DATALINK CORP, S-1/A, 1999-02-12

DATALINK CORP
S-1/A, 1999-02-12
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-55935
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------

DATALINK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
MINNESOTA 7373 41-0856543
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

------------------------
7423 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439
(612) 944-3462
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GREG R. MELAND
CHIEF EXECUTIVE OFFICER
DATALINK CORPORATION
7423 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55439
(612) 944-3462
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
JEFFREY C. ROBBINS, ESQ. JAMES C. MELVILLE, ESQ.
KEVIN S. SPRENG, ESQ. MARY S. GIESLER, ESQ.
MESSERLI & KRAMER P.A. KAPLAN, STRANGIS AND KAPLAN, P.A.
150 SOUTH FIFTH STREET, SUITE 1800 90 SOUTH SEVENTH STREET, SUITE 5500
MINNEAPOLIS, MINNESOTA 55402 MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 672-3600 TELEPHONE: (612) 375-1138
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED
MAXIMUM AMOUNT OF
AGGREGATE REGISTRATION
TITLE OF SHARES TO BE REGISTERED OFFERING PRICE(1) FEE(2)
<S> <C> <C>
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Common Stock, $0.001 par value.............................. $32,890,000 $9,703.00
- ------------------------------------------------------------------------------------------------------------
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) The Registrant previously paid the registration fee with a prior filing of
the Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999

PROSPECTUS
2,600,000 Shares

DATALINK LOGO

Common Stock
------------------

All of the 2,600,000 shares of Common Stock offered hereby are being
offered by Datalink Corporation ("Datalink" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$
and $ per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation upon notice of issuance on the Nasdaq National
Market under the symbol "DTLK."

------------------

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share.................. $ $ $
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Total(3)................... $ $ $
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</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 390,000 additional shares of Common Stock, respectively, on the same
terms per share solely to cover over-allotments, if any. If this option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------

The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York, on or about , 1999.
------------------

Needham & Company, Inc.

CRUTTENDEN ROTH INCORPORATED LOGO
John G. Kinnard and Company,
Incorporated

The date of this Prospectus is , 1999.
<PAGE> 3

[PICTURES]

Inside Front Cover: Caption which reads as follows: " ." Datalink
Logo at bottom center of page.

Gatefold layout: Pictures arranged within three circles depicting the links
between the Company's products and services and its customers' needs. Captions
within the pictures depicting the services provided by the Company read as
follows: "Analysis," "Technical Support," "Training," "Installation,"
"Maintenance, "Integration" and "Design." Captions outside of circles read as
follows: "An Extensive Product Line" and "Serving a Wide Range of Industries."
Caption at bottom of page will read as follows: "Datalink is an Independent
Storage Solutions Provider that Matches The Best of Breed Products With
Technical Expertise and Comprehensive Services and Support to Meet Each
Customer's Unique Needs."

------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT, STABILIZING BIDS AND PURCHASES,
SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise specified or the context
otherwise requires, shares and per share information contained in this
Prospectus gives effect to the 690-for-1 stock split effected by the Company in
June 1998. Unless otherwise indicated, the information in this Prospectus does
not give effect to (i) 950,000 shares of Common Stock reserved for issuance
under the Company's Incentive Compensation Plan, including 558,625 shares of
Common Stock reserved for issuance upon the exercise of stock options to be
granted under the Incentive Compensation Plan; (ii) 250,000 shares of Common
Stock reserved for issuance under the Company's Employee Stock Purchase Plan and
(iii) 390,000 shares of Common Stock which may be purchased by the Underwriters
from the Company to cover over-allotments, if any. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed under the heading "Risk Factors," which
investors should carefully consider.

THE COMPANY

Datalink Corporation ("Datalink" or the "Company") analyzes, custom
designs, integrates or assembles, installs and supports high-end Open Systems
data storage solutions for end-users, value-added resellers ("VARs") and
original equipment manufacturers ("OEMs"). The Company has developed
engineering, sales and support capabilities to become an expert in applying the
best available storage technologies manufactured by the leading data storage
hardware and software companies to solve its customers' growing data storage
needs. These technologies include hard disk, redundant array of independent
disks ("RAID"), magnetic tape, CD-ROM, storage area network, network attached
storage and optical products. The Company also incorporates storage management
software technologies, including backup and recovery, disaster recovery, HSM,
archive, management and configuration, high availability and media management
products, to meet the specific needs of its customers. The Company's net sales
have grown from $24.1 million in 1993 to $71.3 million in 1997, a 31% annual
compound growth rate, and the Company's S corporation net income has grown from
$1.0 million to $6.1 million, a 56% annual compound growth rate, over the same
period.

With the ongoing introduction of more advanced and powerful computers,
application software developers have introduced powerful, easier to use,
graphically oriented, memory intensive software packages. These software
applications have resulted in the enterprise-wide automation of an increasing
number of mission-critical business applications, including on-line transaction
processing, the Internet, intranets, pre-press, multimedia, imaging and data
warehousing. This automation has expanded the need for on-line storage,
uninterrupted access to data and fail-safe methods to backup and archive such
data. Accordingly, several independent market research firms have projected
significant growth over the next several years for the markets addressed by the
Company. According to Dataquest, Inc., an independent market research firm, the
worldwide RAID storage market for UNIX and Windows NT operating platforms was
approximately $12.8 billion in 1997 and is expected to grow at an annual
compound rate of 24% to approximately $37.0 billion by 2002. According to
Strategic Research Corp., an independent market research firm ("SRC"), the
worldwide market for tape automation backup storage products was approximately
$1.6 billion in 1996 and is expected to grow at an annual compound rate of 18%
to approximately $4.4 billion by 2002. According to SRC, the worldwide storage
management software market was approximately $1.4 billion in 1997 and is
expected to grow at an annual compound rate of 31% to approximately $3.0 billion
by 2000. Datalink competes in and has a minor share of the domestic segments of
these markets.

The need to distribute mission-critical data across an enterprise has led
organizations to rely upon complex Open Systems computing platforms that link
multiple application, file, database and communications servers of differing
vendors to networked computers. The increasing demand for and complexity of
information storage systems has outpaced the ability of in-house MIS departments
to adequately serve their organizations. Accordingly, organizations rely on
external providers to research, design, implement and support information
storage solutions that incorporate the best hardware and software technologies
available and are compatible with organizations' often large and complex
computer networks and operating system architectures. At the

<PAGE> 5

same time, reduced profit margins have led suppliers to downsize their sales and
marketing forces. As a result, both customers and suppliers increasingly seek
independent solutions providers, such as Datalink, with knowledge and experience
in Open Systems data storage.

The Company's storage solutions are designed to provide its customers with
the optimal combination of performance, capacity, high availability, disaster
recovery, multi-platform support, permanence, scalability, centralized
management and cost. For end-users and VARs, Datalink's technical sales and
engineering teams assess each customer's information and storage retrieval
requirements and then design, integrate, install and support information storage
solutions incorporating the best available hardware and software products on the
market. For OEMs, Datalink's design and application engineers custom design and
test storage subsystems which the Company assembles for integration into the
OEM's own products.

Datalink's customers are located throughout the United States and span a
diverse group of data-intensive industries, including computer technology,
consumer products, education, financial services, government, health care,
insurance, professional services, telecommunications, transportation and
utilities. The Company's customers include Andersen Worldwide, S.C.,
BellSouth.net, The Boeing Company, Dominion Resources, Inc., Eli Lilly and
Company, Gateway 2000, Inc., GE Medical Systems, The Kemper Insurance Companies,
KPMG Peat Marwick LLP, Lucent Technologies, Inc., Michelin Tire Corp., Motorola,
Inc., the National Aeronautics Space Administration, Swiss Bank Corporation and
the University of Chicago. Datalink's broad industry experience enables the
Company to understand application and business issues specific to its customers
and to design and implement appropriate storage solutions.

The Company believes it differentiates itself from its competitors in
several ways. Because of Datalink's established, strong relationships with the
major information storage hardware and software suppliers, the Company often
participates in suppliers' new product development, evaluation, introduction,
marketing and quality control programs. The Company also believes that the
longevity of service of its engineering staff and sales force is a key factor to
earning and retaining the trust and confidence of the Company's customers and
suppliers. Sales to existing customers has exceeded 77% of the Company's net
sales in each of 1995, 1996 and 1997. Datalink further differentiates itself by
maintaining ISO 9001 registration for its principal facility and utilizing such
standards throughout its organization to consistently maintain high quality
design, development, integration and assembly, installation and service
processes.

The Company's objective is to grow at a rate exceeding that of the industry
and strengthen its position as a leading independent Open Systems storage
solutions provider. To achieve its objective, Datalink intends to build upon its
record of successfully addressing the evolving information storage management
needs of its customers. Key elements of the Company's business strategy are to
(i) broaden relationships with existing customers and leverage the Company's
market presence to attract new customers; (ii) continue to develop leading-edge
storage solutions for customers; (iii) expand its offering of professional
consulting and project management services; (iv) expand geographically through
internal growth and acquisitions; and (v) maintain and continually improve the
Company's high standards for superior technical and sales service and support.
The Company's senior management team, which has worked together since 1991, has
assembled an experienced team of professionals to execute the Company's business
strategy.

As part of its business strategy, in July 1998, the Company acquired Direct
Connect Systems, Inc. ("DCSI"), a Marietta, Georgia-based firm engaged in the
analysis, custom design, integration and support of high-end Open Systems data
solutions principally for end-users in the southeastern United States. DCSI's
net sales for 1997 were $11.8 million.

The Company was incorporated in Minnesota in 1963 under the name Stan
Clothier Co., Inc. In April 1987, the Company changed its name to Datalink
Corporation. The Company's executive offices are located at 7423 Washington
Avenue South, Minneapolis, Minnesota 55439. Datalink's telephone number is (612)
944-3462. The Company's web site is located at www.datalink.com. The contents of
this web site are not incorporated herein by reference.

2
<PAGE> 6

THE OFFERING

Common Stock offered by the Company..... 2,600,000 shares

Common Stock to be outstanding after
this offering........................... 9,700,000 shares(1)

Use of Proceeds......................... The net proceeds to the Company
from this offering will be used to
(i) distribute to the current
stockholders the previously taxed,
but undistributed, S corporation
earnings estimated at $8.9 million
had the termination occurred on
September 30, 1998; (ii) repay
certain outstanding indebtedness of
approximately $4.2 million and
(iii) fund the Company's growth and
expansion plans, including
potential acquisitions, working
capital and other general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq National Market
Symbol.................................. DTLK
- ------------

(1) Excludes (i) 950,000 shares of Common Stock reserved for issuance under the
Company's Incentive Compensation Plan, including 558,625 shares of Common
Stock reserved for issuance upon the exercise of options to be granted under
the Incentive Compensation Plan, (ii) 250,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan and
(iii) 390,000 shares of Common Stock which may be purchased by the
Underwriters from the Company to cover over-allotments, if any. See
"Management--Stock Incentive Plans" and "Underwriting."

3
<PAGE> 7

SUMMARY FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $24,146 $32,333 $38,048 $54,652 $71,255 $50,534 $60,112
Cost of sales......................... 19,405 25,907 30,356 42,872 55,719 39,687 45,129
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 4,741 6,426 7,692 11,780 15,536 10,847 14,983
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 1,495 1,891 2,487 3,607 5,191 3,746 5,082
General and administrative............ 1,764 1,912 2,118 2,382 3,010 2,001 2,966
Engineering........................... 269 343 467 633 926 777 1,080
Offering costs(1)..................... 709
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 3,528 4,146 5,072 6,622 9,127 6,524 9,837
------- ------- ------- ------- ------- ------- -------
Operating income...................... 1,213 2,280 2,620 5,158 6,409 4,323 5,146
Interest expense, net................. 192 243 306 286 333 263 221
------- ------- ------- ------- ------- ------- -------
Income before income taxes............ 4,924
Income tax expense.................... 240
------- ------- ------- ------- ------- ------- -------
Net income(2)......................... $ 1,021 $ 2,037 $ 2,314 $ 4,872 $ 6,076 $ 4,060 $ 4,684
======= ======= ======= ======= ======= ======= =======
Historical net income per share, basic
and diluted......................... $ 0.15 $ 0.30 $ 0.34 $ 0.71 $ 0.88 $ 0.59 $ 0.67
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding,
basic and diluted................... 6,900 6,900 6,900 6,900 6,900 6,900 6,957
------- ------- ------- ------- ------- ------- -------
Pro forma income taxes(3)............. 2,430 1,624 1,716
------- ------- -------
Pro forma net income.................. $ 3,646 $ 2,436 $ 2,968
======= ======= =======
Pro forma net income per share, basic
and diluted(4)...................... $ 0.46 $ 0.31 $ 0.38
======= ======= =======
Shares used in computing pro forma net
income per share(4)................. 7,854 7,854 7,911
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------------------------
PRO FORMA
AS OF DECEMBER 31, TERMINATION OF TERMINATION OF
--------------------------------------------- PUT S CORPORATION AS
1993 1994 1995 1996 1997 ACTUAL OPTIONS(5) STATUS(6) ADJUSTED(7)
---- ---- ---- ---- ---- ------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 142 $ 294 $ 111 $ 222 $1,163 $1,343 $1,343 $1,343 $11,928
Working capital......... 1,605 2,424 3,003 5,330 6,761 4,872 4,872 (3,841) 19,839
Total assets............ 6,028 9,314 8,689 15,355 18,705 27,595 27,595 27,754 38,339
Common stock subject to
put option............ 1,698 3,425 5,351 9,339 13,874 17,568 -- -- --
Stockholders' equity
(deficiency).......... (483) (1,331) (2,286) (3,296) (5,744) (6,696) 10,872 2,157 25,837
</TABLE>

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(1) Represents legal, accounting and other costs associated with the Company's
initial public offering, which was postponed in August 1998 due to market
conditions.

(2) For the periods presented, the Company was an S corporation and,
accordingly, was not subject to federal and state income taxes. Until its
merger into Datalink in January 1999, DCSI was a C corporation. Accordingly,
a provision for income taxes resulting from the operations of DCSI from the
date of the acquisition, July 15, 1998, through September 30, 1998 is
included in the financial data for the nine-month period ended September 30,
1998.

4
<PAGE> 8

(3) Pro forma income taxes have been computed as if the Company was subject to
federal and state income taxes for the periods presented, based on the tax
laws in effect during those periods. See Notes 2 and 3 of the Notes to the
Company's Financial Statements.

(4) Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the period, after
giving effect to the estimated number of shares that would be required to be
sold at the initial public offering price (after deducting the underwriting
discounts) to fund a distribution to the current stockholders of all
previously taxed, but undistributed, S Corporation earnings, estimated at
$8.9 million had the termination occurred on September 30, 1998. The Company
does not have any common stock equivalents. See "Termination of S
Corporation Status and Put Option and Dividend Policy" and Note 3 of the
Notes to the Company's Financial Statements.

(5) Adjusted to give pro forma effect to the reclassification of the Company's
Common Stock subject to put option into stockholders' equity, reflecting
termination of these put options upon the closing of this offering. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Note 9 of the Notes to the Company's Financial Statements.

(6) Adjusted to give pro forma effect to (i) the pro forma adjustment described
in (5) above, (ii) a final S corporation distribution payable to the current
stockholders, representing all previously taxed, but undistributed, S
corporation earnings, estimated at $8.9 million had the termination occurred
on September 30, 1998 and (iii) a net deferred tax asset which will be
recorded by the Company as a result of the termination of its S corporation
status, estimated at $157,000 had such termination occurred on September 30,
1998. See "Termination of S Corporation Status and Put Option and Dividend
Policy" and Note 3 of the Notes to the Company's Financial Statements.

(7) Adjusted to give effect to (i) the pro forma adjustments described in (6)
above and (ii) the sale by the Company of 2,600,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."

5
<PAGE> 9

RISK FACTORS

This Prospectus contains certain forward-looking statements, including the
plans and objectives of management for the business, operations and economic
performance of the Company. The forward-looking statements and associated risks
set forth in this Prospectus may include or relate to, among other things, the
ability of the Company to maintain its close working relationships with its
suppliers, expand its customer base, consummate strategic acquisitions of
businesses and integrate such acquisitions into the Company's operations, the
projected growth in the market for data storage solutions and competition. These
forward-looking statements may be identified by qualifiers such as "intends,"
"believes" and "anticipates," among other terms. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved. Further, and in addition to the other information contained in this
Prospectus, the following risk factors should be carefully considered in
evaluating the Company and its business prospects before purchasing shares
offered by this Prospectus.

DEPENDENCE ON SUPPLIER RELATIONSHIPS

The Company relies on its relationships with its suppliers to provide
access to products and new technology necessary to design and implement
leading-edge storage solutions for its customers. The Company does not have
long-term contracts with any of its suppliers and relies upon a limited number
of suppliers for several key products and subassemblies. For example, the
Company purchases digital linear tape products manufactured primarily by ATL
Products, Inc, a division of Quantum Corporation, and Storage Technology
Corporation, RAID products manufactured primarily by CLARiiON, a division of
Data General Corporation, and Hitachi Data Systems Corporation and storage
management software products manufactured primarily by Legato Systems, Inc. and
VERITAS Software Corporation. The Company's reliance on its suppliers involves
several risks, including an inadequate supply of required products and
subassemblies, price increases, late deliveries and poor product and subassembly
quality. In addition, there is currently a significant market demand for disk
drives, tape drives and RAID controllers, and from time to time the Company's
subassembly suppliers may experience product and component shortages, selective
supply allocations and increased prices of such products and components.
Although to date the Company has been able to purchase its requirements of such
products and subassemblies, there can be no assurance that the Company will be
able to obtain its full requirements of such products and subassemblies in the
future or that prices of such products and subassemblies will not increase. In
addition, there can be no assurance that problems with respect to quantity and
quality of such products and subassemblies and timeliness of deliveries will not
occur. Disruption or termination of the supply of products and subassemblies
from suppliers for any reason could delay shipments of the Company's products
and could have a material adverse effect on the Company's business, operating
results or financial condition. See "Business--Business Strategy" and
"--Products."

COMPETITION

The market for Open Systems storage is intensely competitive. Datalink
competes with independent storage system suppliers to the high-end Open Systems
market, including Box Hill Systems Corp., EMC Corporation, MTI Technology
Corporation and numerous VARs, resellers, distributors and consultants. The
Company also competes in the storage systems market with general purpose
computer suppliers such as Compaq Computer Corporation ("Compaq"), Dell Computer
Corporation ("Dell"), Hewlett-Packard Company ("Hewlett-Packard"), International
Business Machines Corp. ("IBM"), Silicon Graphics, Inc. ("Silicon Graphics") and
Sun Microsystems, Inc. ("Sun"). In addition, the Company's customers and
prospective customers may elect to develop in-house storage systems expertise.

Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company and, as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to the development, promotion and sale of products than the Company or to
deliver competitive products at a lower end-user price. Some of the Company's
competitors include its suppliers, who may dedicate or acquire greater sales and
marketing resources in the future to provide Open Systems storage solutions than
at present
6
<PAGE> 10

and could terminate their relationships with the Company. Other suppliers may
also enter the market and compete with the Company. The Company expects
competition will increase as a result of industry consolidation. Current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. See "Business--Competition."

COMPETITIVE PRICING

Competitive pricing pressures in the data storage market have had and may
have an adverse effect on the Company's business, operating results or financial
condition. There also has been, and may continue to be, a willingness on the
part of certain large competitors to reduce prices in order to preserve or gain
market share, which cannot be foreseen by the Company. The Company believes that
pricing pressures are likely to continue as competitors develop more competitive
product offerings. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's future operating results depend in significant part upon the
continued contributions of its executive officers, other key management and
sales, engineering and other technical personnel, many of whom would be
difficult to replace. In particular, the Company is highly dependent upon the
services of Greg R. Meland, Chief Executive Officer; Robert D. DeVere, Chief
Financial Officer; Scott D. Robinson, Vice President of Engineering and Stephen
M. Howe, Vice President of Sales. The Company does not have employment,
non-competition or nondisclosure agreements with any of its officers or
employees, other than certain non-competition agreements entered into in
connection with the DCSI acquisition. Accordingly, the Company's employees may
voluntarily terminate their employment with the Company at any time. The loss of
any employee who is critical to the Company's success could have a material
adverse effect on the Company's business, operating results or financial
condition. In addition, the Company's future operating results depend in part
upon its ability to attract, train, retain and motivate qualified management,
technical, sales and support personnel for its operations. Competition for
qualified employees in the data storage industry, and particularly with respect
to engineers with Open Systems storage solutions experience, is intense.
Competitive factors that could affect the Company's ability to attract and
retain such personnel include compensation, benefits, equity incentives and
geographic location. There can be no assurance that the Company will be
successful in attracting or retaining such key personnel, and the failure of the
Company to recruit and retain additional key personnel could materially and
adversely affect the Company's business, operating results or financial
condition. See "Business--Technical Services."

MANAGEMENT OF GROWTH

The Company's growth and expansion may place a significant strain on the
Company's administrative, operational and financial resources and increase
demands on the Company's professional and technical services, assembly,
integration, sales and marketing and customer service and support functions,
especially as the Company attempts to expand its geographic reach. To manage its
growth effectively, the Company will need to hire, train, motivate and manage
new management, technical, sales and administrative employees. In connection
with its planned geographic expansion, the Company will incur travel,
telecommunications and other incremental costs, as well as increased human
resource costs. The failure by the Company to generate sufficient revenues to
offset the costs of geographical expansion could have a material adverse effect
on the Company's business, operating results or financial condition. If the
growth in demand for products and services offered by the Company increases at a
significantly higher rate than anticipated, the Company may lack the technical
services and capacity necessary to satisfy such demand in a timely fashion, and
its customers may experience delivery delays or interruptions in technical
service and support. This risk may be exacerbated by the fact that the Company
does not have long-term purchase agreements with suppliers and may not have

7
<PAGE> 11

sufficient inventory levels to support customer demand. There can be no
assurance that the Company will be able to manage expansion successfully or that
the Company's infrastructure, including but not limited to its systems,
procedures and controls, will be adequate to support such expansion. In
addition, there can be no assurance that the Company will be able to achieve
commercial success and maintain client service and support in a geographically
expanded area of operations at levels that it historically achieved and provided
in its current geographical areas. Failure to manage growth may have a material
adverse effect on the Company's business, operating results or financial
condition. See "Business--Business Strategy."

RAPID TECHNOLOGICAL CHANGE

The Open Systems storage market in which the Company operates is
characterized by rapid technological change, frequent new product introductions
and evolving industry standards. Customer preferences in that market are
difficult to predict. As an independent solutions provider, the Company relies
upon its suppliers' hardware, software and interface products to meet the needs
of the Company's customers. The introduction of products embodying new
technologies by the Company's competitors and the emergence of new industry
standards could render hardware, software and interface products currently
marketed by the Company obsolete and unmarketable. The Company's success will
depend upon its ability to address the increasingly sophisticated needs of its
customers and to identify and introduce, on a timely basis, new competitive
products and applications of existing and new suppliers (including new software
and enhancements to existing software) that keep pace with technological
developments and emerging industry standards. There can be no assurance that the
Company will be successful in identifying, managing, developing, integrating or
assembling and marketing product enhancements or new products of its suppliers
that respond to technical change or evolving industry standards, that the
Company and its suppliers will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of such products
or that its suppliers' new products and product enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. Further
risks inherent in its suppliers' new product introductions include the
uncertainty of price performance relative to products of competitors, including
competitors' responses to these new product introductions. The Company's
business, operating results or financial condition could be materially and
adversely affected if the Company or its suppliers were to be unsuccessful, or
to incur significant delays, in developing and introducing new products or
enhancements. See "Business--Products."

RISKS ASSOCIATED WITH ACQUISITIONS

The Company intends to pursue strategic acquisitions of businesses that
either expand or complement its business, such as the July 1998 acquisition of
DCSI. A substantial portion of the Company's capital resources, including a
portion of the proceeds from this offering, could be used for acquisitions. The
Company will evaluate specific acquisition opportunities based on prevailing
market and economic conditions. Acquisitions could result in the integration of
dissimilar operations or assets, assimilation of new employees, diversion of
management time and resources, increases in administrative costs, potential loss
of key employees of an acquired company and additional costs associated with
obtaining any necessary financing. These factors and the Company's lack of
experience in negotiating, consummating and integrating acquisitions could
adversely affect the Company's business, operating results or financial
condition. This risk may be compounded by the Company's geographic expansion or
product diversification. Acquisitions also could result in dilution to existing
stockholders, including those purchasing shares of Common Stock in this
offering. The Company may encounter increased competition for acquisitions in
the future, which could result in acquisition prices that the Company does not
consider acceptable. An increase in acquisition prices could adversely affect
the Company's acquisition strategy. There can be no assurance that the Company
will be able to identify suitable acquisition candidates at acceptable prices or
succeed in integrating any acquired business into the Company's existing
business or in retaining key customers of acquired businesses. There also can be
no assurance that the Company will have or be able to obtain sufficient capital
to execute its acquisition strategy. See "Use of Proceeds" and
"Business--Business Strategy."

8
<PAGE> 12

FLUCTUATIONS IN OPERATING RESULTS

The Company may experience significant fluctuations in future annual and
quarterly operating results because of a number of factors including, among
other things, the size and timing of customer orders, new product introductions
by suppliers and the market acceptance thereof, delays in product shipments or
other quality control difficulties, the ability of the Company to integrate any
acquired businesses, product returns, seasonality in storage system product
purchases, trends in the Open Systems storage industry in general, the
geographic and industry specific markets in which the Company is presently
active, or may be in the future, and the opening of new sales offices. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

BROAD DISCRETION IN APPLICATION OF PROCEEDS

The Company has not designated any specific use for approximately $10.6
million of the net proceeds to the Company from the sale of Common Stock
described in this Prospectus (assuming an initial public offering price of
$10.00 per share). The Company intends to use these net proceeds to fund its
growth and expansion, to increase the Company's working capital and for general
corporate purposes which the management of the Company will determine from time
to time. Accordingly, the Board of Directors and management of the Company will
have significant flexibility in applying such remaining proceeds of this
offering. The failure of the Company's management to use such funds effectively
could have a material adverse effect on the Company's business, operating
results or financial condition. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

PRIOR S CORPORATION STATUS AND DISTRIBUTION TO CURRENT STOCKHOLDERS

The Company historically has been treated as an S corporation for federal
and state income tax purposes. Unlike a C corporation, an S corporation is
generally not subject to income tax at the corporate level; instead, the S
corporation's income is taxed on the personal income tax returns of its
stockholders. The Company's status as an S corporation will terminate upon the
closing of this offering. If S corporation status were denied for any periods
prior to this termination by reason of a failure to satisfy the S corporation
election or eligibility requirements of the Internal Revenue Code, as amended
(the "Code"), the Company would be subject to tax on its income as if it were a
C corporation for those periods.

In connection with the termination of the Company's S corporation status,
the Company intends to make a distribution to the current stockholders of all
previously taxed, but undistributed, S corporation earnings of the Company. As
of September 30, 1998, this amount was approximately $8.9 million. The Company
will adjust the actual amount of the distribution to reflect the taxable income
and any stockholder distributions from October 1, 1998 through the termination
of the S corporation status upon the closing of this offering. Purchasers of
Common Stock in this offering will not receive any of this distribution. See
"Use of Proceeds," "Termination of S Corporation Status and Put Option and
Dividend Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 3 of the Notes to the Company's Financial
Statements.

YEAR 2000 COMPLIANCE

In connection with the approach of the Year 2000, industry experts have
predicted a variety of adverse consequences, including catastrophic system
failures, that may result from organizations' computer systems having been
programmed to record and process year dates by two, rather than four, digits.
Although the Company believes that its new computer system will not experience
any Year 2000 problems, there can be no such assurance. Further, the Company
cannot predict whether its suppliers, customers and other organizations with
whom the Company conducts business will in a timely fashion bring their computer
systems or product offerings into Year 2000 compliance. If the Company's
suppliers or customers fail to complete any required Year 2000 remediation of
their computer systems or product offerings, the Company could suffer delays in
product delivery or in processing of payments owed to the Company. In addition,
if any products or subassemblies sold by the Company to its customers were to
fail, the Company could be liable to its customers

9
<PAGE> 13

for damages and costs to the extent that the Company's suppliers do not cover
such liability. Any such Year 2000 failures could have a material adverse effect
on the Company's business, operating results or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Disclosure."

WARRANTY EXPOSURE

Products offered by the Company may contain defects in hardware, software
or workmanship that remain undetected or that may not become apparent until
after commercial shipment. Any loss or delay in customer or market acceptance
attributable to such defects or any material replacement or repair expenses due
to any such defects could have a material adverse effect on the Company's
business, operating results or financial condition.

As a solutions provider, the Company supports and administers the
pass-through of its suppliers' own standard warranties which run from one to
five years. The Company contracts with a number of its suppliers and other
independent service organizations to provide on-site maintenance and repair
services. If a supplier were to fail to meet its warranty obligations to the
Company, the Company might be liable to its customers. There can be no assurance
that suppliers will be willing or able to honor their warranties, that the
Company may not incur its own warranty costs or that the Company's repair and
maintenance subcontractors will perform their services in a timely and proper
manner. See "Business--Technical Services."

RESTRICTIONS ON DIVIDENDS

Other than the planned S Corporation distribution, the Company does not
anticipate paying any dividends in the foreseeable future. In addition, the
Company's credit agreement with Norwest Bank Minnesota, N.A. (the "Credit
Agreement") prohibits the Company from paying dividends to its stockholders.
Accordingly, investors who have a need for current income should not purchase
the shares offered hereby.

DILUTION

Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution of $7.54 per share, or 75.4%, in the net tangible book
value per share of Common Stock from the assumed initial public offering price
of $10.00 per share. If the Company issues additional shares of capital stock
for any reason, purchasers of the shares offered hereby may incur additional
dilution. See "Dilution."

CONTROL BY CURRENT STOCKHOLDERS

Immediately following this offering, the current stockholders of the
Company will beneficially own approximately 73.2% of the outstanding Common
Stock (approximately 70.4% if the Underwriters' over-allotment option is
exercised in full). As a result, the ten current stockholders will continue to
be able to elect the entire Board of Directors and to control the outcome of all
other matters requiring stockholder approval. Such voting concentration may have
the effect of delaying or preventing a change in management or control of the
Company. See "Principal Stockholders."

ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF
TRADING PRICE

Prior to this offering, there has been no public market for the Common
Stock. Although the Company's Common Stock has been approved upon notice of
issuance for quotation and trading on the Nasdaq National Market, there can be
no assurance that an active public market will develop or that the initial
public offering price will correspond to the price at which the Common Stock
will trade in the public market subsequent to this offering. The initial public
offering price for the Common Stock has been determined by negotiations between
the Company and the Representatives. See "Underwriting."

The market price of the Common Stock may be volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's operating results, announcements of technical innovations, new
products or services by the Company, its suppliers or its competitors, changes
in estimates by

10
<PAGE> 14

securities analysts of the Company's future financial performance, general
market conditions and other factors. In addition, the stock market has from time
to time experienced significant price and volume fluctuations which, in no
relationship to operating performance, have adversely affected the market prices
of securities of some companies.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock after this offering could
adversely affect the market price of the Common Stock. Although only the
2,600,000 shares (2,990,000 shares if the Underwriters' over-allotment option is
exercised in full) being sold in this offering will be available for sale in the
public market immediately after the offering, the 7,100,000 shares of Common
Stock owned by the current stockholders will be eligible for sale in the public
market beginning 180 days after the date of this Prospectus, subject to the
volume and manner of sale limitations imposed by Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). Rule 144 generally provides that
beneficial owners of Common Stock who have held such Common Stock for one year
may sell within a three-month period a number of shares not exceeding the
greater of 1% of the total outstanding shares or the average weekly trading
volume of the shares during the four calendar weeks preceding such sale. Future
sales of restricted Common Stock under Rule 144 could negatively impact the
market price of the Common Stock. Pursuant to the terms of the underwriting
agreement between the Company and the Representatives of the Underwriters,
Common Stock owned by the current stockholders, as well as option holders, may
not be sold for 180 days from the date of this Prospectus, but Needham &
Company, Inc. may waive this requirement. See "Shares Eligible for Future Sale."

UNDESIGNATED SHARES; CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Articles of Incorporation authorize the
issuance of 50 million undesignated shares. The Company's Board of Directors has
the authority to issue any or all of the undesignated shares, including the
authority to establish the rights, preferences and classes of the undesignated
shares, without stockholder approval. In addition, the Company is subject to
certain anti-takeover provisions of the Minnesota Business Corporation Act.
These provisions may, in certain circumstances, deter or discourage takeover
attempts and other changes in control of the Company not approved by the Board
of Directors. See "Description of Capital Stock."

11
<PAGE> 15

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
2,600,000 shares of Common Stock offered by the Company hereby at an assumed
initial offering price of $10.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses, are estimated to
be approximately $23.7 million ($27.3 million if the Underwriters'
over-allotment option is exercised in full). In addition to the purposes set
forth below, this offering is intended to provide a public market for Datalink's
Common Stock and to facilitate future access to the public capital markets. The
Company anticipates that it will use the net proceeds approximately as follows:

<TABLE>
<CAPTION>
APPLICATION OF NET PROCEEDS AMOUNT
- --------------------------- ------
<S> <C>
Distribution of S corporation earnings to the current
stockholders.............................................. $ 8.9 million
Repayment of certain indebtedness........................... 4.2 million
Growth and expansion, working capital and general corporate
purposes.................................................. 10.6 million
-------------
Total....................................................... $23.7 million
=============
</TABLE>

The Company plans to use a portion of the net proceeds of this offering to
fund the final S corporation distribution to the current stockholders. This
distribution will constitute all of the previously taxed, but undistributed, S
corporation earnings. As of September 30, 1998, such earnings were approximately
$8.9 million. See "Termination of S Corporation Status and Put Option and
Dividend Policy." See Note 3 of the Notes to the Company's Financial Statements.

The Company also intends to use a portion of the net proceeds of this
offering to repay all borrowings under the Credit Agreement. As of September 30,
1998, the balance under the Credit Agreement was $4.2 million. The Company will
have up to $10.0 million available under the Credit Agreement following the
offering subject to limitations based on percentages of eligible accounts
receivable and inventories. Upon the closing of this offering, the borrowings
under the Credit Agreement will bear interest at the bank's reference rate;
however, the Company may periodically borrow funds under the Credit Agreement at
LIBOR plus 1.95%. The Credit Agreement terminates on May 31, 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 5 of the Notes to the
Company's Financial Statements.

Approximately $10.6 million of the net proceeds of this offering will be
used to fund the Company's growth and expansion plans and for working capital
and general corporate purposes. As part of its growth and expansion plans, the
Company intends to pursue strategic acquisitions that either expand or
complement its business. See "Business--Business Strategy."

Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing securities.

12
<PAGE> 16

TERMINATION OF S CORPORATION STATUS AND PUT OPTION AND DIVIDEND POLICY

In January 1988, the Company elected to be treated as an S corporation and
since then has been, and through the closing date of the offering will be,
subject to taxation under Subchapter S of the Code and comparable state tax
regulations. As a result, the Company's earnings have been taxed for federal and
state income tax purposes directly to the stockholders rather than to the
Company. Upon conversion from S corporation to C corporation status, the Company
will become subject to federal and state corporate income taxes.

In connection with the termination of the Company's S corporation status
upon the closing of this offering, the Company will make a distribution to the
current stockholders of all previously taxed, but undistributed, S corporation
earnings of the Company. As of September 30, 1998, such earnings were
approximately $8.9 million. The actual amount of the distribution will be
adjusted to reflect the taxable income and any stockholder distributions from
October 1, 1998 through the termination of the S corporation status. Following
the termination of its S corporation status, the Company will record a net
deferred tax asset on its balance sheet which will ultimately increase retained
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations" and Note 3 of the Notes to the
Company's Financial Statements.

The Company is obligated to redeem shares of the Company's Common Stock
held by its current stockholders upon the occurrence of certain events. Because
the Company's Common Stock is subject to these put options, the accreted value
of the Common Stock has been excluded from stockholders' equity. These put
options will be terminated contemporaneously with the closing of this offering.
See "Selected Historical and Pro Forma Financial Data," "Capitalization" and
Notes 3 and 9 of the Notes to the Company's Financial Statements.

The Company currently intends to retain any net income for use in its
business and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future other than in connection with the termination of the
Company's S corporation status. Any future declaration and payment of dividends
will be subject to the discretion of the Company's Board of Directors, will be
subject to applicable law and will depend upon the Company's results of
operations, earnings, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors. In addition, the
Credit Agreement prohibits the Company from paying dividends to C corporation
stockholders.

13
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1998, on an actual basis, on a pro forma basis to give effect to
the termination of the put options on the Company's Common Stock, on a pro forma
basis to give effect to the termination of the Company's S corporation status
and on a pro forma basis as adjusted to give effect to the sale of the 2,600,000
shares of Common Stock offered by the Company hereby based upon an assumed
initial public offering price of $10.00 per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------------------------
PRO FORMA
--------------------------------------------
TERMINATION TERMINATION OF
OF PUT S CORPORATION AS
ACTUAL OPTIONS(2) STATUS(3) ADJUSTED(4)
------ ----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt................................ $ 30 $ 30 $ 30 $ 30
Common Stock, subject to put option, $0.001
par value; 50,000,000 shares authorized;
7,100,000 shares issued and outstanding..... 17,568 -- -- --
Stockholders' equity (deficiency):
Common Stock, $0.001 par value; 50,000,000
shares authorized; 7,100,000 shares
issued and outstanding actual and
9,700,000 shares issued and outstanding
as adjusted(1)........................... -- 7 7 10
Additional paid-in capital.................. -- -- -- 23,677
Retained earnings (accumulated deficit)..... (6,696) 10,865 2,150 2,150
------- ------- ------ -------
Total stockholders' equity (deficiency)..... (6,696) 10,872 2,157 25,837
------- ------- ------ -------
Total capitalization.......................... $10,902 $10,902 $2,187 $25,867
======= ======= ====== =======
</TABLE>

- ------------

(2) Adjusted to give pro forma effect to the reclassification of the Company's
Common Stock subject to put options into stockholders' equity, reflecting
termination of these put options upon the closing of this offering. See
"Termination of S Corporation Status and Put Option and Dividend Policy" and
Notes 3 and 9 of the Notes to the Company's Financial Statements.

(3) Adjusted to give pro forma effect to (i) the pro forma adjustment described
in (2) above, (ii) a final S corporation distribution to the current
stockholders, representing all previously taxed, but undistributed, S
corporation earnings, estimated at $8.9 million had the termination occurred
on September 30, 1998, (iii) a net deferred tax asset which will be recorded
by the Company as a result of the termination of its S corporation status,
estimated at $157,000 had such termination occurred on September 30, 1998.
See "Termination of S Corporation Status and Put Option and Dividend Policy"
and Notes 2 and 3 of Notes to the Company's Financial Statements.

(4) Adjusted to give pro forma effect to (3) above and the sale by the Company
of 2,600,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $10.00 per share and the application of the
estimated net proceeds therefrom. See "Use of Proceeds," and Notes 2 and 3
of the Notes to the Company's Financial Statements.

14
<PAGE> 18

DILUTION

The net tangible book value (deficit) of the Company as of September 30,
1998 was $(10.5) million, or $(1.48) per share. Net tangible book value
(deficit) per share is equal to the Company's total tangible assets less total
liabilities and the Company's Common Stock subject to put option, divided by the
total number of shares of Common Stock outstanding. After giving effect to (i)
the termination of the put option on the Company's Common Stock, (ii) the final
S corporation distribution to the current stockholders, estimated at $8.9
million had the termination occurred on September 30, 1998, (iii) the net
deferred tax asset which will be recorded by the Company as a result of the
termination of its S corporation status, estimated at $157,000 million had such
termination occurred on September 30, 1998 and (iv) the sale by the Company of
2,600,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the adjusted net tangible book value of the Company as of
September 30, 1998 would have been $23.8 million, or $2.46 per share. This
represents an immediate increase in net tangible book value of $3.94 per share
to the existing stockholders and an immediate dilution in net tangible book
value of $7.54 per share to investors purchasing shares of Common Stock in this
offering. The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.00
Net tangible book value (deficit) per share at September
30, 1998............................................... $(1.48)
Increase attributable to termination of put option on
Common Stock........................................... 2.47
Decrease attributable to the final S corporation
distribution, net of increase attributable to deferred
tax asset recognition.................................. (1.23)
Increase in net tangible book value per share attributable
to new investors....................................... 2.70
Net tangible book value per share after the offering........ 2.46
------
Dilution per share to new investors......................... $ 7.54
======
</TABLE>

The following table summarizes as of September 30, 1998, the number of
shares purchased from the Company, the total consideration paid to the Company
and the average price per share paid by the Company's existing stockholders and
by the new investors after the sale of 2,600,000 shares of Common Stock by the
Company at an assumed initial public offering price of $10.00 per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 7,100,000 73.2% $ 2,000,100 7.1% $ .28
New investors............................ 2,600,000 26.8 26,000,000 92.9 10.00
--------- ----- ----------- ----- ------
Total............................... 9,700,000 100.0% $28,000,100 100.0% $ 2.89
========= ===== =========== ===== ======
</TABLE>

The foregoing calculations do not give effect to (i) 950,000 shares of
Common Stock reserved for issuance under the Company's Incentive Compensation
Plan, including 558,625 shares of Common Stock reserved for issuance upon the
exercise of options to be granted under the Incentive Compensation Plan, (ii)
250,000 shares of Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan and (iii) 390,000 shares of Common Stock which may
be purchased by the Underwriters from the Company to cover over-allotments, if
any. See "Management Stock Incentive Plans" and "Underwriting."

15
<PAGE> 19

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth certain selected historical financial data
of Datalink as of and for each of the five years in the period ended December
31, 1997 and as of September 30, 1998 and for each of the nine month periods
ended September 30, 1997 and 1998. The selected historical financial data as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997 have been derived from the historical financial statements of
Datalink, audited by PricewaterhouseCoopers LLP, independent accountants, and
included elsewhere in this Prospectus. The selected historical financial data as
of December 31, 1995 has been derived from the historical financial statements
of Datalink, audited by PricewaterhouseCoopers LLP. The selected historical
financial data as of December 31, 1993 and 1994 and for each of the two years in
the period ended December 31, 1994 have been derived from the historical
financial statements of Datalink, audited by Hansen, Jergenson, Nergaard & Co.,
L.L.P. The selected historical financial data as of September 30, 1998 and for
the nine-month periods ended September 30, 1997 and 1998 have been derived from
unaudited financial statements of the Company which have been prepared on the
same basis as the audited financial statements and, in the opinion of the
Company, reflect all adjustments necessary (consisting only of normal recurring
adjustments) for the fair presentation of the Company's financial position and
results of operations for such periods. Results for interim periods are not
necessarily representative of the results to be expected for a full year, and
historical results are not necessarily indicative of the results of operations
to be expected in the future. The information contained in the following table
should also be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and related notes included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $24,146 $32,333 $38,048 $54,652 $71,255 $50,534 $60,112
Cost of sales................................... 19,405 25,907 30,356 42,872 55,719 39,687 45,129
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 4,741 6,426 7,692 11,780 15,536 10,847 14,983
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........................... 1,495 1,891 2,487 3,607 5,191 3,746 5,082
General and administrative.................... 1,764 1,912 2,118 2,382 3,010 2,001 2,966
Engineering................................... 269 343 467 633 926 777 1,080
Offering costs(1)............................. 709
------- ------- ------- ------- ------- ------- -------
Total operating expenses........................ 3,528 4,146 5,072 6,622 9,127 6,524 9,837
------- ------- ------- ------- ------- ------- -------
Operating income................................ 1,213 2,280 2,620 5,158 6,409 4,323 5,146
Interest expense, net........................... 192 243 306 286 333 263 221
------- ------- ------- ------- ------- ------- -------
Income before income taxes...................... 4,924
Income tax expense.............................. 240
------- ------- ------- ------- ------- ------- -------
Net income(2)................................... $ 1,021 $ 2,037 $ 2,314 $ 4,872 $ 6,076 $ 4,060 $ 4,684
======= ======= ======= ======= ======= ======= =======
Historical net income per share, basic and
diluted....................................... $ 0.15 $ 0.30 $ 0.34 $ 0.71 $ 0.88 $ 0.59 $ 0.67
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding, basic and
diluted....................................... 6,900 6,900 6,900 6,900 6,900 6,900 6,957
------- ------- ------- ------- ------- ------- -------
Pro forma income taxes(3)....................... 2,430 1,624 1,716
------- ------- -------
Pro forma net income............................ $ 3,646 $ 2,436 $ 2,968
======= ======= =======
Pro forma net income per share, basic and
diluted(4).................................... $ 0.46 $ 0.31 $ 0.38
======= ======= =======
Shares used in computing pro forma net income
per share(4).................................. 7,854 7,854 7,911
</TABLE>

16
<PAGE> 20

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
----------------------------
PRO FORMA
--------------
AS OF DECEMBER 31,
---------------------------------------------- TERMINATION OF
1993 1994 1995 1996 1997 ACTUAL PUT OPTIONS(5)
---- ---- ---- ---- ---- ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ 142 $ 294 $ 111 $ 222 $ 1,163 $ 1,343 $ 1,343
Working capital............ 1,605 2,424 3,003 5,330 6,761 4,872 4,872
Total assets............... 6,028 9,314 8,689 15,355 18,705 27,595 27,595
Common stock subject to
put option............... 1,698 3,425 5,351 9,339 13,874 17,568 --
Stockholders' equity
(deficiency)............. (483) (1,331) (2,286) (3,296) (5,744) (6,696) 10,872

<CAPTION>
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
----------------------------
PRO FORMA
----------------------------
TERMINATION OF
S CORPORATION AS
STATUS(6) ADJUSTED(7)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ 1,343 $11,928
Working capital............ (3,841) 19,839
Total assets............... 27,754 38,339
Common stock subject to
put option............... -- --
Stockholders' equity
(deficiency)............. 2,157 25,837
</TABLE>

- ------------

(1) Represents legal, accounting and other costs associated with the Company's
initial public offering, which was postponed in August 1998 due to market
conditions.

17
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company's
Financial Statements, including the Notes thereto, and the other information
included herein. The following information also includes forward-looking
statements, the realization of which may be impacted by certain important
factors discussed under "Risk Factors."

OVERVIEW

Datalink analyzes, custom designs, integrates or assembles, installs and
supports high-end Open Systems storage solutions using products and
subassemblies manufactured by various suppliers in order to meet its customers'
requirements. The Company has developed engineering, sales and support
capabilities to become an expert in applying the best available storage
technologies manufactured by the leading data storage hardware and software
companies to solve its customers' growing data storage needs. These technologies
include hard disk, RAID, magnetic tape, CD-ROM, storage area network, network
attached storage and optical products. The Company also incorporates storage
management software technologies, including backup and recovery, disaster
recovery, HSM, archive, management and configuration, high availability and
media management products, to meet the specific needs of its customers. The
Company's net sales and net income have grown at a compound annual rate of 31%
and 56%, respectively, over the five year period ended December 31, 1997.

The Company was founded in 1963 as Stan Clothier Co., Inc. and operated as
a manufacturer's representative for technology products and components. In 1987,
the Company was renamed Datalink Corporation to reflect the Company's transition
to a distributor of data storage products. Beginning with the hiring of Greg R.
Meland in 1991, the current management team recognized that rapid and complex
changes in data storage technology would lead businesses and organizations
increasingly to seek external expertise to address their data storage needs.
Accordingly, the Company made the strategic decision to focus on providing its
customers with complete data storage solutions encompassing the best technology
available. By developing engineering expertise and high quality customer service
and support, Datalink became a leader in providing data storage solutions.

Datalink's customers include end-users, VARs and OEMs. The Company works
closely with end-users and VARs to assess their informational storage and
retrieval requirements and to design, integrate, install and support information
storage solutions incorporating the best hardware and software products on the
market. For OEM customers, the Company's team of design and application
engineers custom design storage subsystems, which are integrated into the OEM's
own products. In general, the Company realizes higher gross margins on net sales
to end-users and OEMs based on the high value-added nature of such sales.

The Company realizes substantial repeat business from its existing
customers. During 1997, 1996 and 1995, sales to existing customers represented
79.9%, 77.7% and 82.6%, respectively, of net sales. Management believes that
this repeat business is attributable to the Company's high level of technical
expertise and customer service and support.

Datalink sells its products through its direct sales force located in
Minneapolis and 18 field offices. The Company has continued to grow its sales
force through acquisitions and opening new sales office locations in
anticipation of increased demand for the Company's products and services. The
Company selects new sales office locations based upon perceived demand for the
Company's products and services. Datalink has experienced, and expects to
continue to experience, an increase in sales and marketing expenses
disproportionate to the increase of net sales in connection with the opening of
new sales offices. This is due primarily to the lead time, six months or longer,
generally associated with generating business in the new territory.

As part of its business strategy, in July 1998, the Company acquired DCSI,
a Marietta, Georgia-based firm engaged in the analysis, custom design,
integration and support of high-end Open Systems data solutions principally for
end users in the southeastern United States. DCSI's net sales for 1997 were
$11.8 million.

18
<PAGE> 22

As an independent storage solutions provider, Datalink updates its product
offerings to incorporate advancements by its suppliers of hardware and software
technology. Although the Company often has advance knowledge of forthcoming
product releases because of its close working relationship with its suppliers,
the impact of these advancements on the Company's results of operations are
often difficult to predict. The Company's customers may delay purchases upon
learning of actual or rumored new product introductions. In addition, changes in
technology may significantly affect the pricing or profitability of products.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain selected
financial data expressed as a percentage of net sales.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 79.8 78.4 78.2 78.5 75.1
----- ----- ----- ----- -----
Gross profit............................... 20.2 21.6 21.8 21.5 24.9
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing........................ 6.5 6.6 7.3 7.4 8.4
General and administrative................. 5.6 4.4 4.2 4.0 4.9
Engineering................................ 1.2 1.2 1.3 1.5 1.8
Offering costs............................. 1.2
----- ----- ----- ----- -----
Total operating expenses................ 13.3 12.2 12.8 12.9 16.3
----- ----- ----- ----- -----
Operating income............................. 6.9% 9.4% 9.0% 8.6% 8.6%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Net Sales. Net sales include sales of products and software integrated for
end-user and VAR customers, products assembled by the Company for OEM customers
and revenues from billable installation, repair and maintenance services.
Datalink recognizes product revenues as its products are shipped or following
customer acceptance for products under evaluation. Net sales increased $9.6
million or 19.0% to $60.1 million for the nine months ended September 30, 1998,
from $50.5 million for the comparable period in 1997. Of the increase, $4.1
million was attributable to DCSI, which Datalink acquired in July 1998. The
balance of the increase primarily resulted from an increase in volume,
principally attributable to increases in sales of products to end-user customers
and revenues from maintenance contracts, partially offset by decreases in sales
to VAR and OEM customers.

Gross Profit. Cost of sales consists primarily of the cost of subassemblies
purchased from suppliers. Gross profit as a percentage of net sales increased to
24.9% for the nine months ended September 30, 1998, from 21.5% for the
comparable period in 1997. This increase was principally attributable to the
Company's increasing proportion of sales of large storage systems to end-user
customers which typically generate higher margins than sales to VAR and OEM
customers.

Sales and Marketing. Sales and marketing expenses include wages and
commissions paid to the Company's sales and marketing personnel, travel and
entertainment costs and advertising, promotion and trade show expenses. Sales
and marketing expenses increased $1.3 million or 35.6% to $5.1 million, or 8.4%
of net sales, for the nine months ended September 30, 1998, from $3.7 million,
or 7.4% of net sales, for the comparable period in 1997. This increase was
primarily attributable to additional sales commission associated

19
<PAGE> 23

with sales growth, the hiring of two new marketing personnel, increased
advertising costs as well as $396,000 of incremental costs related to the
operations of DCSI.

General and Administrative. General and administrative expenses include
wages for administrative personnel, profit sharing contributions, professional
fees, communication expenses and rent and related facility expenses. General and
administrative expenses increased $965,000 or 48.2% to $3.0 million, or 4.9% of
net sales, for the nine months ended September 30, 1998, as compared to $2.0
million, or 4.0% of net sales, for the comparable period in 1997. Of the
increase, $266,000 is attributable to DCSI's operations acquired in July 1998,
$122,000 is attributable to amortization of identifiable intangible assets and
goodwill related to the Company's acquisition of DCSI, and the remaining
increase was principally due to an increase in administrative personnel employed
by the Company as well as an increase in certain salaries.

Offering Costs. The Company incurred approximately $709,000 of expenses in
1998 in conjunction with the Company's attempt to complete its contemplated
initial public offering in the third quarter of 1998. The offering was delayed
by market conditions. Accordingly, these previously deferred costs were expensed
in the third quarter when a determination was made that the offering would be
substantially delayed.

Engineering. Engineering expenses include employee wages, travel and
training expenses for the Company's professional engineers and technicians and
professional fees to obtain various independent laboratory certifications of
storage subsystems designed by the Company for OEM customers. Engineering
expenses increased $303,000 or 39.0% to $1.1 million, or 1.8% of net sales, for
the nine months ended September 30, 1998, from $777,000, or 1.5% of net sales,
for the comparable period in 1997. This increase was primarily attributable to
the addition of new engineering personnel and increased travel expenses.

Operating Income. Operating income increased $823,000 or 19.0% to $5.1
million, or 8.6% of net sales, for the nine months ended September 30, 1998,
from $4.3 million, or 8.6% of net sales, for the comparable period in 1997. The
decrease as a percentage of net sales was principally attributable to the
expenses related to the delayed offering and certain incremental expenses
related to the acquisition of DCSI and its operations.

Income Taxes. Until its merger into Datalink in January 1999, DCSI was a C
corporation and accordingly its income was subject to U.S. and state income
taxes. For the nine-month period ended September 30, 1998, the Company has
provided for income tax expense related to DCSI's income for the period July 15,
1998 through September 30, 1998. The Company's S corporation status will be
terminated upon completion of this offering and the Company's income will be
subject to income taxes.

Net Income. Net income increased to $4,684,332 or 7.8% of net sales for the
nine months ended September 30, 1998 from $4,060,043 or 8.0% of net sales for
the comparable period of 1997. The increase in net income is the result of the
increase in revenues and changes in expenses described above. The decrease in
net income as a percentage of net sales is primarily due to the income tax
expense associated with DCSI operations and amortization of identifiable
intangible assets and goodwill related to the Company's acquisition of DCSI.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Net Sales. Net sales increased 30.4% to $71.3 million in 1997 and increased
43.6% to $54.7 million in 1996. Net sales were $38.0 million in 1995. These
increases were principally attributable to an increase in sales of large RAID
and tape backup storage systems to end-user customers.

Gross Profit. Gross profit as a percentage of net sales increased to 21.8%
in 1997 from 21.6% in 1996 and 20.2% in 1995. These increases were primarily due
to the Company's increasing sales of large storage systems to end-user
customers.

Sales and Marketing. Sales and marketing expenses increased 43.9% to $5.2
million in 1997 and increased 45.0% to $3.6 million in 1996. Sales and marketing
expenses were $2.5 million in 1995. As a percentage of net sales, sales and
marketing expenses were 7.3% in 1997, 6.6% in 1996 and 6.5% in 1995. The
increases as a percentage of net sales over these years were principally
attributable to an increase in

20
<PAGE> 24

commissions paid to the Company's sales representatives on large storage system
sales to end-user customers and to the hiring of new sales representatives in
anticipation of future growth.

General and Administrative. General and administrative expenses increased
26.4% to $3.0 million in 1997 compared to 1996 and increased 12.5% to $2.4
million in 1996 compared to $2.1 million in 1995. As a percentage of net sales,
general and administrative expenses were 4.2% in 1997, 4.4% in 1996 and 5.6% in
1995. The dollar increase in general and administrative expenses was primarily
attributable to increases in administrative personnel and related expenses. The
decrease as a percentage of net sales over such periods was principally
attributable to the significant increase in net sales over these periods.

Engineering. Engineering expenses increased 46.4% to $926,000 in 1997 as
compared to 1996 and increased 35.6% to $633,000 in 1996 as compared to $466,000
in 1995. Engineering expenses as a percentage of net sales were 1.3% in 1997 and
1.2% in both 1996 and 1995. The dollar increase over these years was primarily
attributable to the addition of new engineering personnel and increased travel
expenses.

Operating Income. Operating income increased 24.2% to $6.4 million in 1997
as compared to 1996 and 96.8% to $5.2 million in 1996 as compared to $2.6
million in 1995. As a percentage of net sales, operating income was 9.0% in
1997, 9.4% in 1996 and 6.9% in 1995. The decrease in operating income as a
percentage of net sales in 1997 was principally attributable to the investment
in sales and marketing expenses in anticipation of future sales growth. The
increase in operating income as a percentage of net sales in 1996 was
principally attributable to the significant increase in net sales.

QUARTERLY RESULTS AND SEASONALITY

The following table sets forth certain unaudited quarterly financial data
of the Company for each quarter of 1996 and 1997 and the first three quarters of
1998. In the opinion of the Company's management, this unaudited information has
been prepared on the same basis as the audited information and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
1996 1997 1998
----------------------------------------- ----------------------------------------- --------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $10,842 $12,686 $13,871 $17,253 $15,266 $15,999 $19,269 $20,721 $16,599
Gross profit............ 2,190 2,784 3,033 3,773 3,260 3,543 4,044 4,689 3,876
Operating income........ 834 1,351 1,141 1,832 1,077 1,660 1,586 2,085 1,173
Net income.............. 771 1,271 1,075 1,755 1,004 1,567 1,489 2,016 1,118
Pro forma net
income(1)............. 457 753 638 985 602 940 890 1,214 682

<CAPTION>
QUARTER ENDED
-------------------
1998
-------------------
JUN. 30 SEP. 30
------- -------
<S> <C> <C>
Net sales............... $20,028 $23,485
Gross profit............ 5,107 6,000
Operating income........ 2,351 1,622
Net income.............. 2,301 1,265
Pro forma net
income(1)............. 1,404 882
</TABLE>

- ------------
(1) Pro forma net income has been computed as if the Company was a C corporation
and had been subject to federal and state income taxes during all of the
periods presented. See Notes 2 and 3 of the Notes to the Company's Financial
Statements.

The Company has experienced and expects to continue to experience quarterly
variations in its net sales as a result of a number of factors including, among
other things, the length of the sales cycle with end-user customers for large
storage system evaluations and purchases, the significant lead time in designing
storage subsystems for OEM customers, new product introductions by suppliers and
the market acceptance thereof, delays in product shipments or other quality
control difficulties, the ability of Datalink to integrate any acquired
businesses, product returns, trends in the Open Systems storage industry in
general, the geographic and industry specific market in which Datalink is
presently active, or may be in the future, and the opening of new field sales
offices. Net sales also tend to be lower in the summer months and higher in the
quarter ending December 31 reflecting the timing of purchase decisions by the
Company's customers.

21
<PAGE> 25

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations and capital
requirements through cash flows generated from operations and supplemental bank
borrowings. Working capital was $4.9 million, $6.8 million and $5.3 million at
September 30, 1998 and December 31, 1997 and 1996, respectively. The increase at
December 31, 1997 was primarily attributable to an increase in cash and net
accounts receivable offset by a decrease in inventories and an increase in
borrowings under the Credit Agreement. The decrease at September 30, 1998 was
primarily attributable to an increase in trade payables and borrowings under the
Credit Agreement offset by an increase in cash, net accounts receivable and
inventories.

Cash provided by operating activities was $8.4 million for the nine months
ended September 30, 1998. Cash used in investing activities was $3.8 million for
the nine months ended September 30, 1998 resulting primarily from the Company's
acquisition of DCSI and expenditures for purchases of new accounting software
and computer equipment. Cash used in financing activities was $4.4 million for
the nine months ended September 30, 1998 resulting primarily from the payment of
$3.9 million of S corporation dividends, an increase in book cash overdrafts of
$185,000 and a net decrease in borrowings under the Credit Agreement of
approximately $336,000.

Cash provided by operating activities for 1997, 1996 and 1995 was $4.6
million, $2.5 million and $2.3 million, respectively, reflecting the Company's
increasing sales and net income. Cash used in investing activities during 1997,
1996 and 1995 was $766,000, $337,000 and $286,000, respectively. These uses
reflected expenditures for computer and office equipment and improvements to
support increasing sales volumes, including the opening of new field sales
offices. Cash used in financing activities in 1997, 1996 and 1995 was $2.8
million, $2.0 million and $2.2 million, respectively. These uses of cash relate
primarily to net repayments of borrowings under the Credit Agreement and to
dividends paid to the stockholders. These dividends totaled $4.0 million, $1.9
million and $1.3 million in 1997, 1996 and 1995, respectively, and were
distributed to the stockholders primarily to provide liquidity to pay their
income tax liabilities resulting from the Company's S corporation taxable
income.

At September 30, 1998, the Company's borrowings consisted of $4.2 million
owed under the Credit Agreement. The Credit Agreement permits the Company to
borrow up to $10.0 million on a revolving basis with borrowings limited by
eligible accounts receivable and inventories. Upon the closing of this offering,
the borrowings under the Credit Agreement will bear interest at the bank's
reference rate; however, the Company may periodically borrow funds under the
Credit Agreement at LIBOR plus 1.95%. The Credit Agreement terminates on May 31,
2000. Borrowings under the Credit Agreement are collateralized by the Company's
cash, accounts receivable, intangibles, inventories and equipment. The Company
intends to use a portion of the net proceeds of this offering to repay all
borrowings under the Credit Agreement.

The Company plans to use a portion of the net proceeds of this offering to
fund the final S corporation distribution to the current stockholders. This
distribution will constitute all of the previously taxed, but undistributed, S
corporation earnings. As of September 30, 1998, such earnings were approximately
$8.9 million. The actual amount of the distribution will be adjusted to reflect
the taxable income and any stockholder distributions from October 1, 1998
through the termination of the S corporation status upon the closing of this
offering.

In July 1998, the Company acquired DCSI. Under terms of the agreement, the
Company acquired all of DCSI's capital stock in exchange for $2 million of cash
and 200,000 shares of the Company's Common Stock. The Company also paid an
aggregate amount of $500,000 of cash to certain employees of DCSI in connection
with non-competition agreements.

The Company believes that funds generated from operations, together with
the net proceeds of this offering, available credit under its Credit Agreement
and trade credit from suppliers will be sufficient to finance its current
operations and planned capital expenditure requirements for at least the next
twelve months.

22
<PAGE> 26

Inflation. The Company does not believe that inflation has had a material
effect on its results of operations in recent years; however, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.

Year 2000 Disclosure. Many currently installed computer systems and
software products are dependent upon internal calendars coded to accept only two
digit entries in the date code field. In order to distinguish 21st century dates
from 20th century dates, computer systems and software products must accept four
digit entries in the date code field. As a result, computer systems and software
used by many companies may need to be upgraded to comply with Year 2000
requirements.

The Company believes that all of its financial reporting and resource
planning systems are Year 2000 compliant except for its property and equipment
accounting software which the Company plans to replace during 1999 at a cost of
less than $5,000. The Company has recently installed Master Pack as its primary
financial reporting software which has been certified Year 2000 compliant by its
vendor. Effective January 1, 1999, the Company transitioned all DCSI accounting
and reporting to the Company's systems. The Company's other software is
generally certified by the vendors to be Year 2000 compliant or is not
considered critical to the Company's operations.

The company has spent approximately $1.1 million through December 31, 1998
on Master Pack software, related hardware and consultants. The Company expects
future Master Pack implementation costs, including transition of DCSI systems,
to be no more than $150,000.

Internal information systems and engineering personnel have assessed the
Company's internal-use computer software and equipment. Generally, the Company
believes that its internal use computer equipment is Year 2000 compliant and its
internal-use software, principally its operating system, networking software,
office application suite and electronic mail applications have been certified by
the vendors to be Year 2000 compliant, or updates for Year 2000 readiness have
been made available by the vendors for downloading over the Internet. In such
instances, the Company plans to use its internal information systems and
engineering personnel to complete Year 2000 readiness downloads during 1999. The
Company does not expect to incur any material costs in completing these efforts.

The Company's operations are not dependent on any form of electronic data
interchange with its customers or vendors, other than the cash balance reporting
system made available to the Company by its bank . The Company's bank has
certified that its systems have the ability to process dates beyond the year
2000.

The Company has completed an assessment of the Year 2000 compliance of its
vendors' products. The Company has surveyed each of its major vendors and, as
part of its ongoing quality efforts, has obtained a "statement of Year 2000
compliance" from virtually all of its current storage equipment and software
vendors. Accordingly, the Company believes that all of its current vendors
supply Year 2000 compliant products for installation at customer sites. The
Company requires such a statement of compliance before installing any vendor's
equipment or software at a customer site. Although the Company has no assurance
from its vendors and provides no assurance to its customers about the Year 2000
readiness of products installed prior to obtaining such statements of
compliance, all of the Company's standard sales agreements explicitly indicate
that the Company is not the original equipment manufacturer nor the software
developer/manufacturer of the equipment and software installed at customer
sites. Terms of the Company's current standard sales agreements explicitly state
that the Company is not responsible for the Year 2000 compliance of the
equipment and software installed at customer sites.

If any products or subassemblies sold by the Company to its customers were
to fail, the Company could be liable to its customers for damages and costs to
the extent that the Company's vendors do not cover such liabilities. In
addition, if the Company fails to complete its Year 2000 readiness efforts for
its internal use systems or if any of its customers or vendors fail to complete
any required year 2000 remediation of their systems, the Company could suffer
delays in product delivery or experience delays in customer payments. Any such
product or system failures could have a material adverse effect on the Company's
financial condition, results of operations or liquidity.

23
<PAGE> 27

At this time, the Company believes it is unnecessary to adopt a contingency
plan covering the possibility that the Company's computer systems, or those of
its vendors or customers, will not be at an adequate stage of Year 2000
readiness by the end of 1999. However, as part of its Year 2000 readiness
efforts, the Company will continue to consider the need for a contingency plan
based on the Company's periodic evaluation of target dates for completion of its
readiness efforts.

Recently Issued Accounting Standards. Effective with its year end 1998
financial statements, the Company will adopt Statement of Financial Accounting
Standard No. 131 (SFAS No. 131), "Disclosure About Segments of an Enterprise and
Related Information," which requires disclosure of segment data in a manner
consistent with that used by an enterprise for internal management reporting and
decision making. The Company will report its operations as a single segment
under SFAS No. 131.

24
<PAGE> 28

BUSINESS

THE COMPANY

Datalink analyzes, custom designs, integrates or assembles, installs and
supports high-end Open Systems storage solutions for end-users, VARs and OEMs.
Datalink has become a leading independent storage solutions provider by matching
its technical expertise and quality products with comprehensive service and
support to meet each customer's specific needs. The Company's storage solutions
are designed to provide the optimal combination of performance, capacity, high
availability, disaster recovery, multi-platform support, permanence,
scalability, centralized management and cost.

INDUSTRY OVERVIEW

The reliable access to and management of data is critical and represents a
key competitive advantage to business, government, educational and nonprofit
organizations. In recent years, virtually all organizations have increased their
use of computers for collecting, analyzing and distributing information to
improve productivity. Historically, most computing environments were controlled
by expensive, host-based mainframes and minicomputers having proprietary
operating systems ("Closed Systems"). In a Closed Systems computing environment,
end-user applications were limited by the hardware and operating system
architectures offered by the manufacturer. As the number of applications grew
and the need to distribute computing power directly to users became increasingly
important, organizational demand for an appropriate systems solution dictated
operating architectures linking multiple application, file, database and
communications servers to networked computers ("Open Systems"). The increased
use of Open Systems hardware and software computing environments creates the
need for flexible and comprehensive data storage solutions capable of serving
multiple and evolving computer platforms. Open Systems architecture permits
organizations to utilize hardware and software products from various suppliers
in order to share, manage and protect mission critical information throughout
the organization.

In addition to the challenges presented by the Open Systems computing
environment, computer processing power has continued to increase at a rapid rate
with the ongoing introduction of new and more powerful central processing units
("CPUs"). Application software developers are taking advantage of CPU
advancements by introducing powerful, easier to use, graphically oriented,
memory intensive software packages. These software applications have resulted in
the automation of an increasing number of mission-critical business
applications, including on-line transaction processing, the Internet, intranets,
pre-press, multimedia, imaging and data warehousing. This automation expands the
need for on-line storage, uninterrupted access to data and fail-safe methods to
backup and archive such data. Although substantial, the increase in storage
device performance has lagged the increase in processing power, creating an
input/output performance gap that continues to widen. This performance gap has
increased the need for high performance storage systems that accelerate on-line
access to stored data while providing continuous protection of this data.

The increasing demand for and complexity of information storage systems has
outpaced the ability of in-house MIS departments to adequately serve their
organizations. Accordingly, organizations rely on external providers to
research, design, implement and support information storage solutions that
incorporate the best hardware and software technologies available and are
compatible with organizations' often large and complex computer networks and
operating system architectures. At the same time, reduced profit margins have
led suppliers to downsize their sales and marketing forces. As a result, both
customers and suppliers increasingly seek independent solutions providers, such
as Datalink, with knowledge and experience in Open Systems data storage.

As Open Systems information storage needs continue to grow, industry
experts predict the increasing deployment of storage area networks ("SANs")
which will link physically separated storage and backup devices to servers and
each other through a dedicated, high-speed network. The Company believes that
SANs will be enabled principally by Fibre Channel technology. Fibre Channel
allows high speed connections of up to 100 MB per second each between and among
a greater number of hosts and storage technologies on the SAN. The Company
expects that SANs will enable organizations to implement scaleable storage and
backup

25
<PAGE> 29

solutions that are faster, easier to manage and protect, offer a higher degree
of data availability and can be shared by a greater multiple of servers than
current distributed Open Systems storage systems.

According to Dataquest, Inc., an independent market research firm, the
worldwide RAID storage market for UNIX and Windows NT operating platforms was
approximately $12.8 billion in 1997 and is expected to grow at an annual
compound rate of 24% to approximately $37.0 billion by 2002. According to SRC,
an independent market research firm, the worldwide market for tape automation
backup storage products was approximately $1.6 billion in 1996 and is expected
to grow at an annual compound rate of 18% to approximately $4.4 billion by 2002.
According to SRC, the worldwide storage management software market was
approximately $1.4 billion in 1997 and is expected to grow at an annual compound
rate of 31% to approximately $3.0 billion by 2000.

THE DATALINK SOLUTION

Comprehensive Storage Solutions. As a leading independent information
storage solutions provider, Datalink tailors state-of-the-art information
storage systems to meet the specific needs of each end-user, VAR and OEM. The
Company does not manufacture products, but rather works closely with end-users
and VARs to assess their information storage and retrieval requirements and then
designs, integrates, installs and supports information storage solutions.
Datalink's solutions incorporate the best available hardware and software
products on the market from technological leaders including ATL Products, Inc.,
a division of Quantum Corporation, Brocade Communication Systems, Inc.,
CLARiiON, a division of Data General Corporation, Hitachi Data Systems
Corporation, Legato Systems, Inc., Network Appliance, Inc., Storage Technology
Corporation and VERITAS Software Corporation. For OEM customers, Datalink's team
of design and application engineers custom design and test storage subsystems.
The Company assembles these products for integration into the OEM's own
products. Datalink's storage solutions incorporate a broad range of scaleable
and high-performance technologies including hard disk, RAID, magnetic tape,
CD-ROM, optical and storage networking products. The Company also matches
storage management software technologies, including backup and recovery,
disaster recovery, HSM, archive, management and configuration, high availability
and media management products, to the specific needs of its customers.
Datalink's expertise extends to all major Open Systems operating systems and
hardware platforms.

Technological Leadership. Datalink provides a high level of technical
expertise to its customers through its 40 technical services professionals. The
Company's engineers each specialize in Open Systems operating platforms and
technologies, affording the in-depth knowledge and hands-on experience required
to provide comprehensive Open Systems storage solutions. The engineers
continually evaluate and test emerging and existing technologies to ensure the
Company consistently delivers the best available hardware and software products
to its customers. Because of Datalink's established, strong relationships with
the major information storage hardware and software suppliers, the Company often
participates in suppliers' new product development, evaluation, introduction,
marketing and quality control programs. This collaboration with suppliers
enables the Company to identify and market innovative new hardware and software
products, exchange critical information and implement joint corrective action
programs in order to maximize quality.

Superior Service and Technical Support. Datalink's engineers work closely
with the field account executives and inside sales representatives to provide
superior technical design and support services. To serve its customers' needs,
Datalink operates 19 locations throughout the United States, ten of which also
serve as regional technical centers with in-house engineering capabilities.
Datalink further differentiates itself by maintaining ISO 9001 registration for
its principal facility. The Company utilizes ISO 9001 standards throughout its
organization to consistently maintain high quality design, development,
integration and

26
<PAGE> 30

manufacturing, installation and service processes. The Company's emphasis on
providing high quality customer services enhances its sales and marketing
efforts and supplier relationships.

BUSINESS STRATEGY

Datalink's objective is to grow at a rate exceeding that of the industry
and to strengthen its position as a leading independent Open Systems storage
solutions provider. To achieve this objective, the Company intends to build upon
its record of successfully addressing the evolving information storage
management needs of its customers. Key elements of this strategy are:

Leverage Market Presence. Datalink intends to expand its business by
broadening its relationships with existing customers and by utilizing its market
presence and technical expertise to attract new customers. The Company believes
that the longevity of service of its sales representatives and engineering staff
will continue to be critical to building and maintaining long-term, trusting
relationships with Datalink's existing and prospective customers. In addition,
the Company's broad experience in a diverse group of data intensive industries
enables Datalink to understand application and business issues specific to
customers operating within a given industry and to design and implement the
appropriate storage solution.

Maintain Technological Leadership. Datalink intends to continue to develop
leading-edge storage solutions for its customers. Datalink intends to
continually develop and add expertise to its engineering staff and to continue
its close working relationships with its suppliers in order to maintain
expertise in Open Systems storage solution design and implementation.

Provide Professional Consulting and Project Management Services. Datalink
intends to continue expanding its ability to provide its customers with
comprehensive professional consulting and project management services. Utilizing
the expertise of its professional engineers, Datalink assists its customers in
the total assessment, planning, design, implementation and ongoing management of
enterprise-wide data storage solutions.

Expand Geographically. Datalink intends to continue its geographic
expansion throughout the United States and believes significant opportunity also
exists to serve the global data storage needs of its multinational corporate
customers and prospective customers. The Company intends to expand by opening
new sales and regional technical center offices, by adding personnel to existing
offices and by acquiring businesses perceived by management to complement the
Company's strategic business objectives. Since January 1998, Datalink has
increased the number of its regional offices from nine to 18, including its
expansion into the southeastern United States as a result of the July 1998
acquisition of DCSI.

Maintain Superior Service and Support. Datalink intends to maintain and
continually improve its high standards for superior technical and sales service
and support. The Company intends to continue use of its ISO 9001 quality system
and procedures and to continue recruiting and retaining experienced sales and
technical team members.

TECHNICAL SERVICES AND PROJECT MANAGEMENT

Datalink's engineers, technicians and customer support personnel take an
active role in all phases of designing, delivering and supporting storage
solutions for the Company's customers in a manner that maximizes system
availability and performance. The Company combines its Open Systems experience,
high level technical skills and responsiveness to provide its customers with the
utmost in comprehensive service, training and support. Datalink's technical
support and customer service functions operate under ISO 9001 standards of
operation to ensure the highest quality.

End-User and VAR Services. Datalink's engineers work closely with the field
account executives and inside sales representatives to determine each customer's
specific needs. After gaining a thorough understanding of the customers' needs,
Datalink's engineers analyze available hardware and software technologies and,
together with the field account executives, develop a specifically tailored,
state-of-the-art storage solution. In order to assure quality, the Datalink
technical team performs the installation, customer specific configuration and
functional testing of each storage solution. Once installation is complete,
Datalink's engineers conduct
27
<PAGE> 31

comprehensive, on-site storage solution training for customers and provide
ongoing technical support. In addition, the Company periodically provides
advanced in-house and out service training courses.

OEM Services. Datalink's engineering team enhances the capabilities of its
OEM customers by designing custom storage subassemblies and enclosures to each
customers' specifications. When requested by the customer, Datalink obtains the
necessary agency and governmental approvals relating to safety and radio
frequency emissions and immunity (including Underwriter's Laboratory and
European "CE" certifications) for the subassemblies it designs. Datalink fully
documents all custom subassemblies for ease of replication and service.

Technical Support. Datalink's technical support services provide
comprehensive, proactive and responsive assistance. The Company's customer help
desk acts as a single point of contact during regular business hours for all
ongoing support, repair and maintenance services. The help desk is staffed by
technical support analysts trained to solve technical issues and to assist the
Company's engineering staff in troubleshooting escalated problems. The help desk
staff also acts as Datalink's primary interface with suppliers' technical
support organizations.

Datalink's team of engineers augments the help desk staff in providing
advanced technical support when required. Each engineer specializes in Open
Systems operating platforms and technologies, affording the in-depth knowledge
and hands-on experience required to provide comprehensive Open Systems storage
solutions.

Maintenance and Repair Services. Datalink supports and administers the
pass-through of its suppliers' own standard warranties which run from one to
five years. In addition, Datalink provides a suite of comprehensive maintenance
and repair service options under the Company's DataCare(TM) service program. The
Company offers a variety of on-site service options, including four-hour
guaranteed response time service seven days per week, 24 hours per day. The
Company contracts with a number of its suppliers and other independent service
organizations to provide on-site maintenance and repair services dispatched by
the Company. For customers that do not have on-site service, Datalink's Advance
Exchange program delivers replacement products and subassemblies on the next
business day.

PRODUCTS

Datalink continually updates its product offerings to incorporate
advancements by its suppliers in storage technology. Datalink's engineering,
sales and marketing teams design creative solutions that include hardware,
software, storage networking and interface products selected in response to each
customer's specific requirements. These products include the following:

Hardware Products. Datalink selects from among a variety of storage
products and subassemblies sold by leading suppliers that offer differing
performance characteristics and costs. These storage products and subassemblies
include magnetic (hard) disk, magnetic tape, optical disk storage technologies,
SAN and network attached storage ("NAS") devices.

HARD DISK TECHNOLOGIES. Hard disk storage is a traditional, but
relatively expensive, on-line method to store and access large amounts of
information. Several hard disks can be combined to create a scaleable
storage system or a RAID storage system. RAID systems allocate data across
multiple hard disk drives and allow the server to access these drives
simultaneously, thus increasing system storage and input/output
performance. RAID algorithms allow lost data on any drive to be recreated,
thus ensuring the integrity of RAID-protected data even in the event of a
disk drive failure. In addition, RAID systems can incorporate redundant
power, cooling and processing components for additional fault tolerance.
System administrators normally consider magnetic or hard disks, whether
free-standing or integrated in RAID systems, to be at the top of the
storage class in terms of performance because of their fast access times,
in milliseconds, and fast transfer rates of up to 21 MB per second. The
potential loss of data contained on magnetic or hard disks due to human
error or catastrophic failure necessitates the use of a backup storage
system to protect the stored information. The most advanced RAID systems
now include capabilities to copy data remotely for data protection. Such
advanced systems also enable internal copying of data to permit the testing
of new applications without the risk of destroying the original data.

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<PAGE> 32

MAGNETIC TAPE TECHNOLOGIES. Magnetic tape storage technologies are
typically integrated into environments that require backing up large
amounts of information to protect from accidental data loss and facilitate
disaster recovery. Due to its high capacity and relatively lower cost,
magnetic tape storage is also effective for near on-line, archive and
hierarchical storage management ("HSM") activities. A variety of tape drive
technologies are available, including those utilizing digital linear tape,
advanced intelligent tape ("AIT"), 8mm tape, 4mm digital data storage
("DDS"), high performance helical scan and 9840 tape technologies. Magnetic
tape autoloaders and libraries integrate multiple tape drives and media
cartridges with robotics to increase capacity and automation.

OPTICAL DISK TECHNOLOGIES. Although slower than magnetic disks in
terms of access and transfer speeds, optical disk technologies are a
cost-effective solution for near on-line and archive storage. Optical disk
technologies include magneto-optical ("MO"), write-once-read-many ("WORM")
and compact disk-read only memory ("CD-ROM") products. Capacities range
from 650 megabytes (CD-ROM) to 5.2 GB (MO optical disk) per cartridge. A
developing optical technology, digital versatile disk ("DVD"), is expected
to offer approximately 7.2 times the storage capacity of a single CD-ROM.
Similar to magnetic tape systems, multiple optical disks can be combined in
a jukebox to permit automated access and increased capacity.

SAN TECHNOLOGIES. A SAN consists of a scalable pool of block-oriented
storage connected by Fibre Channel communication links. This pool of
storage resides on its own subnetwork and can be shared by multiple
servers. Ultimately, any server can access any storage device and storage
can be balanced among the storage devices. Similarly, storage devices can
be used to back up each other.

NAS TECHNOLOGIES. NAS devices use Thin Server technology to translate
block-oriented storage data contained on various data storage devices into
file-oriented storage data usable by end users on their local area network.
NAS technology enables "hot" attachment of storage devices to the network.

Software Products. Datalink integrates software management tools into its
customer solutions from leading storage software developers. The latest advances
include enterprise storage solutions for backup and recovery, disaster recovery,
HSM, archive, management and configuration, high availability and media
management capabilities. These tools enable system administrators to allocate
the use of storage technologies among user groups or tasks, centrally manage
distributed storage technologies, retrieve, transfer and backup data from and
between several devices, perform "hot" database backups during business hours,
run management reports and establish standard policies. Software advancements
also enable these tools to integrate into centralized management frameworks.
These expanded management capabilities have been enhanced through the deployment
of SANs.

Interface Products. Systems administrators traditionally have connected
storage technologies directly to servers utilizing "point-to-point" connections
via the Small Computer Systems Interface ("SCSI"), and its successor, Ultra
SCSI. Because of distance limitations and limited bandwidth, SCSI-based
connections do not allow storage technologies to be easily shared with other
servers. With the innovation of Fibre Channel, a new serial interface, networks
can transfer data to disk and RAID storage subsystems at higher speeds, over
greatly increased distances and among a greater number of server and other
device connections than through the use of SCSI or Ultra SCSI interfaces.
Datalink currently deploys Fibre Channel interfaces with high-end, hard disk and
RAID storage systems and also with tape drives and libraries through Fibre
Channel to SCSI bridge products.

CUSTOMERS

Datalink serves large end-user, VAR and OEM customers throughout the United
States in a diverse group of data intensive industries. Datalink's broad
industry experience enables the Company to understand application and business
issues specific to each customer and to design and implement appropriate storage
solutions. The Company enjoys strong relationships with its customers, which is
reflected in significant repeat business. In each of 1995, 1996 and 1997, sales
to existing customers has exceeded 77% of the Company's net

29
<PAGE> 33

sales. No single customer represented more than 5% of the Company's net sales in
1997 or 1996 nor 10% or more of the Company's net sales in 1995. Some of the
customers of the Company include the following:

END-USER CUSTOMERS

<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY CONSUMER PRODUCTS EDUCATION
------------------- ----------------- ---------
<S> <C> <C>
Gateway 2000, Inc. Dayton Hudson Corporation University of Chicago
Imation, Inc. Michelin Tire Corp. University of Minnesota
Silicon Graphics Tyson Foods Corp. University of Washington
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL SERVICES GOVERNMENT HEALTH CARE
------------------ ---------- -----------
<S> <C> <C>
Chicago Board of Trade Fermi National Accelerator Laboratory Baptist Memorial Healthcare
Edward Jones National Aeronautics Space Eli Lilly and Company
Administration
Swiss Bank Corporation United States Coast Guard Mayo Clinic Foundation
</TABLE>

<TABLE>
<CAPTION>
INSURANCE INTERNET SERVICE PROVIDERS PROFESSIONAL SERVICES
--------- -------------------------- ---------------------
<S> <C> <C>
CNA Financial Corporation BellSouth.net Comdisco, Inc.
SAFECO Corporation GTE Internetworking/BBN IBM Global Services
The Kemper Insurance Companies HotOffice Technologies, Inc. KPMG Peat Marwick LLP
</TABLE>

<TABLE>
<CAPTION>
TELECOMMUNICATIONS TRANSPORTATION UTILITIES
------------------ -------------- ---------
<S> <C> <C>
Ameritech Corp. The Boeing Company Florida Power Corporation
Motorola, Inc. Northwest Airlines Corporation Dominion Resources, Inc.
Sprint Corporation UAL Corporation Northern States Power Company
</TABLE>

VAR CUSTOMERS

<TABLE>
<S> <C> <C>
Andersen Worldwide, S.C. Electronic Data Systems McKesson HBOC Inc.
Corporation
Computerized Medical Systems Forsythe McArthur Associates Inacom Corp.
</TABLE>

OEM CUSTOMERS

<TABLE>
<S> <C> <C>
GE Medical Systems Lucent Technologies, Inc. Rockwell International Corporation
Lockheed Martin Corporation National Computer Systems, Inc. Siemens Medical Systems, Inc.
</TABLE>

SALES AND MARKETING

The Company markets and sells its products and services throughout the
United States primarily through a direct sales force. The 34 field account
executives are teamed with 20 inside sales representatives. In addition to its
Minneapolis headquarters, the Company has 18 field sales offices in order to
serve its customers'

30
<PAGE> 34

needs more efficiently. Nine of the field sales offices serve as regional
technical centers and are staffed with their own engineers. These field sales
offices are located in the following metropolitan areas:

<TABLE>
<CAPTION>
FIELD LOCATION YEAR ESTABLISHED
-------------- ----------------
<S> <C>
Chicago, Illinois........................................... 1989
St. Louis, Missouri......................................... 1990
Milwaukee, Wisconsin........................................ 1992
Seattle, Washington......................................... 1992
Atlanta, Georgia............................................ 1993*
Charlotte, North Carolina................................... 1995*
Grand Rapids, Michigan...................................... 1995
Indianapolis, Indiana....................................... 1995
Washington, D.C. ........................................... 1996**
Denver, Colorado............................................ 1997
Melbourne, Florida.......................................... 1997*
New York, New York.......................................... 1997
Tampa, Florida.............................................. 1997*
San Jose, California........................................ 1998
Boston, Massachusetts....................................... 1998
Birmingham, Alabama......................................... 1998
Nashville, Tennessee........................................ 1998
Los Angeles, California..................................... 1998
</TABLE>

- ------------
* Represents a field office acquired by Datalink in July 1998 as a result of the
DCSI acquisition.

** The Company currently maintains two offices in Washington, D.C., one of which
it acquired in July 1998 as a result of the DCSI acquisition.

The field account executives and inside sales representatives work closely
with the Company's engineering team in evaluating the Open Systems storage needs
of existing and prospective customers and in designing high quality, cost
effective solutions. To ensure quality service, Datalink assigns each customer a
specific field account executive and inside sales representative. The inside
sales representatives proactively share responsibility with the field account
executives in soliciting new and repeat business and in maintaining consistent
customer contact. The Company believes that the longevity of service of its
sales force is a key factor to earning and retaining the trust and confidence of
the Company's customers and differentiates Datalink from many other storage
solution providers that have greater sales force turnover.

In addition to the efforts of its field account executives and inside sales
representatives, Datalink engages in a variety of other marketing activities
designed to attract new business and retain customer loyalty. The Company
regularly attends major trade shows, conducts in-house and out service training
and informational seminars, publishes a quarterly newsletter and advertises its
services in several targeted national business publications.

INTEGRATION AND ASSEMBLY OPERATIONS

Datalink assembles and integrates hardware and software products and
subassemblies acquired from the Company's various suppliers. The Company designs
customized enclosures for most OEM products. The assembled units are then
subjected to a system level test to ensure performance to specifications in the
anticipated end-user computing environment. The Company's integration and
assembly operations are also ISO 9001 registered. In accordance with these
standards, the Company has designed its integration and assembly operations with
similar quality procedures to those of its hardware suppliers. Datalink's close
working relationship with its suppliers generally enables the Company to
exchange critical information and implement joint corrective action programs to
ensure the quality of its finished products, to reduce costs and the investment
in inventory and to access critical products and subassemblies for large or
unanticipated orders

31
<PAGE> 35

when required. The Company believes that its current facilities are adequate to
meet its integration and assembly needs in the foreseeable future.

ISO 9001 QUALITY SYSTEM

In May 1996, Datalink completed an approximately three-year process of
obtaining an ISO 9001 Certificate of Registration from KPMG Quality Registrar
for its quality system described under the American National Standards
Institute. This internationally recognized endorsement of ongoing quality
management is designed to assure consistent quality products and services. The
Company believes its ISO 9001 registration represents a substantial competitive
advantage to Datalink in attracting and retaining business.

Datalink employs ISO 9001 standards of operation for its design,
development, integration and assembly, installation and service processes. These
quality initiatives streamline the quality assurance programs and implementation
procedures for the Company's customers. Datalink's quality assurance team
constantly monitors the Company's processes and procedures, identifies areas for
improvement and efficiently implements corrective and preventive actions.
Suppliers to the Company are required to be ISO 9001 registered or otherwise
meet Datalink's rigid supplier qualification standards.

SUPPLIER RELATIONSHIPS

As an independent solutions provider, Datalink continually evaluates and
tests new and emerging technologies from other companies to ensure that the
Company's solutions incorporate state-of-the-art, high-end, cost-effective Open
Systems technologies. This enables Datalink to maintain its technological
leadership in Open Systems storage solutions, to identify new and innovative
products and applications and to maintain confidence among the Company's
customers and suppliers in the Company's expertise.

Datalink has strong, established relationships with the major information
storage hardware and software suppliers. The Company's expertise in Open System
environments, including UNIX, Windows NT and Novell NetWare, and in-depth
knowledge of all major hardware platforms, including Digital, Hewlett-Packard,
IBM, Silicon Graphics and Sun, has earned Datalink preferred status with its
principal suppliers. This enables the Company to often participate in these
suppliers' new product development, evaluation, introduction, marketing and
quality control programs. These collaborations enable the Company to identify
and market innovative new hardware and software products, exchange critical
information and implement joint corrective action programs in order to maximize
quality. In addition, the Company's close working relationships with its
principal suppliers fosters substantial cross-marketing opportunities.
Datalink's strategic suppliers include the following:

<TABLE>
<CAPTION>
TECHNOLOGY STRATEGIC SUPPLIER
- ---------- ------------------
<S> <C>
RAID Technologies CLARiiON, a division of Data General Corporation
Hitachi Data Systems Corporation

Storage Management Software Legato Systems, Inc.
VERITAS Software Corporation

Tape Automation Products ATL Products, Inc., a division of Quantum
Corporation
Storage Technology Corporation

SAN Hardware Brocade Communication Systems, Inc.
Computer Network Technology Corp.

NAS Products Network Appliance, Inc.

Optical Technologies NSM Jukebox GmbH
Plasmon IDE, Inc.
</TABLE>

32
<PAGE> 36

COMPETITION

The market for Open Systems storage is intensely competitive. Datalink
competes against independent storage system suppliers to the high-end Open
Systems market, including Box Hill Systems Corp., EMC Corporation, MTI
Technology Corporation and numerous VARs, resellers, distributors and
consultants. The Company also competes in the storage systems market with
general purpose computer suppliers such as Compaq, Dell, Hewlett-Packard, IBM,
Silicon Graphics and Sun. In addition, the Company's customers and prospective
customers may elect to develop in-house storage systems expertise.

Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing, purchasing and other resources than the
Company, and as a result, may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, to devote greater resources
to the development, promotion and sale of products than the Company or to
deliver competitive products at a lower end-user price. Some of Datalink's
competitors include its suppliers, who may dedicate or acquire greater sales and
marketing resources in the future to provide Open Systems storage solutions than
at present and could terminate their relationships with the Company. Other
suppliers may also enter the market and compete with the Company. Datalink
expects competition will increase as a result of industry consolidation. Current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. See "Risk
Factors--Competition."

EMPLOYEES

As of February 5, 1999, Datalink had a total of 126 full-time employees, of
whom 40 were engaged in engineering, technical support, customer service and
integration and assembly operations, 64 were engaged in sales and marketing and
22 were engaged in general management and administration. The Company's future
performance depends in significant part upon the continued service of its key
technical and senior management personnel. None of the Company's employees are
unionized or subject to a collective bargaining agreement. The Company has
experienced no work stoppages and believes that its employee relations are good.

FACILITIES

Datalink's principal engineering operations and its integration, assembly
and customer service operations are located at the Company's 37,200 square foot,
leased executive and administrative facility in Minneapolis, Minnesota. The
leases, which expire in December 1999, provide the Company with certain rights
to take additional space in the building. The Company's landlord is a
partnership whose partners consist of Datalink's current stockholders. See
"Certain Transactions." Datalink believes that the facility is adequate for its
needs in the foreseeable future. The Company also leases certain remote
facilities for its field sales and engineering personnel. Datalink believes that
these facilities are adequate for its needs in the foreseeable future and that
it will be able to locate suitable additional facilities as the Company expands
geographically.

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<PAGE> 37

MANAGEMENT

The names and ages of the executive officers and directors of the Company,
and their positions and offices presently held, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Greg R. Meland............................ 45 President, Chief Executive Officer and
Director
Robert D. DeVere.......................... 47 Chief Financial Officer
Stephen M. Howe........................... 40 Vice President--Sales
Scott D. Robinson......................... 39 Vice President--Engineering
Robert M. Price........................... 68 Chairman of the Board and Director
James E. Ousley*.......................... 53 Director
Margaret A. Loftus*....................... 54 Director
Paul F. Lidsky*........................... 45 Director
</TABLE>

- ------------
* Member of Audit and Compensation Committees.

Greg R. Meland joined Datalink in 1991 as its Vice President of Sales and
Engineering and became President and Chief Executive Officer in 1993. Between
1979 and 1991, Mr. Meland served in various sales and marketing positions with
the Imprimis disk drive subsidiary of Control Data Corporation (which was sold
to Seagate in 1989), most recently as the North Central U.S. Director of Sales.

Robert D. DeVere joined Datalink in 1990 as its Chief Financial Officer.
Between 1987 and 1989, Mr. DeVere was employed by Copal Systems, Inc., a
photofinishing equipment distributor, most recently as Operations Manager. He
was Controller of Crown Oil Company between 1986 and 1987. From 1983 to 1986,
Mr. DeVere worked for a subsidiary of Ecodyne Ltd., most recently as Controller.
He was a staff auditor with Ernst & Whinney between 1980 and 1983. Mr. DeVere is
a Certified Public Accountant.

Stephen M. Howe joined Datalink in 1989 as a field account executive and
became Vice President--Sales in 1997. Between 1982 and 1989, he was employed by
Teltrend Inc., a telecommunications equipment manufacturer, most recently as
Assistant Vice President of Operations. Mr. Howe was a sales representative for
Hamilton Avnet Corp., an electronics distributor, between 1980 and 1982.

Scott D. Robinson joined Datalink in 1989 as its Chief Engineer and became
Vice President--Engineering in 1993. Between 1983 and 1989, he was employed by
Minnesota Mining and Manufacturing Company, most recently as an Advanced
Electrical Engineer in the Digital Imaging Applications Center. Mr. Robinson
received his B.S. in Electrical Engineering in 1982 from Marquette University
and his M.S. in Electrical Engineering in 1989 from the University of Minnesota.

Robert M. Price was elected as the Chairman of the Board and a director of
Datalink in June 1998. Mr. Price has been President of PSV, Inc., a technology
consulting business located in Burnsville, Minnesota, since 1990. Between 1961
and 1990, he served in various executive positions, including as Chairman and
Chief Executive Officer, with Control Data Corporation. Mr. Price also serves on
the Board of Directors of International Multifoods Corporation, Tupperware
Incorporated, Fourth Shift Corporation, Affinity Technology Group, Inc., and
Public Service Company of New Mexico. Mr. Price is Mr. Meland's father-in-law.

James E. Ousley was elected as a director of Datalink in June 1998. Since
1992, Mr. Ousley has been President and Chief Executive Officer of Control Data
Systems, Inc., a leading systems integrator and provider of electronic commerce
solutions. Between 1968 and 1992, Mr. Ousley served in various sales, marketing
and operational executive positions with Control Data Corporation, most recently
as President of the Computer Products Group. Mr. Ousley is also a director of
Bell Microproducts, Inc. and ActiveCard, Inc.

Margaret A. Loftus was elected as a director in June 1998. Ms. Loftus is an
owner in Loftus Brown-Wescott, Inc., a business consulting firm, which she
co-founded in 1989. Between 1976 and 1988, she was employed by Cray Research,
Inc., most recently as Vice President of Software. Ms. Loftus is also a director
of Analysts International Corporation.

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<PAGE> 38

Paul F. Lidsky was elected as a director of Datalink in June 1998. Since
1997, Mr. Lidsky has been the President and Chief Executive Officer of OneLink
Communications, Inc., a telecommunications company. Between 1992 and 1997, Mr.
Lidsky was employed by Norstan, Inc., a comprehensive technology services
company, most recently as Executive Vice President of Strategy and Business
Development. Mr. Lidsky is also a director of OneLink Communications, Inc. and
Ancor Communications, Incorporated.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a Compensation Committee and an
Audit Committee. Mr. Ousley, Ms. Loftus and Mr. Lidsky are the members of the
Compensation and Audit Committees. The Compensation Committee will review on
behalf of, and make recommendations to, the Board of Directors with respect to
the compensation of executive officers and will administer the Company's
Incentive Compensation Plan and make recommendations to the Board of Directors
with respect to the plan and the grant of options to persons eligible under the
plan. The Audit Committee's functions will include recommending to the Board of
Directors the engagement of the Company's independent accountants, assessing the
independence of such accountants and reviewing with such accountants the plans
for and the results and scope of their auditing engagement and certain other
matters relating to their services to the Company.

DIRECTOR COMPENSATION

In October 1998, the Company granted each of Mr. Price, Mr. Ousley, Ms.
Loftus and Mr. Lidsky stock options to purchase 6,000 shares of the Company's
Common Stock at an exercise price equal to the initial public offering price per
share on the cover page of this Prospectus. These options will vest on the date
of the closing of this offering and will expire ten years from the date of
grant. Additionally, the Company intends to compensate each director serving at
May 1, 1999 who is neither an employee nor an affiliate of Datalink with a grant
of options to purchase 3,000 shares of the Company's Common Stock. The Company
further intends to make an annual grant of the same number of options commencing
on the date of the Company's 2000 annual stockholders' meeting to nonaffiliated,
nonemployee directors. The May 1999 and subsequent annual options will be
exercisable commencing one year after the date of grant; provided, however, that
if a director fails to serve until the annual stockholder's meeting immediately
succeeding the grant of the options, the number of shares of Common Stock that
may be purchased by such director shall be pro rated based upon the length of
time such departing director actually served. The options will be exercisable at
the fair market value of the Company's Common stock on the date of grant and
expire ten years after the date of grant. All directors will be reimbursed for
expenses incurred in connection with attendance at Board and committee meetings.

INDEMNIFICATION AGREEMENTS

The Company has entered into an agreement with each director providing for
indemnification to the fullest extent permitted under Minnesota law against
liability for damages and expenses, including attorneys' fees, arising out of
threatened, pending or completed legal actions, suits or proceedings by reason
of the fact that such person is or was a director, officer or employee of the
Company. The agreement will permit the director to demand certain advances
against, or the creation of a trust for, expenses to be incurred in defending
any covered claim. Insofar as the indemnification agreement may cover
liabilities arising under the Securities Act the Company has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

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<PAGE> 39

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information regarding compensation paid during each of the Company's last three
years to (i) the Company's Chief Executive Officer and (ii) the Company's other
executive officers whose salary, bonus and other compensation exceeded $100,000
in 1998.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) COMPENSATION(2)
--------------------------- ---- ------ --------------- ---------------
<S> <C> <C> <C> <C>
Greg R. Meland,.......................... 1998 $250,000 $ 23,000 $8,000
President and Chief Executive Officer(3) 1997 83,000 141,000 7,750
1996 75,000 122,000 7,750
Robert D. DeVere,........................ 1998 $124,000 $ 6,000 $6,710
Chief Financial Officer 1997 93,000 6,000 5,786
1996 86,000 6,000 5,592
Stephen M. Howe,......................... 1998 $ 90,000 $110,000 $8,814
Vice President--Sales(3) 1997 77,000 108,000 7,750
1996 69,000 94,000 7,706
Scott D. Robinson,....................... 1998 $130,000 $ 6,000 $6,754
Vice President--Engineering 1997 102,000 6,000 5,872
1996 95,000 6,000 5,853
</TABLE>

- ------------
(1) Includes car allowance of $6,000 for each named executive officer.

(2) Represents matching and profit sharing contributions made by the Company to
each named executive officer's account under the Company's 401(k) Plan.

(3) Other annual compensation includes sales commissions for each of these
executive officers.

Employment Arrangements. The Company does not have employment,
non-competition or non-disclosure agreements with any of its executive officers
or employees, other than certain non-competition agreements entered into in
connection with the DCSI acquisition. The Company has not determined the 1999
base salaries or bonus formulas for any of its executive officers. However, each
of the Company's executive officers continues to receive a car allowance of $500
per month.

STOCK INCENTIVE PLANS

The Company's Employee Stock Purchase Plan (the "Purchase Plan") and the
Incentive Compensation Plan (the "Incentive Compensation Plan" and with the
Purchase Plan collectively referred to as the "Stock Incentive Plans") were
adopted by the Company and its stockholders in June 1998. The Stock Incentive
Plans provide the employees of the Company an opportunity to invest in shares of
Common Stock. In some instances, these purchases may be on terms more favorable
than would otherwise be available. The Company believes that, by aligning the
interests of the participants and the Company, the implementation of the Stock
Incentive Plans will strengthen the commitment of the participants to the
Company's success.

Purchase Plan. The Company has reserved 250,000 shares of Common Stock for
issuance under the Purchase Plan, subject to equitable adjustments as the
Compensation Committee (as defined above) may deem necessary to prevent dilution
or the enlargement of rights of participants as a result of, among other things,
changes in the Company's capitalization or corporate structure. The Purchase
Plan will be administered by the Compensation Committee and is intended to
qualify under Section 423 of the Code. Pursuant to the Purchase Plan, each
eligible employee, as of the start of any purchase period, will be granted an
option to purchase a designated number of shares of Common Stock. The purchase
price of shares of Common Stock to participating employees will be 85% of the
lower of the fair market value of the Company's Common Stock on the first and
last trading days of the relevant purchase period. Payments for shares purchased
under the

36
<PAGE> 40

Purchase Plan will be made in the time and manner specified by the Compensation
Committee. An employee may terminate his or her participation in the Purchase
Plan by giving a notice of withdrawal to the Company sufficiently in advance of
the last trading day of the relevant purchase period, and all funds contributed
to date will be refunded to such employee.

Employees are eligible to participate in the Purchase Plan if they (i) are
customarily employed by the Company for more than twenty hours per week and five
months in any calendar year and (ii) will not, immediately upon purchasing
shares under the Purchase Plan, own directly or indirectly 5% or more of the
total combined voting power of all outstanding shares of all classes of stock of
the Company. Notwithstanding the foregoing, no employee may purchase shares
under the Purchase Plan (or any other plan of the Company intended to qualify
under Section 423 of the Code) in any calendar year with an aggregate fair
market value (as determined on the first day of the relevant purchase period) in
excess of the lesser of 10% of such employee's salary or the maximum value
allowed under the Code. Participation in the Purchase Plan ends automatically
upon termination of employment with the Company. Rights granted under the
Purchase Plan are not transferable other than by will or the laws of descent and
distribution.

The Board may at any time amend or terminate the Purchase Plan so long as
such amendment or termination does not result in the failure of rights issued
under the Purchase Plan to meet the requirements for employee stock purchase
plans as defined in Section 423 of the Code.

Incentive Compensation Plan. The Company has reserved 950,000 shares of
Common Stock for issuance under the Incentive Compensation Plan. The Incentive
Compensation Plan will be administered by the Compensation Committee. The
Compensation Committee will have full authority, subject to the provisions of
the Incentive Compensation Plan, to determine, among other things, the persons
to whom awards under the Incentive Compensation Plan ("Awards") will be made,
the exercise price, vesting, size and type of such Awards, and the specific
performance goals, restrictions on transfer and circumstances for forfeiture
applicable to Awards.

Awards may be made to employees and non-employee directors of the Company
or affiliates and other individuals designated by the Compensation Committee. A
variety of Awards may be granted under the Incentive Compensation Plan including
stock options, stock appreciation rights ("SARs"), restricted stock, performance
shares, performance units, cash-based awards, phantom shares and other
share-based awards as the Compensation Committee may determine. Stock options
granted under the Incentive Compensation Plan may be either incentive stock
options intended to qualify under Section 422 of the Code or nonqualified stock
options not so intended.

Provisions regarding the extent to which a participant shall have the right
to exercise and/or receive payment for any Award following termination of the
participant's employment, directorship or other relationship with the Company
shall be determined at the discretion of the Board. In the event of a "change of
control" (as defined in the Incentive Compensation Plan), (i) all outstanding
options and SARs granted under the Incentive Compensation Plan will become
immediately exercisable and remain exercisable throughout their entire term,
(ii) any performance-based conditions imposed with respect to outstanding Awards
shall be deemed to be fully earned and a pro rata portion of each such
outstanding Award granted for all outstanding performance periods shall become
payable in shares of Common Stock, in the case of Awards denominated in shares
of Common Stock, and in cash, in the case of Awards denominated in cash, with
the remainder of such Award being canceled for no value and (iii) all
restrictions imposed on restricted stock that are not performance-based shall
lapse. The Board may make equitable adjustments, including with respect to the
number and kind of shares issuable under, and the exercise price relating to,
Awards as the Board may deem necessary to prevent dilution or accretion of the
rights of participants under the Incentive Compensation Plan as a result of
changes in the Company's corporate structure or capitalization.

Awards under the Incentive Compensation Plan are not transferable other
than by will or by the laws of descent and distribution, unless otherwise
provided by the Board. The Board may amend or terminate the Incentive
Compensation Plan except that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any applicable regulatory
or tax requirements. Notwithstanding the foregoing, in no event may an Award be
granted under the Incentive Compensation Plan after June 2008.
37
<PAGE> 41

Option Grants. In October 1998, the Company granted certain directors and
employees of the Company stock options to purchase an aggregate of 558,625
shares of Common Stock under the Incentive Compensation Plan. These options will
be exercisable at an exercise price equal to the initial public offering price
shown on the cover page of this Prospectus. The options granted to the directors
will vest on the date of the closing of this offering. The options granted to
the employees will vest over a five-year period, with 20% of the options vesting
each year, commencing on the date of grant. All of these options will expire ten
years from the date of grant.

THE 401(K) PLAN

The Company has a defined contribution salary deferral plan, the Datalink
Corporation 401(k) Plan (the "401(k) Plan"), which is intended to qualify under
Sections 401(a) and 401(k) of the Code. Company employees are eligible to
participate in the 401(k) Plan beginning on the first day of the quarter
immediately succeeding the commencement of their employment with the Company.
Participants may make elective salary reduction contributions to the 401(k) Plan
up to a maximum of 10% of their eligible annual compensation, subject to a
dollar limit established by law (which limit was $10,000 in 1998). Pursuant to
the terms of the 401(k) Plan, the Company is required to match 50% of the
participants' contribution up to the first 6% of the participants' eligible
compensation. The cost of the Company's contributions to the 401(k) Plan for the
years ended December 31, 1995, 1996 and 1997, and for the nine months ended
September 30, 1997 and 1998 were approximately $79,000, $97,000, $126,000,
$100,000 and $125,000, respectively. In addition, at the discretion of the Board
of Directors, the Company may contribute to a profit sharing portion of the
401(k) Plan to the extent permitted by the Code. The cost of contributions to
the profit sharing portion of the 401(k) Plan for the years ended December 31,
1995, 1996 and 1997 were approximately $91,000, $157,000 and $164,000,
respectively. The Company did not make any profit sharing contributions to the
401(k) Plan for the nine months ended September 30, 1997 and 1998.

Participants are fully vested at all times in the amounts they contribute
to the 401(k) Plan and are always 100% vested upon early or normal retirement.
Participants vest at a rate of 20% per year and are fully vested in the
Company's matching and discretionary profit sharing contributions after five
years. Benefits under the 401(k) Plan generally are distributable after the age
of 59 1/2 or become payable upon separation from service, retirement, death or
disability.

CERTAIN TRANSACTIONS

In February 1997, the Company entered into a lease agreement for its
principal executive offices with Edina Southwest Partners, a Minnesota general
partnership ("Edina Partners"). In June 1997, Edina Partners sold the property
containing the Company's principal executive offices (the "Property") to 7423
Washington Avenue L.L.P., a Minnesota limited liability partnership ("Washington
Avenue L.L.P."), of which six of the Company's current stockholders own, in the
aggregate, 100% of the units of interest. Contemporaneously with the purchase of
the Property, Washington Avenue L.L.P. executed promissory notes in favor of
Norwest Bank Minnesota, N.A. (the "Norwest Note") and Stanley I. Clothier,
Trustee of the Stanley I. Clothier Revocable Trust (the "Clothier Note"). The
Company has agreed to guarantee the payments under these notes.
Contemporaneously with the closing of this offering, the Company's obligations
to guarantee these notes will terminate. As of September 30, 1998, the balances
on the Norwest Note and Clothier Note were approximately $922,000 and $1.4
million, respectively. During July 1998, the Company entered into a second lease
agreement with Washington Avenue L.L.P. for additional office and warehouse
space.

Additionally, the Washington Avenue L.L.P. agreement provides that in the
event that gross revenues of the partnership are insufficient to pay the
operating costs of the Property and other necessary business or administrative
expenses, the partners, individually and as current stockholders of Datalink,
agree to take any and all steps necessary to cause the Company to increase its
lease payments on the space it is occupying or to lease additional space in the
Property in order to fund such deficit. Contemporaneously with the closing of
this offering, the Company's obligations to fund such deficit will terminate.
The rent paid by the Company to

38
<PAGE> 42

Washington Avenue L.L.P. in 1997 and for the first nine months of 1998 was
approximately $197,000 and $125,000, respectively.

The Company entered into a deferred compensation agreement with Mr.
Clothier, a current stockholder and a former officer and director of the
Company, whereby the Company is obligated to pay Mr. Clothier (or a designated
beneficiary) $7,000 per month for 60 months beginning January 1996. Interest
expense under this agreement was $27,794, $24,942 and $15,081 for the years
ended December 31, 1996 and 1997 and for the nine months ended September 30,
1998, respectively.

All material and affiliated transactions and loans made after the date of
this Prospectus will be made or entered into on terms that are no less favorable
to the Company than those that can be obtained from unaffiliated third parties,
and all such future material affiliated transactions and loans, and any
forgiveness of loans, must be approved by a majority of the independent,
non-affiliated members of the Board of Directors who do not have an interest in
the transaction.

39
<PAGE> 43

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
for the sale of shares offered hereby, by: (i) each person who beneficially owns
5% or more of the Common Stock, (ii) each of the Company's executive officers
and directors and (iii) by all executive officers and directors of the Company
as a group. Unless otherwise noted, each person or group identified has sole
voting and investment power with respect to the shares shown.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY OWNED ---------------------------
PRIOR TO AND AFTER PRIOR TO AFTER
NAME OF BENEFICIAL OWNER THE OFFERING(1) THE OFFERING THE OFFERING
------------------------ ------------------ ------------ ------------
<S> <C> <C> <C>
Greg R. Meland(2)...................................... 3,450,690 48.6% 35.6%
Robert D. DeVere(2).................................... 1,095,720 15.4% 11.3%
Stephen M. Howe(2)..................................... 712,080 10.0% 7.3%
Joseph J. Kaye(2)...................................... 712,080 10.0% 7.3%
Scott D. Robinson(2)................................... 584,430 8.2% 6.0%
Stanley I. Clothier(2)................................. 345,000 4.9% 3.6%
Robert M. Price(3)..................................... 6,000 * *
James E. Ousley(3)..................................... 6,000 * *
Margaret A. Loftus(3).................................. 6,000 * *
Paul F. Lidsky(3)...................................... 6,000 * *
All executive officers and directors as a group (8
persons)............................................. 5,866,920 82.4% 60.3%
</TABLE>

- ------------
* less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from the date hereof, are considered outstanding
for the purpose of calculating the percentage of Common Stock owned by such
person and owned by a group, but not for the purpose of calculating the
percentage of Common Stock owned by any other person.

(2) The address of each of these individuals is: c/o Datalink Corporation, 7423
Washington Avenue South, Minneapolis, Minnesota 55439.

(3) Includes 6,000 options which such director may exercise upon the closing of
this offering.

40
<PAGE> 44

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares, par value $0.001 of
undesignated capital stock. Until otherwise designated by the Board of directors
of the Company, all authorized shares are deemed to be Common Stock. As of the
date of this offering, 7,100,000 shares of Common Stock are outstanding and
558,625 shares are subject to outstanding options granted under the Company's
Incentive Compensation Plan.

COMMON STOCK

Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders. Stockholders do not have cumulative voting
rights, the absence of which will, in effect, allow the holders of a majority of
the outstanding shares of Common Stock to elect all the directors then standing
for election. After the completion of the offering hereby and assuming no
exercise of any stock options or the Underwriters' over-allotment option, the
current stockholders will own approximately 73.2% of the Common Stock.

Subject to the rights and preferences of the Preferred Stock, if any, each
share of Common Stock has an equal and ratable right to receive dividends, when,
as and if declared by the Company's Board of Directors, out of any funds legally
available for the payment thereof. In the event of the liquidation, dissolution
or winding up of the Company, after satisfaction of amounts payable to creditors
and distribution to the holders of outstanding Preferred Stock, if any, of
amounts to which they may be preferentially entitled, holders of the Common
Stock are entitled to share ratably, on a per share basis, in the assets
available for distribution to the stockholders.

Holders of Common Stock are not entitled to conversion or preemptive
rights. All outstanding shares of Common Stock are, and when issued, the shares
of Common Stock to be issued in connection with this offering, will be, fully
paid and nonassessable.

UNDESIGNATED STOCK

The Board of Directors of the Company generally has the power to issue
shares of capital stock without stockholder approval. The Board of Directors is
authorized to establish the rights, preferences and limitations of this
undesignated stock and to divide such shares into classes, with or without
voting rights. The ability of the Board of Directors to issue additional shares
could impede or deter an unsolicited tender offer or takeover proposal regarding
the Company. Shares of undesignated stock could be issued with terms, provisions
and rights which would make more difficult and, therefore, less likely, a
takeover of the Company not approved by the Board of Directors. The rights of
the holders of the Common Stock could be adversely affected by the future
issuance of undesignated stock.

CERTAIN PROVISIONS OF MINNESOTA LAW

The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. These anti-takeover provisions may
eventually operate to deny stockholders the receipt of a premium for their
Common Stock. Section 302A.671 basically provides that the shares of a
corporation acquired in a "control share acquisition" have no voting rights
unless voting rights are approved by the stockholders in a prescribed manner. A
"control share acquisition" is generally defined as an acquisition of beneficial
ownership of shares that would, when added to all other shares beneficially
owned by the acquiring person, entitle the acquiring person to have voting power
of 20% or more in the election of directors. Section 302A.673 prohibits a public
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an "interested shareholder," unless the "business
combination" is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions. An "interested
shareholder" is a person who is the beneficial owner of 10% or more of the
corporation's voting stock. Reference is made to the detailed terms of Sections
302A.671 and 302A.673 of the Minnesota Business Corporation Act.

41
<PAGE> 45

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar of the Common Stock is Norwest Bank
Minnesota, N.A.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
9,700,000 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised). Of these outstanding shares, the 2,600,000 shares of
Common Stock sold in this offering will be freely tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company (as that term is defined in the Securities Act), which will be
subject to the resale limitations under Rule 144 adopted under the Securities
Act. The 7,100,000 shares of Common Stock held by the current stockholders are
"restricted" securities within the meaning of Rule 144 and may not be resold in
a public distribution except in compliance with the registration requirements of
the Securities Act or pursuant to Rule 144.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least one year but less than two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 97,000 shares immediately after the offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons) other than an "affiliate" who has beneficially owned his or her shares
for at least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person who directly, or indirectly through the use
of one or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer. Rule 144A under the Securities Act as currently in
effect permits the immediate sale by current holders of restricted shares of all
or a portion of their shares to certain qualified institutional buyers described
in Rule 144A, subject to certain conditions.

The current stockholders have agreed that they will not sell any shares of
capital stock of the Company, either publicly or privately, without the prior
consent of Needham & Company, Inc. for a period of 180 days from the date of
this Prospectus.

The Company has reserved an aggregate of 950,000 shares of Common Stock for
issuance pursuant to the Incentive Compensation Plan. In October 1998, options
to purchase a total of 558,625 shares of Common Stock were granted to certain
employees and directors of the Company under the Incentive Compensation Plan.
Additionally, the Company has reserved an aggregate of 250,000 shares of Common
Stock for issuance pursuant to the Employee Stock Purchase Plan. As of the date
of this Prospectus, no shares of Common Stock have been issued under the
Employee Stock Purchase Plan. The Company intends to file a registration
statement on Form S-8 under the Securities Act within 30 days after the date of
this Prospectus to register the shares to be issued pursuant to the Incentive
Compensation Plan and Employee Stock Purchase Plan, respectively. Shares of
Common Stock issued under these plans after the effective date of such
registration statements will be freely tradeable in the public market, subject
to the lock-up restrictions and subject in the case of sales by affiliates to
the amount, manner of sale notice and public information requirements of Rule
144.

There has been no prior market for the Common Stock and there can be no
assurance that a significant public market for the Common Stock will develop or
be sustained after the offering contemplated by this Prospectus. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock.

42
<PAGE> 46

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Needham & Company, Inc.,
Cruttenden Roth Incorporated and John G. Kinnard and Company Incorporated are
acting as representatives (the "Representatives"), have severally agreed to
purchase an aggregate of 2,600,000 shares of Common Stock from the Company at
the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus, in the amounts set
forth opposite their respective names below.

<TABLE>
<CAPTION>
UNDERWRITER PARTICIPATION
----------- -------------
<S> <C>
Needham & Company, Inc......................................
Cruttenden Roth Incorporated................................
John G. Kinnard and Company, Incorporated...................

---------
Total.................................................. 2,600,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of Common Stock offered hereby if any of
such shares are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain securities dealers at such price less a concession of not more
than $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the shares of Common Stock are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
Underwriters. No change in such terms shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to 390,000 additional
shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the sale of Common Stock offered hereby. To the extent
that the Underwriters exercise the over-allotment option, each Underwriter will
be committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock which is proportionate to such Underwriter's initial
commitment as set forth in the table above.

The Company, its officers and directors and current stockholders have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock, any securities of the Company which are substantially similar
to the shares of Common Stock or which are convertible or exchangeable for
securities which are substantially similar to the shares of Common Stock other
than pursuant to the Incentive Compensation Plan or the Purchase Plan without
the prior written consent of Needham & Company, Inc., except for the shares of
Common Stock offered in connection with this offering.

The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered by them.

43
<PAGE> 47

Prior to this offering, there has not been a public market for the Common
Stock of the Company. Consequently, the initial public offering price of the
Common Stock was determined by arms-length negotiation between the Company and
the Representatives of the Underwriters. Among the factors to be considered by
the Company and the Representatives in pricing the Common Stock are the results
of operations, the current financial condition and future prospects of the
Company, the experience of management, the amounts of ownership to be retained
by the current stockholders, the general condition of the economy and the
securities markets, the demand for similar securities of companies considered
comparable to the Company and other factors deemed relevant.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Exchange Act pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Common Stock in connection with the offering than they are committed to
purchase from the Company, and in such case may purchase Common Stock in the
open market following completion of the offering to cover all or a portion of
such shares of Common Stock or may exercise the Underwriters' over-allotment
option referred to above. In addition, the Representatives, on behalf of the
Underwriters, may impose "penalty bids" under the contractual arrangements with
the Underwriters whereby the Representatives may reclaim from an Underwriter (or
dealers participating in the offering), for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in stabilization or syndicate covering transactions or otherwise.
Any of these activities may stabilize or maintain the price of the Common Stock
at a level above which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and if they are undertaken
they may be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Messerli & Kramer P.A., Minneapolis, Minnesota. Certain legal matters
will be passed upon for the Underwriters by Kaplan, Strangis and Kaplan, P.A.,
Minneapolis, Minnesota.

EXPERTS

The balance sheets of Datalink Corporation as of December 31, 1996 and 1997
and the statements of operations, stockholders' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1997 and the
balance sheet of Direct Connect Systems, Inc. as of December 31, 1997 and the
statement of income and retained earnings and cash flows for the year ended
December 31, 1997, included in this Prospectus have been included herein in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.

CHANGE IN ACCOUNTANTS

In November 1997, the Company engaged PricewaterhouseCoopers LLP as its
independent public accountants to audit the financial statements as of December
31, 1995, 1996 and 1997 and for each of the three years ended December 31, 1997.
The decision to dismiss Hansen, Jergenson, Nergaard & Co., LLP and engage
PricewaterhouseCoopers LLP as the Company's independent public accountants was
approved by the Board of Directors. The report of Hansen, Jergenson, Nergaard &
Co., LLP as of December 31, 1996 and for the year then ended, not included
herein, does not contain an adverse opinion or a disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the Company's
44
<PAGE> 48

two most recent fiscal years and the subsequent interim period preceding the
former auditors' dismissal, there were no disagreements with the former auditors
on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures which, if not resolved to the former
auditor's satisfaction, would have caused them to make reference to the subject
matter in their report. Prior to retaining PricewaterhouseCoopers LLP, the
Company did not consult with PricewaterhouseCoopers LLP regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the Company's financial statements or
any other matter.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder.
Statements contained in this Prospectus regarding the contents of any contract
or any other document are not necessarily complete and, in each such instance,
reference is hereby made to the copy of such contract or other document filed as
an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street N.W., Judiciary
Plaza, Washington, D.C. 20549 at the prescribed rates. Also, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Web site is http://www.sec.gov.

45
<PAGE> 49

GLOSSARY

AIT........................... Advanced Intelligent Tape. An 8 mm helical scan
tape technology designed, manufactured and
marketed by Sony Corporation.

ARCHIVE....................... A repository for information separate from the
primary storage system. Data is often deleted
from the primary storage system once placed in
the archive system.

CLOSED SYSTEMS................ Computers or computing environments that rely
on proprietary components and use software
often only available from a single source.

CLUSTERING SOFTWARE........... Software that allows a user's software
application to interact with a cluster of host
servers as if the cluster were a single host.
Clustering software is designed to increase
both availability (by providing alternative
processing capacity in the event of a host
failure) and scaleability (by sharing resources
among a number of hosts in the cluster).

CPU........................... Central Processing Unit. A microprocessor chip
or circuit board that performs the bulk of data
processing in a computer.

DDS........................... Digital Data Storage. A 4mm helical scan tape
technology developed by Sony Corporation. Also
known as digital audio tape ("DAT").

DIGITAL LINEAR TAPE........... A half-inch, serpentine linear tape technology
originally developed by Digital but is now
designed, manufactured and marketed by Quantum.

DISK ARRAY.................... A number of disk drives grouped together into a
storage system and attached to a host computer
as a single unit. This grouping can achieve
superior performance and reliability over
single disk drives while providing enhanced
management capabilities.

FABRIC........................ A grouping of Fibre Channel devices
interconnected by Fibre Channel switches.

FIBRE CHANNEL................. A new high speed serial interface standard
developed and recently formalized by the
American National Standards Institute.

GB............................ Gigabyte. 1,024 megabytes.

HIGH AVAILABILITY............. The capability of a system to perform its
functions with extremely little downtime by
incorporating redundant components and systems.

HOT BACKUP.................... The capability of a storage system to be backed
up while the system remains powered on and
operative.

HSM........................... Hierarchical Storage Management. An information
storage system which automatically migrates the
least used data to a lower cost storage medium.
This data is transparently recalled to primary
storage when accessed by users.

INTERFACE..................... The circuit board and cabling used to connect a
host computer with its storage system. SCSI,
Ultra SCSI and Fibre Channel are three
predominant interface technologies used in the
Open Systems market.
46
<PAGE> 50

MB............................ Megabyte. 1,048,576 bytes, a unit of
measurement for data storage.

NAS........................... A device that uses thin server technology to
translate block-oriented storage data into
file-oriented storage data usable by end users
on their local area network.

ON-LINE....................... Data stored in hard disk or disk array systems
using standard file systems that can be
accessed at speeds measured in milliseconds.

OPEN SYSTEMS.................. Computers or networked computing environments
based on published non-proprietary standards.
These environments are characterized by the
interoperability of computing and storage
systems from multiple suppliers.

PERMANENCE.................... The degree to which stored data is retained for
future access.

RAID.......................... Redundant Array of Independent Disks. A Disk
Array storage system with fault tolerance built
into its disk, power, cooling and/or processing
components.

SAN........................... Storage Area Network. A dedicated, high speed
network used to interconnect one or many shared
storage devices to multiple servers or cluster
servers.

SCSI.......................... Small Computer Systems Interface. A commonly
used interface standard developed by the
American National Standards Institute. This
standard defines the connection of peripheral
devices (primarily information storage) to host
computer systems.

THIN SERVER................... Computing platform including only the storage
and networking related functions of the
operating system.

ULTRA SCSI.................... The latest high performance version of the SCSI
specification which includes Ultra-1 (up to 40
MB per second) and Ultra-2 (up to 80 MB per
second) standards.

UNIX.......................... A multi-user, multi-tasking operating system
commonly used in Open Systems. Versions of UNIX
are available from a variety of suppliers.

WINDOWS NT.................... A multi-user, multi-tasking operating system
commonly used in Open Systems. Available only
from Microsoft Corporation.

9840.......................... A high performance linear tape technology
designed, manufactured and marketed by Storage
Technology Corporation.

47
<PAGE> 51

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA INFORMATION
Unaudited Pro Forma Statements of Operations--Narrative
Overview.................................................. F-2
Unaudited Pro Forma Combined Statement of Operations........ F-3
Notes to Unaudited Pro Forma Combined Statement of
Operations................................................ F-4
Unaudited Pro Forma Combined Statement of Operations........ F-5
Notes to Unaudited Pro Forma Combined Statement of
Operations................................................ F-6
DATALINK INFORMATION
Report of Independent Accountants........................... F-7
Consolidated Balance Sheets................................. F-8
Consolidated Statements of Operations....................... F-9
Consolidated Statements of Stockholders' Equity
(Deficiency).............................................. F-10
Consolidated Statements of Cash Flows....................... F-11
Notes to Consolidated Financial Statements.................. F-12
DIRECT CONNECT INFORMATION
Report of Independent Accountants........................... F-21
Balance Sheet............................................... F-22
Statement of Income and Retained Earnings................... F-23
Statement of Cash Flows..................................... F-24
Notes to Financial Statements............................... F-25
</TABLE>

F-1
<PAGE> 52

DATALINK CORPORATION

UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS - NARRATIVE OVERVIEW

On July 15, 1998, the Company acquired Direct Connect Systems, Inc.
("DCSI"), a Marietta, Georgia-based firm engaged in the analysis, custom design,
integration and support of high-end Open Systems data storage solutions
principally for end-users in the southeastern United States. In addition to its
Marietta headquarters, DCSI has field sales offices in Herndon, Virginia,
Charlotte, North Carolina, and Melbourne and Tampa, Florida.

Under terms of the acquisition, the Company acquired all of DCSI's capital
stock in exchange for $2 million cash and 200,000 shares of the Company's Common
Stock, with a negotiated fair value of $2 million. The number of shares are
subject to increase in the event that the Company does not complete its
anticipated public offering, in order to maintain the fair value of the Common
Stock at $2 million. Under terms of the acquisition, certain DCSI employees were
also paid $500,000 in the aggregate under noncompetition agreements.

The following unaudited pro forma combined statements of operations for the year
ended December 31, 1997 and the nine months ended September 30, 1998 give effect
to the acquisition of Direct Connect Systems, Inc. ("DCSI" or "Direct Connect")
by the Company using the purchase method of accounting, assuming the business
combination took place on January 1, 1997.

The following unaudited pro forma combined statements of operations are
presented for illustrative purposes only and are not necessarily indicative of
the combined results of operations for future periods or the results that
actually would have been realized had the Company and DCSI been a combined
company during the specified periods. The combined unaudited pro forma
statements of operations, including the notes thereto, are qualified in their
entirety and should be read in conjunction with the historical financial
statements of the Company and DCSI.

The unaudited pro forma combined statements of operations are based on the
respective historical statements of operations and the notes thereto of the
Company and DCSI. The purchase price was allocated to the estimated fair value
of assets acquired and liabilities assumed. The preliminary purchase price
allocation is based on estimates of fair value. Such estimates may be adjusted
upon the completion of an evaluation of the purchase price allocation by an
appraiser.

F-2
<PAGE> 53

DATALINK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL DIRECT
DATALINK CONNECT PRO FORMA PRO FORMA
(1) (4) ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................. $71,255,299 $11,822,771 $83,078,070
Cost of sales.............................. 55,719,303 8,378,209 64,097,512
----------- ----------- ----------- -----------
Gross profit........................... 15,535,996 3,444,562 18,980,558
Operating expenses:
Sales and marketing...................... 5,191,040 1,509,069 6,700,109
General and administrative............... 3,010,450 1,231,869 565,652(5) 4,974,638
166,667(6)
Engineering.............................. 926,008 926,008
----------- ----------- ----------- -----------
Operating income....................... 6,408,498 703,624 (732,319) 6,379,803
Interest expense........................... 332,562 90,438 180,000(7) 603,000
----------- ----------- ----------- -----------
Income before income taxes................. 6,075,936 613,186 (912,319) 5,776,803
Income tax expense (benefit)............... 2,430,374(2) 250,582 (196,931)(8) 2,484,025
----------- ----------- ----------- -----------
Net income................................. $ 3,645,562(2) $ 362,604 $ (715,388) $ 3,292,778
=========== =========== =========== ===========
Net income per share, basic and diluted.... $ 0.46(3) $ 0.41
=========== ===========
Weighted average shares outstanding, basic
and diluted.............................. 7,853,935 200,000(9) 8,053,935
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma combined
statement of operations.

F-3
<PAGE> 54

DATALINK CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997

- ------------

(1) Reflects the historical results of operations of the Company as derived from
the Company's historical statement of operations for the year ended December
31, 1997, adjusted to include the pro forma adjustments described in items
(2) and (3) below.

(2) Reflects the adjustment for the income taxes which would have been recorded
if the Company had been a C corporation, based on the tax laws in effect
during the period. The pro forma adjustment for income taxes does not
include a one-time net income tax benefit related to the recognition of a
net deferred tax asset and liability which will be recorded by the Company
upon terminating its S corporation status (estimated at $157,000 as of
September 30, 1998).

(3) Pro forma Datalink net income per share is computed by dividing pro forma
net income by the weighted average number of shares outstanding for the
period, after giving effect to the estimated number of shares that would be
required to be sold at the initial public offering price, after deducting
the underwriting discount, to fund the distribution to the current
stockholders of all previously taxed, but undistributed, S corporation
earnings, estimated at $8,871,595 (or 953,935 shares) had the termination
occurred on September 30, 1998.

(4) Reflects the historical results of operations of DCSI as derived from their
statement of operations for the year ended December 31, 1997.

(5) Reflects amortization of acquired identifiable intangible assets and
goodwill of $3,483,564 based upon a preliminary purchase price allocation as
follows:

<TABLE>
<CAPTION>
ALLOCATION ESTIMATED LIFE
---------- --------------
<S> <C> <C>
Customer Base........................................ $ 700,000 5 years
Assembled Workforce.................................. 490,000 5 years
Trademark and Tradename.............................. 450,000 7 years
Goodwill............................................. 1,843,564 7 years
</TABLE>

(6) Reflects amortization of the $500,000 cost of noncompetition agreements on a
straight-line basis over their three-year terms.

(7) Reflects interest expense resulting from the cash portion of the DCSI
purchase price of $2,000,000 that the Company borrowed under its line of
credit at an assumed interest rate of 9%.

(8) Reflects the income tax impact of adjustments (6) and (7). Expenses related
to amortization of intangible assets and goodwill are not deductible for
income tax reporting purposes.

(9) Reflects incremental impact of 200,000 shares issued in the DCSI acquisition
on the weighted average shares outstanding, assuming the business
combination was completed on January 1, 1997.

F-4
<PAGE> 55

DATALINK CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL DIRECT
DATALINK CONNECT PRO FORMA PRO FORMA
(1) (4) ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................. $60,112,196 $10,226,371 $70,338,567
Cost of sales.............................. 45,129,571 7,279,833 52,409,404
----------- ----------- -------- -----------
Gross profit........................... 14,982,625 2,946,538 17,929,163
Operating expenses:
Sales and marketing...................... 5,082,124 1,086,998 6,169,122
General and administrative............... 2,965,594 836,424 306,395(5) 4,198,691
90,278(6)
Engineering.............................. 1,080,249 1,080,249
Offering costs........................... 708,811 708,811
----------- ----------- -------- -----------
Operating income....................... 5,145,847 1,023,116 (396,673) 5,772,290
Interest expense........................... 221,250 69,688 97,500(7) 388,438
----------- ----------- -------- -----------
Income before income taxes................. 4,924,597 953,428 (494,173) 5,383,852
Income tax expense (benefit)............... 1,956,678(2) 387,296 (28,918)(8) 2,315,056
----------- ----------- -------- -----------
Net income................................. 2,967,919(2) 566,132 (465,255) 3,068,796
=========== =========== ======== ===========
Net income per share, basic and diluted.... $ 0.38(3) $ 0.38
=========== ===========
Weighted average shares outstanding, basic
and diluted.............................. 7,911,288 142,647(9) 8,053,935
</TABLE>

The accompanying notes are an integral part of the unaudited pro forma combined
statement of operations.

F-5
<PAGE> 56

DATALINK CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

- ------------

(1) Reflects the historical results of operations of the Company as derived from
the Company's unaudited historical statement of operations for the
nine-month period ended September 30, 1998, adjusted to include the pro
forma adjustments described in items (2) and (3), below.

(2) Reflects adjustment for the income taxes which would have been recorded if
the Company had been a C corporation, based on the tax laws in effect during
the period. The pro forma adjustment for income taxes does not include a
one-time net income tax benefit related to the recognition of a net deferred
tax asset and liability which will be recorded by the Company upon
terminating its S corporation status (estimated at $157,000 as of September
30, 1998).

(4) Reflects the historical results of operations of DCSI as derived from the
DCSI unaudited statement of operations for the period from January 1, 1998
through July 14, 1998. All operating results of DCSI for the period from
July 15, 1998 through September 30, 1998 are included in the Company's
statement of operations for the nine-month period ended September 30, 1998.

(5) Reflects amortization, for the period from January 1, 1998 through July 14,
1998, of acquired identifiable intangible assets and goodwill of $3,483,564,
based upon a preliminary purchase price allocation as follows:

(6) Reflects amortization, for the period January 1, 1998 through July 14, 1998,
of the $500,000 cost of noncompetition agreements on a straight-line basis
over their three-year terms.

(7) Reflects interest expense, for the period January 1, 1998 through July 14,
1998, resulting from the cash portion of the DCSI purchase price of
$2,000,000 that the Company borrowed under its line of credit at an assumed
interest rate of 9%.

(8) Reflects the income tax impact of adjustments (6) and (7). Expenses related
to amortization of intangible assets and goodwill are not deductible for
income tax reporting purposes.

(9) Reflects incremental impact, for the period from January 1, 1998 through
July 14, 1998, of 200,000 shares issued in the DCSI acquisition on the
weighted average shares outstanding, assuming the business combination was
completed on January 1, 1997.

F-6
<PAGE> 57

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Datalink Corporation:

We have audited the accompanying balance sheets of Datalink Corporation as
of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Datalink Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
February 25, 1998, except as to

the first paragraph of Note 5,

as to which the date is

June 2, 1998, Note 11, as to

which the date is February 11, 1999

and Note 12, as to which the date is

July 15, 1998.

F-7
<PAGE> 58

DATALINK CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
(UNAUDITED)
----------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
TERMINATION TERMINATION OF
DECEMBER 31, OF S CORPORATION
------------------------- PUT OPTIONS STATUS PRO FORMA
1996 1997 ACTUAL (NOTE 3) (NOTE 3) (NOTE 3)
---- ---- ------ ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............................. $ 221,871 $ 1,163,107 $ 1,343,476 $ 1,343,476
Accounts receivable, net.......... 8,116,155 11,280,738 13,914,919 13,914,919
Inventories....................... 6,011,391 4,661,378 6,113,220 6,113,220
Other current assets.............. 75,151 78,705 72,615 72,615
Deferred income taxes............. 9,383 $ 158,638 $ 168,021
----------- ----------- ------------ ----------- -----------
Total current assets............ 14,424,568 17,183,928 21,453,613 158,638 21,612,251
Property and equipment, net......... 898,515 1,478,122 2,243,055 2,243,055
Intangibles......................... 3,844,626 3,844,626
Other assets........................ 31,587 42,503 54,199 54,199
----------- ----------- ------------ ----------- -----------
Total assets.................... $15,354,670 $18,704,553 $ 27,595,493 $ 158,638 $27,754,131
=========== =========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Book cash overdraft............... 527,960 527,960
Line of credit.................... 2,796,528 3,935,417 4,223,783 4,223,783
Accounts payable.................. 5,079,441 4,928,617 9,764,855 9,764,855
Accrued expenses.................. 1,160,078 1,493,317 1,455,341 1,455,341
Income taxes payable.............. 529,730 529,730
Long-term debt, current portion... 17,060 17,060
Deferred compensation, current
portion......................... 59,058 65,242 62,459 62,459
Distribution payable to
stockholders.................... 8,871,595 8,871,595
----------- ----------- ------------ ----------- -----------
Total current liabilities....... 9,095,105 10,422,593 16,581,188 8,871,595 25,452,783
Deferred compensation, less current
portion........................... 216,939 151,697 106,162 106,162
Long-term debt, less current
portion......................... 12,460 12,460
Deferred income taxes............. 23,988 1,604 25,592
Commitments and contingencies
Common stock, subject to put option;
$0.001 par value, 50,000,000
shares authorized, 7,100,000
shares issued and outstanding..... 9,338,605 13,873,980 17,567,701 (17,567,701)
Stockholders' equity (deficiency):
Common stock, $0.001 par value,
50,000,000 shares authorized,
7,100,000 shares issued and
outstanding..................... 7,100 7,100
Retained earnings (accumulated
deficit)........................ (3,295,979) (5,743,717) (6,696,006) 17,560,601 (8,714,561) 2,150,034
----------- ----------- ------------ ------------ ----------- -----------
Total stockholders' equity
(deficiency).................. (3,295,979) (5,743,717) (6,696,006) 17,567,701 (8,714,561) 2,157,134
----------- ----------- ------------ ------------ ----------- -----------
Total liabilities and
stockholders' equity
(deficiency).................. $15,354,670 $18,704,553 $ 27,663,258 $ $ 158,638 $27,754,131
=========== =========== ============ ============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-8
<PAGE> 59

DATALINK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales..................... $38,047,884 $54,651,868 $71,255,299 $50,534,402 $60,112,196
Cost of sales................. 30,355,954 42,872,380 55,719,303 39,687,318 45,129,571
----------- ----------- ----------- ----------- -----------
Gross profit............. 7,691,930 11,779,488 15,535,996 10,847,084 14,982,625
Operating expenses:
Sales and marketing......... 2,487,295 3,606,567 5,191,040 3,746,558 5,082,124
General and
administrative........... 2,117,694 2,382,166 3,010,450 2,000,698 2,965,594
Engineering................. 466,445 632,660 926,008 777,186 1,080,249
Offering costs.............. 708,811
----------- ----------- ----------- ----------- -----------
Operating income......... 2,620,496 5,158,095 6,408,498 4,322,642 5,145,847
Interest expense.............. 306,182 285,905 332,562 262,599 221,250
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 4,924,597
Income tax expense............ 240,265
-----------
Net income.................... $ 2,314,314 $ 4,872,190 $ 6,075,936 $ 4,060,043 $ 4,684,332
=========== =========== =========== =========== ===========
Historical net income per
share, basic and diluted.... $ 0.34 $ 0.71 $ 0.88 $ 0.59 $ 0.67
=========== =========== =========== =========== ===========
Weighted average shares
outstanding, basic and
diluted.................. 6,900,000 6,900,000 6,900,000 6,900,000 6,957,353
Pro forma data (unaudited see
Note 3):
Income before income taxes
on S corporation
income................... $ 6,075,936 $ 4,060,043 $ 4,684,332
Pro forma income taxes...... 2,430,374 1,624,017 1,716,413
----------- ----------- -----------
Pro forma net income........ $ 3,645,562 $ 2,436,026 $ 2,967,919
=========== =========== ===========
Pro forma net income per
share basic and
diluted.................. $ 0.46 $ 0.31 $ 0.38
=========== =========== ===========
Shares used in computing pro
forma net income per share
(see Note 3)................ 7,853,935 7,853,935 7,911,288
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 60

DATALINK CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------ PAID IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
--------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... 6,900,000 $(2,285,575) $(2,285,575)
Net income......................... 4,872,190 4,872,190
Cash dividends of $0.27 per
share............................ (1,894,600) (1,894,600)
Accretion of common stock value.... (3,987,994) (3,987,994)
--------- ----- ----------- ----------- -----------
Balance, December 31, 1996......... 6,900,000 -- -- (3,295,979) (3,295,979)
Net income......................... 6,075,936 6,075,936
Cash dividends of $0.58 per
share............................ (3,988,299) (3,988,299)
Accretion of common stock value.... (4,535,375) (4,535,375)
--------- ----- ----------- ----------- -----------
Balance, December 31, 1997......... 6,900,000 -- -- (5,743,717) (5,743,717)
Net income (unaudited)............. 4,684,332 4,684,332
Cash dividends of $0.39 per
share............................ (2,679,100) (2,679,100)
Issuance of shares in acquisition
(Note 12)........................ 200,000 $ 200 $ 1,999,800 2,000,000
Cash dividends of $0.18 per
share............................ (1,263,800) (1,263,800)
Accretion of common stock value.... (200) (1,999,800) (1,693,721) (3,693,721)
--------- ----- ----------- ----------- -----------
Balance, September 30, 1998
(unaudited)...................... 7,100,000 -- -- $(6,696,006) $(6,696,006)
========= ===== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 61

DATALINK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 2,314,314 $ 4,872,190 $ 6,075,936 $ 4,060,043 $ 4,684,332
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Provision for bad debts... 11,034 69,109 27,235 6,406
Depreciation and
amortization............ 128,804 146,648 177,302 130,080 217,185
Amortization of
intangibles............. 138,938
Loss on disposal of
property and
equipment............... 9,527 (830) 598
Deferred income taxes........ (5,787)
Changes in operating
assets and liabilities:
Accounts receivable....... 480,317 (3,321,609) (3,191,818) (2,536,706) 579,109
Inventories............... 132,036 (2,921,963) 1,350,013 1,567,764 168,373
Other current assets...... (5,565) (36,031) (3,554) (36,901) 47,401
Other assets.............. (18,430) 4,556 (10,916) (15,162) (2,047)
Accounts payable.......... (662,561) 3,106,571 (150,824) (467,572) 2,877,309
Accrued expenses.......... (105,164) 599,324 333,239 (33,131) (430,201)
Income taxes payable...... 176,493
Deferred compensation..... 54,675 (56,206) (59,058) (48,802) (48,318)
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities.... 2,329,460 2,462,589 4,557,082 2,618,783 8,409,791
------------ ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and
equipment................. (286,325) (337,363) (766,436) (538,717) (736,639)
Net assets acquired, net of
cash acquired............. (3,095,619)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities................ (286,325) (337,363) (766,436) (538,717) (3,832,258)
------------ ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from borrowings on
line of credit............ 39,078,300 52,657,600 70,372,500 49,479,500 58,366,800
Principal payments on line of
credit.................... (39,712,195) (52,777,009) (69,233,611) (48,388,624) (58,996,556)
Dividends paid............... (1,342,400) (1,894,600) (3,988,299) (3,988,300) (3,942,900)
Principal payments on notes
payable, related
parties................... (250,000)
Principal payments on
long-term debt............ (9,309)
Book cash overdraft.......... 874,136 184,801
------------ ------------ ------------ ------------ ------------
Net cash used in financing
activities.............. (2,226,295) (2,014,009) (2,849,410) (2,023,288) (4,397,164)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in
cash...................... (183,160) 111,217 941,236 56,778 180,369
Cash, beginning of year........ 293,814 110,654 221,871 221,871 1,163,107
------------ ------------ ------------ ------------ ------------
Cash, end of year.............. $ 110,654 $ 221,871 $ 1,163,107 $ 278,649 $ 1,343,476
============ ============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 62

DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS:

Datalink Corporation (the Company) analyzes, custom designs, integrates or
assembles, installs and supports high-end Open Systems data storage solutions
for end-users, value-added resellers and original equipment manufacturers. In
May 1996, the Company received an ISO 9001 registration.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION:

The consolidated financial statements include the accounts of the Company
and, since July 15, 1998, its wholly-owned subsidiary, Direct Connect Systems,
Inc. (DCSI) (see Note 12). All significant intercompany accounts and
transactions have been eliminated in consolidation.

INTERIM FINANCIAL STATEMENTS:

The financial statements as of September 30, 1998, and for the nine months
ended September 30, 1997 and 1998, are unaudited. In the opinion of management,
this financial information includes all adjustments, consisting of normal
recurring adjustments, necessary to fairly present the financial information set
forth herein. The results of operations for the nine months ended September 30,
1998, are not necessarily indicative of the results to be expected for the full
year.

CASH:

The Company maintains its cash principally with one financial institution.

INVENTORIES:

Inventories, principally consisting of data storage products and
components, are valued at the lower of cost or market with cost determined on a
first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT:

Property and equipment, including purchased software, are stated at cost.
Depreciation and amortization are provided by charges to operations using the
straight-line method over the estimated useful lives of the assets (ranging from
3 to 10 years). Leasehold improvements are amortized on a straight-line basis
over the shorter of their estimated useful lives or the underlying lease term.
The costs and related accumulated depreciation and amortization on asset
disposals are removed from the accounts and any gain or loss is included in
operations. Major renewals and betterments are capitalized, while maintenance
and repairs are charged to current operations when incurred.

INTANGIBLE ASSETS:

Identifiable intangible assets and goodwill are amortized on a
straight-line basis over their estimated useful lives of 3 to 7 years.

The Company periodically, at least quarterly, analyzes intangible assets
for potential impairment, assessing the appropriateness of lives and
recoverability of unamortized balances through measurement of undiscounted
operating cash flows on a basis consistent with generally accepted accounting
principles.

F-12
<PAGE> 63
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

INCOME TAXES:

The Company has elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code (the Code) and comparable state income
tax law. Under those provisions, the Company's income is reported on the
individual tax returns of the Company's stockholders. As such, the Company is
generally not subject to corporate income taxes. Therefore, no provision or
liability for income taxes is reflected in the financial statements for the
Company.

As of September 30, 1998 DCSI was a C corporation and accordingly, was
subject to corporate income taxes. A provision for taxes resulting from the
taxable income of DCSI is included in the consolidated financial statements.

Deferred income tax liabilities and assets are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense consists
of the tax payable for the period and the change during the period in deferred
tax assets and liabilities.

As of September 30, 1998, the Company has a deferred tax asset of $9,383
related primarily to the allowance for doubtful accounts and a deferred tax
liability of $23,988 related primarily to property and equipment.

Concurrent with the Company's proposed initial public offering (the
Offering), (see Note 11), the Company's S corporation status will terminate and
it will become subject to federal and state income taxes (see Note 3).

REVENUE RECOGNITION:

The Company recognizes product revenue as its products are shipped or
following customer acceptance for products under evaluation. The Company
provides an allowance for estimated returns when revenues are recognized.
Software solution and consulting service revenue is recognized as such services
are rendered. Revenues and expenses related to sales of maintenance contracts
fulfilled by third parties are recognized upon execution of the contracts.

OFFERING COSTS:

Costs related to the Company's initial public offering incurred during 1998
that were initially deferred, were expensed during the third quarter of 1998
when the offering was delayed due to market conditions.

NET INCOME PER SHARE:

Basic net income per share is computed using the weighted average number of
shares outstanding. The diluted net income per share includes the effect of
common stock equivalents, if any, for each period. The Company does not have any
common stock equivalents.

USE OF ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management's estimates relate to the
F-13
<PAGE> 64
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

determination of the allowance for doubtful accounts receivable, the estimated
useful lives of property and equipment and reserves for excess and obsolete
inventories.

CONCENTRATION OF CREDIT RISK:

The Company's customer base is diversified; however, a substantial portion
of its customers are located in the upper Midwest. The Company does not require
collateral for customer accounts receivable. The Company performs ongoing credit
evaluations of its customers' financial condition and establishes allowances for
estimated uncollectible accounts when necessary.

BUSINESS SEGMENTS:

Effective with its year end 1998 financial statements, the Company will
adopt SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," which requires disclosure of segment data in a manner consistent
with that used by an enterprise for internal management reporting and decision
making. The Company will report its operations as a single segment under SFAS
No. 131.

3. PRO FORMA DATA (UNAUDITED):

PRO FORMA BALANCE SHEET DATA:

The pro forma balance sheet of the Company as of September 30, 1998
reflects (i) the reclassification of common stock subject to put option to
stockholders' equity to reflect termination of the put options concurrent with
the Offering (see Note 9), (ii) a distribution payable to the stockholders of
the Company of all previously taxed, but undistributed, S corporation earnings
(estimated at $8,871,595 had the termination occurred on September 30, 1998),
and (iii) a net deferred tax asset which will be recorded by the Company upon
termination of its S corporation status as a result of the Offering (estimated
at $157,000 as of September 30, 1998).

The deferred income tax asset will represent the tax effect of the
cumulative differences between the financial reporting and income tax bases of
assets and liabilities as of the termination of the S corporation status, and
will be recorded as an income tax benefit in the quarter in which the Offering
is completed. Deferred income taxes result from temporary differences between
financial reporting and income tax reporting based on enacted rates in effect
for periods in which these differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to an
amount expected to be realized. Income tax expense is the tax payable for the
period plus the change during the period in deferred tax assets and liabilities.

The actual deferred tax asset recorded will be adjusted to reflect the
effect of operations from October 1, 1998 through the actual termination of the
S corporation status. In addition, the actual amount of the distribution will be
adjusted to reflect the S corporation's pro rata portion of the Company's 1998
and 1999 taxable income and any stockholder distributions from October 1, 1998
through the termination of the S corporation status.

PRO FORMA STATEMENT OF OPERATIONS DATA:

Concurrent with the Offering, the Company will terminate its status as an S
corporation and will be subject to federal and state income taxes. Accordingly,
for informational purposes, the accompanying statements of operations for the
year ended December 31, 1997 and the nine months ended September 30, 1997 and
1998, include a pro forma adjustment for the income taxes which would have been
recorded if the Company had been a C corporation, based on the tax laws in
effect during the period. The pro forma
F-14
<PAGE> 65
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

adjustment for income taxes does not include a one-time income tax benefit
related to the recognition of a net deferred tax asset which will be recorded by
the Company upon terminating its S corporation status (estimated at $157,000 as
of September 30, 1998).

PRO FORMA NET INCOME PER SHARE:

Pro forma net income per share is computed by dividing pro forma net income
by the weighted average number of shares outstanding for the period, after
giving effect to the estimated number of shares that would be required to be
sold at the initial public offering price, after deducting the underwriting
discount, to fund the distribution to the current stockholders of all previously
taxed, but undistributed, S corporation earnings, estimated at $8,871,595 (or
953,935 shares) had the termination occurred on September 30, 1998. The Company
does not have any common stock equivalents.

4. SELECTED BALANCE SHEET INFORMATION:

The following provides additional balance sheet information as of:

<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
--------------------------- SEPTEMBER 30,
1996 1997 1998
---- ---- -------------
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable............................... $8,176,155 $11,340,738 $13,986,666
Less allowance for doubtful accounts.............. 60,000 60,000 71,747
---------- ----------- -----------
$8,116,155 $11,280,738 $13,914,919
========== =========== ===========
Property and equipment:
Leasehold improvements............................ $ 132,784 $ 223,356 $ 214,568
Equipment......................................... 608,000 761,059 940,232
Computers and purchased software.................. 914,652 1,262,249 2,065,041
---------- ----------- -----------
1,655,436 2,246,664 3,219,841
Less accumulated depreciation and amortization.... 756,921 768,542 976,786
---------- ----------- -----------
$ 898,515 $ 1,478,122 $ 2,243,055
========== =========== ===========
Accrued expenses:
Commissions....................................... $ 644,165 $ 942,051 $ 1,036,094
Other............................................. 515,913 551,266 419,247
---------- ----------- -----------
$1,160,078 $ 1,493,317 $ 1,455,341
========== =========== ===========
</TABLE>

5. BORROWING ARRANGEMENTS AND LONG-TERM DEBT:

Effective June 1, 1998, the Company renewed its revolving credit agreement
with a bank (the Credit Agreement). Under the Credit Agreement, the Company may
borrow up to $10,000,000 ($8,000,000 as of December 31, 1997) with borrowings
limited to the sum of 80% of eligible accounts receivable plus 35% of eligible
inventories, as defined. Borrowings under the Credit Agreement were $4,223,783
and $3,935,417 as of September 30, 1998 and December 31, 1997, respectively,
with interest at the bank's reference rate. Borrowings under the Credit
Agreement were $2,796,528 with interest at the bank's reference rate plus 0.50%
as of December 31, 1996. The bank's reference rate was 8.25%, 8.5% and 8.25% as
of December 31, 1996 and 1997 and September 30, 1998, respectively.

F-15
<PAGE> 66
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

The line of credit is collateralized by substantially all assets of the
Company. The agreement includes various covenants, including requirements to
maintain certain levels of net income and tangible net worth and limitations on
the payment of dividends and property and equipment acquisitions.

The Company's long-term debt consists of miscellaneous notes payable with
outstanding balances totaling $29,520, of which $17,060 is current, as of
September 30, 1998.

Included in cash on the balance sheet is $114,000, $260,000 and $446,138 as
of December 31, 1996 and 1997 and September 30, 1998, respectively, which was
held in a restricted collateral cash account. These amounts were applied to
reduce bank borrowings in the month following the period end.

6. DEFERRED COMPENSATION AGREEMENT:

The Company has a deferred compensation agreement with a retired officer
who is also a stockholder. The Company is obligated to pay the retired officer
(or a designated beneficiary) $7,000 per month for 60 months beginning January
1996. The Company's obligation under the agreement is not funded. The present
value of the Company's liability related to the deferred compensation agreement
was $275,997, $216,939 and $168,621 as of December 31, 1996 and 1997 and
September 30, 1998, respectively, with interest computed at 10%.

Interest expense related to the agreement was $27,794, $24,942, $19,623 and
$15,081 for the years ended December 31, 1996 and 1997 and for the nine months
ended September 30, 1997 and 1998, respectively (none in 1995). The Company
recorded $54,675 of compensation expense related to the agreement in the year
ended December 31, 1995.

7. LEASE COMMITMENTS AND CONTINGENCIES:

As of December 31, 1997, the Company leased an office and warehouse
facility under terms of an operating lease with a partnership in which a
stockholder of the Company is a general partner. During 1997, the office and
warehouse facility were sold to a limited liability partnership in which all
stockholders of the Company are limited partners. In connection with the
purchase of the property, the limited liability partnership executed promissory
notes in favor of a bank and a stockholder of the Company. The Company has
guaranteed payments due under these notes. As of September 30, 1998, the
balances of the notes payable to the bank and the stockholder were $922,222 and
$1,358,718, respectively. The lease expires in December 1999. The Company also
leases office space from nonaffiliated entities under operating lease agreements
that expire at various dates through 2000. In addition to minimum rents, the
leases require the Company to pay certain operating costs of the lessor.

As of December 31, 1997, future minimum lease payments due under these
noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
RELATED
YEAR ENDED PARTY OTHER TOTAL
---------- ------- ----- -----
<S> <C> <C> <C>
1998..................................................... $151,464 $ 82,743 $234,207
1999..................................................... 151,464 46,153 197,617
2000..................................................... 21,420 21,420
-------- -------- --------
$302,928 $150,316 $453,244
======== ======== ========
</TABLE>

The Company also leases office and manufacturing facilities for DCSI under
operating leases which expire at various dates throughout 2000. Future minimum
lease payments due under these leases as of

F-16
<PAGE> 67
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

September 30, 1998 are approximately $18,000, $75,000, and $57,000 for the
three-month period ending December 31, 1998, and for the years ending December
31, 1999 and 2000, respectively.

Total rent expense, including certain lessor operating costs charged to the
Company, is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30,
-------------------------------- --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Related party............................. $132,511 $128,573 $197,363 $121,611 $124,872
Other..................................... 71,818 90,361 119,620 83,968 134,491
-------- -------- -------- -------- --------
$204,329 $218,934 $316,983 $205,579 $259,363
======== ======== ======== ======== ========
</TABLE>

8. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution retirement plan for eligible
employees. Employees may contribute up to 10% of their pretax compensation to
the 401(k) portion of the plan. The Company is required to match 50% of an
employee's contribution up to the first 6% of an employee's eligible
compensation. The cost of the Company's contributions to the 401(k) portion of
the plan for the years ended December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1997 and 1998, was $78,540, $97,350, $126,404,
$100,075 and $125,064, respectively.

At the discretion of the Board of Directors, the Company may also make
profit sharing contributions to the plan, to the extent permitted by the
Internal Revenue Code. The cost of the Company's profit sharing contributions to
the plan for the years ended December 31, 1995, 1996 and 1997 was $91,044,
$156,500 and $164,350, respectively. The Company did not make any profit sharing
contributions to the plan for the nine months ended September 30, 1997 and 1998.

As of September 30, 1998, the Company also maintained the defined
contribution retirement plan of DCSI. No Company contributions where made to the
DCSI plan for the nine month period ended September 30, 1998.

9. COMMON STOCK BUY-SELL AGREEMENT:

As of September 30, 1998, the Company and all of its stockholders had
entered into a Stock Purchase Agreement (the Agreement) effective April 1, 1992
that restricts the right of each stockholder to dispose of or encumber any
shares of the Company's common stock and dictates terms for transfer of the
shares. Upon the death, disability or termination of employment, each
stockholder is required to put his shares to the Company, and the Company is
obligated to purchase all shares owned by that stockholder at a price determined
pursuant to terms of the Agreement. In connection therewith, the value of the
common stock subject to put options has been accreted to the value determined
according to terms of the Agreement. Effective November 1, 1996, the Agreement
was amended to allow a retired stockholder to retain his shares until either he
or his legal representative require the Company to purchase his shares, or until
his death.

In connection with the Offering, and pursuant to accounting rules and
regulations applicable to public companies, the Company has adjusted its
financial statements to reclassify the carrying value of common stock pursuant
to the Agreement out of stockholders' equity. The effect of this restatement was
to increase the carrying value of common stock subject to the put options, and
decrease stockholders' equity by $3,424,119, $5,350,611, $9,338,605, and
$13,873,980 and $17,567,701 as of December 31, 1994, 1995, 1996 and 1997, and

F-17
<PAGE> 68
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

September 30, 1998, respectively. The Company's earnings available to common
stockholders is the same as the Company's net income because the accretion of
the common stock to its put option value results from the same put option terms
for all common stockholders. Accordingly, the accretion of the common stock to
its put option value is allocable to all of the Company's common stockholders.

The Company is the owner and beneficiary of term life insurance policies
with face values ranging from $1,605,000 to $9,472,000 insuring five of its
stockholders. The Company is also the owner and beneficiary of disability
insurance policies insuring five of its stockholders. Any proceeds from these
life and disability insurance policies would be used to fund at least a portion
of the Company's obligations under the Agreement in the event of death or
disability.

The Company is also the owner and beneficiary of two life insurance
policies with a combined face value of $1,000,000 insuring the life of the
retired stockholder. The cash surrender value of these policies was $26,587,
$25,547 and $21,435 as of December 31, 1996 and 1997 and September 30, 1998,
respectively, and is included in other assets.

10. SUPPLEMENTAL CASH FLOW INFORMATION:

The following provides supplemental information concerning the statements
of cash flows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash paid for interest................. $314,919 $286,745 $327,496 $166,687 $216,935
Cash paid for taxes.................... $ 62,559
Noncash transactions:
Purchase of property and equipment
included in accounts payable......... 158,000
Stock issued to purchase DCSI.......... 2,000,000
</TABLE>

11. RECAPITALIZATION:

As discussed in Notes 2 and 3, the Company is contemplating an initial
public offering of 2,600,000 shares of its common stock (the Offering). In
connection therewith, on June 1, 1998, the Company's Board of Directors and
stockholders approved an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock to 50,000,000 and
change the par value of the common stock to $0.001. Pursuant to the Company's
amended Certificate of Incorporation, all such authorized shares are deemed to
be common stock until otherwise designated by the Board of Directors. Also, on
June 1, 1998, the Company's Board of Directors and stockholders authorized a
690-for-1 stock split of its common stock. The stock split has been
retroactively reflected in the accompanying financial statements.

In connection with the Offering, the Company has reserved an aggregate of
950,000 shares of common stock for issuance pursuant to the Company's Incentive
Compensation Plan. The terms of the plan allow for a variety of awards including
stock options, stock appreciation rights, restricted stock, performance shares,
performance units, cash-based awards, phantom shares and other share-based
awards as determined by the Company's Compensation Committee (the Committee).
Also, in connection with the Offering, the Company has reserved 250,000 shares
of common stock for issuance pursuant to the Company's Employee Stock Purchase
Plan. Under terms of the Employee Stock Purchase Plan, eligible employees will
be granted an

F-18
<PAGE> 69
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

option to purchase a designated number of shares of common stock at a purchase
price as determined by the Committee, but at no less than 85% of the lower of
the market price on the first or last day of the purchase period.

In June 1998, the Company's Board of Directors authorized the grant of
24,000 options to directors for the purchase of the Company's Common Stock, to
be granted coincident with the closing of the Company's initial public offering.
Such options, authorized under the Incentive Compensation Plan, if ultimately
granted, will have exercise prices equal to the initial public offering price
per share, vest upon their grant and will expire 10 years after the date of the
Board's authorization of the option grant.

During December 1998 and January 1999, the Company's Board of Directors
authorized the grant of 534,625 options to employees for the purchase of the
Company's Common Stock, to be granted coincident with the closing of the
Company's initial public offering. Such options, authorized under the Incentive
Compensation Plan, if ultimately granted, will have exercise prices equal to the
initial public offering price per share, and will vest 20% annually and expire
10 years after the date of the Board's authorization of the options.

12. BUSINESS ACQUISITION:

On July 15, 1998, the Company acquired Direct Connect Systems, Inc. (DCSI),
a Marietta, Georgia-based firm engaged in the analysis, custom design,
integration and support of high-end Open Systems data storage solutions
principally for end-users in the southeastern United States. In addition to its
Marietta headquarters, DCSI has field sales offices in Herndon, Virginia,
Charlotte, North Carolina, and Melbourne and Tampa, Florida.

The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the estimated fair value of the
assets acquired and liabilities assumed. The results of operations of DCSI have
been combined with the operating results of the Company beginning on July 15,
1998.

The following table presents the unaudited preliminary purchase price
allocation which is subject to adjustment following completion of an appraisal
of the acquired, identifiable intangible assets of DCSI:

<TABLE>
<S> <C>
Cash and fair value of Company's Common Stock issued........ $4,000,000
Direct acquisition costs.................................... 677,324
DCSI liabilities assumed.................................... 4,032,680
----------
Total purchase price...................................... $8,710,004
==========
Estimated fair value of tangible assets acquired............ $5,226,440
Estimated fair value of identifiable intangible assets...... 1,640,000
Goodwill.................................................... 1,843,564
----------
$8,710,004
==========
</TABLE>

F-19
<PAGE> 70
DATALINK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

The preliminary purchase price allocation of intangible assets and goodwill
is as follows:

<TABLE>
<CAPTION>
ALLOCATION ESTIMATED LIFE
---------- --------------
<S> <C> <C>
Customer Base............................................... $ 700,000 5 years
Assembled Workforce......................................... 490,000 5 years
Trademark and Tradename..................................... 450,000 7 years
Goodwill.................................................... 1,843,564 7 years
</TABLE>

The $500,000 cost of noncompetition agreements has been capitalized and
will be amortized on a straight-line basis over their underlying three-year
terms.

The following unaudited pro forma condensed results of operations have been
prepared as if the acquisition of DCSI occurred as of the beginning of 1998 and
1997 and include the effects of the pro forma adjustments related to termination
of the Company's S corporation status and final distribution as described in
Note 3.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Net sales............................................. $83,078,070 $ 70,338,567
Net income............................................ $ 3,292,778 $ 3,068,796
Net income per share, basic and diluted............... $ .41 $ .38
</TABLE>

The unaudited pro forma condensed results of operations are not necessarily
indicative of results that would have occurred had the acquisitions been in
effect for the periods presented, nor are they necessarily indicative of the
results that will be obtained in the future.

F-20
<PAGE> 71

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Direct Connect Systems, Inc.:

In our opinion, the accompanying balance sheet and the related statements
of income and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Direct Connect Systems, Inc. at
December 31, 1997, and the results of its operations and its cash flows for the
period then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
July 20, 1998

F-21
<PAGE> 72

DIRECT CONNECT SYSTEMS, INC.
BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 38,270
Accounts receivable, net.................................. 3,422,382
Inventories............................................... 1,149,724
Prepaid expenses.......................................... 43,434
Deferred income taxes..................................... 50,917
----------
Total current assets................................... 4,704,727
Property and equipment, net................................. 252,262
Other assets................................................ 48,377
----------

Total assets................................................ $5,005,366
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Excess of outstanding checks over bank balance............ $ 685,415
Line of credit............................................ 484,643
Current portion of long-term debt......................... 30,471
Account payable........................................... 2,539,169
Accrued expenses.......................................... 179,995
Income taxes payable...................................... 133,695
Deferred revenue.......................................... 88,274
----------
Total current liabilities.............................. 4,141,662
Long-term debt.............................................. 211,385
Deferred income taxes....................................... 24,691
----------
Total liabilities...................................... 4,377,738
----------
Commitments and contingencies
Stockholders' equity:
Common stock ($.01 par value, 100,000 shares authorized,
1,000 shares issued and outstanding)................... 10
Additional paid-in capital................................ 33,345
Retained earnings......................................... 594,273
----------
Total stockholders' equity............................. 627,628
----------
Total liabilities and stockholders' equity............. $5,005,366
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 73

DIRECT CONNECT SYSTEMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
Net sales................................................... $11,822,771
Cost of sales............................................... 8,378,209
-----------
Gross profit........................................... 3,444,562
-----------
Operating expenses:
Sales and marketing....................................... 1,509,069
General and administrative................................ 1,231,869
-----------
Operating income....................................... 703,624
-----------
Interest expense, net....................................... (90,438)
Income before income tax expense....................... 613,186
Income tax expense:
Current................................................... 252,542
Deferred.................................................. (1,960)
-----------
250,582
-----------
Net income.................................................. 362,604
Retained earnings, beginning of year........................ 231,669
-----------
Retained earnings, end of year.............................. $ 594,273
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 74

DIRECT CONNECT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 362,604
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 55,924
Deferred taxes......................................... (1,960)
Provision for doubtful accounts........................ 24,000
Change in assets and liabilities:
Accounts receivable.................................. (2,016,241)
Inventories.......................................... (676,592)
Other assets......................................... 48,227
Accounts payable..................................... 1,666,393
Accrued liabilities and deferred revenue............. (29,552)
-----------
Net cash used in operating activities............. (567,197)
-----------
Cash flows from investing activities:
-----------
Purchase of property and equipment........................ (112,224)
-----------
Net cash used in investing activities............. (112,224)
-----------
Cash flows from financing activities:
Excess of outstanding checks over bank balance............ 685,415
Bank line of credit net borrowings -- repayments.......... (39,829)
Principal payments on long-term debt...................... (61,985)
-----------
Net cash provided by financing activities......... 583,601
-----------
Decrease in cash............................................ (95,820)
Cash at beginning of year................................... 134,090
-----------
Cash at end of year......................................... $ 38,270
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 118,075
Income taxes........................................... $ 100,000
Supplemental schedule of noncash investing and financing
activities:
Equipment purchases financed with leases and notes
payable................................................ $ 10,350
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 75

DIRECT CONNECT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Direct Connect Systems, Inc. (the Company) custom designs, installs and
services high performance data storage units for end-users. The Company also
provides storage management software solutions, consulting services and
maintenance and extended warranty contracts.

In July 1998, the Company and its stockholders entered into a definitive
agreement with Datalink Corporation ("Datalink"), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of Datalink common stock.

REVENUE RECOGNITION:

The Company recognizes product revenue as its products are shipped.
Software solution and consulting service revenue is recognized as such services
are rendered. Revenues, net of related costs, from extended warranty and
maintenance contracts are recognized over the period of the contracts, with the
unearned portions being recognized as deferred revenue. These are primarily
one-year contracts.

INVENTORIES:

Inventories, principally consisting of data storage products and components
are valued at the lower of cost or market with the cost determined on a
first-in, first-out (FIFO) method.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost and depreciation and amortization
are provided on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the shorter of estimated
useful lives or lease term.

Upon retirement or disposition of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in the statement of income.

ADVERTISING EXPENSE:

The Company charges to expense all advertising costs as incurred.
Advertising expense for the year ended December 31, 1997 was $133,356.

INCOME TAXES:

MANAGEMENT ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant areas which require the use of management's estimates
relate to the determination of the allowance for doubtful accounts receivable
and the estimated useful lives of property and equipment.

F-25
<PAGE> 76
DIRECT CONNECT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. BALANCE SHEET INFORMATION:

Accounts receivable as of December 31, 1997 consisted of:

<TABLE>
<S> <C>
Accounts receivable....................................... $3,470,614
Less allowance for doubtful accounts...................... 48,232
----------
$3,422,382
==========
</TABLE>

Inventories as of December 31, 1997 consisted of:

<TABLE>
<S> <C>
Raw materials............................................. $1,056,021
Work in process........................................... 93,703
----------
$1,149,724
==========
</TABLE>

Property and equipment as of December 31, 1997 consisted of:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
---------
<S> <C> <C>
Office equipment and software............................... 3-7 $244,514
Automobile.................................................. 5 57,676
Furniture and fixtures and leasehold improvements........... 7-10 53,688
--------
355,878
Less accumulated depreciation............................... 103,616
========
$252,262
========
</TABLE>

3. BANK LINE OF CREDIT:

The Company has up to a $1.5 million line of credit, which requires monthly
interest payments at the rate of prime plus 1 3/4% (10.25% at December 31,
1997), based upon levels of eligible accounts receivable, and is collateralized
by accounts receivable, inventories, property and equipment and life insurance
policies on the lives of certain corporate officers. The shareholders have
personally guaranteed this debt. This agreement, as amended, expires in April
1999. The agreement has certain financial covenants, including maintenance of
certain levels of accounts receivable and other account balances. Shareholder
loans payable are subordinated to borrowings under the line of credit.

4. LONG-TERM DEBT:

Long-term debt as of December 31, 1997 consisted of:

<TABLE>
<S> <C>
Loans payable to shareholders, unsecured requiring interest
at 10%, payable annually and maturing on April 30,
1999...................................................... $196,543
Other notes payable......................................... 45,313
--------
241,856
Less current portion........................................ 30,471
--------
$211,385
========
</TABLE>

F-26
<PAGE> 77
DIRECT CONNECT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Future maturities of long-term debt as of December 31, 1997, are as
follows:

5. COMMITMENTS:

The Company leases office facilities under operating leases. Rent expense
was $78,532 for 1997. Future minimum lease payments for such leases are as
follows as of December 31, 1997:

6. RETIREMENT PLANS:

The Company provides a qualified 401(k) defined contribution and profit
sharing plan for all full-time employees. There is no Company matching
requirement in this plan.

7. INCOME TAXES:

The tax effects of temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 1997 are as follows:

<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts............................. $17,990
Deferred revenue............................................ 32,927
-------
50,917
Deferred tax liabilities:
Depreciation and other property and equipment basis
differences............................................... 24,691
-------
Net deferred tax asset...................................... $26,226
=======
</TABLE>

8. CONCENTRATIONS:

Sales to one customer in 1997 represented 18% of total revenues and 21% of
the December 31, 1997 accounts receivable balance.

F-27
<PAGE> 78

GRAPHIC DESCRIPTION: MAP OF UNITED STATES SHOWING THE COMPANY'S CURRENT SALES
TERRITORIES.
<PAGE> 79

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH THIS PROSPECTUS RELATES, OR AN
OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 6
USE OF PROCEEDS....................... 12
TERMINATION OF S CORPORATION
STATUS AND PUT OPTION AND
DIVIDEND POLICY..................... 13
CAPITALIZATION........................ 14
DILUTION.............................. 15
SELECTED HISTORICAL FINANCIAL DATA.... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 18
BUSINESS.............................. 25
MANAGEMENT............................ 34
CERTAIN TRANSACTIONS.................. 38
PRINCIPAL STOCKHOLDERS................ 40
DESCRIPTION OF CAPITAL STOCK.......... 41
SHARES ELIGIBLE FOR FUTURE SALE....... 42
UNDERWRITING.......................... 43
LEGAL MATTERS......................... 44
EXPERTS............................... 44
CHANGE IN ACCOUNTANTS................. 44
ADDITIONAL INFORMATION................ 45
GLOSSARY.............................. 46
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

------------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,600,000 Shares
DATALINK LOGO

Common Stock

---------------------
PROSPECTUS
---------------------

Needham & Company, Inc.

CRUTTENDEN ROTH INCORPORATED LOGO
John G. Kinnard and Company,
Incorporated

-----------

, 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 80

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In June 1998, the Company authorized the grant of non-incentive options
under the Incentive Plan to the four non-employee directors that will vest
coincident with the first closing on the Company's initial public offering to
purchase an aggregate of 24,000 shares of the Company's Common Stock. Once
vested, such options will be exercisable for ten years from the date of grant at
an exercise price equal to the initial public offering price per share. In
December 1998, the Company authorized the grant of incentive options under the
Incentive Plan to 108 employees of the Company to purchase an aggregate of
525,125 shares of the Company's Common Stock. In January 1999, the Company
authorized the grant of incentive options under the Incentive Plan to two
additional employees of the Company to purchase an aggregate of 9,500 shares of
the Company's Common Stock. The grant of the incentive options is contingent
upon the first closing of the Company's initial public offering. All of the
incentive options will vest 20% per year over five years and, once vested, will
be exercisable for ten years from the date of the Board action at an exercise
price equal to the initial public offering price per share. The Company believes
that the grant of all of these options will be exempt from registration under
the Securities Act because no sale of securities will occur.

In connection with the acquisition of DCSI in July 1998, the Company issued
200,000 shares of Common Stock to four former stockholders of DCSI, each of whom
is an accredited investor. The Company believes the sale of these shares was
exempt from registration under Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS.

(a) Exhibits.

<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of
Registrant.
3.2* Restated Bylaws of Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Messerli & Kramer P.A.
10.1* Employee Stock Purchase Plan.
10.2* Incentive Compensation Plan.
10.3* Credit Agreement with Norwest Bank Minnesota, N.A.
10.4* Form of Indemnification Agreement.
10.5* Lease Agreement with Washington Avenue L.L.P.
10.6* Deferred Compensation with Stanley I. Clothier.
10.7* Agreement and Plan of Reorganization with Direct Connect
Systems, Inc. (excluding schedules and Exhibits which the
Company will provide to the Commission upon request).
10.8 Second Lease Agreement with Washington Avenue L.L.P.
16.1* Letter from Hansen, Jergenson Nergaard & Co., L.L.P.,
regarding change in certifying accountant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Hansen, Jergenson, Nergaard & Co., L.L.P.
23.3* Consent of Messerli & Kramer P.A. (including in Exhibit
5.1).
24.1* Power of Attorney (included in signature page).
27.1 Financial Data Schedule (Edgar filing only).
</TABLE>

(b) Financial Statement Schedule

Report of Independent Accountants on Financial Statement Schedule.*

Schedule II -- Valuation and Qualifying Accounts.*

- ---------------

* previously filed as part of the Registration Statement

II-1
<PAGE> 81

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on February 12, 1999.

DATALINK CORPORATION

By: /s/ GREG R. MELAND
------------------------------------
Greg R. Meland
President and Chief Executive
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS, IN THE
CAPACITIES AND ON THE DATES STATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ GREG R. MELAND President and Chief Executive February 12, 1999
- --------------------------------------------- Officer and Director (Principal
Greg R. Meland Executive Officer)

/s/ GREG R. MELAND Chief Financial Officer (Principal February 12, 1999
- --------------------------------------------- Financial and Accounting Officer)
Robert D. DeVere*

/s/ GREG R. MELAND Director February 12, 1999
- ---------------------------------------------
Robert M. Price*

/s/ GREG R. MELAND Director February 12, 1999
- ---------------------------------------------
James E. Ousley*

/s/ GREG R. MELAND Director February 12, 1999
- ---------------------------------------------
Margaret A. Loftus*

/s/ GREG R. MELAND Director February 12, 1999
- ---------------------------------------------
Paul F. Lidsky*
</TABLE>

* Signed by Greg R. Meland as attorney-in-fact pursuant to a power of attorney
dated June 3, 1998, included in Exhibit 24.1 of the Registration Statement.

II-2
<PAGE> 82

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
- -------------- ----------- --------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Amended and Restated Articles of Incorporation of
Registrant..................................................
3.2* Restated Bylaws of Registrant...............................
4.1* Specimen Common Stock Certificate...........................
5.1* Opinion of Messerli & Kramer P.A. ..........................
10.1* Employee Stock Purchase Plan................................
10.2* Incentive Compensation Plan.................................
10.3* Credit Agreement with Norwest Bank Minnesota, N.A. .........
10.4* Form of Indemnification Agreement...........................
10.5* Lease Agreement with Washington Avenue L.L.P. ..............
10.6* Deferred Compensation Agreement with Stanley I. Clothier....
10.7* Agreement and Plan of Reorganization with Direct Connect
Systems, Inc. (excluding Schedules and Exhibits which the
Registrant will provide to the Commission upon request).....
10.8 Second Lease Agreement with Washington Avenue L.L.P. .......
16.1* Letter from Hansen, Jergenson, Nergaard & Co., LLP,
regarding change in certifying accountant...................
23.1 Consent of PricewaterhouseCoopers LLP.......................
23.2 Consent of Hansen, Jergenson, Nergaard & Co., LLP...........
23.3* Consent of Messerli & Kramer P.A. (included in Exhibit
5.1)........................................................
24.1* Power of Attorney (included in signature page)..............
27.1 Financial Data Schedule (Edgar filing only).................
</TABLE>

- -------------------------

* previously filed as part of the Registration Statement

II-3

<PAGE> 1
EXHIBIT 10.8

EDINA SOUTHWEST BUILDING
LEASE AGREEMENT

THIS LEASE is made and entered into this _____ day of July, 1998 by and
between 7423 WASHINGTON AVENUE L.L.P, a general partnership hereinafter referred
to as "LESSOR" and Datalink Corporation, a Minnesota corporation hereinafter
referred to as "LESSEE".

WITNESSETH:

In consideration of the mutual covenants, promises, and agreements
herein contained, the parties do hereby agree as follows:

1. DESCRIPTION OF THE PREMISES

LESSOR does hereby lease to LESSEE and LESSEE does hereby lease and
take from LESSOR certain premises consisting of approximately 10,530 square
feet within the building at 7435 Washington Avenue South, Edina, Minnesota
hereinafter referred to as "Premises." These Premises are identified in the
building plans as Suites 1 and 2 and are more specifically designated in Exhibit
"A" which is made a part hereof. The Premises is measured from the outside of
all exterior walls to the center of tenant division and common area walls and is
hereafter referred to as the "leased premises."

2. TERM

This lease shall be for a term of Seventeen (17) months commencing on
the first day of August, 1998 and terminating on the last day of December, 1999.

3. USE OF PREMISES

It is agreed that the leased premises shall be used by the LESSEE for
offices, receiving, storage, and shipping of the LESSEE'S goods, subleasing of
some of the warehouse and office areas, and for no other purpose; subject to all
local, state, and federal laws and regulations regarding the use of the
premises.

4. PARKING AND DRIVES

The LESSEE, its employees, and invitees shall have the nonexclusive
right to use the common driveways and parking lots along with the other tenants,
invitees and customers of the building. The use of such driveways and parking
facilities are subject to such reasonable rules and regulations as the LESSOR
may impose. No more than 23 parking spaces are to be occupied at any one time by
the LESSEE, its employees and invitees. The LESSEE further agrees not to use, or
permit the use by its employees, the parking areas for the overnight storage of
automobiles or other vehicles without the written permission of the LESSOR.

5. NET LEASE

This is a "net" Lease, and LESSOR shall not be required to provide any
services or do any acts in connection with the leased premises not specifically
set forth in this Lease. As hereinafter further described in the Lease the
LESSEE is responsible for and shall pay all utility charges, trash removal, its
proportionate share of real estate taxes including installments of special
assessments and its proportionate share of the building's operating expenses.
For purposes of computing the share of the building that is leased to the
LESSEE, it is mutually determined and agreed that the net rentable are of the
building consists of 76,243 square feet, that the leased premises of LESSEE is
10,530 square feet, and accordingly, the LESSEE's percentage and proportionate
share for purposes of allocating real estate taxes and assessments and operating
expenses is 13.81%. Also, for the partial years at the beginning and end of this
Lease, the "LESSEE" shall only be responsible for its share of costs for the
portion of the year that the Lease is in effect.

6. RENT

LESSEE shall pay as annual rent for the leased premises, the sum of
Fifty-Four Thousand Dollars ($54,000) payable in equal monthly installments of
Four Thousand Five Hundred Dollars and no/100 ($4,500.00) in advance of the
first business day of each month during the full term hereof.

In the event the original term hereof shall commence on a day other
than the first day of a month, then a prorate rent payment shall be made paying
the rent through the end of the first partial month. All rental payments
required hereunder shall be paid to LESSOR at such place as LESSOR indicates on
the rent statement of may otherwise direct in writing from time to time.

APPROXIMATE AREAS

ESP 1
Net 96

<PAGE> 2

Office: 1st floor 2958 S.F.
2nd floor 3500 S.F.
Whse: 1st floor 3664 S.F.
2nd floor 260 S.F.
Other: 1st floor 148 S.F.
2nd floor none S.F.
TOTAL AREA 10,530

7. TAXES AND SPECIAL ASSESSMENTS

Commencing with the real estate taxes and installments of special
assessments payable in the year this Lease commences the LESSEE shall pay to
LESSOR, as additional rent for and during the full term of this Lease, its
proportionate share of any and all such real estate taxes and installments of
special assessments which are levied, assessed or charged against the entire
property. As the dollar amount will not be known at the beginning of each
calendar year, LESSOR shall make a reasonable estimate of what the amount will
be for that year, and LESSEE shall pay an estimated share each month. The first
of the month after LESSOR has received the actual real estate tax statement and
sent a copy to the LESSEE an adjustment shall be made for any difference between
that which the LESSEE paid and that which it should have paid. LESSEE shall then
start paying its prorata share monthly based upon the actual tax statement.

8. OPERATING EXPENSES

The LESSEE shall pay, as additional rent, when billed by LESSOR, its
proportionate share of the following operating expenses during the full term of
this Lease:

(a) City water and sewer charges, except where used by tenants in
substantial amounts for production and is therefore separately
metered, and the monitoring surveillance of the fire protection
system.

(b) Lawn care, snow and litter removal, and the repair and
maintenance as reasonably required for parking lots, drives,
sidewalks and landscaped areas.

(c) Maintenance, repair and replacement, if necessary, of all heating
and cooling equipment in the building, unless the need for such
work is the direct result of the LESSEE's misuse of such
equipment.

(d) All insurance that is maintained by LESSOR with respect to the
building, for fire and extended coverage, loss of rents insurance
or business interruptions and general liability insurance.

(e) All other necessary maintenance, replacement and repair, to the
exterior of the building including the roof and structural
maintenance.

(f) Property management expenses, except for re-leasing commissions
and special services not related to the ongoing operation of the
building, of four percent (4.00%) of the rents and additional
rents collected.

LESSOR agrees to exercise due care and diligence to obtain these
operating expense services and supplies at competitive and reasonable market
costs with acceptable quality and service standards. LESSOR shall have the right
to invoice these costs monthly to LESSEE on an estimated basis, making
adjustments to actual costs periodically (but at least annually) as operating
reports are available.

9. UTILITIES

LESSEE is responsible and shall pay for all utility services. The
LESSEE is separately metered for gas and electricity and will deal with the
utility companies for service requirements and billing.

In the event the LESSEE uses water and sewer in substantial amounts or
for production purposes, the LESSOR shall install at LESSEE'S expense a water
meter to sub-meter said water and sewer, and shall charge LESSEE for said water
and sewer at rates as charged by the City of Eden Prairie.

LESSOR shall not be liable to LESSEE for any loss or damage of any kind
of description whatsoever caused or sustained by reason of failure of the
heating or ventilating and air conditioning system servicing the leased premises
or because of inability to obtain energy or utilities for any reason beyond
LESSOR'S control.

10. INSURANCE

The LESSEE shall maintain in full force and effect during the term
hereof, a policy of public liability insurance under which the LESSOR and
LESSEE are named insured. The minimum limits of liability for such insurance
shall be $500,000.00 combined single limit for bodily injury and property
damage. LESSEE agrees to deliver a duplicate copy of said policy, or a
certificate of insurance evidencing such coverage, to LESSOR. Such policy
shall contain a provision requiring ten (10) days written notice to the LESSOR
before cancellation of the policy can be effected.

The LESSOR shall carry and cause to be in full force and effect a fire
and extended coverage insurance policy on the building, but not contents owned,
leased to or otherwise in

ESP 2
Net 96
<PAGE> 3

possession of the LESSEE. Such policy shall contain a provision that
the policy shall not be canceled except upon ten (10) days written notice to the
LESSEE.

Each insurance policy carried by either the LESSOR or LESSEE covering
the leased premises or its contents shall provide that the insured party has
relinquished all rights to recover against the other party for loss or damage
resulting from perils insured against by the policy. LESSOR and LESSEE each
hereby waive any claim based upon liability which may arise against the other so
far as the claim relates to loss or damage to the premises or contents which is
covered by insurance.

The LESSOR agrees to carry a fire and extended coverage insurance
policy on the building which covers, without any rating surcharge, a wide range
of uses. The uses set forth in Paragraph 3 of this Lease falls within such wide
range of uses. In the event, however, the LESSEE's change in use of the premises
or contents kept in the premises, or refusal to follow directions from the Fire
Inspection Bureau, or general housekeeping cause the fire and extended coverage
insurance premiums for the building to increase then the LESSEE agrees to pay
such additional premium in equal monthly installments.

11. MAINTENANCE

The LESSEE shall be wholly responsible for the maintenance and repair
of the interior of the leased premises, and will keep them in as good condition
as when turned over to it, reasonable wear and tear and damage by fire and the
elements excepted.

The LESSEE agrees to keep the leased premises in a clean, orderly and
sanitary condition and will neither do nor permit to be done therein anything
which is in violation of insurance policies on the building or that is contrary
to law.

The LESSEE will neither commit nor suffer waste to the building or to
the leased premises.

The maintenance and repair obligations of the LESSEE includes all
interior walls and all doors, windows, and electrical fixtures that serve the
leased premises.

The LESSEE is responsible for snow removal two feet out from doors and
entries.

The LESSOR shall at its own expense keep in good order, safe condition
and repair the structural parts of the building in which the leased premises are
located, except where repairs to the structural parts are required due to the
fault or negligence of the LESSEE, its employees or invitees, in which case the
LESSEE shall be responsible.

12. APPEARANCE AND ACCESS

LESSOR and LESSEE mutually agree to keep the grounds, building, leased
premises and common areas in a condition of good repair and appearance as their
respective responsibilities and rights may allow. LESSOR shall provide general
access to LESSEE and its invitees to the common areas except as reasonable
security requirements and temporary conditions may prevent, and shall make a
reasonable effort to keep the common areas well maintained and free of nuisance.
LESSOR may establish and LESSEE will abide by reasonable rules for parking,
security, handling of trash and like procedures.

13. LESSOR'S RESPONSIBILITY

LESSOR agrees that prior to the commencement of the term hereof, at its
sole cost and expense, it will make the following improvements, if any,
alterations, or maintenance efforts for the benefit of the LESSEE: None.

LESSEE acknowledges that, upon occupancy hereof, it will cause
the leased premises to be inspected in order to ascertain the condition thereof;
that any objections (except for latent deficiencies not currently discoverable)
thereto not delivered in writing to LESSOR within 20 days after occupancy shall
be deemed waived.

14. CONDEMNATION LOSS

Should all the leased premises to be taken in condemnation proceedings
or by exercise of any right of eminent domain, then this Lease shall
automatically terminate as of the date the condemning authority of the
authority exercising its right of eminent domain takes possession of the leased
premises. If there is a partial taking but LESSEE continues to occupy the
premises in part, the rent shall be reduced in the proportion that the
unoccupied part of the premises bears to the entire premises. If, as a result
of a partial taking, the leased premises are no longer usable for the purposes
specified in Paragraph 3 of this Lease, then, in any such case, the LESSEE may
terminate this Lease as of the date the condemning authority or the authority
exercising its right of eminent domain takes possession of the property by
giving written notice thereof to the LESSOR. The LESSOR shall be specifically
entitled to all awards for condemnation.

15. ASSIGNMENT

The LESSEE will not assign this Lease, and will not sublet any part of
said premises without the prior written consent of the LESSOR. Said consent
will not be unreasonably withheld. Any such assignment or subletting will not
release the LESSEE from its

ESP 3
Net 96
<PAGE> 4

responsibilities under this Lease, unless expressly agreed to in writing by the
LESSOR. The LESSOR shall have the right to any profit made in such assignment or
subletting, but only in the event that the LESSEE is using less than one-half of
its leased premises for its business operation. If the LESSEE shall be declared
bankrupt, shall have a receiver appointed of its property, shall make an
assignment for the benefit of creditors, or its rights hereunder shall be taken
under execution; it shall be construed as an assignment of this Lease within the
meaning hereof, the LESSOR shall have the right to terminate this Lease.

16. BREACH BY TENANT

In the event that the LESSEE shall vacate or abandon said premises or
shall default in any of its covenants herein, and said default shall not be
removed within 10 days after notice thereof in writing from the LESSOR, the
LESSOR is hereby authorized to re-enter said premises to eject the LESSEE, and
take full possession of said premises, to terminate this Lease at its option,
and to lease and let said premises as to it shall seem best, to remove from
said premises all personal property of the LESSEE, and to store the same to the
account and at the expense and risk of the LESSEE, and to sell said property or
any part thereof, and out of the proceeds to pay all expenses of so removing,
storing, and selling the same, and all sums which shall then be in arrears or
past due for rent. No such act or acts of the LESSOR shall be construed as
cancellation of the Lease or waiver of said term, except exercise of its option
to terminate the same.

In case the LESSOR shall determine that an action or proceeding at law
or otherwise is necessary to enforce the terms and conditions hereof, the LESSEE
agrees that necessary costs and; reasonable attorney's fees and disbursements
thereof; and brokerage fees to re-lease said premises may be allowed and taxes
against it along with annual interest in the amount of 12% or the maximum amount
allowed by law whichever is less.

17. ALTERATIONS

The LESSEE shall not make any alterations to the leased premises
without the written consent of the LESSOR, such consent not to be unreasonably
withheld. If the LESSEE shall desire to make any such alterations, an accurate
description shall first be submitted to and approved by the LESSOR and shall be
done by the LESSEE at its own expense. LESSEE agrees that all such work shall be
done in a good, workmanship like manner, and in conformance with applicable
building codes, that the structural integrity of the building shall not be
impaired, and that no liens shall attach to the premises by reason thereof.
Unless the LESSOR shall elect at any time that all or any part of such
alterations shall remain, the premises shall be restored to its original
condition (except as to any part of said alterations which the LESSOR shall
elect to remain) by the LESSEE before the expiration of the Lease at LESSEE's
own expense. Any such alterations shall become the property of the LESSOR as
soon as they are affixed to the premises and all right, title and interest
therein of the LESSEE shall immediately cease unless otherwise stated in
writing. The LESSEE however, shall remain the owner of any installed trade
fixtures and shall have the right to remove such trade fixtures at the
expiration of this Lease Agreement, so long as the premises is restored to its
original condition.

18. SIGNS

The LESSEE shall have the right, at its own risk and expense, to place
signs identifying its business on the exterior walls of the building and next to
any doors opening directly into the premises, so long as all such signs conform
with the LESSOR's building standards and criteria and with all applicable zoning
laws. Said signs shall not be erected without the written prior approval of the
LESSOR. LESSEE agrees to maintain its signs in good repair, to remove its signs
at the end of the term or any extended term, repairing any damage caused by such
removal, and to hold LESSOR harmless from any loss, cost, or damages resulting
from the erection, existence, maintenance, or removal or LESSEE's signs. The
LESSEE agrees not to place signs on or near its window(s) which are easily
visible from the exterior. The LESSOR reserves the right to remove all
unapproved signs at the expense of the LESSEE.

19. ENTRY

The LESSOR shall have the right to keep pass keys to the leased
premises. The LESSEE agrees that no additional locks will be placed on any of
the LESSEE's doors without the written consent of the LESSOR. LESSOR, its
agents, and its employees shall have the right to enter the premises at all
reasonable times with representative of LESSEE present to inspect them, to make
repairs, and to maintain the building of which the premises are a part. During
the ninety days prior to the expiration of the term, the LESSOR or its agents
may exhibit the premises to prospective Lessees. LESSOR shall also have the
right of entry as provided in Paragraph 16.

20. SUBORDINATION

It is mutually agreed that this Lease shall be subordinate to any and
all mortgages, ground leases, or other securities, including any renewals,
modifications, consolidations, replacements and extensions thereof now or
hereafter recorded against the leased premises by the LESSOR. LESSEE's right
to quiet possession of the premises shall not be disturbed if LESSEE is not in
default and so long as LESSEE shall pay the rents and observe and perform all
of the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms.

ESP 4
Net 96
<PAGE> 5

21. NOTICES

All notices, consents, demands and requests which may be or are
required to be given by either party of the other, shall be in writing, and sent
by United States registered or certified mail, with return receipt requested,
addressed to the LESSEE at the street address set forth in Paragraph 1 and to
the LESSOR in care of 7423 Washington Avenue LLP, 7423 Washington Avenue South,
Edina, Minnesota 55439, or to such other address as LESSOR may direct in writing
in the future.

The date which said registered or certified mail is mailed by the
LESSOR shall be conclusively deemed to be the date on which a notice, consent,
demand, or request is given or made. The above address of a party may be changed
at any time of from time to time by notice given by said party to the other
party in the manner herein above provided.

22. SHORT FORM LEASE

The parties hereto shall, at the option of either party, execute a
short form of lease for recording purposes and, in such event, the terms thereof
shall constitute a part of this Lease as fully as though recited at length
herein.

23. ASSUMPTION

The LESSOR may assign its right, title, and interest in this Lease, and
such assignment shall thence terminate all the LESSOR's obligations so long as
the LESSOR is not in default when such assignment is made and the assignee
assumes the LESSOR's responsibilities thereafter. This Lease and all the
covenants, terms, provisions and conditions herein contained shall inure to the
benefit, and be binding upon the LESSOR and LESSEE, their respective successors
and assigns.

24. OCCUPANCY

In the event the leased premises is not ready for occupancy on the
commencement date of this Lease, then the lease period shall start on the date
of LESSEE's possession. LESSOR shall not be liable to LESSEE for any loss or
damage resulting if the leased premises is not ready for occupancy on the
commencement date of this Lease. LESSEE agrees to take possession within ten
(10) days after the leased premises is substantially ready for occupancy and
permission to occupy is granted by the City of Edina.

25. CLAIMS

The LESSEE will make no claims against the LESSOR for any loss of or
damage to property caused by theft, burglary, water, gas, electricity or other
means, unless the cause of such loss or damage is the direct result of the gross
negligence or the willful misconduct of the LESSOR, its employees, or agents.

26. FIRE REPAIR

In the event of damage to the premises by fire, the elements or other
casualty, LESSOR shall repair the damage with reasonable dispatch, unless
mortgagee or financial participant, who from time to time might have an interest
in on the demised premises, shall require that the fire insurance proceeds be
used to reduce its interest or the indebtedness on the premises. If the damage
renders the premises untenantable in whole or in such part that it is
impractical to conduct business therein, the rent shall wholly abate until the
damage has been repaired. If the damage renders the premises untenantable in
part but LESSEE continues to occupy them in part, the rent shall be reduced in
the proportion that the unoccupied portion of the premises bears to the entire
premises, until the damage has been repaired.

27. QUIET ENJOYMENT

LESSEE, upon payment of the rent herein reserved and upon performance
of all of the terms, covenants and conditions of this Lease by it to be kept and
performed, shall at all times during the term hereof or during any extension or
renewal hereof, peaceably an quietly enjoy the leased premises without any
disturbance from LESSOR or from any other person claiming through LESSOR. Upon
expiration or sooner termination of the term hereof, LESSEE shall surrender the
leased premises in good condition and repair, except for reasonable wear and
tear, condemnation and casualty.

28. HOLDING OVER

If LESSEE shall hold over the leased premises or any part thereof
after the expiration of the term hereof such holding over shall be construed
only to be a tenancy from month to month subject to all of the covenants,
conditions, and obligations hereof except that the rent shall be 150% of the
amount shown in paragraph 6. Nothing herein shall be construed to give LESSEE
any rights to hold over and to continue in possession of the leased premises
after the expiration of the term hereof.

29. DEPOSIT

LESSEE has so security deposit under this Lease.

30. OTHER PROVISIONS

ESP 5
Net 96

<PAGE> 6

The invalidity or unenforceability of any provision hereof shall not
effect or impair the validity of any other provision.

The headings herein are inserted only for convenience and reference and
shall in no way define, limit, or describe the scope or intent of any provisions
of this Lease. As used herein and where necessary, the singular imports the
plural and vice versa, and masculine, feminine and neuter pronouns and
expressions are interchangeable.

The covenants and agreements herein contained shall bind and shall
inure to the benefit of the LESSOR and LESSEE, their respective heirs,
administrators, legal representatives, successors and assigns.

During the term of this Lease Agreement, in the event the LESSEE should
pay to the LESSOR an amount which is less than the amount due at that time, and
the LESSOR receives and deposits such payment, such receipt and deposit shall
not be assumed to be payment in full, but rather partial payment toward the
LESSEE's account.

This Lease shall be governed by, construed and enforced in accordance
with the laws of the State of Minnesota.

One of more waivers of any covenant, term or condition of this Lease by
either party shall not be construed by the other party as a waiver or subsequent
breach of same covenant, term or condition. The failure or delay on the part of
the other party to enforce or exercise at any time any of the provisions, rights
or remedies of this Lease shall in no way be construed to be a waiver thereof
nor in any way effect the validity of this Lease or any part thereof or the
right of the party to thereafter enforce each and every such provision, right or
remedy.

31. EXHIBITS AND ADDENDUMS

This instrument contains all of the agreements made between the parties
and may not be modified orally or in any manner other than by agreement in
writing signed by all parties to this Lease. The following exhibits and
addendums are attached and hereby made a part of this Lease:

Exhibit A(1) Building Floor Plan
--------
Exhibit A(2) Detailed Floor Plan or Blueprint
--------

The signatories below warrant that they are duly authorized to enter into this
Lease representing the parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed the
day and year first above written.

7423 WASHINGTON AVENUE LLP DATALINK CORPORATION

By Greg Meland By Bob DeVere
-------------------------------- -------------------------------
PARTNER
By ITS CFO & Assistant Secretary
-------------------------------- -------------------------------
PARTNER

<PAGE> 1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 25, 1998, except as to the first paragraph of Note 5,
as to which the date is June 2, 1998, Note 11, as to which the date is February
11, 1999 and Note 12, as to which the date is July 15, 1998, on our audits of
the financial statements of Datalink Corporation and our report dated July 20,
1998, on our audit of the financial statements of Direct Connect Systems, Inc.
We also consent to the references to our firm under the captions "Experts" and
"Selected Historical Financial Data."

/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
February 12, 1999

S-1

<PAGE> 1

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the references to our firm under the captions "Change in
Accountants" and "Selected Historical and Pro Forma Financial Data" in this
registration statement on Form S-1.

/s/ Hansen, Jergenson, Nergaard & Co. L.L.P.

Minneapolis, Minnesota
February 12, 1999

S-2

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 1,163,107 1,343,476
<SECURITIES> 0 0
<RECEIVABLES> 11,340,738 13,986,666
<ALLOWANCES> 60,000 71,747
<INVENTORY> 4,661,378 6,113,220
<CURRENT-ASSETS> 17,183,928 21,453,613
<PP&E> 2,246,664 3,219,841
<DEPRECIATION> 768,542 976,786
<TOTAL-ASSETS> 18,704,553 27,595,493
<CURRENT-LIABILITIES> 10,422,593 16,581,188
<BONDS> 0 0
13,873,980 17,567,701
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 18,704,553 27,663,258
<SALES> 71,255,299 60,112,196
<TOTAL-REVENUES> 71,255,299 60,112,196
<CGS> 55,719,303 45,129,571
<TOTAL-COSTS> 9,127,498 9,836,778
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 332,562 221,250
<INCOME-PRETAX> 6,075,936 4,684,332
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 6,075,936 4,684,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,075,936 4,684,332
<EPS-PRIMARY> 0.88 0.67
<EPS-DILUTED> 0.88 0.67

</TABLE>