MILBERG WEISS BERSHAD

HYNES & LERACH LLP

WILLIAM S. LERACH (68581)

PATRICK J. COUGHLIN (111070)

600 West Broadway, Suite 1800

San Diego, CA 92101

Telephone: 619/231-1058

- and -

JOHN K. GRANT (169813)

222 Kearny Street, 10th Floor

San Francisco, CA 94108

Telephone: 415/288-4545



SCHIFFRIN & CRAIG, LTD.

RICHARD S. SCHIFFRIN

Three Bala Plaza East

Suite 400

Bala Cynwyd, PA 19004

Telephone: 610/667-7706



Attorneys for Plaintiff



UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION





GEORGE GENNA, On Behalf of Himself and All

Others Similarly Situated,

Plaintiff,

vs.

DIGITAL LINK CORPORATION, VINITA GUPTA, DANIEL L.

PALMER, TIMOTHY K. MONTGOMERY, STANLEY E. KAZMIERCZAK,

TONI BELLIN, BENJAMIN W. BERRY, MOREY R. SCHAPIRA,

GREGORY M. AVIS and CHARLES R. MOORE,

Defendants.

______________________________________________________________

No. C-96-20867-RMW(EAI)

CLASS ACTION



FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE

SECURITIES EXCHANGE ACT OF 1934



Plaintiff Demands A Trial By Jury



SUMMARY OF ACTION

1. This is a class action on behalf of purchasers of the common stock of Digital Link Corporation ("Digital Link" or the "Company") between 9/12/94 and 12/29/95 (the "Class Period"), alleging violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Securities and Exchange Commission ("SEC") Rule 10b-5. Digital Link manufactures and markets digital access products for wide area networks ("WANs"), purchased mostly by telephone companies. This action complains of a scheme and course of business that operated as a fraud or deceit on purchasers of Digital Link stock by which defendants knowingly made false and misleading statements about the successful development of Digital Link's Wide Area/ATM ("W/ATM") GateWay and W/ATM PremiseWay products ("W/ATM GateWay"),(1) the strong international and domestic demand for, and market acceptance of, its broadband products, and Digital Link's prospects for earnings per share ("EPS") growth and continued strong gross profit margins during 1995-1996, while reporting false financial results, including artificially inflated revenues and EPS for the 1stQ and 2ndQ of 1995 due to recording revenues from phony "sales" of its W/ATM GateWay products.

2. These false statements artificially inflated the price of Digital Link stock from $7-3/4 to $34 -- a 300% increase -- allowing Digital Link's insiders to dispose of 1,363,184 shares of their own Digital Link stock at a price as high as $30-1/2 per share, pocketing illegal insider trading proceeds of $25.1 million and personally profiting from their deliberate and dishonest acts. Four insiders unloaded 99%-100% of their shares, three unloaded 68%-93% of their shares, one sold 50% of his shares, while another sold 100,000 shares for $2.4 million, all before the truth regarding the severe problems with Digital Link's most important new product (the W/ATM GateWay), the weak international and domestic sales of its existing products, and its sharply diminished prospects for continued strong profit margins and EPS growth were revealed and the price of Digital Link stock collapsed back to about $8 per share.

3. Prior to Digital Link's 1/31/94 initial public offering ("IPO"), the Company's insiders and venture capitalists were locked into a risky illiquid investment due to Digital Link's difficulty in developing new profitable products and its uncertain prospects for future EPS growth. Consequently, the defendants arranged Digital Link's 1/94 IPO at $14 per share so that Digital Link could sell stock and raise capital it badly needed and so that Digital Link's insiders and controlling shareholders could sell off some of their Digital Link stock in the IPO. In addition, defendants wanted to create an ongoing trading market in Digital Link's stock so that after the expiration of the 180-day "lock-up" period following the IPO (during which Digital Link's insiders could not sell more of their stock), they could take advantage of any inflated market price of the stock by unloading their Digital Link shares in the open market.

4. Although Digital Link's stock jumped briefly after the IPO to as high as $20 per share, it then declined sharply, in part due to investor concerns that Digital Link lacked the new products necessary to generate the revenues needed for it to sustain profitable growth. By late 7/94, when the "lock-up" expired and Digital Link's insiders had intended to start selling off their shares, the price of Digital Link stock had fallen below $10, well below the $14 IPO price. Worse yet, Digital Link's insiders realized by then that Digital Link's attempt to complete the final design of its new W/ATM GateWay family of products was encountering difficulties due to software design problems that could delay the commercial introduction of those products for many months and, which, if revealed to the market, would cause the price of Digital Link's stock to fall even lower, further eroding the value of the insiders' Digital Link shares and eliminating any chance for them to reap millions in profits by selling their shares at inflated prices into the market. The W/ATM GateWay program had been initiated by Digital Link to develop a low-speed (0.5-1.0 Gbps) ATM switch designed for the telephone company markets. The GateWay program was an essential part of Digital Link's goal of substantially increasing the proportion of its sales coming from higher margin broadband products, and thus achieving strong EPS growth throughout 1995-1996. By 9/1/94, when Digital Link's W/ATM GateWay program had reached the Design Validation Testing ("DVT") phase of the W/ATM GateWay family of products, the initial integration and verification tests revealed serious design and operational problems with the products which Digital Link could not resolve. The main problem was that the units' software could not effectively or accurately control the flow of data between ports on a W/ATM GateWay loaded with greater than 500 channels of its 4000 SMDS capacity. When "Fully Loaded Capacity" testing was attempted later in the 4thQ 95, the software defect was even worse and showed that the software "choked" under even partially loaded conditions. What was required to fix these problems was a software re-write and re-testing, which would take many months, if it could be accomplished at all. Because of these design and operational problems, the defendants knew that Digital Link's W/ATM GateWay products could not be manufactured in production quantities or sold commercially during 1995 and likely well into 1996 as well and, as a result, Digital Link's revenues, gross margins and EPS would be adversely affected.

5. By the beginning of the Class Period, defendants intended, by misrepresenting the state of development of Digital Link's new W/ATM GateWay family of products and the future revenue and EPS growth to be derived from them, to halt the decline in Digital Link's stock, push the stock up to inflated levels and then sell off large amounts of their shares. Thus, in 9/94, even though they knew of the product defects revealed by the initial integration and verification stage of the DVT, defendants announced the introduction of Digital Link's W/ATM GateWay products, falsely assuring investors that this product line was undergoing successful "integration and verification" testing, "the product is real and development is on track" and that "production quantities" would be available in 1stQ 95, which would allow Digital Link to achieve "explosive growth." Thus, they told analysts and investors that these $60,000-$150,000 items would soon become Digital Link's "largest product" and "a significant part of the total Wide Area ATM strategy offered by Digital Link." Defendants specifically represented that Digital Link was "on target" with the W/ATM GateWay products and "production quantities" of W/ATM PremiseWay and W/ATM GateWay would be available in 4thQ 95 and 1stQ 96, respectively. None of these positive statements was accompanied by any cautionary or warning language when issued.

6. As Digital Link's stock responded to these positive statements, moving as high as $25-3/4 in 11/94-12/94, Digital Link's controlling venture capitalists, including Summit Partners Holdings LP ("Summit Partners"), distributed 500,000 shares to their limited partners to allow the sale of those shares. Digital Link's insiders also began selling off their own shares. This resulted in the sale or other disposition of 971,234 shares by them between 9/20/94 and 12/22/94 at as high as $25 per share for total proceeds of $16.1 million. While Digital Link's insiders were unloading these shares, they knew that the Company was experiencing serious problems in completing the final design and pre-commercial production testing of the W/ATM GateWay and PremiseWay products as set forth in ¶4. Then, in 12/94, defendants learned that when "Beta Testing" of the W/ATM PremiseWay product at Siemens AG and of the W/ATM GateWay product at AT&T Network Systems ("AT&T") had begun, those "Beta Tests" also revealed performance problems due to the software defect which were even more serious than that encountered during Digital Link's own, earlier DVT and, as a result, AT&T and Siemens AG both refused to accept commercial shipments of, or purchase any substantial quantities of, Digital Link's W/ATM GateWay or PremiseWay products, meaning that Digital Link would not receive significant revenue from its W/ATM GateWay family of products from AT&T or Siemens AG during 1995, at least.

7. Despite defendants' knowledge of these serious and persistent and as yet unsolvable problems with the software for the W/ATM GateWay product and lack of sales to AT&T and/or Siemens AG, during the first part of 1995, the defendants misrepresented that "substantial progress was made on the development of the W/ATM GateWay during 1994," that several major customers were evaluating it for purchase, that the ATM market would experience "explosive growth," that the W/ATM GateWay product would have "a material and positive impact" on the Company's results during 1995 and 1996, that the development and testing of the W/ATM GateWay product was "on track," and that Digital Link had "recognized revenue" for the GateWay product in 1stQ 95. Thus, defendants said they were "very excited" about its market potential. Defendants represented that Digital Link had commenced revenue shipments of the W/ATM GateWay products during 1stQ 95 and forecasted that the product would "fuel" or "boost" Digital Link's growth and continued strong profit margins and allow Digital Link to achieve EPS of $.65 in 1995 and $.89 in 1996 -- 35%-45% EPS growth over the next three years! Digital Link forecasted that growth in its broadband products would be an increasing proportion of total sales, leading to strong gross margins (exceeding 62%) in 1995 and 1996. None of these positive statements was accompanied by any cautionary or warning language when issued. In fact, no W/ATM GateWay or PremiseWay products had been actually sold or shipped for revenue because, due to the defects detailed earlier at ¶¶4 and 6, AT&T and Siemens AG refused to accept commercial shipments of those products. Thus, during the 1stQ of 1995, Digital Link improperly recorded revenues on trial or test product shipments to AT&T and Siemens AG which they were not required to pay for, artificially inflating Digital Link's net income, gross margins and EPS. Based on these positive representations and prospects, Digital Link's stock moved up to a high of $33-3/4 by late 3/95 and traded at inflated levels during 2/95-5/95, allowing insiders to unload another 185,000 of their Digital Link shares at as high as $30-1/2 per share, pocketing another $4.9 million.

8. When forced to disclose in 4/95 that sales of Digital Link's W/ATM GateWay product were slower than anticipated, defendants represented that this was due to marketing decisions by its OEM customers and "slow growth" of the ATM market and not to any problems with the development or performance of the W/ATM GateWay product. Moreover, defendants again represented that the Company had recognized revenue from these products in the 2ndQ of 1995, reporting revenue and EPS growth in that quarter, based in part again on falsely recording revenues based on phony "sales" to AT&T and Siemens AG. Even though defendants knew that the Beta Testing of the European version of the W/ATM GateWay -- PremiseWay -- by Siemens AG had confirmed that the switch could not accurately transmit data, even at partially loaded levels, and thus Siemens AG had refused to publicly commit to be a second OEM customer for W/ATM GateWay, they represented that the second OEM had "slightly" postponed its purchase announcement due to its marketing objectives, and that it had nothing to do with W/ATM GateWay products and would accept some $200,000 in shipments during 2ndQ 95. Defendants continued to forecast 1995 and 1996 EPS of $.65 and $.89, respectively. In 8/95, when Digital Link's stock was still selling at as high as $28-3/4 per share, insiders sold off another 57,000 shares of their Digital Link stock at as high as $28-1/2 per share, pocketing another $1.5 million.

9. On 10/17/95, Digital Link reported increased sales and EPS for its 3rdQ ended 9/30/95. Vinita Gupta ("Gupta"), Digital Link's CEO, was quoted as stating:

Digital Link also disclosed that its COO and President, Daniel L. Palmer, had "resigned" to "pursue other interests." However, in an interview with Dow Jones, Stanley Kazmierczak ("Kazmierczak"), Digital Link's CFO, admitted that Digital Link would delay the release of its W/ATM GateWay product, as "the gateway needs to be redesigned because it doesn't function effectively" and that the release of this product would be delayed until at least mid-1996. Kazmierczak also stated there was a "modest slowing" of Digital Link's business in the United Kingdom ("UK"). Digital Link stock fell by $10, on huge volume of 1.5 million shares, from $26 to $16 on 10/18/95. After the 10/17/95 release, Gupta and Kazmierczak spoke with securities analysts, money and portfolio managers, institutional investors and large Digital Link shareholders and assured them that:

Later, Gupta asserted that "Digital Link has gained market share domestically," had "successfully preserved our position as the dominant supplier of SMDS/ATM access products in Europe" and was "optimistic about the opportunities in 1996."

10. While Digital Link's stock fell after the 10/17/95 announcement, the decline was halted by defendants' false reassurances about the strength of Digital Link's business in the U.S., the modest nature of the slowdown in Digital Link's international business and forecast that Digital Link still expected EPS of $.18 in the 4thQ of 1995, $.64 for EPS 1995 and $.80 in 1996. Thus, Digital Link stock continued to trade at artificially inflated levels throughout the balance of the Class Period, in fact recovering to a high of $20-1/4 in 11/95.

11. Defendants' reassurances between 10/17/95 and 12/29/95 that Digital Link continued to perform well in the U.S. market, where it had "gained market share," had encountered only a "modest" slowing of its business in the U.K. and had "successfully preserved our position as the dominant supplier of SMDS/ATM access products in Europe" and thus would achieve 4thQ 95 EPS of $.18, 1995 EPS of $.65 and 1996 EPS of $.80, were each false and misleading when made. Defendants knew that the problems with Digital Link's international operations were very serious and that Digital Link's competitive position there had been very much eroded, in addition to the fact that the SMDS market in Europe was much worse than Digital Link disclosed. Due to Digital Link's many contacts in Europe, the Individual Defendants knew that European network managers were increasingly opting for Frame-Relay Switching, which was more cost-effective. Defendants also knew that Digital Link's U.S. business was soft, with the Company losing out to competitor Cascade on a significant contract to provide SMDS switching products to MCI, Digital Link's largest customer. The defendants knew these factors were resulting in poor sales, well below internally budgeted levels and the levels necessary for Digital Link to achieve the 4thQ 95 revenues and EPS of $13 million and $.18, respectively, it was forecasting. Given these problems, and combined with the fact that Digital Link continued to reduce its prices, adversely affecting its margins going forward -- defendants knew that the Company's goal of increasing its proportion of broadband sales was a complete flop, there was no possibility that Digital Link could achieve EPS of $.18 and $.64-$.65 for the 4thQ of 1995 and the 1995 full year, respectively, or 1996 revenues and EPS of $61 million and $.80, respectively. Certain of Digital Link's insiders took advantage of this continuing inflation in Digital Link stock to sell off a final 149,940 shares of their Digital Link stock at as high as $19-1/2 per share, pocketing another $2.5 million.

12. Then, on 12/29/95, Digital Link revealed that its 4thQ 95 results would be so poor that Digital Link would actually suffer declines in revenues and net income due to weak U.S. sales and worsening international sales and that these adverse conditions would continue for "at least" the next two quarters. These revelations resulted in a further collapse in Digital Link's stock from $14-1/2 to just $8 on volume of 1.3 million shares -- a 45% one-day drop! This drop took Digital Link stock back below its price at the beginning of the Class Period 14 months earlier! Later Digital Link admitted its 4thQ 95 sales decreased 6% from the prior year and declined by over 20% from its 3rdQ sales, that its gross margin was only 57% and that its EPS for the 4thQ were only $.05, compared with $.18 in the 4thQ of 1994 and $.18 in the 3rdQ of 1995 and well below the $.18 forecasted just weeks earlier. In fact, Digital Link had never shipped commercial W/ATM GateWay units during 1995 for revenue -- all the shipments that took place were demonstration and/or trial test units and the revenues recorded by Digital Link from W/ATM GateWay "sales" in the 1stQ and 2ndQ of 1995 were later reversed. As a result, Digital Link's 1995 EPS were just $.51 per share, compared to the $.64-$.65 forecast by and for Digital Link during the Class Period.

13. Digital Link never introduced the W/ATM GateWay product as an ATM switch, as the software design defect that prevented the efficient or accurate transmission of data over the switch even at partially loaded capacity levels was never able to be sufficiently remedied to allow commercial production or sale of that product as an ATM switch. In an attempt to salvage its investment in the W/ATM GateWay project, Digital Link later re-named it the "DL7100 Multiservice ATM Concentrator" and marketed this modified product beginning in 7/97 -- 31 months after the product was supposedly commercially introduced as an ATM switch -- as an ATM access concentrator, a much less expensive and profitable product. Digital Link's proportion of broadband sales, instead of increasing as forecasted by defendants, actually decreased from 36% in 3rdQ 94 to 13% in 4thQ 95, after which Digital Link changed its definition of "broadband" sales to try to conceal its failure to successfully increase its sales of ATM and SMDS products. Because of the complete failure to commercially develop or market its W/ATM GateWay products, Digital Link's 1996 results were very adversely impacted. 1stQ 96 revenues and EPS were just $10.2 million and $.06, respectively. 2ndQ 96 revenues and EPS were just $12 million and $.09, respectively. These results were large declines from the 3rdQ 95 results, and Digital Link's profit margins also plunged. Digital Link finally achieved 1996 EPS of just $.50, far below the $.80-$.89 forecast by and for it during the Class Period. Digital Link's poor 4thQ 95 and 1996 financial results are set forth below:

Digital Link
Quarterly Results
(in thousands, except EPS)
1994
Revenues            $ 7,002      $ 8,079      $ 9,424      $10,717       $35,222
Net income              601          828        1,281        1,698         4,408
EPS                    $.07         $.09         $.14         $.18          $.48
1995
Revenues           $10,415       $11,409      $12,500      $10,020       $44,344
Net income           1,243         1,382        1,678          511         4,814
EPS                   $.13          $.15         $.18         $.05          $.51
1996
Revenues            $10,203      $12,026      $14,127      $15,722       $52,078
Net income              556          852        1,481        1,807         4,697
EPS                    $.06         $.09         $.16         $.19          $.50

14. The positive statements made by defendants during the Class Period were each false and misleading when made and also failed to disclose the following material adverse conditions adversely affecting Digital Link's business, set forth below:

(a) By 9/1/94, when Digital Link started DVT of the W/ATM GateWay family of products, the integration and verification tests revealed that the unit's software could not effectively or accurately control the flow of data between ports on a W/ATM GateWay loaded with greater than 500 channels of its 4000 SMDS capacity. When fully loaded capacity testing was undertaken in the 4thQ of 1995, the software defect was even worse and showed that the software "choked" under even partially loaded conditions. What was required to fix this problem was a software re-write and re-testing, which would take many months, and as a result, the W/ATM GateWay products could not be produced in quantity or sold commercially during 1995 and likely well into 1996 and Digital Link's revenues, gross margins and EPS would be adversely affected;

(b) Digital Link was encountering serious and persistent difficulties in completing the final development of its W/ATM GateWay and W/ATM PremiseWay products for commercial production, as detailed in ¶¶4, 6 and 14(a), such that commercial production of this product would be delayed substantially;

(c) The software program necessary for Digital Link's W/ATM GateWay and W/ATM PremiseWay products to function properly and be released for commercial production was defective and deficient and did not work for the reasons detailed in ¶¶4, 6 and 14(a);

(d) Digital Link was unable to correct these software design difficulties, which meant that the software would have to be completely re-designed and re-done, and new testing undertaken and completed, resulting in a lengthy delay in the completion of the W/ATM GateWay family of products for commercial usage;

(e) Due to the serious problems in completing the final development of the W/ATM GateWay products detailed in ¶¶4, 6 and 14(a), defendants knew that the products would be significantly delayed from reaching commercial production and broadband product sales growth would be minimal;

(f) Because Digital Link's forecasts of strong 1995 and 1996 revenue, gross margin and EPS growth depended on significant revenue contribution from its new W/ATM GateWay family of products, defendants actually knew those forecasts were false because commercial production, shipment or sales of that product could not be achieved;

(g) Digital Link's position in the international market, especially in the UK and Europe, was not nearly as strong as was represented. In fact, the Company was encountering weakness in that area, thereby resulting in lower than expected revenue growth and profits from international operations, as detailed in ¶11; and

(h) As a result of the foregoing problems with Digital Link's business, defendants' forecasts of Digital Link EPS of $.60-$.65 for 1995, $.18-$.19 for 4thQ 95 and $.85-$.89 for 1996 were known by them to be false when made.

15. Defendants' massive insider selling during the Class Period is summarized below:

                     Shares                                    % of
                     Sold or                                  Holdings             Total
Defendants         Distributed        Price Range            Disposed Of          Proceeds 
Avis/Summit          836,234         $14.50-$21.50              100%            $13,295,072
Partners
Bellin                15,000         $18.50-$24.50               99%            $   322,500
Berry                 41,500         $22.00-$30.50               50%            $ 1,015,260
V. Gupta             100,000         $20.50-$28.06                3%            $ 2,428,000
Kazmierczak           29,500         $21.75-$27.25             68.5%            $   735,250
Montgomery            55,000         $16.75-$28.50              100%            $ 1,379,125
Moore                 31,000         $13.75-$28.00             81.5%            $   710,500
Palmer               249,950         $14.00-$27.29               93%            $ 5,141,631
Schapira               5,000         $23.00-$25.00              100%            $   118,000
        TOTALS:    1,363,184         $14.00-$30.50              N/A             $25,145,338

16. This insider selling was unusual in timing and amount, as shown by the two charts below:

17. The charts below show the price increase in Digital Link stock while defendants were issuing their false and misleading statements about the Company, defendants' and the other insiders' distributions and sales at inflated prices during that period, and the subsequent collapse as the true facts were disclosed. The charts also illustrate that, when compared to an index of similar stocks, the movement of Digital Link stock was largely due to company-specific information as opposed to industry or market factors:

JURISDICTION AND VENUE

18. The claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. §240.10b-5.

19. Jurisdiction is conferred by §27 of the Exchange Act, 15 U.S.C. §78aa, and 28 U.S.C. §1331.

20. Venue is proper in this District pursuant to §27 of the Exchange Act, and 28 U.S.C. §1391(b). Certain of the acts and transactions giving rise to the violations of law complained of occurred in this District.

INTRADISTRICT ASSIGNMENT

21. Assignment of this action to the San Jose Division is appropriate as a substantial part of the events or omissions identified herein occurred in Santa Clara County.

THE PARTIES

22. Plaintiff George Genna ("Genna") purchased 200 shares of Digital Link common stock on 4/21/95 at $25-1/2 per share and an additional 200 shares at $23-1/2 on 9/1/95 and was damaged thereby.

23. Defendant Digital Link maintains its headquarters at Sunnyvale, California. During the Class Period, Digital Link's common stock traded in an efficient market on the NASDAQ National Market System.

24. (a) Defendant Gupta was, at all relevant times, Chairperson of the Board and Chief Executive Officer of the Company. Because of Gupta's position with the Company, she had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to her in connection therewith. During the Class Period and as part of the fraudulent scheme, Gupta sold 100,000 shares of Digital Link stock at as high as $28 per share based on inside information, pocketing $2.4 million.

(b) Defendant Daniel L. Palmer ("Palmer") was, at all relevant times, President and Chief Operating Officer of the Company, until he "resigned" (in fact, he was fired) on 10/17/95. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Palmer sold 249,950 shares of Digital Link stock at prices as high as $27-1/4 per share based on inside information, pocketing over $5.1 million. These sales constituted 93% of Palmer's holdings in Digital Link. All these shares were acquired by Palmer exercising stock options at $.50-$1.33 per share, which he then instantly sold for a huge, risk-free and illegal profit.

(c) Defendant Timothy K. Montgomery ("Montgomery") was, at all relevant times, Vice President, Sales, of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Montgomery sold 55,000 shares of Digital Link stock at prices as high as $28-1/2 per share, pocketing over $1.3 million. These sales constituted 100% of Montgomery's holdings in Digital Link. All these shares were acquired by Montgomery exercising stock options at $1.67-$1.87 per share, which he then instantly sold for a huge, risk-free and illegal profit.

(d) Defendant Kazmierczak was, at all relevant times, Vice President, Finance, Chief Financial Officer and Secretary of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Kazmierczak sold 29,500 shares of Digital Link stock at prices as high as $27-1/4 per share based on inside information, pocketing over $735,000. These sales constituted 68.5% of Kazmierczak's holdings in Digital Link. Most of these shares were acquired by Kazmierczak exercising stock options at $.67-$3.33 per share, which he then instantly sold for a huge, risk-free and illegal profit.

(e) Defendant Toni Bellin ("Bellin") was, at all relevant times, Vice President, Operations, of the Company. Because of her position with the Company, she had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to her in connection therewith. During the Class Period and as part of the fraudulent scheme, Bellin sold 15,000 shares of Digital Link stock at prices as high as $24-1/2 per share based on inside information, pocketing over $322,000. These sales constituted 99% of Bellin's holdings in Digital Link. All these shares were acquired by Bellin exercising stock options at $4.67-$4.87 per share, which she then instantly sold for a huge, risk-free and illegal profit.

(f) Defendant Benjamin W. Berry ("Berry") was, during part of the Class Period, Vice President, Marketing, of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Berry sold 41,500 shares of Digital Link stock at prices as high as $30-1/2 per share based on inside information, pocketing over $1 million. These sales constituted 50% of Berry's holdings in Digital Link. All these shares were acquired by Berry exercising stock options at $.50-$3.33 per share, which he then instantly sold for a huge, risk-free and illegal profit.

(g) Defendant Morey R. Schapira ("Schapira") was, at all relevant times, Vice President, Marketing, of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Schapira sold 5,000 shares of Digital Link stock at prices as high as $25 per share based on inside information, pocketing over $118,000. These sales constituted 100% of Schapira's holdings in Digital Link. All of these shares were acquired by Schapira exercising stock options at $8.25-$9.25 per share, which he then instantly sold for a huge, risk-free and illegal profit.

(h) Defendant Gregory M. Avis ("Avis") was, at all relevant times, a director of the Company and a general partner of Summit Partners. Summit Partners and its affiliates managed and exercised control over partnerships which distributed and/or sold at least 836,000 shares of Digital Link stock, 100% of the holdings of the entities owned and/or controlled by Avis and/or Summit Partners at as high as $21-1/2 per share for $13.2 million, based on inside information.

(i) Defendant Charles R. Moore ("Moore") was, at all relevant times, a director of the Company. Because of his position with the Company, he had access to the adverse non-public information about its business, finances, products, markets and present and future business prospects via access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period and as part of the fraudulent scheme, Moore sold 31,000 shares of Digital Link stock at prices as high as $28 per share based on inside information, pocketing over $710,000. These sales constituted 81.5% of Moore's holdings in Digital Link.

25. The individuals named as defendants in ¶24(a)-(i) are referred to herein as the "Individual Defendants." Gupta, Palmer and Avis, by reason of their stock ownership, management positions, and/or membership on Digital Link's Board, were controlling persons of Digital Link and had the power and influence, and exercised the same, to cause it to engage in the illegal conduct complained of herein. The Individual Defendants are liable for the false statements pleaded at ¶¶43, 47, 59, 62, 72, 74, 77, 83 and 84 as those statements were each "group-published" information, the result of the collective action of the Individual Defendants.

26. The Individual Defendants, because of their positions with the Company, controlled and/or possessed the power and authority to control the contents of its quarterly and annual reports, press releases and presentations to securities analysts, which information was conveyed through the analysts to the investing public. Each defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them but not to the public, each of these defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to and were being concealed from the public and that the positive representations which were being made were then materially false and misleading. Despite their duty not to sell their Digital Link stock under such circumstances, defendants nonetheless did so.

MOTIVE AND OPPORTUNITY

27. Digital Link's executive compensation plan provided its officers a motive to falsify Digital Link's reported progress with respect to its new products:

One of the 1994 objectives that determined the bonuses paid to Digital Link's executives was the successful commercial development of the W/ATM GateWay product. By misrepresenting the state of development of the W/ATM GateWay product, the top officers of Digital Link inflated their 1994 compensation.

28. In addition, Digital Link's insiders were motivated to artificially inflate the price of Digital Link stock as they intended to dispose of significant amounts of their holdings. Defendants followed the stock's trading every day, frequently communicated with Bear Stearns & Co. ("Bear Stearns") as to the stock's performance and received reports on the performance of the stock on a daily basis.

29. The defendants' motive to engage in this conduct included a desire to inflate the price of Digital Link's stock and to: (i) cover up and conceal their mismanagement of Digital Link -- especially their failure to successfully develop the W/ATM GateWay family of products -- while protecting and enhancing their executive positions and the substantial compensation and prestige they obtained thereby; (ii) enhance the value of their holdings of Digital Link stock and/or options to purchase Digital Link stock; (iii) falsify Digital Link's progress in developing the W/ATM GateWay in order to obtain larger payments under the Company's executive bonus compensation plan and/or via discretionary individual performance bonuses; and (iv) permit Digital Link's insiders to sell off large portions of their Digital Link stock at inflated prices.

DEFENDANTS' KNOWLEDGE OF THE PROBLEMS WITH THE W/ATM

GATEWAY PRODUCT AND THE OTHER PROBLEMS WITH DIGITAL LINK'S BUSINESS

30. Each of the defendants actually knew the allegedly false statements about Digital Link's W/ATM GateWay family of products and Digital Link's business and future prospects were false and misleading when made. By the beginning of 9/94, Digital Link had commenced the DVT of its W/ATM GateWay product line to determine if the product, as designed, actually worked. The initial integration and verification tests revealed defects in the software which prevented the ATM switch from accurately transmitting data, with an increasing error rate encountered as capacity load on the switch was increased. This indicated to defendants that the W/ATM GateWay products suffered from a software design defect that would likely prevent it from operating successfully, especially at fully loaded capacity -- a defect they knew would take months to fix, if it could be fixed at all, could delay the introduction of the W/ATM GateWay products in production quantities for commercial sale and adversely impact at least Digital Link's 1995 revenues and EPS. As a result, by 9/12/94, the beginning of the Class Period, each of the Individual Defendants actually knew that the W/ATM GateWay family of products likely suffered from a serious design defect in its software which caused operational problems that prevented it from accurately transmitting data, that the higher the capacity load on the switch, the worse the defect was and that, since Digital Link's engineers were not able fix the software defect, the defect would likely prevent the commercial production of the W/ATM GateWay product for many months.

31. During 10/94 and 11/94, Digital Link's DVT of the W/ATM GateWay reached "Fully Loaded Capacity Testing," which tested the product under increasingly loaded commercial conditions. During these tests, the W/ATM GateWay switch repeatedly failed to accurately transmit data, as the software was defective and could not process data at even 500 channels, well below fully loaded capacity, confirming to the defendants the W/ATM GateWay products could not be produced in production quantities for commercial sale for many months, if ever.

32. During 12/94, trial or test units of W/ATM GateWay switches were shipped to AT&T for "Beta Testing," i.e., initial field testing, to see how the product would work under commercial field conditions. Unfortunately, in the AT&T Beta Testing the W/ATM GateWay units performed even more poorly than did the W/ATM GateWay units in Digital Link's own DVT, again consistently failing to transmit data accurately, even at as low as 500 channels, well below the fully loaded capacity the switch was to work at.

33. In the last half of 11/94 and during 12/94, trial units of W/ATM GateWay switches (the PremiseWay version for the European market) were shipped to Siemens AG for "Beta Testing," i.e., initial field testing, to see if the product would work under commercial field conditions. These W/ATM trial units also performed more poorly than did the W/ATM GateWay units in Digital Link's own DVT, again consistently failing to transmit data accurately, even at as low as 500 channels, well below the fully loaded capacity the switch was to work at.

34. Each of the Individual Defendants had actual knowledge of these W/ATM GateWay design problems and testing failures at or about the time when they occurred. The W/ATM GateWay family of products were Digital Link's most important new products and Digital Link's top executives were counting on significant revenues from the commercial sale of these products in 1995-1996, in order for Digital Link to continue to enjoy strong profit margins and to achieve the revenue, net income and EPS budgets they had created and approved, as well as the forecasts they were making for Digital Link's 1995-1996 performance based on those budgets.

35. Because of the importance of the successful development, initial commercial production and sales of the W/ATM GateWay family of products to Digital Link in 1995, each Individual Defendant was kept apprised of the W/ATM GateWay products' performance during the DVT, during the initial integration and verification tests, the later Fully Loaded Capacity Testing phase, as well as the AT&T and Siemens AG Beta Testing, and Digital Link's overall attempt to move the W/ATM GateWay product to commercial production and sale. Each of Digital Link's top executives received "DVT Reports" on the W/ATM in 9/94, 10/94 and 11/94 which detailed the DVT failures due to software defects specified above. Each of the Digital Link top executives received "Beta Testing" reports on the AT&T and Siemens AG Beta Testing efforts in 12/94 and 1/95, which detailed the W/ATM GateWay Beta Testing failures, as detailed above. During 12/94-1/95, each of the Individual Defendants also received reports detailing the W/ATM GateWay software design defects and the proposed solution to the problem, which indicated that the software re-design and re-testing required to try to fix the defect, if it could be fixed at all, would take at least nine months and that, as a result of Digital Link's inability to produce commercial shipments of functioning W/ATM GateWay products, neither AT&T nor Siemens AG would accept commercial shipments of the products. Thus, each Individual Defendant actually knew that Digital Link would receive no revenue from W/ATM GateWay during 1995, the revenue and EPS forecasts being disseminated by and for Digital Link for 1995 and 1996 were false when made and that the W/ATM GateWay product likely would never be introduced for commercial sale as an ATM switch. Moreover, each of the Individual Defendants knew that the revenue the Company recognized in the 1stQ 95 and 2ndQ of 1995 attributable to the W/ATM GateWay program was phony revenue, as the product was not capable of being deployed to end-user customers.

36. A key management tool for Digital Link's top executives was Digital Link's annual budget or forecast, by which the Company's Board of Directors, after input from its top executives, set performance goals for Digital Link and then closely monitored the Company's actual performance, i.e., results of operations, compared to those budgeted and/or forecasted. Digital Link prepared its 1995 forecast and budget by 9/94 and then updated it during 1995. Each of the Individual Defendants was aware of Digital Link's 1995 forecast and budget and of internal reports prepared and circulated monthly, comparing Digital Link's actual results to those previously budgeted and/or forecasted. Digital Link's top executives used its 1995 budget and forecast as the basis for the statements they made publicly about the Company's performance during 1995. Based on the negative internal reports of the development of the W/ATM GateWay product and of the Company's actual performance compared to that budgeted and forecasted, the erosion of Digital Link's competitive position in Europe and the weakening in U.S. sales of Digital Link's existing product line, the defendants each knew Digital Link's business would not perform during 1995 and 1996 as well as publicly forecasted. Thus, defendants knew that the public statements issued during the Class Period about Digital Link, its W/ATM GateWay product and the growth of its broadband sales were false and misleading when made.

DEFENDANTS' FRAUDULENT SCHEME AND COURSE OF BUSINESS

37. Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Digital Link stock, including false and misleading statements and/or concealed material, adverse facts. The fraudulent scheme and course of business: (a) deceived the investing public regarding Digital Link's products and business; (b) deceived the commercial markets regarding Digital Link's success in developing the W/ATM GateWay family of products; (c) reported false revenues in the 1stQ and 2ndQ of 1995 attributable to shipments of trial or test units of GateWay products; (d) artificially inflated the price of Digital Link stock; (e) caused plaintiff and other members of the Class to purchase Digital Link stock at inflated prices; and (f) permitted the defendants to dispose of approximately 1,363,184 shares of Digital Link stock at as high as $30-1/2 per share, pocketing some $25.1 million, in illegal insider trading profits.

STATUTORY SAFE HARBOR

38. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false forward-looking statements pleaded in this Complaint because all of those statements were made prior to the enactment of the statutory Safe Harbor on 12/22/95, via legislation that may not be applied retroactively. Alternatively, none of the forward-looking statements pleaded herein was identified as a "forward-looking statement" when made. Nor was it stated that actual results "could differ materially from those projected." Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements accompany those forward-looking statements. In any event, each of the forward-looking statements alleged herein was authorized by an executive officer of Digital Link, and was actually known by each of the Individual Defendants to be false when made.

BACKGROUND TO THE CLASS PERIOD

39. Prior to Digital Link's IPO, the Company's insiders and venture capitalists were locked into an illiquid investment given Digital Link's difficulty in developing new profitable products and its uncertain future prospects. Consequently, the defendants arranged Digital Link's IPO so that Digital Link could sell stock to raise the capital it badly needed and the insiders could sell off a small amount of their stock in the IPO. More importantly, defendants also sought to create an ongoing trading market in Digital Link's stock so that after the expiration of the 180-day "lock-up" period following the IPO (during which the insiders could not sell more of their stock) they could, if Digital Link's stock was trading at a favorable price, take advantage of this high price by unloading large amounts of their shares in the open market.

40. Although Digital Link's stock price jumped briefly after the IPO to as high as $20 per share, it then declined sharply, due in part to investor concerns that Digital Link lacked the new products necessary to generate the revenues needed for it to sustain profitable growth. By late 7/94, when the "lock-up" expired and Digital Link's insiders had intended to start selling off their shares, the price of Digital Link stock had fallen below $10 per share. The W/ATM GateWay program was an essential part of Digital Link's goal of substantially increasing its proportion of higher margin broadband sales, and reporting strong revenue, net income and EPS growth throughout 1995 and 1996. By the beginning of 9/94, Digital Link had commenced DVT of its W/ATM GateWay products to determine if the products, as designed, actually worked. Initial testing revealed defects in the software as detailed in ¶4.

41. On 8/8-9/94, Wessels Arnold & Henderson ("Wessels Arnold") analyst, Thomas Erickson, spoke with Gupta and Palmer about the progress of Digital Link's W/ATM GateWay project. Erickson repeated what Gupta and Palmer told him in a Wessels Arnold report dated 8/9/94, which stated "We spoke with Digital Link management yesterday afternoon regarding . . . product developments," and:

42. On 8/17/94, Wessels Arnold analyst Erickson met with Gupta, Palmer and Kazmierczak to discuss Digital Link's business and, on 8/18/94, Wessels Arnold issued a report repeating the information Digital Link had given Erickson, that stated "We visited with Digital Link management yesterday to discuss business developments" and:

Digital Link's stock moved up sharply in price following the publication of these reports.

FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD

43. The false statements pleaded at ¶¶41-42 were alive and uncorrected and artificially inflating the price of Digital Link stock on 9/12/94, the beginning of the Class Period, when Digital Link issued a press release entitled "Digital Link Corp. Introduces W/ATM GateWay Access Multiplexer/Concentrator," which stated:

* * *

44. On 9/14/94, Gupta gave an interview and stated that Digital Link would experience "explosive growth" and that its W/ATM GateWay product would be distributed in "production quantities" by 1stQ 95 and sold by AT&T under its private label. A 9/14/94 Dow Jones News Service report of Gupta's interview stated:

45. The statements that Digital Link was "on target" to ship the W/ATM PremiseWay product in the 4thQ 94, that product development "continues to make headway for introduction later this year," that "[i]ntegration and verification testing" of the W/ATM GateWay was proceeding, "the product is real and development is on track," "[p]roduction quantities" of W/ATM GateWay were "expected" or would be "available" in 1stQ 95 and that "production quantities" of those products would be available in 1stQ 95, which would result in "explosive growth" for Digital Link, were false when made. None of these positive statements was accompanied by any cautionary or warning language when issued. The truth was, based on Digital Link's initial DVT, including integration and verification testing, defendants had learned the software for the W/ATM GateWay products switch was defective, did not work, and could not accurately process or flow data between ports loaded with over 500 channels, far less than a full capacity load for the switch -- a serious defect which could not be fixed at that time, if at all, and would likely delay production of the W/ATM GateWay product line for many months, thus adversely impacting Digital Line's revenues and EPS in 1995.

46. On 10/5/94, an article about Digital Link appeared in Investor's Business Daily, which stated:

* * *

Digital Link cooperated in the publication of this article and Gupta, Palmer and Kazmierczak provided the information for it.

47. On 10/17/94, Digital Link reported its 3rdQ 94 results, which again emphasized the significance of the Company's new W/ATM GateWay product, quoting Gupta as stating:

48. On 10/19/94, Bear Stearns issued a report on Digital Link, authored by Nikos Theodosopoulos. Prior to issuing this report, Theodosopoulos obtained the information for this report from Digital Link executives Gupta and Kazmierczak. Digital Link approved this report before it was issued, knowing that the report would be released and become part of the total mix of information affecting Digital Link stock. The report forecast 1995 EPS of $.60 for Digital Link and stated:

* * *

* * *

The report also projected strong gross margins, including 64% in the 4thQ of 1995.

49. The statements that the agreement with AT&T to market Digital Link's W/ATM GateWay product line was a "highlight," that development of the GateWay product was "on track," and the product was "scheduled to be generally available in the early part of 1995," were known by defendants to be false when made. None of these positive statements was accompanied by any cautionary or warning language when issued. The truth was, based on initial trial product testing, including DVT, that defendants had learned that the software for the ATM switch was defective, did not work, and could not accurately process or flow data between ports loaded with over 500 channels -- well below a full capacity load for the switch -- a serious defect which could not be fixed for many months, if at all, and would greatly delay production of the W/ATM GateWay product line.

50. Based on these false representations, Digital Link's stock advanced strongly, climbing to $25-3/4 per share on 11/14/94, a 200%+ increase in less than four months. As Digital Link stock was artificially inflated upward and despite defendants' knowledge of the adverse facts impacting Digital Link's business during 9/94-12/94, Digital Link insiders sold or distributed 971,234 shares of Digital Link stock, at as high as $25 per share, for proceeds of $16.1 million.

51. The statements made in Digital Link's 9/12/94 press release, the 9/14/94 Dow Jones News Service interview, the 10/5/94 Investor's Business Daily article, the 10/17/94 press release and the 10/19/94 Bear Stearns report were false and misleading when issued, as set forth in ¶49. The true facts then known only to defendants, based upon their access to internal corporate data, but concealed by them, were that:

(a) By 9/1/94, when Digital Link started DVT of the W/ATM GateWay family of products, the integration and verification tests revealed that the unit's software could not effectively or accurately control the flow of data between ports on a W/ATM GateWay loaded with greater than 500 channels of its 4000 SMDS capacity, which would likely require a software re-write and re-testing, which would take many months, and as a result, the W/ATM GateWay products could not be produced in quantity or sold commercially during 1995 and likely well into 1996 and Digital Link's revenues, gross margins and EPS would be adversely affected;

(b) Digital Link was encountering serious and persistent difficulties in completing the final development of its W/ATM GateWay and W/ATM PremiseWay products for commercial production, as detailed in ¶¶4, 6 and 51(a), such that commercial production of these products would be delayed substantially;

(c) The software program necessary for Digital Link's W/ATM GateWay and W/ATM PremiseWay products to function properly and be released for commercial production was defective and deficient and did not work for the reasons detailed in ¶¶4, 6 and 51(a);

(d) Digital Link was unable to correct these software design difficulties, which meant that the software would have to be completely re-designed and re-done and new testing undertaken and completed, resulting in a lengthy delay in the completion of the W/ATM GateWay family of products for commercial usage;

(e) Defendants' assurances that Digital Link's W/ATM GateWay product would shortly be released for commercial production were false. Due to the serious problems in completing the final development of the W/ATM GateWay product, detailed in ¶¶4, 6 and 51(a), defendants knew that the product would be significantly delayed from reaching commercial production and broadband product sales growth would be minimal;

(f) Because Digital Link's forecast of strong 1995 gross margin and EPS growth depended on significant revenue contribution from its new W/ATM GateWay family of products, defendants actually knew those EPS forecasts were false because commercial production, shipment or sales of that product could not be achieved;

(g) Defendants' assurances that Digital Link was making significant progress with respect to the development of its W/ATM GateWay product and that the product would represent a significant addition to its product line were all false. In fact, the development of that product was severely troubled, and, for the reasons set forth above in ¶¶4, 6 and 51(a), the product could not be completed for commercial production and would not contribute materially to Digital Link's revenues for a substantial period of time, adversely impacting Digital Link's financial results due to the large expenses being incurred in attempting unsuccessfully to complete the final design and development and initial commercial production of this product; and

(h) As a result of the foregoing problems with Digital Link's business, defendants' forecasts of Digital Link EPS of $.60 for 1995 were actually known by them to be false when made.

52. On or about 1/10/95, Gupta and Kazmierczak met with Robertson Stephens & Co. ("Robertson Stephens") analyst Paul Johnson and told him that W/ATM GateWay would have a very positive impact on Digital Link's growth in 1995 and beyond. Robertson Stephens reported this information to the market in a report dated 1/10/95 where it became part of the total mix of information affecting Digital Link's stock.

53. On 1/17/95, Bear Stearns issued another report on Digital Link, authored by Theodosopoulos. Prior to issuing this report, Theodosopoulos obtained the information for this report from Digital Link executives, including Gupta, Palmer and Kazmierczak. Digital Link approved the information in this Bear Stearns report before it was issued, knowing that the report would be released and become part of the total mix of information affecting the price of Digital Link stock. The report repeated what Gupta, Palmer and Kazmierczak had told Theodosopoulos, forecast 1995 and 1996 EPS of $.60 and $.85, respectively, and stated:

54. On or about 1/25/95, Bear Stearns issued another report on Digital Link, authored by Theodosopoulos, which also repeated information provided him by Gupta, Palmer and Kazmierczak, that the development of W/ATM GateWay was "on track," that AT&T and Digital Link were continuing their successful joint testing of the product, and that the "Company expects to recognize revenue for GateWay in 1Q95," while repeating the 1995 and 1996 EPS forecasts made earlier. Bear Stearns also reported the following information to the market, which had been provided to it by Gupta, Palmer and Kazmierczak:

55. On or about 2/1/95, Bear Stearns issued another report on Digital Link, authored by Theodosopoulos, based on and repeating information provided to him by Gupta and Kazmierczak, which stated:

* * *

56. On 2/7/95, Needham & Co. issued a report on Digital Link. Prior to issuing this report, the Needham analyst who wrote the report obtained the information for the report from Digital Link executives, including Gupta, Palmer and Kazmierczak, and Digital Link approved the information in the report before it was issued, knowing that the report would be released and become part of the total mix of information affecting the price of Digital Link stock. The report repeated what Gupta, Kazmierczakrcial development of the W/ATM