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IN THE UNITED STATES DISTRICTAPcLI"IR‘-TI4

FOR THE DISTRICT OF COLORADO' 1 ER

CIVIL ACTION NO. 02-D-0263 (MJW) (consolidated withCivirACTIOn-Nulf. •CK315)

WILMER KERNS, Individually And On Behalf of All Others Similarly Situated,

Plaintiff,

vs.-

SPECTRALINK CORPORATION,BRUCE HOLLAND,NANCY K. HAMILTON, andMICHAEL P. CRONIN,

Defendants.

CONSOLIDATED AMENDED CLASS ACTION COMPLAINTFOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS

AND JURY TRIAL DEMAND

1/11

Plaintiffs, by their attorneys, allege the following based upon knowledge with respect

to their own acts, and upon other facts obtained through an investigation made by and

through their attorneys, including a review of the public filings of SpectraLink Corporation

("SpectraLink" or the "Company") with the United States Securities and Exchange

Commission ("SEC"), press releases, published reports, news articles, analyst reports and

other publications, as well as interviews of former SpectraLink employees and non-parties,

and consultations with certified public accountants. Plaintiffs believe that further substantial —

evidentiary support will exist for their allegations after the discovery of defendants, since

many of the facts supporting their allegations contained herein are known only to defendants

and are within defendants' exclusive control.

NATURE OF THE ACTION

1. This is a securities fraud class action on behalf of all persons and entities who

purchased or otherwise acquired the publicly-traded common stock of defendant SpectraLink

between April 19, 2001 and January 11, 2002, inclusive (the "Class Period"). The defendants

are SpectraLink and certain of its top officers (Bruce Holland, Chief Executive Officer,

Nancy Hamilton, Chief Financial Officer, and Michael Cronin, Vice President of Sales and

Marketing).

2. SpectraLink designs, manufactures and sells workplace wireless telephone

systems which purport to complement existing telephone systems by providing mobile

communications in a building or campus environment. The Company's wireless telephone

systems are designed to enable employees to remain in telephone contact while moving

throughout the workplace.

3. As described below, prior to the Class Period SpectraLink was facing

increasing market and financial pressures. First, the Company's transition from in-house

sales (i.e., "direct sales") to sales through outside, third-party distributors, resellers and

channel partners (i.e., "indirect sales"), was faltering. Second, a major market and

technological shift was underway. The technology for the type of wireless communication

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systems that SpectraLink traditionally sold (the high-cost, high-margin Link Wireless

Telephone System ("Link WTS") which required the customer to purchase a significant

amount of hardware) was being surpassed by new technology. The new technology required

SpectraLink to sell lower-cost, lower-margin products (the IEEE 802.11-compliant NetLink

Wireless Telephone System ("802.11") which operates over wireless local area networks).

In addition, because its indirect sales partners lacked the capability, expertise and motivation

to sell the new products, SpectraLink found itself completely unprepared for the

technological shift. These factors created immense pressure on the Company's ability to meet

revenue and earnings targets. Nevertheless, throughout the latter part of 2000 (with the

economy still at full throttle), SpectraLink was able to meet its revenue, earnings and growth

expectations.

4. However, the pressures described above caught up with defendants and

SpectraLink found itself unable to meet first quarter 2001 revenue and earnings estimates.

In many ways, this could not have occurred at a worse time for defendants. Defendants knew

that a missed quarter would drive the Company's stock price down, thereby significantly

reducing the value of their own personal SpectraLink stock holdings.

5. Unfortunately for the investing public, defendants' answer to their inability to

legitimately meet SpectraLink's financial expectations was to improperly recognize revenue

on eleventh-hour sham transactions with Lowe's Companies, Inc. ("Lowe's") during 2001,

and to continually misrepresent the Company's business condition and financial prospects

throughout fiscal 2001. Not coincidentally, each of the individual defendants unloaded large

amounts of their personal SpectraLink stock holdings at a fierce pace during the Class

Period, collectively selling more than 860,000 shares for proceeds in excess of $12.8 million.

6. As with most frauds, defendants were unable to hide SpectraLink's true

financial condition forever and eventually defendants' house of cards collapsed. Although

SpectraLink's stock price traded as high as almost $20 per share during the Class Period, it

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dropped precipitously to as low as $10.16 per share on January 14, 2002, after the Company

was forced to disclose the truth of its financial condition and prospects.

JURISDICTION AND VENUE

7. The claims asserted herein arise pursuant to Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78j(b) and 78t(a)] and

Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC")

[17 C.F.R. § 240.10b-5].

8. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act [15 U.S.C. § 78aa].

9. Venue is proper in this District pursuant to Section 27 of the Exchange Act,

and 28 U.S.C. § 1391(b). SpectraLink maintains its principal place of business in this

District and many of the acts and practices complained of herein occurred in substantial part

in this District.

10. In connection with the acts alleged in this Complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications and the facilities of the national

securities markets.

THE PARTIES

11. By Order of the Court dated June 10, 2002, Landon Hendricks and Derek R.

Poh were appointed as Lead Plaintiffs. As set forth in the certifications previously filed with

the Court in connection with their motion for appointment as Lead Plaintiffs (incorporated

by reference herein), each Lead Plaintiff purchased SpectraLink common stock at artificially

inflated prices during the Class Period and has been damaged thereby.

12. Defendant SpectraLink is a Delaware corporation with its principal place of

business at 5755 Central Avenue, Boulder, Colorado. SpectraLink designs, manufactures

and sells on-premises wireless telephone systems.

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13. Defendant Bruce Holland ("Holland") served at all times relevant to this action

as the Company's President and CEO. During the Class Period, Holland sold 640,300 shares

of his SpectraLink stock based on inside information, pocketing over $9,249,000 in illegal

insider-trading proceeds. Holland was an integral part of SpectraLink's management team,

which worked together to manage SpectraLink's business on a daily basis. According to

several former SpectraLink employees who worked with defendant Holland, Holland

maintained close control of operations and developments throughout the Company. He also

served as the primary spokesperson when communicating SpectraLink's financial results to

the public through press releases and other means. Defendant Holland was also described

by a former SpectraLink marketing employee as essentially serving as the head of the

Company's research and development, given Holland's deep involvement in product

development and new product direction. Thus, Holland was highly knowledgeable about,

among others things, SpectraLink's problems with product sales, the market shifts, product

defect issues, revenue recognition issues in the first quarter of 2001 ("1Q 2001") and the

second quarter of 2001 ("2Q 2001"), the need for the Company to meet its 1Q 2001, 2Q

2001, and third quarter 2001 ("3Q 2001") financial projections, the shipping of products to

Lowe's when such products were defective and/or unwanted, and the adverse impact these

negative events and conditions were having on SpectraLink's business, financial performance

and ability to meet its internally budgeted and publicly forecasted financial results.

14. Defendant Nancy K. Hamilton ("Hamilton") served at all times relevant to this

action as the Company's Chief Financial Officer and Vice President of Finance and

Administration. During the Class Period, Hamilton sold 82,369 shares of her SpectraLink

stock based on inside information, pocketing over $1,344,000 in illegal insider-trading

proceeds. As the Company's CFO, defendant Hamilton was responsible for each of the

Company's accounting and financial functions, as well as the dissemination of financial

results to the SEC and the public, throughout the Class Period. Hamilton carefully studied

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and made all key decisions relating to SpectraLink's accounting treatment for Class Period

sales transactions including how, when and whether revenue would be recognized by the

Company. Thus, Hamilton was highly knowledgeable about, among others things, Spectra-

Link's problems with product sales, the market shifts, product defect issues, revenue

recognition issues in 1Q 2001 and 2Q 2001, the need for the Company to meet its 1Q 2001,

2Q 2001, and 3Q 2001 financial projections, the shipping of products to Lowe's when such

products were defective and/or unwanted, and the adverse impact these negative events and

conditions were having on SpectraLink's business, financial performance and ability to meet

its internally budgeted and publicly forecasted financial results.

15. Defendant Michael P. Cronin ("Cronin") served at all times relevant to this

action as the Company's Vice President of Sales and Marketing. During the Class Period,

Cronin sold 139,049 shares of his SpectraLink stock based on inside information, pocketing

over $2,215,000 in illegal insider-trading proceeds. All end-of-quarter sales (including the

Class Period Lowe's transactions) came directly through defendant Cronin, who would

inform the head of the Shipping Department about what needed to be manufactured, shipped

out and otherwise effectuated. In fact, Cronin was responsible for signing off and approving

all of SpectraLink's sales deals and, according to several former Company sales employees,

Cronin had his finger on the pulse of all Company deals. Thus, Cronin was highly

knowledgeable about, among others, SpectraLink's problems with product sales, the market

shifts, product defect issues, revenue recognition issues in 1Q 2001 and 2Q 2001, the need

for the Company to meet its 1Q 2001, 2Q 2001, and 3Q 2001 financial projections, the

shipping of products to Lowe's when such products were defective and/or unwanted, and the

adverse impact these negative events and conditions were having on SpectraLink's business,

financial performance and ability to meet its internally budgeted and publicly forecasted

financial results.

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16. Defendants Holland, Hamilton and Cronin are referred to herein as the

"Individual Defendants."

17. Because of the Individual Defendants' top management positions with the

Company, they had access to the adverse undisclosed information about its business,

operations, products, operational trends, financial statements, markets and present and future

business prospects via access to internal corporate documents (including the Company's

operating plans, budgets and forecasts and reports of actual operations compared thereto),

conversations and connections with other corporate officers and employees, attendance at

management meetings and via reports and other information provided to them in connection

therewith.

GROUP PLEADING ALLEGATIONS

18. It is appropriate to treat the Individual Defendants as a group for pleading

purposes and to presume that the false, misleading and incomplete information conveyed in

the Company's public filings, press releases and other publications as alleged herein are the

collective actions of the narrowly defined group of defendants identified above. All of the

above officers of SpectraLink, by virtue of their high-level positions with the Company,

directly participated in the management of the Company, were directly involved in the day-

to-day operations of the Company at the highest levels and were privy to confidential

proprietary information concerning the Company and its business, operations, products,

growth, financial statements, and financial condition, as alleged herein. Said defendants

were involved in drafting, producing, reviewing and/or disseminating the false and

misleading statements and information alleged herein, were aware, or recklessly disregarded,

that the false and misleading statements were being issued regarding the Company, and

approved or ratified these statements, in violation of the federal securities laws.

19. As officers and controlling persons of a publicly-held company whose common

stock was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on

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the NASDAQ National Market (the "NASDAQ"), and governed by the provisions of the

federal securities laws, the Individual Defendants each had a duty to disseminate prompt,

accurate and truthful information with respect to the Company's financial condition and

performance, growth, operations, financial statements, business, products, markets,

management, earnings and present and future business prospects, and to correct any

previously-issued statements that had become materially misleading or untrue, so that the

market price of the Company's publicly-traded common stock would be based upon truthful

and accurate information. The Individual Defendants' misrepresentations and omissions

during the Class Period violated these specific requirements and obligations.

20. The Individual Defendants participated in the drafting, preparation, and/or

approval of the various public and shareholder and investor reports and other communi-

cations complained of herein and were aware of, or recklessly disregarded, the misstatements

contained therein and omissions therefrom, and were aware of their materially false and

misleading nature. The Individual Defendants drafted quarterly earnings press releases and

received quarterly financial reports which included revenue breakouts summarizing sales by

product categories and geographic regions. Every Friday the "Quotes," a data spreadsheet

created by the sales force, was compiled and circulated by e-mail to the Individual

Defendants. This included sales from each region for all sales personnel. In addition, the

Individual Defendants were aware of any and all end-of-quarter deals from their receipt of

sales reports that were generated from the company's Fourth Shift accounting software

system, because they approved all such deals, and since they were kept fully informed by

reviewing the Sales Report (generated by the Company's Manager of Revenue) which was

issued daily during the last weeks of a quarter and which at the bottom of the report showed

all New Activity that had taken place during that quarter. At all times, the Individual

Defendants had access to all sales revenue numbers. Because their offices were located

directly above the Company's production facility, the Individual Defendants were able to

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regularly monitor product production. The Individual Defendants made all decisions related

to channel sales and were the driving force behind the Company's tremendous pressure for

end-of-quarter sales.

BACKGROUND TO DEFENDANTS' SECURITIES FRAUD

21. The seeds of defendants' fraud were firmly planted through certain events

occurring prior to the Class Period. In particular, three pre-Class Period factors created a

corporate environment ripe for fraud: (a) the Company's unsuccessful transition from direct

to indirect sales; (b) defendants' slow and inadequate reaction to the market shift away from

the Company's traditional core products to new technology and products; and (c) the

Company's reliance on overly-aggressive financial management practices. These factors

converged in March 2001, resulting in defendants' decision to knowingly issue false and

misleading financial statements and results and to purposely falsify public disclosures

regarding the Company's true business prospects.

The Unsuccessful Transition from Direct Sales to Indirect Sales

22. From its inception, SpectraLink primarily employed direct sales as a means to

sell its products. Direct sales rely on a company's in-house sales staff to effectuate a sale of

its products. Direct sales allow a company to more closely control and track sales, increase

profit margins (since there are no middlemen), and better address customers needs (an in-

house sales staff is generally more educated regarding the product than an outside staff

selling multiple products).

23. Prior to the Class Period, SpectraLink made a major strategic business decision

to focus on indirect sales, rather than direct sales, for its future growth. In the late 1990s,

approximately 85% of SpectraLink's total sales revenues were the result of direct sales to

end-user customers; the remaining 15% of sales revenues resulted from indirect sales. By

March 2001, after the Company had transitioned to an indirect sales model, indirect sales

represented 55% of the Company's total sales revenue.

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24. According to a former SpectraLink field sales support engineer and a former

SpectraLink regional sales manager, the transition caused a number of fundamental

problems. Indirect distributers and dealers were neither obligated nor motivated to sell

SpectraLink's products. For example, many resellers refused to guarantee to SpectraLink that

they would sell a required minimum amount of the Company's products. The resellers' sales

staffs were often more motivated to sell product service deals that benefitted the indirect

seller over SpectraLink. Moreover, because of their lack of experience with SpectraLink

products, it was not uncommon for resellers to fail to address customer questions or concerns

regarding SpectraLink products or services. The Company's resellers also frequently sold

the products of SpectraLink's competitors, given the paucity of exclusive reseller agreements.

25. In order to conceal the disappointing result of SpectraLink's transition from

direct to indirect sales, defendants went to extreme measures to create the appearance that

the transition was a success. Several former SpectraLink sales people explained that the

Company would give business developed by its direct sales force to its resellers/channel

partners simply to create the impression that channel business was healthy. In fact,

SpectraLink's direct sales representatives would arrange for a sale, then just as the deal was

about to close, the Company's senior management would hand the deal over to the channel

partner to create the false appearance that the Company's transition was a success.

26. To encourage indirect sales, SpectraLink's senior managers would give the

channel sellers a 35%-65% discount for SpectraLink products or systems, provide incentives

such as "extra points," offer thousands of dollars worth of free equipment, batteries, and

installation, agree to a right of return on the products, and even pay for the storage of

products until the end-user was able to receive the products from the channel seller

(defendant Cronin referred to these as "warehouse deals"). Such discounts to channel

partners would often reduce SpectraLink's profit margins down to 15%-20%. SpectraLink's

senior managers (including defendant Cronin) obscured the true cost of the incentives by

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postponing payment of internal SpectraLink sales representatives' commissions until later

fiscal periods. Defendants' delaying of sales commissions was a tacit acknowledgment that

the Company's early shipments were premature, given that the Company did not pay sales

commissions for six months or longer from the time of shipment.

The Market Shift and Defendants' Actual Knowledge ofSpectraLink's Resulting Shrinking Revenue, Business and Profits

27. Approximately one month prior to the beginning- of the Class Period,

defendants confirmed through an internal Company analysis (detailed below) that: (a) the

market for the Company's flagship high-cost, high-margin Link WTS product line was

waning; (b) the market was swiftly shifting to the lower cost, lower margin 802.11 products;

and (c) as a result of this market shift, SpectraLink was facing significant revenue, business

and profit shrinkage in the months and quarters to come. To compound these problems,

defendants also became aware that their new channel partners, upon whom they now relied

to sell SpectraLink products, were not prepared to sell the new technology demanded by the

market.

28. SpectraLink's traditional Link WTS product line, according to a former

SpectraLink employee familiar with the Company's products and technology, was a cash

cow. SpectraLink was able to sell phones for approximately $1,500 per individual user,

because the phone systems included expensive high-margin infrastructure hardware, such as

radios, antennas, and modems. As a result, profit margins for SpectraLink's old Link WTS

products were in excess of 70%.

29. In March 2001, the SpectraLink product marketing and development staff

completed a comprehensive market analysis report which detailed an anticipated 70% growth

rate in use of products that relied upon 802.11 technology. Unlike Link WTS, 802.11

technology was a type of packet switch Internet Protocol telephony technology which was

quickly gaining market acceptance. The report detailed how the Link WTS products would

soon be surpassed, and described in detail the market shift to 802.11 technology. The 802.11

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technology and products were not only cheaper for customers to purchase, they had much

lower profit margins for SpectraLink than the Link WTS products. With 802.11,

SpectraLink would only be selling phones and no longer selling the high-margin antennas

and modems that the Link WTS products required. Additionally, the shift from direct to

indirect sales further complicated the issue. Although SpectraLink possessed the technology

necessary for 802.11 products, by late 2001 its channel partners (chiefly the Baby Bells) did

not have the technology necessary for 802.11 products and so they were in a position of

having to play "catch-up" to implement these systems.

30. The March 2001 market analysis report was approximately 35-pages in length

and set forth the change in technology, the market shift, and the negative impact the shift

would have on SpectraLink's business, revenue and profits in the months and quarters to

come. Not only was the report distributed to each defendant, Holland participated in at least

one meeting where the report and its conclusions were discussed. After the report was issued

and contrary to his representations to the market, defendant Cronin formally alerted sales

personnel by email and conference call that diminished sales and profits were to be expected

in the near term as a result of the market shift to 802.11 technology.

Defendants' Abusive Management Practices

31. According to a former SpectraLink revenue manager, the Company's

accounting and revenue recognition practices deteriorated when market conditions began to

tighten and, in i:orticular, once defendant Hamilton joined SpectraLink as CFO. According

to former SpectraLink employees, defendants Holland, Hamilton and Cronin were

controlling, dictatorial, intimidating, and at times verbally abusive. At least one former

employee was threatened by defendant Cronin when she refused to prematurely recognize

revenue on a questionable transaction. Another former employee stated that if an employee

opposed Holland, Holland would promptly seek to have that employee replaced.

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32. Defendant Hamilton often touted her connections with SpectraLink's (now

former) auditor, Arthur Andersen. Hamilton's first order of business upon joining

SpectraLink was to clean house and install new employees with whom she had worked with

in the past, including former Arthur Andersen employees. According to one former

SpectraLink accountant, if a problem ever arose regarding revenue recognition, Carol Smythe

(a former Arthur Andersen employee who had been installed by Hamilton) would assure the- -

accounting department that her friends at Arthur Andersen could fix the problem and ensure

that the revenue in question would be recognized. During this period, revenue from a

number of questionable end-of-the-quarter deals was recognized even though a number of

employees voiced concern as to whether the transactions could properly be recorded. Those

questionable transactions included deals with Meijer, Seagate Technology and Five Star

Communications.

33. Defendants were similarly aggressive regarding the Company's public

statements. In an effort to create the appearance that the Company's financial performance

was in line with street expectations, the Individual Defendants made certain that investors

were not given an accurate or complete picture of SpectraLink's precarious position.

Hamilton and Holland all but dictated the Company's quarterly earnings press releases to the

Company's Director of Investor Relations; allowing him no opportunity to give investors the

appropriate full disclosure.

THE CLASS PERIOD BEGINS AND DEFENDANTS ISSUENUMEROUS FALSE AND MISLEADING STATEMENTS

34. Numerous pressures on SpectraLink, as discussed above, had been mounting

prior to the beginning of the Class Period. Not only was the transition from direct to indirect

sales a failure, but revenue, business and profit margins were under increasing pressure and

shrinking as a result of the market shift away from Link WTS products and towards 802.11

technology and products. Defendants knew that failure to meet financial expectations of

revenue and profit would be personally disastrous for them and harmful to the Company.

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Failing to meet expectations would surely drive the Company's stock price down and devalue

their stock holdings. Together, with aggressive financial management, these factors

converged at the end of the Company's 1Q 2001 resulting in defendants' decision to:

(a) knowingly or recklessly improperly recognize a material amount of revenue in 1Q 2001

and 2Q 2001; (b) knowingly or recklessly overstate SpectraLink's financial results in 1Q

2001, 2Q 2001, 3Q 2001; and (c) knowingly or recklessly make false and misleading public

disclosures regarding the Company's true business prospects throughout fiscal year 2001.

Defendants' April 19, 2001 and May 1, 2001 MateriallyFalse and Misleading Statements RegardingSpectraLink's First Quarter 2001 Financial Results

35. The Class Period begins on April 19, 2001. On that date, SpectraLink

announced 1Q 2001 revenues, net income and EPS (excluding stock option charges) of $14.1

million, $1.7 million and $0.09 per share, respectively. Operating income was reported to

be $1,737,000. The release also stated:

SpectraLink Corporation (Nasdaq: SLNK) today reported exceptionalearnings growth for the first quarter of 2001. Earnings for the quarter were$1.7 million, or $0.09 per diluted share, representing an 84% increase overearnings of $0.9 million, or $0.05 per diluted share, in the first quarter of2000. Year-over-year quarterly revenue also grew substantially to $14.1million from $11.6 million a year ago.

Bruce Holland, SpectraLink's president and CEO, said "I am very pleased thatin these difficult economic times, we were able to deliver earnings growth inexcess of 80%." (Emphasis added.)

36. On May 1, 2001, defendants caused SpectraLink to file a materially false and

misleading Form 10-Q with the SEC for the period ended March 31, 2001. It was signed by

defendant Hamilton and it republished the Company's materially false and misleading

financial results reported on April 19, 2001. The Form 10-Q reported net income of $1.7

million and $0.09 per share for 1Q 2001.

37. Additionally, the Company's Form 10-Q contained the following materially

false and misleading language:

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,

In management's opinion, these financial statements include all adjustments,consisting only of normal recurring adjustments, necessary to fairly present theCompany's financial position, results of operations and cash flows for theperiods presented.

Undisclosed Facts Rendering Defendants' April 19, 2001and May 1, 2001 Statements Materially False and Misleading

38. The foregoing statements made by defendants in the April 19, 2001 press

release and May 1, 2001 Form 10-Q regarding 1Q2001 revenue and earnings were false and

misleading when made. As discussed below, defendants materially misled the investing

public, thereby inflating the price of SpectraLink stock, by publicly issuing false and

misleading statements and omitting to disclose material facts necessary to make their

statements, as set forth herein, not false and misleading.

39. As the final days of 1Q 2001 were approaching, defendants were aware that

the Company would not meet quarterly revenue or earnings expectations. According to a

former SpectraLink customer services manager, in the last days of 1Q 2001 defendants

needed a large contract to meet the Company's sales and earning projections. SpectraLink's

Vice President of Operations, John Elms, and defendant Cronin were working on completing

a $1.5 million deal with Lowe's. The deal was for 5,000 phones (approximately 150 phones

per store), eight antennas per store, and two master control units per store. According to the

SpectraLink customer services manager, SpectraLink's engineering department informed

management that the equipment was defective and would not work at Lowe's once installed.

The Lowe's order was sent just before the end of 1Q 2001 to ensure that the revenue would

be recognized that quarter and the sales projections would be met. Defendants permitted the

Company to ship the product to Lowe 's despite actual knowledge that it was defective and

that it would not work properly once installed. A former SpectraLink manufacturing

department supervisor confirmed these facts and further explained that, as expected, the

product failed once installed. Lowe's returned the product to SpectraLink just after the end

of 1Q 2001 to have the program reconfigured and reloaded. In practical terms, the problem

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manifested itself when users put a caller on hold, or switched callers within the system.

When users attempted to do this, the system would lock. After the program reconfiguration,

the product was again shipped to Lowe's only to be returned once again because it was

defective. SpectraLink shipped the product a third time, but the system was again returned,

this time for an actual hard-wire correction or addition.

40. According to SpectraLink's former customer services manager, defendants

Holland, Hamilton and Cronin were told by the engineering department before the product

was shipped that it would not work at Lowe's. Notwithstanding, the Company improperly

recognized revenue on the transaction. Moreover, a former SpectraLink customer services

manager further confirmed that because of the size, timing and importance of the Lowe's

transaction, defendants Holland, Hamilton and Cronin would have actual knowledge of the

transaction, product problems, and the product returns.

41. During this period, SpectraLink engaged in other acts and manipulations in

order to meet their quarterly revenue and earnings projections. According to a former

SpectraLink manufacturing supervisor, when the last day of any particular quarter would end

on a Saturday or Sunday (such as was the case in 1Q2001 and 3Q 2001), SpectraLink would

actually ship product on the next Monday, after the quarter had already ended, and would

alter (i.e, backdate) the UPS shipping labels to show that the product had shipped before the

end of the quarter. The former employee characterized this practice as routine and explained

that management took steps to hide this practice from lower-level employees.

42. After knowingly or recklessly issuing the false and misleading financial results

for 1Q2001, the Individual Defendants sold millions of dollars worth of their personally-held

SpectraLink common stock during the quarter, as detailed in the insider selling paragraphs

below. See 85, infra.

43. As discussed at paragraphs 65-80 below, defendants' representations that

SpectraLink's financial statements were prepared in accordance with GAAP were materially

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false and misleading because the defendants engaged in fraudulent revenue recognition

practices which materially inflated the Company's operating results. During 1Q 2001,

SpectraLink's reported revenue totaled $11.7 million, including, at least, $1.5 million of

improperly recognized revenue noted above. Accordingly, SpectraLink's true revenue during

1Q 2001, of no more than $10.2 million, was overstated by approximately 12%. Similarly,

SpectraLink's reported pre-tax income of $2.8 million was overstated by $1.1 million.

Accordingly, SpectraLink's true pre-tax income during 1Q 2001, of no more than $1.7,

million was overstated by approximately 65%.'

Defendants' July 19, 2001 and August 10, 2001 MateriallyFalse and Misleading Statements Regarding SpectraLink'sSecond Quarter 2001 Financial Results

44. On July 19, 2001, SpectraLink issued a press release announcing its financial

results for the second quarter of 2001 (2Q 2001), the period ending June 30, 2001. The

Company reported earnings of $2.1 million, or $0.11 per share, as compared to earnings of

$1.3 million, or $0.06 per share, for the same period the prior year. The Company further

reported "record high" revenue of $16.6 million. Defendant Holland commented on the

positive results stating in pertinent part as follows:

We've started the year with very strong growth in our business. . . This is thesecond quarter in a row where earnings per share have grown at 80% ormore over the prior year. In spite of these difficult economic times, ourrevenue growth has significantly accelerated over the first quarter of this year.When I reflect on the fundamentals of our business, I am particularlypleased with our strong positive cash flow, noteworthy strategic partnerships,and superior earnings growth with record high revenue. (Emphasis added.)

45. After the issuance of the Company's earnings announcement the price of

SpectraLink common stock surged from $11.95 per share, on July 19, 2001, to $14.02 per

share on July 20, 2001.

i SpectraLink's 1Q 2001 (March 31, 2001) Form 10-Q reveals that its gross profitaveraged approximately 73% on product sales. Seventy-three percent of $1.5 million ofrevenue improperly recognized on the shipment to Lowe's during the quarter approximates$1.1 million.

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46. On August 10, 2001, defendants caused SpectraLink to file a materially false

and misleading Form 10-Q with the SEC for 2Q2001. It was signed by defendant Hamilton

and republished the Company's materially false and misleading financial results reported on

July 19, 2001. The Form 10-Q reported net income of $2.1 million and $0.11 per share for

2Q 2001. It also reported year-to-date net income of $3.8 million and $0.20 per share.

47. Additionally, the Company's Form 10-Q contained the following materially-

false and misleading language:

In management's opinion, these financial statements include all adjustments,consisting only of normal recurring adjustments, necessary to fairly present theCompany's financial position, results of operations and cash flows for theperiods presented.

Undisclosed Facts Rendering Defendants' July 19, 2001 andAugust 10, 2001 Statements Materially False and Misleading

48. The foregoing statements made by defendants in the July 19, 2001 press release

and August 10, 2001 Form 10-Q regarding 2Q 2001 earnings were false and misleading

when made.

49. As with 1Q 2001, the Company was not going to meet its sales and earnings

projections unless it could close and ship a large contract in the final days of 2Q 2001 (the

fiscal period ended June 30, 2001). In 2Q 2001, there was a drastic decrease in product

manufacturing and production at the Company. This drastic decrease was quantified by a

former SpectraLink employee who estimated that production in this period fell to 26,000-

27,000 systems, from approximately 50,000 systems in the same quarter of the prior (2000)

fiscal year. According to a former manufacturing supervisor, during this period SpectraLink

chose to ship a large amount of product to Lowe's. However, the product was never installed

or used by Lowe's. In fact, within a couple of weeks after 2Q 2001 ended, Lowe's returned

to SpectraLink the same order that SpectraLink had shipped to Lowe's just weeks earlier.

The order consisted of two pallets containing 12 to 15 large boxes. The two pallets contained

approximately 600 to 1,000 phones, as well as master control units and antennas. The

- 17 -

shipment was valued at $900,000 to $1.5 million. The entire shipment was returned to

SpectraLink's Shipping and Receiving department where it was left outside in the ram for

quite some time, re-packaged, and entered in the Company's system as New Goods.

SpectraLink never re-sent the order to Lowe's.

50. The Company improperly recognized revenue on this transaction. According

to this former SpectraLink manufacturing supervisor, defendants shipped the order so the

Company could meet that quarter's sales and earnings projections. In addition, this former

employee is aware of other instances during 2001 where very substantial product orders were

shipped by SpectraLink to Lowe's, even though SpectraLink knew the products would be

returned a few weeks later, for the specific purpose of allowing SpectraLink to meet its

quarterly financial projections. In fact, SpectraLink management acknowledged in

discussions with former employees that these substantial 2001 Lowe's shipments were sent

by the Company in order to keep SpectraLink "in the black" and to "make its numbers."

51. According to a former SpectraLink revenue manager, because of the size,

timing, and importance ofthe Lowe's transactions, defendants Holland, Hamilton and Cronin

would have actual knowledge of these transactions and the product returns.

52. Moreover, due to defendants' falsification of SpectraLink's 1Q 2001 and 2Q

2001 reported financial results through its improper revenue recognition on two Lowe's

orders, it was not "the second quarter in a row where earnings per share have grown at 80%

or more over the prior year." In addition, SpectraLink's 2Q 2001 earnings growth was not

"superior." In fact, if SpectraLink had not improperly recognized revenue on these Lowe's

orders, the Company's sales and earnings numbers would have fallen short of its quarterly

projections.

53. After knowingly issuing the false and misleading financial results for 2Q 2001,

the Individual Defendants sold millions of dollars worth of their personally-held SpectraLink

common stock during the quarter, as detailed in the insider selling paragraphs below.

- 18 -

54. As discussed at paragraphs 65-80 below, defendants' representations that

SpectraLink's financial statements were prepared in accordance with GAAP were materially

false and misleading because the defendants engaged in fraudulent revenue recognition

practices which materially inflated the Company's operating results. During 2Q 2001,

SpectraLink's reported revenue totaled $16.6 million, including, at least $1.0 million of

improperly recognized revenue noted above. Accordingly, SpectraLink's true revenue during

2Q 2001, of no more than $15.6 million, was overstated by approximately 6%. Similarly,

SpectraLink's reported pre-tax income of $3.4 million was overstated by $700,000.

Accordingly, SpectraLink's true pre-tax income during 2Q2001 of no more than $2.7 million

was overstated by approximately 26%. 2 See 85, infra.

Defendants' October 17, 2001 and November 5, 2001Materially False and Misleading Statements RegardingSpectraLink's Financial Results

55. On October 17, 2001, SpectraLink issued a press release announcing its

financial results for the third quarter of 2001 (3Q 2001), the period ending September 30,

2001. The Company reported earnings of $2.1 million, or $0.11 per share, as compared to

$2.0 million, or $0.10 per share for the same period the prior year. The press release

highlighted that the Company's third quarter earnings results "meet[] the published consensus

of analyst estimates. For the nine months ended September 30, 2001, earnings per diluted

share were $0.30 on net income of $6.0 million. This represents an extraordinary 42%

increase in net income over the first nine months of 2000." Defendant Holland commented

on the results, stating in pertinent part as follows:

I am extremely pleased that we delivered exceptional pre-tax earnings, metanalyst consensus estimates and increased the cash position on our balancesheet. I remain confident that the remainder of this year and 2002 willgenerate strong earnings as SpectraLink continues to expand sales in the

2 SpectraLink's 2Q 2001 (June 30, 2001) Form 10-Q reveals that its gross profitaveraged approximately 70% on product sales. Seventy percent of $1.0 million of revenueimproperly recognized on the shipment to Lowe's during the quarter approximates $700,000.

- 19 -

largely under-penetrated market of wireless telephone systems for theworkplace. (Emphasis added.)

56. On November 5, 2001, defendants caused SpectraLink to file a materially false

and misleading Form 10-Q with the SEC for 3Q2001. It was signed by defendant Hamilton

and republished the Company's materially false and misleading financial results reported on

October 17, 2001. The Form 10-Q reported net income of $2.1 million and $0.11 per share

for 3Q 2001. It also reported year to date net income of $5.9 million and $0.32 per

57. Additionally, the Company's Form 10-Q contained the following materially

false and misleading language:

In management's opinion, these financial statements include all adjustments,consisting only ofnormal recurring adjustments, necessary to fairly present theCompany's financial position, results of operations and cash flows for theperiods presented.

Undisclosed Facts Rendering Defendants' Statements onOctober 17, 2001 and November 5, 2001 MateriallyFalse and Misleading

58. The foregoing statements made by defendants on October 17, 2001 and

November 5, 2001, were false and misleading when made to the extent they represented

SpectraLink's year-to-date financial results. As a result of defendants' material financial

overstatements in 1Q 2001 and 2Q 2001 relating to the Lowe's transactions, the Company's

3Q 2001 year-to-date financial results were materially false and misleading.

59. Moreover, contrary to defendants' representations, the Company was not due

to "generate strong earnings" for the remainder of 2001 and into 2002. In actuality,

defendants were well aware of the March 2001 market analysis report created by

SpectraLink's product marketing and development staff which described, in detail: (a) that

the Company's flagship high-cost high-margin Link WTS products were being surpassed by

802.11, a newer technology; (b) that 802.11 products would not require the expensive

infrastructure of the Link WTS technology; and (c) that as a result of this market shift,

SpectraLink could expect significantly lower revenues, sales and profits in the months and

- 20 -

. ,

quarters to come. Indeed, according to a former SpectraLink director of marketing,

throughout the first three quarters of 2001 SpectraLink's channel partners, chiefly the Baby

Bells, were in a position of having to play "catch-up" as they did not have 802.11-compatible

technology as of September 2001. In fact, according to a former SpectraLink manufacturing

employee, by 3Q2001 SpectraLink had manufactured less than a thousand 802.11 products.

60. After knowingly issuing the false and misleading year-to-date financial results

for 3Q 2001, and misrepresenting the Company's business prospects, the Individual

Defendants sold millions of dollars worth of their personally-held SpectraLink common stock

during the quarter, as detailed in the insider selling paragraphs below. See "[[ 85, infra.

Defendants' Materially False and MisleadingNovember 14, 2001 Statements

61. On November 14, 2001, SpectraLink filed a Form 8-K with the SEC, which

was signed by defendant Hamilton. In the Form 8-K, SpectraLink stated that the "purpose

of the Form 8-K is to provide calendar year 2002 revenue and earnings guidance" for the

Company. In this regard, the Form 8-K represented the following:

SpectraLink's budgeting process for 2002 has been completed and wasapproved by its board of directors on November 14, 2001. The approvedinternal forecast resulted in a 2002 revenue projection that exceeds the $76million low end of published analyst estimates. Earnings per diluted sharefor 2002 are expected to be within the range of published analyst estimatesof $0.55 to $0.60. (Emphasis added.)

Undisclosed Facts Rendering Defendants'November 14, 2001 Statements False and Misleading

62. The foregoing statements made by defendants on November 14, 2001, and

repeated by analysts thereafter were false and misleading when made. As a result of

defendants' receipt of the March 2001 market transition report (27-30), the channel

partners' lack of appropriate technology to sell 802.11 products (Id.), and defendants' 3Q

2001 manufacture of less than a thousand 802.11-compatible products ( 11T59), defendants

knew or recklessly disregarded that statements regarding 2002 projections "that exceed the

Hlow end of published analyst estimates" were false and misleading when made.

-21 -

Defendants' Disclosure of Selected Adverse Information

63. On January 14, 2002, before the opening of the NASDAQ stock market,

SpectraLink issued a press release announcing preliminary financial results for its fourth

quarter of 2001 ("4Q 2001"). The Company reported that it expected diluted earnings per

share of $0.04 to $0.05, and revenue of approximately $14.9 million. The Company also

revised its estimates for calendar year 2002 down to $70 million and diluted earnings of--

$0.40 to $0.43 per share. Defendant Holland commented on the announcement stating in

pertinent part as follows:

SpectraLink had not been noticeably impacted by the sluggish U.S. economyduring the first part of 2001. However, the continued deterioration of theoverall economy adversely affected our business in the fourth quarter. Evenin the presence of this economic impact, I'm encouraged that we have avoidedthe dramatic declines in revenue experienced by many of our peers, andpreliminary numbers indicate that we have maintained strong profitability atover 11% pretax earnings with substantially positive cash from operations. Webelieve this performance results from a degree of resiliency that we enjoybecause of the diversity of our markets.

• . . I remain optimistic that we will see year-over-year revenue and earningsgrowth in 2002. This growth should be stronger in the second half of the yearthan in the first half of the year as our Education sector expands and theEuropean market begins to contribute to our revenue growth.

64. In response to this shocking announcement, the price of SpectraLink common

stock dropped precipitouslyfrom $16.02 per share to $10.16 per share; a decline of more

than 36%.

DEFENDANTS' IMPROPER ACCOUNTING PRACTICESAND RELATED FINANCIAL MISREPRESENTATIONS

65. At all relevant times during the Class Period, SpectraLink represented that its

financial statements were prepared in accordance with GAAP. GAAP are those principles

recognized by the accounting profession as the conventions, rules, and procedures necessary

to define accepted accounting practice at a particular time. As set forth in Financial

Accounting Standards Board ("FASB") Statement of Concepts ("Concepts Statement") No. 1,

one of the fundamental objectives of financial reporting is that it provide accurate and

- 22 -

reliable information concerning an entity's financial performance during the period being

presented. Concepts Statement No. 1, 42, states:

Financial reporting should provide information about an enterprise's financialperformance during a period. Investors and creditors often use informationabout the past to help in assessing the prospects of an enterprise. Thus,although investment and credit decisions reflect investors' and creditors'

n expectations about future enterprise performance, those expectations arecommonly based at least partly on evaluations of past enterprise performance.

66. Regulation S-X [17 C:F.R. § 210.4-01(a)(1)] states that financial statements -

filed with the SEC that are not prepared in conformity with GAAP are presumed to be

misleading and inaccurate.

67. The representations by defendants that SpectraLink's financial statements were

prepared in accordance with GAAP were materially false and misleading because the

defendants engaged in fraudulent revenue recognition practices which materially inflated the

Company's operating results during the Class Period.

SpectraLink's Improper Recognition, Accountingand Reporting of Revenue

68. GAAP generally provides that revenue should not be recognized until an

exchange has occurred, the earnings process is complete, and collection of the sales price is

reasonably assured. See FASB Concepts Statement No. 5, IT 83; Accounting Principles Board

("APB") Opinion No. 10, 12. The conditions for revenue recognition under GAAP

ordinarily are met when products and services are exchanged for cash or claims to cash, and

when the entity has substantially performed the obligations which entitled it to the benefits

represented by the revenue. Further, revenue which arises from circumstances involving

uncertainty as to possible gains should not be recognized since to do so might result in gains

being recognized on revenue prior to its realization. See FASB Statement of Financial

Accounting Standards ("SFAS") No. 5, 12.

- 23 -

69. SpectraLink's fiscal 2000 Form 10-K filed with the SEC in March 2001

included the following disclosure with respect to the Company's policy of accounting for

revenue recognition:

The Company derives its revenue principally from the sale, installation andservice of wireless telephone systems. Sales are recorded on transfer of title,which is generally upon shipment of product. Revenue from installationservices is deferred and recognized when the services are performed.Maintenance revenue is deferred and recognized over the term of themaintenance agreement. _The_Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, collection isprobable, and the fee is fixed or determinable.

In December 1999, the Securities and Exchange Commission ("SEC") issuedStaff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition inFinancial Statements." SAB 101 summarizes the SEC's view in applyinggenerally accepted accounting principles to selected revenue recognitionissues. The effects, if any, of applying this guidance must be adopted by SECregistrants no later than December 31, 2000 and must be reported as acumulative effect adjustment as of January 1, 2000, resulting from a changein accounting principle. Restatement of previously reported results of theearlier quarters of fiscal 2000, if necessary, is also required. The adoption ofSAB 101 did not have a material effect on the Company's financial statements.

70. Defendants engaged in improper accounting practices throughout the Class

Period. These practices materially overstated the Company's operating results during 1Q

2001, as defendants knew or recklessly disregarded. According to a former SpectraLink

employee, defendants knowingly shipped inoperable product at the of 1Q 2001, thereby

materially overstating SpectraLink's operating results. See Tlf 39 - 41 above. The former

employee stated that SpectraLink's engineering department informed the Company's senior

management (including the Individual Defendants) that equipment the Company was

planning to ship to Lowe's at the end of 1Q2001 would not work. Nonetheless, SpectraLink

shipped the product and recognized approximately $1.5 million in revenue on the order in

1Q2001. Id.

71. Indeed, during the Class Period, SpectraLink's improper recognition of revenue

was not limited to the above transaction. In fact, as described in paragraphs 49 through 51

above, SpectraLink again improperly recorded a material amount of revenue shipped to

- 24 -

,

Lowe's during 2Q 2001 — shipping product to Lowe's knowing it would be coming back to

SpectraLink after the close ofthat quarter, receiving the product back from Lowe's and never

re-sending the same product — further evidencing the Company's intent to falsify its reported

earnings.

72. At the time SpectraLink recognized revenue on these product shipments,

defendants knew or recklessly disregarded that SpectraLink's recognition of revenue on such

shipments was improper, in direct contravention of GAAP, and could have served no purpose

other than to manipulate SpectraLink's reported operating results. SpectraLink's recognition

of revenue on these shipments was improper because the earnings process, as contemplated

by GAAP was not complete, and, accordingly, because SpectraLink had not substantially

performed the obligations which entitled it to the benefits represented by the revenue when

such revenue was recognized.3

73. Because defendants caused SpectraLink to improperly recognize revenue upon

shipment of inoperable, unwanted and/or unused product to Lowe's, SpectraLink's reported

Class Period revenues, income and earnings per share were materially misstated.

74. During 1Q 2001, SpectraLink's reported revenue totaled $11.7 million,

including, at least, $1.5 million of improperly recognized revenue as noted above.

Accordingly, SpectraLink's true revenue during 1Q 2001, of no more than $10.2 million,

was overstated by approximately 12%. Similarly, SpectraLink's reported pre-tax income of

$2.8 million was overstated by $1.1 million. Accordingly, SpectraLink's true pre-tax

income during 1Q 2001 of no more than $1.7 million was overstated by approximately

65%.4

3 See, e.g., SEC v. Digital Lightwave, Inc., Civil Action No.8 :00-CV-614-T-26F, 2000SEC LEXIS 589 (M.D. Fla. Mar. 29, 2000) and SEC v. FastComm Communications Corp.,Civil Action No.99-1448-A, 1999 SEC LEXIS 1999 (E.D. Va. Sept. 28, 1999).

4SpectraLink's 1Q 2001 (March 31, 2001) Form 10-Q reveals that its gross profitaveraged approximately 73% on product sales. Seventy-three percent of $1.5 million ofrevenue improperly recognized on the shipment to Lowe's during the quarter approximates

- 25 -

_

75. Similarly, during 2Q 2001, SpectraLink's reported revenue totaled $16.6

million, including, at least $1.0 million of improperly recognized revenue as noted above.

Accordingly, SpectraLink's true revenue during 2Q 2001, of no more than $15.6 million,

was overstated by approximately 6%. Similarly, SpectraLink's reported pre-tax income of

$3.4 million was overstated by $700,000. SpectraLink's true pre-tax income during 2Q

2001 of no more than $2.7 million was overstated by approximately 26% .5

76. When SpectraLink issued its results and filed its Form 10-Q for 3Q 2001, it

also disclosed its results for the nine months ended September 30, 2001. As SpectraLink's

operating results for the first and second quarters of 2001 were, as noted above, materially

false and misleading, the Company's operating results for the nine months ended September

30, 2001 were also materially false and misleading.

77. In addition to the accounting improprieties stated above, SpectraLink presented

its financial statements during the Class Period in a manner which also violated at least the

following provisions of GAAP:

(a) The concept that financial reporting should provide information that is

useful to present and potential investors and creditors and other users in making rational

investment, credit and similar decisions (Concepts Statement No. 1, 34);

(b) The concept that financial reporting should provide information about

the economic resources of an enterprise, the claims to those resources, and the effects of

transactions, events and circumstances that change resources and claims to those resources

(Concepts Statement No. 1, 40);

(c) The concept that financial reporting should provide information about

how management of an enterprise has discharged its stewardship responsibility to owners

$1.1 million.

5 SpectraLink's 2Q 2001 (June 30, 2001) Form 10-Q reveals that its gross profitaveraged approximately 70% on product sales. Seventy percent of $1.0 million of revenueimproperly recognized on the shipment to Lowe's during the quarter approximates $700,000.

- 26 -

(stockholders) for the use of enterprise resources entrusted to it. To the extent that

management offers securities of the enterprise to the public, it voluntarily accepts wider

responsibilities for accountability to prospective investors and to the public in general

(Concepts Statement No. 1, If 50);

(d) The concept that financial reporting should provide information about

an enterprise's financial performance during a period. Investors and creditors often use

information about the past to help in assessing the prospects of an enterprise. Thus, although

investment and credit decisions reflect investors' expectations about future enterprise

performance, those expectations are commonly based at least partly on evaluations of past

enterprise performance (Concepts Statement No. 1, 42);

(e) The concept that financial reporting should be reliable in that it

represents what it purports to represent. That information should be reliable as well as

relevant is a notion that is central to accounting (Concepts Statement No. 2, TT 58-59);

(f) The concept of completeness, which means that nothing is left out of

the information that may be necessary to ensure that it validly represents underlying events

and conditions (Concepts Statement No. 2, lj 79);

(g) The concept that conservatism be used as a prudent reaction to

uncertainty to try to ensure that uncertainties and risks inherent in business situations are

adequately considered. The best way to avoid injury to investors is to try to ensure that what

is reported represents what it purports to represent (Concepts Statement No. 2, 95, 97).

78. The foregoing accounting improprieties caused SpectraLink to issue financial

statements which violated numerous provisions of GAAP and the SEC's accounting rules and

regulations. SpectraLink's undisclosed adverse financial reporting materially falsified its

financial performance to the detriment of unsuspecting investors and further masked the

problems the Company was experiencing as early as 2000.

-27 -

79. In failing to file financial statements with the SEC which conformed to the

requirements of GAAP, SpectraLink repeatedly disseminated financial statements that were

presumptively misleading and inaccurate. Indeed, the numerous accounting machinations

detailed herein evidence the defendants' intent to deceive investors during the Class Period

and misrepresent the truth about the Company and its business, operations and financial

performance to the detriment of those who relied on them.

80. The Company's Class Period Form 10-Qs filed with the SEC were also

materially false and misleading in that they failed to disclose known trends, demands,

commitments, events, and uncertainties that were reasonably likely to have a materially

adverse effect on the Company's liquidity, net sales, revenues and income from continuing

operations, as required by Item 303 of Regulation S-K.

ADDITIONAL CLASS PERIOD ALLEGATIONS

81. The market for SpectraLink's common stock was open, well-developed and

efficient at all relevant times. As a result of the materially false and misleading statements

and failures to disclose described herein, SpectraLink's common stock traded at artificially

inflated prices during the Class Period. Plaintiffs and other members of the Class purchased

or otherwise acquired SpectraLink common stock relying upon the integrity of the market

price of SpectraLink's securities and market information relating to SpectraLink, and have

been damaged thereby.

82. During the Class Period, defendants materially misled the investing public,

thereby inflating the price of SpectraLink's common stock, by publicly issuing false and

misleading statements and omitting to disclose material facts necessary to make defendants'

statements, as set forth herein, not false and misleading. Said statements and omissions were

materially false and misleading in that they failed to disclose material adverse information

and misrepresented the truth about the Company, its business and operations, as alleged

herein.

-28-

83. At all relevant times, the material misrepresentations and omissions partic-

ularized in this Complaint directly or proximately caused or were a substantial contributing

cause of the damages sustained by plaintiffs and other members of the Class. As described

herein, during the Class Period, defendants made or caused to be made a series of materially

false or misleading statements about SpectraLink's business, prospects and operations.

These material misstatements and omissions had the cause and effect of creating in the

market an unrealistically positive assessment of SpectraLink and its business, prospects and

operations, thus causing the Company's common stock to be overvalued and artificially

inflated at all relevant times. Defendants' materially false and misleading statements during

the Class Period resulted in plaintiffs and other members of the Class purchasing the

Company's common stock at artificially inflated prices, thus causing the damages complained

of herein.

ADDITIONAL SCIENTER ALLEGATIONS

84. As alleged herein, defendants acted with scienter in that defendants knew or

recklessly disregarded that the public documents and statements issued or disseminated in

the name of the Company were materially false and misleading; that such statements or

documents would be issued or disseminated to the investing public; that they substantially

participated or acquiesced in the issuance or dissemination of such statements or documents

as primary violations of the federal securities laws. As set forth elsewhere herein in detail,

defendants, by virtue of their receipt of information reflecting the true facts regarding

SpectraLink, their control over, and/or receipt and/or modification of SpectraLink's allegedly

materially misleading misstatements and/or their associations with the Company which made

them privy to confidential proprietary information concerning SpectraLink, participated in

the fraudulent scheme alleged herein.

85. In addition, the massive insider trading of the Individual Defendants while in

possession of material non-public information, further evidences defendants' motive to

- 29 -

...

perpetrate the fraudulent scheme detailed herein. The Individual Defendants collectively

sold more than 860,000 shares of SpectraLink stock during the Class Period, pocketing

proceeds of more than $12.8 million. The following charts detail the Class Period insider

trading:

Bruce M. Holland

Date Shares Price Value

1/9/02 12,500 $16.14 $201,750.00

1/9/02 12,500 $16.33 $204,125.00

1/2/02 12,500 $16.58 $207,250.00

1/2/02 12,500 $16.44 $205,500.00

12/27/01 12,500 $16.17 $202,125.00

12/19/01 12,500 $15.60 $195,000.00

12/19/01 12,500 $15.38 $192,250.00

12/12/01 12,500 $17.75 $221,875.00

12/12/01 12,500 $17.89 $223,625.00

12/5/01 25,000 $17.17 $429,250.00

11/28/01 12,500 $16.39 $204,875.00

11/28/01 5,000 $16.55 $82,750.00

11/21/01 10,000 $14.63 $146,300.00

11/21/01 10,000 $13.70 $137,000.00

11/14/01 10,000 $13.70 $137,000.00

11/14/01 10,000 $13.89 $138,900.00

11/7/01 7,500 $11.53 $86,475.00

11/7/01 7,500 $11.95 $89,625.00

10/31/01 7,500 $11.30 $84,750.00

10/31/01 7,500 $11.50 $86,250.00

10/24/01 10,000 $12.00 $120,000.00

10/24/01 300 $12.50 $3,750.00

10/17/01 12,500 $17.28 $216,000.00

- 30 -

_

'

Date Shares Price Value10/17/01 12,500 $16.65 $208,125.0010/10/01 12,500 $16.76 $209,500.0010/3/01 10,000 $13.95 $139,500.00

, 10/3/01 10,000 $13.52 $135,200.00' 9/26/01 12,500 $15.22 $190,250.00

9/26/01 12,500 $15.32 - $191,500.009/19/01 12,500 $18.78 $234,750.009/19/01 7,500 $18.39 $137,925.009/5/01 12,500 $16.74 $209,250.009/5/01 12,500 $16.02 $200,250.008/29/01 25,000 $16.68 $417,000.008/22/01 10,000 $14.90 $149,000.008/22/01 10,000 $14.75 $147,500.008/15/01 12,500 $14.44 $180,500.008/15/01 12,500 $14.52 $181,500.008/8/01 12,500 $16.06 $200,750.008/8/01 12,500 $15.97 $199,625.008/1/01 12,500 $16.50 $206,250.008/1/01 12,500 $16.53 $206,625.007/26/01 10,000 $14.03 $140,300.007/25/01 10,000 $14.51 $145,100.007/18/01 10,000 $11.25 $112,500.007/18/01 10,000 $11.15 $111,500.007/11/01 10,000 $11.57 $115,700.00

7/11/01 10,000 $11.36 $113,600.007/5/01 7,500 $11.48 $86,100.007/5/01 7,500 $11.47 $86,025.006/27/01 7,500 $11.12 $83,400.00

- 31 -

•

Date Shares Price Value

6/27/01 2,500 $10.93 $27,325.00

6/27/01 1,500 $11.20 $16,800.00

6/27/01 1,500 $11.11 $16,665.00

6/27/01 1,000 $10.95 $10,950.00

6/27/01 1,000 $11.25 $11,250.00

6/20/01 5,000 $9,50 $47,500.00

6/20/01 2,500 $9.60 $24,000.00

6/20/01 2,500 $9.40 $23,500.00

6/13/01 5,000 $9.56 $47,800.00

6/13/01 2,500 $9.55 $23,875.00

6/13/01 2,500 $9.47 $23,675.00

6/6/01 7,500 $9.07 $68,025.00

6/6/01 2,500 $9.20 $23,000.00

5/30/01 5,000 $8.86 $44,300.00

5/30/01 2,500 $9.15 $22,875.00

5/23/01 5,000 $8.68 $43,400.00

5/23/01 2,500 $8.96 $22,400.00

5/23/01 2,500 $8.57 $21,425.00

5/16/01 5,000 $8.28 $41,400.00

5/16/01 5,000 $8.23 $41,150.00

5/9/01 5,000 $9.20 $46,000.00

5/9/01 2,500 $9.27 $23,175.00

5/9/01 2,500 $9.31 $23,275.00

TOTAL: 640,300 $9,249,415.00

- 32 -

,

Nancy K. Hamilton

Date Shares Price Value11/30/01 4,314 $17.00 $73,338.0011/27/01 10,000 $16.25 $162,500.0011/27/01 10,000 $17.00 $170,000.0011/27/01 10,000 $16.75 $167,500.0011/26/01 3,000 $15.85 $47,550.0011/26/01 1,414 $15.75 $22,270.5011/21/01 1,641 $15.25 $25,025.2511/19/01 2,000 $15.00 $30,000.0011/13/01 2000 $14.85 $29,700.0011/13/01 2,000 $14.50 $29,000.0011/12/01 1,000 $14.25 $14,250.008/28/01 5,000 $16.50 $82,500.007/30/01 10,000 $17.00 $170,000.007/30/01 9,200 $16.90 $155,480.007/27/01 800 $16.25 $13,000.007/26/01 10,000 $15.25 $152,500.00TOTAL: 82,369 $1,344,613.75

Michael P. Cronin

Date Shares Price Value11/26/01 10,768 $15.75 $169,596.0011/26/01 500 $15.77 $7,885.0011/26/01 400 $15.76 $6,304.008/30/01 10,416 $16.90 $176,030.408/30/01 5,000 $17.00 $85,000.008/30/01 5,000 $16.95 $84,750.00

-33 -

,. .

Date Shares Price Value

8/1/01 15,765 $17.00 $268,005.00

7/31/01 5,000 $18.00 $90,000.00

7/30/01 6,200 $18.00 $111,600.00

7/30/01 3,100 $16.93 $52,483.00

' 7/27/01 5,000 $16.06 $80,300.00

7/27/04 5,000 416.05 $80,250.00

7/27/01 5,000 $16.25 $81,250.00

7/27/01 5,000 $16.00 $80,000.00

7/27/01 5,000 $16.15 $80,750.00

7/27/01 1,900 $16.24 $30,856.00

7/26/01 5,000 $15.20 $76,000.00

7/26/01 5,000 $15.00 $75,000.00

7/26/01 5,000 $15.35 $76,750.00

7/26/01 5,000 $15.33 $76,650.00

7/26/01 3,703 $15.25 $56,470.75

7/26/01 1,297 $15.02 $19,480.94

7/25/01 15,000 $14.00 $210,000.00

7/25/01 5,000 $14.02 $70,100.00

7/25/01 2,300 $14.00 $32,200.00

7/24/01 2,700 $14.05 $37,935.00

TOTAL: 139,049 $2,215,646.09

APPLICABILITY OF PRESUMPTION OF RELIANCE:FRAUD-ON-THE-MARKET DOCTRINE

86. At all relevant times, the market for SpectraLink's common stock was an

efficient market for the following reasons, among others:

(a) SpectraLink's stock met the requirements for listing, and was listed and

actively traded on the NASDAQ, a highly efficient and automated market;

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(b) As a regulated issuer, SpectraLink filed periodic public reports with the

SEC and the NASD;

(c) SpectraLink regularly communicated with public investors via

established market communication mechanisms, including through regular disseminations

of press releases 011the national circuits of major news wire services and through other wide-,

ranging public disclosures, such as communications with the financial press and other similar

reporting services; and

(d) SpectraLink was followed by several securities analysts employed by

major brokerage firms who wrote reports which were distributed to the sales force and

certain customers of their respective brokerage firms. Each of these reports was publicly

available and entered the public marketplace.

87. As a result of the foregoing, the market for SpectraLink's common stock

promptly digested current information regarding SpectraLink from all publicly available

sources and reflected such information in SpectraLink's stock price. Under these

circumstances, all purchasers of SpectraLink's common stock during the Class Period

suffered similar injury through their purchase of SpectraLink's common stock at artificially

inflated prices and a presumption of reliance applies.

CONTROL PERSON LIABILITY

88. The Individual Defendants, because of their positions of control and authority

as officers of the Company, were able to and did control the content of the various SEC

filings and press releases pertaining to the Company during the Class Period. Each

Individual Defendant was provided with copies of the documents alleged herein to be

misleading prior to or shortly after their issuance and/or had the ability and/or opportunity

to prevent their issuance or cause them to be corrected. Accordingly, each of the Individual

Defendants are responsible for the accuracy of the public reports and press releases detailed

herein and are therefore primarily liable for the representations contained therein.

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89. Each of the defendants is liable as a participant in a fraudulent scheme and

course of business that operated as a fraud or deceit on purchasers of SpectraLink common

stock by disseminating materially false and misleading statements and/or concealing material

adverse facts. The scheme: (a) deceived the investing public regarding SpectraLink's

business, operations, management and the intrinsic value of SpectraLink common stock;

(b) enabled the Individual Defendants to sell more than $12.8 million worth of their

personally-held SpectraLink common stock to the unsuspecting public; and (c) caused

plaintiffs and other members of the Class to purchase SpectraLink common stock at

artificially inflated prices.

NO SAFE HARBOR

90. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in this

Complaint. Many of the specific statements pleaded herein were not identified as "forward-,

looking statements" when made. To the extent there were any forward-looking statements,

there were no meaningful cautionary statements identifying important factors that could

cause actual results to differ materially from those in the purportedly forward-looking

statements. Alternatively, to the extent that the statutory safe harbor does apply to any

forward-looking statements pleaded herein, defendants are liable for those false forward-

looking statements because at the time each of those forward-looking statements was made,

the particular speaker knew that the particular forward-looking statement was false, and/or

the forward-looking statement was authorized and/or approved by an executive officer of

SpectraLink who knew that those statements were false when made.

PLAINTIFFS' CLASS ACTION ALLEGATIONS

91. 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 those who purchased or

otherwise acquired the common stock of SpectraLink during the Class Period (between April

- 36 -

19, 2001 and January 11, 2002, inclusive). Excluded from the Class are defendants, the

officers and directors of the Company, at all relevant times, 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.

92. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, SpectraLink common stock were actively traded

on the NASDAQ. During the Class Period there were more than 19,000,000 shares of

SpectraLink common stock outstanding. 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 hundreds or thousands of members in the proposed Class.

Record owners and other members of the Class may be identified from records maintained

by SpectraLink 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.

93. 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

federal law that is complained of herein.

94. Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and experienced in class and securities litigation.

95. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting 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 statements made by defendants to the investing public during

the Class Period misrepresented material facts about the business, operations and

management of SpectraLink; and

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(c) to what extent the members of the Class have sustained damages and

the proper measure of damages.

96. 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 would 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.

FIRST CLAIM

Violation of Section 10(b) ofthe Securities Exchange Act of 1934 and Rule 10b-5Promulgated Thereunder Against All Defendants

97. Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

98. During the Class Period, defendants carried out a plan, scheme and course of

conduct which was intended to and, throughout the Class Period, did: (a) deceive the

investing public, including plaintiffs and other Class members, as alleged herein; (b) enable

the Individual Defendants to sell more than $12 million of their personally-held SpectraLink

common stock to the unsuspecting public; and (c) cause plaintiffs and other members of the

Class to purchase SpectraLink's common stock at artificially inflated prices. In furtherance

of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the

actions set forth herein.

99. 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 common stock in an

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effort to maintain artificially high market prices for SpectraLink's common stock in violation

of Section 10(b) of the Exchange Act and Rule 10b-5.

100. Defendants, individually and in concert, directly and indirectly, by the use,

means or instrumentalities of interstate commerce and/or of the mails, engaged and

participated in a continuous course of conduct to conceal adverse material information about

the business, operations and future prospects of SpectraLink as specified herein.

101. Defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of SpectraLink's value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and omitting to state

material facts necessary in order to make the statements made about SpectraLink and its

business operations and future prospects in the light of the circumstances under which they

were made, not misleading, as set forth more particularly herein, and engaged in transactions,

practices and a course of business which operated as a fraud and deceit upon the purchasers

of SpectraLink common stock during the Class Period.

102. Each of the Individual Defendants' primary liability, and controlling person

liability, arises from the following facts: (a) the Individual Defendants were high-level

executives at the Company during the Class Period and members of the Company's man-

agement team or had control thereof; (b) each of these defendants, by virtue of his or her

responsibilities and activities as senior officers of the Company were privy to and

participated in the creation, development and reporting of the Company's internal budgets,

plans, projections and/or reports; (c) each of these defendants enjoyed significant personal

contact and familiarity with the other defendants and were advised of and had access to other

members of the Company's management team, internal reports and other data and

information about the Company's finances, operations, and sales at all relevant times; and

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(d) each of these defendants were aware of the Company's dissemination of information to

the investing public which they knew or recklessly disregarded was materially false and

misleading.

103. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed

to ascertain and to disclose such facts, even though such facts were available to them. Such

defendants' material misrepresentations and/or omissions were done knowingly or recklessly

and for the purpose and effect of concealing SpectraLink's operating condition and future

business prospects from the investing public and supporting the artificially inflated price of

its common stock. As demonstrated by defendants' overstatements and misstatements of the

Company's business, operations and earnings throughout the Class Period, defendants, if they

did not have actual knowledge ofthe misrepresentations and omissions alleged, were reckless

in failing to obtain such knowledge by deliberately refraining from taking those steps

necessary to discover whether those statements were false or misleading.

104. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of

SpectraLink's common stock was artificially inflated during the Class Period. In ignorance

of the fact that market prices of SpectraLink' s publicly-traded common stock were artificially

inflated, and relying directly or indirectly on the false and misleading statements made by

defendants, or upon the integrity of the market in which the securities trade, and/or on the

absence of material adverse information that was known to or recklessly disregarded by

defendants but not disclosed in public statements by defendants during the Class Period,

plaintiffs and the other members of the Class acquired SpectraLink common stock during the

Class Period at artificially high prices and were damaged thereby.

105. At the time of said misrepresentations and omissions, plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true. Had

- 40 -

plaintiffs and the other members of the Class and the marketplace known the truth regarding

the problems that SpectraLink was experiencing, which were not disclosed by defendants,

plaintiffs and other members of the Class would not have purchased or otherwise acquired

their SpectraLink common stock, or, if they had acquired such common stock during the

Class Period, they would not have done so at the artificially inflated prices which they paid.

106. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

107. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and

the other members of the Class suffered damages in connection with their respective

purchases and sales of the Company's common stock during the Class Period.

SECOND CLAIM

Violation of Section 20(a) of the Securities ExchangeAct of 1934 Against the Individual Defendants

108. Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein.

109. The Individual Defendants acted as controlling persons of SpectraLink within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-

level positions, and their ownership and contractual rights, participation in and/or awareness

of the Company's operations and/or intimate knowledge of the false financial statements filed

by the Company with the SEC and disseminated to the investing public, the Individual

Defendants had the power to influence and control and did influence and control, directly or

indirectly, the decision-making of the Company, including the content and dissemination of

the various statements which plaintiffs contend are false and misleading. The Individual

Defendants were provided with or had unlimited access to copies of the Company's reports,

press releases, public filings and other statements alleged by plaintiffs to be misleading prior

to and/or shortly after these statements were issued and had the ability to prevent the issuance

of the statements or cause the statements to be corrected.

-41 -

110. In particular, each of these defendants had direct and supervisory involvement

in the day-to-day operations of the Company and, therefore, is presumed to have had the

power to control or influence the particular transactions giving rise to the securities violations

as alleged herein, and exercised the same.

111. As set forth above, SpectraLink and the Individual Defendants each violated

Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By

virtue of their positions as controlling persons, the Individual Defendants are liable pursuant

to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants'

wrongful conduct, plaintiffs and other members of the Class suffered damages in connection

with their purchases of the Company's common stock during the Class Period.

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

A. Determining that this action is a proper class action, designating plaintiffs as

Lead Plaintiffs and certifying plaintiffs as class representatives under Rule 23 of the Federal

Rules of Civil Procedure and plaintiffs' counsel as Lead Counsel;

B. Awarding compensatory damages in favor of plaintiffs and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result

of defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred

in this action, including attorneys' fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: September 18, 2002DYER SHUMAN, LLP

ROB R. DYER IIIKIP B. SH N

stA

JEFFREY A. BERENSTRIG R. SMITH801 East 17th AvenueDenver, Colorado 80218-1417(303) 861-3003

MILBERG WEISS BERSHADHYNES & LERACH LLP

LORI G. FELDMANTAMARA J. DRISCOLL1001 Fourth Avenue, Suite 2550Seattle, WA 98154(206) 839-0730

Plaintiffs' Co-Lead Counsel

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CERTIFICATE OF SERVICE

I hereby certify that true and correct copies of the foregoing CONSOLIDATEDAMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAWS AND JURY TRIAL DEMAND were served bydepositing same in the United States mail, first-class postage prepaid, on this 18th day ofSeptember, 2002 addressed to the following:

1

IRELAND, STAPLETON, PRYOR WOLF HALDENSTEIN ADLER& PASCOE, P.C. FREEMAN & HERZ LLP

K.C. Groves *via hand delivery Fred T. Isquith, Esq.1675 Broadway, Suite 2600 Gregory M. Nespole, Esq.Denver, CO 80202 Thomas H. Burt, Esq.

270 Madison Avenue -10th FloorFENWICK & WEST LLP New York, NY 10016Timothy K. Roake *via overnight deliveryTwo Palo Alto Square LAW OFFICES OF CHARLES J.Palo Alto, CA 94306 PIVEN, P.A.

Charles J. Piven, Esq.MILBERG WEISS BERSHAD The World Trade Center - BaltimoreHYNES & LERACH LLP 401 East Pratt Street, Suite 2525

Steven G. Schulman Baltimore, MD 21202Samuel H. RudmanOne Pennsylvania Plaza - 49th FloorNew York, NY 10119

CAULEY GELLER BOWMAN &COATESHoward K. Coates, Jr.Jonathan M. SteinOne Boca Place2255 Glades Road, Suite 421ABoca Raton, FLA 33431

A;61:0 674,Aat()W