(Case 5:06-cv-04327-JW Document 91 Filed 07/30/2007 Page 1 of 3

1 NEIL L. SELINGER RICHARD BEMPORAD 2 DAVID C. HARRISON JEANNE D'ESPOSITO 3 STACEY E. BLAUSTEIN LOWEY DANNENBERG BEMPORAD & SELINGER, P.C. 4 One North Lexington Avenue White Plains, New York 10601-1714 5 Telephone: 914-997-0500

6 Lead Counselfor the New York City Pension Funds and the Putative Class

7 WILLEM F. JONCKHEER S.B.N. 178748 SCHUBERT & REED LLP 8 Two Embarcadero Center, Suite 1050 San Francisco, California 94111 9 Telephone: 415-788-4220

10 Local Counsel

11 UNITED STATES DISTRICT COURT 12 NORTHERN DISTRICT OF CALIFORNIA 13 SAN JOSE DIVISION 14

15 In re JUNIPER NETWORKS, INC. No. C06-04327-JW SECURITIES LITIGATION 16 DECLARATION OF DAVID C. HARRISON IN SUPPORT 17 OF PLAINTIFF'S BRIEF IN OPPOSITION TO DEFENDANTS' 18 MOTION TO DISMISS AMENDED CONSOLIDATED CLASS ACTION 19 COMPLAINT 20 Date : September 10, 2007 This Document Relates to: All Actions. Time: 9 :00 a.m. 21 Courtroom: 8 Before: Hon. James Ware 22

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25 I, David C. Harrison, declare as follows:

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28 DECLARATION OF DAVID C. HARRISON IN SUPPORT OF PLAINTIFF'S BRIEF IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS AMENDED CONSOLIDATED CLASS ACTION COMPLAINT 1964 / DECL/ 00083364.WPD vl Case 5:06-cv-04327-JW Document 91 Filed 07/30/2007 Page 2 of 3

1 1. I am an attorney at the law firm of Lowey Dannenberg Bemporad Selinger &

2 Cohen, P.C., counsel of record for Lead Plaintiff The New York City Pension Funds. I make this

3 declaration in support of Plaintiffs Brief in Opposition to the Juniper Defendants' Motion to

4 Dismiss. I have personal knowledge of the facts set forth below, and if called as a witness, could

5 and would testify competently thereto.

6 2. Attached hereto as Exhibit 1 is a true and correct copy of the opinion in In re

7 United Health Group PSLRA Litig., 06-CV-1691 (JMR/FLN) (D. Minn. June 4, 2007).

8 3. Attached hereto as Exhibit 2 is a true and correct copy of Juniper's 2005 Proxy

9 Statement.

10 4. Attached hereto as Exhibit 3 is a true and correct copy of the Transcript on

11 Hearing on Motion to Dismiss in the case of Smajlaj v. Brocade Communications Systems, Inc.,

12 C-05-242 (CBB) (N.D. Cal. Nov. 3, 2006).

13 5. Attached hereto as Exhibit 4 is a true and correct copy of Juniper's Form 8-K,

14 dated December 13, 2004.

15 6. Attached hereto as Exhibit 5 is the March 18, 2006 Wall Street Journal article,"the

16 Perfect Payday."

17 7. Attached hereto as Exhibit 6 is the May 18, 2006 Wall Street Journal article,

18 Affiliated Computer Gets Subpoena."

19 S. Attached hereto as Exhibit 7 is the May 19, 2006 Los Angeles Times article,

20 "Broadcom at Risk on Stock Options."

21 9. Attached hereto as Exhibit 8 is the May 19, 2006 thestreet.com article, "Option

22 Talk Hits Juniper."

23 10. Attached hereto as Exhibit 9 is a true and correct copy of the Order Denying

24 Defendants' Motion to Dismiss in Plumbers Pipefitters National Pension Fund v. Cisco Systems,

25 Inc. C-01-20418 (JW) (N.D. Cal. Jan. 4, 2003).

26 11. Attached hereto as Exhibit 10 is a true and correct copy of the opinion in In re

27 Wireless Facilities Inc. Sec. Litig., No. 04-CV-1589 (S.D. Cal. March 9, 2006).

28 12. Attached hereto as Exhibit 11 is the August 11, 2006 thestreet.com article,

1964 / DECL/ 00083364.WPD vl Case 5:06-cv-04327-JW Document 91 Filed 07/30/2007 Page 3 of 3

1 "Friday's Tech Winners & Losers."

2 13. Attached hereto as Exhibit 12 is a true and correct copy of a chart showing

3 Juniper's daily closing stock prices for the period January 16, 2006 to May 24, 2006 , obtained

4 from http ://finance.aol . com/quotes.

5 I declare under penalty of perjury that the foregoing is true and correct.

6 Executed this 30" day of July 2007 in White Plains/Nc v York,,,'-)_

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28 DECLARATION OF DAVID C. HARRISON IN SUPPORT OF PLAINTIFF'S BRIEF IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS AMENDED CONSOLIDATED CLASS ACI'ioN COMPLAINT 19641 DECL / 00083364. WPD v i 2 Case 5:06-cv-04327-JW Document 91-2 Filed 07/30/2007 Page 1 of 6

EXHIBIT 1 Case 5:06-cv-04327-JW Document 91-2 Filed 07/30/2007 Page 2 of 6 Case 0:06-cv-01691-JMR-FLN Document 202 Filed 06/04/2007 Page 1 of 5

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA Master File No. 06-CV-1691(JMR/FLN)

In re UnitedHealth Group ) AMENDED PSLRA Litigation ) ORDER

This matter is before the Court on defendants' motion to dismiss the Consolidated Class Action Co mplaint ("Complaint").

Notwithstanding counsel's siren song, the Court persists in its belief that two plus two equals four.

I. Background

On March 18, 2006, the Wall Street Journal published an article. According to the article, United Health Group ("United") executives had received back-dated stock options, with "grant dates" designed to coincide with prior low points in the company's stock price. As has become customary, this article led to the filing of numerous securities class actions, now consolidated before this Court. Lead plaintiff California Public Employees

Retirement System filed the Complaint on December 8, 2006. The

Complaint alleges that United and certain of its officers and directors violated federal securities laws, including §§ 11 and 15 of the Securities Act of 1933, §§ 10b, 14(a), and 20A of the

Securities Exchange Act of 1934, and related Rule lOb-5. The lead plaintiff purports to represent a putative class which, it claims, suffered compensable injuries during an asserted class period, Case 5 : 06-cv-04327-JW Document 91-2 Filed 07/30/2007 Page 3 of 6 Case 0: 06-cv-01 691 -JMR-FLN Document 202 Filed 06/04/2007 Page 2 of 5

commencing on January 20, 2005, and running to May 17, 2006.

II. Analysis

Defendants urgently ask the Court to apply the Private

Securities Litigation Reform Act's ("PSLRA") heightened pleading

standards. The Court, of course, is constrained to do so in any

case of this nature. But even under those heightened pleading

standards, it remains the law that, in securities litigation as elsewhere, plaintiffs' Complaint should not be dismissed for

failure to state a claim where there is a "reasonably founded hope that the [discovery] process will reveal relevant evidence" to support plaintiffs' claims. Bell Atlantic Corp. v. Twombly , 127

S.Ct. 1955, 1967 (May 21, 2007) (alteration in Dura

Pharmaceuticals, Inc. v. Broudo , 544 U.S. 336, 347 (2005)).

The Court has carefully applied the PSLRA's standards. This means it takes the Complaint's factual allegations as true, while simultaneously rejecting "catch-all or blanket assertions" of fact or law and unwarranted inferences. In re Navarre Corp. Securities

Litig. , 299 F.3d 735, 740-41 (8th Cir. 2002). The Court well knows that in PSLRA-governed cases, plaintiffs must plead specific facts giving rise to "both reasonable and strong inferences" that defendants acted with the requisite state of mind. Id. at 741.

The Court wishes to be explicit: it expresses - and harbors - no opinion as to the ultimate merits of this case. But it has eyes to see, as well as a mind to perceive, the nature of plaintiffs'

2 Case 5:06-cv-04327 -JW Document 91-2 Filed 07/30/2007 Page 4 of 6 Case 0: 06-cv-01 691 -JMR-FLN Document 202 Filed 06/04/2007 Page 3 of 5

claims. Plaintiffs' claims are nowhere near as complex as defense

counsel suggest. If plaintiffs are correct, this case is

incredibly simple. Plaintiffs claim defendants were playing a game

with a stacked deck. When awarded options, with deliberately

selected grant dates which were already in the money, defendants

were playing a game they knew they could not lose; and,

unsurprisingly, defendants won.

Defendants' dismissal motions trot out - expending forests of

trees and trillions of electrons - the requirements of the PSLRA,

Sarbanes-Oxley, and GAAP, all to inform the Court, as required by

Rule 12, Fed. R. Civ. P., that there is no way plaintiffs can possibly win. The Court has carefully reviewed their briefs.

After this review, however, plaintiffs' theory remains clear.

Interestingly, plaintiffs' theory has been examined in the public media for years. Indeed, it has won several Academy Awards.

Plaintiffs' theory lies at the core of the plot in one of

Hollywood's most entertaining and honored films.

In The Sting , the bad guy is ultimately brought down by utterly charming con men, played by Paul Newman and Robert Redford.

The Sting (Universal Pictures, 1973) . They gain their revenge

through a scheme involving "past-posting," or betting on horse

races after the results are known. The Court expresses not the

slightest opinion as to whether such shenanigans occurred here, but such is the essence of plaintiffs' theory.

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It is a poker axiom that if a player has his knees under the

table and cannot tell who the sucker is, he's it. In this game, according to plaintiffs, the patsy was either the hapless corporation, which in varying ways defendants controlled, or the corporation's shareholders, whose equity provided the game's antes and bloated pot.

That's it. A claim has been stated.

The Court finds plaintiffs have adequately pleaded that the named defendants made false and misleading statements which they knew were false at the time they made them, and not merely with hindsight. They have pleaded facts which support both reasonable and strong inferences of scienter. For purposes of this motion, they have pleaded the necessary connection between each defendants' actions and the corporation's stock price and corporate worth.

They have pleaded with sufficient particularity the "who, what, when, where and how" of the alleged scheme. See In re Navarre

Corp. Securities Litig. , 299 F.3d at 745. In short, the Complaint adequately states a claim.

Parenthetically, the Court commends The Sting to all parties.

And, mindful of the dictates of Bell Atlantic and Dura , the Court easily denies the motions to dismiss.

III. Conclusion

Accordingly, defendants' motions to dismiss [Docket Nos. 177,

182, 187] are denied.

4 Fil CaseP 6cvYT 643?Zd -FLN ocument 02 ed76 964920007 5of 5

IT IS SO ORDERED.

Dated: June 4th, 2007

Is James M. Rosenbaum JAMES M. ROSENBAUM United States Chief District Judge

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Table of Contents JunIper NETWORKS

JUNIPER NETWORKS, INC. 1194 North Mathilda Avenue Sunnyvale, California 94089 www.juniper.net (408) 745-2000

NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS

Time and Date 9:00 a.m., Pacific time, on Wednesday, May 18, 2005 Juniper Networks, Inc. Place 1220 North Mathilda Avenue Building 3, Pacific Conference Room Sunnyvale, CA 94089

Items of Business (1) To elect three Class III directors;

(2) To ratify the appointment of Ernst & Young LLP, an independent registered public accounting firm, as auditors for the fiscal year ending December 31, 2005; and

(3) To consider such other business as may properly come before the meeting.

Adjournments and Any action on the items of business described above may be considered at the annual meeting at the time and on Postponements the date specified above or at any time and date to which the annual meeting may be properly adjourned or postponed.

Record Date You are entitled to vote only if you were a Juniper Networks stockholder as of the close of business on March 21, 2005.

Meeting Admission You are entitled to attend the annual meeting only if you were a Juniper Networks stockholder as of the close of business on March 21, 2005 or hold a valid proxy for the annual meeting. You should be prepared to present valid government-issued photo identification for admittance. In addition, if you are a stockholder of record, your ownership will be verified against the list of stockholders of record or plan participants on the record date prior to being admitted to the meeting. If you are not a stockholder of record but hold shares through a broker or nominee (i.e., in street name), you should provide proof of beneficial ownership as of the record date, such as your most recent account statement prior to March 21, 2005, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of ownership. If you do not provide photo identification

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or comply with the other procedures outlined above upon request, you may not be admitted to the annual meeting.

The annual meeting will begin promptly at 9:00 a.m., Pacific time. Check-in will begin at 8:30 a.m., Pacific time, and you should allow ample time for the check-in procedures.

Voting Your vote is very important . Whether or not you plan to attend the annual meeting, we encourage you to read this proxy statement and submit your proxy or voting instructions as soon as possible. You may submit your proxy or voting instructions for the annual meeting by completing, signing, dating and returning your proxy or voting instruction card in the pre-addressed envelope provided , or, in most cases , by using the telephone or the Internet. For specific instructions on how to vote your shares, please refer to the section entitled Questions and Answers beginning on page 1 of this proxy statement and the instructions on the proxy or voting instruction card.

By Order of the Board of Directors,

44W i

1^^_

Mitchell L. Gaynor Vice President, General Counsel and Secretary

This notice ofannual meeting and proxy statement andform ofproxy are being distributed on or about April 13, 2005.

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2005 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING Why am I receiving these materials? What information is contained in this proxy statement? How may I obtain Juniper Networks ' 10.-K? What items of business will be voted on at the annual meeting? How does the Board recommend that I vote? What shares can I vote'? What is the difference between holding shares. a.s a shareowner of record and as a beneficial owner? How can I attend the annual meeting? How can I vote my shares in person at the annual meeting? How can I vote my shares without attending the. annual meeting? Can I change my vote or otherwise revoke my proxy? Is my vote confidential'? How many shares must be present or represented to conduct business at the annual meeting? Will my shares be voted if I do not return my proxy card? How are votes counted? What is the voting requirement to approve each of the proposals'? Is cumulative voting permitted fo r the election of directors'? What happens ifadditional matters are presented at the annual meeting? What should . 1 do_if I receive more than one set of voting materials? flow magi obtain a separate set of voting materials? Who w ill bear the cost of soliciting votes for the annual meeting? Where can I find the voting results of the -annual, meeting? What is the deadline to propose actions for consideration or to nominate individuals to serve as directors?

CORPORATE GOV ERNANCE PRINCIPIE S AND BOARD MATTERS 9 Board Independence 9 Board Structure and Committee Composition 9 Identification and Evaluation of Nominees for Directors 11 Stockholder Communications with the Board 12 Polite on Direc tar Attendance at A nnual Meetings 12

DIRECTOR COMPENSATION 13

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Non-Employee DirectorCompensation'Table For Fiscal 2004 13

PROPOSALS TO BE VOTED ON 14

PROPOSAL NO. 1 Election of Directors 14 PROPOSAL NO. 2 Ratification of Independent Auditors 17

COMMON STOCK OWNE RSHIP OF CERTAIN BENEFICIAL O WN ERS AND MANAGEMENT 18

Beneficial Ownership Table 18 Section 16 Beneficial Ownership Reporting Comp liance 20

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 20

EXECUTIVE COMPENSATION 21

Summary Compensation Table 21 Option. Grants in Last Fiscal Year 22 Option Exercises in Last Fiscal Year and Fiscal Year-F,nd Option Values 23 Employment Agreements 23 Board Compensation Committee Report on Executive Compensation 24 Equity Compensation Plan Information 27 Stock Performance Graphs 28

PRINCIPAL AUDI TOR FEES AND SERVICES 29

REPORT OF THEAUDIT COMMITTEE OF THE BOARD OF DIRECTORS 30

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^ QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

Q: Why am I receiving these materials?

A: The Board of Directors (the "Board") of Juniper Networks, Inc., a Delaware corporation ("Juniper Networks" or the "Company"), is providing these proxy materials for you in connection with Juniper Networks' annual meeting of stockholders, which will take place on May 18, 2005. As a stockholder, you are invited to attend the annual meeting and are entitled to and requested to vote on the items of business described in this proxy statement.

Q: What information is contained in this proxy statement?

A: The information included in this proxy statement relates to the proposals to be voted on at the annual meeting, the voting process, the compensation of directors and executive officers, and certain other required information.

Q: How may I obtain Juniper Networks' 10-K?

A: A copy of our 2004 Annual Report on Form 10-K is enclosed.

Stockholders may request another free copy of the 2004 Form 10-K from:

Juniper Networks, Inc. Attn: Investor Relations 1194 North Mathilda Avenue Sunnyvale, CA 94089 (408) 745-2000

A copy of our 2004 Annual Report on Form 10-K is also available on the website of the Securities and Exchange Commission. You can reach this website by going to the Investor Relations Center on our Website, and clicking on the drop-down menu labeled "SEC Filings". The address of the Investor Relations Center is:

http://www.j uniper.net/company/investor

Juniper Networks will also furnish any exhibit to the 2004 Annual Report on Form 10-K if specifically requested in writing.

Q: What items of business will be voted on at the annual meeting?

A: The items of business scheduled to be voted on at the annual meeting are:

• The election of three Class III directors; and

• The ratification of Ernst & Young LLP, an independent registered public accounting firm, as auditors for the 2005 fiscal year.

We will also consider other business that properly comes before the annual meeting.

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Q: How does the Board recommend that I vote?

A: Our Board recommends that you vote your shares "FOR" each of the nominees to the Board and "FOR" the ratification of Ernst & Young LLP, an independent registered public accounting firm as auditors for the 2005 fiscal year.

Q: What shares can I vote?

A: Each share of Juniper Networks common stock issued and outstanding as of the close of business on March 21, 2005, the Record Date, is entitled to be voted on all items being voted upon at the annual meeting. You may vote all shares owned by you as of this time, including (1) shares held directly in your name as the stockholder ofrecord and (2) shares held for you as the beneficial owner through a broker, trustee or other nominee such as a bank. More information on how to vote these shares is contained in this proxy statement. On the Record Date we had approximately 544,176,804 shares of common stock issued and outstanding.

Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

A: Most Juniper Networks stockholders hold their shares through a broker or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholder of Record

If your shares are registered directly in your name with Juniper Networks' transfer agent, Wells Fargo Shareowner Services, you are considered, with respect to those shares, the stockholder ofrecord, and these proxy materials are being sent directly to you by Juniper Networks. As the stockholder of record, you have the right to grant your voting proxy directly to Juniper Networks or to vote in person at the meeting. Juniper Networks has enclosed or sent a proxy card for you to use.

Beneficial Owner

If your shares are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote and are also invited to attend the annual meeting.

Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a "legal proxy" from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting. Your broker, trustee or nominee has enclosed or provided voting instructions for you to use in directing the broker, trustee or nominee how to vote your shares.

Q: How can I attend the annual meeting?

A: You are entitled to attend the annual meeting only if you were a Juniper Networks stockholder as of the close of business on March 21, 2005 or you hold a valid proxy for the annual meeting. You should be prepared to present valid government-issued photo identification for admittance. In

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addition, if you are a stockholder of record, your name will be verified against the list of stockholders of record on the record date prior to your being admitted to the annual meeting. If you are not a stockholder of record but hold shares through a broker or nominee (i.e., in street name), you should provide proof of beneficial ownership on the record date, such as your most recent account statement prior to March 21, 2005, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of ownership. If you do not provide valid government-issued photo identification or comply with the other procedures outlined above upon request, you will not be admitted to the annual meeting.

The meeting will begin promptly at 9:00 a.m., local time. Check-in will begin at 8:30 a.m., and you should allow ample time for the check- in procedures.

Q: How can I vote my shares in person at the annual meeting?

A: Shares held in your name as the stockholder of record may be voted in person at the annual meeting. Shares held beneficially in street name may be voted in person only if you obtain a legal proxy from the broker, trustee or nominee that holds your shares giving you the right to vote the shares. Even ifyou plan to attend the annual meeting, you may also submit your proxy or voting instructions as described below so that your vote will be counted ifyou later decide not to attend the meeting.

Q: How can I vote my shares without attending the annual meeting?

A: Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct how your shares are voted without attending the meeting. If you are a stockholder of record, you may vote by submitting a proxy. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee. For directions on how to vote, please refer to the instructions below and those included on your proxy card or, for shares held beneficially in street name, the voting instruction card provided by your broker, trustee or nominee.

By Internet-Stockholders of record of Juniper Networks common stock with Internet access may submit proxies by following the "Vote by Internet" instructions on their proxy cards. Most Juniper Networks stockholders who hold shares beneficially in street name may vote by accessing the website specified on the voting instruction cards provided by their brokers, trustee or nominees. Please check the voting instruction card for Internet voting availability.

By Telephone-Stockholders of record of Juniper Networks common stock who live in the United States or Canada may submit proxies by following the "Vote by Phone" instructions on their proxy cards. Most Juniper Networks stockholders who hold shares beneficially in street name and live in the United States or Canada may vote by phone by calling the number specified on the voting instruction cards provided by their brokers, trustee or nominees . Please check the voting instruction card for telephone voting availability.

By Mail-Stockholders of record of Juniper Networks common stock may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-addressed envelopes. Juniper Networks stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction cards provided and mailing them in the accompanying pre-addressed envelopes.

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Q: Can I change my vote or otherwise revoke my proxy?

A: You may change your vote at any time prior to the vote at the annual meeting. If you are the stockholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to the Juniper Networks corporate Secretary prior to your shares being voted, or by attending the annual meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker, trustee or nominee, or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.

Q: Is my vote confidential?

A: Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Juniper Networks or to third parties, except: (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote, and (3) to facilitate a successful proxy solicitation.

Q: How many shares must be present or represented to conduct business at the annual meeting?

A: The quorum requirement for holding the annual meeting and transacting business is that holders of a majority of shares of Juniper Networks common stock entitled to vote must be present in person or represented by proxy. Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum.

Q: Will my shares be voted ifI do not return my proxy card?

A: If your shares are held in street name, your broker may, under certain circumstances, vote your shares. Brokerage firms have authority to vote client's unvoted shares on some "routine" matters. If you do not give a proxy to vote your shares, your broker may either (1) vote your shares on "routine" matters or (2) leave your shares unvoted. In addition, the terms of the agreement with your broker may grant your broker discretionary authority to vote your shares.

Q: How are votes counted?

A: In the election of directors, you may vote "FOR" all of the nominees or your vote may be "WITHHELD" with respect to one or more of the nominees.

For the other items of business, you may vote "FOR," "AGAINST" or "ABSTAIN." If you "ABSTAIN," the abstention has the same effect as a vote "AGAINST." If you provide specific instructions with regard to certain items, your shares will be voted as you instruct on such items. If you sign your proxy card or voting instruction card without giving specific instructions, your shares will be voted in accordance with the recommendations of the Board ("FOR" all of Juniper Networks' nominees to the Board and "FOR" ratification of the independent auditors).

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Q: What is the voting requirement to approve each ofthe proposals?

A: In the election of directors, the three nominees receiving the highest number of "FOR" votes at the annual meeting will be elected. The proposal for ratification of the independent auditors requires the affirmative "FOR" vote of a majority of those shares present in person or represented by proxy and entitled to vote on that proposal at the annual meeting. If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute "broker non-votes." Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained. Abstentions have the same effect as votes against the matter.

Q: Is cumulative voting permitted for the election of directors?

A: No. Each share of common stock outstanding as of the close of business on the Record Date is entitled to one vote.

Q: What happens if additional matters are presented at the annual meeting?

A: Other than the two items of business described in this proxy statement, we are not aware of any other business to be acted upon at the annual meeting. If you grant a proxy using the enclosed form, the persons named as proxyholders, Robert Dykes and Mitchell Gaynor, will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any unforeseen reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board of Directors.

Q: What should I do ifI receive more than one set of voting materials?

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive.

Q: How may I obtain a separate set of voting materials?

A: If you share an address with another stockholder, you may receive only one set of proxy materials (including our letter to stockholders, 2004 Annual Report on Form 10-K and proxy statement) unless you have provided contrary instructions. If you wish to receive a separate set of proxy materials now or in the future, you may write or call us to request a separate copy of these materials from:

Juniper Networks, Inc. Attn: Investor Relations 1194 North Mathilda Avenue Sunnyvale, CA 94089

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(408) 745-2000 http: //www.juniper.net/company/investor

Similarly, if you share an address with another stockholder and have received multiple copies of our proxy materials, you may write or call us at the above address and phone number to request delivery of a single copy of these materials.

Q: Who will bear the cost of soliciting votes for the annual meeting?

A: Juniper Networks is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We also have hired Morrow & Co. to assist us in the distribution of proxy materials and the solicitation of votes described above. We will pay Morrow & Co. a fee of $8000 plus customary costs and expenses for these services. Upon request, we will also reimburse brokerage houses and other custodians, nominees and fiduciaries for forwarding proxy and solicitation materials to stockholders.

Q: Where can Ifind the voting results of the annual meeting?

A: We intend to announce preliminary voting results at the annual meeting and publish final results in our quarterly report on Form 10-Q for the second quarter of 2005.

Q: What is the deadline to propose actions for consideration or to nominate individuals to serve as directors?

A: Although the deadline for submitting proposals or director nominations for consideration at the 2005 annual meeting has passed, you may submit proposals, including director nominations, for consideration at future stockholder meetings.

Stockholder Proposals : For a stockholder proposal to be considered for inclusion in Juniper Networks' proxy statement for the annual meeting next year, the written proposal must be received by the Corporate Secretary of Juniper Networks at our principal executive offices no later than December 14, 2005. If the date of next year's annual meeting is moved more than 30 days before or after the anniversary date of this year's annual meeting, the deadline for inclusion of proposals in Juniper Networks' proxy statement is instead a reasonable time before Juniper Networks begins to print and mail its proxy materials. Such proposals also will need to comply with Securities and Exchange Commission regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

Juniper Networks, Inc. Attn: Corporate Secretary 1194 North Mathilda Avenue Sunnyvale , CA 94089 Fax: (408) 745-2100

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For a stockholder proposal that is not intended to be included in Juniper Networks' proxy statement under Rule 14a-8, the stockholder must deliver a proxy statement and form of proxy to holders of a sufficient number of shares of Juniper Networks common stock to approve that proposal, provide the information required by the bylaws of Juniper Networks and give timely notice to the Corporate Secretary of Juniper Networks in accordance with the bylaws of Juniper Networks, which, in general, require that the notice be received by the Corporate Secretary of Juniper Networks not later than the close of business on December 14, 2005.

If the date of the stockholder meeting is moved more than 30 days before or 60 days after the anniversary of the Juniper Networks annual meeting for the prior year, then notice of a stockholder proposal that is not intended to be included in Juniper Networks' proxy statement under Rule 14a-8 must be received no earlier than the close of business 120 days prior to the meeting and no later than the close of business on the later of the following two dates:

• 90 days prior to the meeting; and

• 10 days after public announcement of the meeting date.

Recommendation and Nomination of Director Candidates : The Nominating and Corporate Governance Committee will consider both recommendations and nominations for candidates to the Board of Directors from Qualifying Stockholders. A "Qualifying Stockholder" is a stockholder that has owned for a period of one year prior to the date of the submission of the recommendation through the time of submission of the recommendation at least 1% of the total common stock of the Company outstanding as of the last day of the calendar month preceding the submission. A Qualifying Stockholder that desires to recommend a candidate for election to the Board of Directors must direct the recommendation in writing to Juniper Networks, Inc., Corporate Secretary, 1194 North Mathilda Avenue, Sunnyvale, California 94089-1206, and must include the candidate's name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years, written evidence that the candidate is willing to serve as a director of the Company if nominated and elected and evidence of the nominating person's ownership of Company stock.

A stockholder that instead desires to nominate a person directly for election to the Board of Directors must meet the deadlines and other requirements set forth in Section 2.5 of the Amended and Restated Bylaws and the rules and regulations of the Securities and Exchange Commission. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the Company not less than one hundred twenty (120) days prior to the date of the Company's proxy statement released to stockholders in connection with the Company's previous year's annual meeting of stockholders. To be in proper form, a stockholder's notice to the secretary shall set forth:

(i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed;

(ii) a representation that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice;

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(iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder;

(iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the Board of Directors; and

(v) if applicable, the consent of each nominee to serve as director of the Company if so elected.

Copy of Bylaws: You may contact the Juniper Networks Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.

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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

Juniper Networks is committed to having sound corporate governance principles. Having such principles is essential to running our business efficiently and to maintaining our integrity in the marketplace. Juniper Networks' Corporate Governance Standards and Worldwide Code of Business Conduct and Ethics applicable to all Juniper Networks employees, officers, directors, contractors and agents are available at http://www.juniper.net/company/investor/. Our Worldwide Code of Business Conduct and Ethics complies with the rules of the SEC, the listing standards of the Nasdaq National Market and Rule 406 of the Sarbanes-Oxley Act of 2002. Juniper Networks has also adopted complaint procedures for Accounting and Auditing matters in compliance with the listing standards of the Nasdaq National Market. Concerns relating to accounting, internal controls or auditing matters may be brought to the attention of either the Company's Concerns Committee (comprised of the Company's Chief Financial Officer, General Counsel, Vice President of Human Resources, Corporate Controller, and the Director of Internal Audit), or to the Audit committee directly. Concerns are reviewed by the Audit Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.

Board Independence

The Board has determined that, except for Scott Kriens and Pradeep Sindhu, each of whom is an executive officer of the company, each of the current directors has no material relationship with Juniper Networks (either directly or as a partner, shareholder or officer of an organization that has a material relationship with Juniper Networks) and is independent within the meaning of the NASDAQ Stock Market, Inc. ("Nasdaq") director independence standards. Furthermore, the Board has determined that each of the members of each of the committees of the Board has no material relationship with Juniper Networks (either directly or as a partner, stockholder or officer of an organization that has a material relationship with Juniper Networks) and is "independent" within the meaning of the NASDAQ director independence standards, including in the case of the members of the Audit Committee, the heightened "independence" standard required for such committee members set forth in the applicable SEC rules.

Board Structure and Committee Composition

As of December 31, 2004, our Board had 9 directors divided into three classes - Class I, Class II and Class III - with each class being as nearly equal in number as possible and with a three-year term for each class. As of December 31, 2004, the classes were comprised as follows:

Class I Class II Class III (Term exp ires in 2006) (Term ex p ires in 2007) (Term exp ires this year) Scott Kriens Pradeep Sindhu William R. Hearst III Stratton Sclavos Kenneth Levy Kenneth Goldman William R. Stensrud Robert M. Calderon Frank Marshall

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The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The membership during the last fiscal year and the function of each of the committees are described below. Each of these committees operates under a written charter adopted by the Board. All of those committee charters are available on Juniper Networks' website at http://www.juniper.net/company/investor/. In addition, the Board has a Stock Committee comprised of the Chief Executive Officer and Chief Financial Officer. The Stock Committee has authority to grant stock options to employees who are not executive officers. During 2004, the Stock Committee held no meetings, and took action only by written consent. The Board has also established special litigation and securities pricing committees for specific purposes, such as oversight of securities litigation matters or the issuance of securities. None of the special committees met during 2004. During 2004, each director attended at least 75% of all Board and applicable committee meetings except Mr. Hearst, who attended 74% (14 meetings) of the applicable meetings and Mr. Sclavos who attended 56%.

Nominating and Corporate Name of Director Board Audit Compensation Governance Non-Employee Directors: Robert M. Calderoni X X Kenneth Goldman(') X X X William R. Hearst III X X Frank Marshall X Kenneth Levy X X X Stratton Sclavos X William R. Stensrud X X X

Employee Directors Scott Kriens X Pradeep Sindhu X

Number of Meetings in Fiscal 2004 9 10 3 3

X = Committee member

(1) The Board has determined that Mr. Goldman is an "audit committee financial expert" within the meaning of the rules promulgated by the Securities and Exchange Commission.

Audit Committee

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of Juniper Networks' financial statements, Juniper Networks' compliance with legal and regulatory requirements, the independent auditors' qualifications and independence, the performance of Juniper Networks' internal audit function and independent auditors, and risk assessment and risk management. The Audit Committee works closely with management as well as Juniper Networks' independent auditors. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Juniper Networks for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties.

The report of the Audit Committee is included herein on page 30. The charter of the Audit Committee is available at http://www.juniper.net/company/investor/.

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Compensation Committee

The Compensation Committee discharges the Board's responsibilities relating to compensation of Juniper Networks' executive officers, including evaluation of the CEO; produces an annual report on executive compensation for inclusion in Juniper Networks' proxy statement and has overall responsibility for approving and evaluating executive officer compensation plans. The report of the Compensation Committee is included herein beginning on page 24. The charter of the Compensation Committee is available at http://www.juniper.net/company/investor/.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members, consistent with criteria approved by the Board; oversees the organization of the Board to discharge the Board's duties and responsibilities properly and efficiently; and identifies best practices and recommends corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance. The charter of the Nominating and Governance Committee is available at http://www.juniper.net/company/investor/.

Identification and Evaluation of Nominees for Directors

The Nominating and Corporate Governance Committee's criteria and process for evaluating and identifying the candidates that it selects, or recommends to the full Board for selection, as director nominees, are as follows:

• The Committee regularly reviews the current composition and size of the Board.

• The Committee reviews the qualifications of any candidates who have been properly recommended or nominated by a stockholder, as well as those candidates who have been identified by management, individual members of the Board of Directors or, if the Committee determines, a search firm. Such review may, in the Committee's discretion, include a review solely of information provided to the Committee or may also include discussions with persons familiar with the candidate, an interview with the candidate or other actions that the Committee deems proper.

• The Committee evaluates the performance of the Board as a whole and evaluates the performance and qualifications of individual members of the Board eligible for re-election at the annual meeting of stockholders.

• The Committee considers the suitability of each candidate, including the current members of the Board, in light of the current size and composition of the Board. In evaluating the qualifications of the candidates, the Committee considers many factors, including, issues of character, judgment, independence, age, expertise, diversity of experience, length of service, other commitments, ability to serve on committees of the Board and the like. The Committee evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors. The Committee considers each individual candidate in the context of the current perceived needs of the Board as a whole. While the Committee has not established specific minimum qualifications for Director candidates, the Committee believes that candidates and nominees must reflect a Board that is comprised of directors who (i) are predominantly independent, (ii) are of high integrity, (iii) have qualifications that will increase overall Board effectiveness and (iv) meet other

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requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to audit committee members.

• In evaluating and identifying candidates, the Committee has the authority to retain and terminate any third party search firm that is used to identify director candidates, and has the authority to approve the fees and retention terms of any search firm.

• After such review and consideration, the Committee selects, or recommends that the Board of Directors select, the slate of director nominees, either at a meeting of the Committee at which a quorum is present or by unanimous written consent of the Committee.

Mr. Marshall was appointed to the Board in 2004 in connection with our acquisition of NetScreen Technologies, Inc. and was recommended to the Nominating and Corporate Governance Committee by our Chief Executive Officer.

Each of the nominees for reelection at the 2005 Annual Meeting was evaluated by the Nominating and Corporate Governance Committee, recommended by the committee to the Board for nomination and nominated by the Board for reelection.

Stockholder Communications with the Board

Stockholders of Juniper Networks, Inc. and other parties interested in communicating with the Board may contact any of our directors by writing to them by mail or express mail c/o Juniper Networks, Inc., 1194 North Mathilda Avenue, Sunnyvale, California 94089-1206. The Nominating and Corporate Governance Committee of the Board has approved a process for handling stockholder communications received by the Company. Under that process, the General Counsel receives and logs stockholder communications directed to the Board and, unless marked "confidential", reviews all such correspondence and regularly (not less than quarterly) forwards to the Board a summary of such correspondence and copies of such correspondence. Communications marked "confidential" will be logged as received by the General Counsel and then will be forwarded to the addressee(s).

Policy on Director Attendance at Annual Meetings

Although we do not have a formal policy regarding attendance by members of the Board at our annual meetings of stockholders, directors are encouraged to attend annual meetings of Juniper Networks stockholders. Eight of our nine directors attended the 2004 Annual Meeting of Stockholders.

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DIRECTOR COMPENSATION

The following table provides information on Juniper Networks' compensation and reimbursement practices during fiscal 2004 for non- employee directors, as well as the range of compensation paid to non-employee directors who served during the 2004 fiscal year. Neither Mr. Kriens nor Dr. Sindhu received any separate compensation for their Board activities. The Board has not made any changes to director compensation for 2005.

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE FOR FISCAL 2004

Annual retainer (payable quarterly) $ 20,000 Stock options granted upon appointment or election to the Board(')(2) 100,000 Stock options granted annually(3) 20,000 Payment for each Board meeting attended in person $ 1,000 Payment for each Board meeting attended by phone $ 500 Payment for each committee meeting attended in person $ 500 Payment for each committee meeting attended by phone $ 250 Reimbursement for expenses attendant to Board membership Yes Range of total cash compensation earned by directors (for the year) $16,500-$31,000

(1) Directors who joined the Board prior to the adoption of this policy received grants at the time the policy was adopted.

(2) Vests monthly over three years commencing on the date of grant.

(3) Vests monthly over twelve months commencing on the date of grant.

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PROPOSALS TO BE VOTED ON

PROPOSAL NO. 1

ELECTION OF DIRECTORS

There are three nominees for election to Class III of the Board this year - Kenneth Goldman, William R. Hearst III and Frank Marshall. Each of the nominees is presently a member of the Board. Information regarding the business experience of each nominee and the other members of the Board is provided below. Each of the Class III directors are elected to serve a three-year term until the Company's annual meeting in 2008 and until their respective successors is elected. There are no family relationships among our executive officers and directors.

If you sign your proxy or voting instruction card but do not give instructions with respect to the voting of directors, your shares will be voted for the three persons recommended by the Board. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy or voting instruction card.

Our Board recommends a vote FOR the election to the Board of each of the following nominees.

Vote Required

The three persons receiving the highest number of "for" votes represented by shares of Juniper Networks common stock present in person or represented by proxy and entitled to be voted at the annual meeting will be elected.

Nominees for Election

Kenneth Goldman Mr. Goldman has served as Senior Vice President, Finance and Administration and Chief Director since 2003 Financial Officer of Siebel Systems, Inc. since August 2000. From July 1996 to July 2000, Age 55 Mr. Goldman served as Senior Vice President of Finance and Chief Financial Officer of Excite@Home, Inc. From 1992 to 1996, Mr. Goldman served as Senior Vice President of Finance and Chief Financial Officer of Sybase, Inc. Mr. Goldman was a member of the Financial Accounting Standards Advisory Council from December 1999 to December 2003. Mr. Goldman is a member of the board of directors of Leadis Technology Inc. and a member of the board of trustees of Cornell University.

William R. Hearst III Since January 1995, Mr. Hearst has been a partner with Kleiner Perkins Caufield & Byers, a Director since 1996 venture capital firm. Mr. Hearst was editor and publisher of the San Francisco Examiner from Age 55 1984 until 1995. Mr. Hearst serves on the boards of directors of Hearst-Argyle Television, The Hearst Corporation, Oblix, Inc., OnFiber, Applied Minds, Akimbo and RGB Media. He is a Fellow of the American Association for the Advancement of Science and a trustee of Carnegie Institution, the Hearst Foundation, Mathematical Sciences Research Institute, the California Academy of Sciences and Grace Cathedral of San Francisco.

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Frank Marshall Mr. Marshall joined the board of directors of NetScreen Technologies, Inc. in December 1997, Director since 2004 became chairman of the NetScreen board in November 2002 and was appointed to our Board upon Age 58 our acquisition of NetScreen. Mr. Marshall is a private investor in early stage high technology companies. Mr. Marshall serves as a director and advisor for several private companies and is a director for PMC-Sierra, Inc., an intemetworking semiconductor solutions company. Mr. Marshall was the interim chief executive officer of Covad Communications Group, Inc. Mr. Marshall served as vice president of engineering and general manager, core business unit of Cisco Systems, Inc. from 1992 until October 1997. He holds a B.S. in electrical engineering from Carnegie Mellon University and an M.S. in electrical engineering from the University of California, Irvine.

Continuing Directors

Robert M. Calderoni Mr. Calderoni has served as President and Chief Executive Officer and a member of the board of Director since 2003 directors of Ariba, Inc. since October 2001. From October 2001 to December 2001, Mr. Calderoni Age 45 also served as Ariba's Interim Chief Financial Officer. From January 2001 to October 2001, Mr. Calderon served as Ariba's Executive Vice President and Chief Financial Officer. Mr. Calderoni was also an employee of the Company from November 2000 to January 2001. From November 1997 to January 2001, he served as Chief Financial Officer at Avery Dennison Corporation, a manufacturer of pressure-sensitive materials and office products. From June 1996 to November 1997, Mr. Calderoni served as Senior Vice President of Finance at Apple Computer, a provider of hardware and software products and Internet-based services.

Scott Kriens Mr. Kriens has served as Chief Executive Officer and Chairman of the Board of Directors of Director since 1996 Juniper Networks since October 1996. From April 1986 to January 1996, Mr. Kriens served as Age 47 Vice President of Sales and Vice President of Operations at StrataCom, Inc., a telecommunications equipment company, which he co-founded in 1986. Mr. Kriens also serves on the boards of directors of Equinix, Inc. and VeriSign, Inc.

Kenneth Levy Mr. Levy is a founder of KLA Instruments Corporation and since July 1, 1999 has been Chairman Director since 2003 of the Board of KLA-Tencor Corporation. From July 1998 until June 1999, he was Chief Age 61 Executive Officer and a director of KLA-Tencor Corporation. From April 1997 until June 1998, he was its Chairman of the Board. From 1975 until April 1997, he was Chief Executive Officer and Chairman of the Board of KLA Instruments Corporation. He currently serves on the boards of directors of the following publicly traded companies: KLA-Tencor Corporation, Ultratech, Inc. and Extreme Networks, Inc. Mr. Levy is a Director Emeritus of SEMI, a semiconductor manufacturing industry trade association.

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Stratton Sclavos Mr. Sclavos has been President and Chief Executive Officer of VeriSign Inc. since July 1995 and Director since 2000 Chairman of its board of directors since December 2001. From October 1993 to June 1995, he was Age 43 Vice President, Worldwide Marketing and Sales of Taligent, Inc., a software development company that was a joint venture among Apple Computer, Inc., IBM and Hewlett-Packard. Prior to that time, he served in various sales, business development and marketing capacities for GO Corporation, MIPS Computer Systems, Inc. and Megatest Corporation. Mr. Sclavos also serves on the boards of directors of Salesforce.com and Intuit, Inc.

Pradeep Sindhu Dr. Sindhu co-founded Juniper Networks in February 1996 and served as Chief Executive Officer Director since 1996 and Chairman of the Board of Directors until September 1996. Since then, Dr. Sindhu has served Age 52 as Vice Chairman of the Board of Directors and Chief Technical Officer of Juniper Networks. From September 1984 to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from March 1987 to February 1996, as the Principal Scientist, and from February 1994 to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox Corporation, Palo Alto Research Center, and a technology research center. Dr. Sindhu also serves on the board of directors of Infinera Corporation.

William R. Stensrud Mr. Stensrud has been a General Partner with the venture capital firm of Enterprise Partners since Director since 1996 January 1997. Mr. Stensrud was an independent investor and turn-around executive from Age 54 March 1996 to January 1997. During this period, Mr. Stensrud served as President of Paradyne Corporation and as a director of Paradyne Corporation, GlobeSpan Corporation and Paradyne Partners LLP, all data networking companies. From January 1992 to July 1995, Mr. Stensrud served as President and Chief Executive Officer of Primary Access Corporation, a data networking company acquired by 3Com Corporation. From 1986 to 1992, Mr. Stensrud served as the Marketing Vice President of StrataCom, Inc., a telecommunications equipment company, which Mr. Stensrud co-founded. Mr. Stensrud also serves on the board of directors of Paradyne Corporation.

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PROPOSAL NO.2

RATIFICATION OF INDEPENDENT AUDITORS

The Audit Committee of the Board has appointed Ernst & Young LLP, an independent registered public accounting firm, to audit Juniper Networks' consolidated financial statements for the fiscal year ending December 31, 2005. During fiscal 2004, Ernst & Young served as Juniper Networks' independent auditors and also provided certain tax and other audit related services. See "Principal Auditor Fees and Services" on page 29. Representatives of Ernst & Young are expected to attend the annual meeting, where they are expected to be available to respond to appropriate questions and, if they desire, to make a statement.

Our Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as Juniper Networks ' auditors for the 2005 fiscal year. If the appointment is not ratified, the Audit Committee will consider whether it should select other independent auditors.

Vote Required

Ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as auditors for fiscal 2005 requires the affirmative vote of a majority of the shares of Juniper Networks common stock present in person or represented by proxy and entitled to be voted at the meeting.

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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of March 21, 2005, concerning:

Beneficial owners of more than 5% of Juniper Networks' common stock;

beneficial ownership by current Juniper Networks directors and nominees and the named executive officers set forth in the Summary Compensation table on page 21; and

beneficial ownership by all current Juniper Networks directors and Juniper Networks executive officers as a group.

The information provided in the table is based on Juniper Networks' records, information filed with the Securities and Exchange Commission and information provided to Juniper Networks, except where otherwise noted.

The number of shares beneficially owned by each entity, person, director or executive officer is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire as of May 21, 2005 (60 days after March 21, 2005) through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his spouse) with respect to the shares set forth in the following table.

BENEFICIAL OWNERSHIP TABLE

Amount and Nature of Beneficial PercentP Name and Address of Beneficial Owner Ownership(' ) of Classrcen0) Holders of Greater Than S%

AXA Financial, Inc. 1290 Avenue of the Americas New York, NY 10104 88,836,873(2) 16.33%

FMR Company 82 Devonshire Street Boston, MA 02109 43,618,458(3) 8.02%

Directors, Nominees and Named Executive Officers: Robert M. Calderoni (4) 60,777 James A. Dolce, Jr. (5) 2,238,454 Marcel Gani(6) 1,245,916 Kenneth Goldman (7) 82,473 William R. Hearst 111(8) 1,034,919

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Amount and Nature of Beneficial Percent Name and Address of Beneficial Owner Ownership(') of Class(') Scott Kriens(9) 15,534,083 2.84% Krishna "Kittu" Kolluri(10) 356,828 Kenneth Levy(") 95,000 Frank Marshall(12) 789,363 Stratton Sclavos('3) 143,000 Pradeep Sindhu('4) 11,829,574 2.17% William R. Stensrud(15) 1,518,752

All Directors and Executive Officers as a Group (12 persons)(16) 34,929,139 6.42%

Represents holdings of less than one percent.

(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as amended, "Vested Options" are options that may be exercised as of May 21, 2005 (60 days after March 21, 2005). The percentages are calculated using 544,176,804 outstanding shares of the Company's common stock on March 21, 2005 as adjusted pursuant to Rule 13d-3(d)(1)(i).

(2) Based on information reported on Schedule 13G filed with the Securities and Exchange Commission on February 14, 2005. AXA Financial, Inc. is the parent holding company for several entities that hold our common stock as investment advisors, including Alliance Capital Management L.P. Collectively, these entities have shared voting power with respect to 10,748 , 089 shares and shared investment power with respect to 175 ,857 shares.

(3) Based on information reported on Schedule 13G filed with the Securities and Exchange Commission on February 14, 2005.

(4) Consists of shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(5) Includes 2,075,693 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(6) Includes 860,353 shares held by Trust and 375,832 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(7) Includes 68,555 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(8) Includes 105,000 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(9) Includes 10,981,672 shares held by the Kriens 1996 Trust, of which Mr. Kriens and his spouse are the trustees and 3,140,624 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(10) Includes 145,378 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(11) Consists of shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(12) Includes 315,894 shares held by Big Basin Partners, LP, 88,206 shares held by Timark, LP, of which Mr. Marshall is a general partner; 135,400 shares held by the Frank & Judith Marshall Trust and 56,111 shares which are subject to options that may be exercised within 60 days of March 21, 2005

(13) Includes 135,000 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(14) Includes 2,768,780 shares held by the Sindhu Investments, LP, a family limited partnership; 27,846 shares held in the Pradeep Sindhu Annuity Trust; 5,860,682 shares held by the Sindhu Family Trust and 6,867 shares held by Dr. Sindhu's spouse. Also includes 1,573,750 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(15) Includes 1,217,352 shares held in a trust as community property and 115,000 shares which are subject to options that may be exercised within 60 days of March 21, 2005.

(16) Includes all shares reference in notes 4 through 15 above.

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* Represents holdings of less than one percent.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of Juniper Networks common stock to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of our securities. Juniper Networks believes that, during fiscal 2004, its directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements, except that: (i) each of Scott Kriens, Pradeep Sindhu, Marcel Gani and James A. Dolce had one option grant with respect to which the required Form 4 was filed late; and (ii) William R. Hearst III and Frank Marshall, each of whom received a distribution from a limited partnership as the result of an acquisition, with respect to which the required Form 4 was filed late. In making this statement, Juniper Networks has relied upon examination of the copies of Forms 3, 4 and 5, and amendments thereto, provided to Juniper Networks and the written representations of its directors, executive officers and 10% stockholders.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company reimburses Mr. Kriens for ordinary operating costs relating to his use of a personal aircraft for business purposes up to a maximum amount per year. In 2004 the annual limit was $300,000 and Mr. Kriens received $300,000 in reimbursements. In 2005, the Company anticipates that Mr. Kriens will increase his business travel and the annual limit has been increased to $650,000.

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EXECUTIVE COMPENSATION

The following table discloses compensation received by Juniper Networks' Chief Executive Officer during fiscal 2004 and Juniper Networks' four other most highly paid executive officers (together with the CEO, the "named executive officers") during fiscal 2004 as well as their compensation received from Juniper Networks for each of the fiscal years ending December 31, 2003 and December 31, 2002.

Summary Compensation Table

Long-Term Compensation Annual Compensation Restricted Securities Name and Other Annual Stock Underlying All Other Principal Position Year Salary Bonus(') Compensation(14) Award (s) Options Compensation(2 Scott Kriens 2004 $412,500 $539,077 $ 2000 NA 750,000(3) $ 540 Chairman and Chief 2003 275,000 161,350 2000 NA 800,000(4) 510 0,000(5) Executive Officer 2002 275,000 0 2000 NA 2,75 462

000(3) Pradeep Sindhu 2004 $198,750 $253,683 $ 2000 NA 200 $ 828 Vice Chairman and 2003 185,000 70,554 2000 NA 300,000(4) 377 Chief Technical Officer 2002 185,000 10,000 2000 NA 400,000(6) 462

Marcel Gani 2004 $245,833 $315,851 $ 2000 NA 300,000(3) $ 828 Executive Vice 2003 200,000 117,345 2000 NA 500,000w4> 408 President, Chief 2002 200,000 0 2000 NA 1,080,000(7) 462 Financial Officer

James A. Dolce, Jr. 2004 $249,167 $319,611 $ 0 NA 300,000(3) $ 40,9780> Executive Vice 2003 254,581 70,407 0 NA 500,000(4) 125,922(9) President, Field 2002(8) 120,000 0 0 NA 0 26,922(9) Operations

Krishna "Kittu" Kolluri. 2004 10) $249,167 $486,288' $ 2000 NA 0(12) $ 91,421(13) General Manager, 2003 NA NA NA NA Security Products 2002 NA NA NA NA

(1) Amounts in this column reflect bonuses earned in 2004, although such amounts were paid in 2005.

(2) Consists of the standard employee benefit portion paid by the Company for all employees for premiums for term life insurance and, in the case of Mr. Dolce and Mr. Kolluri, the additional amounts described in footnotes 9 and 12, respectively.

(3) Mr. Kriens was granted an option for 750,000 shares, Dr. Sindhu was granted an option for 200,000 shares, Mr. Gani was granted an option for 300,000 shares and Mr. Dolce was granted an option for 300,000 shares on January 29, 2004 at an exercise price of $28.17.

(4) Mr. Kriens was granted an option for 800,000 shares, Dr. Sindhu was granted an option for 300,000 shares, Mr. Gani was granted an option for 500,000 shares and Mr. Dolce was granted an option for 500,000 shares on September 26, 2003 at an exercise price of $15.00 per share.

(5) Mr. Kriens was granted an exchange option on May 28, 2002 for 2,200,000 shares at an exercise price of $10.31 per share. In connection with the acquisition of Unisphere Networks and in recognition of the additional responsibility associated therewith, on July 1, 2002 an additional option for 550,000 shares was granted at an exercise price of $5.69 per share.

(6) Dr. Sindhu was granted an exchange option on May 28, 2002 for 100,000 shares at an exercise price of $10.31 per share. In connection with the acquisition of Unisphere Networks and in recognition of the additional responsibility associated therewith, on July 1, 2002 an additional option for 300,000 shares was granted at an exercise price of $5.69 per share.

(7) Mr. Gani was granted an exchange option on May 28, 2002 for 580,000 shares at an exercise price of $10.31 per share. In connection with the acquisition of Unisphere Networks and in recognition of the additional responsibility associated therewith, on July 1, 2002 an additional option for 500,000 shares was granted at an exercise price of $5.69 per share.

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(8) Mr. Dolce was elected a named executive officer upon the closing of the acquisition of Unisphere Networks on July 1, 2002. The data shown in the Summary Compensation Table only reflects the amounts he received while an executive officer of Juniper Networks.

(9) Amounts paid in 2004 reflect $40,618 in commissions paid. Amounts in 2003 reflect $125,414 in commissions paid. Amounts in 2002 reflect $26,634 in commissions paid on or after July 1, 2002 as the data shown in the Summary Compensation Table only reflects the amounts he received while an executive officer of Juniper Networks.

(10) Mr. Kolluri was elected a named executive officer upon the closing of the acquisition of NetScreen Technologies, Inc. on April 16, 2004. The data shown in the Summary Compensation Table only reflects the amounts he received while an executive officer of Juniper Networks.

(11) Includes a bonus of $200,000 paid in 2005 relating to the acquisition of Neoteris Inc. by NetScreen Technologies Inc. Also includes a $50,000 sales bonus committed to Mr. Kolluri prior to the acquisition of NetScreen Technologies, Inc. by the Company.

(12) No options were granted in 2004.

(13) Amounts paid in 2004 reflect $91,331 in escrowed merger consideration relating to the acquisition by NetScreen Technologies Inc. of Neoteris Inc.

(14) In all cases, consists of matching contributions paid under the Company's 401(k) plan.

Option Grants In Last Fiscal Year

The following tables set forth the stock options granted to the Named Executive Officers under the Company's stock option plans and the options exercised by such Named Executive Officers during the fiscal year ended December 31, 2004.

The Option/SAR Grant Table below sets forth hypothetical gains or "option spreads" for the options at the end of their respective ten-year terms, as calculated in accordance with the rules of the Securities and Exchange Commission.

No. of Percent of Securities Total Options Potential Realizable Value at Underlying Granted to Exercise Assumed Annual Rates of Stock Options Employees Price Per Expiration Appreciation for Option Terms ($) 10% Name Granted During Period Share Date 5% 33,671,794 Scott Kriens 750,000 3.36 $ 28.17 1/29/2014 $ 13,286,971 $ 8,979,145 Pradeep Sindhu 200,000 0.90 $ 28.17 1/29/2014 3,543,192 13,468,718 Marcel Gani 300,000 1.35 $ 28.17 1/29/2014 5,314,788 13,468,718 James A. Dolce, Jr. 300,000 1.35 $ 28.17 1/29/2014 5,314,788 Krishna "Kittu" Kolluri

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Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table shows stock option exercises and the value of unexercised stock options held by the Named Executive Officers during the last fiscal year.

Number of Securities Underlying Value of Unexercised Shares Unexercised Options at In-the-Money Options at Acquired on Value December 31, 2004 December 31, 20040) Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable Scott Kriens 0 $ 0 2,782,291 1,517,709 47,327,757 11,385,244 Pradeep Sindhu 0 0 1,452,656 527,344 6,688,121 5,106,879 Marcel Gani 500,000 8,433,333 288,333 774,395 4,374,872 8,445,528 James A. Dolce, Jr. 1,000,000 19,353,938 2,103,181 774,395 43, 841,581 7,004,406 Krishna "Kittu" Kolluri 70,000 1,634,324 99,192 365,637(2) 1,305,715 6,154,221

(1) The value of in-the-money options is based on the closing price on December 31, 2004 of $27.19 per share, minus the per share exercise price, multiplied by the number of shares underlying the option.

(2) Includes 50,806 shares that are subject to repurchase.

Employment Agreements

The Company entered into a change of control agreement with Mr. Kriens on October 1, 1996, which provides that he will be entitled to base compensation and benefit payments for a period of three months in the event that his employment is terminated in connection with a change of control of Juniper Networks. Further, Mr. Kriens' restricted stock would be released from any repurchase option and his stock options would become vested and exercisable as to an additional amount equal to that amount which would have vested and become exercisable had Mr. Kriens remained employed for a period of 18 months following the change of control. If his employment continues following a change of control, his stock options will be vested and exercisable at a rate 1.5 times the rate otherwise set forth in the stock option agreement for a period of twelve months following the change of control. Under the employment agreement, Mr. Kriens is entitled to receive three months' base compensation and benefits, regardless of whether there is a change of control, in the event that his employment is involuntarily terminated. Upon involuntary termination, and regardless of whether there has been a change of control, Mr. Kriens' restricted stock and stock options would become immediately vested and exercisable as to an additional amount equal to the number of stock options which would have become vested and exercisable during the three-month period following the involuntary termination had Mr. Kriens remained employed by the Company.

The Company entered into an Amendment and Assumption Agreement with Krishna "Kittu" Kolluri on April 15, 2004 in connection with the Company's acquisition of NetScreen Technologies, Inc. Pursuant to the Amendment and Assumption Agreement, Mr. Kolluri agreed that the commencement of his employment with the Company upon the closing of the NetScreen acquisition did not constitute (i) "Good Reason," as defined in Section 5.5b of Mr. Kolluri's Employment Agreement with NetScreen, for a voluntary termination of Employee's employment, (ii) any other type of "constructive termination" or (iii) grounds for termination without cause under Mr. Kolluri's employment agreement. Pursuant to Mr. Kolluri's employment agreement, as amended, Mr. Kolluri is eligible for a bonus of up to 100% of his base salary pursuant to Juniper Networks' Executive Officer Incentive Plan. The employment agreement, as amended, in connection with Net Screen's acquisition of Neoteris, Inc., also provides for a grant of options to purchase 200,000 shares of Net Screen's

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Table of Contents common stock and makes Mr. Kolluri eligible to receive a bonus of up to $200,000, partially payable upon on the completion of performance objectives. If Mr. Kolluri is terminated without cause or terminates his employment for good reason (in each case, as defined in the amended employment agreement) within 24 months of the effectiveness of Net Screen's acquisition of Neoteris, he will be entitled to the continuation of his base salary (payable in accordance with usual payroll practice) and health insurance coverage for a period of six months.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Compensation Committee

The Compensation Committee is comprised of three independent, non-employee members of the Board of Directors, as defined by the Nasdaq rules. None of the members have interlocking compensation committee relationships as defined by the Securities and Exchange Commission. The Compensation Committee is responsible for reviewing and approving the annual base salary, the annual incentive bonus, including the specific goals and amounts, equity compensation and other benefits or compensation arrangements of the Company's Chief Executive Officer and its other executive officers.

Compensation Philosophy

The Compensation Committee recognizes that in order for the Company to successfully develop, introduce, market and sell products, the Company must be able to attract, retain and reward qualified executive officers who will be able to operate effectively in a high growth, complex environment. In that regard, the Company must offer compensation that (a) is competitive in the industry; (b) motivates executive officers to achieve the Company's strategic business objectives; and (c) aligns the interests of executive officers with the long-term interests of stockholders.

The Company provides its executive officers with a compensation package consisting of base salary, performance-based incentive pay, stock options and participation in benefit plans generally available to other employees. The Compensation Committee's intention is to adopt compensation programs that encourage creation of long-term value for stockholders, employee retention, and equity ownership through stock option grants. The Compensation Committee's approach is predicated upon the philosophy that a substantial portion of aggregate annual compensation for executive officers should be contingent upon the Company's overall performance and an individual's contribution to the Company's success in meeting certain critical objectives. In this regard, the Compensation Committee has tended to target base salary at approximately the 50th percentile relative to peer companies. Incentive compensation and long term equity awards are intended to target overall compensation at between the 50th and 75th percentile, although changes in the market price of the Company's common stock can result in total compensation outside the target range. As the Compensation Committee applies these compensation philosophies in determining appropriate executive compensation levels and other compensation factors, the Compensation Committee reaches its decisions with a view towards maximizing the Company's overall performance.

The Compensation Committee considers market information about its peer companies from published survey data provided to the Compensation Committee by the Company's human resources staff. The market data consists primarily of base salary and total cash compensation rates, as well as incentive bonus and stock programs of other companies considered by the Compensation Committee to be peers in the Company's

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industry. In addition, for determining 2004 compensation (including cash and equity compensation), the Compensation Committee retained an executive compensation consultant. The compensation consultant provided data from a selected peer group of 13 computer, networking and telecommunications companies as well as from broad high technology industry companies with revenues of $250 million to $1 billion.

Since the Company's 2004 Annual Meeting of Stockholders, the Compensation Committee has not structured such compensation arrangements so as to qualify them for deductibility under Section 162(m) of the Internal Revenue Code.

Executive Officer Compensation

Base Salary. For 2004, the Compensation Committee evaluated the base salaries of the executive officers relative to the peer companies as well as their individual performance. The Compensation Committee determined that, in several cases, the compensation to Juniper Networks executives was below the industry's 50th percentile for base cash compensation. To bring the salary standard into this target range, Mr. Kriens' and Mr. Gani's base salary levels were increased $150,000 and $50,000, respectively. With respect to the other executive officers, the Compensation Committee determined that increases in base salary of between $0 and $15,000 were merited.

Management Incentive Plan. The Company has an executive incentive bonus plan applicable to the Section 16 reporting officers. Under the 2004 executive incentive plan, each participant had a target incentive equal to 100% of base salary. The incentive bonus was primarily based upon the achievement of Company revenue and earnings targets. Below a specified level, no bonus would have been earned. Achievement of revenue and earnings in excess of the targets could result in a greater than target bonus, up to a maximum amount. In addition, regardless of the amount of achievement, no bonus would be paid it the Company failed to expand its business into new growth areas. The amount determined based on achievement of the corporate goals was then subject to a further increase or decrease by up to an additional 20 percentage points depending on the performance of the Company's stock price relative to the stock prices of certain designated publicly- traded companies and by up to 10 percentage points based on the achievement of individual objectives specified for each executive. Most, but not all, of the companies included in the stock performance peer group were also included in the 13 companies surveyed with respect to compensation information. The acquisition of NetScreen Technologies, Inc. in April 2004 satisfied the expansion into new areas requirement. Furthermore, as a result of this acquisition, the Compensation Committee in the middle of 2004 increased the revenue and earnings targets and made several changes to the stock performance peer company list. Based on the Company's actual 2004 financial results, the 2004 corporate goal attainment component (consisting of the achievement of the revised revenue and earnings targets) of the bonus was 100.27%. In 2004, the peer company performance measure resulted in a 20 percentage point increase in the bonus payments. Achievement of the individual performance objectives in 2004 ranged from between 92% and 95%. As a result, the payments under the executive incentive plan ranged between 126% and 128% of base salary.

In connection with the acquisition of Neoteris, NetScreen established a merger bonus for Mr. Kolluri pursuant to which he was eligible for a bonus of up to $200,000 based on achievement of specified business objectives. The Compensation Committee determined that these objectives were fully achieved and awarded the $200,000 bonus to Mr. Kolluri.

Stock Option Grants. Grants of stock options to executive officers are based upon each executive officer's relative position, responsibilities, historical and expected contributions to the Company, and the executive officer's existing stock ownership and previous option grants. Stock options are granted at the fair

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ChiefExecutive Officer Compensation

In 2004, the Compensation Committee determined that Mr. Kriens' base salary was substantially below comparative data, at the targeted 50th percentile level, and required adjustment. As a result, effective for fiscal year 2004, the Compensation Committee increased the base salary of Mr. Kriens to $425,000 with a target bonus percentage of 100% of base salary.

Consistent with the Company's philosophy to provide long-term incentive in the form of stock options, Mr. Kriens received an option in 2004 exercisable for 750,000 shares of Company common stock at an exercise price of $28.17. The options granted to Mr. Kriens vest over a four-year period in accordance with the terms of the Company's standard vesting schedule.

Mr. Kriens executive incentive bonus for 2004 was based on the same criteria as described above. Based on Company performance and achievement of 93% of his individual objectives , Mr. Kriens was awarded a bonus of $ 539,077, which represented a payout at 127% of target. The Company also reimburses Mr. Kriens for operating expenses associated with the use of private aircraft for business purposes up to a maximum amount per year.

MEMBERS OF THE COMPENSATION COMMITTEE

William Stensrud, Chairman, Frank Marshall (became a member in February 2005), and Kenneth Levy

Compensation Committee Interlocks And Insider Participation

No member of the Compensation Committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee.

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2004 about our common stock that may be issued under the Company's existing equity compensation plans. The table does not include information with respect to shares subject to outstanding options assumed by the Company in connection with acquisitions of the companies that originally granted those options. Footnote (6) to the table sets forth the total number of shares of the Company's Common Stock issuable upon exercise of assumed options as of December 31, 2004, and the weighted average exercise price of those options. No additional options may be granted under those assumed plans.

Number of Securities to be Weighted- Number of Securities Remaining Issued Upon Average Available for Future Issuance Exercise of Exercise Price Under Equity Compensation Outstanding of Outstanding Plans (excluding securities Plan Category Options Options reflected in the first column) Equity compensation plans approved by security holders(l) 38,820,206(3) $ 20.92 42,379,182(a) Equity compensation plans not approved by security holders(2) 26,931,711 $ 13.99 28,190,299 (5) Total 65,751,917 $ 18.09 70,569,481

(1) Includes the Amended and Restated 1996 Stock Incentive Plan (the "1996 Plan") and the 1999 Employee Stock Purchase Plan (the "Purchase Plan").

(2) Includes the 2000 Nonstatutory Stock Option Plan (the "2000 Plan"). No options issued under this Plan are held by any directors or executive officers.

(3) Excludes purchase rights accruing under the Purchase Plan, which has a stockholder-approved reserve of 8,168,907 shares.

(4) Consists of shares available for future issuance under the 1996 Plan and the Purchase Plan. As of December 31, 2004, an aggregate of 34,210,275 and 8,168,907 shares of Common Stock were available for issuance under the 1996 Plan and the Purchase Plan, respectively. Under the terms of the 1996 Plan, an annual increase is added on the first day of each fiscal year equal to the lesser of (a) 18,000,000 shares, (b) 5% of the outstanding shares on that date or (c) a lesser amount determined by the Board of Directors. Under the terms of the Purchase Plan, an annual increase is added on the first day of each fiscal year equal to the lesser of (a) 3,000,000 shares, (b) 1% of the outstanding shares on that date or (c) a lesser amount determined by the Board of Directors.

(5) Consists of shares available for future issuance under the 2000 Plan. Under the terms of the 2000 Plan, an annual increase is added on the first day of each fiscal year equal to the greater of (a) 5,000,000 shares, (b) 5% of the outstanding shares on that date or (c) a lesser amount determined by the Board of Directors.

(6) As of December 31, 2004, a total of 23,432,320 shares of the Company's Common Stock were issuable upon exercise of outstanding options under plans assumed in connection with acquisitions. The weighted average exercise price of those outstanding options is $10.20 per share. No additional options may be granted under those assumed plans.

For a narrative description of the material features of the 2000 Plan, please see Note 10 to the Company's Consolidated Financial Statements included with our Annual Report on Form 10-K for the year ended December 31, 2004.

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STOCK PERFORMANCE GRAPH

The graph below shows the cumulative total stockholder return assuming the investment of $100 on June 25, 1999 in each of Juniper Networks common stock, the Nasdaq Composite Index and the Nasdaq Telecommunications Index.

Proxy Chart

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PRINCIPAL AUDITOR FEES AND SERVICES

The Audit Committee has appointed Ernst & Young LLP, an independent registered public accounting firm, as Juniper Networks' auditors for the fiscal year ending December 31, 2005. Representatives of Ernst & Young are expected to be present at the annual meeting and will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Fees Incurred by Juniper Networks for Ernst & Young LLP

Fees for professional services provided by the Company's independent registered public accounting firm in each of the last two years are:

2004 2003 Audit fees $1,714,000 $ 498,000 Audit-related fees 505,000 221,000 Tax fees 570,000 434,000 All other fees Total $2,789,000 $1,153,000

Audit fees are for professional services rendered in connection with the audit of the Company's annual financial statements and the review of its quarterly financial statements. Audit fees increased in 2004 compared to 2003 due to additional work performed by Ernst & Young LLP in its assessment of the Company's internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Audit-related fees in 2004 were primarily related to the Company's acquisition of NetScreen Technologies, Inc. in April 2004. Audit-related fees in 2003 were primarily related to the issuance of the Zero Coupon Convertible Senior Notes due June 15, 2008. Tax fees are for professional services rendered for tax compliance, tax advice and tax planning.

The Audit Committee preapproves all audit and permissible non-audit services provided by the Company's independent registered public accounting firm. The committee has delegated such preapproval authority to the chairman of the committee. The Audit Committee preapproved all services performed by the Company's independent registered public accounting firm in 2004.

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee oversees the Company's financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. The Audit Committee discussed with the Company's independent registered public accounting firm the overall scope and plans for the audit. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting. The Audit Committee held 10 meetings during fiscal year 2004.

In this context, the Audit Committee hereby reports as follows:

1. The Audit Committee has reviewed and discussed the audited financial statements with the Company' s management.

2. The Audit Committee has discussed with the independent auditors the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standard, AU 380), SAS 99 (Consideration of Fraud in a Financial Statement Audit) and Securities and Exchange Commission rules discussed in Final Releases Nos. 33-8183 and 33-8183a.

3. The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committee") and has discussed with the independent auditors the independent auditors' independence.

4. Based on the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in Juniper Networks' Annual Report on Form 10-K for the fiscal year ended December 31, 2004, for filing with the Securities and Exchange Commission.

MEMBERS OF THE AUDIT COMMITTEE

Robert M. Calderoni Kenneth Goldman William R. Hearst III

-30-

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Directions to Juniper Networks, Inc.

1220 N. Mathilda Avenue Building 3, Pacific Conference Room Sunnyvale, CA 94089

From San Francisco Airport:

• Travel south on Highway 101.

• Exit Highway 237 east in Sunnyvale.

• Exit Mathilda and turn left onto Mathilda Avenue.

• Juniper Networks Corporate Headquarters and Knowledge Center will be on the right side across from the Lockheed/Martin light rail station.

From San Jose Airport and points south:

• Travel north on Highway 101 to Mathilda Avenue in Sunnyvale.

• Exit Mathilda Avenue north.

• Continue on Mathilda past Highway 237 and Lockheed Martin Avenue.

• Juniper Networks Corporate Headquarters and Knowledge Center will be on the right side across from the Lockheed/Martin light rail station.

From Oakland Airport and the East Bay:

• Travel south on Interstate 880 until you get to Milpitas.

• Turn right on Highway 237 west.

• Continue approximately 10 miles.

• Exit Mathilda Avenue and turn right at the stoplight.

• Juniper Networks Corporate Headquarters and Knowledge Center will be on the right side across from the Lockheed/Martin light rail station.

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To San rrancisca

4-1-N'1-hhff- f-l-t-I-f+1-&-

To Sa n

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Table of Contents

There are three ways to vote your Proxy Your Internet or telephone vote authorizes the Named Proxies to vote the shares in the same manner as if you marked, signed and returned your proxy card.

VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of JUNIPER NETWORKS, INC. information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting 1194 N. MATHILDA AVENUE date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. SUNNYVALE, CA 94089

ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by Juniper Networks, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements , proxy cards and annual reports electronically via e-mail or the Internet . To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.

VOTE BY PHONE - 1-800 -690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow {he instructions.

VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Juniper Networks, Inc., do ADP, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: JNPERP KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

JUNIPER NETWORKS, INC.

The Board of Directors Recommends a Vote FOR Items 1 and 2.

1. Election of Directors : For Withhold For All To withhold authority to vote, mark "For All Except" All All Except and write the nominee's number on the line below. 01) William R. Hearst III 02) Kenneth Goldman 03) Frank Marshall q q q

For Against Abstain

2. Ratification of Ernst & Young LLP, an independent registered public accounting firm, as auditors. q q q

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED "FOR" PROPOSALS 1 AND 2.

Please sign exactly as your name(s) appears on this Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.

Address Change? Mark this box and indicate changes on reverse side. q

Yes No HOUSEHOLDING ELECTION - Please indicate if you consent to receive certain future investor communications in a single package per household. q q

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I Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date I

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JUNIPER NETWORKS, INC.

2005 ANNUAL MEETING OF STOCKHOLDERS

Wednesday, May 18, 2005 9:00 a.m. Pacific time

Juniper Networks, Inc. 1220 N. Mathilda Ave. Building 3, Pacific Conference Room Sunnyvale, CA 94089 ------Juniper Networks, Inc.

Mailing Address: 1194 N. Mathilda Avenue, Sunnyvale, CA 94089 Proxv

This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 18, 2005.

If no choice is specified , the proxy will be voted " FOR" Items 1 and 2.

By signing the proxy, you revoke all prior proxies and appoint Robert R. B. Dykes and Mitchell Gaynor, and each of them, with full power of substitution, to vote these shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments.

Address Change:

If you noted an Address Change above, please check the corresponding box on the reverse side.

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EXHIBIT 3 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 2 of 38 A, 1

1 UNITED STATES DISTRICT COURT

2 NORTHERN DISTRICT OF CALIFORNIA L.• 3 BEFORE THE HONORABLE CHARLES R. BREYER,JUDGE

4 PRENA SMAJLAJ, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY 5 SITUATED, COPI 6 PLAINTIFF,

7 VS. NO. C-05-0242 CRB

8 BROCADE COMMUNICATIONS SYSTEMS, INC., PAGES 1 - 36 GREGORY L. REYES AND ANTONIO CANOVA, 9 DEFENDANTS. 10

11 SAN FRANCISCO, CALIFORNIA FRIDAY, NOVEMBER 3, 2006 12 TRANSCRIPT OF PROCEEDINGS 13 APPEARANCES: 14 FOR ARKANSAS PUBLIC EMPLOYEE RETIREMENT SYSTEM: 15

16 PATTON ROBERTS MCWILLIAMS & CAPSHAW CENTURY PLAZA, SUITE 400 17 2900 ST. MICHAEL DRIVE TEXARKANA, TEXAS 75503 18

19 11BY: SEAN F. ROMMEL, ESQUIRE

20

21 FURTHER APPEARANCES ON NEXT PAGE.

22 REPORTED BY: KATHERINE WYATT, CSR, RPR, RMR

23 OFFICIAL REPORTER, USDC COMPUTERIZED TRANSCRIPTION BY ECLIPSE 24

25

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 3 of 38 2

1 FURTHER APPEARANCES:

2 ALSO FOR ARKANSAS PUBLIC EMPLOYEE RETIREMENT SYSTEM:

3 NIX PATTERSON & ROACH, LLP 205 LINDA DRIVE 4 DANGERFIELD, TEXAS 75638

5 BY: JEFFREY J. ANGELOVICH, ESQUIRE BRADLEY E. BECKWORTH, ESQUIRE 6

7 FOR DEFENDANT ANTONIO CANOVA:

8 HELLER EHRMANN LLP 275 MIDDLEFIELD ROAD 9 MENLO PARK, CALIFORNIA 94025-3506

10 BY: NORMAN J. BLEARS, ESQUIRE

11 FOR DEFENDANT GREGORY L. REYES:

12 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 SOUTH GRAND AVENUE 13 LOS ANGELES, CALIFORNIA 90071-3144

14 BY: WHITNEY WALTERS, ESQUIRE

15 FOR DEFENDANT KPMG, LLP:

16 SIDLEY AUSTIN LLP 555 WEST FIFTH STREET 17 SUITE 4000 LOS ANGELES, CALIFORNIA 90013 18

19 BY: MICHAEL C. KELLEY, ESQUIRE

20 FOR DEFENDANT BROCADE COMMUNICATIONS SYSTEMS, INC.:

21 WILSON SONSINI GOODRICH & ROSATI 650 PAGE MILL ROAD 22 PALO ALTO, CALIFORNIA 94304-1050

23 BY: NINA (NICKI) LOCKER, ATTORNEY AT LAW STEVEN GUGGENHEIM, ESQUIRE 24

25

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 4 of 38 3

1 11NOVM-MER 3, 2006 10:00 O'CLOCK A.M.

2

3 P R O C E E D I N G

4 THE CLERK : CALLING CASE C-05-2042, PRENA SMAJLAJ

5 VERSUS BROCADE COMMUNICATIONS SYSTEMS.

6 APPEARANCES, COUNSEL.

7 MR. GUGGENHEIM : GOOD MORNING, YOUR HONOR. STEVEN

8 GUGGENHEIM FOR BROCADE, FOR DEFENDANTS DEMPSEY, LESLIE, NEIMAN,

9 MOORE, PAISLEY AND SONSINI.

10 MS. LOCKER : GOOD MORNING, YOUR HONOR. NICKI LOCKER

11 FROM WILSON SONSINI ON BEHALF OF THE SAME DEFENDANTS.

12 MR. KELLEY : GOOD MORNING, YOUR HONOR. MICHAEL

13 KELLEY FROM SIDLEY AUSTIN ON BEHALF OF KPMG.

14 MS. WALTERS : GOOD MORNING, YOUR HONOR. WHITNEY

15 WALTERS FROM SKADDEN, ARPS ON BEHALF OF GREGORY REYES.

16 MR. BLEARS : GOOD MORNING, YOUR HONOR. NORM BLEARS

17 FROM•HELLER EHRMAN ON BEHALF OF DEFENDANT CANOVA.

18 MR. BECKWORTH : GOOD MORNING, YOUR HONOR. I'M BRAD

19 BECKWORTH FROM NIX PATTERSON & ROACH FROM DANGERFIELD, TEXAS, ON

20 BEHALF OF THE PLAINTIFF, THE CLASS.

21 MR. ANGELOVICH : YOUR HONOR, GOOD MORNING. JEFF

22 ANGELOVICH FROM THE NIX PATTERSON & ROACH FIRM ON BEHALF OF THE

23 PLAINTIFFS.

24 MR. ROMMEL : GOOD MORNING, YOUR HONOR. SEAN ROMMEL

25 ON BEHALF OF THE PLAINTIFFS FROM PATTON ROBERTS MCWILLIAMS &

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 5 of 38 4

1 CAPSHAW.

2 MR. BECKWORTH : AND, YOUR HONOR, IF I MAY, WE ALSO

3 HAVE OUR CLIENT HERE TODAY, MS. GAIL STONE, WHO IS THE EXECUTIVE

4 DIRECTOR OF THE ARKANSAS PUBLIC EMPLOYEE RETIREMENT SYSTEM.

5 THE COURT : ALL RIGHT. THIS IS ON FOR A MOTION TO

6 DISMISS. AND I THINK WE CAN PUT IT IN A COUPLE OF BOXES,

7 ESPECIALLY THE VARIOUS DEFENDANTS.

8 AND THERE ARE SOME OTHER ISSUES INVOLVED, TOO.

9 ONE ISSUE IS WHETHER OR NOT THE AMENDED COMPLAINT

10 SHALL BE PERMITTED, WHICH WOULD REACH BACK AND ENCOMPASS THE

11 DATE OF FILING OF THE ORIGINAL COMPLAINT FOR STATUTE OF

12 LIMITATIONS PURPOSES, RIGHT? THAT'S THE ISSUE, RIGHT?

13 MR. BECKWORTH : YES, YOUR HONOR.

14 THE COURT : SO YOU'RE MOVING -- I DON'T KNOW. IS THE

15 DEFENSE MOVING TO STRIKE IT, OR IS THE PLAINTIFF MOVING TO ADMIT

16 IT, OR WHAT IS THE POSTURE?

17 MR. GUGGENHEIM : YES, THE DEFENSE -- THE DEFENSE IS

18 THAT THEY ARE ACTUALLY MOVING TO ADD NEW PLAINTIFFS, AND THAT'S

19 NOT PERMITTED UNDER THE RELATION BACK DOCTRINE.

20 THE COURT : SO IT'S THE DEFENSE MOTION.

21 MR. GUGGENHEIM: YES.

22 THE COURT : IT'S DENIED. THE COURT BELIEVES THAT THE

23 APPROPRIATE PERIOD OF TIME WOULD COMMENCE TO RUN FROM THE FILING

24 OF THE ORIGINAL COMPLAINT. THAT IS TO SAY, THAT THE ORIGINAL

25 COMPLAINT CAN RELATE BACK FOR FIVE YEARS, BECAUSE IT

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 6 of 38 5

1 ESSENTIALLY -- WHILE IT DOES INVOLVE OTHER PERIODS OF TIME IT

2 WAS BEFORE THE DISCLOSURES AS DISTINCT FROM SUBSEQUENT TO THE

3 DISCLOSURES, AND I BELIEVE THAT IT'S APPROPRIATE TO PERMIT THAT.

4 TO OCCUR.

5 THE SECOND ISSUE IS THE ONE ABOUT DISCOVERY. I'LL GET

6 TO THAT AT THE END, OKAY?

7 THE THIRD ISSUE DEALS WITH -- NOW WE'RE GETTING INTO

8 THE INDIVIDUAL DEFENDANTS, THE REYES AND -- SORRY.

9 MR. BLEARS : MR. CANOVA.

10 THE COURT : CANOVA, OKAY. THE MOTION TO DISMISS ON

11 THEIR PART, THAT'S DENIED. THERE'S AMPLE EVIDENCE -- BY THE WAY,

12 I JUST WANT TO SAY ONE THING THAT SHOULD BE CLEAR, BUT BECAUSE I

13 HAVE THIS CASE IN DIFFERENT INCANTATIONS BEFORE ME, IT SHOULD BE

14 UNDERSTOOD THAT I'M NOT COMMENTING ON THE MERITS OF THE CASE.

15 I HAVE, IN FACT, A CRIMINAL CASE, IN FACT, BEFORE ME.

16 III HAVE THE --

17 MR. BECKWORTH : DERIVATIVE CASE.

18 THE COURT : -- DERIVATIVE CASE BEFORE ME. I HAVE --

19 THE SEC CASE MAY BE SETTLED, RIGHT?

20 MS. LOCKER : ON BEHALF OF THE COMPANY, YOUR HONOR.

21 THE COURT : ON BEHALF OF THE COMPANY, YOU'RE RIGHT.

22 ANYWAY, I'M NOT COMMENTING ON THE MERITS. I'M NOT

23 COMMENTING ON THE STRENGTH OF THE EVIDENCE OTHER THAN TO SAY 24 THAT ACCEPTING THE ALLEGATIONS AS TRUE, THERE'S AMPLE EVIDENCE 25 TO CONNECT AND TO WARRANT INCLUSION OF THOSE TWO DEFENDANTS IN

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 7 of 38 6

1 THE ACTION. AND THE MOTION TO DISMISS AS TO THEM WOULD BE

2 DENIED.

3 NOW, I WANT -- WHAT I WANT THE DISCUSSION ABOUT TODAY

4 ARE THE TWO OTHER GROUPS. I SAY "TWO OTHER GROUPS," ONE IS KPMG,

5 AND THE OTHER IS THE AUDIT COMMITTEE.

6 AND PERHAPS IF YOU WANT TO DISTINGUISH AMONG MEMBERS

7 OF THE AUDIT COMMITTEE I THINK YOU'RE ENTITLED TO DO SO BECAUSE

8 THEY ARE NAMED INDIVIDUALLY AS DEFENDANTS.

9 BUT HERE IS MY CONCERN. AND I GUESS I'M REALLY

10 ADDRESSING THE PLAINTIFFS. WHEN YOU LOOK AT THE STANDARD -- AND

11 I'M NOW GOING TO -- SO ON A MOTION TO DISMISS, AS ARTICULATED BY

12 THE NINTH CIRCUIT, WHEN THEY DEFINE WHAT IS MEANT BY "DELIBERATE

13 RECKLESSNESS," BECAUSE I DON'T THINK THERE IS EVIDENCE THAT THEY

14 ACTUALLY KNEW THAT THIS BACKDATING OCCURRED, THE CIRCUIT HAS

15 HELD THAT THE STANDARD -- WHAT IS MEANT BY "DELIBERATE

16 RECKLESSNESS" IS, QUOTE:

17 "A HIGHLY UNREASONABLE OMISSION INVOLVING NOT

18 MERELY SIMPLE OR EVEN INEXCUSABLE NEGLIGENCE, BUT AN

19 EXTREME DEPARTURE FROM THE STANDARDS OF ORDINARY

20 CARE, AND WHICH PRESENTS A DANGER OF MISLEADING

21 BUYERS OR SELLERS, THAT IS EITHER KNOWN TO THE

22 DEFENDANT OR IS SO OBVIOUS THAT THE ACTOR MUST HAVE

23 BEEN AWARE OF IT. MUST HAVE BEEN AWARE OF IT."

24 SO WHEN YOU TAKE THOSE TWO PHRASES:

25 "KNOWN OR MUST HAVE BEEN AWARE OF IT," THERE'S

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 8 of 38 7

1 NOT A BIG DIFFERENCE, BY THE WAY, BETWEEN:

2 "KNOWN AND MUST HAVE BEEN AWARE." L 3 I MEAN, WHAT I SUPPOSE THEY ARE SAYING IS THAT IF, IN

4 FACT, THE PARTY, THE DEFENDANT WILLFULLY TOOK STEPS TO AVOID THE

5 ACTUAL FACT BEING SHOWN TO HIM, HE WOULD HAVE ONLY DONE THAT IF,

6 IN FACT, HE KNEW WHAT THE OBVIOUS FACT WAS.

7 SO, YOU KNOW, I'M DRIVING THE CAR. I HEAR THAT

8 "BUMP, BUMP, BUMP, BUMP, BUMP." SOUNDS LIKE A BODY, TAKING THE

9 PERSON ACROSS THE BORDER, YOU KNOW. AND ALL THOSE FACTS, BUT I

10 DON'T LOOK IN THE TRUNK. I HEAR PEOPLE YELLING, YOU KNOW -- NOT

11 A PLEASANT ANALOGY.

12 BUT THERE'S EVERYTHING THERE EXCEPT I CAN'T SHOW THAT

13 HE LOOKED IN THE TRUNK AND ACTUALLY SAW THE BODY.

14 SO THAT'S A VERY, VERY HIGH STANDARD TO MEET.

15 NOW, WHEN YOU READ THROUGH A DETAILED COMPLAINT, AS

16 YOU SET FORTH, ONE CERTAINLY COULD CONCLUDE THAT THE AUDIT

17 COMMITTEE AND THE KPMG WERE BOTH ENORMOUSLY NEGLIGENT, SERIOUSLY

18 NEGLIGENT, FAILED TO EXERCISE THEIR DUTY OF CARE, FAILED TO

19 DISCHARGE THEIR RESPONSIBILITIES. BUT THIS ISN'T A MALPRACTICE

20 ACTION.

21 IT'S NOT EVEN A GOVERNMENT'S ACTION, IN A SENSE. IT'S

22 NOT A BREACH OF FIDUCIARY OBLIGATION ACTION. IT'S AN ACTION FOR

23 FRAUD, AS I UNDERSTAND IT. THAT'S WHAT THIS IS ABOUT.

24 AND SO THE QUESTION IS: IS THE COMPLAINT ADEQUATE

25 ACCORDING TO THE STANDARDS SET FORTH BY THE PSLRA, WHICH IS THEN

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 9 of 38 8

1 COMMENTED UPON REPEATEDLY BY THE NINTH CIRCUIT. DOESN'T MEET

2 THAT STANDARD, AND I MUST TELL YOU I DON'T BELIEVE IT DOES BASED

3 UPON WHAT I'VE SEEN WITH RESPECT TO THE AUDIT COMMITTEE AND WITH

4 RESPECT TO THE KPMG.

5 SO, YOU KNOW, IF YOU -- AND SO WHAT I'M PREPARED TO

6 DO WAS TO THE ALLOW YOU TO AMEND. GIVE YOU A VERY SHORT PERIOD

7 OF TIME TO AMEND, IF YOU WANTED TO. IF YOU THOUGHT THAT YOU

8 COULD BEEF IT UP, YOU KNOW, PUT IN THINGS THAT YOU DIDN'T PUT IN

9 BEFORE.

10 SO I THINK THAT'S WHAT -- THAT'S WHAT I WOULD LIKE A

11 DISCUSSION ABOUT FROM THE PLAINTIFFS.

12 NOW, I THINK THAT YOU HAVE TO BE CAREFUL NOT TO HAVE

13 SORT OF A -- IT'S A SORT OF ARGUMENT WHEN YOU SAY:

14 "WELL, IT IS ENOUGH BECAUSE I SAY IT'S ENOUGH,"

15 YOU KNOW, OR BECAUSE IT IS THERE, AND IT OUGHT TO BE ENOUGH.

16 READING IT IT DOESN'T LOOK TO ME LIKE IT'S ENOUGH. I

17 DON'T KNOW THAT I NECESSARILY SUBSCRIBE TO THE DEFENSE VIEW OF,

18 YOU KNOW, THAT:

19 "GEE, THEY WERE JUST DOING THEIR JOB AND NOTHING

20 WRONG IN THE WAY THEY DID IT, YOU KNOW."

21 I DON'T KNOW THAT THAT'S TRUE. BUT I DON'T KNOW THAT

22 I HAVE TO SUBSCRIBE TO THEIR VIEW. THE BURDEN'S NOT ON THEM. THE

23 BURDEN'S ON YOU. OKAY.

24 WHOEVER WANTS TO TALK. THEY DON'T WANT TO TALK. THEY

25 KNOW IF THEY SAY ANYTHING, YOU KNOW, THEY MAY TALK ME OUT OF IT.

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 10 of 38 9

1 MR . BECKWORTH : BRAD BECKWORTH FOR THE PLAINTIFFS.

2 YOU KNOW, YOUR HONOR, I WAS TOLD ONCE A LONG TIME AGO

3 THAT WHEN YOU WIN SOMETHING YOU SHOULD JUST SIT THERE AND BE

4 QUIET. SO I'M ALMOST IN A HOBSON'S CHOICE, BECAUSE YOU DENIED

5 THE MOTION TO DISMISS ON PART OF IT.

6 WHAT I WOULD LIKE TO ASK JUST A LITTLE BIT OF

7 CLARIFICATION FROM YOUR HONOR BEFORE WE GET TO WHETHER WE CAN

8 AMEND. AND THE ANSWER TO THAT IS: IF YOU WOULD PERMIT US TO,

9 YES, WE CAN AND WOULD LIKE TO.

10 WOULD YOU ENTERTAIN ANY ARGUMENT AT ALL ABOUT OUR

11 RESPONSE TO YOUR READING OF WHAT THE STANDARD IS AND THE

12 EVIDENCE THAT IS OF RECORD?

13 THE COURT : SURE, SURE.

14 MR. BECKWORTH : IS THAT PERMISSIBLE WITH YOU?

15 THE COURT : OF COURSE. ANYTHING IS PERMISSIBLE,

16 BECAUSE I'VE GOT THE TIME. BUT IF YOU THINK THAT I'M APPLYING

17 THE WRONG STANDARD OR APPLYING IT INCORRECTLY, YES, NOW IS A

18 GOOD TIME TO TELL ME WHY I'M STATING IT.

19 MR. BECKWORTH : I'M GOING TO JUMP OUT THERE, YOUR

20 11 HONOR.

21 THE COURT : GO AHEAD.

22 MR. BECKWORTH : AT A FIRST LEVEL, I THINK THAT THE

23 STANDARD THAT YOU WERE READING, THE WAY YOU READ IT AT BEST

24 WOULD BE MAYBE PERTAINING TO KPMG.

25 I THINK WE HAVE SEEN THAT IN CASE LAW THAT DEALS WITH

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10

1 AUDITORS, OUTSIDE AUDITORS.

2 THE COURT : OKAY. SO YOU SAY THAT SHOULD JUST BE 1-11.1 3 KPMG --

4 MR. BECKWORTH: YES.

5 THE COURT : -- IF AT ALL.

6 MR. BECKWORTH: YES.

7 THE COURT : JUST KPMG. SO YOU THINK THE AUDIT

8 COMMITTEE OF KPMG SHOULD BE TREATED SEPARATELY IN TERMS OF THE

9 STANDARD TO BE APPLIED.

10 MR. BECKWORTH : ABSOLUTELY.

11 THE COURT : ALL RIGHT. NOW, TELL ME WHY THAT'S THE

12 11 CASE.

13 MR. BECKWORTH : BECAUSE I'VE LOOKED AT YOUR PATTERN

14 JURY -- I MEAN, THE NINTH CIRCUIT PATTERN JURY CHARGE.

15 I'VE READ THE CHARGE THAT YOU SUBMITTED TO THE JURY

16 IN CLARENT IN THIS COURTROOM. AND I'VE READ THE CASE LAW THAT

17 THE NINTH CIRCUIT HAS HAD OUT, CASES LIKE NURSING HOME, DOWE ,

18 AMERICA WEST.

19 THE COURT : WAIT A MINUTE. CLARENT . CLARENT WAS

20 AGAINST PRICEWATERHOUSECOOPERS, AND IT WAS ALSO AGAINST

21 THE PRESIDENT OF THE COMPANY. SO IT WASN'T AGAINST AN AUDIT --

22 I DON'T THINK IT WAS LIKE A AUDIT COMMITTEE. I DON'T REMEMBER

23 THAT DEFENDANT IN FRONT OF ME. WAS HE?

24 MR . BECKWORTH : YES, YOUR HONOR. NO, IT WAS AGAINST

25 IJAN AUDITOR.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 12 of 38 11

1 THE COURT : WELL --

2 MR. BECKWORTH : NOT THE INSIDE AUDIT COMMITTEE

3 PEOPLE, THAT'S CORRECT.

4 THE COURT : RIGHT, SO THAT WAS -- IT WAS AGAINST

5 PRICEWATERHOUSE.

6 MR. BECKWORTH : THAT IS CORRECT.

7 AND, YOUR HONOR, THE STANDARD THAT I THINK YOU JUST

8 READ I THINK IS NOT THE SAME AS THE STANDARD THAT YOU WOULD HAVE

9 IN THE PATTERN JURY CHARGE.

10 I DON'T THINK WHETHER THE PLEADING STANDARD OR WHEN

11 WE SUBMIT A CASE TO THE JURY, IF YOU PERMIT US TO GET THERE,

12 THAT WE HAVE TO SHOW, WHEN YOU TALK ABOUT RECKLESSNESS, THAT IT

13 IS -- YOU KNOW, THEY COULD HAVE -- THE STANDARDS YOU READ

1-11 14 BASICALLY WAS: THEY DIDN'T LOOK IN THE TRUNK, BUT MAYBE THEY 15 PUT THE GUY IN THERE.

16 I DON'T THINK THAT'S WHAT WE HAVE TO SHOW. WHAT WE

17 HAVE TO SHOW IS DELIBERATE RECKLESSNESS, IS NOT THAT THEY MUST

18 HAVE KNOWN, BUT THAT THEY WERE DELIBERATELY RECKLESS IN FAILING

19 TO KNOW.

20 THAT'S NOT NEGLIGENCE.

21 THE COURT : SO YOU SAY THIS IS WRONG. WHAT I JUST

22 READ IS WRONG.

23 MR . BECKWORTH : I THINK WITH RESPECT TO THE AUDIT

24 COMMITTEE, I DO, YOUR HONOR, YES.

25 THE COURT : TO THE AUDIT COMMITTEE.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 13 of 38 12

1 MR. BECKWORTH : YES, YOUR HONOR.

2 THE COURT : AND YOU SAY I OUGHT TO APPLY A DIFFERENT

3 STANDARD TO THE AUDIT COMMITTEE THAN I DO WITH THE KPMG.

4 MR. BECKWORTH : I'M SAYING --

5 THE COURT : IS THERE SOME AUTHORITY FOR THAT?

6 MR. BECKWORTH : I'M SAYING I HAVE NOT SEEN A CASE

7 WITH RESPECT TO AN AUDIT COMMITTEE THAT APPLIES THAT STANDARD IN

8 RECENT NINTH CIRCUIT CASE LAW.

9 I DON'T THINK THAT'S A STANDARD ESPOUSED BY DOWE ,

10

11 I DON'T THINK THAT'S A STANDARD I'VE SEEN IN YOUR

12 CASES, LIKE VISAGE , WHICH WAS AFFIRMED BY THE NINTH CIRCUIT.

13 THE COURT : I LOVE THAT CASE.

14 MR . BECKWORTH : I KNOW YOU DO.

15 THE COURT : I LOVE THAT CASE.

16 MR. BECKWORTH : YES, YOUR HONOR.

17 AND LET ME --

18 THE COURT : THAT'S A GREAT CASE.

19 MR. BECKWORTH: IT IS.

20 THE COURT : WONDERFUL CASE.

21 MR. BECKWORTH : AND LET ME BE CLEAR. I'M NOT

22 ACCEPTING THAT THAT SHOULD BE THE STANDARD FOR AN AUDITOR,

23 EITHER. BUT I HAVE SEEN CASES THAT GO BOTH WAYS ON HOW YOU READ

24 THAT STANDARD WITH AN AUDITOR AS OPPOSED TO A NORMAL DEFENDANT.

25 IN THIS CASE, IF I CAN JUST TURN TO THE AUDIT

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 14 of 38 13

1 COMMITTEE FOR A SECOND. YOU GIVE THE EXAMPLE ABOUT A BODY IN

2 THE TRUNK.

3 WELL, WE DON'T THINK IT'S JUST A MATTER OF HEARING

4 THE BODY IN THE TRUNK. WE THINK WITH RESPECT TO CERTAIN AUDIT

5 COMMITTEE MEMBERS, ESPECIALLY, THEY PUT THE BODY IN THE TRUNK.

6 AND THAT'S MR. SONSINI, MR. DEMPSEY AND MR. NEIMAN.

7 AND IT'S VERY CLEAR WHY.

8 IN OUR COMPLAINT, ONE OF THE PRINCIPAL CORE

9 ALLEGATIONS IS THAT MR. REYES WAS MADE A COMMITTEE OF ONE WITH

10 RESPECT TO ALL THINGS GRANTING OPTIONS.

11 NOW, THE DEFENDANTS HAVE SAID:

12 "LOOK, UNDER DELAWARE LAW A COMMITTEE OF ONE IS

13 PERMISSIBLE."

14 YOU KNOW WHAT? THEY ARE RIGHT ON THAT.

15 BUT THE SEC GAVE A SPEECH JUST A FEW WEEKS AGO THAT

16 TALKED ABOUT WHAT IS MEANS TO MAKE SOMEONE A COMMITTEE OF ONE.

17 AND THEY SAID -- AND I HAVE A COPY OF IT I'LL PROVIDE

18 TO THE COURT. RAUL CAMPOS, COMMISSIONER OF THE SEC SAYS THAT

19 WHEN YOU DO THAT, WHEN YOU MAKE AN EXECUTIVE A COMMITTEE OF ONE

20 IT IS AT ITS BASE LEVEL A SHOWING THAT THE AUDIT COMMITTEE IS

21 NOT TAKING ITS JOB SERIOUSLY.

22 NOW, HERE -- AND I DON'T WANT TO IMPUGN, YOU KNOW, A

23 MEMBER OF THE BAR, BUT MR. SONSINI --

24 THE COURT : WELL, THAT'S ALL RIGHT.

25 MR. BECKWORTH : OKAY. WELL, THEN I'LL --

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 15 of 38 14

1 THE COURT : IT WON'T BE THE FIRST TIME ALLEGATIONS

2 ABOUT MEMBERS OF THE BAR OR MEMBERS OF THE COURT -- GO RIGHT

3 AHEAD.

4 MR. BECKWORTH : YOU KNOW, MR. SONSINI -- THIS WAS

5 BACK IN 1999 WHEN HE GAVE THIS GRANT. HE WAS A LAWYER, AND HE

6 STILL IS A LAWYER.

7 HE WAS ON THE COMMITTEE OF THE AUDIT COMMITTEE. HE IS

8 THE PERSON THAT GAVE MR. REYES THIS GRANT OF AUTHORITY.

9 THAT IS MAYBE NOT PUTTING --

10 THE COURT : WELL, I DON'T KNOW THAT HE IS. ISN'T HE

11 THE PERSON THAT RECOMMENDED IT?

12 MR. BECKWORTH : YOUR HONOR, IN PARAGRAPH 53 AND 54 OF

13 OUR COMPLAINT, MR. REYES SAID IN A NEWSPAPER ARTICLE THAT MR.

14 SONSINI ACTUALLY WENT TO REYES, TOLD HIM HE WAS GOING TO GIVE

15 HIM THAT AUTHORITY, AND THEN WENT TO THE BOARD AND GOT THAT

16 AUTHORITY.

17 THE COURT : WELL, THEN, IT WAS THE BOARD THAT DID IT,

18 AND THE BOARD IS NOT A DEFENDANT IN THE ACTION.

19 MR. BECKWORTH : THE AUDIT COMMITTEE MEMBERS ARE, YES.

20 THE COURT : AND MAYBE IT'S A SMALL POINT, BUT I MEAN

21 I DON'T KNOW THAT -- I KNOW THAT THERE'S A -- I ACCEPT THE

22 REPRESENTATION THAT MR. SONSINI RECOMMENDED --

23 MR . BECKWORTH: OKAY.

24 THE COURT : -- THAT THIS PROCESS GO FORWARD, THAT HE

25 BE APPOINTED A COMMITTEE OF ONE. ^^ II KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4. Filed 07/30/2007 Page 16 of 38 15

1 BUT DON'T YOU HAVE TO SHOW THAT -- SO YOU'RE SAYING,

2 REALLY, EFFECTIVELY HE PUT THE AUDIT COMMITTE OUT OF BUSINESS IN

3 REVIEWING THE OPTIONS PRACTICE, MR. REYES, BY HIS STRUCTURING IT

4 IN A PARTICULAR WAY OR SUGGESTING THAT IT OUGHT TO BE DONE THAT

5 WAY, AND THEN IT WAS THEN IMPLEMENTED.

6 THAT'S WHAT YOU'RE SAYING, THAT THEY DIDN'T DO THEIR

7 JOB, COULDN'T DO THEIR JOB, OR THEY WOULDN'T BE ABLE TO DO THEIR

8 JOB, OR IT WOULDN'T BE EASY FOR THEM TO DO THEIR JOB BECAUSE

9 THEY WERE SORT OF PUT OUT OF BUSINESS.

10 MR. BECKWORTH : YES, IN A WAY. AND TO TAKE YOUR

11 ANALOGY A STEP FURTHER, I'M SAYING THAT HE GAVE MR. REYES THE

12 GUN. AND THEN, MR. REYES USED THAT GUN TO COMMIT THE CRIME. AND

13 THAT IS --

14 THE COURT : BUT WHAT INFORMATION DID HE HAVE THAT

15 MR. REYES -- HERE IS THE REAL QUESTION IS: WHAT INFORMATION DID

16 HE HAVE THAT MR. REYES WOULD COMMIT OR ACT IN THE MANNER IN

17 WHICH IT'S ACCUSED THAT HE ACTED?

18 IN OTHER WORDS, HE SAYS TO MR. REYES:

19 "GO AHEAD. YOU'RE THE OPTION COMMITTEE."

20 NOW, THERE MAY BE ALL SORTS OF VERY BAD REASONS FOR

21 HIM TO DO THAT. MAYBE TERRIBLE ADVICE. IT MAY BE -- IT MAY HAVE

22 LED TO THESE INDISCRETIONS, IF THEY ARE ESTABLISHED. IT MAY HAVE

23 SET UP THE WHOLE THING.

24 BUT YOU NEED SOMETHING MORE, I THINK, IN MY VIEW,

25 WHICH IS THAT HE BELIEVED THAT BY GIVING HIM THIS AUTHORITY, THE

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 17 of 38 16

1 AUTHORITY WOULD BE ABUSED . THAT IS, THE IMPROPER ACTIVITY WOULD

2 ACTUALLY OCCUR.

3 MR. BECKWORTH : I THINK, YOUR HONOR, WE HAVE. I'M

4 SORRY.

5 THE COURT : NO. NO. GO AHEAD. BUT I WAS LOOKING

6 FOR IT.

7 MR . BECKWORTH: YES.

8 THE COURT : I MEAN, I WAS LOOKING FOR IT, OTHER THAN

9 TO SAY:

10 "LOOK, THIS IS A COMMITTEE" -- AND I THINK THERE

11 ARE CASES, BY THE WAY, THAT SAY YOU CAN'T DO THIS.

12 THIS IS A COMMITTEE. IT'S AN OVERSIGHT COMMITTEE.

13 IF YOU TAKE POWER AWAY FROM THE OVERSIGHT COMMITTEE THEY CAN'T

14 DO THE OVERSIGHT.

15 IF THEY CAN'T DO THE OVERSIGHT, THEY MAY VERY WELL

16 COMMIT THE CRIME. I UNDERSTAND EACH OF THOSE PARTS. AND YOU

17 KNOW WHAT? YOU'RE PROBABLY RIGHT. YOU MAY BE RIGHT. YOU MAY

18 HAVE BEEN RIGHT IN THIS CASE. I DON'T KNOW.

19 BUT -- BUT I THINK YOU'RE MISSING AN ELEMENT. THE

20 ELEMENT IS THAT MR. SONSINI, OR MEMBERS OF THE AUDIT COMMITTEE,

21 OR KPMG, WHOEVER IT WAS, HAD REASON TO BELIEVE THAT IF THEY

22 ELIMINATED THE OVERSIGHTABILITY, THE WRONGDOER WOULD COMMIT THE

23 WRONGDOING.

24 THAT'S WHAT I DON'T SEE HERE. THOUGH HE MAY HAVE SET

25 UP A PROCESS THAT IT WOULD, NUMBER ONE, ENCOURAGE THE WRONGDOING

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 18 of 38 17

1 OR PERMIT THE WRONGDOING, AND THEN -- WELL, GO AHEAD.

2 MR. BECKWORTH : THAT EVIDENCE THAT YOU ASKED FOR?

3 THE COURT: YES.

4 MR. BECKWORTH : IS HERE. IT ABSOLUTELY IS HERE. AND

5 HERE IS WHERE IT IS.

6 IT'S IN TWO PLACES. AND, YOUR HONOR, RESPECTFULLY I

7 THINK YOU HAVE TO TAKE IT IN TWO PARTS.

8 THE COURT : GO AHEAD.

9 MR. BECKWORTH : OKAY. FIRST, IT IS AN ENABLING TO

10 COMMIT THIS OFFENSE. AND THEN, WE'RE GOING TO SHOW THE OFFENSE.

11 BUT THEN, WE'RE GOING TO SHOW IN JUST A MOMENT THAT THE EVIDENCE

12 THAT THEY ACTUALLY COMMITTED AN OFFENSE WAS THERE. AND THIS IS

13 IT: BEFORE 2002, THEIR RESTATEMENT SHOWS IT. OUR COMPLAINT

14 SHOWS IT.

15 THIS AUDIT COMMITTEE HAD NO INTERNAL SAFEGUARDS,

16 CONTROLS OR PROCEDURES IN PLACE FOR DEALING WITH OPTIONS

17 BACKDATING OR OPTIONS GRANTS. THAT'S OF PARAMOUNT IMPORTANCE.

18 AND THE REASON FOR THAT IS WHEN YOU'RE TAKING THE

19 POWER AWAY FROM THE AUDIT COMMITTE, GIVING IT TO THE CEO, WHO IS

20 A MICROMANAGER AND RUNNING THIS COMPANY AS IF IT'S HIS OWN, AND

21 THEN YOU TAKE THE OVERSIGHT OUT, THE SAFEGUARDS OUT, THERE IS AN

22 INCREASED RISK THAT HE COULD DO WRONGDOING, OKAY?

23 AND THAT IS RECKLESS. NOW, THE EVIDENCE THAT HE WAS

24 ACTUALLY COMMITTING THESE OFFENSES ABSOLUTELY IS THERE. AND I'M

25 GOING TO TURN TO MR. ANGELOVICH ON THIS, BECAUSE IT GOES TO OUR

KATHERINE WYATT , OFFICIAL REPORTER , CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 19 of 38 18

1 INSIDER TRADING ALLEGATIONS.

2 WE HAVE PRESENTED -- AND HE'LL GO INTO THE DETAIL OF

3 THAT, IF YOU'LL LET US -- THAT THIS WAS RIGHT THERE. IT WAS --

4 THE BOARD WAS AWARE OF WHERE THESE OPTIONS WERE GOING, HOW THEY

5 WERE BEING HANDED OUT.

6 AND THEY -- NOW WE SEE IN SOME OF THEIR RESPONSE

7 PAPERS THAT -- ESPECIALLY DEMPSEY AND NEIMAN AND SONSINI

8 APPROVED THESE BACKDATED OPTION GRANTS THAT WENT TO EXECUTIVES.

9 THE COURT : WELL, THE PROBLEM IS WE HAVE TO BE

10 CAREFUL THAT WE DON'T JUST SLIP OVER FROM APPROVING THE

11 BACKDATED OPTIONS TO APPROVING THE OPTIONS WHICH THEY KNEW WERE

12 BACKDATED.

13 THAT'S A BIG DIFFERENCE. IF YOU WERE TO SAY TO ME --

14 IF YOU WERE TO SAY TO ME:

15 "LOOK, WHEN -- WHILE THIS WAS GOING ON, MEMBERS

16 OF THE AUDIT COMMITTEE KNEW THAT THERE WAS A

17 BACKDATING PROCESS. THAT IS, THAT THE OPTION WOULD

18 BE GRANTED, AND THEY GO BACK," WHATEVER BACKDATING

19 IS, ANYWAY. THEY WOULD BE ABLE TO GO BACK IN TIME AND SELECT A

20 DAY, EVEN THOUGH THAT'S NOT THE DAY OF THE OPTION, THE TRUE DATE

21 OF THE OPTION.

22 IF THEY KNEW THAT, IF YOU HAD EVIDENCE THAT THEY KNEW

23 THAT, WELL, I THINK THAT'S A DIFFERENT STORY. BUT I DON'T KNOW

24 THAT YOU HAVE THAT. I DON'T SEE IT IN HERE. MAYBE IT IS, AND I

25 MISSED IT.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 20 of 38 19

1 MAYBE YOU CAN POINT ME TO THE PARAGRAPHS, BECAUSE I

2 THINK THERE'S A BIG DIFFERENCE BETWEEN "SHOULD HAVE KNOWN."

3 LIKE WHEN WE GET TO KPMG, ONE OF THE THINGS THAT

4 INTERESTED ME ABOUT KPMG IS YOU SAY:

5 "WELL, LOOK, YOU KNOW, THESE OPTIONS, WHEN YOU

6 TAKE A LOOK AT THE STOCK PRICE, IF YOU TAKE A LOOK AT

7 THE PRICE, THE DATE OF THE OPTION, ISN'T IT

8 INTERESTING THAT FIVE OUT OF THE SIX OPTIONS, I

9 THINK, WERE AT THE TROUGH OF" -- IN OTHER WORDS, THE

10 ABSOLUTE, THE LOW POINT. YOU SAY MOST OF THEM, NOT ALL OF THEM.

11 ABSOLUTE LOW POINT.

12 YOU SAY:

13 "AHA, THE ODDS OF THAT HAPPENING ARE" -- I DON'T

14 KNOW. IT'S LIKE BEING HIT TWICE BY LIGHTENING.

15 WHO WAS THAT WOMAN THAT GOT HIT TWICE BY LIGHTENING?

16 BUT, AT ANY RATE, YOU SAY THAT'S VERY, VERY -- YOU

17 KNOW, THAT OUGHT TO PUT THEM ON NOTICE. THEY KNEW THAT.

18 WELL, I WONDERED: DO AUDITORS HAVE A RESPONSIBILITY

19 TO GO BACK AND TRACK THROUGH STOCK OPTION PRICES AND THE WAY IN

20 WHICH THE STOCK MOVES?

21 IS THAT PART OF THEIR AUDIT THAT THEY GO BACK AND

22 LOOK AT IT? IF IT IS -- THIS IS WHY YOU'RE GOING TO BE ABLE TO

23 AMEND -- BUT IF IT IS, YES, I GUESS THAT WOULD BE AN

24 INTERESTING -- THAT MAY BE AN INTERESTING FACT.

25 YOU SORT OF LOST ME ON THAT. I DON'T EVEN KNOW THAT

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 21 of 38 20

1 THE OUTSIDE AUDITOR GOES BACK AND LOOKS AT THE MOVEMENT, STOCK

2 PRICE.

3 MAYBE THEY DO. I DON'T KNOW. I'M NOT IN THIS

4 BUSINESS. MAYBE THEY DO. MAYBE THAT'S PART OF THEIR AUDIT.

5 MR. BECKWORTH : MAYBE IF I CAN STEP BACK JUST A

6 MOMENT. AND I DON'T WANT TO BELABOR THIS ISSUE, BUT JUST BASED

7 ON APPEARANCE WE MAY BE BACK HERE ON A LATER DAY ON THIS ISSUE

8 AFTER AMENDMENT.

9 I WANT TO ADDRESS THIS STANDARD JUST BEFORE WE TURN

10 TO INSIDER TRADING.

11 THE STANDARD, YOUR HONOR, THAT YOU'RE TALKING ABOUT,

12 IT CONCERNS ME, AS IT OBVIOUSLY MIGHT AS THE PLAINTIFF IN THIS

13 CASE, THAT WHAT IT ALLOWS TO HAVE HAPPEN IS WE WOULD HAVE TO

14 SHOW ACTUAL KNOWLEDGE, ESSENTIALLY. YOU SAID THAT AT THE

15 BEGINNING.

16 THAT ALLOWS AN AUDITOR TO COME INTO A PUBLICLY-TRADED

17 COMPANY AND STICK ITS HEAD IN THE SAND, TO BE AN OSTRICH, TO

18 TAKE MONEY FOR DOING NOTHING. THAT'S WHAT HAPPENED HERE.

19 AND THEN -- AND THEN, WHEN IT HITS THE FAN, THE

20 COMPANY HAS TO RESTATE FOR FIVE YEARS A BILLION DOLLAR

21 RESTATEMENT, RESTATEMENT FOR EVERY YEAR. THAT AUDITOR THEN GETS

22 TO TAKE MONEY AGAIN TO GO BACK AND DO A JOB IT SHOULD HAVE DONE

23 IN THE FIRST PLACE.

24 THE COURT : IS THAT AN -- WELL, MAYBE SO. MAYBE THE

25 AUDITOR NEVER CONDUCTED THE AUDIT. LET'S SAY HE DIDN'T.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 22 of 38 21

1 FOR PURPOSES OF THIS LAWSUIT, THE INTERESTING

2 QUESTION ISN'T WHETHER HE CONDUCTED THE AUDIT OR NOT. THE

3 INTERESTING QUESTION IS WHY HE DIDN'T COMMIT (SIC) THE AUDIT.

4 IF YOU HAD EVIDENCE OF THE REASON HE DIDN'T COMMIT

5 (SIC) THE AUDIT WAS THAT HE KNEW THAT IF HE DID COMMIT (SIC) --

6 CONDUCT THE AUDIT IT WOULD DEMONSTRATE THAT FRAUD OCCURRED. YES,

7 THAT'S FINE. YOU CAN SHOW THAT.

8 THAT'S WHAT I THINK THE NINTH CIRCUIT MEANT WHEN THEY

9 SAY THAT THE STANDARD IS HE EITHER KNEW, OR IT WAS SO OBVIOUS

10 THAT HE MUST HAVE BEEN AWARE OF THE FRAUD. THAT'S WHAT I THINK

11 THE STANDARD IS.

12 SO YOU CAN'T CLOSE YOUR EYES TO SOMETHING THAT IS

13 OBVIOUS, IF, IN FACT, THE REASON YOU'RE CLOSING YOUR EYES IS

14 BECAUSE YOU KNOW IF YOU'D OPENED YOUR EYES WHAT YOU WOULD SEE.

15 SO THAT MEANS -- IN MY UNDERSTANDING OF THE LAW, WHAT

16 THAT MEANS IS THAT FOR ALL INTENTS AND PURPOSES THE PERSON KNEW

17 ABOUT IT. THAT'S WHAT I THINK THAT STANDARD IS.

18 MR. BECKWORTH : OR THAT --

19 THE COURT : THAT'S HE'S "THE WRONGDOER." PUT THAT IN

20 QUOTES: "THE WRONGDOER."

21 IT'S EASY TO SHOW THAT. IT'S EASY TO SHOW IT. HE MAY

22 HAVE THOUGHT THAT'S RIGHT. THAT MAY BE THE DEFENSE IN THE CASE.

23 BUT THAT'S NOT -- YOU ARE NOT CHARGING HIM IF HE THOUGHT IT WAS

24 RIGHT OR WRONG. YOU'RE CHARGING HE DID THESE THINGS.

25 MR. BECKWORTH : YOUR HONOR, YOU HAVE TO STEP BACK.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 23 of 38 22

1 NOT YOU, BUT US. YOU HAVE TO STEP BACK AND LOOK AT THE

2 PERFORMANCE THAT'S BEING HAD HERE OF AN AUDIT COMMITTEE AND AN

3 AUDITOR. THEY ARE AN OVERSIGHT GROUP OF PEOPLE. THEY ARE THE

4 GATEKEEPER.

5 IN A WAY THEY ARE LIKE, YOU KNOW, A JUDGE. YOU

6 PROVIDE A GATEKEEPING FUNCTION OF EVIDENCE THAT GETS TO A JURY

7 OR THAT GOES TO TRIAL. AND AN AUDIT COMMITTEE AND AN AUDITOR

8 HAVE A JOB TO DO.

9 AND IF THEY ARE SO DERELICT IN THEIR JOB THAT, AS YOU

10 SAY, THEY JUST CLOSE THEIR EYES AND DO NOTHING AT ALL, THEN YOU

11 TAKE THAT STANDARD. IT'S NOT THAT THEY MUST HAVE KNOWN. IT'S

12 THAT HAD THEY OPENED THEIR EYES, THEY WOULD HAVE KNOWN.

13 THE COURT : MY GUESS IS THAT I'VE EXAGGERATED IT. MY

14 GUESS IS THERE IS CIRCUIT LAW THAT SAYS IF YOU DON'T EVEN DO

15 YOUR TASK, YOU KNOW, DON'T SHOW UP FOR THE AUDIT, YOU JUST SEND

16 A BILL, THAT'S THE -- YOU KNOW, THAT'S SUCH A COMPLETE

17 DERELICTION OF YOUR RESPONSIBILITIES THAT MAYBE YOU CAN INFER

18 CERTAIN THINGS FROM THAT.

19 BUT WE DON'T HAVE THAT IN THIS PARTICULAR CASE, AS I

20 UNDERSTAND IT, AT LEAST NOT AS TO KPMG.

21 AS TO THE AUDIT COMMITTEE THE QUESTION IN MY MIND IS:

22 IS THERE A SLIGHT -- THEY ARE NOT AN OUTSIDE PROFESSIONAL. YOU

23 SEE, IT'S EASY ENOUGH TO DRAG IN AN OUTSIDE PROFESSIONAL AND

24 SAY:

25 "COME ON." YOU KNOW, AFTER ALL, NUMBER ONE, THEY I

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 24 of 38 23

1 ARE A DEEP POCKET. THEY MAY BE THE ONLY POCKET, TURNS OUT

2 FREQUENTLY. OR FROM TIME TO TIME THEY ARE THE ONLY SOLVENT

3 POCKET.

4 SO IT'S EASY ENOUGH TO BRING IN THE OUTSIDE AUDITOR

5 HAND SAY:

6 "YOU DIDN'T DO YOUR JOB."

7 AND I THINK THAT THE STANDARD IS THIS HIGH

8 (INDICATING), BECAUSE, AMONG OTHER THINGS, THEY DON'T WANT THE

9 OUTSIDE AUDITORS OR THE OUTSIDE PROFESSIONALS JUST TO BE BROUGHT

10 IN ALL THE TIME.

11 NOW, I HADN'T THOUGHT ABOUT THE IDEA THAT MAYBE

12 THERE'S A DIFFERENT STANDARD WITH RESPECT TO THE "AUDIT

13 COMMITTEE," IN QUOTE "INSIDERS."

14 I DON'T EVEN KNOW IF THEY ARE, QUOTE, "INSIDERS."

15 I MEAN, THEY ARE NOT EMPLOYEES, ARE THEY, THE AUDIT

16 COMMITTEE, OR SOME OF THEM?

17 MR. BECKWORTH : THEY ARE SUPPOSED TO BE INDEPENDENT,

18 I WOULD THINK. BUT --

19 THE COURT : LET ME --

20 MS. LOCKER : WELL, BUT --

21 THE COURT : MAYBE I CAN HEAR --

22 MS. LOCKER : YOUR HONOR, THE STANDARDS WITH RESPECT

23 TO INDEPENDENCE HAS CHANGED OVER THE YEARS IN THE TIME PERIOD

24 WE'RE SPEAKING, SO WE CAN PUT THAT BEFORE THE COURT, IF THAT IS

25 RELEVANT. BUT THESE ARE OUTSIDE DIRECTORS.

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 25 of 38

24

1 THE QUESTION OF INDEPENDENCE IS A SEPARATE QUESTION

2 OF WHAT MAKES AN OUTSIDE DIRECTOR INDEPENDENT FOR CERTAIN

3 COMMITTEES, AND THAT'S EVOLVED OVER THE YEARS. THAT'S ONE.

4 TWO, AND I THINK THAT WHAT'S -- LET ME BRIEFLY SAY

5 I'VE NOT HEARD ANY AUTHORITY FOR THE PROPOSITION THAT THE

6 DEFINITION OF "DELIBERATE RECKLESSNESS" IS DIFFERENT FOR

7 AUDITORS AS OPPOSED TO OUTSIDE DIRECTORS.

8 BUT, THREE, AND PERHAPS MOST IMPORTANTLY -- ACTUALLY,

9 FOUR POINTS. THE FOURTH IS MOST IMPORTANT -- IF THE PLAINTIFFS

10 ARE GOING TO AMEND, I THINK IT'S IMPORTANT THAT WE PUT IN FRONT

11 OF THIS COURT IN SUBSEQUENT BRIEFING INFORMATION REGARDING

12 COMMITTEE OF ONE. AND NOT ONLY WHETHER IT'S APPROPRIATE UNDER

13 THE LAW, BUT GIVEN THE DEFINITION OF "DELIBERATE RECKLESSNESS"

14 THAT THE COURT ARTICULATED, WHETHER IT WAS CUSTOMARY. IN FACT, \..I- 15 WHETHER IT WAS MORE CUSTOMARY THAN NOT --

16 THE COURT : WELL --

17 MS. LOCKER : -- AS A PRACTICE.

18 THE COURT : -- OBVIOUSLY, IF THEY AMEND, IF THEY

19 AMEND, THEN YOU'LL BE ABLE TO RESPOND.

20 MS. LOCKER : RIGHT.

21 THE COURT : WHATEVER YOU WANT TO PUT IN THERE.

22 MS. LOCKER : LET ME ADDRESS THE REMARKS REGARDING A

23 COMPLETE ABSENCE OF OVERSIGHT BY AN AUDIT COMMITTEE. WE HAVE, I

24 BELIEVE, WITH ALL DUE RESPECT, A FUNDAMENTAL MISUNDERSTANDING OF

25 WHAT THE ROLE OF THE AUDIT COMMITTEE IS, AS OPPOSED TO THE

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 26 of 38 25

1 COMPENSATION COMMITTEE.

2 SO WHAT WE HAVE NOT SEEN IN THE BRIEFING IS: WHAT IS

3 THE ROLE OF THE AUDIT COMMITTEE WITH RESPECT TO THE STOCK

4 OPTIONS? ONE.

5 TWO: WHAT WAS AUDIT COMMITTEE SUPPOSED TO SEE WITH

6 RESPECT TO THE STOCK OPTIONS?

7 WE'RE NOT TALKING ABOUT THE COMPENSATION COMMITTEE

8 NOW. WE'RE TALKING ABOUT THE AUDIT COMMITTEE. AND WHAT DID THE

9 AUDIT COMMITTEE SEE WITH RESPECT TO STOCK OPTIONS AND THE STOCK

10 OPTION ACCOUNTING, IN PARTICULAR?

11 AND IN THE ABSENCE OF THAT, I DON'T KNOW HOW THE

12 COURT CAN CONCLUDE, BASED ON THE CURRENT PLEADINGS, THAT THERE

13 WAS A LACK OF OVERSIGHT AT ALL. I DON'T KNOW HOW YOU EVEN GET TO

14 THAT QUESTION, WITHOUT THE ANSWER, OR AT LEAST THE ANSWERS MUCH

15 LESS ALLEGATIONS COVERING THOSE TOPICS.

16 THE COURT: OKAY.

17 MR . BECKWORTH : MAY I RESPOND TO THAT?

18 THE COURT: SURE.

19 MR . BECKWORTH : YOUR HONOR, I'M GOING TO TAKE --

20 THE COURT : WELL, BUT DON'T YOU WANT TO RESPOND TO

21 IT IN YOUR RESPONSIVE PLEADING? I MEAN, I AM NOT -- I DON'T

22 HAVE TO DECIDE THAT TODAY. IT SEEMS TO ME THAT WHAT YOU'RE GOING

23 TO DO IS AMEND. AND YOU NOW KNOW WHAT, I MEAN, THE ARGUMENTS

24 ARE OUT THERE.

25 MAKE YOUR ARGUMENT AT THE TIME. I JUST THINK THAT'S

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 27 of 38 26

1 A BETTER WAY OF SPENDING SOME TIME.

2 MR. BECKWORTH : IF YOU'RE TELLING US THAT WE'RE NOT

3 GOING TO CHANGE YOUR MIND TODAY --

4 THE COURT : OH, NO. I'M NOT GOING TO CHANGE MY MIND.

5 MR. BECKWORTH : -- I DON'T WANT TO WASTE YOUR TIME

6 II TODAY.

7 THE COURT : IT'S NOT A WASTE. I WANT TO MAKE SURE

8 YOU UNDERSTAND WHAT MY CONCERNS ARE.

9 MR. BECKWORTH: SURE.

10 THE COURT : I'VE TRIED TO ARTICULATE MY CONCERNS. IF

11 THEY ARE DIFFERENT STANDARDS YOU OUGHT TO MAKE SURE THAT'S

12 CLEAR. I THINK YOU OUGHT TO -- COUNSEL IS HIGHLIGHTING A

13 CONCERN THAT SHE HAS THAT THERE'S BEEN A CONFUSION OF

14 IDENTIFICATION OF ROLES HERE. COMPENSATION COMMITTEE AND AUDIT

15 COMMITTEE ARE VERY DIFFERENT.

16 THIS WAS AN ISSUE OF COMPENSATION. IT WASN'T AN

17 ISSUE OF AUDITING; IS THAT RIGHT?

18 MS. LOCKER : IN PART. IN PART.

19 THE COURT : IN PART.

20 MS. LOCKER : THERE'S TWO DIFFERENT ISSUES HERE,

21 II RIGHT.

22 THE COURT : SO MR. SONSINI, IF YOU SAID TO MR. REYES:

23 "YOU ARE A -- YOU ARE AN OPTION COMMITTEE OF

24 ONE," OR WHATEVER WAS PURPORTEDLY SAID, THAT DEALT --

25 THAT ESSENTIALLY MAY HAVE REMOVED MR. REYES -- MAY HAVE

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 28 of 38 27

1 RESTRICTED THE OVERSIGHT SOMEWHAT WITH RESPECT TO THE

2 COMPENSATION, NOT WITH RESPECT TO THE AUDITING.

3 ANYWAY, THAT'S HER POINT. AND MAYBE IT'S WELL-TAKEN.

4 I DON'T KNOW. I DON'T HAVE TO DECIDE THAT NOW, BECAUSE I'M

5 GRANTING THE MOTION TO DISMISS WITH LEAVE TO AMEND.

6 I'M NOT DENYING IT. IF I DENY IT I HAVE TO ADDRESS

7 ALL OF THESE ISSUES. IF I GRANT IT I DON'T YET, UNLESS YOU

8 DECIDE NOT TO AMEND.

9 IF YOU DECIDE NOT TO AMEND, I'LL WRITE AN ORDER SO

10 YOU HAVE A RECORD.

11 MR. BECKWORTH : I UNDERSTAND.

12 THE COURT : LET'S SEE. LET'S TALK A LITTLE BIT ABOUT

13 II DISCOVERY.

14 MR. GUGGENHEIM : YOUR HONOR, ONE POINT OF

15 CLARIFICATION.

16 THE COURT: SURE.

17 MR. GUGGENHEIM : YOU LISTED THE MOTIONS THAT WERE

18 DENIED. AND I MAY HAVE JUST MISSED IT. REGARDING THE COMPANY

19 11ITSELF?

20 THE COURT : OH, WELL, THE COMPANY ITSELF APPLIES.

21 MR. GUGGENHEIM: OKAY.

22 MR. BECKWORTH : SO THE MOTIONS HAVE BEEN DENIED AS TO

23 BROCADE, REYES AND CANOVA, BUT GRANTED WITH LEAVE TO AMEND AS TO

24 THE AUDIT COMMITTEE DEFENDANTS AND KPMG.

25 THE COURT: YES.

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 29 of 38 28

1 MR . BECKWORTH : OKAY. WE UNDERSTAND. THANK YOU,

2 II YOUR HONOR.

3 THE COURT : SORRY IF I WASN'T CLEAR.

4 MR . BECKWORTH : THANK YOU.

5 THE COURT : SO HERE'S WHAT I THOUGHT ABOUT DISCOVERY.

6 WHAT I THOUGHT ABOUT DISCOVERY WAS GIVING YOU TIME WITH LEAVE TO

7 AMEND. THE DAY YOU FILED YOUR AMENDED COMPLAINT I WAS GOING TO

8 DIRECT THAT THE STAY OF DISCOVERY BE MODIFIED AND PERMITTING YOU

9 TO HAVE ALL OF THE INFORMATION THAT WAS FURNISHED TO OTHER

10 AUTHORITIES WITH RESPECT TO THIS INVESTIGATION, NOT TO TAKE THAT

11 POSITION, NOT SUBMIT INTERROGATORIES. BUT IF BROCADE HAS GIVEN

12 OUT INFORMATION TO THE SEC OR TO ANYBODY ELSE, THAT WOULD BE

13 DISCOVERY.

14 I'M NOT PASSING ON WHAT IS DISCOVERY OR WHAT ISN'T.

15 BUT IF THERE ARE, YOU KNOW, 100,000 GIGABYTES OF THIS OR THAT OR

16 12 MILLION DOCUMENTS, I LISTEN TO THAT WHENEVER THE CRIMINAL

17 CASE COMES, BEFORE YOU GET IT ALL.

18 BUT YOU DON'T GET IT UNTIL YOU FILE YOUR AMENDED

19 COMPLAINT. NOW, WHY DO I SAY THAT?

20 I SAY THAT BECAUSE IN LOOKING AT WHAT I THINK IS THE

21 SPIRIT OF THE PSLRA, IT IS TO MAKE SURE THAT DISCOVERY IS NOT

22 USED AS A VEHICLE IN ORDER TO GATHER EVIDENCE TO WARRANT

23 LIABILITY AT THE -- IN THE INITIAL STATEMENTS.

24 IT'S AN ODD CONSTRUCT OF A WHOLE SET, A WHOLE TYPE

25 LITIGATION. I UNDERSTAND THE ARGUMENT IS LETTING THE CASE GO

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 30 of 38 29

1 FORWARD AS TO THESE OTHER DEFENDANTS SINCE DISCOVERY IS GOING TO

2 BE DONE, WHY NOT ALLOW YOU TO HAVE DISCOVERY IMMEDIATELY?

3 AND THE ANSWER IS, YOU KNOW WHAT? I'M NOT.

4 THEN IT BECOMES A BIT COMPLICATED OF TRYING TO SORT

5 THROUGH WHAT DISCOVERY. AND IT BECOMES COMPLICATED ON A NUMBER

6 OF ISSUES.

7 NUMBER ONE: HOW DO THE DEFENDANTS COMPLY WITH

8 DISCOVERY REQUESTS? IN OTHER WORDS, THEY MAY NOT EVEN BE

9 DEFENDANTS. THEY MAY BE SIMPLY THIRD PARTIES. SO IT MAKES IT

10 COMPLICATED FOR THEM.

11 IT ALSO MAKES IT COMPLICATED IN TERMS OF HOW FAR YOU

12 USE THE INFORMATION THAT IS GATHERED IN THE FORMULATION OF THE

13 ALLEGATIONS OF THE COMPLAINT.

14 THAT BECOMES A LITTLE UNCLEAR. SO I THOUGHT THIS IS A

15 PRACTICAL WAY OF DEALING WITH THE PROBLEM IS YOU DON'T GET IT

16 UNTIL YOU FILE YOUR AMENDED COMPLAINT.

17 YOU MAY DECIDE NOT TO FILE THE AMENDED COMPLAINT. IF

18 YOU DO FILE THE AMENDED COMPLAINT, THEN THE DAY YOU FILE THE

19 AMENDED COMPLAINT YOU GET IT.

20 AND THEN, I'LL DEAL WITH -- YOU GET WHAT I WOULD GIVE

21 li YOU.

22 Int. BECKWORTH : YES.

23 THE COURT : BECAUSE I DON'T THINK THAT REQUIRES KPMG

24 TO DO ANYTHING OR THE AUDIT COMMITTEE TO DO ANYTHING.

25 IT'S QUA AUDIT COMMITTEE, KPMG. IT REQUIRES, I

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 31 of 38 30

1 GUESS, BROCADE TO TURN OVER WHAT THEY HAVE ALREADY TURNED OVER

2 TO OTHER INVESTIGATORY AGENCIES. THAT'S WHAT I UNDERSTAND TO BE

3 THE CONTEXT OF DISCOVERY.

4 IF I'M WRONG, YOU CAN --

5 MS. LOCKER : I CAN'T ENLIGHTEN YOU ON THAT QUESTION.

6 I DON'T KNOW WHAT THEY WERE CONTEMPLATING. BUT WAS THE COURT

7 THINKING THAT ONCE THEY AMENDED AS TO THE AUDIT COMMITTEE AND

8 KPMG THAT THEY WOULD THEN HAVE A SUBSEQUENT OPPORTUNITY EVEN

9 AFTER THEY OBTAIN THE DISCOVERY THAT COURT IS TALKING ABOUT?

10 THE COURT : SUBSEQUENT FOR WHAT?

11 MS. LOCKER : I'M SORRY. I JUST WANT TO MAKE SURE I

12 UNDERSTAND WHAT THE COURT IS PROPOSING.

13 THE COURT: SURE.

14 MS. LOCKER : IS IT THE COURT'S CONTEMPLATION THAT --

15 I THINK I GET THE COURT'S REASONING -- THAT ONCE THEY FILE AN

16 AMENDED COMPLAINT THEIR AMENDMENTS WOULD BE DIRECTED TOWARDS THE

17 AUDIT COMMITTEE MEMBERS AND KPMG. THEY WOULD THEN GET THE

18 DISCOVERY. I UNDERSTOOD THAT'S LIMITED TO WHAT HAD BEEN PRODUCED

19 TO THE REGULATORY AGENCIES.

20 THE COURT: YES.

21 MS. LOCKER : IS IT THE COURT'S CONTEMPLATION THAT IF

22 AN ADDITIONAL MOTION TO DISMISS WITH RESPECT TO EITHER THE AUDIT

23 COMMITTEE OR KPMG WERE TO BE BROUGHT IN FRONT OF THE COURT AND

24 GRANTED THAT THE COURT WOULD THEN GIVE PLAINTIFFS AN OPPORTUNITY

25 TO AMEND AGAIN, INCLUDING AMENDING IT AGAIN AND USING WHATEVER

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 32 of 38

31

1 DISCOVERY THEY OBTAIN?

2 THE COURT : WELL, I DON'T KNOW THAT THEY CAN.

3 MS. LOCKER : WELL, HOW ARE YOU GOING -- I MEAN, HOW

4 WOULD THE COURT --

5 THE COURT : WELL, BECAUSE I THOUGHT WHEN THEY FILED

6 THEIR AMENDED -- I'M NOT GOING TO GIVE THEM -- THIS IS THEIR

7 NEXT BEST LAST SHOT.

8 MS. LOCKER : THAT'S WHAT I WAS ASKING, YOUR HONOR.

9 THAT IS WHAT I WAS ASKING. THAT WAS NOT EXPLICIT. AND THAT'S

10 WHAT I WAS ASKING TO MAKE SURE I UNDERSTOOD.

11 THE COURT : THERE YOU GO. THAT'S WHY I'M GIVING THEM

12 AS MUCH TIME AS THEY WOULD LIKE FOR THIS ENDEAVOUR.

13 THAT IS, NORMALLY I WOULD DO TWO WEEKS. BUT IF YOU

14 WANT 30 DAYS, IF YOU WANT 45 DAYS, IF YOU WANTS 60 DAYS, I'LL

15 GIVE IT TO YOU. BUT YOU'RE NOT GETTING ANY DISCOVERY UNTIL THAT

16 PIECE OF PAPER IS FILED.

17 MR. BECKWORTH : WELL, WE UNDERSTOOD THAT FROM READING

18 YOUR OTHER CASES, YOUR HONOR.

19 THE COURT : DID I SAY THAT IN MY OTHER CASES?

20 MR. BECKWORTH : YOU HAVE. I THINK YOU'VE BEEN

21 AFFIRMED ON IT.

22 CAN I ASK YOU --

23 THE COURT : I STILL THINK I'M RIGHT. OKAY. ANYWAY --

24 MR. BECKWORTH : YOU ARE.

25 THE COURT : HOW DO YOU WANT TO -- IT'S UP TO YOU.

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 33 of 38 32

1 HOW DO YOU WANT TO DO IT?

2 MR. BECKWORTH : WELL, LET ME -- MAYBE IF I COULD JUST

3 ASK SOME QUESTIONS OF THE COURT.

4 THE COURT: SURE.

5 MR. BECKWORTH : AND THAT WILL HELP US MAKE A

6 II DECISION.

7 ONE, WE'RE GOING TO HAVE TO --

8 MR. GUGGENHEIM : YOUR HONOR, BEFORE WE JUMP INTO THE

9 PROCESS OF THE DISCOVERY COULD WE BE HEARD FOR ONE --

10 MOMENTARILY ON THE DISCOVERY STAY ISSUE ITSELF? LIKE THE

11 CONCEPT OF WHETHER THE STAY COULD BE LIFTED.

12 I UNDERSTOOD THAT YOUR HONOR SAID THE SPIRIT OF THE

13 REFORM ACT AND THE STAY WAS TO PRECLUDE PEOPLE FROM GETTING

110-.1 14 DISCOVERY, EXCEPT IN MERITORIOUS ACTIONS. 15 BUT THE LITERAL STATUTE ITSELF HAS ONLY TWO

16 EXCEPTIONS, AND WE'RE NOT ARGUING THAT IT WOULD BE BURDENSOME,

17 FOR EXAMPLE, TO PRODUCE THIS INFORMATION.

18 THE COURT: NO.

19 MR. GUGGENHEIM : WE DON'T CONTEND THAT AT ALL. IT

20 WOULDN'T BE DIFFICULT.

21 BUT THE QUESTION IS: HAVE THEY MET EITHER OF THE TWO

22 STATUTORY EXCEPTIONS?

23 THE COURT : WELL, HAVEN'T THEY MET THE STANDARD AS TO

24 REYES AND THE COMPANY? HAVEN'T THEY MET THAT STANDARD AS OF

25 TODAY?

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 34 of 38 33

1 MR. GUGGENHEIM : BUT THERE ARE -- AS LONG AS THERE'S

2 A MOTION TO DISMISS PENDING, YOUR HONOR, WHICH THERE WILL BE FOR

3 THE AUDIT COMMITTEE, THEN DISCOVERY IS STAYED.

4 THE COURT : I UNDERSTAND THAT ARGUMENT. THANK YOU.

5 YOU'RE NOT GOING TO CONVINCE ME ON THAT ARGUMENT.

6 I DO THINK IN A PRACTICAL WAY WHEN YOU HAVE A SERIES

7 OF DIFFERENT DEFENDANTS, IT'S NOT A BAD WAY OF DEALING WITH IT.

8 I DON'T SEE HOW ANYONE IS PREJUDICED. YOU SEE, I LOOK

9 AT IT AND TRY TO FIGURE OUT: WHO IS PREJUDICED BY THIS? WHO IS

10 PREJUDICED BY IT?

11 WELL, SOMEBODY COULD BE PREJUDICED AND MATERIALS

12 COULD BE TAKEN AND USED AS FODDER FOR THE AMENDED COMPLAINT.

13 THAT'S A PREJUDICE. AND THAT'S PREJUDICE THAT THE PSLRA IS

14 DESIGNED TO PROTECT AGAINST.

15 OKAY. THAT CAN'T HAPPEN HERE, AS I'VE CONSTRUCTED IT.

16 IN MY VIEW, IT CAN'T. SO THEN WHAT PREJUDICE? WELL, MAYBE

17 PREJUDICE TO MAKING YOU GUYS RUN AROUND AND DO A LOT OF

18 DISCOVERY, IF YOU'RE NOT IN IT.

19 BUT, OF COURSE, YOU ARE IN IT. THEN, IT MAY BE

20 PREJUDICE FOR YOU TO HAVE TO PRODUCE THINGS THAT HAVE OTHERWISE

21 NOT BEEN PRODUCED.

22 YOU KNOW, YOU CAN ARGUE THAT. BUT, OF COURSE, YOU

23 PRODUCED IT. JUST HAVEN'T GIVEN IT TO THEM.

24 SO I DON'T KNOW. I MEAN, WE CAN GO ON AND ON. AND

25 I'D RATHER NOT, BECAUSE I THINK THAT'S A PRACTICAL WAY OF

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 35 of 38 34

1 DEALING WITH THE SITUATION. BUT I DIDN'T WANT TO DENY YOUR RIGHT

2 TO BE HEARD.

3 MR. GUGGENHEIM : THANK YOU, YOUR HONOR.

4 THE COURT: OKAY.

5 MR. BECKWORTH : YOUR HONOR, IF I MAY, I JUST WOULD

6 LIKE TO ASK SOME QUESTIONS SO WE CAN MAKE AN EDUCATED

7 DECISION --

8 THE COURT : YES. YES. GO AHEAD.

9 MR. BECKWORTH : BECAUSE THIS CLIENT HERE IS GOING TO

10 MAKE THIS DECISION.

11 THE FIRST QUESTION IS THIS: IF -- LET'S SAY WE

12 ASKED, AND YOU APPROVED 45 TO 60 DAYS FOR AN AMENDMENT, BUT WE

13 AMENDED EARLIER. LET'S SAY WE WERE ABLE TO GET IT TOGETHER AND

14 AMEND IN A SHORTER TIME. WOULD THE MOMENT WE FILE WE'RE ALLOWED

15 TO GET THE DOCUMENTS?

16 THE COURT: YES.

17 MR. BECKWORTH : OKAY. THE SECOND QUESTION IS: IF WE

18 WERE NOT TO AMEND, WOULD DISCOVERY START AS SOON AS WE ALERTED

19 THE COURT AND THE PARTIES THAT WE WEREN'T GOING TO AMEND? WOULD

20 WE GO -- BE ABLE TO THEN GO FORWARD WITH FULL DISCOVERY?

21 THE COURT : YES. YES. I MEAN, BUT I THINK IF YOU

22 ADVISE ME THAT YOU'RE WILLING TO STAND ON THE ORIGINAL COMPLAINT

23 AND NOT AMEND IT, THEN IF YOU DO THAT -- I'M JUST TRYING TO

24 FIGURE OUT -- THEN YOU CAN PROCEED AGAINST THOSE PARTIES THAT

25 I'VE INDICATED YOU CAN PROCEED AGAINST. AND I'LL WRITE

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 36 of 38 35

1 SOMETHING. AND I'LL WRITE SOMETHING, BUT I DON'T THINK I HAVE TO

2 STOP DISCOVERY WHILE I TRY TO CHOOSE THE RIGHT WORDS.

3 MR. BECKWORTH : I THINK, YOUR HONOR, WE WOULD KNOW IN

4 MAKING THAT DECISION THAT YOU WOULD BE GRANTING THOSE MOTIONS

5 WITH FINALITY, MOTIONS TO DISMISS WITH THOSE DEFENDANTS.

6 THE COURT: YES.

7 MR. BECKWORTH : WE WOULD CHOOSE NOT TO AMEND, IF WE

8 DID, AND AT THAT POINT IF WE CHOOSE TO GO FORWARD WITH FULL

9 DISCOVERY WOULD WE BE ALLOWED TO GO FORWARD WITH FULL DISCOVERY

10 AT THAT POINT AS OPPOSED TO JUST GETTING THE GOVERNMENT

11 DOCUMENTS?

12 THE COURT: YES.

13 MR. BECKWORTH: OKAY.

14 THE COURT : THE WHOLE THING.

15 MR. BECKWORTH : VERY WELL.

16 THE COURT : EXCEPT, OF COURSE, ANY DISCOVERY AS TO

17 KPMG. AND SO IT WOULD BE THIRD-PARTY DISCOVERY.

18 MR. BECKWORTH : SURE. RIGHT.

19 THE COURT : THANK YOU VERY MUCH.

20 MR. GUGGENHEIM : AND IF THEY --

21 THE COURT : YOU WANT 60 DAYS? NOT TO EXCEED? OKAY.

22 LEAVE TO AMEND WITHIN 60 DAYS FROM TODAY'S DATE.

23 MR. BECKWORTH : VERY WELL.

24 MR. GUGGENHEIM : YOUR HONOR, POINT OF CLARIFICATION.

25 IF THEY CHOOSE NOT TO AMEND AS TO THOSE INDIVIDUALS, THE AUDIT

KATHERINE WYATT, OFFICIAL REPORTER , CSR, RMR ( 415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 37 of 38 36

1 COMMITTEE, THEY WILL BE DEEMED DISMISSED WITH PREJUDICE?

2 THE COURT : YES. YES.

3 MR. BECKWORTH : YES, WE UNDERSTAND THAT.

4 THE COURT: YES.

5 THANK YOU VERY MUCH.

6 MR. BECKWORTH : THANK YOU, YOUR HONOR. APPRECIATE

7 II YOUR TIME.

8 MR. GUGGENHEIM : THANK YOU, YOUR HONOR.

9 THE COURT : LET'S TAKE TEN MINUTES, AND THEN WE HAVE

10 A CRIMINAL MATTER.

11 (THEREUPON, THIS HEARING WAS CONCLUDED.)

12

13

14

15

16

17

18

19

20

21

22

23

24

25

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-4 Filed 07/30/2007 Page 38 of 38

37

1 CERTIFICATE OF REPORTER

2 I, KATHERINE WYATT, THE UNDERSIGNED, HEREBY CERTIFY 11-1.1 3 THAT THE FOREGOING PROCEEDINGS WERE REPORTED BY ME, A CERTIFIED

4 SHORTHAND REPORTER, AND WERE THEREAFTER TRANSCRIBED BY ME INTO

5 TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE

6 RECORD OF SAID PROCEEDINGS.

7 I FURTHER CERTIFY THAT I AM NOT OF COUNSEL OR

8 ATTORNEY FOR EITHER OR ANY OF THE PARTIES IN THE FOREGOING

9 PROCEEDINGS AND CAPTION NAMED, OR IN ANY WAY INTERESTED IN THE

10 OUTCOME OF THE CAUSE NAMED IN SAID CAPTION.

11 THE FEE CHARGED AND THE PAGE FORMAT FOR THE

12 TRANSCRIPT CONFORM TO THE REGULATIONS OF THE JUDICIAL

13 CONFERENCE.

14 FURTHERMORE, I CERTIFY THE INVOICE DOES NOT CONTAIN

15 CHARGES FOR THE SALARIED COURT REPORTER'S CERTIFICATION PAGE.

16 IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS 8TH DAY OF

17 NOVEMBER, 2006.

18

19

20

21

22

23

24

25

KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (415) 487-9834 Case 5:06-cv-04327-JW Document 91-5 Filed 07/30/2007 Page 1 of 7

EXHIBIT 4 Juniper 1Das6F@rG6-bM4327-JW Document 91-5 Filed 07/30/2007 Page 2 of 7 Page 1 of 4 8-K 1 htm 2181.htm LIVE FILING

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 13, 2004 Juniper Networks, Inc.

(Exact name of registrant as specified in its charter)

Delaware 000-26339 770422528

(State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.)

1194 North Mathilda Avenue, Sunnyvale, 94089 California

(Address of principal executive offices) (Zip Code)

Registrant ' s telephone number, including area code : (408) 745-2000

Not Applicable

Former name or former address , if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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Top of the Form

Item 1.01. Entry into a Material Definitive Agreement.

The disclosure set forth in Item 5.02 below is incorporated herein by reference.

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On December 14, 2004, Juniper Networks announced that it has appointed Robert Dykes to the position of Executive Vice President, Business Operations and Chief Financial Officer, effective January 1, 2005.

Mr. Dykes, age 55, is currently employed by Flextronics International Ltd., a leading provider of advanced electronics manufacturing services. Mr. Dykes has served as Chief Financial Officer of Flextronics since February 1997 and as President, Systems Group since February 1999. Prior to joining Flextronics, Mr. Dykes served for nine years as executive vice president, Worldwide Operations and Chief Financial Officer of Symantec Corporation, a provider of information security products. Mr. Dykes also held CFO roles at industrial robots manufacturer, Adept Technology, and at disc drive controller manufacturer, Xebec. He also held senior financial management positions at Ford Motor Company. He received a Bachelor of Commerce and Administration from Victoria University in Wellington, New Zealand.

On December 13, 2004, the Company entered into an employment agreement with Mr. Dykes, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference. Under the employment agreement, Mr. Dykes will be employed on an "at will" basis and will: (i) receive an annual base salary of $400,000, (ii) be eligible for a target bonus equal to 100% of his base salary, and (iii) receive an initial stock option grant of 500,000 shares of the Company's common stock. This option will have a ten year term, an exercise price equal to the fair market value of the Company's common stock on the date of grant, and will vest over a four year term, such that the options will become exercisable as to 25% of the total grant on the one-year anniversary of the commencement of his employment and become exercisable as to 1/48th of the total grant per month thereafter. If the Company terminates Mr. Dykes' employment for a reason other than Cause (as defined in the agreement), Mr. Dykes will be entitled to certain additional benefits provided in the agreement.

This description of the employment agreement is qualified in its entirety by reference to the provisions of the agreement attached as Exhibit 99.1 hereto.

Mr. Dykes will fill the position currently held by Marcel Gani. Mr. Gani is assuming the role of chief of staff.

A copy of the press release issued by the Company is attached hereto as Exhibit 99.2 and incorporated herein by reference.

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Top of the Form

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Juniper Networks, Inc.

December 14, 2004 By: Mitchell Gaynor

Name: Mitchell Gaynor Title: Vice President, General Counsel and Secretary

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Top of the Form

Exhibit Index

Exhibit No. Description

99.1 Employment agreement dated December 13, 2004 between the Company and Robert Dykes 99.2 Press release issued by the Company on December 14, 2004

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PERSONAL & CONFIDENTIAL

November 30, 2004

Mr. Robert B. Dykes 12200 Kate Drive Los Altos, CA 94022

Dear Bob:

We are delighted to extend an offer to you to join Juniper Networks Inc. ("JNI" or the "Company") as Executive Vice President, Business Operations and Chief Financial Officer reporting to me. This letter will confirm the terms of your employment with the Company as follows:

1. Base Salary . In consideration of your services, you will be paid a base salary at the rate of $400,000.00 which will be paid semimonthly in the amount of $16,666.67 less applicable taxes in accordance with JNI's normal payroll processing.

2. Annual Bonus . You will also be eligible to participate in the Juniper Executive Bonus Program, which will be targeted at 100% of your base salary on an annual basis. You are eligible for this bonus beginning FY2005. The details of the bonus plan will be finalized by the Executive Compensation Committee in January 2005. Any bonuses paid shall be less any applicable withholding taxes.

3. Stock Options . Effective upon the commencement date of your employment and subject to compliance with applicable state and federal securities laws, I will recommend to the Stock Option Committee that an option of 500,000 shares of JNI Common Stock be granted to you. The Option will have a term of ten (10) years from the date of grant (the "Grant Date"). Your right to exercise the Option will vest cumulatively over a period of four years so long as you remain an employee of the company, with 12/48ths of the shares vesting on the one-year anniversary of the commencement of your employment and 1/48th vesting each month thereafter.

4. Benefits; Expenses . You will be entitled to receive the employee benefits made available to other employees and officers of the Company to the full extent of your eligibility. We have put a great deal of emphasis on our benefits, and expect that they will continue to evolve as we grow and as the needs of our people and their families change. JNI shall reimburse you for all reasonable business and travel expenses actually incurred or paid by you in the performance of your services on behalf of the Company, in accordance with the Company's expense reimbursement policy as from time to time in effect.

5. Proprietary Information Agreement . Upon commencement of your employment, you will sign the Company's standard employee Employment, Confidential Information, Invention Assignment and Arbitration Agreement.

6. Confidentiality. Except as required by applicable laws, neither party shall disclose the contents of this agreement without first obtaining the prior written consent of the other party, provided, however, that you may disclose this agreement to your attorney, financial planner and tax advisor if such persons agree to keep the terms hereof confidential.

7. Arbitration. Any claim, dispute or controversy arising out of this Agreement, the interpretation, validity or enforceability of this Agreement or the alleged breach thereof shall be submitted by the parties to binding arbitration by the American Arbitration Association, provided, however, that this arbitration provision shall not preclude the Company from seeking injunctive relief from any court having jurisdiction with respect to any disputes or claims relating to or arising out of the misuse or appropriation of the Company's trade secrets or confidential and proprietary information. Judgment may be entered on the award of the arbitration in any court having jurisdiction.

8. Severance. In the event you are terminated involuntarily by JNI without Cause, as defined below, and provided you execute a full release of claims, in a form satisfactory to JNI, promptly following termination, you will be entitled to receive the following severance benefits (i) an amount equal to six months of your base salary, (ii) an amount equal to half of your annual at target bonus for the fiscal year in which your termination occurs and (iii) and acceleration of six months of vesting of the above specified stock options. For purposes of this Agreement, "Cause" is defined as (i) willfully engaging in gross misconduct that is demonstrably injurious to JNI; (ii) willful act or acts of dishonesty or malfeasance undertaken by you; (iii) conviction of a felony; or (iv) willful and continued refusal or failure to substantially perform your duties with JNI (other than incapacity due to physical or mental illness); provided that the action or conduct described in clause (iv) above will constitute "Cause" only if such failure continues after the JNI CEO or Board of Directors has provided you with a written demand for substantial performance setting forth in detail the specific respects in which it believes you have willfully and not substantially performed your duties thereof and you have been provided a reasonable opportunity (to be not less than 30 days) to cure the same. Future changes in reporting structure or in responsibilities, provided you are an executive vice president and there is no reduction in base compensation or target incentive bonus, are expressly agreed not to be an involuntary termination without Cause. In addition, and subject to the approval of the Board of Directors or Compensation Committee of the Board of Directors, should change of http://www. sec.gov/Archives/edgar/data/ 1043604/000129993 304002236/exhibit 1.htm 7/18/2007 EX-99.1 Case 5 :06-cv-04327-JW Document 91-5 Filed 07/30/2007 Page 7 of 7 Page 2 of 2

control benefits be granted to any Section 16 reporting officer after the date hereof, you will receive the same change in control benefits.

The terms of this offer are contingent upon the approval of the Compensation Committee of the Board of Directors.

For purposes of federal immigration law, you will be required to provide to JNI documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three business days of your date of hire with JNI, or our employment relationship with you may be terminated. Documents, which may be submitted for inspection, include one of the following: current passport, alien registration card, or certificate of U. S. citizenship or naturalization. Alternately, you may submit one of each of the following two categories: (1) current state issued driver's license or I.D. card with photograph, U. S. military card; (2) original social security card, birth certificate issued by state, county or municipal authority bearing a seal or other certification, or unexpired INS Employment authorization.

This offer is contingent upon your obtaining the requisite immigration status and employment authorization. If you are a foreign national requiring work authorization to begin employment, you must contact the Company's Immigration Department at [email protected] to initiate the visa process. The Company will submit a petition on your behalf to obtain employment authorization, as well as file visa applications for your immediate dependent family members. The Company will pay the legal fees and costs related to these filings. Because the number of work visas available each year is limited by the U.S. government, the Company reserves the right to withdraw or suspend this offer if the Company is not able to obtain work authorization for you in a reasonable period of time. Please note that if you currently have employment authorization such as practical, curricular or academic training (F-1 or J-1), you must contact the Company's Immigration Department before beginning employment.

If you choose to accept this offer, your employment with JNI will be voluntarily entered into and will be for no specified period. As a result, you will be free to resign at any time, for any reason or for no reason, as you deem appropriate. JNI will have a similar right and may conclude its employment relationship with you at any time, with or without cause.

Bob, let me close by reaffirming our belief that the skill and background you bring to Juniper Networks will be instrumental to the future success of the company. We look forward to you joining our team. If you have any questions regarding this offer, please contact me.

You may accept this offer by signing below and returning the original letter along with the enclosed paperwork to June Weaver at 1194 N. Mathilda Avenue, Sunnyvale, CA. 94089. Please retain the extra original letter for your personal records.

Very truly yours,

/s/ Scott Kriens Scott Kriens Chief Executive Officer

JUNIPER NETWORKS, INC.

I accept the terms of this letter and agree to keep the terms of this letter confidential.

/s/ Robert B. Dykes December 13, 2004 Signature of Robert B. Dykes Date

Start date. Jan 1, 2005

http://www.sec.gov/Archives/edgar/data/ 1043604/000129993304002236/exhibitl .htm 7/18/2007 Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 1 of 9

EXHIBIT 5 Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 2 of 9

Page 1

Copyright 2006 Factiva, a Dow Jones and Reuters Company All Rights Reserved fact,Iva.

(Copyright (c) 2006, Dow Jones & Company, Inc.) THE WALL STRLETJOURNAL. The Wall Street Journal

March 18, 2006 Saturday

SECTION: Pg. Al

LENGTH: 4228 words

HEADLINE : The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else?

BYLINE: By Charles Forelle and James Bandler

BODY: ON A SUMMER DAY IN 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich. His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop. Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 mil- lion.

Suspecting such patterns aren't due to chance, the Securities and Exchange Commission is examining whether some option grants carry favorable grant dates for a different reason: They were backdated. The SEC is understood to be looking at about a dozen companies' option grants with this in mind. The Journal's analysis of grant dates and stock movements suggests the problem may be broader. It identified sev- eral companies with wildly improbable option-grant patterns. While this doesn't prove chicanery, it shows something very odd: Year after year, some companies' top executives received options on unusually propitious dates. (An explana- tion of the methodology is below.) The analysis bolsters recent academic work suggesting that backdating was widespread, particularly from the start of the tech-stock boom in the 1990s through the Sarbanes-Oxley corporate reform act of 2002. If so, it was another way some executives enriched themselves during the boom at shareholders' expense. And because options grants are long- lived, some executives holding backdated grants from the late 1990s could still profit from them today. Mr. Rich called his repeated favorable option-grant dates at ACS "blind luck." He said there was no backdating, a practice he termed "absolutely wrong." A spokeswoman for ACS, Lesley Pool, disputed the Journal's analysis of the likelihood of Mr. Rich's grants all falling on such favorable dates. But Ms. Pool added that the timing wasn't purely happenstance: "We did grant options when there was a natural dip in the stock price," she said. On March 6, ACS said that the SEC is examining its option grants. Case 5 : 06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 3 of 9

Page 2 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

Stock options give recipients a right to buy company stock at a set price, called the exercise price or strike price. The right usually doesn't vest for a year or more, but then it continues for several years. The exercise price is usually the stock's 4 p.m. price on the date of the grant, an average of the day's high and low, or the 4 p.m. price the day before. Naturally, the lower it is, the more money the recipient can potentially make someday by exercising the options. Which day's price the options carry makes a big difference. Suppose an executive gets 100,000 options on a day when the stock is at $30. Exercising them after it has reached $50 would bring a profit of $20 times 100,000, or $2 mil- lion. But if the grant date was a month earlier and the stock then was at, say, $20, the options would bring in an extra $1 million. A key purpose of stock options is to give recipients an incentive to improve their employer's performance, includ- ing its stock price. No stock gain, no profit on the options. Backdating them so they carry a lower price would run counter to this goal, by giving the recipient a paper gain right from the start. Companies have a right to give executives lavish compensation if they choose to, but they can't mislead sharehold- ers about it. Granting an option at a price below the current market value, while not illegal in itself, could result in false disclosure. That's because companies grant their options under a shareholder-approved "option plan" on file with the SEC. The plans typically say options will carry the stock price of the day the company awards them or the day before. If it turns out they carry some other price, the company could be in violation of its options plan, and potentially vulnerable to an allegation of securities fraud. It could even face accounting issues. Options priced below the stock's fair market value when they're awarded bring the recipient an instant paper gain. Under accounting rules, that's equivalent to extra pay and thus is a cost to the com- pany. A company that failed to include such a cost in its books may have overstated its profits, and might need to restate past financial results. The Journal's analysis raises questions about one of the most lucrative stock-option grants ever. On Oct. 13, 1999, William W. McGuire, CEO of giant insurer UnitedHealth Group Inc., got an enormous grant in three parts that -- after adjustment for later stock splits -- came to 14.6 million options. So far, he has exercised about 5% of them, for a profit of about $39 million. As of late February he had 13.87 million unexercised options left from the October 1999 tranche. His profit on those, if he exercised them today, would be about $717 million more. The 1999 grant was dated the very day UnitedHealth stock hit its low for the year. Grants to Dr. McGuire in 1997 and 2000 were also dated on the day with those years' single lowest closing price. A grant in 2001 came near the bottom of a sharp stock dip. In all, the odds of such a favorable pattern occurring by chance would be one in 200 million or greater. Odds such as those are "astronomical," said David Yermack, an associate professor of finance at New York University, who reviewed the Journal's methodology and has studied options-timing issues.

Options grants are made by directors, with details often handled by a compensation committee. Many companies make their grants at the same time each year, a policy that limits the potential for date fudging. But no law requires this.

Until last year, UnitedHealth had a very unusual policy: It let Dr. McGuire choose the day of his own option grants. According to his 1999 employment agreement, he is supposed to choose dates by giving "oral notification" to the chairman of the company's compensation committee. The agreement says the exercise price shall be the stock's closing price on the date the grants are issued. Arthur Meyers, an executive-compensation attorney with Seyfarth Shaw LLP in Boston, said a contract such as that sounded "like a thinly disguised attempt to pick the lowest grant price possible." Mr. Meyers said such a pact could pose several legal issues, possibly violating Internal Revenue Service and stock-exchange listing rules that require directors to set a CEO's compensation. "If he picks the date of his grant, he has arguably set a portion of his pay. It's just not good corporate governance." UnitedHealth called the process by which its grants were awarded "appropriate." It declined to answer specific questions about grant dates but noted that on all but two of them, grants were made to a b road group of employees. William Spears, a member of UnitedHealth's compensation committee, said the October 1999 grant wasn't back- dated but was awarded concurrently with the signing of Dr. McGuire's employment contract. Mr. Spears said a de- pressed stock price spurred directors to wrap up negotiations and get options to management. The board revised terms of the employment contract last year and will start making stock-option grants at a regular time each year, Mr. Spears added. Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 4 of 9

Page 3 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

The SEC's look at options timing was largely prompted by academic research that examined thousands of compa- nies and found odd patterns of stock movement around the dates of grants. One study was by Erik Lie of the University of Iowa. He found that share prices generally fell before option grants and rose afterward, with the result that recipients got options at favorable times. He concluded this was so unlikely to happen by chance that at least some grant dates had to have been filled in retroactively. Another possible explanation for big rises in stock prices following grants is that executives knew favorable com- pany news was coming and timed the grants just before it. But academics think timing for company news is a less likely explanation for the patterns, given the consistency of the stock climbs after grant dates. Also, for many of the companies the Journal examined, no obvious company news followed closely upon the option grants. It's also possible companies sometimes award options after their stock has taken a fall and seems to them to be un- dervalued. In point of fact, the companies can't possibly know what the stock will do next, but that doesn't mean they might not feel confident enough about a recovery to think they are hitting a favorable time to grant options. The use of stock options surged in the late 1990s as young firms that had bright prospects but little revenue used them to attract and pay executives. As dot-com and telecom shares exploded, stock options became a source of vast wealth. They also grew controversial. Critics worried that big options grants tempted executives to do whatever it took to get the stock price up, at least long enough to cash in their options. At the same time, during a general bull market, the options sometimes richly rewarded executives for stock buoyancy that had little to do with their own efforts. At Mercury Interactive Corp., a Mountain View, Calif., software maker, the chief executive and two others re- signed late last year. Mercury said an internal probe found 49 cases where the reported date of options grants differed from the date when the options appeared to have been awarded. The company said it will have to restate financial re- sults. The SEC is still looking at Mercury, said someone familiar with the situation. Analog Devices Inc. says it reached a tentative settlement with the SEC last fall. It neither admitted nor denied that it had misdated options or had made grants just before releasing good news that would tend to push up the stock. The Norwood, Mass., computer-chip maker tentatively agreed to pay a $3 million civil penalty and re-price some options. CEO Jerald Fishman tentatively agreed to pay a $1 million penalty and disgorge some profits. Analog didn't make him available for comment. The company said it will not restate its financial records. In some instances, backdating wouldn't be possible without inattentive directors, securities lawyers say. At one company the SEC is looking at, lawyers say, it appears that someone picked a favorable past date for an option grant and gave it to directors for retroactive approval, perhaps counting on them not to notice. In another case, the lawyers say, a space for the grant date appears to have been left blank on paperwork approved by directors, or dates were later altered. Until 2002, companies didn't have to report option grants until months later. The Sarbanes-Oxley law, by forcing them to report grants within two days, left less leeway to retroactively date a grant. The new rule reduced stock patterns suggestive of backdating, but didn't eliminate these altogether, according to a study by M.P. Narayanan and H. Nejat Seyhun of the University of Michigan. They found that companies report about a quarter of option grants later than the two-day deadline -- and that such delayed reporting is associated with big price gains after the grant dates. It is a pattern Mr. Narayanan calls "consistent with backdating." Before the stricter rules, Brooks Automation Inc., a semiconductor-equipment maker in Chelmsford, Mass., gave 233,000 options to its CEO, Robert Therrien, in 2000. The stated grant date was May 31. That was a great day to have options priced. Brooks's stock plunged over 20% that day, to $39.75. And the very next day it surged more than 30%. A June 7 Brooks report to the SEC covering Mr. Therrien's May options activity made no mention of his having gotten a grant on May 31, even though the report -- which Mr. Therrien signed -- did cite other options-related actions he took on May 31. Not until August was the May 31 grant reported to the SEC. It wasn't the only well-timed option grant he got. One in October 2001 came at Brooks stock's lowest closing price that year, once again at the nadir of a sharp plunge. The Journal analysis puts the odds of such a consistent pattern oc- curring by chance at about I in nine million. Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 5 of 9 Page 4 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

Mr. Therrien, who stepped down as CEO in 2004 and retired as chairman this month, didn't return messages seek- ing comment. Chief Financial Officer Robert Woodbury said Brooks is "in the process of revamping" practices so grants come at about the same time each year. Mr. Woodbury, who joined in 2003, said no one at Brooks would be able to explain the timing of Mr. Therrien's grants. The highly favorable 2000 grant also benefited two others at Brooks -- the compensation-committee members who oversaw the CEO's grants. Although Brooks directors typically got options only in July, that year a special grant was awarded just to these two directors, Roger Emerick and Amin J. Khoury. Each got 20,000 options at the low $39.75 price. By the time of their regular July option-grant date, the stock was way up to $61.75, a price far less favorable to options recipients. Mr. Emerick, a retired CEO of Lam Research Corp., declined to be interviewed. Mr. Khoury, the CEO of BE Aero- space Inc. in Wellington, Fla., didn't return messages left at his office. Another company, Comverse Technology Inc., said Tuesday that its board had started a review of its past stock- option practices, including "the accuracy of the stated dates of options grants," following questions about the dates from the Journal. The announcement reversed a prior Comverse statement -- given a week earlier in response to Journal in- quiries -- saying all grants were made in accordance with applicable laws and regulations. The Journal's analysis spotlighted an unusual pattern of grants to Kobi Alexander, chief executive of the New York maker of telecom systems and software. One grant was dated July 15, 1996, and carried an exercise price of $7.9167, adjusted for stock splits. It was priced at the bottom of a sharp one-day drop in the stock, which fell 13% the day of the grant and then rebounded 13% the next day. Another grant, on Oct. 22, 2001, caught the second-lowest closing price of 2001. Others also corresponded to price dips. The odds of such a pattern occurring by chance are around 1 in six billion, according to the Journal's analysis. Before Comverse announced its internal probe, John Friedman, a member of the board's compensation committee, said directors had noticed the scattered nature of the grants -- eight between 1994 and 2001 fell in six different months - - but management assured them there were valid reasons. Mr. Alexander, the CEO, didn't return phone calls. This week, Comverse said that, as a result of the board's review of its options grants, it expects it will need to re- state past financial results. Propitious option timing can help build fortunes even at companies where the stock doesn't steadily rise. Shares of Vitesse Semiconductor Corp., although they zoomed in the late 1990s, now rest at about the level of a decade ago. But Louis R. Tomasetta, chief executive of the Camarillo, Calif., chip maker, reaped tens of millions of dollars from stock options. Mr. Tomasetta got a grant in March 1997 that, adjusted for later stock splits, gave him the right to buy 600,000 shares at $5.625 each. The date they were priced coincided with a steep fall in Vitesse's stock, to what turned out to be its low for the year. He pocketed $23.1 million in profit when he exercised most of these options between 1998 and 2001. Had the grant come 10 days earlier, when the stock price was much stronger, he would have made $1.4 million less. In eight of Mr. Tomasetta's nine option grants from 1994 to 2001, the grants were dated just before double-digit price surges in the next 20 trading days. The odds of such a pattern occurring by chance are about one in 26 billion. Alex Daly, a member of the Vitesse board's compensation committee, said a review of the grants found "nothing extraordinary" about their timing, and "absolutely no grants have been made to anyone, least of all the CEO, that are out of sequence with our normal grant policy." Vitesse's finance chief, Yatin Mody, said the grants were "reviewed and approved" by the compensation committee, "and the exercise price set as of the date of the approval, as documented by the related minutes." He declined to provide a copy of those minutes. Mr. Tomasetta said the grants were "approved by the board and the price set at the close of the day of approval." At ACS in Dallas, Mr. Rich helped turn a small technology firm into one with more than $4.4 billion in annual revenue and about 55,000 employees. ACS handles paperwork, accounting and data for businesses and government agencies. It is a major outsourcer, relying on global labor. "It is a pretty boring business," Mr. Rich told the University of Michigan business school in 2004, "but there is a lot of money in boring." Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 6 of 9

Page 5 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

While most of Mr. Rich's stock-option gains were due to rises in ACS stock, the exceptional timing of grants en- hanced his take. If his grants from 1995 through 2002 had come at each year's average share price, rather than the fa- vorable dates, he'd have made about 15% less. An especially well-timed grant, in which Mr. Rich received 500,000 options at $11.53, adjusted for stock splits, was dated Oct. 8, 1998. This happened to be the bottom of a steep plunge in the price. The shares fell 28% in the 20 trading days prior to Oct. 8, and rose 60% in the succeeding 20 trading days. ACS's Ms. Pool said the grant was for Mr. Rich's promotion to CEO. He wasn't promoted until February 1999. Ms. Pool said there was a "six-month transition plan," and the Oct. 8 option grant was "in anticipation" of his promotion. Mr. Rich would have fared far worse had his grant come on the day ACS announced his promotion. The stock by then was more than twice as high. The grant wasn't reported to the SEC until 10 months after the stated grant date. Ms. Pool said that was proper under regulations in place at the time. A special board committee oversaw Mr. Rich's grants. Most years, its sole members were directors Frank Rossi and Joseph O'Neill. Mr. Rossi declined to comment. Mr. O'Neill said, "We had ups and downs in our stock price like any publicly traded stock. If there were perceived low points, would we grant options at that point? Yes." Mr. Rich said grants were made on the day the compensation committee authorized them, or within a day or so of that. He said he or Chairman Darwin Deason made recommendations to the special board committee about option dates. Mr. Rich, who is 45 years old, resigned abruptly as ACS's chief executive on a Thursday in September to "pursue other business interests." Again, his timing was advantageous. In an unusual separation agreement, the company agreed to make a special payment of $18.4 million, which was equal to the difference between the exercise price of 610,000 of his outstanding stock options and the closing ACS stock price on the day of his resignation. But the company didn't announce the resignation that day. On the news the next Monday that its CEO was depart- ing suddenly, the stock fell 6%. Mr. Rich netted an extra $2 million by cashing in the options before the announcement, rather than on the day of it. Mr. Rich said ACS signed his separation agreement on Friday, using Thursday's price for the options payout. He said it waited till Monday to release the news because it didn't want to seem "evasive" by putting the news out late Fri- day.

George Anders contributed to this article.

How the Journal Analyzed Stock-Option Grants The Wall Street Journal asked Erik Lie, an associate professor of finance at the University of Iowa who has studied backdating, to generate a list of companies that made stock-option grants that were followed by large gains in the stock price. The Journal examined a number of the companies, looking at all of their option grants to their top executive from roughly 1995 through mid-2002. Securities-law changes in 2002 curtailed the potential for backdating a grant. Execu- tives typically receive option grants annually. Mr. Lie and other academics say a pattern of sharp stock appreciation after grant dates is an indication of backdat- ing; by chance alone, grants ought to be followed by a mixed bag of stock performance -- some rises, some declines. To quantify how unusual a particular pattern of grants is, the Journal calculated how much each company's stock rose in the 20 trading days following each grant date. The analysis then ranked that appreciation against the stock per- formance in the 20 days following all other trading days of the year. It ranked all 252 or so trading days in a given year according to how much the stock rose or fell following them. For instance, Affiliated Computer Services Inc. reported an option grant to its then-president, Jeffrey Rich, dated Oct. 8, 1998. In the succeeding 20 trading days -- equal to roughly a month -- ACS stock rose 60.2%. That huge gain was the best 20-trading-day performance all year for ACS. So the Journal ranked Oct. 8 No. 1 for ACS for 1998. It is very unlikely that several grants spread over a number of years would all fall on high-ranked days. Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 7 of 9

Page 6 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

But all six of Mr. Rich's did. Another of his option grants also fell on the No. 1-ranked day of a year, March 9, 1995. Two grants fell on the second-ranked day, those in 1996 and 1997. In 20 02, his options grant was on the third- ranked day of the year, and in 2000, his grant came on the fourth-ranked day. If a year has 252 trading days, the probability of a single options grant coming on the top-ranked day of that year would be one in 252. The chance of it coming on a day ranked No. 8 or better would be eight in 252. The analysis then used the probability of each grant to figure how likely it is that an executive's overall multiyear grant pattern, or one more extreme than the actual pattern, occurred merely by chance. The more high-ranked days in the pattern, the longer the odds and the more likely it is that some factor other than chance influenced those dates. Two companies said they did use something other than chance -- they made grants on days when they thought the stock was temporarily low. This could explain results that differ somewhat from chance, but it wouldn't account for the extreme patterns of consistent post-grant rises. John Emerson, an assistant professor of statistics at Yale, reviewed the methodology and developed a computer program to calculate the probabilities for all of the executives' grants except those to UnitedHealth CEO William McGuire. Because the number of his grants and complexity of his pattern made a computational method infeasible, the Journal used an estimate for his probability that Mr. Emerson said is conservative. Mr. Emerson said the figures for all six executives surpass a standard threshold statisticians use to assess the significance of a result. For Mr. Rich's grants, the Journal's methodology puts the overall odds of a chance occurre nce at about one in 300 billion -- less likely than flipping a coin 38 times and having it come up "heads" every time. Exceedingly long odds also turned up in the Journal's analysis of grant-date patterns at several other companies. "It's very, very, very unlikely that they could have produced such patterns just by choosing random dates," said Mr. Lie. David Yermack, an associate professor of finance at New York University, reviewed the Journal's methodology and said it was a reasonable way to identify suspicious patterns of grants. But Mr. Yermack also said the odds shouldn't be thought of as precise figures, largely because they depend on assumptions in the method used to determine which grant dates are more favorable than others. Because nobody actually authorizing the grant on a given day could have known how the stock would do in the fu- ture, the Journal's analysis used post-grant price surges as an indication of possible backdating. Academics theorize that the most effective way to consistently capture low-price days for option grants is to wait until after a stock has risen, then backdate a grant to a day prior to that rise. The decision to look at 20 trading days after each grant was arbitrary. But Messrs. Yermack and Lie said it was a reasonable yardstick to detect possible backdating. Using a longer period, such as a year, wouldn't be a good way to spot backdating of a few days or weeks because the longer-term trading would overwhelm any backdating effect. The 20-day price rises don't present an immediate opportunity to profit, since options can't usually be exercised un- til held a year or more. But when the options do become exercisable, they'll be more valuable if they were priced when the stock was low. -- Charles Forelle (See related letter: "Letters to the Editor: Certain Options Grants Don't Pass Smell Test" -- WSJ April 3, 2006) Case 5 :06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 8 of 9

Page 7 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

Buy Low Certr f ;.t',. ,en-tei stork options on faoor d.r,." d of i on in !Te price of the cow : •: >t--k. ft - [c:= n,rch - r`` oatio^ g'arto six ceecutNes 1,-- I a •e- I i . I' l-: 1 [BUJ i r Jdc'i-OVA 1"2a=I Iti t J i , n 1. yr L _ pattern Of rani ar 1 7 x . . , by .. ,. . c I x I ' especlatly orop,nous g, r o to dch exeeu read' what One stock did 2 n;anth s be Gre tiro grant and eth i t it did 2 'nG 1ths after.

Ewmplei of 4-fl-ins atantod StGCxpore; aaluyted+srs p us 0 Dateofgrant Company°s response

Jeffrey Rich V , , Rich sa,d no cants were g18 $24 Affiliated Computer $54 ba-d,,tni. Walked h+s fayorabie Services , ronoe chief if, 21 qa t a0' -. `nI n,t tuck.' Company execlkw Z¢ spohesvrma -.aki."We did 42 ,;r t of 'r, there was a Total grants: 12 1518 36 rtetura ; Ill) m r ,r)ck price 6 Mr. Rich U not d,-,rn , chin.} 10 12 30 executive hot t s'.. Odds: ,ug. Sotol I. kw help &u:i About I in 3001 fen iooto 2007

Louis Tom08Btta Mr• To" aseoro said the grants Vitesse Semiconductor . ^' $ ^2d u, ,, ' ; pr ,ed by the board pres. I tnd ohiet 110 10 jp 1 n "e pore ;;pl at ttse rio". of cx,.. fill Ure r w s(c ' Alex Craig, a i C, rdOmpGn- comm", To Ic- .. -. d p.r. 6 1. 12 sawn t ^ e has "noh 0.4 a i r about g•1It ,.V 1,10-s- °,:ar Jc,r Jan. t ^ ^ em ti S: pl. r'a r inv. About 1 In 26 hUtton 1517

Kobi Alexander CC',. fr ,

Odds: Par r h,r. x1i, AU9 Nn,, Oc *. UV D o About 3 In 6 billion 1246

William McGuire William Spears. a d,rector, said $8 Sa UnltedMealth Group, Sa the Oct. 1 3 , 1199P, Want w:r. chairman and chte' 7 7 concurrent with Sgntng of i :zs e ^:utn.® 6 u ^ 6 il pic of the me tt ;.:! "Toe pica at the sto ,,It tnrr,ts: Total 5 "/" 5 3 a doP'=noted lee gram as all an 12 tl nti00 10 Tint Goblins to ' Van)AD ma ^.,,isment, " t`rap up Cdtl5: it !, w .Awc 4ePt Ott. NYr Lk'; dtg iTi how. p, p;np At least 1 in 200 mIlllon 1?'?4 1007 tom ^^FS I ,[ ,ns bncky_

R 4 be IT t 'M 6Ri - Company declined to explain $90 $60 Brooks Automation . $30 grand luring, Ttnanc>e chief forma, chief executive 275 50 Rooeri Won, uty said c-0mpanf

Total grants'. 40 3G 20 ill 30. Oils month. About 1 in 9 mllion N:vDec JatzG. dpriC N.ar My Auq. ^rri .. ^ rIv", S9c3 - 2U(O 21101

Timothy Main C rna d it en,' not $34 $30 Jabil CirCUft nr°`''Enf ba-ale} i :; ur dine then, r• and of IQ 30 25 ahead of tarn nI r n° t t' `The c r d , : I rr of tl compmpee Total ,ant, a 20 compensation carr,nittee and 6 6 18 15 Board detorrjir*,•d and dictated V Odds: the date of tents, not the 12 16 r cornpeny"5

"•00 '._r,-.., t..: _:lii: •. ,•'.a00000t :m p...... ,• ..11 1 00000.50 kiihe X,-•.. t 0 ... ,. :1, t'5• i°..'II r:6 lY^00,00 CO.

100 .. 's P, .._ So.,. o I(SJ .+'u0 , : 1,-i3 ^ • `- P . 1:L-yrx . _ a. ^ .o, Sts. 00. 011 0 1010 (0 ",nn `^ ,5 700ron0,'S Case 5 : 06-cv-04327-JW Document 91-6 Filed 07/30/2007 Page 9 of 9

Page 8 The Perfect Payday --- Some CEOs reap millions by landing stock options when they are most valuable; Luck -- or something else? The Wall Street Journal March 18, 2006 Saturday

Jeff Rich

William McGuire

NOTES: PUBLISHER: Dow Jones & Company, Inc.

LOAD-DATE: April 3, 2006 Case 5 :06-cv-04327-JW Document 91-8 Filed 07/30/2007 Page 1 of 3

EXHIBIT 7 Case 5 :06-cv-04327-JW Document 91-8 Filed 07/30/2007 Page 2 of 3

Page 1

Copyright 2006 Los Angeles Times All Rights Reserved Los Angeles Times

May 19, 2006 Friday Home Edition

SECTION: BUSINESS; Business Desk; Part C; Pg. 2

LENGTH : 633 words

HEADLINE: California and the West; Broadcom'at Risk' on Stock Options; A study suggests the Irvine chip maker and other firms may have back-dated grants to increase their value.

BYLINE: James S. Granelli, Times Staff Writer

BODY: Has Irvine chip maker Broadcom Corp. back-dated stock option grants to give executives and employees bigger paydays? That's a question raised in a new study by a financial research firm, which examined grants at 100 large companies that used stock options as a key part of their compensation packages. The report by the Center for Financial Research and Analysis, created for institutional investors and other clients, found that 17 of the 100 companies were "at risk" for having back-dated option grants during the five-year period ended in 2002. "We're trying to identify companies that may have a high-risk profile and warrant further attention," said Marc A. Siegel, research director for the Rockville, Md., firm, which specializes in analyzing the financial data of public compa- nies. "We cannot conclusively say there was any back-dating. It's very important to note that we're not accusing anyone of back-dating grants," Siegel said. Broadcom, which makes communications chips for TV set-top boxes and cellphones, denied engaging in improper practices. "Based on our initial reading [of the center's report], we are confident in the integrity of our options granting proc- ess," said spokesman William Blanning. He noted that "more than 95%" of options and restricted shares were granted to employees below the executive officer level. The center's study was strictly statistical, based on information gleaned from financial reports and other public documents. It focused on the 100 companies worth $1 billion or more that were the most aggressive issuers of stock options. Until 2002, the Securities and Exchange Commission allowed companies to report option grants several weeks after the date of the grant. The loophole tempted companies to select the most beneficial date to maximize the value of the grants, Siegel said. So if a company's stock price hit a 40-day low near the time of the public filing, the company could pick that as the issue date. The low price then became the base price, giving executives even more proceeds when they sold it later at a higher price. Case 5 :06-cv-04327-JW Document 91-8 Filed 07/30/2007 Page 3 of 3

Page 2 California and the West; Broadcom 'at Risk' on Stock Options; A study suggests the Irvine chip maker and other firms may have back-dated grants to increase their value. Los Angeles Times May 19,

In 2002, after the Sarbanes- Oxley corporate reform law was passed, the reporting period for grants was reduced to two days. In the study, the center matched grant dates with the periods around those troughs in the companies ' stock prices. Those grant dates were deemed " at risk." The 17 high-risk companies had at least three such grant dates in the five-year period. Although the center did not rank the companies it identified as high risk, some posed much less risk than others. Broadcom, for instance , had the minimum three at-risk dates out of nine times it granted stock options over the five years. Those three involved options on a total of 900, 000 shares. Others on the list included Juniper Networks Inc., a Sunnyvale networking equipment maker, and technology web- site operator CNet Networks Inc. in San Francisco. Juniper spokeswoman Randi Feigin said the company was looking into "why the grants took place on the specific dates" that the center labeled as at-risk . CNet, which did not respond to calls for comment, told the Wall Street Journal previously that it was examining the matter. The report comes as regulators are stepping up their inquiries into the practice . On Thursday, Camarillo-based Vitesse Semiconductor Corp., which fired three top executives this week, including co-founder and Chief Executive Louis R. Tomasetta , said it received a subpoena from the U.S. attorney's office in Manhattan. A federal grand jury there has begun a criminal probe of the practices involved in granting options. At least two other companies, Minnesota healthcare giant UnitedHealth Group Inc. and drug benefits manager Caremark Rx Inc., said they received subpoenas Thursday for records related to their stock option grants.

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Page 1

Copyright 2006 Factiva, a Dow Jones and Reuters Company All Rights Reserved factiva.

(Copyright (c) 2006, Dow Jones & Company, Inc.) WALL STF EETJOURNAL The Wall Street Journal

May 18, 2006 Thursday

SECTION: Heard on the Street; Pg. Cl

LENGTH: 1165 words

HEADLINE: Criminal Probe Of UnitedHealth's Options Begins

BYLINE: By James Bandler, Charles Forelle and John Hechinger

BODY: FEDERAL PROSECUTORS in Manhattan began a criminal probe of options-granting practices at UnitedHealth Group Inc., and Vitesse Semiconductor Corp. fired three top managers, including its chief executive officer, in the latest developments in a stock-options scandal that is roiling corporate suites. UnitedHealth also said the Internal Revenue Service had made a request for documents, suggesting that the agency may be looking at the tax implications of possibly misdated stock options at the giant health insurer. UnitedHealth pre- viously said that because of a "significant deficiency" in its options administration and accounting, it may need to re- state at least three years of financial results and lose tax deductions. The criminal probe at UnitedHealth comes weeks after federal prosecutors in New York's Eastern District, based in Brooklyn, subpoenaed Comverse Technology Inc. in a corporate-fraud probe of options issues. Three executives from Comverse have resigned. UnitedHealth, of Minnetonka, Minn., disclosed late yesterday that it had received a subpoena from the U.S. attor- ney's office in the Southern District of New York. People familiar with the matter say that least one other company be- sides UnitedHealth has received a subpoena, and that the probe by the Southern District appears to be broad. Counting actions at Vitesse and Comverse, eight top officials have resigned or been fired at three companies in recent weeks as government authorities and corporate boards probe the possible backdating of stock options. At Vitesse, UnitedHealth and other companies, options to top executives were frequently granted at low prices, of- ten just before shares rose sharply -- in patterns with only a scant chance of occurring randomly. The Securities and Exchange Commission is examining about 20 companies to see whether grants were improperly backdated, say people familiar with the matter. A person familiar with the matter says Vitesse, a microchip maker based in Camarillo, Calif., is one of these companies. UnitedHealth has said it is the subject of an "informal" SEC probe. UnitedHealth said the IRS request covered documents related to stock options and other compensation dating back to 2003; the subpoena, it said, runs back to 1999. Stock options usually give employees the right to buy shares later at the price of the stock on the date of the grant. If shares rise from the grant price, the employee profits by exercising the option and selling the shares. Stock options are often used to reward executives for strong share performance. If options are backdated to times when shares are especially low, their potential for profit is enhanced. Backdating is not necessar- ily illegal in itself. But granting an option at below-market value without disclosing the discount could violate SEC rules. It also can lead to accounting and tax troubles. Case 5:06-cv-04327-JW Document 91-7 Filed 07/30/2007 Page 3 of 4

Page 2 Criminal Probe Of UnitedHealth's Options Begins The Wall Street Journal May 18, 2006 Thursday

Yesterday, Vitesse said it dismissed CEO Louis Tomasetta, who previously had been placed on administrative leave. The company named Christopher Gardner as his successor. Mr. Tomasetta regularly received option grants dated ahead of large rises in the company's share price, often at low points, reaping tens of millions of dollars, according to an analysis of Vitesse and other companies that appeared in The Wall Street Journal in March. Mr. Tomasetta has said all employees received grants on the same days. Mr. Tomasetta's wife said he wouldn't be available for comment yesterday. Mr. Gardner didn't return phone calls seeking comment about the options. Vitesse also dismissed Yatin Mody, its chief financial officer, and Eugene Hovanec, executive vice president. Messrs. Mody and Hovanec couldn't be reached for comment. Previously, the company said the three executives had been put on leave because they were involved in "issues related to the integrity of documents relating to Vitesse's stock option grant process." Shawn C.A. Hassel of Alvarez & Marsal LLC, a New York turnaround firm, was appointed as the company's chief financial officer, and Vitesse said a board-committee investigation had been expanded to include "general revenue rec- ognition" and practices concerning the "cash position" at the end of financial periods. "In spite of the recent challenges we face ... Vitesse remains focused on executing our strategic business plan to capitalize on the investments we've made," Mr. Gardner said in a statement. In addition to Vitesse, UnitedHealth and Comverse, three other companies whose CEOs routinely received grants ahead of sharp stock increases were featured in the March Wall Street Journal article, which showed the probability of the grant dates occurring randomly was extremely small. All six have since said they have begun probes by outside di- rectors and lawyers. Wall Street's interest in identifying potential options problems at companies is also on the rise. An accounting- research firm this week identified 17 companies it termed as having "the highest risk of having backdated options." The research firm, the Center for Financial Research and Analysis, based its analysis on regulatory records and trading pat- terns. Marc Siegel, director of research at CFRA, said the firm's clients, which include investment managers, have been seeking to identify companies with risky options patterns. CFRA looked at 100 companies that issued a high proportion of options relative to their total executive compensation. It then identified those that, on three or more occasions, granted options at exercise prices that matched, or were close to, lows of the company stock price between 1997 and 2002, followed by a bounce of at least 10% in share price. The analysis doesn't prove that backdating occurred, but Mr. Siegel said the companies it named "warrant further attention and may be further at risk with having problems with their options." After 2002, backdating became more dif- ficult because the SEC required companies to file forms disclosing option grants within two days of the grant dates. Before the new rules established by the Sarbanes-Oxley corporate-governance act, executives could wait weeks or even several months to report grants to the SEC. Among the 17 were Juniper Networks Inc., a Sunnyvale, Calif., networking-equipment company; Broadcom Corp., an Irvine, Calif., semiconductor company specializing in telecommunications; and CNET Networks Inc., a San Fran- cisco operator of Web sites in technology, entertainment and other fields. Not all the grants issued by the companies were considered to be unusual. And many of the at-risk companies had options grants that didn't raise red flags based on CFRA's analysis. The majority of grants issued by Broadcom and CNET, for example, were considered unremarkable by CFRA. Half of the grants to Juniper were considered at risk by CFRA. Spokesmen for Juniper and Broadcom declined to comment. A spokeswoman for CNET said the company was looking into the matter.

Vanessa Fuhrmans contributed to this article. Case 5:06-cv-04327-JW Document 91-7 Filed 07/30/2007 Page 4 of 4

Page 3 Criminal Probe Of UnitedHealth's Options Begins The Wall Street Journal May 18, 2006 Thursday

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EXHIBIT 8 Case 5 :06-cv-04327-JW Document 91-9 Filed 07/30/2007 Page 2 of 3

Page 1

Copyright 2006 TheStreet. com, Inc.

TheStreet.com TheStreet.com

May 19, 2006 Friday

SECTION: TECH STOCKS; Networking

LENGTH: 615 words

HEADLINE: Options Talk Hits Juniper, F5

BYLINE: ByScott Moritz, Senior Writer

BODY: Concerns over stock-option timing broadened this week to include tech shops Juniper (JNPR:Nasdaq) and F5 Networks (FFIV:Nasdaq). Analysts sorting through public filings found that option grants at Juniper and F5 were repeatedly priced over seven years at the stocks' monthly lows. To market watchers, these patterns suggest that the options could have been timed or backdated to maximize their value to company executives. Wall Street, already jittery over inflation news, has shown little sympathy for companies that have come under scrutiny in a growing options-backdating scandal. Shares of Juniper fell 4% Thursday and F5 has slid 12% in the past three days on worries that these stock-option grants will invite investigations and costly legal battles. The notion that fat cat executives could be lapping up even more cream from the stock-option bowl through ques- tionable moves emerged earlier this year. On March 18, The Wall Street Journal reported that the Securities and Exchange Commission was examining about a dozen companies for possible options backdating. In the story, the paper pointed to executives including Bill McGuire, CEO of UnitedHealth (UNH:NYSE), and Jeff Rich, CEO of Affiliated Computer Services (ACS:NYSE), who appear to have benefited from a pattern of grant timings.

Shares of UnitedHealth and Affiliated Computer are both down 18% since the story broke. UnitedHealth received a subpoena Wednesday from the U.S. attorney for the Southern District of New York requesting stock-option documents dating back to 1999. Juniper and F5 were pulled into the options-timing spotlight this week after analysts flagged patterns of question- able grant dates. Accounting muckrakers at Center for Financial Research and Analysis identified 17 companies that may have to explain some troublesome option datings. And JPMorgan analyst Ehud Gelblum released a report Thursday reviewing executive-option grants for 14 compa- nies dating back to 1998. Three of the companies -- Motorola (MOT:NYSE), Juniper and F5 -- show a suspicious pat- tern of grants at their stock's low for a given month. Gelblum says Motorola doesn't seem to indicate a high possibility for manipulation, since it issued grants on the first Monday of May for three of the four years that happened to be the stock's low. But Juniper and F5 may have a harder time explaining their practices. At networking switch maker F5, six out of the 10 options granted to executives since 1998 were dated when the stock was at its lowest level in a month. F5 representatives didn't return calls or an email seeking comment. Case 5 :06-cv-04327-JW Document 91-9 Filed 07/30/2007 Page 3 of 3

Page 2 Options Talk Hits Juniper, F5 TheStreet.com May 19, 2006 Friday

Six out of 15 grants to executives at Internet gearmaker Juniper occurred on exactly the lowest day for the stock in each given month, says Gelblum, who declined to offer an opinion on the transactions. A Juniper representative said it was too early to comment. "We need to go back to figure out why those grants were given on a particular day, and we are in the process of doing that," the rep said. Observers say ideally, option granting dates should be arbitrary and have no consistent relationship to the highs and lows of the stock price. Or better yet, grants could be dated at the same time each year to avoid any impression of favor- able timing. Executives and compensation committees that arrange for the option to have the best date effectively add millions of dollars of value of the stock should the price go up. It's an unfair advantage, say investors. "If these dudes were timing, that is simply wrong and immoral," says one New York money manager. "If their board of directors let them -- then that is simply ridiculous and a major breach of fiduciary duty."

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EXHIBIT 9 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 2 of 16 ii Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 1 of 15

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT 8

9 FOR THE NORTHERN DISTRICT OF CALIFORNIA

10 SAN JOSE DIVISION

11 PLUMBERS & PIPEFITTERS NATIONAL NO. C 01-20418 JW PENSION FUND, et al., 12 ORDER DENYING DEFENDANTS' U e MOTIONS TO DISMISS Plaintiffs, 13 PLAINTIFFS' AMENDED V. CONSOLIDATED COMPLAINT 14 A .N CISCO SYSTEMS INC., et al., El 15 Defendants. o z 16 ^a Y a^ s 17 1. INTRODUCTION

18 This is a class action brought on behalf of certain investors ("Plaintiffs") who purchased Cisco

19 Common stock between August 10, 1999 and February 6, 2001 (the "Class Period"). Plaintiffs filed

20 this suit against Cisco Systems, Inc. ("Cisco"), several Cisco Officers and Directors (the "Individual

21 Defendants") and Cisco's accounting firm Pricewaterhousecoopers LLP ("PWC"). Plaintiffs assert

22 that Defendants violated § 10(b) of the 1934 Securities and Exchange Act (the "Act"). Plaintiffs also

23 claim that Cisco and its president and CEO, John Chambers ("Chambers"), violated § 20(a) of the

24 Act.

25 Plaintiffs filed a consolidated complaint, and Defendants moved to dismiss the complaint.

26 Defendants noticed their motion to dismiss for October 21, 2002 and the Court found the motion

27 appropriate for submission on the papers without a hearing, pursuant to Civil Local Rule 7-1(b). The

28 Court granted Defendants' motion on October 29, 2002, and gave Plaintiffs leave to amend their Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 3 of 16 ii Case 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 2 of 15

1 complaint.

2 Plaintiffs submitted their "First Amended Consolidated Complaint for Violation of the Federal

3 Securities Laws" ("FAC") on December 6, 2002. Defendants again filed motion to dismiss the

4 complaint. The motion was noticed for hearing on April 28, 2002. Pursuant to Local Rule 7-1(b), the

5 Court finds the motion appropriate for submission on the papers. Based on all papers filed to date, the

6 Court denies Defendants' motion to dismiss.

7 II. BACKGROUND

8 On April 20, 2001, Plaintiffs filed a class action suit against Cisco and its officers and

9 directors. Shortly thereafter, sixteen other Plaintiffs filed similar class action lawsuits against Cisco.

10 The Court consolidated these cases in November, 2001.

11 Cisco is one of the largest manufacturers of Internet telecommunications equipment. It was

12 founded in 1984 at Stanford University, and became publicly traded in 1990. From the date it went

13 public until the stock market slow down in late 2000, Cisco experienced very successful and 14 A Q profitable growth. In particular, Cisco achieved several years of multi-billion-dollar profits and the 15 acquisition of dozens of companies. I 16 During the Class Period, Plaintiffs purchased Cisco stock with hopes of also profiting from a^ . w 17 $30 per c Cisco's success. At the start of the Class Period, in August 1999, Cisco's stock price reached 18 share, and by March 27, 2000 the price skyrocketed to just over $80 per share. That same month, the

19 NASDAQ reached its all time high, topping over 5000. Less than a year later, Cisco's stock price

20 dropped to less than $20 per share despite the company's optimistic forecasts late in 2000.

21 Plaintiffs assert that Defendants made untrue statements of material fact and/or omitted

22 I statements of material fact in violation of § 10(b) of the Act. Plaintiffs contend that they relied on

23 these misstatements when purchasing Cisco common stock. In addition, Plaintiffs contend that

24 Defendant Chambers directly (or indirectly) influenced and controlled the alleged fraudulent conduct

25 of Cisco, and, therefore, is also liable under § 20(a) of the Act. Finally, Plaintiffs claim that they

26 purchased Cisco common stock contemporaneously with the Individual Defendants' sales of Cisco 27

28 2 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 4 of 16 p Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 3 of 15

1 stock. Plaintiffs allege that at least some of these sales were made with reliance on insider

2 information in violation of §20A of the Act. Defendants deny these allegations.

3 The Court granted the Defendants' previous motion to dismiss because the Plaintiffs complaint

4 failed to include simple, concise, and direct averments. In its previous order, the Court set forth a

5 detailed description of the format the Plaintiffs needed to employ in order to clarify their substantive

6 allegations. The Court now finds that Plaintiffs have conformed with the Court's previous order and

7 denies Defendants' motion to dismiss. III. STANDARDS 8 A. Motion to Dismiss 9 Motions to dismiss are viewed with disfavor and are rarely granted. Hall v. City of Santa 10 Barbara , 833 F.2d 1270, 1274 (9th Cir. 1986); United States v. City of Redwood City, 640 F.2d 963, 11 o ro 966 (9th Cir. 1981). A claim may be dismissed as a matter of law for one of two reasons: "(1) lack of U E 12 a cognizable legal theory or (2) insufficient facts under a cognizable legal theory." Robertson v. Dean U ro 13 L 0o Witter Reynolds, Co. , 749 F.2d 530, 534 (9th Cir. 1984). 14 "A complaint cannot be dismissed for failure to state a claim unless it appears beyond doubt c, e 15 c- 0 that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Z 16 .0 Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Moore v. City of Costa Mesa, 886 F.2d 260, 262 (9th U. 17 Cir. 1989). "[A] complaint should not be dismissed if it states a claim under any legal theory, even if 18 the plaintiff erroneously relies on a different legal theory." Haddock v. Board of Dental Examiners , 19 777 F.2d 462, 464 (9th Cir. 1985). "All material allegations in the complaint are to be taken as true 20 and construed in the light most favorable to the non-moving party." Sanders v. Kennedy, 794 F.2d 21 478, 481 (9th Cir. 1986); NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 22 B. Private Securities Litigation Reform Act of 1995 (PSLRA) 23 The PSLRA imposed heightened pleading requirements for securities plaintiffs. Under the 24 PSLRA, securities plaintiffs must satisfy three pleading tests in order to withstand a motion to dismiss: 25 (1) plead all facts underpinning information and belief allegations; (2) offer detailed accounts of how 26 a statement was false when made; and (3) demonstrate, via highly specific facts, a "strong inference" 27

28 3 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 5 of 16 p Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 4 of 15

1 I of a defendant's scienter.

2 1. Pleading

3 In considering the sufficiency of a securities fraud complaint under Fed. R. Civ. P. 12(b)(6),

4 "[a]ll allegations of material fact made in the complaint are taken as true and construed in the light

5 most favorable to the Plaintiff." No. 84 Employer-Teamster Joint Council Pension Trust Fund v.

6 America West, No. 01-16725, 2003 U.S. App. LEXIS 2658, at *22 (9`h Cir. Feb. 13, 2003).

7 However, the Court will not accept wholly conclusory allegations. Western Mining Council v. Watt,

8 643 F.2d 618, 624 (9th Cir. 1981), cert. denied, 454 U.S. 1031 (1981); Kennedy v. H & M Landing,

9 Inc., 529 F.2d 987, 989 (9th Cir. 1976).

10 2. False and/or Misleading Statements

11 A complaint alleging securities fraud must "specify each statement alleged to have been

V 'e 12 misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the 13 statement or omission is made on information and belief, the complaint shall state with particularity all Lr 0 14 facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); In re Vantive Corp. Secs. Litig. , 283

15 F.3d 1079, 1985 (9`h Cir. 2002). c^ F 16 3. Scienter

G^ o 17 The reform act also requires that plaintiffs "state with particularity all facts which give rise to

18 a strong inference that the defendant acted with the required state of mind," which is "intentionally or

19 with deliberate recklessness." 15 U.S.C. § 78 u-5(b)(2); In re Silicon Graphics Sec. Litig. , 183 F.3d

20 970, 974 (9`h Cir. 1999); Ronconi v. Larkin, 253 F.3d 423, 429 (9`h Cir. 2001). Where the allegedly

21 fraudulent statement is a "forward looking statement," the complaint must allege "actual knowledge

22 that the statement was false or misleading." 15 U.S.C. § 78u-5(c)(1). "Because falsity and scienter in

23 private securities fraud cases are generally strongly inferred from the same set of facts, we have

24 incorporated the dual pleading requirements of 15 U.S.C. §§ 78u-4(b)(1) and (b)(2) into a single

25 injury." Ronconi , 253 F.3d at 429.

26 When determining whether a private securities fraud complaint can survive a motion to

27 dismiss, the Court must ascertain whether particular facts in the complaint , "taken as a whole raise a

28 4 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 6 of 16 II Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 5 of 15

1 strong inference [of scienter]." Id. at *26; see Lipton v. PathoGenesis Corp. , 284 F.3d 1027, 1038 (9`n

2 Cir. 2002) (the Court should review the complaint in its entirety to determine whether the totality of

3 the facts and all reasonable inferences show a strong inference of scienter).

4 IV. DISCUSSION

5 A. Cisco and Individual Defendants

6 1. Pleading

7 As an initial matter, Defendants ask the Court to dismiss Plaintiffs ' Amended Complaint

8 ("FAC") due to its lack of specificity. In its Order on October 27, 2002 , the Court required Plaintiffs

9 to adhere to a specified pleading format in order to clarify substantive allegations. As ordered,

10 Plaintiffs set forth the statement, date of the statement, recipient, identity of the author, true facts, and

lastly, scienter and factual basis for scienter for each of Defendants' 68 allegedly untrue statements of Consequently, Plaintiffs ' FAC follows the pleading format V 'e 12 either past or present material facts. 13 prescribed by this Court in its Order on October 27, 2002.

14 Next, Defendants allege that Plaintiffs fail to satisfy the pleading requirements set forth in Fed.

15 R. Civ. P. 8 and 9(b). Rule 8 requires complaints to contain, "a short and plain statement of the claim e^ Yo 16 showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), and directs that "[e]ach a^ o 17 averment of a pleading shall be simple, concise, and direct." Fed. R. Civ. P. 8(e)(1). Even so, the

18 "short and simple" requirements of rule 8 must be read in accordance with rule 9(b)'s command to

19 plead fraud with particularity, and with the PSLRA's requirement that Plaintiffs identify, "each

20 statement alleged to have been misleading, [and] the reason or reasons why [it] is misleading." 15

21 U.S.C. § 78 u-4(b)(1)(B).

22 The Court is satisfied that the FAC conforms to Rule 8 by providing a clear and concise

23 statement of plaintiff's claims in its "Summary of the Action" section. Furthermore, the FAC follows

24 this Court's explicit instructions by excerpting each statement alleged to be false or misleading and

25 providing the reasons why the statement was false or misleading. Thus, the Court finds that the FAC

26 satisfies both the PSLRA and Rule 9(b).

27 2. False and/or Misleading Statements

28 5 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 7 of 16 II Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 6 of 15

The PSLRA requires Plaintiffs to "specify each statement alleged to have been misleading,

2 [and] the reason or reasons why the statement is misleading." 15 U.S.C. § 78u-4(b)(1)(B). A

3 complaint may demonstrate the false or misleading nature of a statement by identifying inconsistent

4 contemporaneous information available to defendants. Yourish v. California Amplifier, 191 F.3d 983,

5 994 (9" Cir. 1999). The Ninth Circuit recently reversed a Rule 12(b)(6) dismissal of a securities

6 fraud complaint in America West, holding that "all allegations of material fact made in the complaint

7 are taken as true and construed in light most favorable to the Plaintiff." America West, 2003 U.S.

8 App. LEXIS 2658, at *22. In America West, the Ninth Circuit opined that the bar of the PSLRA

9 should not be raised any higher than required by its mandates. Id. at *68.

10 The Court finds that Plaintiffs ' allegations of false and/or misleading statements are

11 sufficiently detailed to survive a 12(b)(6) motion. The FAC details specific false representations

U e 12 made by Defendants to 33 analysts following the Company each quarter that were repeated to U o 13 investors in an effort to keep Cisco's stock inflated. It also utilizes former customers and Cisco ^L w ^+ O 14 employees with specific knowledge of Cisco's improper practices to detail why defendants'

15 statements were false when they were made. Lastly, the Amended complaint alleges solid grounds to

16 show Defendants' knowledge of these problems. Cisco often stated that its top executives had "real

17 time" access to all aspects of Cisco's business. The individual Defendants also sold over $604

18 million in Company stock, which included 73% of their holdings, and millions more in Cisco stock

19 acquired through undisclosed interests in Cisco acquisitions.

20 3. Scienter

21 Defendants correctly assert that Ninth Circuit law imposes a heavy burden on Plaintiffs who

22 rely on alleged insider trading to establish scienter. Only "unusual" or suspicious trading can support

23 an inference of scienter. Ronconi , 253 F.3d at 435. Trading is "suspicious only when it is

24 `dramatically out of line with prior trading practices at times calculated to maximize the personal

25 benefit from undisclosed inside information."' Silicon Graphics , 183 F.3d at 986, quoting In re Apple

26 Computer Sec. Litig. , 886 F.2d 1109, 1117(9th Cir. 1989). The test is "whether [the] complaint,

27 considered in its entirety, states facts which give rise to a strong inference of scienter. Id. at 985.

28 6 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 8 of 16 II Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 7 of 15

1 Defendants allege that the fact that Cisco's officers and directors maintained the vast majority

2 of their holdings refutes any suggestion of scienter. However, the Ninth Circuit Court in America

3 West rejected similar arguments made by the defendants. The Circuit held that scienter can be shown

4 even for insiders who speak but do not sell any stock, and that $13.5 million of sales by individual

5 officer and director defendants was sufficient for scienter. America West, 2003 U.S. App. LEXIS

6 2658 at *64.

7 Further, the Ninth Circuit recognized that although individual allegations may be lacking, all

8 allegations must be considered in their totality. Id.; See also In re PeopleSoft, Inc., Sec. Litig, No. C

9 99-00472 WHA, 2000 U.S. Dist. LEXIS 10953, *9 (N.D. Cal. May 25, 2000) (courts recognize that

10 scienter may be proven and pled by reference to circumstantial evidence). There are also aspects, "of

11 a business's core operations or an important transaction generally [that are] so apparent that their

V e 12 knowledge may be attributed to the company and its key officers." Epstein v. Itron, Inc. , 993 F. Supp. 13 1314, 1326 (E.D. Wash. 1998).

14 The Court finds that the alleged contemporaneous knowledge of the executives combined with

15 their suspicious stock sales is sufficient to support a strong inference of scienter. In addition to

16 following the requisite pleading format, the Court also finds that Plaintiffs properly allege false and/or a^ o 17 misleading statements, as well as providing facts sufficient to support a finding of scienter. As a

18 result, the Court denies the motion to dismiss made by Cisco and the Individual Defendants.

19 B. Pricewaterhousecooners

20 1. Pleading

21 As asserted earlier, to consider the sufficiency of a securities fraud complaint under Fed. R.

22 Civ. P. 12(b)(6), allegations of material fact made in the complaint are taken as true and construed in

23 the light most favorable to the Plaintiff. America West, 2003 U.S. App. LEXIS 2658 at *22.

24 Defendant PWC asserts that the Plaintiffs' FAC is intolerable, and compares its length to the length of

25 deficient complaints in other securities cases. See Wenger v. Lumis s , Inc., 2 F. Supp. 2d 1231,

26 1243-44 (N.D. Cal. 1998) (sixty five page securities complaint considered exorbitant). Morgens

27 Waterfall Holdings L.L.C. v. Donaldson, Lufkin, & Jenrette Sec. Corp. , 198 F.R.D. 608, 610

28 7 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 9 of 16 II Case 5:01 -cv-20418-JW Document 207 Filed 04/24/2003 Page 8 of 15

1 (S.D.N.Y. 2001) (criticizing 109 page securities complaint as "hopelessly in violation" of Rule 8).

2 Though the size of a complaint is a consideration when considering whether or not a complaint

3 conforms with Rule 8, pleading facts with specificity is also a consideration when considering Fed. R.

4 Civ. P. 9, and the PLSRA.

5 Rule 9(b) requires a plaintiff to plead fraud, mistake or a condition of the mind with

6 particularity. Fed. R. Civ. P. 9(b). The PSLRA requires that a complaint alleging securities fraud

7 specify each statement that was misleading, why it was misleading, and all the facts upon which that

8 belief is formed.

9 In the FAC, Plaintiffs allege 68 untrue statements made by Defendants. "What is a `short and

10 plain' statement depends of course on the circumstances of the case." Atwood v. Humble Oil &

11 Refining Co. , 243 F.2d 885, 888-89 (5`h Cir. 1957). As Judge Infante held in a securities fraud class

12 action, "[T]he `Summary of the Action' portion of the Complaint... succinctly outlines plaintiffs theory

13 of recovery, including specific details supporting their theory. Contrary to Defendants assertion, the L 0 ^ o ..fir 14 FAC is far more than a `laundry list' of everything that [the did did over A .N company] or not say a one 15 year period." In re RasterOrps Corp. Sec. Litig. , No. C92-20349, 1993 WL 476661, at *4 (N.D.

16 Cal. Aug. 13, 1993). The Plaintiffs here present a case similar to that seen in RasterOrps. Here, a^ o r..i w 17 Plaintiffs succinctly outline their theory of recovery in the Summary of the Action portion of the

18 complaint, while including specific details supporting their theory. Courts have refused to dismiss

19 cases where, as is the case here, the level of complexity is such that significant detail is required. In

20 re Transcrypt Int'l Sec. Litig. , No 4:98CV3099, 1999 U.S. Dist. LEXIS 17540, at *33 (D.Neb. Nov. 4,

21 1999). The length and complexity of the alleged Cisco fraud is even greater than the 15-month fraud

22 pled in Transcrypt. Id.

23 On October 27, 2002, the Court set forth in its order the format that Plaintiffs needed to follow

24 in order to meet the requirements of both the PSLRA and the Federal Rules of Civil Procedure.

25 Plaintiffs have followed all the requirements set forth in the Court's Order issued on October 27`h,

26 2002.

27 2. False and/or Misleading Statements

28 8 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 10 of 16 II Case 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 9 of 15

Pursuant to the PSLRA, a complaint must, "specify each statement alleged to have been

2 misleading [and] the reason [s] why it is misleading . 15 U.S.C. § 78u-4(b)(1)(B). Under this

3 approach, "` allegations of specific problems undermining a defendant's optimistic claims suffice to

4 explain how the claims are false."' Cooper v. Pickett, 137 F.3d 616, 626 (91h Cir. 1998) (quoting

5 Fecht v. Price Co. , 70 F.3d 1078, 1083 (9`h cir. 1995) ).

6 Plaintiffs provide a detailed account of PWC' s involvement in Cisco's fraud in the FAC. In

7 fact, the FAC details the circumstances surrounding the Defendants ' false and misleading statements,

8 including the dates, places and contents of the statements, as well as the underlying, undisclosed

9 contemporaneous facts as to why these statements were false and misleading to the public.

10 Additionally, Plaintiffs specifically identify several improper accounting practices with

11 respect to Cisco financials, and explain how PWC knew of or recklessly disregarded it. The Court

U e 12 finds that Plaintiffs' FAC meets even strict pleading requirements. In re Silicon Graphics Sec. Litig., U n 13 183 F.3d 970 (9th Circuit 1999); See In re S. Pac. Funding Corp. Sec. Litig^, 83 F. Supp.2d 1172, o 14 1178-79 (D. Or. 1999) (applying Silicon Graphics, the court held that, even though "[every] paragraph

15 does not provide author, date, content and how plaintiffs came to discover the information," the

z 16 "overall presentation of the complaint" strongly suggested that "a group of corporate insiders" knew b Y U. 17 information that "threatened the financial stability of the company").

18 As Cisco's auditor, Plaintiffs allege that PWC examined and reviewed Cisco's financial

19 statements for 1999 and 2000 , and explicitly and falsely represented that Cisco's annual financial

20 statements were in accordance with Generally Accepted Accounting Principles ("GAAP") and that

21 PWC's audits were performed in accordance with Generally Accepted Accounting Standards

22 ("GAAS").

23 Plaintiffs also allege detailed descriptions of numerous "red-flag" warnings concerning

24 problems with Cisco's operations, accounts , and internal control structure , which PWC, as the

25 company's auditor , should have known of or recklessly disregarded . Moreover, Plaintiffs enumerate

26 the GAAP violations that they allege rendered PWC's audit and opinions on Cisco's statements false

27 and misleading . Plainiffs' allegations are based on specific facts, including particularized allegations

28 9 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 11 of 16 IlCase 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 10 of 15

1 regarding violations of GAAP and GAAS. See In re 3Com Corp. Sec. Litig. , No. C-97-21083 JW,

2 1999 U.S. Dist . LEXIS 22685, at * 16-* 19 (N.D. Cal. July 7, 1999) (sustaining sufficiency of

3 complaint "made on information and belief" where plaintiffs set forth factual basis of knowledge or

4 belief that defendants ' statement was untrue). Consequently , the Court finds that Plaintiffs succeed in

5 pleading false and/or misleading statements made by Defendants.

6 3. Scienter

7 Under the law of the Ninth Circuit, scienter is alleged if the complaint, "considered in its

8 entirety," sets forth, "particular facts giving rise to a strong inference of deliberate recklessness."

9 Silicon Graphics , 183 F.3d at 974. With respect to § 10(b) claims against auditors such as PWC,

10 scienter is established if the facts alleged raise a strong inference that "`the accounting practices were

I. 11 so deficient that the audit amounted to no audit at all, or an egregious refusal to see the obvious, or to doubtful, or that the accounting judgments which were made were such that no UE 12 investigate the u 13 reasonable accountant would have made the same decisions if confronted with the same facts."' L 0 14 DSAM Global Value Fund v. Altris Software, Inc. , 288 F.3d 385, 390 (9" Cir. 2002) (citing In re

15 Software Toolworks Sec. Litig. , 50 F.3d 615, 628 (9" Cir. 1995)); In re Worlds of Wonder Sec. c^ Y 16 Litig. , 35 F.3d 1407, 1426 (9t' Cir. 1994).

G^ o 17 An auditor's failure to investigate "red flags" supports a finding of scienter. In re Complete

18 Mgmt. Sec. Litig. , 153 F. Supp. 2d 314, 334 (S.D.N.Y. 2001); McKesson, 126, F. Supp. 2d at 1274.

19 Thus, allegations of GAAP or GAAS violations, "`when combined with other circumstances

20 suggesting fraudulent intent.. .may support a strong inference of scienter."' First Merchants , 1998 U.S.

21 Dist. LEXIS 17760, at *30. Here, Plaintiffs allege that PWC should have recognized a red flag in

22 Deloitte and Touche ("DT"), LLP's spring report. Defendants allege that the FAC fails to allege that

23 PWC learned of DT's alleged findings prior to issuing its audit report. However, Plaintiffs allege that

24 the GAAP and GAAS require an auditor to seek such information from its client.

25 Additionally, allegations that PWC actively involved itself as more than just an auditor

26 supports the requisite inference of scienter . See, Danis v. USN Communications , Inc. , 73 F.Supp.

27 2d 923 (N.D. Ill. 1999) (scienter properly alleged where auditor was also alleged to have been

28 10 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 12 of 16 IlCase 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 11 of 15

1 retained to consult on the company's internal accounting and billing controls). Plaintiffs allege that

2 PWC's substantial consulting and non-audit work at Cisco, in conjunction with its intimate association

3 as Cisco's longtime auditors, provided PWC with special insight into Cisco's inner workings. "`

4 Plaintiffs' allegations that [PWC] had knowledge of [Cisco's] internal workings and had a history

5 with the company, taken together support a claim that the failures to observe GAAS in this particular

6 audit amount to a level of recklessness high enough to maintain and action under § 10(b). "' In re

7 Sunbeam Sec. Litig. , 89 F. Supp. 2d 1326, 1346 (S.D. Fla. 1999).

8 Plaintiffs allege that at least five months before PWC signed off on Cisco's 2000 financials, it

9 was evident that Cisco's sales were weakening and that Cisco was accumulating excessive inventory.

10 The Court agrees that the magnitude of alleged accounting fraud in this case, including a record $2.5

11 billion inventory write-down supports a strong inference of PWC's scienter. See United States v.

strong inference that the V 12 Weiner, 578 F.2d 757, 778 (9`h Cir. 1978) (enormity of the fraud warrants a 13 defendant auditors either were totally inept or, more likely, were at least partly aware of the false

14 inflation of their client's accounts). The Court finds that Plaintiffs allege that PWC's failure to detect

15 Cisco's fraud despite a large number of red flags is probative of PWC's fraudulent intent. The Court c^ 0 O z 16 agrees. F O ^ w 17 V. CONCLUSION

18 For the reasons set forth above, the Court denies the Defendants ' motion to dismiss.

19 Dated : April 23, 2003 /s/James Ware JAMES WARE 20 United States District Judge

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28 11 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 13 of 16 iiCase 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 12 of 15

1 THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN DELIVERED TO:

2 George E. Barrett [email protected] 3 Stuart L. Berman [email protected] 4 Patrice L. Bishop [email protected] 5

6 Norman J. Blears [email protected], [email protected]

7 Francis A. Bottini [email protected],

8 Michael D. Braun [email protected] 9 George H. Brown [email protected] 10 Spencer A. Burkholz [email protected] 11 o E Daniel S. Drosman [email protected] e 12 13 John C. Evans [email protected], iLr w 14 Bruce C. Gibney [email protected], 15 Daniel C. Girard [email protected] c^ Yo z 16 'C Y Lionel Z. Glancy [email protected] U. 17 Roger B. Greenberg [email protected] 18

19 Francis M. Gregorek [email protected]

20 Deborah R. Gross [email protected]

21 Marc S. Henzel [email protected] 22 Robert A. Jigarjian [email protected] 23 Willem F. Jonckheer [email protected] 24 Reed R. Kathrein [email protected] 25

26 Dean S. Kristy [email protected], [email protected]

27 Felix Lee [email protected]

28 12 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 14 of 16 iiCase 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 13 of 15

1 William S. Lerach [email protected];[email protected] 2

3 Jordan L. Lurie [email protected]

4 Betsy C. Manifold [email protected]

5 Kevin P. Muck [email protected], [email protected] 6 Charles J. Piven [email protected], 7 Brian J. Robbins [email protected], [email protected] 8 Darren J. Robbins [email protected] 9

10 Stuart H. Savett [email protected]

11 James G. [email protected]

U 'E 12 J,d w THIS IS TO CERTIFY THAT COPIES OF THIS ORDER HAVE BEEN MAILED TO: 13 'i. w0 r'n V Richard Appleby 14 Law Offices of Richard Appleby 15 42 Broadway, 19th Floor '6' New York, NY 10004 z0) 16 a^ . Jules Brody 17 Stull Stull & Brody 18 6 East 45th Street New York, NY 10017 19

20 Leo W. Desmond, 2161 Palm Beach Lakes Blvd 21 Suite 204 West Palm Beach, FL 33409 22 John Emerson 23 The Emerson Firm 24 2600 South Gessner Suite 600 25 Houston , TX 77063

26 Brian M . Felgoise 27 Law Offices of Brian M . Felgoise

28 13 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 15 of 16 iiCase 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 14 of 15

1 230 South Broad Street Suite 404 2 Philadelphia, PA 19102 3 Jack G. Fruchter 4 Fruchter & Twersky 60 East 42nd Street 5 47th Floor 6 New York, NY 10165

7 Mark Gordon 8 Weiss & Yourman 10940 Wilshire Boulevard 9 24th Floor Los Angeles, CA 90024 10

11 Corey D. Holzer Holzer Holzer & Cannon LLC 12 V 'e 1117 Perimeter Center West 13 Suite E-107 o Atlanta, GA 30338 14 Frederick T. Kuykendall E 15 Levin Papantonio Thomas Mitchell Echsner 16 316 South Baylen Street, Suite 600 Pensacola, Fl 32501 -d S. 17 Michele F. Kyrouz 18 Latham & Watkins LLP 19 505 Montgomery Street Suite 1900 20 San Francisco , CA 94111

21 Joshua M. Lifshitz 22 Bull & Lifshitz, LLP 246 West 38th Street 23 New York, NY 10018 24

25 Joseph V. McBride Rabin, Murray & Frank LLP 26 275 Madison Avenue 27 New York, NY 10016

28 14 Case 5 : 06-cv-04327-JW Document 91-10 Filed 07/30/2007 Page 16 of 16 ii Case 5:01-cv-20418-JW Document 207 Filed 04/24/2003 Page 15 of 15

1 Marc A. Topaz 2 Schiffrin & Barroway 311 Three Bala Plaza East Suite 400 4 Bala Cynwyd, PA 19004

5 Curtis V. Trinko 6 Law Offices of Curtis V. Trinko 16 West 46th Street 7 Seventh Floor New York, NY 10036 8 Melvyn I. Weiss 9 Attorney at Law 10 One Pennsylvania Plaza New York, NY 10119-1063 11

U e 12 U ^e 13 Dated: April 24, 2003 Richard W. Wieking, Clerk 14

15 By:_/jwchambers/ o Ronald L. Davis 16 Courtroom Deputy a^ o 17

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28 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 1 of 39

EXHIBIT 10 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 2 of 39

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

10 In re WIRELESS FACILITIES, INC Civil No. 04cv1589 JAH(NLS) SECURITIES LITIGATION, 11 ORDER DENYING THE WIRELESS DEFENDANTS' MOTION TO 12 DISMISS IN ITS ENTIRETY [DOG. # 111^ 1; GRANTING 13 DEFENDANT KPMG LLP'S MOTION TO DISMISS [DOC. 14 This Document Relates to: # 106] ; DENYING DEFENDANT KPMG LLP'S MOTION TO STRIKE 15 ALL ACTIONS AS MOOT [DOC. # 108 1 ; AND GRANTING LEAVE TO F ILE A 16 FOURTH AMENDED COMPLAINT

17 INTRODUCTION

18 Now before the Court are the separately filed motions to dismiss plaintiffs' third

19 amended consolidated class action complaint by defendants Eric DeMarco, Masood Tayebi,

20 Massih Tayebi, Terry Ashwill, Daniel Stokely (the "individual defendants") and Wireless

21 Facilities, Inc. ("Wireless" or "the Company") (collectively "the Wireless defendants") and

22 defendant KPMG LLP ("KPMG"). In addition, KPMG's motion to strike allegations from the

23 third amended consolidated class action complaint is currently pending before this Court. The

24 motions have each been fully briefed. After a careful consideration of the pleadings and

25 relevant exhibits submitted by the parties, and for the reasons set forth below, this Court

26 DENIES the Wireless defendants' motion to dismiss, GRANTS KPMG's motion to dismiss,

27 and DENIES KPMG's motion to strike as moot.

28

04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 3 of 39

BACKGROUND '

2 This case stems from an announcement , made on August 4, 2004 by Wireless, a publicly

3 traded company dealing in outsourced equipment and services in the wireless industry, that it

4 intended to correct certain errors in its financial statements for the years 2000 through 2003,

5 by filing a restatement of financial results with the SEC on a Form 10-K/A (the "restatement"),

6 which was filed on September 20, 2004. The announcement is alleged to have caused Wireless

7 stock prices to fall. Plaintiffs John Boles and Bassam Yassine ("Lead Plaintiffs") filed their

8 original complaint on August 11, 2004, alleging the defendants, consisting of Wireless,

9 individual officers and directors of Wireless, and KPMG, an outside financial auditor, violated

10 various securities laws. Subsequently, other plaintiffs also filed complaints alleging similar

11 claims. The related cases were consolidated, by stipulation, on August 31, 2004, and the

12 complaint filed by Lead Plaintiffs was designated as the lead case. Lead Plaintiffs filed a

13 consolidated class action complaint on January 31, 2005.

14 The Wireless defendants and KPMG each filed a separate motion to dismiss the

15 consolidated class action complaint in March, 2005, but the parties subsequently stipulated to

16 withdraw the motions and allow Lead Plaintiffs to file a first amended consolidated class action

17 complaint, which was filed on April 5, 2005. The Wireless defendants and KPMB, on April 14,

18 2005, then filed motions to dismiss the first amended complaint. The parties again stipulated

19 to withdraw those motions and allow Lead Plaintiffs to file a second amended consolidated class

20 action complaint, which was filed on June 9, 2005. The Wireless defendants and defendant

21 KPMG again filed motions to dismiss the second amended complaint (the "SAC") on July 14,

22 2005. On March 9, 2006, this Court granted in part and denied in part the Wireless

23 defendants' motion to dismiss, granted defendant KPMG's motion to dismiss in its entirety,

24 and granted Lead Plaintiffs the opportunity to amend their complaint to cure the deficiencies

25 outlined by the Court. See Doc. # 103. Lead Plaintiffs filed their third amended consolidated

26

27 ' In its prior order, this Court previously set forth in detail the salient background facts involved in this case. See Doc. # at 103 at 2-3. The background facts have not changed with the filing of the third amended 28 complaint. Therefore, this Court deems it unnecessary to reiterate the facts again, presents only a brief outline and incorporates the previously set forth background facts by reference as if fully set forth herein.

2 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 4 of 39

1 class action complaint ("TAC") on April 24, 2006. See Doc. # 104.

2 The Wireless defendants and defendant KPMG, on June 8, 2006, have now filed

3 separate motions to dismiss the TAC and defendant KPMG has also filed a motion to strike

4 allegations from the TAC. Lead Plaintiffs filed oppositions to the motions on July 12, 2006 and

5 the defendants filed reply briefs on August 2, 2006. This Court subsequently took all motions

6 I under submission without oral argument . See CivLR 7.1 (d. 1). 7 DISCUSSION

8 Lead Plaintiffs bring the instant action on behalf of themselves and all other persons or

9 entities who purchased securities of Wireless between May 5, 2003 and August 4, 2004 ("the

10 putative class period "). TAC ¶ 1. The TAC alleges all defendants participated in improper

11 accounting procedures beginning in 2000 and continuing through the putative class period in

12 violation of Sections 10(b) and 20 ( a) of the Securities Exchange Act of 1934 ("the Exchange

13 Act") and Rule I Ob-5 promulgated by the Securities and Exchange Commission ("SEC") and

14 the individual defendants violated Section 20(a) of the Exchange Act. Id. 1I1I 3, 296-302, 305-

15 308. Both the Wireless defendants and defendant KPMG move to dismiss the TAC with

16 prejudice pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. In addition,

17 defendant KPMG separately moves, pursuant to Rule 12(f) of the Federal Rules of Civil

18 Procedure, for an order striking certain allegations from the TAC should the TAC not be

19 dismissed.

20 1. Legal Standards

21 a. Federal Rule of Civil Procedure 12(b)(6)

22 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency

23 of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal of a claim

24 under this Rule is appropriate only where "it appears beyond doubt that the plaintiff can prove

25 no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson , 355

26 U.S. 41, 45-46 (1957); Navarro , 250 F.3d at 732. Dismissal is warranted under Rule 12(b)(6)

27 where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds. Inc. ,

28 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams , 490 U.S. 319, 326-27 (1989)

3 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 5 of 39

1 ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.").

2 Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails

3 to plead essential facts under that theory. Robertson , 749 F.2d at 534.

4 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth

5 of all factual allegations and must construe them in the light most favorable to the nonmoving

6 party. Cahill v. Liberty Mut. Ins. Co. , 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal

7 conclusions need not be taken as true merely because they are cast in the form of factual

8 allegations . Roberts , 812 F.2d at 1177; Western Mining Council , 643 F.2d 618, 624 (9th Cir.

9 1981). When ruling on a motion to dismiss , the court may consider the facts alleged in the

10 complaint, documents attached to the complaint, documents relied upon but not attached to

11 the complaint when authenticity is not contested, and matters of which the Court takes judicial

12 notice. Parrino v. FHP, Inc. , 146 F.3d 699, 705-06 (9th Cir. 1998) superceded by statute on other

13 grounds as stated in Abrego Abrego v. The Dow Chemical Co. , 443 F.3d 676, 681-682 (9th Cir.

14 2006); Branch v. Tunnell , 14 F.3d 449, 453-54 (9th Cir. 1994) overruled on other grounds by

15 Galbraith v. County of Santa Clara , 307 F.3d 1119, 1123-1124 (9th Cir. 2002); MGIC Indem.

16 Co. v. Weisman , 803 F.2d 500, 504 (9th Cir. 1986).

17 b. Securities Fraud

18 Section 10(b) of the Exchange Act makes it unlawful, in connection with the purchase

19 or sale of any security , ( 1) to engage in fraud ; ( 2) to make an untrue statement regarding a

20 material fact; or (3) to make a misleading statement by omitting a material fact . 15 U.S.C. §

21 78j; 17 C.F.R. § 240. l Ob-5. Thus, the basic elements of a Rule l Ob-5 claim are: (1 ) a material

22 misrepresentation or omission of fact; (2) scienter; (3) a connection with the purchase or sale

23 of a security; (4) transaction and loss causation; and (5) economic loss. Dura Pharmaceuticals,

24 Inc. v. Broudo , 544 U.S. 336, 341 (2005).

25 In order to survive a motion to dismiss, claims brought under Section 10(b) and Rule

26 lOb-5 must satisfy three pleading standards: (1) the general requirement of a "short and plan

27 statement of the claim" established by Federal Rule of Civil Procedure 8(a); (2) the particularity

28 requirements of Rule 9(b) of the Federal Rules of Civil Procedure; and (3) the heightened

4 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 6 of 39

1 pleading requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). See

2 Daou Systems, Inc. Sec. Litig. , 411 F.3d 1006, 1014 (9th Cir. 2005)(citing Semegen v.

3 Weidner , 780 F.2d 727, 729 (9th Cir. 1985); Neubronnerv. Milken , 6 F.3d 666, 671 (9th Cir.

4 1 1993).

5 Under the PSLRA, a securities fraud complaint must now "`specify each statement

6 I alleged to have been misleading, the reason or reasons why the statement is misleading, and,

7 if an allegation regarding the statement or omission is made on information and belief, the

8 complaint shall state with particularity all facts on which that belief is formed."' Daou , 411

9 F.3d at 1014 (quoting Gompper v. VISX, Inc. , 298 F.3d 895 (9th Cir. 2002)). In addition,

10 the PSLRA requires complaints alleging federal securities fraud to "state with particularity facts

11 giving rise to a strong inference that the defendant acted with the required state of mind."

12 15 U.S.C. § 78u-4(b)(2). Scienter and falsity must be plead with the required particularity

13 under the PSLRA. Gompper, 298 F.3d at 895. Therefore, a private securities plaintiff "must

14 allege that the defendants made false or misleading statements either intentionally or with

15 deliberateness." Daou , 411 F.3d at 1015 (citing In re Silicon Graphics Inc. Sec. Litig. , 183 F.3d

16 970, 974 (9th Cir. 1999)). The strict pleading standard for scienter is the same standard

17 applied in pleading falsity because "`falsity and scienter in private securities fraud cases are

18 generally strongly inferred from the same set of facts,' and the two requirements may be

19 combined into a unitary inquiry under the PSLRA." In re Vantive Corp. Sec. Litig. , 283 F.3d

20 1079, 1091 (9th Cir. 2002)(quoting Ronconi v. Larkin , 253 F.3d 423, 429 (9th Cir. 2001)).

21 2. Analysis

22 a. The Wireless Defendants' Motion to Dismiss

23 The Wireless defendants, in their motion, contend that the TAC fails (1) to adequately

24 allege scienter as required to plead a securities fraud claim; (2) to adequately plead falsity in

25 regards to the non-accounting claims.

26

27 //

28 //

5 O4cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 7 of 39

1 1. Scienter [Securities Fraud Claims]

2 This Court, in its prior order, found the allegations presented in the SAC as a whole

3 failed to create a strong inference of scienter . See Doc. # 103 at 8. This Court , in so finding,

4 determined that the enormity of the restatement, coupled with allegations that three of the five

5 individual defendants suspiciously sold stock in close proximity to the alleged false statements

6 created an inference of scienter. Id. at 10-11. However, the Court found the allegations

7 concerning the individual defendants' compensation, positions at the Company and corporate

8 acquisitions provided no support for the Wireless defendants' alleged scienter. Id. The Court

9 further found the confidential sources that were listed in the SAC to support the scienter

10 allegations were not described with the specificity required by the PSLRA nor were there

11 sufficient facts to prove the witnesses were reliable. See id. at 14. Therefore, based solely on

12 the SAC's allegations concerning the restatement itself and the stock sales of three of the five

13 individual defendants, this Court found the allegations presented in the SAC failed to create

14 a strong inference of scienter. Id. at 15. The Wireless defendants now contend the allegations

15 presented in the TAC again fail to create a strong inference of scienter because (A) the

16 confidential witnesses are still not sufficiently plead; and (B) the stock sale allegations still fail

17 to support a strong inference of scienter.

18 A. Confidential Witnesses

19 The TAC's allegations are based upon information and belief, not personal knowledge

20 because Lead Plaintiffs rely upon testimony from eleven confidential witnesses, including the

21 five witnesses originally listed in the SAC, to demonstrate scienter and falsity. See TAC

22 T1( 41-95. When allegations are plead upon information and belief, as opposed to a plaintiff's

23 personal knowledge, the PSLRA requires a plaintiff to "state with particularity all facts on which

24 that belief is formed." 15 U.S.C. § 78u-4(b)(1). Unnamed confidential sources may be used

25 to satisfy the PSLRA's pleading requirements if: (A) the witness is sufficiently described with

26 particularity and (B) once a witness is adequately described, a determination of the witness'

27 reliability is then made. Daou , 411 F.3d at 1015.

28 //

6 04ev1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 8 of 39

1 Under the Daou standard, Lead Plaintiffs are required to first describe any confidential

2 sources with a "large degree of specificity "such that the description would "`support the

3 probability that a person in the position occupied by the source would possess the information

4 alleged;"' Daou , 411 F.3d at 1015-16 (internal citations omitted). The Daou court found the

5 following description of one confidential source sufficient to meet the requirement:

6 Confidential Witness # 6 ('CW6') is a former Daou executive who worked in the Finance Department . CW6 dealt with audit issues, Security and Exchange 7 ('SEC') reporting and budget matters. As such CW6 was familiar with Daou s process of collecting project cost information . CW6 reported to defendant 8 McGee.

9 Id. at 1016. Once a witness is sufficiently described, this Court determines whether the witness

10 is reliable by assessing "`the level of detail provided by the confidential source[], [along with]

11 the corroborative nature of the other facts alleged (including from other sources), the coherence

12 and plausibility of the allegations, the number of sources, the reliability of the sources, and

13 similar indicia."' Id. at 1015 (internal citations omitted).

14 The eleven anonymous sources listed in the TAC are labeled as CW 1 through CW 11.

15 See TAC ¶11 41-95. CW9 (formerly CW1) and CW2 through CW5 are the original five

16 anonymous sources named in the SAC. CW 1 and CW6 through CW 11 are newly added

17 sources. This Court will first determine whether each witness individually is described

18 sufficiently to meet the PSLRA's requirement and then collectively review the witnesses'

19 reliability.

20 1. Description

21 a. The Five Original Anonymous Sources

22 This Court , in its prior order, found that Lead Plaintiffs failed to describe the five

23 "confidential sources with the "`large degree of specificity"' required under Daou because the

24 SAC failed to include clarifying details concerning job duties and responsibilities, and failed to

25 explain how the sources knew of or had access to the information the sources purportedly held.

26 Doc. # 103 at 14. The Wireless defendants contend the TAC fails to correct these deficiencies.

27 // 28 //

7 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 9 of 39

1 1. CW9 (formerly CW 1)

2 CW9 was previously described as "a current employee" who had "provided [counsel

3 with] details concerning the falsification of the Company's financial results," indicating CW9's

4 knowledge of the alleged fraud was through information given to him or her by other Wireless

5 employees. SAC ¶ 40. Now, the TAC describes CW9 as a "Radio Frequency Engineer"

6 currently employed with the Company for "at least five years." See TAC ¶ 74. The Wireless

7 defendants contend the TAC fails to allege any facts establishing that CW9 (formerly CW 1)

8 has access to information about Wireless' foreign tax liabilities and accounting and indicates

9 that, because the basis of CW9's knowledge was from other unnamed employees of Wireless,

10 the statements attributed to CW9 are hearsay. Doc. # 112 at 7. Plaintiff disputes these

11 contentions without further comment, addressing only the fact that this witness wrote a letter

12 to the SEC concerning accounting improprieties. See Doc. # 117 at 15. This Court finds that

13 the description of this witness is still too vague to meet the PSLRA's specificity requirements

14 because there are still no clarifying details concerning this witness ' job duties and

15 responsibilities nor any information explaining how CW9 knew of or had access to the

16 information contained in the letter. See Doc. # 103 at 14; TAC ¶ 74. Because this witness is

17 not sufficiently described, this Court need not determine whether the facts support this witness'

18 reliability.

19 2. CW2

20 CW2 was described in the SAC as a "former Brazilian controller" who had information

21 concerning improper booking of revenue for a contract for work in Brazil and purportedly

22 discussed the contract with defendants Masood Tayebi and Stokely over the telephone. SAC

23 TI 41-42. The TAC now describes CW2 as "a Wireless Controller in Brazil during 2003" who

24 knew of improper booking of revenue by the Company in Brazil, "reported to John Stits, who

25 in turn reported to defendant Stokely," and purportedly can confirm senior management's

26 knowledge of the alleged improperly booked revenue. TAC ¶1i 45-47. According to the

27 Wireless defendants, the TAC's allegations concerning CW2 are inadequate because the TAC

28 "now confirms that CW2 did not report to any of the Defendants, but rather to `John Stits,'

8 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 10 of 39

1 who in turn reported to Daniel Stokely"' and "adds no facts to suggest that CW2 had any

2 knowledge about company-wide accounting." Doc. # 112 at 8-9. Lead Plaintiffs disagree,

3 arguing that the TAC clearly alleges this witness "had direct knowledge of the Company

4 recognizing revenue and billing customers prior to having signed contracts" and "direct

5 knowledge of Wireless' attempts to `smooth' earnings and of the Company's cost-shifting

6 among projects." Doc. # 117 at 12. The Wireless defendants, in reply, point out that the

7 description of CW2 still fails to contain allegations of personal observation of "`any defendant's

8 direct participation in the [alleged] revenue scheme."' Doc. # 121 at 2-3.

9 This Court disagrees with the Wireless defendants . A careful review of the TAC reveals

10 that this witness is alleged to have direct knowledge of defendants Stokely's and Masood

11 Tayebi's participation in the alleged revenue recognition scheme through discussions concerning

12 alleged improper booking of delinquent payments. TAC $ 47. This Court finds that the TAC

13 sufficiently describes this witness with the large degree of specificity required by the PSLRA,

14 in that this witness is alleged to have been employed during the putative class period and is

15 alleged to possess information, through his duties as a controller in Brazil, that may be relevant

16 to the fraud contentions in this case. See Daou , 411 F.3d at 1015-16.

17 3. CW3

18 The SAC alleged CW3 was a "Wireless Project Accountant " who made statements

19 implicating Wireless' improper accounting practices. SAC ¶ 44. CW3 is now described in the

20 TAC as" a former Wireless Project Accountant who worked at the Company from 1999 through 21 mid-2004" whose duties included performance of cost accounting functions on various projects,

22 and who "reported to Ron Mareck, who, in turn, reported to Assistant Controller Rene Pugh,

23 who reported to Andrea Kappenman ..., who reported to defendant Stokely." TAC ¶ 49.

24 Although the Wireless defendants concede that CW3's job duties are described in more

25 detail, the Wireless defendants contend the added description is still insufficient because it fails

26 to describe what specific projects CW3 was responsible for and when those projects were

27 implemented. Doc. # 112 at 9-10. In addition, the Wireless defendants point out that CW3

28 is now alleged to report "four steps removed from any Defendant" and the "vague `facts"'

9 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 11 of 39

I alleged by CW3 relate to irrelevant information from unspecified sources. Id. at 10. Lead

2 Plaintiffs do not respond to the Wireless defendants contentions concerning the description of

3 this witness , focusing only on the reliability of the witness ' testimony. See Doc. # 117 at 12.

4 In reply, the Wireless defendants reiterate that the TAC added only a "vague description of

5 CW3's duties" to the already unsatisfactory description presented previously . Doc. # 121 at 3.

6 A careful review of the TAC's description of this witness reveals that the TAC now

7 sufficiently describes CW3 to meet the large degree of specificity required by the PSLRA.

8 Although describing the specific projects in which this accountant was involved would certainly

9 enhance the description of this witness, this Court is unconvinced such specific detail is

10 required. It is sufficient, in this Court's view, that the TAC alleges this witness was employed

11 during the putative class period in a job that clearly was directly involved in the Company's

12 accounting procedures. See Daou , 411 F.3d at 1015-16. Therefore, this Court finds this

13 witness' description has been adequately alleged in the TAC.

14 4. CW4 and CW5

15 CW4, described in the SAC as a former sales/account manager with Wireless in Mexico

16 City and CW5, described in the SAC as a former Vice President of Business Development for

17 Latin/Central America and the Carribean , were each alleged to have information concerning

18 certain Mexican contracts which the sources claimed were improperly obtained . SAC ¶1146-47.

19 The TAC now describes CW4 as "a sales/account manager with Wireless in Mexico City from

20 January 2001 through March 2003, who serviced existing accounts and developed "new

21 business opportunities with customers," and reported to Bill Masley, who reported primarily

22 to the Tayebi's, primarily to Jay Tayebi.2 TAC ¶ 55. CW5 is now described in the TAC as a

23 "Vice President of Business Development for Latin/Central America and the Caribbean at

24 Wireless during 2002" and is alleged to have been responsible for developing business

25 opportunities with major companies. Id. $ 56. CW5 is alleged to have reported "to Masley

26 who reported to Masood, Massih and Jay Tayebi." Id. $ 56.

27

28 2 The TAC explains that Jay Tayebi is a brother of Masood and Massih . See TAC 9 57. This Court notes Jay Tayebi is not named as a defendant in this case.

10 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 12 of 39

1 The Wireless defendants claim the new allegations "provide only scant details"

2 concerning these witnesses' responsibilities with the Company and fail to explain Bill Masely's3

3 role at Wireless. Doc. # 112 at 11. In opposition, Lead Plaintiffs contend these witnesses'

4 descriptions are sufficient to establish that these witnesses' positions with the Company

5 provided access to information concerning Mexican contracts. Doc. # 117 at 12.

6 This Court disagrees with the Wireless defendants. The TAC's description of these

7 witnesses are far from "scant." Doc. # 112 at 11. To the contrary, a comparison between the

8 allegations in the SAC with the allegations in the TAC reveals that the TAC now alleges

9 sufficient details concerning these witnesses' duties and responsibilities, notwithstanding the

10 lack of information concerning the person to whom the witnesses report, such that the

11 description would support the probability that these witnesses were in a position to possess

12 information concerning improper Mexican contracts. See Daou , 411 F.3d at 1015.

13 Accordingly, this Court finds these witnesses' description now meet the specificity requirement

14 under the PSLRA. See id.

15 b. The New Confidential Sources

16 1. CW1

17 CW 1 is described in the TAC as "a former Director of Financial Operations for the WNS

18 Division" who was employed from 2004 to 2005 and was "responsib[le] for the financial

19 operations of the WNS group, which included budgeting, business unit reporting as well as

20 revenue recognition." TAC $ 41. The TAC states that CW1 reported to defendant DeMarco,

21 as well as to Farzad Ghassemi, Carol Clay and Bill Clift and alleges CW 1 possesses information

22 concerning allegedly improper calculations of revenue under two contracts entered into in 2003.

23 Id. 1I1I 41-43. The Wireless defendants contend this witness' description is insufficient because

24 the witness is alleged to have been employed after the alleged improper accounting occurred.

25 See Doc. # 112 at 11. Lead Plaintiffs, in opposition, explain that, to perform the functions

26 required by this witness' position (Director of Financial Operations), "CW 1 certainly would

27 have had to do research regarding the way in which the accounting [on the two 2003 contracts]

28 3 Bill Masely is the person to whom these witnesses report.

o4cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 13 of 39

1 I was done and why." Doc. # 117 at 11. Thus, Lead Plaintiffs appear to contend the TAC's 2 allegations can be reasonably inferred to allege CW1's duties and responsibilities include

3 researching, and thereby gaining knowledge, of the accounting procedures practiced prior to

4 CW 1's entering into employment with the Company. See id.

5 This Court is convinced that such an inference is reasonable. A person appointed to

6 I such a position, in this Court's view, would be required to review previous accounting practices 7 and audits in order to decide whether to continue to employ the same accounting practices or

8 employ a different accounting practice going forward. Stated differently, either decision

9 necessarily requires knowledge of the Company's accounting procedures during the previous

10 years. See Daou , 411 F.3d at 1015-16. Therefore, this Court finds this witness' description has

11 been adequately alleged in the TAC to meet the PSLRA's specificity requirements. See id.

12 at 1015.

13 2. CW6

14 The TAC describes CW6 as "a former Tax Manager for Wireless from 1998 to 2001"

15 whose "duties included handling domestic sales, use and income taxes, in addition to handling

16 the reporting ... of international tax matters" and reports to "Kappenman." TAC ¶ 59. CW6

17 is alleged to possess information concerning Wireless' "cooking the books big time" through

18 improper valuation of assets, id. ¶ J 60-62, overbilling of customers, id. $ 64, and setting up

19 foreign holding companies to hide money. Id. $ 65. The Wireless defendants contend "CW6's

20 job title and duties provide no reason to believe he would know" Wireless' project accountants

21 were pressured to overbill clients. Doc. # 112 at 13. The Wireless defendants further contend

22 that the description presented uses only "vague terms" and neglects to identify the person or

23 person who directed or participated in the conduct alleged. Id.

24 This Court disagrees with the Wireless defendants' contentions concerning the

25 description of this witness . Compared to the example presented in Daou of a proper description

26 of a confidential witness, the description in the TAC of CW6 is more than sufficient. See

27 Daou , 411 F.3d at 1016. The description in Daou contained much less information than

28 presented here, explaining only that the witness was an executive who worked in the finance

12 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 14 of 39

1 department, dealt with audit issues, SEC reporting and budget matters, and was familiar with

2 the company's financial procedures. Id. Lead Plaintiffs outline CW6's specific duties which

3 involve tax accounting, the crux of the issues in this case. See TAC 159. This Court, therefore,

4 finds that the description of this witness meets the specificity requirements under the PSLRA.

5 See Daou , 411 F.3d at 1015.

6 3. CW7

7 CW7 is described as "a Director of Finance for Latin America who worked at Wireless

8 in this capacity during 2002 [and whose] duties included overseeing financial operations related

9 to the Company's subsidiaries in Mexico City, Mexico and Sao Paolo, Brazil." TAC T 66.

10 CW7 is alleged to have reported to defendants Ashwill and Masley and purportedly "describes

11 Wireless' company records for its various Latin American operations as `a basket-case."' Id.

12 The Wireless defendants do not dispute that this witness is sufficiently described, focusing on

13 the reliability of the witnesses' purported testimony. See Doc. # 112 at 14-15. This Court's

14 review of the TAC reveals the description of this witness is sufficient under the PSLRA because

15 it alleges sufficient details concerning this witness' duties and responsibilities such that the

16 description would support the probability that a person occupying the position would possess

17 the information alleged. Daou , 411 F.3d at 1015.

18 4. CW8

19 The TAC alleges CW8 was an "Accounting Manager " employed from 2004 through

20 2005 but left the Company "because of disgust for the poor quality of accounting practices ...

21 and seeming indifference by DeMarco and other senior accounting personnel to take corrective

22 actions." TAC ¶ 71. CW8 is alleged to have been charged with overseeing accounts payable,

23 and being responsible for time and expense accounting for various field personnel and is alleged

24 to have "reported to Clay, who reported to Siegal , who reported to Lund ." Id. CW8

25 purportedly possesses information concerning inaccurate reporting of state tax liabilities for four

26 years prior, id. $ 72, and relating to understatement of publicly reported liabilities due to "the

27 Company's poor system for processing vendor invoices." Id. $ 73. Although the Wireless

28 defendants strongly dispute the reliability of this witness' testimony, see Doc. # 112 at 15-16,

13 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 15 of 39

1 there appears to be no dispute that this witness is sufficiently described. This Court's review

2 of the TAC reveals that the description of this witness sufficiently supports the probability that

3 a person in CW8's position at Wireless would possess the information CW8 is alleged to

4 possess. Daou , 411 F.3d at 1015.

5 5. CW10

6 CW 10 is described in the TAC as a former " National Director of Operations and

7 Deployment for Wireless from 2000-2001 [who] reported to Frankie Farjood ("Farjood") and

8 Bill Winn (" Winn "), who both reported to defendant Masood Tayebi ." TAC ¶ 76. The TAC

9 alleges CW 1 O's primary duties concerning "salvaging problematic and unprofitable projects ...

10 by assuming responsibility for their overall management." Id. In addition, CW 10 is described

11 as being "responsible for the forecasting and budgeting of the projects CW 10 took over" as well

12 as "reporting the actual costs that were incurred on the projects [and] the actual progress made

13 by Wireless on the projects to members of Wireless' executive branch." Id. ¶ 77. Although

14 CW 1 O's projects comprised only 15 to 20 percent of Wireless' total business, the TAC alleges

15 CW 10 "was privy to consolidated reports that showed the revenues for the remaining 75%-80%

16 of Wireless' operations." Id. CW 10 is alleged to have personal knowledge of defendants

17 Massih and Masood Tayebi's improperly reporting forecasted performance results instead of

18 actual performance results and had knowledge of other practices CW 10 believed were

19 "unscrupulous." Id. $ 81, 85.

20 Again, the Wireless defendants do not present arguments disputing this witness'

21 description is sufficient to meet the PSLRA requirements. See Doc. # 17-18. It is reasonable

22 to conclude that a person in CW8's position as a director of operations with responsibility for

23 forecasting and budgeting might possess personal knowledge of senior executives' improper

24 reporting of forecasting performance results. Therefore, this Court finds this witness'

25 description sufficiently supports the probability that a person in CW 1 O's position at Wireless

26 would possess the information CW 10 is alleged to possess. Daou , 411 F.3d at 1015.

27

28

14 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 16 of 39

1 6. CWI1

2 Finally, CW1 1, described as a "Market Manager" employed at Wireless from 2000 to

3 2001, is alleged to have run Wireless ' Los Angeles office during that period , reporting to Jeremy

4 Brewer, who reported to Farjood . TAC $ 87. The TAC alleges the Los Angeles office was

5 devoted solely to one client, Metricom, which was expanding its wireless network and was

6 behind on payments for work done by Wireless. Id. 1$ 88-90. CW 11 is alleged to have

7 attended various meetings and conference calls during which Metricom's nonpayment of

8 invoices was discussed. Id. ¶1I 91-93. In addition, CW 11 is alleged to possess information

9 concerning Massih and Masood Tayebi's stock sales. Id. $ 95. Although the Wireless

10 defendants certainly dispute this witness' reliability, see Doc. # 117 at 18-19, the Wireless

11 defendants fail, again, to address the sufficiency of CW 1 l's description in the TAC. This Court

12 finds, based on its own review, that this witness' description is sufficient such that it supports

13 the probability that a person in CW11's position at Wireless would possess the information

14 CW11 is alleged to possess. Daou , 411 F.3d at 1015.

15 2. Reliability

16 The confidential witnesses that have been found to be sufficiently described are further

17 subject to a determination of whether they are reliable based on a review of "`the level of detail

18 provided by the confidential sources, the corroborative nature of the other facts alleged

19 (including from other sources), the coherence and plausibility of the allegations, the number

20 of sources, the reliability of the sources, and similar indicia."' Daou , 411 F.3d at 1015.

21 The Wireless defendants challenge the reliability of all of the confidential witnesses. In

22 support of a finding that these sources lack reliability, the Wireless defendants contend that

23 only one of the confidential sources, CW7, is actually alleged to have reported directly to a

24 defendant in this case and most of the witnesses were not employed with the Company during

25 the class period.' Doc. # 112 at 5. Lead Plaintiffs, in opposition, contend that the information

26

27 4 The Wireless defendants also contend the fact that no confidential source is alleged to have worked in San Diego, where the Company's headquarters is located, which the Wireless defendants claim detracts from 28 the witnesses' reliability. Although Lead Plaintiffs do not address the lack of contact with headquarters, this Court is unconvinced that a confidential witness to accounting improprieties in a multi-national corporation

15 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 17 of 39

1 these confidential witnesses possess provide a "consistent theme" of "accounting problems and

2 manipulations" at Wireless during 2000 to 2003. Doc. # 117 at 8-9 (citing S.Ferry LP #2 v.

3 Killinger , 399 F.Supp.2d 1121, 1140 (W.D.Wash. 2005)("consistent and interlocking nature

4 of the evidence provided by each witness bolsters the evidence's reliability and credibility.");

5 In re Cabletron Sys. , 311 F.3d 11, 29 (1st Cir. 2002) (noting sources that corroborate each

6 other can be considered reliable)). Lead Plaintiffs explain that the sources alleged to have been

7 employed with Wireless prior to the start of the class period (CW4-CW7, CW 10-CW 11) are

8 still reliable because it is reasonable to conclude that, if the defendants knew of the accounting

9 fraud as early as 2000-2002, the knowledge was not lost when the class period began. Id. at 9

10 (citing In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d Cir. 2001)(pre-class period

11 information relevant to establishing defendants' knowledge); DeMarco v. Depotech Corp. , 149

12 F.Supp.2d 1212, 1223 n.6 (S.D.Cal. 2001)(statements made prior to class period relevant to

13 scienter and falsity "because they may prove insight into what the defendants knew during the

14 class period."); In re Syncor Int'l Corp. Sec. Litig. , 327 F.Supp.2d 1149, 1160-61 (C.D.Cal.

15 2004)(same); Zelman v. IDS Uniphase Corp. , 376 F.Supp. 2d 956, 970 (N.D.Cal. 2005)(class

16 period dates function only to define the class "not to restrict the universe of relevant or

17 actionable facts ..."); In re U.S. Aggregates. Inc. , 235 F.Supp.2d 1063, 1065 (N.D.Cal.

18 2002)(pre-class period allegations material to falsity)). Lead Plaintiffs point out that, because

19 the Wireless defendants do not dispute the Company's financial statements were false before

20 the class period, it naturally follows that defendants knew the class period financial statements

21 were false because they were based on the prior false statements. Id.

22 Of the confidential witnesses described with sufficient particularity, this Court finds the

23 allegations presented are sufficient to demonstrate CW1, CW2, CW6, CW7, and CW 10 are

24 reliable. However, the TAC fails to sufficiently allege facts to demonstrate the remaining

25 confidential witnesses , CW3, CW4, CW5 and CW8, are reliable and , thus, will not be included

26 in the determination of whether a strong inference of scienter has been established. An

27

28 must, in order to be determined reliable, have been employed in the city where the company maintains its headquarters. Thus, this Court finds this additional argument meritless.

16 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 18 of 39

1 explanation of this Court's finding is presented below.

2 a. CW1, CW2, CW6, CW7, CW10 and CW11

3 The TAC alleges CW1, a former Director of Financial Operations employed between

4 2004 and 2005, is alleged to possess information concerning improper calculation of revenue

5 on Western Wireless contracts in 2003. See TAC ¶¶ 41-44, 178. CW2, the Brazilian Wireless

6 Controller employed in 2003, is alleged to have participated in telephonic conversations with

7 defendants Stokely and Masood Tayebi that purportedly involved discussions concerning the

8 revenue recognition scheme at bar here. See TAC ¶1I 45-47. CW6, described as a Tax Manager

9 employed with Wireless during the years preceding the class period, is alleged to possess

10 knowledge of improperly valued assets which Lead Plaintiffs claim is relevant to the issues

11 presented in the TAC. See TAC T 59; Doc. # 117 at 13. CW7, a Director of Finance for Latin

12 America employed prior to the class period, is alleged to have held a position at Wireless just

13 prior to the start of the class period and is alleged to possess information concerning improper

14 revenue recognition pertaining to certain contracts in Mexico, improper revenue recognition

15 pertaining to payments by certain Latin American customers, and improper valuation of

16 goodwill. TAC ¶ T 68-70. In this Court's view, CW2's alleged personal dealings with defendants

17 coupled with the description of this witness' position at the Company supports a finding that

18 this witness is reliable. This Court finds it unnecessary to determine whether the information

19 CW6 is alleged to possess is relevant to the issues involved in this case because this Court finds

20 CW6's position as Tax Manager is, by itself, reliable indicia of CW6's knowledge of the

21 Company's alleged improper tax accounting practices. Thus, the fact that this witness was in

22 a position to know of the alleged accounting errors is sufficient to demonstrate this witness'

23 reliability to testify concerning those errors in support of an inference of scienter. Similarly, this

24 Court finds that the positions CW 1 and CW7 held at the company as a finance directors by

25 themselves is enough to demonstrate CW 1's and CW7's reliability.

26 CW 10, described as a former "National Director of Operations and Deployment for

27 Wireless from 2000 -2001 ," see TAC ¶ 76, is alleged to have information demonstrating

28 defendants knew certain reports at issue contained false information based on the fact that the

17 o4cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 19 of 39

1 witness helped prepare some of the reports that were forwarded directly to defendants and

2 because CW 10 participated in conference calls with some of the defendants when the reports

3 were discussed. TAC $11 76-86. Although the Wireless defendants dispute the accuracy of

4 some of the assertions made by this witness, see Doc. # 112 at 17-18, this Court, again, is

5 persuaded that, by virtue of the uncontested description of CW 10's position with the Company,

6 this witness is sufficiently reliable to meet the PSLRA's standards.

7 CW 11, the "Market Manager" employed at Wireless from 2000 to 2001, TAC $ 87, is

8 alleged to have overseen the "Metricom project" and, in that capacity, is alleged to have

9 firsthand knowledge that defendant Ashwill was aware Metricom did not pay Wireless but

10 revenue from the project was nonetheless recorded. See TAC $$ 88, 92-95. CW 11 alleges

11 Wireless upper management knew of the difficulties being encountered in obtaining payment

12 from Metricom and directed CW 11 to "`do whatever you need to do to get the invoices. "' TAC

13 $ 90. CW 11 believed that, based on a training session dealing with percentage-of-completion

14 accounting methods, that method of accounting was not proper for the Metricom project and

15 CW I 1 was "uncomfortable with the premise that the more costs Wireless incurred, the more

16 revenue they would recognize." Id. $ 92. CW 11 states that Ashwill indicated Wireless "would

17 not press Metricom for payment" if there were problems with collectibility of invoices because

18 Ashwill believed the relationship with Metricom was "growing" and "rapport and goodwill were

19 being established." Id. CW11 alleges Ashwill stated that "[i]f we still don't collect from them,

20 then we can always make adjustments."' Id.

21 In addition , CWI1 alleges that , during meetings with other project managers and

22 Wireless executives, the lack of payment on various projects, including the Metricom project,

23 was discussed but the project managers were told by Ashwill to "not worry too much about not

24 getting paid, because the San Diego office would make the required adjustments in the event

25 customers failed to pay Wireless what the customers owed." TAC ¶ 93. CW I 1 further alleges

26 firsthand knowledge of Masood and Massih Tayebi "selling a huge amount of the Company's

27 stock" which CW 11 claims caused "employees [to become] very concerned." Id. ¶ 95.

28 The Wireless defendants dispute the reliability of this witness' testimony by pointing

18 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 20 of 39

1 out that CW 11 is not alleged to have been in a position to know what method of accounting

2 should have been used in 2001 , noting this witness' knowledge is alleged to be based solely on

3 one training session on the accounting method being used for the project which was directed

4 at non-accountants. Doc. # 112 at 19. Thus, the Wireless defendants claim this Court should

5 disregard CW I I's opinions concerning the proper accounting on the Metricom project because

6 the opinions are not based on experience or knowledge of accounting. Id.

7 Lead Plaintiffs disagree, pointing out that the restatement itself is an admission the

8 revenue from the Metricom project should never have been recognized and, thus, Wireless has

9 "admitted to improperly recording the revenue when collectibility was improbable." Doc.

10 # 117 at 16. In reply, the Wireless defendants claim CW 11 has posited "internally

11 inconsistent remarks" and the proposed testimony of this witness actually "shows [defendant]

12 Ashwill believed Metricom would continue to be a business partner" with Wireless. Doc. # 121

13 at 5. The Wireless defendants also note that CW 1 l's statements merely show that Wireless

14 acted properly by recognizing a bad debt in 2001 and urge the Court not to accept CW 1 l's

15 accounting analysis based on the fact this non-accountant attended one training session. Id.

16 (citing In re H)Lpecom Corp. Sec. Litig. , 2006 WL 1836181 *5 (D.Ariz.)).

17 This Court is unconvinced that CW 11, a non-accountant, was in a position to know and

18 understand whether Wireless ' accounting of the Metricom project was proper. Thus, CW 11's

19 opinions in this regard are not reliable. However, CW 1 l's information concerning the lack of

20 payments made on the Metricom project are certainly reliable based solely on CW 1 l's position

21 as Market Manager on that project . In addition , the Wireless defendants present no challenge

22 to CW I I's allegations concerning CW 1 1's knowledge of defendants Masood and Massih Tayebi

23 selling "huge amounts" of stock which , based on the allegations presented, this Court finds to

24 be reliable . Therefore , this Court finds that CW 1 l's allegations , with the exception of CW 1 l's

25 opinions concerning the impropriety of the accounting methods used, are reliable and, thus, will

26 be considered in determining whether an inference of scienter has been established.

27 // 28 //

19 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 21 of 39

1 b. CW3, CW4, CW5 and CW8

2 CW3 testified that certain work was performed and billed without signed contracts in

3 2002 and 2003, that allegedly resulted in uncertain revenue being recognized during that

4 period, through management doing "their magic." TAC T 50. CW3 also is alleged to know of

5 the Company's attempting to "smooth earnings" by "manipulating the amount of revenue

6 [generated from a contract that actually produced varied revenue] to show `steady' revenue"

7 instead. Id. ¶ 52. In addition, CW3 is alleged to have first hand knowledge of a cost-shifting

8 scheme Wireless is alleged to have employed in recognizing revenue. Id. T 53.

9 The Wireless defendants point out that this witness is not alleged to have reported

10 directly to any defendant, arguing the TAC alleges the witness' position at Wireless was "four

11 steps removed from any defendant" thereby negating any inference concerning CW3's "insight

12 into [any defendant's] state of mind." Doc. # 112 at 9. The Wireless defendants also contend

13 the facts alleged by this witness are merely "hearsay and innuendo" and, as such are "vague"

14 and lack the specificity required to demonstrate CW3 had access to the information the witness

15 is purported to possess. Id. at 10. In opposition, Lead Plaintiffs claim this witness' five years

16 experience as an accountant with Wireless is sufficient, in itself, to demonstrate CW3's

17 reliability. Doc. # 117 at 12.

18 This Court disagrees with Lead Plaintiffs. In this Court's view, CW3's allegations of

19 wrongdoing are vague, in that CW3 merely speaks in generalities without specific references to

20 the person or persons who performed accounting "magic" or "smooth[ed] earnings" and without

21 any specific reference to the person or persons who "manipulat[ed]" the revenue. Although

22 CW3 presents a specific reference to an instruction CW3 received in 2003 to bill $10,000 to

23 a Saudi Arabian customer when no contract existed, see TAC $ 50, that reference does not

24 support CW3's reliability because the TAC fails to indicate who directed CW3 to bill the

25 $10,000 nor whether the billing resulted in improperly recognized revenue. This Court finds

26 that CW3's reliability , based on the allegations presented in the TAC, is questionable and, as

27 such , does not provide support for the Wireless defendants ' scienter.

28 CW4 is alleged to possess information concerning TelCal, a customer of Wireless, who

20 04cv]589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 22 of 39

1 had "ongoing" payment problems but the revenue from that source was still recognized even

2 though improbable . TAC $ 55. In addition , both CW4 and CW5 are alleged to have

3 information concerning " certain deals in Mexico with companies that had connections to the

4 Tayebis even though those deals did not always result in Wireless getting the best terms, and

5 even when Wireless personnel were being fired in Mexico because there was not enough work

6 to keep them employed ." TAC $ 57. The TAC describes a specific instance where a company

7 in which Jay Tayebi held a majority ownership was used for technical work but charged

8 Wireless "too much for the services rendered " and states CW4 has knowledge this company

9 charged Wireless for services not performed and Wireless paid the payroll for this company's

10 personnel even though the employees did not work on Wireless projects. TAC ¶1I 57, 58.

The Wireless defendants point out these two witnesses are not alleged to have "any role

12 in tax or accounting" nor does the TAC explain how these witnesses' positions at Wireless gave

13 them access to information concerning the accounting errors at issue in this case. Doc. # 112

14 at 11. Lead Plaintiffs point out that CW4 and CW5 held positions that placed them clearly

15 in a position to know of "the pervasive improper related-party transactions with [Jay] Tayebi's

16 company" as well the alleged improperly recognized revenue on the Te1Cal contract of which

17 collectibility was improbable. Doc. # 117 at 12-13.

18 This Court is unconvinced these two witnesses , one whose " role consisted of servicing

19 Wireless' existing accounts ... as well as developing new business opportunities," TAC ¶ 55, and

20 the other who "was responsible for going out and developing business opportunities with major

21 companies," TAC ¶ 56, were in positions to access information concerning the alleged improper

22 revenue recognition program conducted by management that is implicated here. Therefore, this

23 Court finds that there is insufficient indicia of reliability that these two witnesses could possess

24 the information alleged in the TAC. Accordingly, this Court finds these two witnesses are not

25 sufficiently reliable to support an inference of scienter.

26 The Wireless defendants contend CW8 is not reliable, pointing out that CW8 is not

27 alleged to have reported to any defendant either directly or indirectly, and does not claim to

28 have any personal knowledge of any alleged improper tax reporting. Doc. # 112 at 16. The

21 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 23 of 39

1 Wireless defendants note that CW8's testimony "makes no sense" because there is no

2 explanation why the Company would bring in this tax consultant "year after year to `clean up

3 the taxes' ..., only to ignore his suggestions." Id. The Wireless defendants also claim CW8's

4 testimony concerning understatement of assets due to a poor system of processing vendor

5 invoices is not reliable because there is no explanation how this witness knew about vendor

6 processing that took place before the witness was employed with the Company. Id.

7 Lead Plaintiffs attempt to rectify this inconsistency by stating, in opposition, that CW8

8 has had "firsthand knowledge that for at least four years [d]efendants" knew about improper

9 tax accounting. Doc. # 117 at 14. However, as the Wireless defendants point out in reply,

10 because CW8 joined the Company in 2004, this statement cannot be true and the restatement

11 itself contradicts the claim that no corrective action was taken by defendants. Doc. # 121 at 4;

12 see Doc. # 117 at 14. This Court agrees with the Wireless defendants. Because CW8's

13 testimony is clearly inconsistent and improbable, this Court is unconvinced that this witness

14 is reliable.

15 3. Collective Review of Confidential Witnesses

16 Based on the foregoing, this Court finds that CW9 (former CW 1) is not sufficiently

17 described in the TAC and CW3, CW4, CW5, and CW8 are sufficiently described but the facts

18 alleged in the TAC do not support their reliability. Therefore , these confidential sources will

19 not be considered in the analysis of scienter. This Court further finds that the remaining

20 confidential witnesses , CW 1, CW2, CW6, CW 7, CW 10 and CW 11 , are described in the TAC

21 with sufficient particularity to meet the PSLRA's requirements and the allegations presented

22 support a finding that these witnesses are reliable. Accordingly, this Court considers these

23 sources in its determination of whether a strong inference of scienter has been demonstrated.

24 B. Stock Sale Allegations

25 In addition to the lack of support for scienter from Lead Plaintiffs' confidential witnesses,

26 the Wireless defendants further contend that the TAC's allegations concerning the defendants'

27 stock sales fail to support a strong inference of scienter. See Doc. # 112 at 19-22. Specifically,

28 the Wireless defendants argue that the TAC's stock sale allegations are the same allegations that

22 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 24 of 39

1 were presented previously in the SAC, of which the Court found only those stock sales by

2 defendants Ashwill, Masood Tayebi and Massih Tayebi to be significant, but now those

3 allegations are even weaker. Id. at 19. The Wireless defendants explain that, because the Court

4 dismissed the SAC's group liability allegations, Massih Tayebi's stock sales can no longer be

5 considered because group liability is the only basis for which Massih Tayebi would be liable

6 since defendant Massih Tayebi left the Company in 2002, prior to the start of the class period.

7 Id. at 19-20.

8 The Wireless defendants also contend that the TAC improperly inflates the amount of

9 stock sales by defendants by not including their vested options in the percentage calculation

10 which the Wireless defendants claim is contrary to Ninth Circuit authority. Doc. # 112 at 21

11 (citing Silicon Graphics , 183 F.3d at 986). According to the Wireless defendants, the Silicon

12 1 Graphics court found that the amount of exercisable stock options should be considered along

13 with the number of actual stock sales in order to accurately reflect the percentage of a

14 defendant's stock sales when determining whether an insider defendant's sale of stock is

15 suspicious and, thus, providing an inference of scienter on that defendant's part. Id. at 21-22.

16 Therefore, the Wireless defendants contend that, when the defendants' vested stock options

17 are added to the actual sale of stock, their percentages of stock sold drops significantly; that is,

18 12.1% for defendant Ashwill, 28.4% for Massih Tayebi, and 16.4% for Masood Tayebi. Id.

19 at 22. The Wireless defendants claim these low percentages have been found not suspicious,

20 especially in longer class periods as here. Id. (citing Ronconi , 253 F.3d at 435 (affirming

21 dismissal where seven of eleven defendants sold 69% of holdings in thirty week class period);

22 In re Splash Tech. Holdings, Inc. Sec. Litig. , 160 F.Supp.2d 1059, 1083 (N.D.Cal. 2001)(no

23 scienter found where defendants sold 39% of holdings as a group during ninety-week class

24 period)).

25 Lead Plaintiffs point out that the Court, in its prior order, specifically declined to include

26 I the defendants' stock options in the calculation of the percentage of stock sold and, thus,

27 contend the law of the case doctrine precludes relitigation of the issue. Doc. # 117 at 18. The

28 law of the case doctrine precludes a court from reconsidering an issue previously decided by the

23 O4cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 25 of 39

1 same court, or a higher court, in the same case. Moore v. las. H. Matthews & Co. , 682 F.2d

2 830, 833 (9th Cir. 1982). The doctrine applies to a court's explicit holdings and those decided

3 by necessary implication. Thomas v. Bible , 983 F.2d 152, 154 (9th Cir. 1993). This Court,

4 in the previous dismissal order, found "the stock sales of defendants Massih Tayebi, Masood

5 Tayebi and Ashwill were significant in amount, and were in close proximity to the alleged false

6 statements, rendering those defendants' stock sales suspicious." Doc. # 103 at 10-11

7 (footnotes and internal citation omitted). The TAC's allegations concerning these three

8 defendants' stock sales have not been substantially altered. See TAC 1111 272-75; compare SAC

9 1111 210-13. This Court notes that the Wireless defendants presented similar arguments in

10 support of their motion to dismiss the SAC to those presented here. See Doc. # 82 at 10-12;

11 compare Wireless Mot. at 19-22. Therefore, this Court finds the law of the case doctrine

12 precludes relitigation of this issue now.' Accordingly, this Court's prior ruling that the stock

13 sales of defendants Massih Tayebi,6 Masood Tayebi, and Ashwill provide some inference of

14 scienter remains unchanged.

15

16

17

18 5 The Wireless defendants contend that "the law of the case doctrine is `wholly inapposite' here ... 19 [because] `[t]he doctrine simply does not impinge upon the district court's power to reconsider its own interlocutory order ..."' Wireless Mot. at 6 (quoting City of L.A. v. Santa Monica BaKeeper , 254 F.3d 882, 20 885 (9th Cir. 2001)). However, in the City of L.A. case, the Ninth Circuit addressed only the propriety of readdressing a prior ruling in the same case upon reconsideration of the prior decision. See City of L.A. , 254 21 F.3d at 884. This Court is not faced with a reconsideration request on this issue and the Wireless defendants present no reason to entertain such a motion. See Fed.R.Civ.P. 60(b). Accordingly, this Court finds the 22 contention meritless.

23 6 The Wireless defendants also attempt to seek review of this Court's prior finding that Massih Tayebi's stock sales are appropriately considered in an analysis of scienter. See Wireless Mot. at 20-2 1. In its 24 prior order, the Court found it "appropriate to include Massih Tayebi's sale of stock even though he was not employed with the Company during the entire putative class period because he was employed with the 25 Company during the time Lead Plaintiffs allege the fraud took place and during a small part of the putative Class period." Doc. # 103 at 10 n. 1. The Wireless defendants claim this ruling is in error because it was 26 "based [in part] on the mistaken belief that Massih Tayebi `was employed with the Company during ... a small part of the putative Class period"' and because the Court's dismissal of the group pleading allegations, the only 27 link to Massih Tayebi's participation in the fraud statements, make his stock sales irrelevant to the scienter analysis. Wireless Mot, at 20-21. This Court again declines to reconsider its prior decision concerning the 28 applicability of Massih Tayebi's stock sales on the grounds that the law of the case doctrine precludes such consideration and because no rationale for reconsideration of the prior ruling has been presented.

24 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 26 of 39

1 C. Collective Review of Scienter Allegations

2 As this Court has previously found, the magnitude of the restatement and the stock sales

3 of defendants Massih Tayebi, Masood Tayebi and Ashwill infer scienter. This Court now finds

4 that six of the eleven confidential witnesses, CW 1, CW2, CW6, CW7, CW 10 and CW 11, are

5 sufficiently described and the allegations presented in the TAC support a finding that these

6 witnesses are reliable. These witnesses corroborate the TAC's allegations concerning the

7 defendants' scienter in relation to alleged improper revenue recognition under the percentage-

8 of-completion method and where collectibility was not probable, as well as allegations of

9 improper foreign and domestic tax accounting, among other things. Lead Plaintiffs also

10 contend that the timing of the press release issued by Wireless and the restatement should be

11 considered in determining whether the TAC's allegations as a whole create a strong inference

12 of scienter, a contention the Wireless defendants adamantly dispute. See Doc. # 117 at 21-22;

13 Doc. # 121 at 9. However, this Court need not resolve that dispute because, based on the

14 allegations concerning the enormity of the restatement at issue in this case, the suspicious stock

15 sales by three of the individual defendants and the five reliable confidential witnesses that

16 corroborate the fraud allegations, this Court finds the TAC now sufficiently alleges a strong

17 inference of scienter on the part of the Wireless defendants. See Daou , 411 F.3d at 1015-16.

18 Accordingly, the Wireless defendants' motion to dismiss the TAC on the grounds that the TAC

19 fails to adequately plead scienter is DENIED.

20 2. Falsity [Non-Accounting Statements]

21 The Wireless defendants also move to dismiss the TAC' s claims that concern statements

22 not related to accounting on the grounds the TAC still suffers from the same deficiencies

23 outlined by this Court when the allegations were previously dismissed for failure to state a

24 claim. Doc. # 112 at 22-25. The Wireless defendants' arguments here are similar to those

25 presented in their first motion. See id.; compare Doc. # 84 at 19-22. However, this Court, in

261 its prior order, did not address all of the Wireless defendants' arguments, finding only that Lead

271 Plaintiffs' allegations were necessarily intertwined with a finding of the defendants' scienter and, 28 thus, because scienter had not been adequately plead, the allegations concerning falsity of the

25 O4cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 27 of 39

1 non-accounting statements were not adequately plead to meet the requirements of the PSLRA

2 because it could not reasonably be inferred from the facts alleged that the defendants knew the

3 statements were false and misleading when made. Doc. # 103 at 17 SL n.8. Now, however, this

4 Court has found the Wireless defendants' scienter has been adequately plead and, thus, can

5 support the allegations that the non-accounting statements were false and misleading when

6 made. Accordingly, this Court will now address the Wireless defendants' arguments supporting

7 dismissal of the non-accounting statements.

8 a. Legal Standard

9 The PSLRA requires that the complaint alleging securities fraud "specify each statement

10 alleged to have been misleading, the reason or reasons why the statement is misleading, and,

11 if an allegation regarding the statement or omission is made on information and belief, the

12 complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C.

13 § 78u-4(b)(1). "[V]ague, generalized, and unspecific assertions" of corporate optimism or

14 statements of "mere puffing" are not actionable under federal securities laws. See Glen Holly

15 Entertainment, Inc. v. Tektronix. Inc. , 352 F.3d 367, 379 (9th Cir.2003); In re Ligand Pharms.,

16 Inc. Sec. Litig. , 2005 WL 2461151 * 19 (S.D.Cal. Sept. 27, 2005). "`Statements that fall within

17 the rule tend to use terms that are not measurable and not tethered to facts that a reasonable

18 person would deem important to a securities investment decision." Id. (internal quotations

19 omitted). However, a projection of optimism becomes actionable "when (1) the statement is

20 not actually believed, (2) there is no reasonable basis for the belief, or (3) the speaker is aware

21 of undisclosed facts tending seriously to undermine the statement's accuracy." Id. (internal

22 quotations omitted); accord Kaplan v. Rose , 49 F.3d 1363, 1375 (9th Cir. 1994).

23 Courts have also refused to impose liability on statements which "bespeak caution." This

24 doctrine was "developed to address situations in which optimistic projections are coupled with

25 cautionary language ... affecting the reasonableness of reliance on and the materiality of those

26 projections." In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1414 (9th Cir.1994). The

27 PSLRA's safe harbor provision provides that forward-looking statements cannot form the basis

28 of a securities fraud claim if: (1) the statement is identified as forward looking and is

26 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 28 of 39

accompanied by sufficient cautionary statements; or (2) the person who made the forward-

looking statement did so without actual knowledge that the statement was false or misleading.

The safe harbor provision protects both written and oral forward-looking statements. See 15

U.S.C. § 78u-5(c)(1)-(2). The Ninth Circuit has held the PSLRA's safe harbor provision

codified the judicially-created bespeaks caution doctrine. Employers Teamsters Local Nos. 175

&505 Pension Trust Fund v. Clorox Co. , 353 F.3d 1125, 1132 (9th Cir.2004). The application

of the bespeaks caution doctrine and safe harbor provision are appropriately considered

simultaneously. In re Copper Mountain Sec. Litig. , 311 F.Supp.2d 857, 876 (N.D.Cal.2004).

9 Under the safe harbor provision, a person is not liable for a "forward looking" statement

10 provided the statement is identified as such, and is accompanied "by meaningful cautionary

11 statements identifying important factors that could cause actual results to differ materially from

12 those in the forward-looking statement." 15 U.S.C. 78u5(c)(1)(A)(i); No. 84 Employer-

13 Teamster Joint Council Pension Trust Fund v. America West Holding Corp. , 320 F.3d 920,936

14 (9th Cir. 2003). The Ninth Circuit defines a "forward-looking statement" as "any statement

15 concerning (1) financial projections, (2) plans and objectives of management for future

16 operations, (3) future economic performance, or (4) the assumptions `underlying or related to'

17 any of these issues." America West Holding, 320 F.3d at 936.

18 b. Analysis

19 The Wireless defendants contend that (1) the TAC' s allegations concerning non-

20 accounting statements are not plead with particularity because they fail to identify how each

21 statement is allegedly false or misleading; (2) most of the non-accounting statements are not

22 actionable because they are vague, merely opinion statements or are forward-looking and,

23 therefore, fall under the safe harbor provision of the PSLRA. See Doc. # 112 at 23-25.

24 1. Pleading with Particularity

25 The TAC's allegations of false and misleading statements are contained in sixty-one (61)

26 paragraphs spanning twenty-three (23) pages. See TAC 1111 97-158. The statements are

27 separated into three time periods: statements leading up to the class period; statements issued

28 during the class period; and those statements issued at the end of the class period. Id. The

27 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 29 of 39

Wireless defendants challenge only the statements alleged to have been issued during the class

2 period. See Doc. # 112 at 23-25.

3 The first paragraph containing statements alleged to be false and misleading during the

4 class period reads as follows:

5 125. The Class Period commences on May 5, 2003 when Wireless released financial results for the first quarter of 2003. Wireless announced that 6 revenue for the first quarter of 2003 totaled $ 53.9 million, an increase of 5.7% compared to the $51.0 million reported in the fourth qparter of 2002 and an 7 increase of 34 . 4% compared to the $40 . 1 million reported in the first net income for the first quarter of 2003 increased 29.0% to $4.0 million , or $0.06 per diluted share, compared to net income of $3.1 million, or $0.05 per diluted share in the fourth quarter of 2002. Commenting on the results, defendant Masood Tayebi 9 stated:

10 "We are very pleased to report another solid quarter of financial and operational results . . . We continue to excel at our 11 core competencies and traditional business while we explore market opportunities in areas such as operational outsourcing, wireless LAN 12 and electronic security integration.

13 "Despite continued market uncertainty in the wireless industry, WFI is building on its momentum from the last half of 2002 and we 14 are excited about our prospects, especially related to our Enterprise Solutions and Outsourcing Divisions. Our core business with 15 existing customers is strong and we are actively pursuing new opportunities that have the potential to add to our expected uture 16 growth.

17 TAC ¶ 125. The next paragraph alleges defendant Ashwill, during a conference call with

18 securities analysis conducted on May 5, 2003, stated:

19 WFI [continues ] to achieve both financial and strategic momentum in pursuit of growth plans that should yield future increases in revenue and profitability. Our 20 financial base is strong . As we've said, we have over $100 million in cash and excluding capitalized lease obligations , we have no debt. Our income statement 21 metrics, revenue, gross profit, operating income, EBITDA have all had four consecutive quarters of sequential improvement. 22

23 TAC ¶ 126. The TAC further alleges "[d]uring that same call, Masood Tayebi stated that this

24 was the `fourth consecutively quarterly increase in revenue and net income."' Id. Paragraph 127

25 alleges Wireless' SEC quarterly report, Form 10-Q, signed by defendants Masood Tayebi and

26 Stokely, stated:

27 In the opinion of management , these consolidated financial statements include all adjustments , consisting of normal recurring adjustments, necessary for a fair 28 presentation of the results of operations for the interim periods presented. Interim operating results are not necessarily indicative of operating results

28 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 30 of 39

expected in subsequent period or for the year as a whole.

2 TAC ¶ 127. Paragraphs 130-32, 135-37, 140-42 and 146-47 contain similar allegations

3 concerning statements made by defendants Masood Tayebi, Ashwill and DeMarco at the times

4 Wireless' quarterly financial results were released on August 4, 2003, October 30, 2003,

5 February 19, 2004, and April 27, 2004. See TAC ¶¶ 130-32, 135-37, 140-42, 146-47. Lead

6 Plaintiffs allege, in the TAC, that all of these statements:

7 were materially false and misleading when they were made because they concealed the following : ( 1) that the Company had materially under reported its burgeoning 8 foreign tax burden ; ( ii) that the Company failed to record material adjustments related to period cut-off errors, reclassifications , reconciling differences that 9 im acted asset and liability carrying values and the timing of revenue recognition; (iii) that the Company made numerous and material accounting errors as detailed 10 in TT 159-231 ; ( iv) Defendants knew, or were deliberately reckless in not knowing about the accounting improprieties as detailed in ¶¶ 41-96; (v) that the Company 11 lacked adequate internal controls and was, therefore , unable to ascertain the true financial condition of the Company; and (vi) that as a result of the above, the 12 Company's financial results were materially inflated at all relevant times.

13 TAC T 145; see also TAC ¶ 149 (same).

14 The Wireless defendants contend that most of these statements made by defendants

15 Masood Tayebi , Ashwill and DeMarco are not concerned with the accounting errors corrected

16 by the restatement and, thus, the TAC's reasoning contained in paragraphs 145 and 149, that

17 "[d]efendants knew, or were deliberately reckless in not knowing about the accounting

18 improprieties ," is insufficient reasoning to meet the PSLRA' s requirement that Lead Plaintiffs

19 state the reason each statement is alleged to be false along with the facts supporting the

20 allegations . Doc. # 112 at 23. The Wireless defendants contend , as they did in their original

21 motion , that the allegations of the non-accounting statements' falsity are based solely on the

22 fact that the restatement admitted there were errors in accounting that needed correction. Id.

23 The Wireless defendants explain that "[e]ven if [d]efendants had known about the accounting

24 errors ... such knowledge would not explain why non-accounting statements - regarding the

25 strength of the Company' s core competencies, the pursuit of new market opportunities, and the

26 expansion and diversification of the customer base - would necessarily be false." Id.

27 //

28

29 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 31 of 39

Lead Plaintiffs, in opposition, contend the Wireless defendants are attempting to

2 separate "a few of [the] statements[] made in connection with the announcement of [the] false

3 financial results[] ... and misconstrue them as vague statements of opinion or forward-looking

4 statements." Doc. # 117 at 23. Lead Plaintiffs explain that "[b]ecause all of the purported

5 non-accounting statements were made in connection with and are inextricably tied to Wireless'

6 admittedly false earnings announcements and Forms 10-K and 10-Q [d]efendants cannot

7 separate these statements from those which they admit are false." Id. at 23-24.

8 Lead Plaintiffs misconstrue the PSLRA's requirements. It is not the Wireless defendants'

9 burden to identify which statements alleged in the complaint are false. Instead , Lead Plaintiffs

10 are required , under the PSLRA, to "specify each statement alleged to have been misleading, the

11 reason or reasons why the statement is misleading , and, if an allegation regarding the statement

12 or omission is made on information and belief, the complaint shall state with particularity all

13 facts on which that belief is formed ." 15 U.S.C. § 78u-4( b)(1). However, Lead Plaintiffs have

14 met that burden here. Lead Plaintiffs specify the reason each of the statements identified were

15 false or misleading when made because the statements are alleged to have camouflaged the

16 under-reported foreign tax burden , the Company' s alleged failure to record certain adjustments

17 impacting financial reporting of assets and liabilities , the accounting errors previously alleged,

18 the lack of adequate controls needed to ascertain the true financial condition of the Company,

19 and the resulting inflated financial results that culminated in the restatement that is the crux

20 of this lawsuit. See TAC ¶11 145, 149. Therefore , this Court finds the TAC meets the PSLRA's

21 specificity requirement outlined in Section 78u-4 (b) (1). Accordingly, the Wireless defendants'

22 motion to dismiss on this basis is DENIED.

23 2. Actionable Statements

24 In opposition to the Wireless defendants' arguments concerning the actionability of the

25 non-accounting statements, Lead Plaintiffs first argue that "it is inappropriate at the pleading

26 stage to parse out each alleged misstatement to determine whether, standing alone, it is

27 actionable." Doc. # 117 at 24 (citing In re DDi Corp. Sec. Litig. , 2005 WL 3090882 * 13

28 (C.D.Cal. July 21, 2005)). This Court is persuaded that such a determination is inappropriate

30 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 32 of 39

1 at this time. The court in In re DDi Corp. found it need not, on a motion to dismiss, determine

2 if all statements alleged to be false and misleading are actionable as long as enough

3 misstatements are actionable in order to state a cause of action. Id., 2005 WL 3090882 at * 13

4 (citing Cooper v. Pickett, 137 F.3d 616, 623 (9th Cir. 1997)("Since we conclude that, if

5 proved, many of the allegations of the complaint state causes of action, we need not, at this

6 juncture in the case opine on some of the closer questions, such as whether the rosy forecasts

7 were known to be false and are therefore actionable. These judgments should be made after

8 discovery is complete.")). This Court finds the reasoning presented in In re DDi Corp. and

9 Cooper applies here. Because there is no dispute that the alleged misstatements relating to

10 accounting are actionable, this Court finds there is no need to determine whether the other

11 statements are also actionable at this stage of the proceedings since the TAC has already been

12 found to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6); Conley,

13 355 U.S. at 45-46; Navarro , 250 F.3d at 732. Therefore, the Wireless defendants' motion to

14 dismiss the non-accounting statements on this basis is DENIED.

15 b. I(PMG's Motion to Dismiss

16 KPMG moves to dismiss the TAC based solely on the grounds that the TAC fails to

17 adequately plead scienter. Specifically, KPMG contends the claims against KPMG presented

18 in the TAC should be dismissed because the allegations concerning KPMG's scienter are almost

19 identical to those presented in the SAC which this Court has already found insufficient to

20 satisfy the PSLRA's pleading requirements and the additional allegations fail to correct the

21 deficiency. Doc. # 107 at 4 SL n.6.

22 To adequately plead an auditor ' s scienter, the Ninth Circuit requires that "[t]he plaintiff

23 must prove that the accounting practices were so deficient that the audit amounted to no audit

24 at all, or an egregious refusal to see the obvious, or to investigate the doubtful, or that the

25 accounting judgments which were made were such that no reasonable accountant would have

26 made the same decisions if confronted with the same facts." In re Software Toolworks Sec.

27 Lim, 50 F.3d 615, 627-28 (9th Cir. 2002). This Court, in its prior order, found that, in the

28 SAC's twenty-three (23) paragraphs allotted specifically to KPMG's participation in the fraud,

3 1 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 33 of 39

KPMG's scienter was not adequately alleged and concluded that the restatement, by itself,

2 inferred scienter but the remaining scienter allegations were insufficiently plead to meet the

3 stringent requirements of the PSLRA. See Doc. # 103 at 27 (citing SAC ¶1f 177-203). The

4 TAC now contains thirty-four (34) paragraphs that purport to detail defendant KPMG's alleged

5 participation in the fraud. See TAC ¶1I 232-66. The TAC also refers to defendant KPMG

6 sporadically throughout the pleading. See, e.g., TAC $$ 65, 68, 70.

7 This Court has conducted a careful comparison of the SAC's and the TAC's allegations

8 that relate to KPMG. That comparison reveals that the TAC contains all of the same

9 allegations presented in the SAC with little, if any, alteration . However, the TAC now includes

10 allegations that Lead Plaintiffs claim demonstrate " actual knowledge by KPMG of many of the

11 accounting manipulations that resulted in the restatement of Wireless' financials for its first

12 four years as a public company." Doc. # 116 at 7(emphasis omitted). According to Lead

13 Plaintiffs, when these new allegations are coupled with the magnitude of the restatement that

14 this Court had previously found inferred scienter, the TAC now sufficiently pleads a strong

15 inference of scienter. Id.

16 Lead Plaintiffs point to the following additions to the TAC that bolsters the scienter

17 allegations : ( 1) allegations concerning KPMG' s setting up holding companies in foreign

18 countries for Wireless which affected Wireless' foreign tax liabilities ; ( 2) allegations by a former

19 Wireless employee ("CW7") of KPMG's direct knowledge that the Company was improperly

20 recognizing revenue under the percentage-of-completion method, specifically on the contract

21 in Mexico with TelCel; (3) allegations that KPMG ignored errors in Wireless' accounting of

22 goodwill from a Mexican subsidiary; and (4) allegations by a former employee ("CW 1 ") of

23 KPMG's knowledge and disregard of accounting errors manipulations concerning the Western

24 Wireless contract. See id. at 8-15.

25 1. Holding Companies

26 The TAC alleges that "during the Class Period, Wireless improperly failed to record

27 foreign tax contingencies and domestic sales and use tax contingencies" and "failed to properly

28 accrue for its tax liabilities due to the structuring of one of its foreign entities," which resulted

32 04cv1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 34 of 39

in under-statement of foreign tax liabilities . TAC $ 167, 170. The TAC further alleges:

2 According to CW6 , in late 2000 , Wireless and KPMG set up holding companies with a goal that Wireless would not have to pay taxes on monies the Company 3 had in Germany and Mexico and at least one other European country. According to CW6, Wireless had a substantial amount of money overseas that they could 4 not figure out how to get back into the United States without maj or tax exposure. Therefore , Wireless and KPMG created holdin com anies to hide the money. 5 As a result , according to CW6, Wireless was definitelyy under- stating its foreign tax liabilities with the knowledge and assistance of KPMG. 6

7 TAC T 246; see also TAC $ 65 (same ). KPMG contends that Lead Plaintiffs ' conclusion is "a

8 leap [that] defies logic" because the TAC does not allege the holding companies are "illegal,

9I improper, out of the ordinary, or undisclosed ." Doc. # 16 at 18. KPMG further contends the

101 TAC lacks any facts linking the holding companies to any item in the restatement but, instead,

11 appears to argue "the holding companies were created to keep foreign revenue out the United

12 States to avoid paying U.S. taxes" which renders an argument that these holding companies

13 support this Court 's finding KPMG that knew of Wireless ' understating foreign tax

14 contingencies senseless. Id.

15 In response, Lead Plaintiffs explain that this allegation does not involve the avoidance

16 of U.S. taxes. Doc. # 116 at 8. According to Lead Plaintiffs, the TAC actually alleges the

17 holding companies were set up to keep the money in the foreign country in violation of foreign

18 tax laws which caused an understatement of tax liabilities owed to the foreign country. Id.

19 at 8-9. Lead Plaintiffs claim that the testimony of CW6 and CW8 confirms this fact.' Id.

20 at 8-9, 11-12. KPMG, in reply, argues that the addition of allegations concerning these holding

21 companies adds no support for a finding that KPMG knew Wireless' foreign tax liabilities were

22 understated. Doc. # 122 at 4. KPMG points out that there are no facts alleged in the TAC

23 that supports this conclusion, the statements made by CW6 are merely conclusory, and the

24 statements made by CW8 concern deferred tax liabilities not foreign tax contingencies. Id.

25 7 Lead Plaintiffs add that CW8 has information that "a private tax consultant had been telling 26 Wireless' managers for four years that is sales and use accounting was improper, but the defendants had never done anything about the improper taxes." Doc. # 116 at 12. Putting aside the obvious hearsay problems with 27 this statement, this Court agrees with KPMG's assessment of this argument, that is, because this private tax consultant is alleged to have informed Wireless' managers, not KPMG, the statement "hardly demonstrate[s] 28 that `KPMG deliberately looked the other way,' as plaintiffs argue." Doc. # 122 at 6 (citation and emphasis omitted). Therefore, this Court finds this argument meritless.

33 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 35 of 39

1 at 4-6. Thus, KPMG asserts these witnesses cannot lend support for a finding of scienter. Id.

2 at 6.

3 This Court agrees with KPMG. This Court is unconvinced that the mere fact KPMG

4 aided in Wireless' setting up holding companies in Mexico supports, in any way, a finding that

5 KPMG knew Wireless was understating its foreign tax liabilities or accruals . It is not clear from

6 the allegations presented that KPMG's creation of holding companies in a foreign country was

7 done "to hide the money" and there are certainly no facts alleged to support the allegation that

8 KPMG knew "Wireless was definitely under-stating its foreign tax liabilities." TAC ¶ 246.

9 Accordingly, this Court finds these new allegations do not provide additional support for a

10 finding of scienter on the part of KPMG.

11 2. Te1Cel

12 Lead Plaintiffs next contend that the addition of allegations concerning KPMG's

13 knowledge of improper revenue recognition under the percentage- of-completion method,

14 specifically as it relates to a contract with TelCel in Mexico . Doc. # 116 at 12. The TAC

15 alleges CW7 has knowledge of an instance where KPMG had information regarding new higher

16 estimates on the cost to complete the TelCel contract but "made no adjustments to prior

17 revenue recognition ." TAC $ 68. Lead Plaintiffs contend this supports a finding that KPMG

18 had "direct knowledge" of Wireless' accounting errors on the Western Wireless contracts. Doc.

19 # 116 at 12. KPMG asserts that neither CW7's information nor the TelCel contract is relevant

20 here because the restatement involved Western Wireless contracts, not TelCel's. And, even if

21 TelCel's contract is relevant, there are no facts allege to show improper revenue recognition on

22 the TelCel contract or that the revenue recognized on that contract had any impact on

23 Wireless' financial statements. Doc. # 122 at 7.

24 This Court again agrees with KPMG. This Court is unconvinced that information

25 concerning knowledge of alleged improper revenue recognition on the TelCel contract has any

26 bearing on whether KPMG had knowledge of improper revenue recognition on Western

27 Wireless' contracts as alleged in the TAC. Therefore, these additional allegations lend no

28 further support for Lead Plaintiffs.

34 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 36 of 39

1 3. Goodwill

2 Lead Plaintiffs further contend thatKPMG "deliberately looked the other way and

3 deliberately ignored Wireless' improper accounting when it analyzed the Company's purported

4 $16.1 million worth of goodwill from its Mexican subsidiary. Doc. # 116 at 13 (citing TAC

5 ¶1I 70, 208-216). Lead Plaintiffs explain that the Company's disclosures for 2002 and 2003

6 indicate no impairment of goodwill from the Mexican subsidiary but admitted there were

7 I "`erroneous assumptions and calculation errors"' when announcing the restatement, that 8 demonstrated the goodwill was actually 100% impaired. Id. Lead Plaintiffs claim that, because

9 both Wireless and KPMG made the "exact same miscalculation two years in a row," it is

10 "simply inconceivable" that these were just mere errors in calculation. Id. (emphasis omitted).

11 Lead Plaintiffs also point to allegations in the TAC, gleaned from information given to them

12 by CW7, that "someone from KPMG was specifically assigned to assess the goodwill of the

13 Mexican subsidiary," to support their contention that defendant KPMG knew, not just should

14 have known, of the 100% impaired goodwill but found no impairment at all. Id.

15 KPMG contends , in reply, that the TAC fails to add any facts to support Lead Plaintiffs'

16 allegations . Doc. # 122 at 8. KPMG argues that , at most, the allegations create an inference

17 of negligence which is not enough to satisfy the PSLRA's scienter requirements for auditors.

18 Id. KPMG notes that there are no particularized facts, i.e., the audit work actually done or

19 what the auditors found during the audit of goodwill, that is required to establish knowledge

20 the goodwill was impaired and that the impairment was consciously disregarded by KPMG. Id.

21 This Court finds, based on a thorough review of the TAC, that there are insufficient facts

22 alleged to demonstrate that KPMG's alleged errors during its audit of Wireless' Mexican

23 subsidiary's goodwill was nothing more than simple negligence or that KPMG consciously knew

24 the subsidiary's goodwill was 100% impaired but deliberately disregarded it. Therefore, this

25 Court finds that the additional allegations concerning the calculation of goodwill does not add

26 support to a finding of KPMG's scienter.

27

28

35 04ev1589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 37 of 39

1 4. Western Wireless

2 Lastly, Lead Plaintiffs claim that further support for KPMG 's knowledge of the alleged

3 fraud comes from a statement made by CW 1 that "it was likely ... KPMG knew" about

4 Wireless' accounting errors on the Western Wireless contracts and "permitted them to happen"

5 based on the fact that Wireless moved "numerous" costs from one Western Wireless contract

6 to another "with the express purpose of preventing the Company from admitting it overstated

7 revenue in 2003 on the first contract." Doc. # 116 at 14. KPMG disagrees, contending "these

8 allegations consist of mere speculation ... that KPMG `must have known' [of the alleged fraud],

9 which is insufficient to establish a strong inference of scienter." Doc. # 122 at 9. In addition,

10 KPMG claims there are simply no facts to demonstrate KPMG knew of the alleged cost shifting

11 on the Wireless contracts.

12 This Court's review of the record reflects that KPMG is correct. There are simply no

13 facts alleged that reasonably suggest KPMG knew of the alleged cost shifting on the Western

14 Wireless contracts. Notwithstanding the fact that CW 1's statement that "it is likely" KPMG

15 knew of accounting errors in general is speculative, there is nothing alleged to link defendant

16 KPMG's alleged knowledge of general accounting errors to the cost shifting on the Western

17 Wireless contracts. Therefore, this Court finds these added allegations do nothing to enhance

18 the scienter allegations against KPMG.

19 5. The Court's Collective Review

20 This Court had previously found the SAC's allegations lacked factual support, other than

21 through the enormity of the restatement itself, to create a strong inference of scienter on the

22 part of defendant KPMG. The TAC contains the same allegations previously presented but

23 includes the additional allegations discussed above. This Court, based on its review and analysis

24 of those additional allegations, finds that none of the new allegations provide additional support

25 for a finding of defendant KPMG's scienter. Therefore, defendant KPMG's motion to dismiss

26 the TAC on the grounds that scienter is not sufficiently alleged as required under the PSLRA

27 is GRANTED.

28 //

36 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 38 of 39

1 c. I(PMG' s Motion to Strike

2 In support of their scienter contentions against KPMG, Lead Plaintiffs also point to the

3 TAC's allegations concerning KPMG's admission of wrongdoing in the creation of "illegal tax

4 shelters" involving clients other than Wireless. See Doc. # 116 at 9-10. This Court is not

5 convinced KPMG's settlement of criminal litigation, albeit concerning conduct that occurred

6 at or about the same time and involved at least one individual in common with this case, has

7 I any bearing on a determination of whether KPMG knew of the alleged fraud in this case such 8 that a strong inference of scienter on KPMG's part should be imputed from the admissions in

9 criminal court. These additional allegations are the subject of KPMG's concurrently filed

10 motion to strike under Fed.R.Civ.P. 12(f). In that this Court grants KPMG's motion to

dismiss, KPMG's motion to strike the tax shelter allegations need not be addressed at this time

12 and, therefore, is DENIED as moot.

13 CONCLUSION AND ORDER

14 Based on the foregoing, this Court finds that the allegations against the Wireless

15 defendants are now sufficiently plead to meet the requirements of the PSLRA and Rule 9(b)

16 but Lead Plaintiffs have failed to adequately plead scienter on the part of KPMG. KPMG urges

17 the Court not to grant Lead Plaintiffs further leave to amend based on the number of attempts

18 already made to meet the PSLRA's pleading requirements. This Court, however, is mindful that

19 this is only the second chance this Court has had to review the allegations and determine

20 whether the claims presented meet the stringent pleading requirements under the PSLRA and

21 Rule 9(b). Although Lead Plaintiffs have had an opportunity to cure the deficiencies outlined

22 by this Court, this Court is unconvinced that Lead Plaintiffs can plead no facts to support their

23 claims against KPMG which would entitle Lead Plaintiffs to relief, such that leave to amend

24 would be futile. See In re Vantive Corporation Sec. Litig. , 283 F.3d 1079, 1998 (9th Cir.

25 2002); Conle , 355 U.S. at 45-46; Navarro , 250 F.3d at 732.. Therefore, this Court finds it

26 appropriate to grant Lead Plaintiffs the opportunity to file a fourth amended complaint in an

27 attempt to cure the deficiencies in pleading outlined herein.

28 //

37 04cvl589 Case 5:06-cv-04327-JW Document 91-11 Filed 07/30/2007 Page 39 of 39

1 Accordingly, IT IS HEREBY ORDERED that:

2 1. The Wireless defendants ' motion to dismiss [ doc. # 111 ] is DENIED in its

3 entirety; 4 2. The Wireless defendants shall file an answer to the claims alleged in the TAC

5 within twenty (20) days of the date this Order is filed;

6 3. Defendant KPMG's motion to dismiss [doc. # 106] is GRANTED;

7 4. Defendant KPMG's motion to strike [doc. # 108] is DENIED as moot;

8 5. The claims against defendant KPMG are DISMISSED WITHOUT

9 PREJUDICE; and

10 6. Lead Plaintiffs are granted leave to file a fourth amended complaint that cures the

11 deficiencies outlined in this Order and may do so within thirty (30) days of the

12 date this Order is filed.8

13

14 Dated: May 7, 2007

15 JU 16 H S N. JOHN A. HOUSTON 17 ited States District Judge

18

19

20

21

22

23

24

25

26

27 8 Should Lead Plaintiffs file a fourth amended complaint, the Wireless defendants need not file a responsive pleading to that complaint. Since Lead Plaintiffs need not revise their allegations presented against 28 the Wireless defendants, the Wireless defendants' answer to the third amended complaint shall suffice as a responsive pleading to the fourth amended complaint.

38 04cv]589 Case 5:06-cv-04327-JW Document 91-12 Filed 07/30/2007 Page 1 of 3

EXHIBIT 11 Friday's Tech Win>ar,& 0 -04327-JW Document 91-12 Filed 07/30/2007 Page 2 of 3 Page 1 of 2 The tr et.com

^y l

Winners & Losers Friday's Tech Winners & Losers By Katie Dean TheStreet.com Staff Reporter 8/11/2006 1 : 43 PM EDT URL: http ://www.thestree t _com.newsanalysis/winnerstech/1 0303301html

After an uninspiring quarterly earnings report on Tuesday, Charter Communications (CHTR) ended the week on a high note, ascending nearly 10% on Friday after announcing plans for a debt swap.

The company said that its wholly owned subsidiaries, CCH II and CCH I, are commencing private offers to issue up to $875 million of new notes in exchange for a series of outstanding notes.

"The purpose of the exchange offer is to improve Charter's financial flexibility by extending debt maturities and reducing overall indebtedness," the St. Louis-based cable and broadband service provider said.

CCH II is offering to issue up to $200 million of new 10.25% senior notes due 2013 and CCH I is offering to issue up to $675 million of 11% senior secured notes due 2015 in exchange for Charter Holdings' notes with maturities ranging between 2009 and 2012.

The offers are made only to qualified institutional buyers and to certain non-U.S. investors located outside the United States.

Shares recently added 12 cents to $1.33.

Stock in telecommunications equipment provider Andrew (ANDW) sank lower for a second day after the company called off a merger deal with ADC Communications (ADCT) and spurned a rival offer from CommScope (CTV).

Andrew shares were recently trading at $8.35, after subtracting 6.6%, or 59 cents. ADC was up 3.5%, or 49 cents to $14.38.

CommScope also withdrew it bid for Andrew on Friday, noting that "CommScope's operational excellence and financial discipline have made us a global leader in the'last mile' of telecommunications. We intend to continue building upon our leadership position, and we are confident that CommScope is poised to continue creating value for its stockholders."

CommScope slipped 1.3%, or 35 cents to $27.60.

Juniper Networks (JNPR) slumped 6% after the company said it would have to restate three years of earnings reports after it found backdated stock-option grants.

The Sunnyvale, Calif., networking company said it was notified in May that regulators were looking into the company's option practices. One analyst's report found six of 15 option grants to executives were dated at the stock's low for the month.

The company said in a press release Thursday that an internal review showed date discrepancies.

Juniper's audit committee has "reached a preliminary conclusion that the actual measurement dates for financial accounting purposes of certain stock-option grants issued in the past differ from the recorded grant dates of such awards," according to the press release.

"The company will need to restate historical financial statements to record additional non-cash charges for stock-based http://www.thestreet.com/pf/newsanalysis/winnerstech/10303301.html 7/20/2007 Friday's Tech Win g i e /-04327-JW Document 91-12 Filed 07/30/2007 Page 3 of 3 Page 2 of 2 compensation expense related to past option grants," the company said.

Juniper was recently trading at $12.13 after shedding 77 cents.

Nvidia (NVDA) shares also fell in heavy trading after the graphics-chip maker said late Thursday that some past options-grant dates were "incorrect" and it would delay filing its quarterly report.

"As a result, Nvidia may record additional non-cash stock-based compensation expense related to stock-option grants," the company said in a regulatory filing. "Nvidia does not expect to be in a position to announce additional financial results for the second quarter until the audit committee has completed its review."

Nvidia announced sales of $687.5 million, up from $574.8 million in the same period a year ago. Analysts polled by Thomson First Call expected the company to earn 27 cents a share, not including options costs, on $673.6 million in sales.

Shares fell 61 cents to $23.55.

Other Friday movers included Cisco Systems (CSCO), down 9 cents to $19.47; Intel (INTC) , down 23 cents to $17.52; Apple Computer (AAPL) off 69 cents to $63.38; JDS Uniphase (JDSU), up two cents to $2.14; Sun Microsystems (SUNW), up a penny to $4.49; Microsoft (MSFT), down 16 cents to $24.30; Oracle (ORCL), dipping 19 cents to $14.49; Dell (DELL), up 21 cents to $21.20; Level 3 Communications (LVLT), down 3 cents to $3.73; Sirius Satellite Radio (SIRI), off a penny to $3.76 and eBay (EBAY) , down 58 cents to $24.27.

http://www.thestreet.com/pf/ newsanalysis/winnerstech/10303301.html 7/20/2007 Case 5:06-cv-04327-JW Document 91-13 Filed 07/30/2007 Page 1 of 2

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