GOLD BENNETT & CERA LLP
PAUL F. BENNETT (63318)
595 Market Street, Suite 2300
San Francisco, California 94105
Telephone: (415) 777-2230

RABIN & PECKEL LLP
I. STEPHEN RABIN
MARVIN L. FRANK
275 Madison Avenue
New York, New York 10016
Telephone: (212) 682-1818

THE LAW OFFICE OF
  LEO W. DESMOND
LEO W. DESMOND
2161 Palm Beach Lakes Blvd.
Suite 204
West Palm Beach, Florida 33409
Telephone: (561) 712-8000

Attorneys for Plaintiff and
All Others Similarly Situated

Plaintiff, by her attorneys, for her Class Action Complaint (the "Complaint"), alleges the following upon personal knowledge as to herself and to her own acts, and upon information and belief based upon the investigation of plaintiff's attorneys as to all other matters. The investigation of counsel includes the review and analysis of public statements, publicly-filed documents of Smart Modular Technologies Inc. ("Smart Modular" or the "Company"), press releases, and news articles.

1. This is a suit on behalf of all those who purchased or otherwise acquired Smart Modular common stock between July 1,1997 and May 22, 1998 (the "Class Period"), other than defendants, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act") and SEC Rule 10b-5. Defendants are Smart Modular and its top officers and directors.

2. Smart Modular is a manufacturer of components for personal computers ("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. 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. Defendants knew that if these negative conditions continued or worsened, this would have a tremendous adverse impact on Smart Modular's growth and profitability. Defendants also knew when these negative trends became publicly known Smart Modular's stock would decline sharply.

4. Faced with these negative conditions, defendants 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.

5. 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, 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. 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. Defendants publically 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 materially false and misleading 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 per share in late August. By the beginning of September, Smart Modular's business had worsened. That did not stop Defendants from telling potential investors that:

(a) Smart Modular's sales in Europe were strong and that Smart Modular anticipated continuing strong growth there during Fiscal 1998 and 1999;

(b) Smart Modular's business model did not depend upon DRAM/SDRAM pricing; but rather, was driven by unit volume growth, which was accelerating due to increasing demand;

(c) Smart Modular was enjoying strong and accelerating demand for its standard and specialty memory modules added to PCs and servers, configured in the VAR/reseller-distributor channel;

(d) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors;

(e) Smart Modular was enjoying a very favorable pricing environment for its standard and specialty memory module products;

(f) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by fluctuations in SDRAM and DRAM prices;

(g) Smart Modular's electronic ordering program with Compaq had been a tremendous success and Smart Modular expected continued growth of the electronic ordering program with Compaq and that it would expand the ordering program to other PC manufacturers during Fiscal 1998;

(h) Smart Modular's earnings would for the most part be unaffected by DRAM and SDRAM price fluctuations because Smart Modular managed its business to minimize its inventory risk and pass through DRAM and SDRAM price fluctuations to its customers; and,

(i) Smart Modular's business would actually benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular.

9. As a result of all of the above favorable factors, Smart Modular was forecasting Fiscal 1998 revenues of approximately $900 million to $1 billion with EPS of $1.25; Fiscal 1999 EPS of $1.50+, a 40% EPS growth rate in the near-term and 20%-25% EPS growth longer term.

10. By September 12, 1997, 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 per share 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.

11. 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.

12. This sharp decline in Smart Modular's stock, coming just weeks after Smart Modular's huge secondary offering, alarmed 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 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 to forecast 25%-30% EPS growth over the next five years.

13. 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 per share 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.

14. However, in late February 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 fiscal 1998 results, i.e., the quarter ended April 30, 1998, 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, 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.

15. 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 per share. This was the largest one-day percentage decline in Smart Modular's history as a public company.

16. 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, defendants did not fare nearly so poorly. Before the revelations of February 19, and May 20, 1998, Smart Modular's insiders sold 2,178,000 shares of their Smart Modular stock at artificially inflated prices and pocketed millions of dollars 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.

17. This action arises under Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a); and Rule 10b-5 promulgated pursuant to Section 10(b) by the Securities and Exchange Commission ("SEC"), 17 C.F.R. 240.10b-5. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 15 U.S.C. § 78aa; and on Sections 1331 and 1337 of the Judicial Code, 28 U.S.C. §§ 1331, 1337.

18. Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and Section 1391(b) of the Judicial Code, 28 U.S.C. § 1391(b). Assignment of this action to this District is appropriate as the wrongs alleged herein occurred in substantial part in this District, including the preparation and dissemination to the investing public of false and misleading information. The Company's executive offices are located in this District.

19. In connection with the acts and conduct alleged herein, defendants, directly and indirectly, used the means and instrumentalities of interstate commerce, including the United States mails and the facilities of the national securities exchanges.

Plaintiff

20. Plaintiff Gina Chen purchased 1920 shares of Smart Modular common stock on December 5, 1997 at $27 per share, 200 shares on February 20, 1998 at $30 per share, 200 shares on March 3, 1998 at $26 3/4 per share, 200 shares on March 10, 1998 at $22 7/8 per share, 200 shares on March 20, 1998 at $22 per share and was damaged as a result of defendants' deceptive and illegal conduct.

Defendants

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

22. 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 per share based on inside information, pocketing over $35.6 million in proceeds net of offering costs.

23. 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 per share based on inside information, pocketing over $35.6 million in proceeds net of offering costs.

24. 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 per share based on inside information, pocketing over $21.5 million in proceeds net of offering costs.

25. 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 per share based on inside information, pocketing almost $8 million in proceeds net of offering costs.

26. 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 per share based on inside information, pocketing over $1.3 million.

27. Defendants Mukesh Patel, Ajay Shaw, Lata Kirshan, Alan Martin, and David B. Mullin are referred to as the "Individual Defendants," and are liable for "group-published" false statements as they are 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.

28. 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.

29. 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 Exchange Act.

30. 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 plaintiff 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.

31. 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.

32. 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.

33. Plaintiff brings 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.

34. 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 plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes 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 National Market System. 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.

35. Plaintiff's 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.

36. Plaintiff 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.

37. 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:

(a) Whether the federal securities laws were violated by defendants' acts as alleged herein;

(b) Whether defendants participated in and pursued the common course of conduct complained of herein.

(c) Whether documents, press releases, and other statements disseminated to the investing public and the Company's shareholders during the Class Period misrepresented and/or omitted material facts about the business, management, markets, financial condition, and future business prospects of Smart Modular Technologies;

(d) Whether defendants acted with scienter in knowingly or recklessly omitting and/or misrepresenting material facts regarding the financial state of the Company;

(e) Whether the market price of Smart Modular Technologies common stock during the Class Period was artificially inflated due to the material misrepresentations and failure to correct the material misrepresentations complained of herein; and

(f) Whether the members of the Class have sustained damages and, if so, the proper measure of damages.

38. 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 action as a class action.

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

(a) Defendants made public misrepresentations or omitted material facts during the Class Period, as alleged herein;

(b) the misrepresentations and/or omissions were material;

(c) Smart Modular Technologies's common stock was traded in an efficient market;

(d) the misrepresentations and/or omissions alleged tended to induce reasonable investors to misjudge the value of Smart Modular Technologies's shares; and

(e) plaintiff and the other members of the Class acquired their shares between the time defendants made the misrepresentations and/or omissions and the time the truth was revealed, without knowledge of the falsity of the misrepresentations.

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. 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 price 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 defendants could maximize their profits. To further increase profits defendants 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 merchandise 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.

42. 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, Cowen, and DLJ, to mount a major publicity campaign for Smart Modular by disseminating false, but favorable, information concerning Smart Modular's business and prospects.

43. 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.

44. 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.

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

46. On August 21, 1997, Smart Modular announced much better than expected 3rdQ Fiscal 1997 results via a press 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. . . ."

47. Also on August 21, 1997, subsequent to the release of its 3rdQ Fiscal 1997 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:

(a) Smart Modular's sales in Europe were strong and Smart Modular anticipated continuing strong growth there during fiscal 1998 and fiscal 1999;

(b) Smart Modular's options program with Compaq had been a success. Smart Modular expected continued growth of the options program with Compaq and that it would be expanding the options program to other PC manufacturers and in Europe during fiscal 1998;

(c) Smart Modular was enjoying strong and accelerating OEM and end-user demand for its standard and specialty memory modules added to PCs and servers, configured in the VAR/reseller-distributor channel;

(d) Smart Modular was enjoying a very favorable pricing environment for its standard and specialty memory module products;

(e) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by fluctuations in SDRAM and DRAM prices;

(f) Smart Modular's business model did not depend upon DRAM/SDRAM pricing; but rather, was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(g) Smart Modular's earnings would be substantially unaffected by DRAM and SDRAM price fluctuations because Smart Modular managed its business to minimize its inventory risk and pass through DRAM and SDRAM price fluctuations to its customers;

(h) Smart Modular's business would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(i) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors; and,

(j) As a result of the foregoing favorable factors, Smart Modular was now forecasting increased Fiscal 1998 revenues of approximately $900 million-$1 billion with EPS of $1.25+, fiscal 1999 EPS of $1.50+, a 40% EPS growth rate in the near term and 20%-25% EPS growth longer term.

48. Smart Modular's stock price soared higher after Smart Modular reported its stronger than expected 3Q Fiscal 1997 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 per share on August 21, 1997 to $34-1/4 per share on August 26, 1997, just three trading days later.

49. Each of the positive statements about Smart Modular's business during the Class Period between July 1, and August 27, 1997, as set forth herein, 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:

(a) To boost results just before the secondary offering, Smart Modular shipped extra amounts of memory module products to some of its OEM customers and specialty PC assemblers, giving them special price concessions but knowing that while this would boost Smart Modular's reported EPS before the secondary offering, it would hurt Smart Modular's future EPS because of the increased customer inventories of its products;

(b) The demand for Smart Modular's specialty and standard memory module products was weakening, which also resulted in increasing inventories of these products in Smart Modular's distribution channels and in falling prices for these products in the near-term;

(c) That lower DRAM and other component prices would hurt Smart Modular's business because Smart Modular would be unable to recover the price it paid for its inventory due to the rapidly falling prices;

(d) Compaq, Smart Modular's largest customer had indicated to Smart Modular that Compaq had accumulated excessive inventories of PCs and of Smart Modular's memory module products and that as a result Compaq was going to sharply reduce its orders of Smart Modular's products in the near-term;

(e) Smart Modular's electronic ordering program with Compaq was, in fact, now hurting Smart Modular's business because under the program Compaq ordered memory modules on a short-term basis to meet only its short-term demand and manufacturing. Taking full advantage of the program, Compaq was now sharply curtailing orders for Smart Modular memory modules which was adversely impacting Smart Modular's business;

(f) Specialty assemblers of Compaq PCs and accessories indicated that they too had accumulated excess inventories of Smart Modular's products, which would result in them reducing orders for Smart Modular products in the near-term as well;

(g) Smart Modular's electronic ordering program was not going to spread to other PC OEMs as there was so much inventory of memory modules available (both from Smart Modular and others) that the electronic ordering program had lost its appeal to PC OEMs;

(h) Contrary to Smart Modular's public statements that it was insulated from low prices for standard memory modules, Smart Modular knew that the entire market for its products were suffering from the glut of standard memory modules caused by reduced PC demand and the accumulation of excessive inventory and this glut was, in fact, having an adverse impact on Smart Modular's business results;

(i) Smart Modular knew that the demand for its 100MHz SDRAM (PC 100) products to support faster PC operating speeds was not increasing nearly as rapidly as had been anticipated, due, in significant part, to substantial oversupply of PCs and PC components and, as a result, Smart Modular's was unable to sell all of the 100MHz SDRAM products it could produce;

(j) Smart Modular's failure to be qualified by a large PC OEM for 66MHz PC memory modules was due to Smart Modular's manufacturing problems, not lack of manufacturing capacity, and that the manufacturing problems were serious and persistent and were resulting in Smart Modular being unable to produce 66MHz memory module products of sufficient quality to satisfy this major customer's quality standard;

(k) Because Smart Modular had switched its production lines to make 100MHz SDRAM products, it was unable to produce as many 66MHz PC memory modules as it could otherwise have sold;

(l) Smart Modular did not possess any significant competitive advantage over either Samsung or Micron Technology, its two primary competitors, nor were there any significant barriers to overcome for entry into its business which would protect Smart Modular from competition and the adverse impacts of oversupply and price-cutting; and

(m) Due to all of the above negative factors, Defendants knew that Smart Modular's forecasts for Fiscal 1998 and Fiscal 1999 EPS were false when made.

50. 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:

(a) Smart Modular's sales in Europe were very strong and Smart Modular anticipated continuing strong growth there during Fiscal 1998 and Fiscal 1999;

(b) Smart Modular's options program with Compaq had been a great success. Smart Modular expected continued growth of the options program with Compaq and that it would be expanding the options program to other PC manufacturers and in Europe during Fiscal 1998;

(c) Smart Modular was enjoying strong and accelerating OEM and end-user demand for its standard and specialty memory modules added to PCs and servers, configured in the VAR/reseller-distributor channel;

(d) Smart Modular was enjoying a very favorable pricing environment for its standard and specialty memory module products;

(e) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by declines in SDRAM and DRAM prices;

(f) Smart Modular's business model did not depend upon DRAM/SDRAM pricing, but rather was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(g) Smart Modular's earnings would be substantially unaffected by DRAM and SDRAM price declines because Smart Modular managed its business to minimize its inventory risk and pass through DRAM and SDRAM price fluctuations to its customers;

(h) Smart Modular's business would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(i) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors;

(j) As a result of the foregoing favorable factors, Smart Modular was forecasting fiscal 1998 revenues of approximately $900 million-$1 billion, with EPS of $1.25+ and fiscal 1999 EPS of $1.50+, a 40% EPS growth rate in the near term and 20%-25% EPS growth longer term.

51. 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 per share. 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.

52. 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:

(a) Smart Modular's sales in Europe were extremely strong and Smart Modular anticipated continuing strong growth there during Fiscal 1998 and 1999;

(b) Smart Modular's options program with Compaq had been a tremendous success. Smart Modular expected continued growth of the options program with Compaq and that it would be expanding the options program to other PC manufacturers and in Europe during fiscal 1998;

(c) Smart Modular was enjoying strong and accelerating OEM and end-user demand for its standard and specialty memory modules added to PCs and servers, configured in the VAR/reseller-distributor channel;

(d) Smart Modular was enjoying a very favorable pricing environment for its standard and specialty memory module products;

(e) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by fluctuations in SDRAM and DRAM prices;

(f) Smart Modular's business model did not depend upon DRAM/SDRAM pricing; but rather, was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(g) Smart Modular's earnings would be substantially unaffected by DRAM and SDRAM price fluctuations because Smart Modular managed its business to minimize its inventory risk and pass through DRAM and SDRAM price fluctuations to its customers;

(h) Smart Modular's business actually would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(i) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors; and,

(j) As a result of the foregoing favorable factors, Smart Modular was forecasting fiscal 1998 revenues of approximately $900 million-$1 billion with EPS of $1.25 and fiscal 1999 EPS of $1.50+, a 40% EPS growth rate in the near-term and 20%-25% EPS growth longer term.

53. By October 3, 1997, based on these continued bullish statements and forecasts, Smart Modular's stock sold at $44-5/8 per share, its all-time high. However, Smart Modular's stock then plunged to as low as $17-1/2 per share by October 28 as information entered the market that DRAM/SDRAM prices were falling, which caused concerns over Smart Modular's business and growth forecasts. This sharp decline in Smart Modular's stock, falling quickly on the heels of the huge secondary stock offering, alarmed defendants as they knew that such sharp stock price declines immediately following large securities offerings frequently result in securities class action lawsuits, which would have exposed them to huge amounts of damages, without proof of fraud. Thus, defendants were determined to arrest the decline in Smart Modular stock and re-inflate the stock back to much higher levels. To accomplish this, defendants accelerated their release of very favorable statements about Smart Modular's business and prospects.

54. 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 herein, 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:

(a) To boost results just before the secondary offering, Smart Modular shipped extra amounts of memory module products to some of its OEM customers and specialty PC assemblers, giving them special price concessions but knowing that while this would boost Smart Modular's reported EPS before the secondary offering, it would hurt Smart Modular's future EPS because of the increased customer inventories of its products;

(b) The demand for Smart Modular's specialty and standard memory module products was weakening, which also resulted in increasing inventories of these products in Smart Modular's distribution channels and in falling prices for these products in the near-term;

(c) That lower DRAM and other component prices would hurt Smart Modular's business because it would be unable to recover the price it paid for its inventory due to the rapidly falling prices;

(d) Compaq, Smart Modular's largest customer had indicated to Smart Modular that Compaq had accumulated excessive inventories of PCs and of Smart Modular's memory module products and that as a result Compaq was going to sharply reduce its orders of Smart Modular's products in the near-term;

(e) Smart Modular's electronic ordering program with Compaq was, in fact, now hurting Smart Modular's business because under the program Compaq ordered memory modules on a short-term basis to meet short-term demand and manufacturing. Taking full advantage of the program, Compaq was now sharply curtailing orders for Smart Modular memory modules which was adversely impacting Smart Modular's business;

(f) Specialty assemblers of Compaq PCs and accessories indicated that they too had accumulated excess inventories of Smart Modular's products, which would result in them reducing orders for Smart Modular products in the near-term as well;

(g) Smart Modular's electronic ordering program was not going to spread to other PC OEMs as there was so much inventory of memory modules available (both from Smart Modular and others) that the electronic ordering program had lost its appeal to PC OEMs;

(h) Contrary to Smart Modular's public statements that it was insulated from low prices for standard memory modules, Smart Modular knew that the entire market for its products were suffering from the glut of standard memory modules caused by reduced PC demand and the accumulation of excessive inventory and this glut was, in fact, having an adverse impact on Smart Modular's business results;

(i) Smart Modular knew that the demand for its 100MHz SDRAM (PC 100) products to support faster PC operating speeds was not increasing nearly as rapidly as had been anticipated, due, in significant part, to substantial oversupply of PCs and PC components and, as a result, Smart Modular's was unable to sell all of the 100MHz SDRAM products it could produce;

(j) Smart Modular's failure to be qualified by a large PC OEM for 66MHz PC memory modules was due to Smart Modular's manufacturing problems, not lack of manufacturing capacity, and that the manufacturing problems were serious and persistent and were resulting in Smart Modular being unable to produce 66MHz memory module products of sufficient quality to satisfy this major customer's quality standard;

(k) Because Smart Modular had switched its production lines to make 100MHz SDRAM products, it was unable to produce as many 66MHz PC memory modules as it could otherwise have sold;

(l) Smart Modular did not possess any significant competitive advantage over either Samsung or Micron Technology, its two primary competitors, nor were there any significant barriers to overcome for entry into its business which would protect Smart Modular from competition and the adverse impacts of oversupply and price-cutting; and

(m) Due to all of the above negative factors, Defendants knew that Smart Modular's forecasts for Fiscal 1998 and 1999 EPS were false when made.

55. On November 6, 1997, 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:

(a) Smart Modular's sales operations in Europe were extremely strong and Smart Modular anticipated continuing strong growth there during fiscal 1998 and 1999;

(b) Smart Modular's options program had been a tremendous success and Smart Modular expected continued growth of the options program and that it would be expanding the options program to other PC manufacturers and in Europe during fiscal 1998;

(c) Smart Modular was enjoying strong and accelerating OEM and end-user demand for its standard and specialty memory modules;

(d) Smart Modular's earnings would be substantially unaffected by DRAM and SDRAM price declines because Smart Modular had very limited exposure to DRAM/SDRAM inventories and its business model does not depend on DRAM pricing;

(e) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by declines in SDRAM and DRAM prices;

(f) Smart Modular's business model did not depend upon DRAM pricing; but rather, was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(g) In fact, Smart Modular's business actually would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(h) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors;

(i) Smart Modular would be able to show continued unit volume growth and higher revenue and EPS, even if the growth rate for PCs slowed;

(j) Smart Modular expected to achieve about $1 billion in sales during Fiscal 1998;

(k) Smart Modular was forecasting Fiscal 1998 and 1999 EPS of $1.27-$1.30 and $1.50+, respectively, a 40% EPS growth rate in the near term and was confident of achieving 20%-25% EPS growth longer term.

56. On November 6, 1997, Shah was interviewed by MSNBC at the AEA Conference. MSNBC broadcasted 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 positive, 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.

57. On November 20, 1997, Smart Modular announced a 2-for-1 stock split, effective December 3, 1997. Also on November 20, Smart Modular announced better than expected 4thQ Fiscal 1997 results via a press 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.

58. Also on November 20, 1997, subsequent to the release of its Fiscal 1997 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:

(a) Smart Modular's sales operations in Europe were extremely strong and Smart Modular anticipated continuing strong growth there during fiscal 1998 and 1999;

(b) Smart Modular's options program had been a tremendous success and Smart Modular expected continued growth of the options program and that it would be expanding the options program to other PC manufacturers and in Europe during fiscal 1998;

(c) Smart Modular was enjoying strong and accelerating OEM and end-user demand for its standard and specialty memory modules;

(d) Smart Modular's earnings would be substantially unaffected by DRAM and SDRAM price declines because Smart Modular had very limited exposure to DRAM/SDRAM inventories and its business model does not depend on DRAM pricing;

(e) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by declines in SDRAM and DRAM prices;

(f) Smart Modular's business model did not depend upon DRAM pricing; but rather, was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(g) In fact, Smart Modular's business actually would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(h) Smart Modular's flexible high-volume and low-cost mobile manufacturing and advanced test/quality control capabilities were unique competitive advantages for Smart Modular that created real barriers to entry by competitors;

(i) Smart Modular would be able to show continued unit volume growth and higher revenue and EPS, even if the growth rate for PCs slowed;

(j) Smart Modular expected to achieve about $1 billion in sales during fiscal 1998; and,

(k) As a result of the foregoing, Smart Modular was increasing its forecasted Fiscal 1998 and 1999 EPS to $1.35 and $1.55+, respectively, a 40% EPS growth rate in the near-term and was confident of achieving 20%-25% EPS growth longer term.

59. 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.

60. 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.

61. 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 herein, 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:

(a) To boost results just before the secondary offering, Smart Modular shipped extra amounts of memory module products to some of its OEM customers and specialty PC assemblers, giving them special price concessions but knowing that while this would boost Smart Modular's reported EPS before the secondary offering, it would hurt Smart Modular's future EPS because of the increased customer inventories of its products;

(b) The demand for Smart Modular's specialty and standard memory module products was weakening, which also resulted in increasing inventories of these products in Smart Modular's distribution channels and in falling prices for these products in the near-term;

(c) That lower DRAM and other component prices would hurt Smart Modular's business because it would be unable to recover the price it paid for its inventory due to the rapidly falling prices;

(d) Compaq, Smart Modular's largest customer had indicated to Smart Modular that Compaq had accumulated excessive inventories of PCs and of Smart Modular's memory module products and that as a result Compaq was going to sharply reduce its orders of Smart Modular's products in the near-term;

(e) Smart Modular's electronic ordering program with Compaq was, in fact, now hurting Smart Modular's business because under the program Compaq ordered memory modules on a short-term basis to meet short-term demand and manufacturing. Taking full advantage of the program, Compaq was now sharply curtailing orders for Smart Modular memory modules which was adversely impacting Smart Modular's business;

(f) Specialty assemblers of Compaq PCs and accessories indicated that they too had accumulated excess inventories of Smart Modular's products, which would result in them reducing orders for Smart Modular products in the near-term as well;

(g) Smart Modular's electronic ordering program was not going to spread to other PC OEMs as there was so much inventory of memory modules available (both from Smart Modular and others) that the electronic ordering program had lost its appeal to PC OEMs;

(h) Contrary to Smart Modular's public statements that it was insulated from low prices for standard memory modules, Smart Modular knew that the entire market for its products were suffering from the glut of standard memory modules caused by reduced PC demand and the accumulation of excessive inventory and this glut was, in fact, having an adverse impact on Smart Modular's business results;

(i) Smart Modular knew that the demand for its 100MHz SDRAM (PC 100) products to support faster PC operating speeds was not increasing nearly as rapidly as had been anticipated, due, in significant part, to substantial oversupply of PCs and PC components and, as a result, Smart Modular's was unable to sell all of the 100MHz SDRAM products it could produce;

(j) Smart Modular's failure to be qualified by a large PC OEM for 66MHz PC memory modules was due to Smart Modular's manufacturing problems, not lack of manufacturing capacity, and that the manufacturing problems were serious and persistent and were resulting in Smart Modular being unable to produce 66MHz memory module products of sufficient quality to satisfy this major customer's quality standard;

(k) Because Smart Modular had switched its production lines to make 100MHz SDRAM products, it was unable to produce as many 66MHz PC memory modules as it could otherwise have sold;

(l) Smart Modular did not possess any significant competitive advantage over either Samsung or Micron Technology, its two primary competitors, nor were there any significant barriers to overcome for entry into its business which would protect Smart Modular from competition and the adverse impacts of oversupply and price-cutting; and

(m) Due to all of the above negative factors, Defendants knew that Smart Modular's forecasts for Fiscal 1998 and 1999 EPS were false when made.

62. As a result of these strong positive and reassuring statements, the October 1997 decline in Smart Modular stock to as low as $17-1/2 per share was halted. By November 11, 1997, Smart Modular stock had advanced to $34-1/16 per share. By February 19, 1998, Smart Modular stock was still trading at $36-3/8.

63. On February 19, 1998, Smart Modular reported its 1stQ Fiscal 1998 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:

(a) Smart Modular's sales in Europe were still very strong and Smart Modular anticipated continuing strong growth there during Fiscal 1998 and 1999;

(b) Smart Modular's options program with Compaq was a tremendous success, Smart Modular expected continued growth of the options program with Compaq and that it would expand the options program to other PC manufacturers and in Europe during fiscal 1998;

(c) Smart Modular was still enjoying strong OEM demand for its standard and specialty memory modules;

(d) While Smart Modular was encountering price erosion for its memory module products, this was a natural price curve downward, consistent with historical experience, and Smart Modular's operating results would not be adversely affected by declines in SDRAM and DRAM prices;

(e) Smart Modular's business model did not depend upon DRAM pricing; but rather, was driven by unit volume growth, which was continuing and indeed, accelerating, due to increasing demand;

(f) In fact, Smart Modular's business actually was benefitting from and would benefit from declining component part prices because this would lead to larger unit volumes and increased revenue and profits for Smart Modular;

(g) Smart Modular would be able to show continued unit volume growth and higher revenue and EPS, even if the growth rate for PCs slowed;

(h) Smart Modular anticipated a small sequential revenue dip in the 2ndQ fiscal 1998 due solely to its failure to qualify a PC 66 SDRAM module product with a major OEM, due to capacity constraints at Smart Modular's production facilities. This was merely a short-term issue;

(i) Smart Modular would solve the production problem in the near term and expected to catch up on these shipments in the next quarter or so;

(j) Smart Modular's Fiscal 1998 and 1999 EPS would not be adversely impacted by this event.

(k) Marketplace demand was rapidly shifting to 100MHz memory module products, which Smart Modular was prepared to produce in large volumes and thus production of 66MHz memory modules was at worst a very short-term issue;

(l) The memory module market was poised for explosive growth, especially of 100MHz product, which put Smart Modular in a very strong competitive position;

(m) Smart Modular expected to achieve about $1 billion in sales during Fiscal 1998;

(n) Smart Modular expected to achieve EPS growth of 40% per year going forward; and,

(o) Smart Modular was continuing to forecast Fiscal 1998 and 1999 EPS of $1.35+ and $1.65+, respectively.

64. 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 issue 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.

65. Upon Smart Modular's announcement of February 19, 1998, Smart Modular stock fell from $36-3/8 per share to $26-1/2 per share on February 24, 1998. However, 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 Fiscal 1998-Fiscal 1999 with Fiscal 1998 and Fiscal 1999 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 Fiscal 1998 EPS would be lower than forecast, the stock continued to trade at artificially inflated levels.

66. During March 1998 through May 18, 1998, 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.

67. On May 21, 1998, Smart Modular's stock traded as high as $22-1/4 per share. 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 per share, 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.

68. 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

69. 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

70. 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.

71. 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.

72. 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.

73. Plaintiff incorporates by reference paragraphs 1 through 72 as if fully set forth herein.

74. 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 plaintiff and the other class members, as alleged herein; (ii) artificially inflate and maintain the market price of Smart Modular securities; and (iii) cause plaintiff 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.

75. 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.

76. 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.

77. 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, plaintiff and the other members of the Class acquired Smart Modular securities during the Class Period at artificially high prices and were damaged thereby.

78. Had plaintiff 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, plaintiff 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, plaintiff and the Class were damaged by defendants' violations of Section 10(b) and Rule 10b-5.

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

80. Plaintiff incorporates by reference paragraphs 1 through 79 as if fully set forth herein.

81. Defendants Shah, Krishnan, and Patel acted as controlling persons of Smart Modular within the meaning of Section 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.

82. By reason of such wrongful conduct, defendants Shah, Krishnan, and Patel are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants Shah, Krishnan, and Patel wrongful conduct, plaintiffs and the other members of the Class were damaged in connection with their purchase of Smart Modular stock during the Class Period.

83. By reason of the foregoing, defendants Shah, Krishnan, and Patel are liable jointly and severally with and to the same extent as Smart Modular for Smart Modular's violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5.

WHEREFORE, plaintiff prays for relief and judgment, as follows:

(i) Determining that this action is a proper class action, certifying plaintiff as class representative under Rule 23 of the Federal Rules of Civil Procedure and his counsel as class counsel;

(ii) Awarding compensatory damages in favor of plaintiff and the other class members against all defendants, jointly and severally, for all damages sustained as a result of the defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

(iii) Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and

(iv) Awarding such other and further relief as this Court may deem just and proper including any extraordinary equitable relief and/or injunctive relief as permitted by law or equity to attach, impound or otherwise restrict the defendants' assets to assure plaintiff and the members of the Class have an effective remedy.

Plaintiff hereby demands a trial by jury.

Dated: August 13, 1998