In Re: Foundry Networks, Inc. Securities Litigation 00-CV-4823

MILBERG WEISS BERSHAD HYNES & LERACH LLP PATRICK J. COUGHLIN (111070) RANDI D. BANDMAN (145212) JOHN K. GRANT ( 169813) 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone : 415/288-4545 415/288-4534 (fax) - and WILLIAM S. LERACH (68581) 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone : 619/231-1058 619/231-7423 (fax) BERNSTEIN LIEBHARD & LIFSHITZ, LLP SANDY A. LIEBHARD 10 East 40th Street New York, NY 10016 Telephone : 212/779-1414 212/779-3218 (fax) Co-Lead Counsel for Plaintiffs UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA In re FOUNDRY NETWORKS, Master File No. C-00-4823-MMC INC. SECURITIES LITIGATION CLASS ACTION This Document Relates To: CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF ALL ACTIONS. THE FEDERAL SECURITIES LAWS SUMMARY OF THE ACTION 1. This is a securities fraud class action on behalf of persons who purchased Foundry Networks, Inc. ("Foundry" or the "Company") common stock between September 6, 2000 and December 19, 2000 (the "Class Period"), against Foundry and its top officers for violations of the federal securities laws arising out of defendants' dissemination of false and misleading statements concerning the Company's business and its prospects for 2000 and beyond. 2. Foundry designs, develops, manufactures and markets an end-to-end suite of high performance networking products for enterprises, educational institutions, government agencies, web-hosting companies, Application Service Providers, electronic banking and finance service providers, and Internet Service Providers. Foundry relied heavily on Internet Service Providers ("ISPs") to purchase its products and grow its sales . Whereas much of Foundry's early sales growth was fueled by sales to more established Internet companies such as America Online ("AOL"), by mid-2000, most of the growth was the result of sales to smaller, newer and less established ISPs. Many of these companies were new and were suffering from a downturn in Internet-related funding which began in the spring of 2000. By September 2000, the problems many of these companies were having raising money had reached crisis levels . Defendants knew this would severely impair Foundry's future revenue growth. However, defendants wanted to unload additional shares before the bottom fell out of Foundry's stock price. Thus, defendants continued to make positive but false statements about Foundry's business and future revenues during October and November 2000. As a result, Foundry's stock traded as high as $90-3/8.W 3. In addition to having actual knowledge of the falsity of their statements, each of the defendants had the motive and the opportunity to perpetrate the fraudulent scheme and course of business described herein, in order to sell $113 million worth of their own Foundry shares at prices as high as $89 per share or 580% higher than the price to which Foundry shares dropped at the end of the Class Period, as Foundry's true prospects began to reach the market. In mid-November 2000, after defendants had completed the bulk of their sales, Foundry issued a Form 10-Q which contained many new disclosures about the problems many of its customers might experience in raising money and that Foundry had provided vendor financing to fuel some of its growth. However, Foundry's stock continued to trade at artificially inflated levels as defendants continued to make public statements that demand was strong and that Foundry's biggest problem was keeping up with demand. At least two defendants took advantage of this continued inflation and either sold or filed to sell additional Foundry stock. 4. On December 19, 2000, after the market closed, Foundry announced that in the fourth quarter 2000 it would post revenue and EPS declines from the prior quarter. This was directly contrary to what Foundry's CEO had told The Wall Street Transcript just weeks before. 5. This disclosure shocked the market, causing Foundry's stock to decline to less than $12-1/8 per share before closing at $13 per share on December 20, 2000, on record volume of more than 29 million shares, inflicting hundreds of millions of dollars of damage on plaintiffs and the Class. Defendants' misconduct has wiped out over $2 billion in market capitalization as Foundry stock has fallen 84% from its Class Period high of over $90 per share as the truth about Foundry, its operations and prospects began to reach the market. 6. Foundry's poor fourth quarter 2000 results, however, did not surprise Foundry's insiders, but were in fact anticipated. In July 2000, Foundry had conducted its three-day, semi-annual National Sales Conference, which was attended by upper management, including defendants Bobby Johnson and Robert Shackleton, sales and engineering personnel and marketing and research and development employees. During the July 2000 conference, Johnson and Shackleton both admitted that Foundry was experiencing slowing sales trends and softening demand. This softening of demand was due, moreover, to funding difficulties, particularly with ISPs, and to an excess of available used equipment, as companies were seeking to reduce their debt load. On or about July 20, 2000, Johnson circulated a Company-wide e-mail that recognized and discussed the poor month-to-date sales results and the decline in Foundry's stock price, which implored employees not to overreact to bad news and instructed employees not to sell stock. These concerns were further confirmed, as Foundry's internal actual-to-plan July 2000 reports revealed that Foundry was failing to make its internal monthly plan for the first time and was suffering a 30% miss during July 2000. In November 2000, Foundry held another National Sales Conference, during which the participants further discussed the impact of Foundry's smaller customers' inability to obtain funding and the resulting weakening demand for Foundry's products. JURISDICTION AND VENUE 7. The claims asserted herein arise under §§10(b) and 20(a) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. §§78j(b) and 78t(a), and Rule lOb-5. Jurisdiction is conferred by §27 of the 1934 Act, 15 U.S.C. §78aa. 8. Venue is proper here pursuant to §27 of the 1934 Act. Acts and transactions giving rise to the violations of law complained of occurred here. THE PARTIES 9. On April 6, 2001, the Court appointed Cyrous Gheyri, John Svigos, Chuan-Wen Chou and Licia Leslie as lead plaintiffs, pursuant to §21D(a)(3)(B) of the 1934 Act. Lead plaintiffs each purchased shares of Foundry common stock during the Class Period and were injured thereby. The purchases of the lead plaintiffs are identified in the papers filed in support of the motion for appointment of lead plaintiffs. 10. Defendant Foundry maintains its headquarters at San Jose, California. Foundry develops and markets high-performance, end-to-end switching and routing solutions, including Internet routers, Layer 3 switches and Layer 4-7 Internet traffic and content management switches. During the Class Period, Foundry had approximately 117 million shares of common stock outstanding, which shares traded in an efficient market on the Nasdaq National Market System. 11. (a) Defendant Bobby R. Johnson, Jr. ("Johnson") was, during the Class Period, President, Chief Executive Officer, and Chairman of the Board of the Company. During the Class Period, while in possession of confidential Foundry data, defendant Johnson sold 850,000 shares of Foundry stock at artificially inflated prices as high as $85 per share, for proceeds of more than $70 million. Johnson was the largest shareholder of Foundry having acquired his shares in 1996 for a split adjusted one-third of a penny each. (b) Defendant Lee Chen ("Chen") was, during the Class Period, Vice President-Software Engineering, Quality and Assurance of the Company. During the Class Period, while in possession of confidential Foundry data, Chen sold 220,000 shares of Foundry stock at artificially inflated prices as high as $89 per share, for proceeds of more than $16.1 million. (c) Defendant Robert W. Shackleton ("Shackleton"), was, during the Class Period, Vice- President North American Sales of the Company. During the Class Period, while in possession of confidential Foundry data, Shackleton sold 150,000 shares of Foundry stock at an artificially inflated price of $84-15/16 per share, for proceeds of more than $12.7 million. (d) Defendant Ken K. Cheng ("Cheng") was, during the Class Period, Vice President- Marketing and Product and Program Management of the Company. During the Class Period, while in possession of confidential Foundry data, Cheng sold 70,000 shares of Foundry stock at artificially inflated prices as high as $89 per share, for proceeds of more than $6.2 million. Cheng also filed to sell an additional 50,000 shares on November 29, 2000, just three weeks before Foundry disclosed the devastating news. (e) Defendant H. Earl Ferguson ("Ferguson") was, during the Class Period, Vice President-Hardware Engineering of the Company. During the Class Period, while in possession of confidential Foundry data, Ferguson sold 100,000 shares of Foundry stock at artificially inflated prices as high as $89 per share, for proceeds of more than $8.1 million. Ferguson also distributed 25,000 shares of Foundry stock while the stock price was inflated thereby benefitting from the inflation. (f) Defendant Timothy D. Heffner ("Heffner") was, during the Class Period, Vice President-Finance and Administration and Chief Financial Officer of the Company. 12. The parties listed in ¶11 (a)-(f) are referred to as the "Individual Defendants." They are liable for the false statements pleaded herein at ¶126 and 36, as those statements were each "group-published" information for which they were collectively responsible. The Individual Defendants, by reason of their stock ownership and positions with Foundry, were controlling persons of Foundry.

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