Michael D. Braun (CSB #167416)
Timothy J. Burke (CSB #181866)
STULL, STULL & BRODY
10940 Wilshire Boulevard
Suite 2300
Los Angeles, CA 90024
(310) 209-2468

Jules Brody
Aaron L. Brody
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230

Kevin J. Yourman (147159)
WEISS & YOURMAN
10940 Wilshire Boulevard
24th Floor
Los Angeles, CA 90024
(310) 208-2800

Attorneys for Plaintiffs

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

GEORGE A. BISSON and JAY C. BISSON,
On Behalf of Themselves and All Others
Similarly Situated,

                      Plaintiffs,

           v.

SMART MODULAR TECHNOLOGIES
INC., MUKESH PAREL, AJAY SHAW,
LATA KIRSHAN, ALAN MARTIN, and
DAVID B. MULLIN,

                      Defendants.
______________________________________

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CASE NO. C 98 20714 JF
[filed Jul. 9, 1998]

CLASS ACTION

COMPLAINT FOR VIOLATION OF
FEDERAL SECURITIES LAWS

JURY TRIAL DEMAND

Plaintiffs, through their attorneys, bring this action on behalf of themselves and all others similarly situated, and on personal knowledge as to themselves and their activities, and on information and belief as to all other matters, based on investigation conducted by counsel, hereby allege as follows:

SUMMARY OF ACTION

1. This is an action on behalf of all purchasers of Smart Modular Technologies Inc. ("Smart Modular" or the "Company") common stock between July 1,1997 and May 22, 1998 (the "Class Period"). The complaint alleges fraudulent scheme and course of business that operated as a fraud and deceit on purchasers of Smart Modular stock. The defendants are Smart Modular and its top officers and directors (the "Defendants").

2. Smart Modular is a manufacturer of components for PCs, including standard and specialty memory modules and PC cards, which permit PC manufacturers and assemblers of specialty computer equipment to "customize" the amount of memory in a computer. The majority of Smart Modular's sales were to PC Original Equipment Manufacturers (OEMs), such as Compaq Computer (its largest customer), Hewlett-Packard and Dell Computer. Smart Modular went public in November, 1995 in an initial public offering ("IPO"). Notwithstanding Smart Modular's reporting of growing earnings per share ("EPS") its stock only gradually increased in price and performed worse than Defendants had hoped.

3. By the middle of 1997, Smart Modular's insiders realized that growth in demand for its products from its OEM and end-user customers was beginning to slow, that the pricing environment for Smart Modular's memory modules was starting to weaken and that Smart Modular's rapid expansion in Europe was not only costing more than originally anticipated but probably would not produce the profitable growth Smart Modular originally hoped for. Smart Modular's insiders knew that if these negative conditions continued or worsened, this would have a tremendous adverse impact on Smart Modular's growth and profitability. Smart Modular insiders also knew when these negative trends became publicly known Smart Modular's stock would decline sharply.

4. Faced with these negative conditions, Smart Modular and its insiders decided to undertake a large secondary offering of millions of shares of Smart Modular's stock in which the Company and its top insiders would sell shares, via a registered offering exempt from the Rule 144 restrictions and then only after they had pushed the stock up much higher via "Road show" presentations. This offering would allow Smart Modular to raise large amounts of needed capital at high prices and on non-dilutive terms to insulate Smart Modular's business from the downturn which Smart Modular's insiders knew was beginning. Sales in a secondary offering would also allow Smart Modular's insiders to use underwriters to help them sell their stock and stabilize the price of Smart Modular stock while these sales were taking place, via the underwriters' stabilization bid. This large secondary offering would allow Smart Modular to raise substantial additional amounts of capital on favorable terms to help insulate it from the expected decline in its business and would also allow Smart Modular's insiders to sell off their Smart Modular stock at much higher prices than in open market sales.

5. To accomplish their nefarious goals, Defendants had to artificially inflate the price of Smart Modular's stock, so that the secondary offering would both raise larger amounts of money for Smart Modular and the Smart Modular insiders who sold shares in the offering. To help boost Smart Modular's stock price, beginning in July, 1997, the Defendants worked with the underwriters they had selected for the offering, (i.e., Morgan Stanley Dean Witter ("Morgan Stanley"), Cowen & Co. ("Cowen"), and Donaldson Lufkin & Jenrette ("DLJ")), to mount a major publicity campaign for Smart Modular by disseminating false, but favorable information concerning Smart Modular's business and prospects.

6. The Defendants falsely represented that Smart Modular's "growth rate will likely accelerate," that it was "experiencing accelerating demand" for its memory modules, and that its strong EPS reflected the "strength of the markets we address" while concealing the adverse conditions which they knew had already begun to adversely affect Smart Modular's business. According to Smart Modular, its program of supplying memory modules to its customers' channels directly via electronic order had succeeded in "minimizing Smart Modular's inventory risk." According to Smart Modular, it was "competing on speed rather than price," and that "declining component prices [would also] help" its business.

7. Smart Modular stated that Europe presented an "enormous opportunity for us to grow" and that due to "robust demand" in Europe it would "expand its European sales rapidly." Smart Modular stated that it expected "non-U.S. sales to represent 35% of revenue within three years."

8. These false representations had the desired impact. The price of Smart Modular's stock skyrocketed in the summer of 1997, reaching a then all-time high of $34-1/4 in late August. By the beginning of September, Smart Modular's business had worsened. That did not stop Defendants from telling potential investors that:

9. By September 12, 1997 the Defendants had completed the offering -- selling 4,760,000 shares of Smart Modular stock at $32.375. Smart Modular itself sold 2.82 million shares, raising $91.3 million. Smart Modular's top four insiders sold 1.94 million shares for $62.8 million. After the secondary offering was completed, Smart Modular stock reached $44-5/8 on October 3, 1997. Immediately after the secondary offering, other Smart Modular's insiders took advantage of Smart Modular's inflated stock price to sell off 39,000 shares of their Smart Modular stock, pocketing still more in illegal insider-trading proceeds.

10. However, in early October, 1997, just three weeks after Smart Modular's secondary stock offering had been completed, Smart Modular's stock fell sharply. By the end of October the stock was back to $17-1/2, as information about price cutting of DRAM chips made its way through the investment community.

11. This sharp decline in Smart Modular's stock, coming just weeks after Smart Modular's huge secondary offering, alarmed the Defendants as they knew that such a sharp stock price decline, immediately following a large securities offering, would likely result in a securities class action suit, which might include claims under Section 11 of the Securities Act of 1933 which would have exposed the Defendants to millions in damages without proof of fraud. Thus, Defendants had to prop the price of stock back up. To further this goal, Defendants continued their battery of favorable statements about Smart Modular's business prospects, stating that Smart Modular's "rapid growth in Europe, market share gains in the reseller channel and new OEMs ... show[ed] strong momentum," Smart Modular "is experiencing accelerating demand for memory modules," "business looks great" and "business trends remain strong" and that Smart Modular's "growth rate will likely accelerate" with respect to DRAM pricing. Smart Modular said its "business does not depend on DRAM pricing" and it had "limited exposure to volatile pricing" as "none of these things [DRAM price cuts] apply to us." Smart Modular's "build-to-order memory module business" "continues to be very strong" and "well received," and that Smart Modular "would be very disappointed if we weren't able to exceed [25%] growth" Thus, Smart Modular increased its forecasted fiscal 1998 and fiscal 1999 EPS to $1.30+ and $1.55+, while continuing for forecast 25%-30% EPS growth over the next five years.

12. These false statements had the desired effect. As a result, Smart Modular's stock came back strong, recovering to $34-1/16 by late November of 1997. The stock was trading as high as $36-3/8 in the middle of February, 1998. Smart Modular's insiders took advantage of the continuing false statements by unloading another 165,800 shares of Smart Modular's stock between December 23, 1997 and March 6, 1998, for over $4 million more in illegal insider-trading proceeds.

13. However, in late February of 1998 Defendants' scheme began to unravel when Smart Modular was unable to completely conceal the deterioration of its business. On February 19, 1998, Smart Modular revealed that its 2ndQ F98 results, i.e., the quarter to end 4/30/98, would be lower than predicted. This was blamed on Smart Modular's inability to qualify its 66MHz PC memory modules with a major customer. However, the Defendants misrepresented the reason for Smart Modular's inability to obtain this qualification, stating that it was due to manufacturing constraints which made it unable to supply these 66MHz products in sufficient quantities -- thus implying that demand for these products remained strong. They also falsely assured investors that the issue was a short-term issue only, which was being or had been overcome, and that since the market was rapidly changing from 66MHz to 100MHz memory module products (Smart Modular was prepared to produce 100 MHZ products in volume), the transition would benefit Smart Modular greatly. Defendants continued to predict that Smart Modular would still achieve strong revenue and EPS growth in Fiscal year 1998-1999 with EPS of $1.35+ and $1.69+, respectively. The stock continued to trade at artificially inflated levels because of these false statements through the end of the Class Period.

14. After trading stopped on May 20, 1998 Smart Modular revealed the truth concerning its business prospects. Smart Modular stated that expected revenues would decline sharply for Fiscal 1998 because of very weak pricing and decreasing OEM and end-user demand for its products, a much slower than earlier indicated transition to 100MHz products, continuing production problems with Smart Modular's 66MHz products, excessive inventories of Smart Modular's specialty and standard memory modular products and substantial problems with its OEM electronic ordering program. When the market had a clear picture of Smart Modular's business prospects, the price of Smart Modular's stock collapsed, falling 41% from $22-1/4 to $13-1/8. This was the largest one-day percentage decline in Smart Modular's history as a public company.

15. Investors who purchased Smart Modular stock and paid as high as $44-5/8 per share for Smart Modular's stock due to representations about continuing strong demand for Smart Modular's products and its forecasts of strong revenue and EPS growth in fiscal 1998-1999, have suffered millions in damages. However, Smart Modular and its insiders who knew the truth about its business did not fare nearly so poorly. Before the revelations of February 19, and May 20, 1998, Smart Modular's insiders unloaded 2,178,000 shares of their Smart Modular stock at artificially inflated prices and pocketed millions in illegal insider-trading proceeds, while Smart Modular itself was able to sell 2.82 million new shares to the public, at $32.375 per share raising $91.3 million in new capital. Defendants sold a total of almost five million shares of Smart Modular stock for $160 million.

16. Each of the following positive statements about Smart Modular's business during the Class Period were materially false and misleading when made. The disclosure of the following adverse information, which was then known only to Defendants due to their access to company documents, was required to make the positive statements made not misleading:

JURISDICTION AND VENUE

17. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. Sections 1331 and 1337, and Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act") (15 U.S.C. Section 78aa).

18. This action arises under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder (17 C.F.R. Section 240.10-b5).

19. Jurisdiction is conferred by Section 27 of the 1934 Act. Venue is proper in this district pursuant to Section 27 of the Exchange Act and 28 U.S.C. 1391(b) because the acts herein, including the dissemination of materially false and misleading information, occurred in this district.

THE PARTIES

20. Plaintiff George A. Bisson purchased 500 shares of Smart Modular common stock on April 1, 1998 at 22 11/16 and currently holds all 500 shares. Plaintiff George A. Bisson has been damaged as a result of defendants' deceptive and illegal conduct.

21. Plaintiff Jay C. Bisson purchased 100 shares of Smart Modular common stock on April 1, 1998 and 200 shares on April 2, 1998, all at 22 11/16 . He currently holds all 300 shares. Plaintiff Jay C. Bisson has been damaged as a result of defendants' deceptive and illegal conduct.

22. Defendant Smart Modular is headquartered at Fremont, California. Smart Modular's common stock trades in an efficient market on the NASDAQ National Market System.

23. Defendant Ajay Shah ("Shah") is President, CEO and Chairman of the Company. As part of the scheme, Shah (with his wife Lata Krishnan) sold 1,160,000 shares of Smart Modular stock at $32.375 based on inside information, pocketing over $35.6 million in proceeds net of offering costs.

24. Lata Krishnan ("Krishnan") was Vice President, Finance and Administration and Chief Financial Officer of the Company during part of the Class Period and Vice President, Business Development and Administration during the rest of the Class Period. As part of the scheme, Krishnan (jointly with her husband Shah) sold 1,160,000 shares of Smart Modular stock at prices as high as $32.375 based on inside information, pocketing over $35.6 million in proceeds net of offering costs.

25. Mukesh Patel ("Patel") was, at all relevant times, Vice President and General Manager Memory Product Line and a director of the Company. As part of the scheme, Patel sold 700,000 shares of Smart Modular stock at $32.375 based on inside information, pocketing over $21.5 million in proceeds net of offering costs.

26. Alan Marten ("Marten") is Vice President, Sales and Product Line Manager Memory Product Line of the Company. As part of the scheme, Marten sold 280,000 shares of Smart Modular stock at prices as high as $35.875 based on inside information, pocketing almost $8 million in proceeds net of offering costs.

27. David Mullin ("Mullin") was Vice President, Finance and Chief Financial Officer of the Company during part of the Class Period. As part of the scheme, Mullin sold 38,000 shares of Smart Modular stock at prices as high as $36 based on inside information, pocketing over $1.3 million.

28. The defendants in ¶¶22-27 are referred to as the "Individual Defendants," and are liable for the false statements at ¶¶ 38, 55, and 63, as they were each "group-published" information, the result of the collective action of the Individual Defendants. The Individual Defendants controlled the contents of Smart Modular's quarterly and annual reports, press releases and presentations to securities analysts. Each Individual Defendant was provided with the Company's allegedly false reports and press releases prior to issuance and had the ability to prevent their issuance or cause them to be corrected.

29. Because of the Individual Defendants' positions with the Company, they each knew that the adverse facts specified herein were being concealed from the public and that the positive representations being made were false due to their access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations with corporate officers and employees and attendance at management and/or Board meetings. Despite their duty not to sell Smart Modular stock under such circumstances, the Individual Defendants nonetheless did so.

30. Shah, Krishnan and Patel, by reason of their stock ownership, executive positions and Board membership were controlling persons of Smart Modular and had the power to cause it to engage in the illegal conduct complained of. They are therefore liable under Section 20(a) of the 1934 Act.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

31. Each defendant is liable for participating in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Smart Modular stock, including making false and misleading statements or concealing material adverse facts while selling Smart Modular stock, which (a) deceived investors regarding Smart Modular; (b) deceived the commercial markets regarding Smart Modular's success with its products; (c) artificially inflated Smart Modular's stock; (d) caused plaintiffs and Class members to purchase Smart Modular stock at inflated prices; and (e) permitted the Defendants to sell 4,999,000 shares of Smart Modular stock at inflated prices for over $160 million.

OPPORTUNITY AND MOTIVE

32. Each defendant had the opportunity and motive to commit the acts alleged herein. Defendants, through their positions as officers and/or directors, controlled the dissemination of false and misleading information to the public through SEC filings, press releases and communications with analysts and thereby benefitted from the positive public and industry-wide perception of Smart Modular Technologies. By virtue of their positions with Smart Modular Technologies and because of the significant reputational and monetary benefits they stood to gain from a positive public perception of Smart Modular Technologies and as a result of artificially inflated stock prices, defendants had both the opportunity and motive to commit the acts alleged herein. Defendants were aware of Smart Modular Technologies true financial condition yet recklessly disregarded the limitations of the Company.

33. Defendants each had the opportunity and motive to commit and participate in the fraud alleged herein. The air of accomplishment and success created as a result of defendants' material misrepresentations made Smart Modular Technologies more attractive to potential investors, and served to maintain its stock price at artificial levels.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

34. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a class consisting of all persons who purchased or otherwise acquired shares of Smart Modular Technologies common stock from July 1, 1997 to May 22, 1998 inclusive, and who were damaged thereby. Excluded from the Class are the defendants, officers and directors of the Company, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest.

35. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiffs at this time and can only be ascertained through appropriate discovery, plaintiffs believe that there are over a thousand members of the Class. As of June 1998 Smart Modular Technologies had 43,028,929 shares of Common Stock issued and outstanding. Smart Modular Technologies stock was actively traded in an efficient market, NASDAQ. Record owners and other members of the Class may be identified from records maintained by Smart Modular Technologies or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.

36. Plaintiffs' claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of the federal law that is complained of herein.

37. Plaintiffs will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.

38. Common questions of law and fact exist as to all members of the Class and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the Class are:

39. Plaintiffs will rely, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine in that:

40. Based upon the foregoing, plaintiff and the other members of the Class are entitled to a presumption of reliance upon the integrity of the market for, at least, the purposes of class certification, as well as for ultimate proof of the claims on their merit. Similarly, plaintiff and the members of the Class are entitled to a presumption of reliance with respect to the omissions alleged herein.

41. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this class action.

SUBSTANTIVE ALLEGATIONS

42. By mid-1997, Smart Modular's insiders realized that demand for its memory module products from its OEM customers and downstream assemblers of specialty computer equipment was beginning to slow, that the pricing environment for its memory module products was beginning to weaken and that its rapid expansion in Europe was costing more than originally anticipated and would likely not produce the profitable growth originally hoped for. Smart Modular's insiders knew that if these negative conditions continued, they would have an adverse impact on company growth and profitability. Furthermore the insiders knew when these adverse trends became publicly known they would cause Smart Modular's stock to decline sharply. In order to raise substantial capital for Smart Modular on favorable terms before this negative information became public and to enable Smart Modular's top insiders to sell off larger amounts of their Smart Modular stock than they could sell in open market sales, Defendants decided to undertake a large secondary offering of millions of shares of Smart Modular's stock. In a secondary offering Smart Modular's insiders would sell shares without the Rule 144 volume restrictions. The insiders could also take advantage of underwriters who would help them sell the stock and stabilize the price of Smart Modular stock when these large stock sales were taking place. By selling shares in this way, Smart Modular, Shah, Krishnan and Patel could maximize their profits. To further increase profits they issued positive reports and forecasts and engaged in making Road show presentations just before the offering to disseminate very favorable, yet false, information to potential stock purchasers. Also, they could use the underwriters to help merchandize the stock and rely upon the underwriting firms' "firm commitment" purchase obligations to buy all their shares and then resell them while the underwriters used special marketing techniques, to "stabilize" the stock price, by using techniques that would not be legal in normal open market stock sales. This would enable the insiders to sell large amounts of stock without disrupting the market and they could sell many more shares than they could in open market sales because the stock sold would be registered with the SEC and thus exempt from the volume restrictions of Rule 144. To help pull off this large secondary offering at a very high price, Defendants engaged Morgan Stanley, Cowen, and DLJ to help them in their scheme.

43. To accomplish their illegal goals, Defendants had to artificially inflate the price of Smart Modular's stock, so that the secondary offering would raise larger amounts of money for both Smart Modular and for the Smart Modular insiders who sold shares in the offering. To help boost Smart Modular's stock price, beginning in July of 1997, the Defendants worked with the underwriters they had selected for the offering, i.e., Morgan Stanley Dean Witter ("Morgan Stanley"), Cowen & Co. ("Cowen"), and Donaldson Lufkin & Jenrette ("DLJ"), to mount a major publicity campaign for Smart Modular by disseminating false, but favorable, information concerning Smart Modular's business and prospects.

44. On July 7, 1997, DLJ issued a report on Smart Modular after its analyst Shankar had discussions with Shah, Krishnan or Patel which was based on and repeated information provided to Shankar by them. Shah, Krishnan and Patel reviewed this report and assured Shankar it was accurate. "The company is experiencing accelerating demand for memory modules ... SMOD's growth rate will likely accelerate...."

45. The July 14, 1997, edition of Electronics Buyers' News contained a story on Smart Modular, which was headlined and quoted Shah as follows:

Europe May Spell Growth -- Following Success In U.S., Smart Modular Sets Up Shop In Scotland

Having grown rapidly in the United States in the past three years, Smart Modular Technologies Inc. is counting on Europe to fuel future growth.

* * *

The ... memory-module maker ... expects non-U.S. sales to represent 35% of revenue within the next three years. Last year, that figure was just 15%, said chairman and chief executive Ajay Shah.... [w]e see an enormous opportunity for us to grow and better address the growing market in Europe.

46. In the July 25, 1997-edition of the San Francisco Business Times, an article about Smart Modular stated:

Despite a 10 percent contraction in its main product area last year, the Fremont-based company's revenues jumped 46 percent to $401 million.

* * *

Smart Modular is poised for even more spectacular growth on its way to $1 billion in sales. For the first half of 1997, Smart's sales are up 42 percent while the industry continues to consolidate and struggle.

* * *

Although the memory-module business has grown 20 percent in units over the last 18 months, dollar growth has shriveled. Personal computer makers chopped their prices to remain competitive, forcing their suppliers to cut prices in turn.

Smart, however, said it is competing on speed rather than price.

Shah provided the information in this article to the San Francisco Business Times.

47. On August 11, 1997, Smart Modular publicly announced the planned secondary offering.

48. On August 21, 1997, Smart Modular announced much better than expected 3rdQ F97 results via a release headlined and stating:

SMART MODULAR TECHNOLOGIES, INC. REPORTS THIRD QUARTER FISCAL 1997 FINANCIAL RESULTS; REVENUES UP 100%; NET INCOME UP 88%; EPS UP 84%

* * *

"We are very pleased with our third quarter operating results," stated Ajay Shah, SMART's President and Chief Executive Officer. "We believe they reflect the fundamental size and strength of the markets we address...."

49. Also on August 21, 1997, subsequent to the release of its 3rdQ F97 results, Smart Modular held a conference call for analysts, portfolio managers, institutional investors and large Smart Modular shareholders. During the call -- and in follow-up conversations with participants -- Shah, Krishnan and Patel directly disseminated important information to the market, stating:

50. On August 22, 1997, Oppenheimer issued a report on Smart Modular, written by J. Poyner, which was based on and repeated information provided Poyner in the conference call and in follow-up conversations with Shah, Krishnan and Patel. The report increased the forecasted F98 EPS for Smart Modular to $1.38 and stated:

We are increasing our estimate ... from [$1.075 to $1.38] for fiscal 1998, principally driven by revenue increases from an expanding relationship with a key customer....

The ... revenue increase was powered once again by the very successful memory option program with Compaq, which we estimate is now the company's largest customer at more than 15% of revenue, as well as continued momentum in specialty-memory modules related to the server and workstation markets.

* * *

Smart clearly is growing its unit production and should continue to see some sequential revenue and gross-profit growth.... In our estimate increase, we have raised revenue for fiscal 1998 to $990 million, up more than $200 million from the previous forecast.

51. On August 27, 1997, DLJ issued a report on Smart Modular, written by Shankar, which was based on and repeated information provided Shankar in the conference call and in follow-up conversations with Shah, Krishnan or Patel. The report forecast Fiscal 1998 and 1999 EPS of $1.25 and $1.525, respectively, a 20%-25% five-year EPS growth rate for Smart Modular and also stated:

We are raising our fiscal estimates to reflect the higher than expected third quarter results.... For fiscal 1998 we are raising our numbers ... to $890 million and [$1.25] per share; and for fiscal 1999 we are raising our estimates ... to $1,022.5 [million] and [$1.525] per share.

52. Smart Modular's stock price soared higher after Smart Modular reported its stronger than expected 3Q F97 EPS and it held its August 21, 1997 conference call which made mention of increasing its fiscal 1998 and fiscal 1999 revenue and EPS forecasts. The price of Smart Modular stock jumping from $24-13/16 on August 21, 1997 to $34-1/4 on August 26, 1997, just three trading days later.

53. Each of the positive statements about Smart Modular's business during the Class Period between July 1, and August 27, 1997, as set forth in ¶¶ 34-41, was materially false and misleading when issued, and failed to disclose, inter alia, the following adverse information which was then known only to Defendants due to their access to internal Smart Modular data:

54. By August of 1997 the conditions that had begun to manifest themselves internally at Smart Modular's business earlier had worsened and were having an adverse impact on Smart Modular's business. Defendants knew these conditions would continue to worsen and that Smart Modular future results would be much worse than those being forecast. Nevertheless, during the last week of August and the first week of September of 1997, Smart Modular and Shah, Krishnan and Patel conducted a multi-city "Roadshow" during which Shah, Krishnan and Patel visited with and made presentations to portfolio managers, institutional investors and potential investors about Smart Modular to create a strong demand for the Smart Modular stock to be sold in the upcoming stock offering. During these Road show presentations the participants disseminated the following information:

55. On September 11, 1997, Smart Modular completed its secondary offering of 4,760,000 shares underwritten by, inter alia, Morgan Stanley, DLJ and Cowen at $32.375. Smart Modular sold 2,821,000 shares for $91.3 million. The Company received net proceeds of $86.7 million in new capital. Smart Modular's top three insiders sold 1.94 million shares.

56. During September of 1997, Morgan Stanley initiated a report on Smart Modular, written after its analyst Fleck had discussions with Shah, Krishnan and Patel which was based on and repeated information provided Fleck by them, and repeated information that Smart Modular had disseminated during the recent Roadshow. Shah, Krishnan and Patel reviewed this report before it was issued and assured Fleck it was accurate. The report forecast fiscal 1998 EPS of $1.30, 1999 EPS of $1.525 and stated:

..... Management estimates that it is one of the leading manufacturers of memory modules based on units, and it is one of the few independent manufacturers that focuses assembling modules on a build-to-order basis for OEMs rather than developing a brand name and selling memory modules to retailers such as computer superstores. This OEM strategy has differentiated SMART from its competitors and enabled it to increase sales and earnings even during a volatile market for memory components.... SMOD is a way to participate in higher unit demand for memory modules with limited exposure to volatile pricing.

* * *

Rapid Sales and Earnings Growth.... Near term, we believe that SMART can continue to increase earnings more than 40% per annum.

* * *

Demand for Memory Modules Remains Strong....

* * *

Earnings Outlook

Our earnings estimates for SMART Modular Technologies are ... [$1.30] for F1998, and [$1.525] for F1999 ... we believe that it can increase earnings in excess of 40% near term and 20-25% longer term.... We believe revenues are poised to reach ... $965 million in F1998.

57. During September 15-17, 1997, Smart Modular executives Shah, Krishnan and Patel appeared at the 25th Annual Fall Technology Conference sponsored by Cowen, entitled "Opportunities Beyond 2000," in New York City. In a formal presentation and in break-out sessions, they told the assembled security analysts, portfolio managers, institutional investors, brokers and stock traders:

59. On October 13, 1997, DLJ issued a report on Smart Modular written after its analyst Shankar had extensive discussions with Shah, Krishnan or Patel. The report was based on and repeated information provided Shankar by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Shankar it was accurate. The report forecast fiscal 1998 and 1999 revenue of $890 million and $1.023 billion and EPS of $1.25 and $1.525, respectively and a 25%-30% five-year EPS growth rate for Smart Modular. The report also stated:

[B]usiness conditions at the company remain strong thus far in the quarter, driven by continued strength in specialty and standard memory modules for PCs, servers, peripherals, and telecom and networking equipment. The options built-to-order memory module business with companies such as CPQ continues to be very strong.... We reiterate that the company's business model does not depend upon DRAM pricing; it is driven more by unit volume growth and the trend toward efficient outsourcing of specialty and standard memory modules by systems companies.... [B]usiness trends remain strong....

* * *

The company is experiencing accelerating demand for memory modules added to PCs and servers configured in the VAR/reseller/distributor channel....

Longer-term, SMOD's expertise in high-density, high-performance memory module design using new types of memory such as synchronous SDRAM, Sync-Link, and Rambus-based DRAM, combined with the company's flexible, high-volume and low-cost module manufacturing and advanced test/quality control capabilities are unique entry barriers. SMOD's growth rate will likely accelerate, driven by increasing outsourcing of memory module systems and specialized design trends in main DRAM memory, cache SRAM memory and flash memory modules....

... The company's "Options" customer services program for quick order turnaround and delivery (72 hrs. from order placement to delivery) continues to be well received by PC OEM's and has driven demand for standard memory modules above the historical segment average. We believe that the acceptance of the Options service program is reflective of a secular OEM shift towards assembling PC in the channel, closer to the consumer and to tightly manage DRAM inventory levels.

60. On October 22, 1997, Morgan Stanley issued a report on Smart Modular, written after its analyst Fleck had extensive discussions with Shah, Krishnan or Patel, which was based on and repeated information provided Fleck by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Fleck it was accurate. The report forecast fiscal 1998 and 1999 EPS of $1.30 and $1.525 and stated:

We recently initiated coverage of SMART Modular Technologies.... We believe the company is well positioned to benefit from the trend toward outsourcing by OEMs and semiconductor manufacturers, and strong unit demand for memory modules.... Management estimates that it is one of the leading manufacturers of memory modules based on units, and it is one of the few independent manufacturers that focuses assembling modules on a build-to-order basis for OEMs rather than developing a brand name and selling memory modules to retailers such as computer superstores. This OEM strategy has differentiated SMART from its competitors and enabled it to increase sales and earnings even during a volatile market for memory components.... SMOD is a way to participate in higher unit demand for memory modules with limited exposure to volatile pricing.

Our EPS estimates are ... [$1.30] for F1998, and [$1.525] for F1999 ending in October.

* * *

Investment Positives

Rapid Sales and Earnings Growth.... Near term, we believe that SMART can continue to increase earnings more than 40% per annum.

* * *

Demand for Memory Modules Remains Strong ....

* * *

Earnings Outlook

Our earnings estimates for SMART Modular Technologies are ..... [$1.30] for F1998, and [$1.525] for F1999.... [W]e believe that it can increase earnings in excess of 40% near term and 20-25% longer term....

* * *

We believe revenues are poised to reach ... $965 million in F1998.

61. Each of the positive statements about Smart Modular's business during the Class Period between September 8, 1997 through October 22, 1997, as set forth in ¶¶ 44-50, was materially false and misleading when issued, and failed to disclose, inter alia, the following adverse information which was then known only to Defendants due to their access to internal Smart Modular data:

62. On November 6, 1997, Smart Modular executive Shah appeared at the AEA Classic Investment Conference in San Diego. In a formal presentation and in break-out sessions, he told the assembled security analysts, money and portfolio manager, institutional investors, brokers and stock traders that:

63. On November 6, 1997, Shah was interviewed by MSNBC at the AEA Conference. MSNBC broadcast the interview as follows:

Schacknow: One thing I noticed about your business, since last year you've opened new manufacturing sites and the business in general seems to be expanding. Tell me about that.

Shah: We've had a good year in spite of the fact that the FRAM memory market has had a poor year. Overall demand for a lot of the devices we make has come up very nicely and we've been able to gain a couple of new customers and as you mentioned we put up a site in Scotland and that has done very well and our percentage of sales in Europe has gone up as a result and we're quite pleased with the progress.

Schacknow: Now Wall Street hasn't always been kind to your stock in the past couple of months.... What concerns have you come here to address, since it's a good forum to do that obviously?

Shah: [W]e've spent a lot of time explaining our business model and the fact that we're not going to be a DRAM manufacturer. That's why DRAM does pass through us. We buy and sell DRAM as part of our business, but we don't largely depend on DRAM ... for our value added.

* * *

The point is when you have excessive supply like perhaps in the DRAM market today and a posity, perhaps, of demand, or there's some mismatch in timing between supply and demand availability, then you have an issue of extraordinary price movements to the point where people are losing money. And this is particularly true for extremely capital intensive businesses like DRAMs are. However, none of these things apply to us. We're having a natural price curve of downward pricing, which is normal in our business, and you know, as new products come out, they come out with higher prices.

64. On November 18, 1997, DLJ issued a report on Smart Modular written after its analyst Shankar had extensive discussions with Shah, Krishnan or Patel which was based on and repeated information provided Shankar by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Shankar it was accurate. The report forecast fiscal 1998 and 1999 EPS of $1.25 and $1.525, respectively, a 30% five-year EPS growth rate for Smart Modular and stated:

The options build-to-order memory module business with companies such as CPQ (more than 50% of revenues) continues to be very strong. We reiterate that the company's business model does not depend upon DRAM pricing; it is driven more by unit volume growth and the trend toward efficient outsourcing of specialty and standard memory modules by systems companies.

* * *

The company is experiencing accelerating demand for memory modules added to PC's and servers configured in the VAR/reseller/distributor channel....

Longer-term, SMOD's expertise in high-density, high-performance memory module design using new types of memory such as synchronous DRAM, Sync-Link, and Rambus-based DRAM, combined with the company's flexible, high-volume and low-cost module manufacturing and advanced test/quality control capabilities are unique entry barriers. SMOD's growth rate will likely accelerate, driven by increasing outsourcing of memory module systems and specialized design trends in main DRAM memory, cache SRAM memory and flash memory modules.

65. On November 20, 1997, Smart Modular announced a 2-for-1 stock split, effective December 3, 1997. Also on November 20, Smart Modular also announced better than expected 4thQ fiscal 1997 results via a release headlined and stating:

SMART MODULAR TECHNOLOGIES, INC. REPORTS RESULTS FOR FOURTH QUARTER AND FISCAL 1997; FOURTH QUARTER NET SALES UP 105%; NET INCOME UP 108%; EPS UP 91%

* * *

"In summary, fiscal 1997 was a successful year ... in enhancing our overall competitive positions in the markets we serve," concluded Shah.

66. Also on November 20, 1997, subsequent to the release of its F97 results, Smart Modular held a conference call for securities analysts, portfolio managers, institutional investors and large Smart Modular shareholders. During the call -- and in follow-up conversations with participants -- Shah, Krishnan and Patel disseminated important information to the market by stating:

67. On November 21, 1997, DLJ issued a report on Smart Modular, written by Shankar, which was based on and repeated information provided Shankar during the November 20, conference call and in follow-up conversations with Shah, Krishnan and Patel. The report increased the forecasted fiscal 1998 and 1999 EPS for Smart Modular to $1.375 and $1.625, respectively, continued to forecast a 20%-25% five-year EPS growth rate for Smart Modular and also stated:

The company saw particular strength in its higher margin consignment business with synchronous DRAM (SDRAM) manufacturers which are outsourcing the implementation of memory modules....

In addition, we believe that the "Options" customer services program for quick order turnaround and delivery (72 hrs. from order, placement to receipt) continues to expand with PC OEM's that are rapidly switching to the Build-To-Order (BTO) model. We view the strong reception of the Options program as reflection of the secular shift towards OEMs assembling PCs in the channel, closer to the consumer as well as a consequence of the movement to minimize DRAM inventory levels. In summary, we believe that very high order volumes were driven by sustained growth in memory unit volumes, strength in module outsourcing and the shift to BTO. We are raising our fiscal 1998 estimates from $890 million and [$1.25] per share to $930 million and [$1.375] per share and we are raising our fiscal 1999 numbers from $1,023 [million] and [$1.525] per share to $1,100 [million] and [$1.625] per share....

SMOD uses DRAM only as a material input for its value added module solutions and cheap memory coupled price elasticity have pushed accelerating unit growth of standard products. In addition, we believe that standard memory modules, which enable putting memory on the board at the end of the PC production cycle, have attracted brisk OEM demand, as manufacturers have shifted toward later memory installation to limit DRAM inventory risk....

Business trends will likely remain strong across the board in SMOD's standard memory modules, specialty memory modules and PC cards in all key market areas including PCs, peripherals, servers/high end computers, telecom, networking equipment, etc.

68. On December 3, 1997, Morgan Stanley issued a report on Smart Modular written after its analyst Fleck had discussions with Shah, Krishnan or Patel which was based on and repeated information provided Fleck by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Fleck it was accurate. The report increased the forecasted fiscal 1998 and 1999 EPS for Smart Modular to $1.40 and $1.60, respectively, continued to forecast a 25%-30% five-year EPS growth rate for Smart Modular and also stated:

Once again, this leading independent manufacturer of memory modules proved that it can increase its sale and profit margins, even when prices for memory components are under pressure.

[T]o reflect better-than-expected F4Q97 results and expectations for a continuation of rapid earnings growth, we raised F1998E EPS to [$1.40] from [$1.30] and our F1999 estimate to [$1.60] from [$1.525].

* * *

Management believes that the transition to synchronous DRAM and the adoption of build-to-order business models by PC OEMs will drive more outsourcing opportunities for SMART.

69. On December 24, 1997, DLJ issued a report on Smart Modular written after its analyst Shankar had discussions with Shah, Krishnan or Patel which was based on and repeated information provided by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Shankar it was accurate. The report forecast fiscal 1998 and 1999 EPS of $1.38 and $1.63, respectively, a 30% five-year EPS growth rate and the following F98 quarterly results for Smart Modular:

            EPS/1998
          QTR.
          1st:   $ .33
          2nd:   $ .34
          3rd:   $ .35
          4th:   $ .35
          Year:  $1.38

The report also stated:

The company is experiencing strong demand for memory modules added to PC's and servers configured in the VAR/reseller/distributor channel. As companies such as CPQ, HWP, IBM and DEC move toward the flexible options program to equip PCs and servers with memory modules in the distribution channel or the "build-to-order" model by OEMs emulating the Dell model, SMOD benefits from more OEM orders for memory modules.... In fiscal 1998, we expect $930 million in revenues and $1.38 per share and in fiscal 1999 we expect $1100 million and $1.63 per share, respectively.

70. On December 30 , 1997, Shah was interviewed on CNBC by Ron Asana, as follows:

Ron: Here to tell us about his company and what it is exactly they do is Ajay Shah, Chairman and CEO of Smart Modular Technologies.

* * *

Ron: Well, is everything working on all cylinders at your firm at the moment?

Shah: Well, we think things are going well. I mean, there is always pluses and minuses but overall we think that business is going well.

* * *

Ron: [C]ould you give us an idea what kind of growth are you expecting both in terms of earnings and profits going forward?

Shah: [Y]ou know, the memory and memory module memory card marketplaces are growing at we believe greater than 25% a year and many market forecasts show greater numbers than that. The data communication product market is growing at close to 20% a year and the embedded computer market, one of the ones we are most excited about, at least the segment we serve, is growing at over 50% a year. So, and our goal is to keep ahead of the growth rates which are the overall market growth rates. And that is really -- you know, we would be very disappointed if we weren't able to, you know, exceed those growth rates because we are trying to gain market share.

On December 30, 1997, Dow Jones On Line News reported:

SMART MODULAR EXECUTIVE SEES OPPORTUNITY FOR CORE-MARKET GROWTH

Smart Modular Technologies Inc. Chairman and Chief Executive Ajay Shah said Tuesday he expects "significant opportunity" for growth in the company's core-product markets in 1998.

71. Each of the positive statements about Smart Modular's business during the Class Period between November 11, 1997 and February 17, 1998, as set forth in ¶¶52-60, was materially false and misleading when issued, and failed to disclose, inter alia, the following adverse information which was then known only to Defendants due to their access to internal Smart Modular data:

73. On February 19, 1998, Smart Modular reported its 1stQ F98 results with revenues and EPS lower than earlier forecasted. Subsequent to the release of these results, Smart Modular held a conference call for securities analysts, money and portfolio managers, institutional investors and large Smart Modular shareholders. During the call -- and in follow-up conversations with participants -- Shah, Krishnan and Patel disseminated important information to the market by stating:

74. On February 20, 1998 Dow Jones On Line News ran an item on Smart Modular:

SMART MODULAR SHARES TUMBLE AS FIRM PREDICTS "SMALL" REVENUE DIP

* * *

In a conference call Thursday afternoon, Smart Modular (SMOD) officials projected a "relatively small" sequential revenue decline for the three months ending April 30 because the company missed a qualification window with a major customer. The lost opportunity, they said, resulted in a short-term loss in sales volume.

* * *

"It was an issued of convincing the customer that we could service their demand," President and Chief Executive Ajay Shah said ... but the qualification problem affected a PC66 synchronous DRAM module order.

* * *

While slower than many types of random-access-memory chips, DRAM chips are commonly used for many functions because they are inexpensive and perform adequately. Lower DRAM prices prompted Cowen & Co. analyst Robert Stone to cut his second-quarter estimate by 2 cents a share to 32 cents....

Stone said he isn't bearish on the company's long-term prospects. He added that the lost volume appears likely to last for only a couple of months, as the PC66 "appears to be a short-lived standard."

Smart Modular Chief Financial Officer David Mullin agreed that the problem looks to be short-term. "We think that this is a very specific issue and we can get it contained in a short time frame ... certainly within the quarter," he said in a phone interview.

75. Also on February 20, 1998, DLJ issued a report on Smart Modular written by Shankar which was based on and repeated information provided Shankar in the February 19, 1998, conference call and in follow-up conversations with Shah, Krishnan or Patel. The report continued to forecast F98 and F99 EPS of $1.35 and $1.62, respectively, a 25%-30% 5-year EPS growth rate and the following quarterly F98 EPS for Smart Modular:

          Q1    $ .35
          Q2    $ .30
          Q3    $ .34
          Q4    $ .36
          Year  $1.35

The report also stated:

Beyond the April (Q2, FY98) quarter, business trends are expected to be strong, driven by continuing demand for high performance memory modules, the switch to more value added DRAM modules such as PC100-compliant 100MHz SDRAM memory modules, and additional new computer OEM and semiconductor customers looking to out source memory module production.... For FY98, we are trimming our revenue and EPS estimates slightly ... to $815 million and $1.35 per share. Our longer-term FY99 EPS estimate remains at $1.62 per share.... [W]e believe that the memory module market is poised for explosive growth ahead and SMOD is well established with leading OEMs in high value added memory modules with world class manufacturing, testing, and time-to-market capabilities.

Business conditions at the company were strong in the first quarter, driven by continued strength in specialty and standard memory modules for PCs, servers, peripherals, and telecom and networking equipment. The company is experiencing strong demand for memory modules added to PC's and servers configured in the VAR/reseller/ distributor channel.

76. Upon Smart Modular's announcement of February 19, 1998, Smart Modular stock fell from $36-3/8 to $26-1/2 on February 24, 1998. However, the Defendants misrepresented that the reason for Smart Modular's inability to obtain this qualification was due to capacity manufacturing constraints which made it unable to supply these 66MHz products in sufficient quantities -- thus implying that demand for these products remained strong. They also falsely assured investors that the qualification issue was a short-term issue only, which was being or had been overcome, and that since the market was rapidly changing from 66MHz to 100MHz memory module products (which 100MHz products Smart Modular was prepared to produce in volume), this rapid product transition would benefit Smart Modular. Thus, Defendants continued to forecast that Smart Modular would still achieve strong revenue and EPS growth in F98-F99 with F98 and F99 EPS of $1.35+ and $1.69+, respectively. As a result of these reassurances and forecasts, while Smart Modular's stock declined upon the revelation that its 2ndQ F98 EPS would be lower than forecast, the stock continued to trade at artificially inflated levels.

77. On March 23, 1998, Oppenheimer issued a report on Smart Modular, written after its analyst Poyner had discussions with Shah, Krishnan or Patel which was based on and repeated information provided Poyner by them. Shah, Krishnan or Patel reviewed this report before it was issued and assured Poyner it was accurate. The report forecast fiscal 1998 and 1999 EPS of $1.39 and $1.85, respectively, and the following F98 quarterly results for Smart Modular:

            EPS/1998
          1st:   $ .35
          2nd:   $ .30
          3rd:   $ .36
          4th:   $ .38
          Year:  $1.39

The report also stated:

Smart remains well positioned to grow its market share in the memory module segment.... Smart Modular's stock has been beset with a string of investor worries that have seen the share price tumble some 38% in the past month or so. First came management's lowering of guidance concerning the April second quarter due to production problems that caused one major customer to move some of its module requirement to a Korean supplier. Then came the preannouncement of a significant shortfall in revenue for the March quarter from Compaq....

* * *

However, we think the stock may have suffered disproportionately on the issue of Compaq because some investors may not clearly understand Smart's position in the Compaq food chain as a key memory-module supplier. The vast majority of Smart's business with Compaq is downstream from Compaq's production operations. Smart supplies modules to resellers performing final memory configurations of Compaq computers or to customers that are adding memory modules to the installed base of Compaq equipment, particularly servers. In other words, Smart's volume of Compaq's business depends not on Compaq's production levels, which are being reduced right now to lower channel inventory, but on the sell through of Compaq products as well as demand from Compaq's installed base. This is the so-called "options" program that demands the kind of build-to-order capability Smart is known for. We would, in fact, argue that Compaq's further price cuts and, indeed, monitor and even memory-module giveaways potential[ly] increase Smart's level of Compaq business as these incremental price promotions theoretically cause higher sell through. Importantly, we do not believe Smart is seeing significant pressure on its fee that it charges Compaq to provide modules even though Compaq is offering some free memory upgrades. This is testament to Smart's value to Compaq, which is increasingly anxious to accelerate its own build-to-order program at the box level. Therefore, we do not believe Compaq's woes are translating into incremental woes for Smart Modular.

78. During March of 1998 through May 18, 1998, the Defendants continued to misrepresent that the reason for Smart Modular's inability to obtain this qualification was due to capacity manufacturing constraints which made it unable to supply these 66MHz products in sufficient quantities -- thus implying that demand for these products remained strong. They also falsely assured investors that the qualification issue was a short-term issue only, which was being or had been overcome, and that since the market was rapidly changing from 66MHz to 100MHz memory module products (which 100MHz products Smart Modular was prepared to produce in volume), this rapid product transition would benefit Smart Modular. Thus, Defendants continued to forecast that Smart Modular would still achieve strong revenue and EPS growth in fiscal 1998-99 with fiscal 1998 and 1999 EPS of $1.35+ and $1.69+ respectively. As a result of these reassurances and forecasts, Smart Modular's stock continued to trade at artificially inflated levels.

79. On May 21, 1998, Smart Modular's stock traded as high as $22-1/4. After the close of trading on May 21, 1998, Smart Modular revealed that, due to an inventory oversupply at PC makers, an inventory glut of standard and specialty memory modules and lower demand from both OEM and end-users, its fiscal 1998 revenues and EPS would not only be much lower than earlier forecast, but those revenues and EPS would show large declines from fiscal 1997 results! Upon these shocking revelations, Smart Modular stock collapsed to as low as $13-1/8, a 41% decline on huge volume of over 11 million shares, the largest one-day percentage stock price decline and one-day stock trading volume in Smart Modular's history as a public company!

INSIDER SELLING

80. While Smart Modular's top insiders were issuing favorable statements about Smart Modular, the Individual Defendants sold 2,178,000 shares of Smart Modular stock, for more than $69 million in illegal insider-trading proceeds -- to personally profit from the artificial inflation in Smart Modular's stock price which their fraudulent scheme had created. Smart Modular itself sold 2.82 million shares at $32.375 for $91.3 million. Notwithstanding their access to confidential information as a result of their status as directors, officers and/or insiders of the Company, and their corresponding duty to disclose adverse material facts before trading in Smart Modular stock, the Individual Defendants sold significant amounts of Smart Modular shares at artificially inflated prices in order to profit from the fraud, and did so while in possession of material non-public information. The Individual Defendants' insider selling during the Class Period is detailed below:

                                      PRICE
               DATE       SHARES      PER       PROCEEDS
NAME           SOLD       SOLD        SHARE     FROM SALE

Shah/Krishnan  09/11/97   1,160,000   $32.375   $37,555,000

Patel          09/11/97     700,000   $32.375   $22,662,500

Marten         09/11/97      80,000   $32.375    $2,590,000
               09/18/97      40,000   $35.875     1,435,000
               12/23/97      10,000   $24.13        241,300
               12/24/97       5,000   $23.23        116,150
               12/29/97      10,000   $24.00        240,000
               12/29/97       2,000   $24.06         48,120
               12/29/97      18,000   $24.00        432,000
               12/30/97      10,000   $24.13        241,300
               12/30/97       5,000   $24.75        123,750
               12/30/97       5,000   $23.88        119,400
               12/31/97      10,000   $22.85        228,500
               12/31/97       5,000   $24.25        121,250
               12/31/97       5,000   $23.88        119,400
               12/31/97       5,000   $24.13        120,650
               01/02/98       5,000   $24.31        121,550
               02/25/98      10,000   $27.31        273,100
               02/25/98       5,000   $27.19        135,950
               02/26/98       5,000   $28.81        144,050
               02/26/98      10,000   $28.50        285,000
               03/03/98       2,000   $25.81         51,620
               03/03/98       5,000   $26.38        131,900
               03/03/98      10,000   $26.75        267,500
               03/05/98       8,000   $25.00        200,000
               03/05/98       5,000   $24.75        123,750
               03/06/98       5,000   $25.50       $127,500
                            280,000              $8,038,740


Mullin         09/16/97         500   $36.13        $18,065
               09/16/97      37,500   $36.13     $1,354,875
                             38,000              $1,372,940

Total Individual
Defendants Insider
Selling:                  2,178,000             $69,629,180

Smart Modular  09/11/97   2,821,000   $32.375   $91,300,000

81. Defendants' stock sales during the Class Period are summarized below:

                   Shares         Total
Defendants          Sold         Proceeds

Smart Modular    2,821,000    $ 91,300,000

Shah/Krishnan    1,160,000      37,555,000
Patel              700,000      22,662,500
Marten             280,000       8,038,740
Mullin              38,000       1,372,940

TOTALS:          4,999,000    $160,929,180

82. The volume restrictions of SEC Rule 144 imposed on the sale of unregistered securities by corporate insiders do not apply to sales of stock via a registration statement. Therefore, the top Smart Modular insiders could sell much more of their stock in a secondary offering than in open market sales.

83. When underwriters sell or distribute stock via a registered stock offering, they are permitted to use techniques to stabilize the price of the stock while they are distributing the registered stock, known as the underwriters' stabilization bid. Such activities would be illegal in normal, open market stock sales by insiders.

84. Smart Modular insiders Shah/Krishnan, Patel and Marten, who sold stock in the secondary offering, agreed to a "lock-up" agreement, whereby they agreed with the underwriters, as is customary in underwritten stock offerings, to not sell any more of their Smart Modular for 90 days after the offering. However, as is not customary, Smart Modular provided an exception to the 90-day "lock-up" wherein executive officers could sell an aggregate of 100,000 shares on the open market, up to 40,000 per person. This was done to appease Mullin and Marten who wanted to benefit from the inflation in Smart Modular's stock price. Thus, immediately following the offering, Mullin and Marten sold 38,000 and 40,000 shares, respectively.

CLAIM FOR RELIEF

COUNT I

(Violations of section 10(b) Of The Exchange Act
and Rule 10b-5 Promulgated Thereunder)

85. Plaintiffs repeat and reallege the paragraphs above as though fully set forth herein.

86. During the Class Period, defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiffs and the other class members, as alleged herein; (ii) artificially inflate and maintain the market price of Smart Modular securities; and (iii) cause plaintiffs and other members of the Class to purchase Smart Modular securities at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein.

87. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's stock in an effort to maintain artificially high market prices for Smart Modular's securities in violation of section 10(b) of the Exchange act and Rule 10b-5.

88. The statements made by defendants during the Class Period were materially false and misleading because at the time they were made, the Company and persons acting as corporate officers knew or recklessly ignored, but failed to disclose, the matters set forth herein.

89. In ignorance of the artificially high market prices of Smart Modular's publicly traded securities, and relying directly on defendants or indirectly on the false and misleading statements made by defendants, upon the integrity of the market in which the securities trade, on the integrity of the regulatory process and the truth of any representations made to appropriate agencies at the time of the public offering and/or on the absence of material adverse information that was known to defendants but not disclosed in public statements by defendants during the Class Period, plaintiffs and the other members of the Class acquired Smart Modular securities during the Class Period at artificially high prices and were damaged thereby.

90. Had plaintiffs and the other members of the Class and the marketplace known the truth about the true financial condition and business prospects of Smart Modular, which were not timely disclosed by defendants, plaintiffs and other members of the Class would not have purchased or otherwise acquired their Smart Modular securities during the Class Period, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid. Hence, plaintiffs and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5.

91. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and the other members of the Class, suffered damages in connection with their purchases of the Company's securities during the Class Period.

COUNT II

(For Violations of §20(a) of the Exchange Act)

92. Plaintiffs incorporate by reference the paragraphs above as if set forth fully herein. Individual Defendants acted as controlling persons of Smart Modular within the meaning of §20 of the Exchange Act as alleged herein. By virtue of their executive and directorial positions, their knowledge and involvement in the business of Smart Modular, and stock ownership, and their power and ability to make public statements on behalf of Smart Modular to shareholders, potential investors and the media, Individual Defendants had the power and ability to control the actions of Smart Modular.

93. By reasons of wrongful conduct, Individual Defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of Individual Defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

JURY DEMAND

Plaintiffs hereby demand a trial by jury.

Dated: July 8, 1998

Michael D. Braun
Timothy J. Burke
STULL, STULL & BRODY

By: ___________________________
Timothy J. Burke
10940 Wilshire Boulevard
Suite 2300
Los Angeles, CA 90024
(310) 209-2468

Jules Brody
Aaron L. Brody
STULL STULL & BRODY
6 East 45th Street
New York, NY 10017
(212) 687-7230

Kevin J. Yourman (147159)
WEISS & YOURMAN
10940 Wilshire Boulevard
24th Floor
Los Angeles, CA 90024
(310) 208-2800

Attorneys for Plaintiffs