SC 14D9/A, 1999-10-15
Previous: DIGITAL LINK CORP, SC 13E3/A, 1999-10-15

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                             WASHINGTON, D.C. 20549


                                 SCHEDULE 14D-9


                               (AMENDMENT NO. 1)

                            DIGITAL LINK CORPORATION

                           (Name of Subject Company)


                            DIGITAL LINK CORPORATION

                      (Name of Person(s) Filing Statement)

                           COMMON STOCK, NO PAR VALUE
                         (Title of Class of Securities)

                                  253856 10 8

                     (CUSIP Number of Class of Securities)


                                 NARESH KAPAHI
                            CHIEF FINANCIAL OFFICER
                            DIGITAL LINK CORPORATION
                               217 HUMBOLDT COURT
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 745-6200

            (Name, address and telephone number of person authorized
     to receive notice and communications on behalf of the person(s) filing


                                WITH COPIES TO:

                               DAVID HEALY, ESQ.
                             FRED M. GREGURAS, ESQ.
                          EILEEN DUFFY ROBINETT, ESQ.
                               FENWICK & WEST LLP
                              TWO PALO ALTO SQUARE
                              PALO ALTO, CA 94306
                                 (650) 494-0600

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    Digital Link Corporation, a California corporation ("Digital Link" or the
"Company") hereby amends and supplements its Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9"), filed with the Securities
and Exchange Commission on September 10, 1999, with respect to the tender offer
by DLZ Corp., a California corporation ("Purchaser" or "DLZ Corp.") to purchase
any and all of the shares of Common Stock, no par value per share, of Digital
Link for a purchase price of $10.30 per share upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase and in the related
Letter of Transmittal. Capitalized terms not defined herein have the meaning
ascribed to them in the Schedule 14D-9.


    Item 4(b)(1) of the Schedule 14D-9 is hereby amended by:

    1.  Amending and restating the eighth paragraph thereof as follows:

    Following the failure of the Company's stock price to respond favorably to
the Company's improved operating results in the first quarter of 1999 and the
Company's failure to attract greater interest among institutional investors and
industry analysts despite such results and the Company's efforts through
increased communications with institutions and industry analysts, and
management's attendance at industry conferences, to stimulate interest in the
Company, Ms. Gupta, Narendra Gupta and Richard Alberding, three of the five
members of the Board, met informally on April 29, 1999 to discuss the
alternatives available to the Company to increase shareholder value. They
discussed the Company's inability to hire and retain qualified personnel in
light of the market performance of the Shares, including both the stock price
and limited trading activity of the Shares. They were of the view that the
Company, given its small size and market capitalization, its inconsistent
operating performance over the past year and a half and the long-term resource
allocation and investment decisions that they perceived would be necessary in
order for the Company to expand the growth of the Company into other market
segments, would not be able to attract increased institutional or analyst
support. They then discussed whether, in order to address these concerns, the
Company should consider a transaction in which shareholders other than the Gupta
Investors would receive cash for their Shares (a "going-private transaction")
and other strategies, such as the acquisition of the Company by a larger
corporation within its industry. Mr. and Ms. Gupta indicated that they believed
that a sale of the Company to a third party would be detrimental to
implementation of the Company's business plan and that in any event they would
not consider a transaction in which their Shares were effectively sold.

    2.  Amending and restating the eleventh paragraph thereof as follows:

    At a June 7, 1999 meeting of the Board, the directors again discussed the
lack of market interest in the Shares, the failure of the Company's stock price
and trading volume to reflect the Company's improved operating results in the
first quarter of 1999 and the Company's increasing inability to hire and retain
employees because of the performance of the Shares. The directors noted that the
Company continued to be unable to attract increased institutional investor
interest and industry analyst coverage due to its size and market
capitalization, together with its inconsistent operating performance and the
need to make long-term resource allocation and investment decisions in order to
expand into other market segments. While the Board considered the stock price
and trading volume of companies in the Company's peer group, the Board
considered the performance of the Company's stock price and trading volume
independent of the stock price and trading volume of companies in its peer group
because the Company's size, market capitalization and trading volume were
smaller than most of the companies in its peer group. Mr. Alberding indicated
that a going-private transaction might be a viable alternative. The Board
discussed the fact that such a transaction could provide value to the Company's
shareholders in excess of the market price of the Shares. The Board also noted
that such a transaction would enable the Company to provide better equity
incentives to its employees in order to stem the continued drain of management
and engineering staff, focus on implementation of its business plan and more
effectively execute long-term

resource allocation and investment decisions in order to expand into other
market segments. The Board determined that prompt action was necessary to
address the problems exemplified by Mr. Kazmierczak's departure after almost 12
years with the Company.


    Item 8 of the Schedule 14D-9 is hereby amended and supplemented by amending
and restating the text under the heading "Litigation Relating to the Offer" as

    LEGAL PROCEEDINGS.  Since the public announcement of the Merger Agreement on
September 3, 1999, three purported class actions have been filed in the Superior
Court of Santa Clara County, California. The complaints allege that the
Company's directors breached their fiduciary duties by failing to maximize the
value of the Shares, that the value of the Shares is materially greater than the
Offer Price and, in one action, that the director defendants failed to disclose
material non-public information concerning the Company's financial condition and
prospects. Each complaint seeks certification of a plaintiff class, declaratory
and injunctive relief preventing the Offer and the Merger, unspecified
compensatory damages, and attorneys' fees and costs. Purchaser, the defendant
members of the Gupta Family, the Company and the members of the Special
Committee believe that the actions are without merit, and intend to defend them
vigorously. The three class actions are: EDWARD ABOFF ET AL. V. RICHARD C.
ALBERDING ET AL., filed on September 3, 1999; WILLIAM LEVY ET AL. V. DIGITAL
LINK CORPORATION ET AL., filed on September 7, 1999; and ANDREW CURTIS WRIGHT ET
AL. V. DIGITAL LINK CORPORATION ET AL., filed on September 7, 1999. On October
13, 1999, the Superior Court of Santa Clara County, California denied
plaintiffs' motion in the ABOFF and WRIGHT actions for a temporary order
restraining defendants in the actions, including the Company and the Purchaser,
from proceeding with, consummating or closing the Merger or honoring the
provisions of the Merger Agreement providing for a fee to Purchaser upon
termination of the Merger Agreement under certain circumstances. See "Special
Factors--Section 5. The Merger Agreement" in the Offer to Purchase. The Court
has also scheduled a hearing for December 2, 1999, on plaintiffs' anticipated
motion to preliminarily enjoin the Merger, in the event that the Offer is not

    Except as set forth elsewhere in the Offer to Purchase or this Schedule
14D-9, the Company is not aware of any pending or overtly threatened legal
proceedings which would affect the Offer or the Merger. If any such matters were
to arise, Purchaser could decline to accept for payment or pay for any Shares
tendered in the Offer. See "The Tender Offer--Section 11. Certain Conditions of
the Offer" in the Offer to Purchase.


    After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and

<S>                             <C>  <C>
                                DIGITAL LINK CORPORATION

                                By:              /s/ NARESH KAPAHI
                                                   Naresh Kapahi
                                              CHIEF FINANCIAL OFFICER

Dated: October 15, 1999

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