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MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH (68581) ALAN SCHULMAN (128661) DARREN J. ROBBINS (168593) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 - and - JOHN E. GRASBERGER (89774) JOHN K. GRANT (169813) 222 Kearny Street, 10th Floor San Francisco, CA 94108 Telephone: 415/288-4545 SCHIFFRIN & CRAIG, LTD. RICHARD S. SCHIFFRIN Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 Telephone: 610/667-7706 Attorneys for Plaintiff UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION GEORGE GENNA, On Behalf of Himself ) Civ. No. 96-CV-20867-RMW-EAI and All Others Similarly Situated, ) ) CLASS ACTION Plaintiff, ) ) COMPLAINT FOR VIOLATIONS OF vs. ) THE SECURITIES EXCHANGE ACT ) OF 1934 DIGITAL LINK CORPORATION, VINITA ) GUPTA, DANIEL L. PALMER, TIMOTHY K. ) MONTGOMERY, STANLEY E. KAZMIERCZAK, ) TONI BELLIN, BENJAMIN W. BERRY, ) MOREY R. SCHAPIRA, GREGORY M. AVIS ) and CHARLES R. MOORE, ) ) Defendants. ) Plaintiff Demands A ___________________________________ ) Trial By Jury
SUMMARY OF ACTION 1. This is a class action on behalf of all persons who purchased the common stock of Digital Link Corporation ("Digital Link" or the "Company") between September 12, 1994 and December 29, 1995 (the "Class Period"). Plaintiff seeks recovery for defen- dants, violations of the Federal Securities Laws, specifically §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Securities and Exchange Commission ("SEC") Rule 10b-5. 2. Digital Link manufactures and markets high speed digital access products for wide area networks ("WANs"), purchased mostly by telephone companies. This action complains of a scheme and course of business that operated as a fraud on purchasers of Digital Link stock during the Class Period. Plaintiff alleges that defendants made false and misleading statements about the develop- ment of Digital Link's Wide Area/ATM ("W/ATM") GateWay1 and W/ATM PremisWay products, the strong international and domestic demand for and market acceptance of its products, and Digital Link's prospects for earnings growth. 3. The fraudulent scheme and course of business artificially inflated the price of Digital Link stock from $7-3/4 to a Class Period high of $34, allowing Digital Link's insiders to sell or otherwise dispose of 1,363,184 shares of their own Digital Link stock for as high as $30-1/2 per share for proceeds of $25.1 million. Many insiders unloaded a majority of their shares before the truth regarding the severe problems with Digital Link's most important new product, its weak international and domestic sales, _____________________ 1 "ATM refers to Asynchronous Transfer Mode. COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 1 -
and its sharply diminished earnings prospects were revealed and the price of Digital Link stock collapsed back to about $8 per share. 4. Prior to Digital Link's January 31, 1994 initial public offering ("IPO"), the Company's insiders and venture capitalists were locked into an illiquid investment position due to Digital Link's difficulty in developing new profitable products and its uncertain prospects for future earnings growth. Consequently, the defendants arranged Digital Link's IPO of 2,550,000 shares at $14 per share so that Digital Link could sell stock and raise capital it badly needed and so that Digital Link's insiders and controlling shareholders could sell off some of their Digital Link stock in the IPO. In addition, defendants sought to create an ongoing trading market in Digital Link's stock so that after the expiration of the 180-day "lock-up" period following the IPO (during which the insiders could not sell more of their stock), they and other insiders could take advantage of an inflated price by unloading large amounts of their shares in the open market. 5. Although Digital Link's stock price jumped briefly after the IPO to as high as $20 per share, it then declined sharply, in part due to investor concerns that Digital Link lacked the new products necessary to generate the revenues needed for it to sustain profitable growth. By late July 1994, when the "lock-up" expired and Digital Link's insiders had intended to start selling off their shares, the price of Digital Link stock had fallen below $10 per share, well below the IPO price. Worse yet, Digital Link's insiders realized that Digital Link was incurring serious problems related to the final design and initial production of its new W/ATM GateWay and W/ATM PremisWay products. This would delay the com- COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 2 -
mercial introduction of those products for many months and, if revealed to the market, the price of Digital Link's stock would fall even lower, further eroding the value of the insiders' Digital Link shares and eliminating their chance to reap millions in profits by selling their shares at inflated prices into the market. 6. Defendants hoped that by misrepresenting the state of development of Digital Link's new GateWay and PremisWay products and the future revenue and earnings growth to be derived from those products, they could reverse the decline in Digital Link's stock, push the stock back up to inflated levels and then sell off large amounts of their shares. Thus, on September 12, 1994, defendants announced the introduction of Digital Link's W/ATM GateWay product. This product was designed to translate and switch voice and video data and was to be sold to original equipment manufacturers ("OEMs") for resale to domestic and foreign telephone companies. Defendants assured investors that this product would allow Digital Link to capitalize on the ATM market's "explosive growth" and that these $60,000-150,000 items would soon become Digital Link's "largest product" and "a significant part of the total Wide Area ATM strategy offered by Digital Link." Defendants specifically represented that "production quantities of W/ATM GateWay would be available in the first quarter of 1995. 7. As Digital Link's stock responded to these positive statements, moving as high as $25-3/4 per share in November- December 1994, Digital Link's controlling venture capitalists, including Summit Partners, distributed 500,000 shares to their limited partners to facilitate the sale of those shares, and Digital Link's insiders began selling their own shares. This COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 3 -
resulted in the sale or other disposition of 971,234 shares between September 20, 1994 and December 22, 1994 at as high as $25 per share for total proceeds of $16.1 million. While Digital Link's insiders were unloading these shares, they knew that the Company was experiencing serious problems in completing the final design and commercial production of the W/ATM GateWay product. Defendants also knew that no firm, including AT&T Network Systems, was willing to purchase Digital Link's W/ATM GateWay product, and that Digital Link could not expect to receive significant revenue from its W/ATM GateWay product until some time in 1996. 8. Later, despite their knowledge of these serious, persistent and unsolvable problems with the software for the W/ATM GateWay product, the defendants misrepresented that "substantial progress was made on the development of the W/ATM GateWay during 1994," that several major customers were evaluating it for purchase, that the ATM market would experience "explosive growth," that the W/ATM GateWay product would have "a material and positive impact" on the Company's results during 1995 and 1996, and that the development and testing of the W/ATM GateWay product was "on track" and defendants were "very excited" about its market potential. Defendants forecasted that the product would "fuel" or "boost" Digital Link's growth and Digital Link would achieve earnings per share of $0.65 in 1995 and $0.89 in 1996, and 35-45% earnings per share growth over the next three years. Digital Link's stock moved up to a high of $33-3/4 by late March 1995 and traded at inflated levels during February-May 1995, allowing insiders to unload another 185,000 of their Digital Link shares at as high as $30-1/2 per share, pocketing another $4.9 million. COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 4 -
9. When forced to disclose that sales of Digital Link's W/ATM GateWay product were going slower than anticipated, defen- dants indicated that this was due to marketing decisions by its OEM customers and not to any problems with the development or perfor- mance of the product. Defendants continued to forecast 1995 and 1996 earnings per share of $0.65 and $0.89, respectively. In August 1995, when Digital Link's stock was still selling at as high as $28-3/4 per share, insiders sold off another 57,000 shares of their Digital Link stock at as high as $28-1/2 per share, pocketing another $1.5 million. 10. On October 17, 1995, after the close of the market, Digital Link reported increased sales and earnings for its third quarter ended September 30, 1995. Defendant Vinita Gupta ("Gupta") was quoted as follows: "Third quarter results continue to show the strength of our internetworking products in the domestic market," said Vinita Gupta, chief executive officer. "Market penetration has been increased as a result of our marketing strategy of broader product line offerings and competitive positioning." Digital Link also disclosed that the Company's Chief Operating Officer and President, Daniel L. Palmer, had "resigned" to "pursue other interests." However, in an interview with Dow Jones, defen- dant Stanley Kazmierczak ("Kazmierczak") admitted that Digital Link would delay the release of its W/ATM GateWay product, as "the gate- way needs to be redesigned because it doesn't function effectively" and that the release of this product would be delayed until at least mid-1996. Kazmierczak also stated there was a "modest slow- ing" of Digital Link's business in the United Kingdom ("UK"). The market reacted to these revelations by dropping the price of Digital Link stock by $10, on huge volume of 1.5 million shares, COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 5 -
from a high of $26 per share on October 17, 1995 to a low of $16 on October 18, 1995. After the release of these earnings, Gupta and Kazmierczak spoke with securities analysts and told them that: • The Company continued to perform well in the U.S. market. • The Company had seen a modest slowdown in sales to the UK which negatively impacted revenues. The weakness in the UK market was expected to continue into the fourth quarter. • The slower outlook in the UK and delay in the GateWay product would result in lower 1996 revenues and earnings, $61 million from $68 million, and $0.80 from $0.89, respectively. • Digital Link expected fourth quarter 1995 revenues of about $13 million with earnings per share of $0.18 compared to the $0.19 forecast earlier, with full year 1995 earnings per share of $0.64. Later, Gupta told shareholders that "Digital Link has gained market share domestically," had "successfully preserved our position as the dominant supplier of SMDS/ATM access products in Europe" and was "optimistic about the opportunities in 1996." 11. Thus, while Digital Link's stock declined sharply after the October 17, 1995 announcement, the decline was halted by defendants' false reassurances about the strength of its business in the U.S., the modest nature of the slowdown in Digital Link's international business and that Digital Link still expected to earn $0.18 per share in the fourth quarter of 1995 and $0.64 per share for the 1995 full year. Digital Link stock continued to trade at artificially inflated levels throughout the balance of the Class Period, in fact recovering to a high of $20-1/4 per share in November 1995. 12. Defendants' reassurances between October 17, 1995 and December 29, 1995 were each false and misleading as defendants knew COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 6 -
that the problems with Digital Link's international operations were very serious, that Digital Link's competitive position there was being seriously eroded and that Digital Link's U.S. business was also soft, with poor sales. Given these problems, defendants knew there was no possibility that Digital Link could achieve earnings per share of $0.18-0.19 and $0.64 for the fourth quarter of 1995 and the 1995 full year. Certain of Digital Link's insiders took advantage of this continuing inflation in Digital Link stock to sell off another 149,940 shares of their Digital Link stock at as high as $19-1/2 per share, pocketing another $2.5 million. 13. Then on December 29, 1995, Digital Link revealed that its fourth quarter results would be very poor and that Digital Link would suffer declines in revenues and net income due to weak U.S. sales and worsening international sales and that these adverse conditions would continue for "at least" the next two quarters. These revelations resulted in a further collapse in Digital Link's stock from $14-1/2 to just $8 per share on high volume of 1.3 million shares -- a 45% one-day drop! This drop took Digital Link stock back below its price at the beginning of the Class Period some 14 months earlier! Later Digital Link admitted its fourth quarter 1995 sales decreased 6% from the prior year and declined by over 20% from its third quarter sales and that its earnings per share for the quarter were only $0.05, compared with $0.18 in the fourth quarter of 1994 and $0.18 in the third quarter of 1995. 14. Defendants' massive insider selling during the Class Period is summarized below: COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 7 -
Shares % of Sold or Holdings Total Defendants Distributed Price Range Disposed of Proceeds ---------- ----------- ----------- ----------- -------- Avis/Summit 836,234 $14.50-21.50 100% $13,295,072 Partners Bellin 15,000 $18.50-24.50 99% $ 322,500 Berry 41,500 $22.00-30.50 50% $ 1,015,260 V. Gupta 100,000 $20.50-28.06 3% $ 2,428,000 Kazmierczak 29,500 $21.75-27.25 68.5% $ 735,250 Montgomery 55,000 $16.75-28.50 100% $ 1,379,125 Moore 31,000 $13.75-28.00 81.5% $ 710,500 Palmer 249,950 $14.00-27.29 93% $ 5,141,631 Schapira 5,000 $23.00-25.00 100% $ 188,000 --------- ------------ ---- ----------- TOTALS: 1,363,184 $14.00-30.50 N/A $25,145,338 ========= ============ ==== =========== 15. The stock charts below show the price increase in Digital Link stock while defendants were issuing their false and misleading statements about the Company, defendants' and the other insiders' distributions and sales at inflated prices during that period, and the subsequent collapse as the true facts were disclosed. The charts illustrate that, when compared to an index of similar stocks, the movement of Digital Link stock was largely due to Company specific information as opposed to industry or market factors: /// /// /// /// /// /// /// /// /// COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 8 -
Digital Link Corp. February 2, 1994 - January 5, 1996 Daily Stock Prices
Digital Link Corp. September 12, 1994 - January 5, 1996 Daily Stock Prices
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 9 -
Digital Link Corp. vs. H&Q Networking - Communications Group September 12, 1994 - January 5, 1996
Digital Link Corp. vs. H&Q Networking - Communications Group February 2, 1994 - January 5, 1996
COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 10 -
JURISDICTION AND VENUE 16. The claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a); and Rule 10b-5, 17 C.F.R. §240.10b-5, promulgated thereunder by the SEC. 17. Jurisdiction is conferred upon this Court by §27 of the Exchange Act, 15 U.S.C. § 78aa; and 28 U.S.C. §1331. 18. Venue is proper in this District pursuant to §27 of the Exchange Act, and 28 U.S.C. §1391(b). Certain of the acts and transactions giving rise to the violations of federal and state law complained of herein, including the dissemination to the investing public of false and misleading information, occurred in this District. 19. Individual defendants Gupta, Palmer, Montgomery, Kazmierczak, Moore and Avis reside in and are citizens of the State of California. Digital Link has its principal place of business in California and is incorporated in California. INTRADISTRICT ASSIGNMENT 20. Assignment of this action to the San Jose Division is appropriate as a substantial part of the events or omissions identified herein occurred in Santa Clara County. CLASS ACTION ALLEGATIONS 21. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of all persons who purchased or otherwise acquired Digital Link stock (the "Class") during the Class Period. Excluded from the Class are defendants herein, members of their immediate families, any entity in which a defendant has a controlling interest, and the legal COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 11 -
representatives, heirs, successors-in-interest, or assigns of any excluded party. 22. The members of the Class are so numerous that joinder of all members is impracticable. The disposition of their claims in a class action will provide substantial benefits to the parties and the Court. During the Class Period, Digital Link had more than 10 million shares of stock outstanding, owned by hundreds of shareholders. 23. There is a well-defined commonality of interest in the questions of law and fact involved in this case. The questions of law and fact common to the members of the Class which predominate over questions which may affect individual Class members include the following: (a) Whether the federal securities laws were violated by defendants; (b) Whether defendants omitted and/or misrepresented material facts; (c) Whether defendants' statements omitted material facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading; (d) Whether defendants knew or had reasonable grounds to believe that their statements were false and misleading; (e) Whether the price of Digital Link stock was artificially inflated during the Class Period; and (f) The extent of damage sustained by Class members and the appropriate measure of damages. COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 12 -
24. Plaintiff's claims are typical of those of the Class because plaintiff and the Class sustained damages from defendants' wrongful conduct. 25. Plaintiff will adequately protect the interests of the Class and has retained counsel who are experienced in class action securities litigation. Plaintiff has no interests which conflict with those of the Class. 26. A class action is superior to other available methods for the fair and efficient adjudication of this controversy. 27. The prosecution of separate actions by individual Class members would create a risk of inconsistent and varying adjudications. was, at all relevant times, Chairperson of the Board and Chief Executive officer of the Company. Because of Gupta's position with the Company, she had access to the adverse non-public information about its business, finances, products, markets and present and future business pros- pects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 13 -
actual operations compared thereto) conversations and connections with other corporate officers and employees, attendance at manage- ment and Board of Directors meetings and committees thereof and via reports and other information provided to her in connection there- with. During the Class Period and as part of the fraudulent scheme, Gupta sold 100,000 shares of Digital Link stock at as high as $28 per share based on inside information, pocketing $2.4 million. (b) Defendant Daniel L. Palmer ("Palmer") was, at all relevant times, President and Chief Operating Officer of the Company, until he "resigned" (in fact, he was fired) on October 17, 1995. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual opera- tions compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Palmer sold 249,950 shares of Digital Link stock at prices as high as $27-1/2 per share based on inside information, pocketing over $5.1 million. These sales constituted 93% of Palmer's holdings in Digital Link. All these shares were acquired by Palmer exercising stock options at $0.50-1.33 per share and then instantly selling the shares for a huge, risk-free and illegal profit. COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 14 -
(c) Defendant Timothy K. Montgomery ("Montgomery") was, at all relevant times, Vice President, Sales, of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, pro- ducts, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations com- pared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Montgomery sold 55,000 shares of Digital Link stock at prices as high as $28-1/2 per share, pocketing over $1.3 million. These sales constituted 100% of Montgomery's holdings in Digital Link. All these shares were acquired by Montgomery exercising stock options at $1.67-1.87 per share and then instantly selling the shares for a huge, risk- free and illegal profit. (d) Defendant Kazmierczak was, at all relevant times, Vice President, Finance, Chief Financial Officer and Secretary of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business pros- pects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at manage- ment and Board of Directors meetings and committees thereof and via COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 15 -
reports and other information provided to him in connection there- with. During the Class Period and as part of the fraudulent scheme, Kazmierczak sold 29,500 shares of Digital Link stock at prices as high as $27-1/4 per share based on inside information, pocketing over $735,000. These sales constituted 68.5% of Kazmierczak's holdings in Digital Link. Most of these shares were acquired by Kazmierczak exercising stock options at $0.67-3.33 per share and then instantly selling the shares for a huge, risk-free and illegal profit. (e) Defendant Toni Bellin ("Bellin") was, at all rele- vant times, Vice President, Operations, of the Company. Because of her position with the Company, she had access to the adverse non- public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate offi- cers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other infor- mation provided to her in connection therewith. During the Class Period and as part of the fraudulent scheme, Bellin sold 15,000 shares of Digital Link stock at prices as high as $24-1/2 per share based on inside information, pocketing over $322,000. These sales constituted 99% of Bellin's holdings in Digital Link. All these shares were acquired by Bellin exercising stock options at $4.67- 4.87 per share and then instantly selling the shares for a huge, risk-free and illegal profit. COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 16 -
(f) Defendant Benjamin W. Berry ("Berry") was, during part of the Class Period, Vice President, Marketing, of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual opera- tions compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Berry sold 41,500 shares of Digital Link stock at prices as high as $30-1/2 per share based on inside information, pocketing over $1 million. These sales constituted 50% of Berry's holdings in Digital Link. All these shares were acquired by Berry exercising stock options at $0.50-3.33 per share and then instantly selling the shares for a huge, risk-free and illegal profit. (g) Defendant Morey R. Schapira ("Schapira") was, at all relevant times, Vice President, Marketing, of the Company. Because of his position with the Company, he had access to the adverse non- public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate offi- cers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other infor- COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 17 -
mation provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Schapira sold 5,000 shares of Digital Link stock at prices as high as $25 per share based on inside information, pocketing over $188,000. These sales constituted look of Schapira's holdings in Digital Link. All of these shares were acquired by Schapira exercising stock options at $8.25-9.25 per share and then instantly selling the shares for a huge, risk-free and illegal profit. (h) Defendant Gregory M. Avis ("Avis") was, at all relevant times, a director of the Company and a general partner of Summit Partners. Summit Partners and its affiliates managed and exercised control over partnerships which distributed and/or sold at least 836,000 shares of Digital Link stock, 100% of the holdings of the entities owned and/or controlled by Avis and/or Summit partners at as high as $21-1/2 per share for $13.2 million, based on inside information. (i) Defendant Charles R. Moore ("Moore") was, at all relevant times, a director of the Company. Because of his position with the Company, he had access to the adverse non-public infor- mation about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information pro- vided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Moore sold 31,000 shares of COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT OF 1934 - 18 -
Digital Link stock at prices as high as $28 per share based on inside information, pocketing over $710,000. These sales consti- tuted 81.5% of Moore's holdings in Digital Link. 31. The individuals named as defendants in ¶30(a)-(i) are referred to herein as the "Individual Defendants." Individual Defendants Gupta, Palmer and Avis, by reason of their stock owner- ship, management position, and/or membership on the Company's Board of Directors, were controlling persons of Digital Link and had the power and influence, and exercised the same, to cause Digital Link to engage in the illegal conduct complained of herein. MOTIVE AND OPPORTUNITY 32. Digital Link's executive compensation plan provided its officers a motive to artificially inflate Digital Link's reported financial results and falsify its progress with respect to its new products: [T]he Company's compensation policy, which applies to management and other employees of the Company, relates a portion of each individual's total compensation to the Company's corporate objectives set forth at the beginning of the Company's fiscal year, as well as to individual contributions. Consistent with this policy, a designated portion of the compensation of the executive officers of the Company is contingent on corporate performance and adjusted based on the individual officer's performance as measured against personal objectives established under the Incentive Program. Under the Incentive Program, cash bonuses are awarded if an executive officer achieves predetermined individual perf