Vancouver, BC (Chairman).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the Company and Chairman agree as follows:
1. Nature of Employment.
1.1 Duties and Responsibilities. Chairman shall serve as a Senior
Officer of the Company during the term of this Agreement. Chairman shall have
such general executive powers and active management over the property,
business, and affairs of the Company as is consistent with the offices of
Chairman, subject always to the direction of the Board of Directors (the
"Board") or its designee.
1.2 Other Business Activities. Chairman will devote his time,
attention and effort to Company's business on a full-time basis.
Notwithstanding the foregoing, Chairman shall be entitled to (i) serve on the
Board of Directors of other corporations, and (ii) participate in other
professional and business activities, as Chairman may elect from time to time,
in his sole discretion, provided that such activities do not compete with the
business of the Company.
1.3 Board of Directors Member. Each year during the term of this
Agreement, the Board of Directors of the Company (the "Board") shall designate
Chairman as one of management's slate of candidates to the Board, shall
recommend Chairman as a director to its shareholders, and shall otherwise use
its best efforts to have Chairman elected as a director and Chairman of the
Board, and to have him remain as a director during the entire term of this
Agreement.
2. Compensation.
2.1 Salary. Chairman's base salary shall be at an annual rate of
not less than One Hundred Eighty Thousand Dollars ($180,000), subject to
discretionary increases in accordance with the Company's normal review
procedures and policies ("Base Salary"). The Base Salary shall be paid in
substantially equal installments on the 15th day and last day of each month.
2.2 Bonus. In addition to his Base Salary, and subject to the
achievement of certain mutually agreed upon performance goals established in
accordance with this Section 2.2, Chairman shall be paid an annual bonus
during the term of this Agreement in an amount equal to one hundred percent
(100%) of the Base Salary. Each year Chairman and the Board shall mutually
agree upon objective, quantifiable and reasonably attainable annual goals,
which shall be reduced to writing (i) on or before the thirtieth (30th) day
following the Effective Date and (ii) thereafter on or before the sixtieth
(60th) day following the anniversary of the Effective Date during the term of
this Agreement.
2.3 Medical Insurance. Chairman shall be entitled to receive
field health, dental vision, and disability insurance, with all premiums and
costs to be paid by the Company.
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<PAGE>
2.4 Vacation. Chairman shall be entitled to receive three (3)
weeks of paid vacation time annually. Chairman may schedule his vacations at
his discretion so long as the timing of such vacations does not interfere with
his responsibilities to the Company.
2.5 Automobile. Company shall provide Chairman, for his exclusive
use during his employment hereunder, a luxury class automobile, and will
advance, or reimburse upon receipt of an itemized statement, on a monthly
basis, all reasonable costs for maintenance, insurance, oil and gas and other
related costs. If such automobile becomes inoperable during the Term,
Chairman shall be provided with a similar automobile for the remainder of the
Term not to exceed $1,000 per month.
2.6 Reimbursement of Expenses. The Company shall reimburse
Chairman for all out-of-pocket expense incurred by Chairman in performing his
obligations hereunder within ten (10) days after the date on which Chairman
delivers to the Company an itemized statement, accompanied by appropriate
receipts, describing the reimbursable expenses incurred. The expenses to be
reimbursed include, without limitation, telephone, fax, air freight and travel
related expenses. Notwithstanding the foregoing, upon request by Chairman,
the Company shall provide cash advances to Chairman to cover reimbursable
expenses, to be incurred within 45 days following such request, which are
reasonably expected to aggregate not less than $2,500.
3. Term and Termination.
3.1 Term. The term of this Agreement shall commence on the
Effective Date and shall continue until the third annual anniversary of the
Effective Date, and thereafter shall be automatically renewed for successive
periods of one year each, unless terminated by either party by written notice
of termination delivered to the other party at least 30 days prior to the
expiration date of the initial term or any renewal term of this Agreement (the
"Term").
3.2 Termination by the Company. The Company shall have the right
to terminate this Agreement for cause or in the event of Chairman's death or
disability at any time by giving Chairman written notice of such termination.
As used herein, (i) "cause" shall mean Chairman's conviction of a felony crime
or the commission by Chairman of any material act of fraud dishonesty or other
act of malfeasance, and (ii) "disability" shall mean Chairman's inability to
perform his obligations hereunder by reason of mental or physical disorder or
any mental or physical condition constituting "long-term disability" for
purposes of the Company's disability insurance plan as in effect from time to
time.
3.3 Termination by the Chairman. Chairman may terminate this
Agreement for any reason upon thirty (30) days advance written notice to the
Company. For purposes of this Agreement, "Good Reason" means (i) the
assignment to Chairman of any duties or the substantial reduction of
Chairman's duties, either of which is inconsistent with Chairman's position,
or (ii) any change in Chairman's reporting relationship which results in his
not reporting to a member of the Board of Directors of the Company.
4. Termination Payments.
4.1 No Payments. In the event of any termination this Agreement
pursuant to Section 3.2 hereof, the Company shall have no further payment
obligations to Chairman hereunder, except for wages and benefits accrued to
date and/or provided by applicable law.
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<PAGE>
4.2 Continued Payments. If the Company terminates this Agreement
for any reason not specified in Section 3.2 hereof, or Chairman terminates
this Agreement pursuant to Section 3.3 hereof, then the Company shall
continue, for the duration of the Term, (i) to pay Chairman his salary as set
forth in Section 2, and (ii) to provide to Chairman the benefits described in
Section 2.
5. Non-Disclosure Covenant. Chairman covenants and agrees that he
will not, at any time during the Term or thereafter, except in the course of
his engagement, communicate or disclose to any person, or use for his own
account, without the prior written consent of the Company, any knowledge or
information acquired by Chairman during the term of this engagement by the
Company conceiving any patent, inventions, know-how, processes or equipment
used in, or any secret or confidential information (including, without
limitation any customers lists, financials, business or marketing plans, or
any other trade secrets) concerning the business and affairs of the Company.
Chairman further covenants and agrees that he shall retain all such knowledge
and information concerning the foregoing in trust for the sole benefit of the
Company and Affiliates and its respective affiliates, successors and assigns.
6. Covenant to Report; Ownership of Trade Secrets, Etc.
(a) All written materials, records and documents made by the
Chairman or coming into his possession during the course, and as a direct
result, of his employment concerning the business or affairs of the Company
shall be the sole property of the Company; and, upon the termination of his
employment or upon the request of the Company, the Chairman shall promptly
deliver the same to the Company.
(b) Chairman agrees that any trade secret, invention,
improvement, patent, patent application, or writing, and any program, system,
or novel technique (whether or not capable of being trademarked, copyrighted
or patented), obtained by him in the course of employment with the Company and
relating to the business, property, methods, or customers of the Company,
shall be and become the property of the Company, and Chairman hereby transfers
and assigns to the Company any rights he may have or acquire in any of the
foregoing. Chairman agrees to give the Company prompt written notice of his
acquisition of any such trade secret, invention, improvement, patent, patent
application, writing, program, system novel technique and to execute such
instruments of transfer, assignment, conveyance, or confirmation and such
other documents and to do all appropriate lawful acts as may be requested by
the Company to transfer, assign, confirm, and perfect in the Company all
legally protectible rights in such trade secret, invention, improvement,
patent, patent application, writing, program, system, or novel technique.
7. Covenant not to Compete; Non-Interference.
(a) During the term of this Agreement, Chairman shall not,
directly or indirectly, engage or participate in any business, which is in
competition with any business in which the Company engages.
(b) Chairman covenants and agrees that he will not, at any time,
whether for his own account or for the account of any other person, interfere
with the relationship of the Company with, or endeavor to entice away from the
Company, any person who at any time during the term of Chairman's engagement
with the Company was an employee, customer, or supplier of the Company.
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<PAGE>
8. Notices. Except as expressly provided herein, all notices,
requests or other communications required hereunder shall be in writing and
shall be given personal delivery, national overnight courier service, or by
U.S. mail, certified or registered, postage prepaid, return receipt requested,
addressed to the respective party at the applicable address set forth above,
or to any party at such other addresses as shall be specified in writing by
such party to the other parties in accordance with the terms and conditions of
this Section. All notices, requests or communications shall be deemed
effective upon personal delivery, or five (5) days following deposit in the
United States mail, or two (2) business days following deposit with any
national overnight courier service.
9. Jurisdiction, Venue and Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law, the
parties hereto agree that all actions or proceedings arising in connection
herewith, shall be litigated in the state and federal courts located in the
State of California, and each party hereby waives any right it may have to
assert the doctrine of Forum Non Conveniens or to object to venue. The
parties each hereby stipulate that the state and federal courts located in the
County of Santa Clara, State of California, shall have personal jurisdiction
and venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement. To the
extent permitted by law, service of process sufficient for personal
jurisdiction in any action against either party may be made by registered or
certified mail, return receipt requested, to its address indicated on the
first page hereof.
10. No Assignment. This Agreement is personal to Chairman, and
Chairman may not assign any rights or delegate any responsibilities hereunder
without the prior approval of the Company.
11. Entire Agreement. This Agreement, including the exhibit and
schedule which are referenced herein and incorporated by this reference, is
the entire agreement between the Company and Chairman with respect to the
subject matter hereof and cancels and supersedes any and all prior agreements
regarding the subject matter hereof between the parties. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors, heirs and permitted assigns. This Agreement may not be altered,
modified, changed or discharged except in writing signed by both the parties.
12. Survival. Sections 4 through 6, and sections 8 through 16, each
inclusive, shall survive termination or expiration of this Agreement.
13. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions (or any part thereof shall not in any way be affected or
impaired thereby.
14. Attorneys' Fees. The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action or proceeding, including arbitration, brought to interpret this
Agreement or to enforce any right arising out of this Agreement.
15. No Waiver of Rights. The delay or failure of either party to
enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall
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<PAGE>
in any way be considered a continuing waiver or be construed as a subsequent
waiver of any such provision, or any other provision of this Agreement.
16. CHAIRMAN ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO CONSULT
WITH THE ADVISOR OF HIS CHOICE AND THAT HE HAS FREELY AND VOLUNTARILY ENTERED
INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written below.
DATALINK SYSTEMS CORPORATION
Date: 5/1/96 By: /s/ Anthony N. LaPine
Anthony N. LaPine, President
Date: 5/1/96 /s/ Nicholas Miller
Nicholas Miller
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of May 1, 1996 (the
"Effective Date"), by and between DataLink Systems Corporation, a Nevada
corporation, located at 1500 West Georgia Street, Suite 1590, Vancouver, B.C.,
Canada V6G 2Z6 (the "Company"), and Anthony LaPine, residing at 17420 High
Street, Los Gatos, California 95032 (Executive).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the Company and Executive agree as follows:
1. Nature of Employment.
1.1 Duties and Responsibilities. Executive shall serve as the
President and Chief Executive Officer of the Company during the term of this
Agreement. Executive shall have such general executive powers and active
management over the property, business, and affairs of the Company as is
consistent with the offices of President and Chief Executive Officer, subject
always to the direction of the Board of Directors (the "Board") or its
designee.
1.2 Other Business Activities. Executive will devote his time,
attention and effort to Company's business on a full-time basis.
Notwithstanding the foregoing, Executive shall be entitled to (i) serve on the
Board of Directors of other corporations, and (ii) participate in other
professional and business activities, as Executive may elect from time to
time, in his sole discretion, provided that such activities do not compete
with the business of the Company.
1.3 Board of Directors Member. Each year during the term of this
Agreement, the Board of Directors of the Company (the "Board") shall designate
Executive as one of management's slate of candidates to the Board, shall
recommend Executive as a director to its shareholders, and shall otherwise use
its best efforts to have Executive elected as a director and to have him
remain as a director during the entire term of this Agreement.
2. Compensation.
2.1 Salary. Executive's base salary shall be at an annual rate
of not less than Two Hundred Forty Thousand Dollars ($240,000), subject to
discretionary increases in accordance with the Company's normal review
procedures and policies ("Base Salary"). The Base Salary shall be paid in
substantially equal installments on the 15th day and last day of each month.
2.2 Bonus. In addition to his Base Salary, and subject to the
achievement of certain mutually agreed upon performance goals established in
accordance with this Section 2.2, Executive shall be paid an annual bonus
during the term of this Agreement in an amount equal to fifty percent (50%) of
the Base Salary. Each year, Executive and the Board shall mutually agree upon
objective, quantifiable and reasonably attainable annual goals, which shall be
reduced to writing (i) on or before the thirtieth (30th) day following the
Effective Date and (ii) thereafter on or before the sixtieth (60th) day
following the anniversary of the Effective Date during the term of this
Agreement.
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2.3 Stock Compensation. Executive shall be issued Two Million
(2,000,000) shares of Common Stock of the Company pursuant to the Stock
Purchase Agreement, attached hereto as Exhibit A.
2.4 Medical Insurance. Executive shall be entitled to receive
full health, dental, vision, and disability insurance, with all premiums and
costs to be paid by the Company.
2.5 Vacation. Executive shall be entitled to receive three (3)
weeks of paid vacation time annually. Executive may schedule his vacations at
his discretion so long as the timing of such vacations does not interfere with
his responsibilities to the Company.
2.6 Automobile. Company shall provide Executive, for his
exclusive use during his employment hereunder, a luxury class automobile, and
will advance, or reimburse upon receipt of an itemized statement, on a monthly
basis, all reasonable costs for maintenance, insurance, of! and gas and other
related costs. If such automobile becomes inoperable during the Term,
Executive shall be provided with a similar automobile for the remainder of the
Term not to exceed $1,000 per month.
2.7 Reimbursement of Expenses. The Company shall reimburse
Executive for all out-of-pocket expense incurred by Executive in performing
his obligations hereunder within ten (10) days after the date on which
Executive delivers to the Company an itemized statement, accompanied by
appropriate receipts, describing the reimbursable expenses incurred. The
expenses to be reimbursed include, without limitation, telephone, fax, air
freight and travel related expenses. Notwithstanding the foregoing, upon
request by Executive, the Company shall provide cash advances to Executive to
cover reimbursable expenses, to be incurred within 45 days following such
request, which are reasonably expected to aggregate not less than $2,500.
Company acknowledges that Executive's principal place of
employment will be at 17420 High Street, Los Gatos, California 95032 or any
location within a 30 mile radius thereof. Company agrees to reimburse
employee for all travel costs, meals, lodging, and any other expenses incurred
in connection with Executive traveling to Company's place of business or any
other location on behalf of Company.
3. Term and Termination.
3.1 Term. The term of this Agreement shall commence on the
Effective Date and shall continue until the third annual anniversary of the
Effective Date, and thereafter shall be automatically renewed for successive
periods of one year each, unless terminated by either party by written notice
of termination delivered to the other party at least 30 days prior to the
expiration date of the initial term or any renewal term of this Agreement (the
"Term").
3.2 Termination by the Company. The Company shall have the
right to terminate this Agreement for cause or in the event of Executive's
death or disability at any time by giving Executive written notice of such
termination. As used herein, (i) "cause" shall mean Executive's conviction of
a felony crime or the commission by Executive of any material act of fraud,
dishonesty or other act of malfeasance, and (ii) "disability" shall mean
Executive's inability to perform his obligations hereunder by reason of mental
or physical disorder or any mental or physical condition constituting
"long-term disability" for purposes of the Company's disability insurance
plan as in effect time to time.
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3.3 Termination by the Executive. Executive may terminate this
Agreement for any reason upon thirty (30) days advance written notice to the
Company. For purposes of this Agreement, "Good Reason" means (i) the
assignment to Executive of any duties or the substantial reduction of
Executive's duties, either of which is inconsistent with Executive's position
as President and Chief Executive Officer; or (ii) any change in Executive's
reporting relationship which results in his not reporting to a member of the
Board of Directors of the Company.
4. Termination Payments.
4.1 No Payments. In the event of any termination of this
Agreement pursuant to Section 3.2 hereof, the Company shall have no further
payment obligations to Executive hereunder, except for wages and benefits
accrued to date and/or provided by applicable law.
4.2 Continued Payments. If the Company terminates this
Agreement for any reason not specified in Section 3.2 hereof, or Executive
terminates this Agreement pursuant to Section 3.3 hereof, then the Company
shall continue, for the duration of the Term, (i) to pay Executive his salary
as set forth in Section 2, and (ii) to provide to Executive the benefits
described in Section 2.
5. Non-Disclosure Covenant. Executive covenants and agrees that he
will not, at any time during the Term or thereafter, except in the course of
his engagement, communicate or disclose to any person, or use for his own
account, without the prior written consent of the Company, any knowledge or
information acquired by Executive during the term of this engagement by the
Company concerning any patent, inventions, know-how, processes or equipment
used in, or any secret or confidential information (including, without
limitation any customers lists, financials, business or marketing plans, or
any other trade secrets) concerning the business and affairs of the Company.
Executive further covenants and agrees that he shall retain all such knowledge
and information concerning the foregoing in trust for the sole benefit of the
Company and Affiliates and its respective affiliates, successors and assigns.
6. Covenant to Report; Ownership of Trade Secrets, Etc.
(a) All written materials, records and documents made by the
Executive or coming into his possession during the course, and as a direct
result, of his employment concerning the business or affairs of the Company
shall be the sole property of the Company; and, upon the termination of his
employment or upon the request of the Company, the Executive shall promptly
deliver the same to the Company.
(b) Executive agrees that any trade secret, invention,
improvement, patent, patent application, or writings and any program, system,
or novel technique (whether or not capable of being trademarked, copyrighted
or patented), obtained by him in the course of employment with the Company and
relating to the business, property, methods, or customers of the Company,
shall be and become the property of the Company, and Executive hereby
transfers and assigns to the Company any rights he may have or acquire in any
of the foregoing. Executive agrees to give the Company prompt written notice
of his acquisition of any such trade secret, invention, improvement, patent,
patent application, writing, program, system, or novel technique and to
execute such instruments of transfer, assignment, conveyance, or confirmation
and such other documents and to do all appropriate lawful acts as may be
requested by the Company to transfer, assign, confirm, and perfect in the
Company all legally protectible rights in such trade secret, invention,
improvement, patent, patent application, writing, program, system, or novel
technique.
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7. Covenant not to Compete; Non-Interference.
(a) During the term of this Agreement, Executive shall not,
directly or indirectly, engage or participate in any business, which is in
competition with any business in which the Company engages.
(b) Executive covenants and agrees that he will not, at any
time, whether for his own account or for the account of any other person,
interfere with the relationship of the Company with, or endeavor to entice
away from the Company, any person who at any time during the term of
Executive's engagement with the Company was an employee, customer, or supplier
of the Company.
8. Notices. Except as expressly provided herein, all notices,
requests or other communications required hereunder shall be in writing and
shall be given personal delivery, national overnight courier service, or by
U.S. mail, certified or registered, postage prepaid, return receipt requested,
addressed to the respective party at the applicable address set forth above,
or to any party at such other addresses as shall be specified in writing by
such party to the other parties in accordance with the terms and conditions
ofthis Section. All notices, requests o communications shall be deemed
effective upon personal delivery, or five (5) days following deposit in the
United States mail, or two (2) business days following deposit with any
national overnight courier service.
9. Jurisdiction, Venue and Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law, the
parties hereto agree that all actions or proceedings arising in connection
herewith, shall be litigated in the state and federal courts located in the
State of California, and each party hereby waives any right it may have to
assert the doctrine of Forum Non Conveniens or to object to venue. The
parties each hereby stipulate that the state and federal courts located in the
County of Santa Clara, State of California, shall have personal jurisdiction
and venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement. To the
extent permitted by law, service of process sufficient for personal
jurisdiction in any action against either party may be made by registered or
certified mail, return receipt requested, to its address indicated on the
first page hereof.
10. No Assignment. This Agreement is personal to Executive, and
Executive may not assign any rights or delegate any responsibilities hereunder
without the prior approval of the Company.
11. Entire Agreement. This Agreement, including the exhibit and
schedule which are referenced herein and incorporated by this reference, is
the entire agreement between the Company and Executive with respect to the
subject matter hereof and cancels and supersedes any and all prior agreements
regarding the subject matter hereof between the parties. This Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors, heirs and permitted assigns. This Agreement may not be altered,
modified, changed or discharged except in writing signed by both the parties.
12. Survival. Sections 4 through 6, and sections 8 through 16, each
inclusive, shall survive termination or expiration of this Agreement.
13. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any
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respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
14. Attorneys' Fees. The prevailing party shall be entitled to
recover from the losing party its attorneys' fees and costs incurred in any
action or proceeding, including arbitration, brought to interpret this
Agreement or to enforce any right arising out of this Agreement.
15. No Waiver of Rights. The delay or failure of either party to
enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall in any way be considered a continuing waiver or be construed
as a subsequent waiver of any such provision, or any other provision of this
Agreement.
16. EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO CONSULT
WITH THE ADVISOR OF HIS CHOICE AND THAT HE HAS FREELY AND VOLUNTARILY ENTERED
INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written below.
DATALINK SYSTEMS CORPORATION
Date: 5/1/96 By: /s/ Nicholas Miller
Nicholas Miller, Chairman
Date: 5/1/96 /s/ Anthony LaPine
Anthony LaPine
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EXHIBIT A
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of May 1, 1996 (the
"Agreement"), is by and among DataLink Systems Corporation, a Nevada
corporation, located at 1500 West Georgia Street, Suite 1590, Vancouver, B.C.,
Canada V6G 2Z6 ("DataLink"), and Anthony LaPine, residing at 17420 High
Street, Los Gatos, California 95032 (the "Executive").
RECITALS
A. Concurrently with the execution and delivery of this Agreement,
DataLink is employing Executive as an employee, to serve as Chief Executive
Officer and a member of the Board of Directors of DataLink.
B. In connection therewith and as compensation therefor, DataLink is
selling Executive 2,000,000 shares of its Common Stock pursuant to this
Agreement.
C. The parties intend that the offer and sale of the shares
referenced herein shall be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Act") pursuant to Rule 701 of the
Regulations as promulgated by the Securities and Exchange Commission pursuant
to the Act.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Issuance of Stock.
(a) Concurrently with the execution and delivery of this
Agreement, DataLink shall issue to Executive Two Million (2,000,000) shares of
Common Stock of DataLink, (the "Shares") in exchange for One Million Five
Hundred Thousand U.S. Dollars (U.S. $1,500,000) (the "Purchase Price"),
payable by delivery of a Promissory Note, substantially in the form, attached
hereto as Schedule I.
(b) The Shares, when issued, shall be fully paid and non-assessable
and the certificates therefore shall so state.
2. Executive Representations and Warranties. In order to induce
DataLink to accept this Agreement, Executive hereby represents and warrants to
DataLink as follows:
(a) Executive is acquiring the Shares herein subscribed solely
for his own account as principal, for investment purposes only and not with a
view to the resale or distribution thereof, in whole or in part, and Executive
will hold the Shares as an investment and has no reason to anticipate any
change in circumstances or other particular occasions or events which would
cause Executive to attempt to sell any of the Shares.
(b) Executive has the financial ability to bear the economic
risk of an investment in DataLink. has adequate means of providing for his
current needs and personal contingencies, has no need for liquidity in such
investment and could afford a complete loss of such investment. With respect
to the instrument made under this Agreement, Executive is an "Accredited
Executive" as such term is defined in Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act").
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(c) Executive has reviewed the merits of an investment in
DataLink with tax and legal counsel and an investment advisor to the extent
deemed advisable by Executive.
(d) Executive's overall commitment to investments which are not
readily marketable is not disproportionate to his net worth and his investment
in DataLink will not cause such overall commitment to become excessive.
(e) If Executive has duly appointed a qualified Purchaser
representative (as that term is used in Regulation D promulgated by the
Securities and Exchange Commission under the Act) ("Purchase Representative"),
he has been advised by his Purchaser Representative as to the merits and risk
of an investment in DataLink in general and the suitability of the Shares as
an investment for him in particular. If Executive has not duly appointed a
qualified Purchaser Representative, Executive has such knowledge and
experience in financial and business matters that Executive is capable of
utilizing the information that is available to Executive concerning DataLink
to evaluate the risks of investment in DataLink, and is capable of protecting
his own interests in connection with the transaction.
(f) Executive or his Purchaser Representative (if any) has been
given a full opportunity to ask questions of and to receive answers from the
officers, agents and representatives of DataLink concerning the terms and
conditions ofthis Agreement and the business of DataLink and to obtain such
other information that Executive or his Purchaser Representative (if any)
desires in order to evaluate an investment in DataLink, and all such questions
have been answered to the full satisfaction of Executive. Executive
acknowledges that Executive or Executive's Purchaser Representative (if any)
has had access to the same kind of information concerning DataLink that is
required by Schedule A of the Act to the extent that DataLink possesses such
information.
(g) Executive acknowledges and understands that (i) DataLink is
attempting to enter into a very competitive field, and expects to encounter
competition from other companies which have substantially more resources and
experience, and are better known, than DataLink; (ii) DataLink's future is
dependent upon its ability to develop a product which is accepted by the
marketplace and can be marketed at a profit, and there can be no assurances
that it will be able to do so; (iii) the aggregate number of capital shares
sold by DataLink, from time to time, and the price at which such units are
sold, will be determined by the Board of Directors of DataLink, in its
discretion, giving consideration to the needs of DataLink to obtain financing,
and there can be no assurances that DataLink will not sell capital units in
the future at a per-share price less than that of the Shares; (iv) DataLink
will require additional financing in the future, has no commitments for such
financing at this time and no assurances can be given that DataLink will be
able to obtain such financing, on terms acceptable to DataLink, at the time it
is required, and (v) in purchasing the Shares, Executive is making a highly
speculative investment.
(h) In making his decision to purchase the Shares, Executive has
relied solely upon independent investigations made by him or his Purchaser
Representative (if any). He has received no representation or warranty from
DataLink or any of its affiliates, Investors or agents, except as set forth
herein.
(i) Executive understands that the Shares have not been
registered under the Act, or the securities laws of certain states, in
reliance upon specific exemptions from registration thereunder, and Executive
agrees that his Shares may not be sold, offered for sale, transferred,
pledged, hypothecated or
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otherwise disposed of except in compliance with the Act and applicable state
securities laws. Executive has been advised that DataLink has no obligation
and does not intend to cause the Shares to be registered under the Act or to
comply with any exemption under the Act, including but not limited to that set
forth in Rule 144 promulgated under the Act, which would permit the Shares to
be sold by Executive. Executive understands that it is not anticipated that
there will be any market for release of the Shares and that it may not be
possible for Executive to liquidate an investment in the Shares on an
emergency basis. Executive understands that the legal consequences of the
foregoing to mean that he must bear the economic risk of his investment in the
Shares for an indefinite period of time.
(j) Executive understands that no federal or state agency has
made any finding or determination as to the fairness of an investment in, or
any recommendation or endorsement of, the Shares.
(k) Each representation and warranty of Executive contained
herein and all information furnished by Executive to DataLink is true, correct
and complete in all respects. All representation and warranties set forth
above or in any other written statement or document delivered by Executive in
connection with the transaction contemplated hereby will be true, correct and
complete in all respects on and as of the date of the issuance of the Shares
as if made on and as of such date and shall survive each issuance and the
admission of Executive as a Shareholder of DataLink.
(1) Executive understands that there is currently no public
market for the Shares and there is no reason to expect that at any time after
the issuance of the Shares, there will be such a public market for the Shares.
3. Consents. In order to induce DataLink to accept this Agreement,
Executive hereby agrees:
(a) That the certificate or certificates representing the Shares
may be impressed with a legend indicating that the Shares are not registered
under the Act and reciting that the transfer thereof is restricted; and
(b) That stop transfer instructions in respect of the Shares may
be issued to any transfer agent, transfer clerk or other agent, at any time
acting for DataLink.
4. Indemnification. Executive agrees to indemnify and save and hold
harmless DataLink, its successors and assigns, and their officers, directors
and controlling persons, if any, against any loss, claim, damage, liability,
cost and expense arising out of a breach by the undersigned of any of the
foregoing representations, warranties and covenants of the undersigned,
whether under the Act, as the same may be amended from time to time, the
securities laws of any state, or otherwise. Finally, Executive agrees that
the terms and conditions of this Agreement shall also bind his heirs, assigns
and legal representatives.
5. General Provisions.
(a) This Agreement constitutes the entire agreement, and
supersedes all prior and contemporaneous agreements, understandings and
negotiations, whether written or oral, between the parties with respect to the
purchase and sale of the Shares. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. This
Agreement may not be changed or modified, in whole or in part, except by a
writing signed by both parties which specifies such changes or modifications.
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(b) Any claim or controversy arising out of or related to this
Agreement which cannot be resolved informally shall be settled in Santa Clara,
California, or such other place as the parties shall mutually agree, by
arbitration before a single arbitrator agreeable to both parties under the
then current commercial rules of the American Arbitration Association. If the
parties cannot agree to an arbitrator within sixty (60) days after a demand
for arbitration has been requested in writing by either of them, then
arbitration shall proceed before an arbitrator appointed by the American
Arbitration Association under the then current commercial rules. The
arbitration award shall be specifically enforceable; judgment upon any
arbitration award by may be entered in any court with personal jurisdiction
over the parties and subject matter of the disputes. In any arbitration,
enforcement proceeding based thereon, or any other litigation between the
parties arising out of or related to this Agreement, the prevailing party
therein shall be entitled to have its attorneys' fees, arbitration expenses,
related litigation costs or costs of suit (if any) paid by the non-prevailing
party. In the case of arbitration, the arbitrator shall make the award as
part of the damages.
IN WITNESS WHEREOF, each of the parties hereby executes this Agreement
as of the date first set forth above.
DATALINK: DATALINK SYSTEMS CORPORATION
By: /s/ Nicholas Miller
Nicholas Miller, Chairman
EXECUTIVE: Anthony LaPine
Anthony LaPine
17420 High Street
Los Gatos, CA 95032
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Schedule I
NONRECOURSE PROMISSORY NOTE
Los Gatos, California May 1, 1996
1. For value received, Anthony LaPine, residing at 17420 High Street,
Los Gatos, California 95032 ("Payor"), hereby unconditionally promises to pay
to DataLink Systems Corporation a Nevada corporation ("Payee"), or its order,
the principal sum of One Million Five Hundred Thousand U.S. Dollars (U.S.
$1,500,000), with interest from the date of this Note on the unpaid principal
balance hereof, at the rate of five percent (5%) per annum. Principal and
interest shall be due and payable to Payee on or before April 1, 2001.
2. Payments of principal and interest are to be made in lawful money
of the United States of America to Payee at the address set forth above, or at
such other place as the holder hereof shall designate to Payor in writing.
3. Payor may make optional prepayments of principal and interest on
this note without penalty or premium at any time or from time to time,
provided that any such prepayment shall be accompanied by the payment of
accrued and unpaid interest on the amount being prepaid through the date of
the prepayment. All prepayments on this Note, whether voluntary or mandatory,
shall be credited first against accrued and unpaid interest and the balance
shall be credited against unpaid principal.
4. In the event Payor is in default of its obligations hereunder, and
such default is not cured within fifteen (15) days following the first day
Payor is in such default, then, without any notice by Payee and
notwithstanding Section 1 hereof, the entire outstanding principal and accrued
interest shall become immediately due and payable.
5. As security for the performance of Payor's obligations hereunder,
Payor hereby grants to Payee a security interest in those certain 2,O00,000
shares of Common Stock of Payee, held of record in the name of Payor, and
being purchased pursuant to that certain Stock Purchase Agreement of even date
herewith (the "Collateral").
6. This Promissory Note is a Nonrecourse Promissory Note.
Accordingly, the parties hereby agree that in the event of default, Payee
shall be entitled to look only to the Collateral for satisfaction of Payor's
obligations. In the event that the Collateral is not sufficient to satisfy
Payor's obligations hereunder, Payor shall not be liable for any deficiency,
and Payee waives any right it may have to collect any deficiency from Payor.
7. Payor hereby waives presentment for payment, demand, notice of
demand notice of non-payment default or dishonor, protest and notice of
protest.
8. No failure to exercise and no delay in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
9. This Note shall inure to the benefit of the Payee, its respective
successors and assigns, including each transferee, endorsee or holder of this
Note.
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10. This Promissory Note is executed in California and shall be
governed by and construed in accordance with the laws of the State of
California.
11. In case legal action is necessary to collect any amount due
hereunder or enforce any of the Payee's rights hereunder (whether by
acceleration or otherwise), Payor shall be liable for the payment of
reasonable attorneys' fees and the costs of the holder hereof incurred in
connection with such collection or enforcement.
IN WITNESS WHEREOF, the Payor has executed this Note for the benefit of
Payee as of the date first set forth above.
DATALINK SYSTEMS CORPORATION
By: /s/ Nicholas Miller
Nicholas Miller, Chairman
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EXHIBIT 10.7
AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement (this "Amendment"),
dated January 1, 1997 (the "Effective Date"), amends and supplements that
certain Employment Agreement, dated May 1, 1996 (the "Employment Agreement"),
by and between DataLink Systems Corporation, a Nevada corporation, located at
2105 Hamilton Avenue, Suite 240, San Jose, California, 95125 (the "Company"),
and Anthony N. LaPine, residing at 17420 High Street, Los Gatos, California,
95032 ("Executive").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and in the Employment Agreement, the Company and
Executive hereby amend the Employment Agreement as follows:
1. Section 2.1 of the Employment Agreement is amended and restated to
read in its entirety as follows:
2.1 Salary. Executive's base salary shall be at an annual rate of not
less than One Hundred Forty Thousand Dollars ($140,000), subject to
discretionary increases in accordance with the Company's normal review
procedures and policies ("Base Salary"). The Base Salary shall be paid in
substantially equal installments on the 15th day and last day of each month.
2. Line 4 of Section 2.2 is hereby amended by replacing "fifty
percent (50%)" with "eighty-six percent (86%)".
As amended and supplemented by this Amendment, the Employment Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, each of the parties hereby executes this Amendment as of
the date first set forth above.
COMPANY: DATALINK SYSTEMS CORPORATION
By:/s/ Nicholas Miller
Nicholas Miller, Chairman
EXECUTIVE: Anthony N. LaPine
17420 High Street
Los Gatos, California 95032
EXHIBIT 10.8
LEASE AGREEMENT
This Lease Agreement has been executed and delivered on this 2nd day of
January, 1997, by and between DataLink Systems Corporation, a Nevada
corporation, with a business address of 2105 Hamilton Avenue, Suite 240, San
Jose, California, 95125 (the "Lessee"), and Anthony LaPine and Pamela LaPine,
each residing at 17420 High Street, Los Gatos, California, 95032 (collectively
the "Lessor").
NOW, THEREFORE, in consideration of the mutual agreements of the
parties, LESSOR AND LESSEE HEREBY AGREE AS FOLLOWS:
1. Lease. On the terms and subject to the conditions of this Lease,
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, that
certain real property consisting of approximately Four Thousand (4,000) square
feet of office space located at 17420 High Street, Los Gatos, California (the
"Property").
2. Term. The term of the this Lease (the "Term"), shall commence on
the date first set forth above and shall expire on the third anniversary of
the date of this Lease; provided, however, unless either party gives written
notice to the other no less than fifteen (15) days prior to the end of the
Term or any renewal thereof, of its intent not to renew this Lease, the Term
shall be automatically extended to the next succeeding anniversary.
3. Rent.
(a) As rent for the use and occupancy of the Property during the
Term, Lessee shall pay to Lessor, in advance on the first day of each month of
the Term, a monthly rent of Eight Thousand Three Hundred Thirty-Three Dollars
and Thirty-Three Cents ($8,333.33), without deduction, setoff, prior notice or
demand (the "Base Rent"). Rent for the first month of the Term shall be paid
on delivery of possession of the Property to Lessee. Rent for any period
during the Term which is for less than one month shall be a prorated portion
of the monthly installment. Rent shall be paid to Lessor in lawful money of
the United States, at the address for the Property or to such other persons or
at such other places as Lessor may designate to Lessee in writing.
(b) The Base Rent shall be increased annually, commencing on the
first anniversary of this Lease (the "Adjustment Date"). On each Adjustment
Date, Base Rent shall be increased by an amount equal to the greater of (i)
five percent (5%) or (ii) an inflation adjustment based on the Consumer Price
Index All Urban Consumers (San Francisco, Bay Area), multiplied the Base Rent
(the "CPI").
(c) If at any Adjustment Date the CPI no longer exists
substantially in the form that it currently exists, Lessor may substitute any
substantially equivalent official index published by the Bureau of Labor
Statistics or its successor. Lessor shall use any appropriate conversion
factors to accomplish such substitution.
(d) The Base Rent is intended as a "gross rent", and
accordingly, Lessor shall bear the costs of all property taxes, assessments
and utilities, except with respect to any telephone or ISDN lines, the cost of
which shall be born by Lessee.
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4. Permitted Use. During the Term, Lessee may use and occupy the
Property and the improvements thereon for commercial office space only.
5. Condition of Premises. Lessee accepts the Property AS IS, in its
condition as of the date of this lease. In addition, Lessee acknowledges that
it has thoroughly examined and inspected the Property, is aware of its
condition, has satisfied itself as to the structural integrity and condition
of the Property, and Lessor has made no warranty or representation with
respect to same.
6. Indemnification. Lessee hereby indemnifies and agrees to hold
Lessor and the Property harmless from and against any and all claims, demands,
liability or loss, including reasonable attorneys' fees arising from (a)
Lessee's use or occupation of the Property; (b) the conduct of Lessee's
business or any other activity done or permitted by Lessee to be done on or
about the Property; and (c) any breach or default in the performance of
Lessee's obligations under this Lease.
7. Lessor's Obligations. So long as Lessee complies with the terms
of this Lease, Lessor shall render to Lessee quiet possession of the Property.
8. Assignment and Subletting. Lessee shall not assign, transfer,
mortgage, sublet or otherwise transfer or encumber all or any part of Lessee's
interest in this Lease or in the Property without Lessor's prior written
consent. Any attempted assignment, transfer, mortgage, encumbrance, or
subletting without Lessor's consent shall be void and shall constitute a
material breach of this Lease.
9. Notices. Except as expressly provided herein, all notices,
requests or other communications required hereunder shall be in writing and
shall be given personal delivery, national overnight courier service, or by
U.S. mail, certified or registered, postage prepaid, return receipt requested,
addressed to the respective party at the applicable addresses as shall be
specified in writing by such party to other parties in accordance with the
terms and conditions of the Section. All notices, requests or communications
shall be deemed effective upon personal delivery, or five (5) days following
deposit in the United States mail, or two (2) business days following deposit
with any national overnight courier service.
10. Governing Law, Jurisdiction and Venue. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law, the
parties hereto agree that all actions or proceedings arising in connection
herewith, shall be arbitrated or litigated in the State of California, and
each party hereby waives any right it may have to assert the doctrine of Forum
Non Conveniens or to object to venue. The parties each hereby stipulate that
the state and federal courts located in the County of Santa Clara, State of
California, shall have personal jurisdiction and venue over each party for the
purpose of litigating any such dispute, controversy or proceeding arising out
of or related to this Agreement and beyond the scope of arbitration set forth
below.
12. Arbitration. Any dispute or controversy arising out of or
relating to this Agreement shall be settled by final and binding arbitration
in Los Gatos, California. Except as otherwise set forth herein, such
arbitration shall be conducted in accordance with the then-existing rules of
the AAA and such award shall be specifically enforceable, and judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof; provided, however, that the law applicable to any such
controversy shall be the law of
-2-
<PAGE>
California, regardless of its or any jurisdiction's choice of law principles.
By entering into this provision, it is the parties intention to expedite, and
limit the costs involved in, resolution of any future dispute, and therefore
pre-hearing discovery shall be limited to production of key documents, as
determined by the arbitrator, and shall not extend to depositions of parties.
Any award shall be limited to a recovery of foreseeable, contract damages,
which are a direct consequence of a breach of this Agreement. In further
limitation hereof, no arbitrator shall be empowered to award any other
damages, including, but not limited to, consequential, compensatory or
punitive damages.
13. Attorney's Fees. In the event that any action or proceeding,
including arbitration, is commenced by either party hereto for the purpose of
enforcing any provision of this Agreement, the successful or prevailing party
shall recover reasonable attorneys' fees and other costs incurred in such
action or proceeding.
This Lease has been executed and delivered by Lessor and Lessee as of
the date first set forth above.
LESSOR:
/s/ Anthony LaPine
Anthony LaPine
/s/ Pamela LaPine
Pamela LaPine
LESSEE:
DATALINK SYSTEMS CORPORATION
/s/ Nicholas Miller
Nicholas Miller, Chairman of the Board
-3-
EXHIBIT 10.9
LOAN FORGIVENESS AGREEMENT
This Loan Forgiveness Agreement, dated June 28, 1996, is by and between
DataLink Systems Corporation, a Nevada corporation ("DataLink") and Anthony
LaPine ("LaPine").
Recitals.
A. DataLink and LaPine entered into an Employment Agreement, dated
May 1, 1996, whereby LaPine agreed to serve as Chief Executive Officer of
DataLink (the "Employment Agreement"). Except as otherwise set forth herein,
capitalized terms shall have the meanings ascribed to them in the Employment
Agreement.
B. Subject to the terms and conditions set forth herein, LaPine and
DataLink desire to supplement the Employment Agreement to provide for the loan
forgiveness of the principal and interest due under that certain Nonrecourse
Promissory Note, dated May 1, 1996 (the "Note"), provided that LaPine
continues as Chief Executive Officer of DataLink through May 1, 1999.
Agreement.
NOW, THEREFORE in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the parties hereby agree as
follows:
1. Loan Forgiveness. At the close of business on May 1, 1999 (the
"Third Anniversary"), all principal and interest due under that certain
Nonrecourse Promissory Note, dated May 1, 1996, in the original principal
amount of $1,500,000, executed and delivered by LaPine in favor of DataLink
(the "Note"), shall be automatically and immediately forgiven and cancelled,
provided that the following conditions have been met:
1.1 LaPine shall have continued as Chief Executive Officer of
DataLink through the close of business on May 1, 1996; and
1.2 There shall be no existing and uncured default by LaPine of
any material obligation of his under the Employment Agreement.
Provided that the foregoing conditions have been met, at the close of business
on the Third Anniversary, DataLink shall cancel the Note, record such
cancellation on the books and records of DataLink and deliver the original
Note, mark cancelled, to LaPine, provided however, that DataLink's failure to
perform any of the foregoing acts shall not in any way affect the automatic
cancellation of the debts and obligations of LaPine under the Note.
Concurrently with the close of business on the Third Anniversary, LaPine shall
be forever and unconditionally released from all obligations and liabilities
whatsoever under the Note.
2. Jurisdiction, Venue and Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law, the
parties hereto agree
-1-
<PAGE>
that all actions or proceedings arising in connection herewith, shall be
litigated in the state and federal courts located in the State of California,
and each party hereby waives any right it may have to assert the doctrine of
Forum Non Conveniens or to object to venue. The parties each hereby stipulate
that the state and federal courts located in the County of Santa Clara, State
of California, shall have personal jurisdiction and venue over each party for
the purpose of litigating any such dispute, controversy or proceeding arising
out of or related to this Agreement. To the extent permitted by law, service
of process sufficient for personal jurisdiction in any action against either
party may be made by registered or certified mail, return receipt requested,
to its address indicated on the first page hereof.
3. Validity. If any one or more of the provisions (or any part
thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
4. Attorneys' Fees. The prevailing party shall be entitled to
recover from the losing party its attorneys fees and costs incurred in any
action or proceeding, including arbitration, brought to interpret this
Agreement or to enforce any right arising out of this Agreement.
5. No Waiver of Rights. The delay or failure of either party to
enforce at any time any provision of this Agreement shall in no way be
considered a waiver of any such provision, or any other provision, of this
Agreement. No waiver of, or delay or failure to enforce any provision of this
Agreement shall in any way be considered a continuing waiver or be construed
as a subsequent waiver of any such provision, or any other provision of this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Loan Forgiveness
Agreement as of the date first set forth above.
DATALINK: DATALINK SYSTEMS CORPORATION
By: /s/ Nicholas Miller
Nicholas Miller, Secretary
LAPINE: /s/ Anthony LaPine
Anthony LaPine
-2-
EXHIBIT 10.10
DIRECTORS AGREEMENT
THIS DIRECTORS AGREEMENT (this "Agreement") is made and entered into as
of May 1, 1996, by and between DataLink Systems Corporation, a Nevada
corporation, located at 2105 Hamilton Avenue, Suite 240, San Jose, CA, 95125
("DataLink"), and Nicholas Miller, residing at 4812 Marine Drive, West
Vancouver, BC ("Director")
NOW, THEREFORE, in consideration of the mutual promises below, DataLink
hereby engages the Director and the Director hereby accepts engagement with
DataLink in accordance with the terms and conditions set forth in this
Agreement.
1. Services.
Director will serve, at the will of DataLink, as a director and
Chairman of the Board of Directors of DataLink. Director shall preside over
all meetings of the Board of Directors and render consultation and advice
relating to strategic alliances, key customer accounts and other strategic
corporate matters. Director shall faithfully and to the best of his ability
serve in the foregoing capacities for so long as he is duly elected and
qualified in accordance with the provisions of the Bylaws or other applicable
charter documents of DataLink; provided however, that neither DataLink nor any
affiliate shall have any obligation under this Agreement to continue Director
in any such position. Director shall devote such time as appropriate to the
performance of the services outlined in Section 1.
2. Indemnity of Director.
2.1 Indemnification. DataLink hereby agrees to hold harmless
and indemnify Director to the fullest extent authorized or permitted by
Datalink's Bylaws and applicable law, as the same may be amended from time to
time (but, only to the extent that such amendment permits DataLink to provide
broader indemnification rights than the Bylaws or applicable law permitted
prior to adoption of such amendment).
2.2 Continuation of Indemnity. All agreements and obligations
of DataLink contained herein shall continue during the period Director is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Director shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Director was serving in the capacity referred to herein.
3. Termination. DataLink shall have the right to terminate this
Agreement for any reason or no reason upon thirty (30) days advance written
notice to Director.
4. Compensation. As full and complete compensation for Director's
services and for the discharge of all Director's obligations hereunder,
DataLink shall grant an option to Director to purchase Seven Hundred Thousand
(700,000) shares of Common Stock of DataLink at a purchase price of $2.20 per
share.
-1-
<PAGE>
5. Conflicts of Interest. Director agrees that during the term of
the Agreement, or any extension or renewal hereof, he will not, individually
or with any other person or organization, directly or indirectly, enter into
or engage in the activity that competes with the proposed product or product
lines of DataLink or engage in any other activity in competition with
DataLink. In addition, Director agrees that he will not engage in any methods
of unfair trade practices which are or have the potential to be harmful to the
interest of DataLink.
Without limiting the generality of the foregoing, Director agrees that
during the term of this Agreement he will not (i) directly or indirectly
solicit or induce any employees of DataLink to leave the employ of DataLink
for any reason whatsoever; or (ii) engage in any business (whether in the
capacity of proprietor, principal, partner, director, officer, employee,
consultant, shareholder, agent or representative) which is directly
competitive with or substantially similar to the primary business of DataLink.
6. Independent Contractor.
6.1 Independent Status. DataLink shall neither exercise not
have any right to control the Director as to the means by which Director's
work is to be accomplished. Director's relationship with DataLink shall be
that of an independent contractor and nothing in this Agreement shall be
construed to create an employer-employee relationship between the parties.
6.2 Tax Compliance. Director shall file, on a timely basis, all
tax returns and payments required to be filed with or made to any federal,
state or local tax authority, including all self-employment taxes or returns,
with respect to Director's performance of services hereunder. In the
performance of all services hereunder, Director shall comply with all
applicable laws and regulations.
7. Proprietary Information and Inventions Agreement. Director hereby
agrees to execute and deliver to DataLink a Director's Proprietary Information
and Inventions Agreement in the form of Exhibit A, and to abide by and be
bound by the terms and conditions thereof. The Director's Proprietary
Information and Inventions Agreement is hereby incorporated in this Agreement
by this reference. Termination of this Agreement shall not release Director
from his obligations thereunder.
8. General Provisions.
8.1 Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery or three (3) days after deposit in the United States or Canadian
mail, by registered or certified mail, with postage and fees prepaid,
addressed to the other party at the address shown on the last page hereof, or
at such other address as a party may designate by written notice to each of
the other parties hereto.
8.2. Governing Law, Jurisdiction and Venue. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law, the
parties hereto agree that all actions or proceedings arising in connection
herewith, shall be arbitrated or litigated in the state and federal courts
located in the State of California, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby
-2-
<PAGE>
stipulate that the state and federal courts located in the County of Santa
Clara, State of California, shall have personal jurisdiction and venue over
each party for the purpose of litigating any such dispute, controversy or
proceeding arising out of or related to this Agreement and beyond the scope of
mediation and arbitration set forth below.
8.3 Equitable Remedies. The parties acknowledge that money
damages would not be a sufficient remedy for any violation of Section 7 of
this Agreement, and, accordingly, the Company will be entitled to specific
performance, injunctive relief, or any other equitable relief as remedies for
any violation of this Agreement, without prejudice to any other rights and
remedies that the Company may have.
8.4 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors, heirs
and permitted assigns. This Agreement may not be altered, modified, changed or
discharged except in writing signed by both the parties.
8.5 Surviving Agreement. Sections 2.2, 5, 6.2, 7 and Exhibit A
shall survive any termination of this Agreement.
8.6 Severability. If any one or more of the provisions (or any
part thereof) of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions (or any part thereof) shall not in any way be affected or
impaired thereby.
8.7 No Waiver. The delay or failure of either party to enforce
at any time any provision of this Agreement shall in no way be considered a
waiver of any such provision, or any other provision, of this Agreement. No
waiver of, or delay or failure to enforce any provision of this Agreement
shall in any way be considered a continuing waiver or be construed as a
subsequent waiver of any such provision, or any other provision of this
Agreement.
8.8 Attorneys' Fees. In any litigation or arbitration between
the parties arising out of or related to this Agreement, the prevailing party
therein shall be entitled to have its attorneys' fees, arbitration expenses,
related litigation costs and costs of suit (if any) paid by the non-prevailing
party.
8.9 Arbitration. Except with respect to any breach or alleged
breach of Section 8 or Exhibit A hereof, any claim or controversy arising out
of or related to this Agreement which cannot be resolved informally shall be
settled in San Jose, California, by arbitration before a single arbitrator
agreeable to both parties under the then current commercial rules of the
American Arbitration Association. If the parties cannot agree on an
arbitrator within sixty (60) days after a demand for arbitration has been
requested in writing by either of them, then arbitration shall proceed before
an arbitrator appointed by the American Arbitration Association under its then
current commercial rules. The arbitration award shall be specifically
enforceable; judgment upon any arbitration award may be entered in any court
with personal jurisdiction over the parties and subject matter of the dispute.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Directors
Agreement as of the day and year first above written.
DATALINK: DATALINK SYSTEMS CORPORATION
By: /s/ Anthony LaPine
Anthony LaPine, Chief Executive Officer
DIRECTOR: /s/ Nicholas Miller
Nicholas Miller
-4-
SUBSIDIARIES OF THE REGISTRANT
1. Datalink Communications Corporation - Nevada
2. DSC Datalink Systems Corporation - British Columbia
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Form 10KSB of our report
dated June 19, 1997, on our audits of the consolidated financial statements of
Datalink Systems Corporation and its subsidiary, as of March 31, 197 and 1996
and for each of the years then ended.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
San Jose, California
August 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages F-3 and F-4 of the Company's Form 10-KSB for the fiscal year ended March
31, 1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,916,509
<SECURITIES> 0
<RECEIVABLES> 55,918
<ALLOWANCES> 1,500
<INVENTORY> 0
<CURRENT-ASSETS> 1,976,359
<PP&E> 321,368
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,312,468
<CURRENT-LIABILITIES> 245,733
<BONDS> 0
0
0
<COMMON> 19,183
<OTHER-SE> 2,047,552
<TOTAL-LIABILITY-AND-EQUITY> 2,312,468
<SALES> 196,891
<TOTAL-REVENUES> 196,891
<CGS> 159,058
<TOTAL-COSTS> 159,058
<OTHER-EXPENSES> 5,475,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,514,965)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,514,965)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
</TABLE>
