./ ..1'IJE D S A.,A'I ES .I..) .TS .iRIC"I ' C(.)4.F R4.T'

N[i\ 4JCt :IIJSI-171`S

IN RE SON1J N .u ; TWOR. , INCLITIGATIO N

THIS '1..'0 :F,. I., CASES

Civil Action :No. 04-10294-I)P( .Le.[' d Caw)

FAI,RfST .AM EA D E'D * .,{ .) SO .I,.JDA.iTED

(:LASS A("F l(.)N COMPLAINT FORVIOLATION [1.I+' '.I°II.E FEDERALSECU XT.LI S LAWS

JURY "IRIAL DEMANDE D

4111436

TABLE, OF

CON},E N1 S

INTR.(.)I...)f.,X'TION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.JRISDIC1'IONANDV1.Nti1 . . . . . . . . . . . . . . . . . ., . . . . . ., . . . . . . . . . . . . . . . . . . . . 5

TI .I PARTIES, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(.' .L.,ASSACl'IOfrIl .i...,l ..,f.:?(. :i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I

S(.)NIJS' I{"1 C..J .f:)C ..7l..,f;:.N'l"1\('C.'('?l!N`I°IN(.; ,,,,,,,,,,,,,,,,,,,,,,,,", .," . . . . . . . . . .1 5

A- Sonus'sI.3usilless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 5

B . Creating An fllu,sic.m of .Linear' .R .evenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

(.1 . Sonu: Adm its Accounting Misstatements, . . . . . . . . . . . . . . . . . . . . . . . • . . . . , 26

1- Revenue Restate metits -- Deferral OfProduct Revenue . . . . . . . . . . . . . 30

2, Revenue .Restatement ww Maintenance Revenue . . . . . . . . . . . . . . . . . . . . 32

y . Revenue Restatement Wx DDelivery 32

4. Revenue Restatement -- Customer /cceptanc . . . . . . . . . . . . . . . . . . . . 33

5 . Revenue l Z C S I L e n) e I l t. - - (.) t.I1 e . t" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

6 . Expanse: Adjustments -- Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . 3 3

7- Expense Adjustments Restructuring Expense And Tkne i s . . . . . . . . 34

8 . Valuation Of Intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 5

9 . Impairment -- - .- , , . . . . . . . . . . . . . . . . . . . .3 5

10, Stock -Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5

il . Inv ;ntorylte ;se:rve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

12, Other Balance Sheet Acfjustt'rmrctits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7

l). SOnUs"s False And Misleading April 2 (.)()3 Public (..)f'f:erin 3 7

#1 11436

TABLE OF (. )NTENTS

-((. (Minuet)

'E'er

F. Sonuss False And Misleading September 2003 Public Offering . . . . . . . . . . . . .38

F. Defendant Alit-tied Directly Participated In And Furthered ['h Fraudulen tAccounting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

G . Defendant Nil] Directly Participated In And Furthered The . FraudulentAccounting .l'.racticcs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

'I•I ..I E FRAC.1I..) fl.F(,iI.NS ' .X'() t.JNR 1VX : I... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

S(MIS'S i A.I .t .JR:1 'I' J IMI'ik : . E T :' .ANi )MAINTAIN A[)EQ ( )A' .I'F IN'I' fa RNAL, A . CCOUNTiNO CONT.RE)I..,S . . . . . . . . . . . 47

(iAAI'VIO1..ATIf)NS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5C)

MATERIALLY FA.I ...,SE,'I .AND MISLEADING'I 11 :I'I::1MI .1N'I" .M ) I ; .)URIN(r TIIJ :'. C1 .,ASS . . . . . . . . . . . . . . . . . . . . . . . 5 6

A. 2001 Year-E.ndResults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 6

E:3- 2002 ai.3rstQuarter Res ult% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

C:'- 2002 Second Quarter Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1

1), 2002 `:t'hird Quarter Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

N ; . 2002 .I :a'ou.rth Quarter anti YettrWFtnd Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

F . Prospectus Supplement .Dated April 21, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . !i()

C .;. 2003 .}First Quarter Result. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

11. 2003 Second Quarter Resu lts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9

I . Prospectus Suupplerxme tnt C)ate d Septemm ber 23, 200 3

J . 2003 Third Quarter Result s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

NO S.AI-I: 1ILAR.I::3C)It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'11 0

#111436 ii

TABI . E OF (. (.) .NTEN'I'S

haw"

F'!RS' .I' CLAIM

Violation Of 'Sections I O(b) And 20(a) Off he E: xchhange.Act And Rule IOb 5 Against All Defendants . . . . . . . . . . . . . . . . . . . . . . . . . . . . H o

SE('( .)NX:) CLAI M

Violation OF S ctions .l I And 15 O,f',I"he Securities A .t . . . . . . . . . . . . . . . . . . . . . . . . 11 5

(°I:IE .RI..) CLAIM

Violation Of Sections 12(ti)(2) And 15 Of The Securities Act . . . . . . . . . . . . . . . . . . . 1 .1 8

BASIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1?1

PRAYER 'ORR1. .I..,IF:T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1? I

RJRY`.ikIA.i ..,DEMANDFl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I22

fl 111436 xii

Lead : thinti :if BPI. (::ilohal Asset Management :,1.-T ("BI I (: lobal"), on behalf o :f itself and

all others similarly situated, pursuant to the Court's June 1, 2005 Order, for its First Amended

Complaint , alleges as Follows .

INTRODUCTION

1, J 'his is a securities class action brought on behalf of all persons and entities who

purchased the publicly-tra&,d. ; ecurities of Sotnus Networks, Inc . ("Sonnris" Or the "Company" )

between March 28, 2002 and March 26, 2004, inclusive (the "Class .Period"), The defendants are

SOnUS .Netwc .rks, .J nc ., 1lassan A Ahmed, Sonus's Chief :i. xecutive Officer ("C'EO") and Stephe n

3, Nil], Sonus's former Chief Financial Officer ("Ci '()") . The claims asserted are brought t o

remedy violations Of Sections 1()(b) and 20(a) of the Securities Exchange Act of l 934 (th e

" : x (Jhange Act"), 15 U .S .C . § 78,1(b) and 78t(a) ; and Sections 11, 12(a )(2), and 15 ofth e

Securities Act of 1933 (the "Securit.i .s Act"), 15 §§77k, 771(a)(2), 77o-

2, During the Class Period, defQndants misled Sothis", Public itnw .stars by

disseminating as aerie: of materially (base and misleading statements concerning Sonus' s

revenrrues, earnings, profitability, and financial condition. . In particular, as t irther alleged .herein ,

Bonus improperly recognized revenue and .ni .ade material errors in its purchase accounting ,

recording of im a.i rme .nts, recording of acc;rrued expenses, and recording refcli:b rred

Compensation . The ma terial misstatements regarding the (.om.panny's .#znamia.l results occurred i n

large part because revenue was recorded in quarters in which it had not been earned, in violation

of Gner4i .lly Accepted Accounting Principles ("GAA11") and Bonus's own publicly state d

revenue recognition policy ,

f111436

3. Somis r iadc materially false and misleading statements in tell (10) Securities an d

Exchange1.ommission7 filings issued during the (lass Period . These false and

misleading ST,C, filings include the lbllowing : (I) Annual I eport, on Form I O-K fo r

2001, fled. March 28, 2002 ; (2) Quarterly .R(eport on Form 10--Q for the .First. Quarter of'2002,

filed May 1 0, 2002 ; (3) Quarterly Report on Form 10-Q for the Second Quarter of 2002, filed

August 14, 2002; (4) Quarterly :Report on Form 10-Q for the Third Quarter of` 2002, filed

Nov tuber 13, 2002 ; (5) Annual Report on Form I O-K for Ycarm .N ;?,nd 2002, filed .March 19, 2003 ;

(6) Prospectus Supplement dated April 21, 200' ; (7) Quarterly Report on Form I O -Q for the Firs t

E carter o :f'2003, filed May {), 2003 : (8) Quarterly Report on Form IO-Q for the Second Quarte r

of 2003, filed August. . 14, 2003 ; (9) Prospectus Supplement dated September 24, 2003 ; and (I0)

Quarterly Report on .form I fl-Q for the Third Qumrter of 2003, filed November 10, 2003.

4. On Feb nary It, 2004, SOMIS made an initial, a lbeit . incomple te, disclosure of

potential accounting problems . Its stock: opened that day at. $7 .54 per :hare . By the close of the

market on the following day, the price of SonU: shares closed at. $5 .39, a drop of 28 .5%. When

tile truth about, the scope of`Sonus's accounting improprieties began to Qm rge alter the close of

the market on March 26, 2004 , the price of Sonaus shares further plummeted to close at $3 .92 on

March 29. 2004, a drop of 60% From its (lass Period high of-$9 .9 I on January 20, 2004_ The

m .rt hers of the (:'lass and Subclass as herein defined thereby sustained massive losses . By virtue

of the accounting r statetilernts it has issued, Sams, has admitted that it published materially fals e

financial .results during the Class Period . Specifically, Sonus restated its financial results for th e

year: ending December 31, 2001 and December 31, 2002 in its Form 1(.)-K./A (A mendment

No . 1),114A July 28, 2004 . SOfLLS also restated its financial results in this tiling f :o.r the third

811436 2

quarte r of 2003 . onaus .restated its financial results fir the first quarter of 2003 in its Form l0- Q

icr the quarterly period ended Marc h 3 .1, 2004, filed July 28 . 2004. Sonus re stated its financial

results for the Second quarte r 42003 in its Form 10-Q for the quarterly period ended Rim, 30 ,

2004, fixed August 20, 2004 . Sonus restated its financial results for the third qua rter of 2003 in

its Form l0 Q for the quarterly period ended September 30, 2004, tiled No vernber 9, 2004 .

5 . Son us's improper accounting practices were ongoing, pervasive and occurred wit h

the .knowled e, acquiescence and direct participati0fl of at least two of Somis's senior of"fIcers ,

defendants Ahmed and NihI . indeed, the financial irregularities which resulted in the materia l

misstatements of Bonus's prublicly-reported fixnainaciaal results during the Class Period were due t o

an internal decision by Sonus's senior management to publicly portray Sonus's business as.

generating linear quarterly revenue growth . when in truth the C.'o.mpany's business wa s

characterized by .highly irregular, non-linear revenues . Nevertheless, the hidividually name d

dei:endants sought to create and maintain) any illusion of linear revenue growth because the y

wanted Wall Street analysts and investors to believe that there was "visibility" as to th e

Company's future revenue strea s . Bonus`s sen ior management knew that if analysts and other

investment professionals did .not perceive the Company's revenue model as generating reliable ,

predictable revenues, they would be unwilling to .make projections concerning Sc uLLS's future

revenue growth and, as a result, the market wou ld not accord a price nu iltiple to the Compazny' :

stock that was at .least comparable to that of offer growth companies which did report linear

revenues. Ill:is in turn would cause Sonus's stock to trade at lower prices, thus making it more

difficult. and expensive for the Company to sell stock in Iohlow-on offerings or otherwise acces s

the capital markets to finance the Compa y"s continuing growth and operations .

#11'l43( 3

6, For the p u.rpose of crating the illusion of linear revenue growth, Son us' s senior

1i .narice and accounting personnel, with the knowledge, acquiescence and approval of Sonus' s

senior inana anent, including cle. .fc'.nciants Ahmed and Nill, en a e d in a wrongful pattern o f

conduct whereby they sought to "manage" the Co.rlmpany's reported revenues by, into alia ,

improperly pulling in revenue from future quarters to the current quarter, and vice-versa . They

did thi : by, inter a lia, improperly executing acceptance letters and/or manipulating the shipmen t

of software updates, oftentimes well in advance of when the updates were ready to ship or wer e

supposed to be delivered .

7. Subsequent to the discovery of SOIILIs's accounting misstatements, the Compan y

terminated several members of its fin ance and accounting department , includ ing Peter .l..lemme:,

who served as Sonu5's Controlle r . In addition, ciel'enndant. Nil], who had worked closely with

Heni nie in manipulating Sonlis's reported revenues during the (lass Period, was reassigned Fro m

his position as (FO in April 2004, until he was subsequently ti)rced by tl~e : Company to resign .

Bonus's inability to timely issue its financial statements led to the (,omp .ny"s clehi ; tinng from th e

NAS1...) .AQ .Market System on August 13, 2004 .

8 . By restating its financial results, Sonus has admitted that the publicly-issued

financial state ents ('(.)r each of'the reported period ; were not prepared in conformity with C .iAA1'

and that Sonus .mate.rially misrepresented its financial condition and results of operations . Under

(JA.AP:', the res tatement of previously issued financial statements is reserved Fur those

circumstances where no lesser remedy is available., tinder Accounting Principles Board Opinion

No . 20, ~f ; :c,~.rr~ting C ..'harages, restatements are only permitted to corr ct mat rial accounting

errors or .irregularities that existed at the time the financial statements were prepared and issued .

41 1'1416 4

By restating its financial st.atemennts, Sonus has admitted that each document publishing the

original financial results contained an untrue statem.e.nt of material f ict . TIhus, the restatement i ;

an admission that each of the press releases and the annual and quarterly reports fled on Forms

I O and 1 O -Q with the SEC identified in paragraph 3 hereof contained untrue statements o f

n!aterial fact .

9 _ The public dissemination of the materially .Ise and mislead.in financial

innlorrnatio .n caused Sony 's shares to trade at artificially inflated prices throughout the Class

Period . As the false financial results were reported throughout fiscal 2002 and 2003, So nus's

stock price increased from $2 .62 at the beginning of the Class Period to a Class Period high of

$9.91 per share on January 20, 2004, As the fraud was revealed and assimilated by the

marketplace, the price of rSonus's stock declined to a low of $3,92 on March 29, 2004 . Lead

Plaintiffand all oilier .ni.e.mbers of the Class and Subclass Sustained substantial damages as a

result .

.IC1 ) .((::ri'14:)N AND VENU E

10. The claims assorted herein arise cinde r Sections 10(b) and 20(a) ol'the} 1 ."xcilatIlg e

Act, .15 U .S.C . §§78i(b) and 78t(a).}, Rule IOh-S promulgated thereunder by the SEC. 17 C' .!. . .R .

§240 . 1 Ob-5, and Sections 11, 12(a)(2), and 15 offfie Securities Act,, 15 U .S.C. §§77k, 771(a)(2 )

and 77o-

11 . This Court has jurisdiction over the subject . matter ol` this action. pursuant to

28 t .1 .S .C.' . y§ 1331 and 1337(a), Se ction 27 of the 1.:xchange Act, :15 U .S.C. §78aa, and Section

22(a) of the Securities Act, 15 U.S .(. §77v(a) .

#111436 5

12_ Venue is proper in this District unde r Section 27 of the Exclhttrlg ; Act, 15 [ .I .S,C.; ,

§78aa, Section 22(a) of the Securities Act, 15 I .T .S .[C . §77v(a), and 28 1J,S,Cr . § 1391(h) . Many of

the acts charged herein, including the preparation of m aterially false and misleading financia l

information, occurred in substantial part in this District . Furthermore, SOnus maintains it s

cc r or ~ce~ .head qu rt r in Chelmsford, Massachu setts, which is within this District ,

13. hi connection with the acts, conduct and other wrongs complained of herein, th e

de .nd{:lilts, directly or indirectly, used the means and instrumentalities ofinterstate ; coinnierce ,

the U nit.ecl Sates mails, and the G.1.61ities 01' a natio nal securities Markel-

111.E, PARTIES

14. l:,ead Pl intiti 1.51'1: Global purchased the common stock of onus during the Clas s

Period at artificially inflated prices and sustained damages as a result of the violations of la w

alleged herein, Included among 131 1 1 C. lobal's Class Period purchases were shares of newl y

issued Bonus c ommon shares traceable to the Prospectus Supplement dated Septemb er 24, 2003 .

()an August 10, 2004, the Court appointed 1:31'1 Global to serve as the Lead Plaintiff in this actio n

pursuant to Section 211.) ol'the Exchange Act, 15 U .S .C:' . §§78u-4 .

15, I)ei'brrdant Sonus Networks, Inc is a Delaware corporation with it s principal

executive offices located at 250 Apollo Drive-, Cheiinst'Ord, Massachusetts . SOOUs asserts that i t

is a leading provider of packet voice .in:f:rastructtire solutions for wireline and wireless servic e

providers . The Company claims to of`f'er a new gene ration of carrier-class switching, equipmen

t and Software that enable telecommunicationsservice providers to deliver voice services over

paacke i .-based networks .

4111436 6

16. Defendant Hassan M . Ahmed ("Ahn x.ci") is the C 1,"O and C ha i .rman of the Board

of Directors of Sonus . Ahmed assumed the position of CO as of November 1998 and held such

position throughout the ( .' lass Period . IIQ became Chairman of'the Board in April 2004, From

November 1998 to April 2004 Ahmed also served as President of the Company, As CE.O and

Chairman of the Board, Ahmed participated in the day-to-clay operations of Bonus and exercised

control over the C'ompany, including the issuance of thhe statements alleged thereiii to h e

materially false and misleading . Ahmed was actively involved in the preparation, review, and

authorization of Sonus"s ptihlicly-reported :ftnanncia.il : ta1ements, reports on SEC Forms 10-K and

10-Q, annual shareholder repo rt.s, and press releases . A limed signed various publicly-available

SEC documents containin .materially false and misleading statement : concerning the financial

results o(` Sonus as speci iicaily alleged her .in . Ahmed owned approximately 8,845,498 shares of

Sonus stock as. ofMay 31, 2004. [n addition, Ahmed was granted 2,000,000 "Securities

Underlying (.)pti<octs/SA .R.s" ire 2003 and 640,000 i .tn 200! . By reason ot'his stock ownership and

his positions at SOMKi, .Ahmed was, at all relevant times, a "controlling person" of'eac h of th e

other defendants, midis therefore liable to the Class and Subclass under Section 20(a) of th e

Exchange Act, 15 U .S . C . §78t(a) and Section 15 f ft. Securities Act, 15 U.S.C . §77o .

17 . Defendant Stephen J . Nill served as SOnUs's C'F'O, Vice President of Finance an d

Administration, and i'rea.su,rer during the ("lass Period . l)c l :ndant. Nil :l Was Scotus' ;; CTO from

Septemb .r 1999 until April 2004 and Treasurer from 2000 until April 2004 . After informatio n

concerning Sonus's improper accounting practices became publicly known, de : meant Nil] was

transf `;rred to the position of Vice President of Operations . M., later resigned at the request of the

company . As 'ET, Nil! was fictively involved in the preparation, review, and authorization of

#1'11436 7

Bonus's publicly-.reported financial statements, reports m SEC .Forms 10-K and iO-Q, are . nua l

shareholder reports, and press releases. Nili signed various puul licly-available SEC documents

containing materially false and misleading statements concerning the financial results of`Sonus a s

specifically alleged herein . By reason ol`his mock ownership and/or the positions he held at

SOtIus during the Class Period, Ni was, at all relevant times, a "controlling person" of Sonus ,

and is therefore liable to the Class and Subclass unde r Section 20(a) o f the Exchange Act, 1 5

L; .S .C . §78t(a) and Section 15 o17 the Securities Act, 15 [.!_S .C7 . §770 .

18- Ahmed and Nil] are sornetimf s collec,tiv .ly referred to herein as the "hndividWi l

"

19, The Individual l.)efiendants, because of their positions of control and authority as,

officers and/or directors of the Company, were able to and did control the contents of the variou s

quarterly and annual financial reports, S C filings. press releases and present ationns to securitie s

analysts pertaining to Bonus and to its financial condition and/or performance- f= ac :h. of the

Individual [)et ndants had the power and infl once, and exercised the same, to control th e

operations and disclosures made by the Company . ' .f'he Indi vidual Defendants were cub

provided with copies of onus"s press releases and/car SEC l :ili.tngs containing materially Ealse an d

misleading financial information prior to or shortly after their issuance and had the ability and

opportunity to prevent their issuance or to cause them to be corrected . 'l'lie Individual

Defendants had a duty to promptly disseminate accurate and truthful inlormat ion with respect to

Sotnus's financial results, operation , and/or future business prospects or to cause and direct tha t

such information be disseminated so that the market price M-Sonus's securit ies would he base d

on trui .Iil it and accurate hnft. rmnatiori .

4111436 8

20, It is appropriate to treat the Individual Defendants as a group for pleadin g

purposes and to presume that the false, misleading and incomplete i .nlcrrmation conveyed in th e

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

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

above officers of c.. n us, by virtue of their high-level positions with the Company, directl y

participated in the manager-cant of the Company, were directly involved in the day-to-da y

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

inform ation concerning the Company and its business, operations, products, growth, 1111ancia l

statements, and linaincial condition, as alleged herein . 'I he Individual Defendants were involve d

in drafting, producing, reviewing <nd/or disseminating the false and misleading statements and

information alleged herein, were aware of, or recklessly di : regarded, tha t the t: lsc and

misleading statements were being issued regarding the Company, and approved or ratified thes e

statements, in violation of the federal securities laws .

2 :1 . As officers and controlling pe rsc.ms of a publicly-held company whose common

stock was, and. is, registered with the SEC pkms mnt . to the :Exchange Act, and was traded on th e

NASDAQ , z d governed by the provisions of the :federal securities laws, the Individual

Def: ndants each had a duty to disse minate promptly, arc irate and truthful information with

respect to the Company's financial condition and perf'c:7rmancce, growth, operations, financia l

st.atemernts, business, products, markets, manu.i.gement, earnings and present and future busines s

prospects, and to correct any previously-issLied statements that had become mat :rially misleading

or untrue, so that the market price of the Company's publicly-traded securities would be based

9#1 1 1436

upon truthful m d accurate inlbrmation . The Individual Defendants' a iisrepresLntatio s and

omissions during the Class Period violated these specific requirements and obligations .

22_ The Individual Defendants participated in the drafting, preparation, and/o r

approval o f the various public and shareholder and investor reports and other communication s

complained of herein and were aware of, or re cklessly disregarded , the misst.at.e.me :ms contained

therein and omissions therefrom, and were aware of their materially false and misleading nature .

Because of their Board membership and/or executive and managerial positions with Sonus, eac h

of the Individual Defendants had access to t .hQ adverse undisclosed information about Sonus' s

business prospects and financial condition and performance as particularized herein and knew o r

recklessly disregarded that these adverse C acts rendered the positive reprQseiuations made by or

about Sonus and its business issued or adopted by the Cornpany materially Calse and misleading .

23_ Each of the individual Defendants knew or was reckless in disregarding the fac t

that the misl actin statements and omissions described herein would adversely affect the

integrity of the market for Sonus securities and would artificially inflate or maintain the price: o

onus securities. Thei :r actions arid/or inact ion were the proximate cause ft )r the artificial

inflation in the price of Soinus shares durin g, the ("'lass Period and the resultant ci lmag sustained

by I..,ead Plaintiff an d and the members of the Class and Suubclass _

24_ f ach oRhe defendants is liable as a participant in a fraudulent scheme trail course

0I busi .nness that operated as a ftaud or deceit on purchasers of Sonus common stock b y

disseminating materially l ilw and misleading statements arid ./or concea .lin material advers e

facts, The scheme, (i) deceived the investing public regarding Sonus's business, operations ,

management and the intrinsic value of Sonus common stock ; (ii) enabled the Company to

#1 1 1436

complete public offering(s) of its common stock during the Class Period by which Son us raise d

$183 million ; and (iii) ca sed .l...,ead Plaintiff and other member : o('t e Class and Subclass to

purchase Son us securities at artificially inflated prices .

CLASS ACTION ALLEGATION S

25, l ..ead Plaintiff brings this action as a class action pILrsUaa.flt to Federal Rules o f

Civil Procedure 23(a) and 2 3( b)(3) on behalFaFa class (the "°Class°") consisting of alI persons and

entities who purchased or otherwise acquired Sonnus common stock on the open mark o betwee n

March 28, 2002, the date of tiling of So~nus's Form 10-K for Year [ nding December 31, 2001 ,

through March 26 2004, inclusive (the "Class Period" ), and who were damaged thereby . In

addition., Lead .111aiiitiIl brings this action on behalf of a Subclass f~:7r purposes of the claim s

under Sections I I and .12(a)() of the Securities Act, consisting of all persons and entities who

purchased or otherwise acquired newly issued SOIiUS shares pursuant to the Prospectu s

Supplement dated September 24, 2003 . Excluded From the Class and Subclass are the

defendarnts, officers and directors of the Company at all relevant times, .members of thei r

immediate f'arni!ies and their legal represent .at:ives, heirs, successors or assigns and any entity .h i

which defendants have or had a controlling interest ,

26 . The members of the Class and Subclass ar so numerous that joinder o f al l

members is impracticable . 't hroughouut the Class Period, Sonus shares were traded on th e

NASDAQ rnarket, t r efficient market, While the exact number of (lass and Subclass members

is unknown to f ..,ead Plaintiff at this time and can only be ascertained through appropriat e

discovery, Lead Plaintiff be lieves that. there are hundreds or thousands of ' embers of the

pro posed Class annd Subclass . Members of the Class and Sul .lass can he identified from records

4111436

maintained by Son us or its stock transfer agent and can he notified of the pendency of this action

by Mail, using a form of notic : similar to that customarily used in securities class ~a .ctionn lawsuits .

As of' .la nary 31, 2004, there were 245,730,722 shares of Sonus stock Outstanding . A number o f

securities firms followed Souris during the Class Period, including Advest, America',, Growt h

Capital, ( : oldm.an Sachs, Janco Partners, Legg .1viason, Lehman Brothers, Pacific (Crest, Securities ,

Pacific Growth, Rayniond . Janes Associates, Salo .mon Smith Barney, and Wachovia

Securities . These firms issued research reports and comment s on Sonus during the CI lass Period

based on in :iorz7 ationn obtained from the Com sany, which reports impacted the timarket . price of

Somas securities .

27, I...,ead Plaintiffs claims are typical of the claims of the Class and Subclass as al l

members of the Class and Subclas are Similarly affected by def'endants' wrongful conduct i n

violation o f federal law as alleges! herein. l..,ead Plaintiff and all me mbers of the Class and

Subclass have purchased and/or acquired shares of Sonus during the Class Period at artificially

inflated prices and have, susta.iIled damages arising out ol`defenciant .s' wrongful conduct as

alleged herein .

28 . I..,ead Plaintiff will fairly and adequately proted the inte rests of the [,members of the

Class and the Subclass and has retained counsel competent and experienced in class and

securities litigation . Lead Plain t. il'f'does not have any interests antagonistic to or in conflict. with

the other members ofd w- Class and Subclass ,

29 . Com mon questions of law and (lash, exist as to all members ot't.p e Class and

Subclass and redominat : over any questions solely affecting individual members th ereol' .

Among the questions of law and fact common to the Class and Subclass are :

#111436 12

a. Whether the ct a~cla t ; violated the federal securities laws through thei r

acts and/or omissions a alleged herein ;

h. Whether the defendants participated in and pursued the common cou rse of

conduct and fraudulent scheme described her ;in ;

Whether the filings, reports, documents, statements, and attestations .made

by defendants during the Class Period misre resented mat .rial facts about the business ,

perf'ormance, and/or finarncial condition o!' Sonus;

d. Whether the de ndants acted knowingly or with reckless disregard fir th e

truth in misrepresenting material facts or, as to the claims of the Subclass, whether deEtclant.s

acted nnegligently ;

Whe ther the market price o f SonLS common stock during the ;laass Period

was artificially inflated due to the misrepresentations complained cif .here .in ; and

Whethe r and to what extent Lead Plaintiffand other members of the Clas s

and Subclass suf: :'red damages .

30. A c lass action is superior to all other available x methods for the fair and efficien t

adjl .klication o fthis controversy since joinder of all Class and Subclass member s is impracticable .

F'u.r-t .hermore, a ]N the damages suffered by individual Class and Subclas s members may b e

relatively small, the expense and burden of individual litigation makes it impossible fir them to

individually redress the wrongs complained of herein . 't'here will be no difficulty in the

mi.Imigement. o f this action as a class action and Lead Plainti f fys counsel has substant i al

experience litigating similar class action cases .

#111436 13

31 . As J.'or claims made by Lead Plaintiff on behalfo the C::"la s under Section 1.0(h) of

the Exchange Act, Lead .Plaintiffrelies, in part, on the presumption 0.1 reliance established by the

fau.d-onthe-inarkct du trine, "I'lhe market for SOnLIS Securities was at all times an efficien t

market. during the ('lass Period for the 6ollowing reasons, among others ,

aa, During the (lass Period, Sonus met the requirQments for listing and i s

list :d on the NASI ..)AQ, a highly efficient market that quickly reflects all publicly availabl e

information concerning a listed company ;

h. As a regulated . issruer, Sonus is required to and has fi .i d periodic reports

with the SEC' . Many of these reports contained material misrepresentations and/or omitted

material facts pertaining to the f M-111c .iaa..l results of Sonus during the Class Period, causing th e

price of Sonus shares to trade at artif icially inflated prices ;

Sonnu J s senior .management regularly meet with and provided Company-

related information to stock market analysts, i .rlstitul.ionnal investors, :fund .many ers, and Mie r

market profess ionals ;

Gi_ 'X h.e trading volume of SoMIS S common stock during the (' .Jatss Period

indicated that there was a liquid market for Bonus stock during the Class Period ;

Bonus transmitted information on a ri,arket.-wide basis throug h variou s

electronic i iedia services, including issuing press releases through its own website, FIR Newswir e

and Business Wire' ; and

f. The market price of Sonus securities reacted efficiently to new inform ation

entering t.h market .

##111436 14

32 . The above facts demonstrate the existence of an efficient market for trading Soriu s

securities and allow the application of the ft Xud-ori-the-market doct rine. According ly, wit.lx

respect to the claims arising under the: Exchange Act, .f .,c ad Plaintiff and the other ( .lass members

are entitled to a presumption a reliance with respect to the misrepresentations and omission s

alleged herein .

SO.NUS S FRA.UDULEN'M.' .AC,COUNT1NG

A. Sonus' s Business

33 . As a provider of voice infrastructure products invo .lv .ing carrier-class switching

equipment and software, Sonus is involved in the overlap between the telecommunications an d

software industries . Bonus's products enable voice services to be delivered over packet.-based

rnetworks . Bonus characterizes "packet-based networks" as no.works having the ;ability t o

transport traffic in small bundles, which provide a significantly more flexible, cost-eiTective an d

efficient means for providing co mmmunica.► I .ioans services as oppose d to circu.it-based networks .

SOIILIs described its target ct .ust.Omcrs as new and established communications service providers ,

long distance carriers, local exchange carriers, Internet service providers, cable operators ,

international telephone companies, and carriers that provide services to other carriers . According

to Seamus' . 2001 Form I O-. ., Sonus claims that use of packet-based networks "will accelerate the

Convergence of voice and data into the new public ndwork ."

34. Sonus produces te.lecommunic lions software arid equipment, placing i t

simultaneously in two highly competitive industries Bonus became a public Comp-my by

conduct .in an initial public ol lf ring o1'its shares in May 2000, r :i.sing $115 million, In so doing ,

SOIiUS received the financial benefits associated with the NASDAQ capital market . and

#111436 15

simultaneously assumed corresponding accounting and public reporting obligations . So nfus an d

the Individual Defendants were well aware ofthe consequences of becoming, a public company ,

including the rccl~ .a.ir x e t to accurately and truthfully report the l iiancial condition of the

Company at all times .

75 . As reported in elqpho rty Online, dc.f ndaut Nil!, SorArts's (7FO during the ('las s

Period, .noted, "[cane of the negatives of 'going public is you have anew party sitting at the table :

public investors ." When discussing the possibility 0f°a company disappointing Wall Street, Nil ]

acknowledged that "[iJt will he very hard [for that co. many [ to capture their [ Wall Street.

analysis] attention again . "

.1.3 . ('reatine An Illusion of Linear Revenues

36. Sonus s finance and accounting Staff, with the knowledge, approva l and

acquiescence Of Sonus's sennio r management, including de endant Nil], engaged in a series of

financial and accounting irregularities designed to make it app e a as though the Company' s

revenue model was capable of delivering steady, rd fable revenue ;rowt .h . In truth, the

Company's revenues were anything but steady or reliable because of "lumpy" ordering pattern s

arid high customer C011MILral .i 017 _

37. Notwithsti.nding the irregular nature of Sonus's re;ve nues, S )nus's senio r

managers sought to create and maintain the illusion ofr :venue linearity by smoothing Out the

Company's reported quarterly raven ues_ They knew that in the absence of percrived revenu e

linearity, timljysts and investors would not feel comfortable in making rev mute and earnings

protections .ffor incorporation into their investment reco.rnniend ations regarding Sonus's stock . I t

was also understood by i f ~ciant that the lack a -visibility" as to future revenues would caus e

0 '1 1436 16

SODLLS'S stock to trade at. lower prices than it otherwise would have because the market would no t

attach a high Price multiple to the stock if revenues were viewed as sporadic or unreliable ,

Acc.ordi .ngly, Bonus's senior accounting and financ : managers, at the behest of Son :US's senio r

m anagem en t, devised a plan by which to smooth ou t. Somis's reported revenues, quarter-over-

quarter, :for the purpose of making it appear as though the Company's reported revenues wer e

following a p:redictahle, sequential upward growth curve .

38. 11he goal of-Portraying the Company's revenue model as generating linear

quarterly revenues was of overriding i po rtance to Sonus 's senior nnianagemer t_ According to a

former Sorius officer who previously served as Vice President Of J.3ursirness Development and

Sales, the Corporate culture of Sonus was always to meet or exceed Wall Street earning s

estimates by $ .01 Or $ .02 each quarter no matter what the Company's actual performanc e

rel :cited . indeed, throughout most of the Class Period, the C01Y .1pa ny continually represented t o

Wall Street that it was enjoying sequential revenue growth . For example, On April 9, 2003 ,

Son us <11111OLHIced its [fit 2003 financial results by proclaim iing that revenues had increased "27 %

sequentially ." Similarly, on July 1 0, 2003, the C.,ompanny issued a press release announcing its Q2

2003 financial results . The release quoted de:(rndant. Ahmed as shying : ,"We. are pleased with th e

p:rogrc 5, that we made . . . particularly with our 33% sequential :revenu e; growth," On October 8 .

2003, in its press relea se announcing its Q3 2003 f nancial results, Sonus again reiterated its

drumbeat proclamation of s quenTti l revenue growth by quoting defendant Ahvri d as saying :

•'Th .is was a strong quarter for Sonus Networks, our fourth consecutive quarter of revenue

growth . . . ," These assertions were known to the Individual 1 .)c .tktndatits to be materially (also

when made .

U 1 11436 17

39, ":I'lhe illusion of linearity wa also important . beQmise Sonus's senior managers .had

intended to raise capital by issuing shares of Sonu .s's coy mon stack in follow-on offerings

pursuant to a prior shelf registration, and they knew that such offerings would not he successful i F

th (:'<}x,~lsany' :r venue were deemed to be irregular and unpredictable . f h rc ore, it was of

paramount importanc e to tlu Comp a,ny's senior managers that. Bonus report linear quarterl y

revenues, notwitl stand in,, , their occasional boilerplate risk "warnings" about the possibility o( '

unpredictable quarterover-clua:rter results . 'T 'hese managers knew that ana lyst: would, in l a.rge

measure, base their investment Opinions and r cc7~~~.mend~3t.ic ~~.s regarding SO MIS's stock on the

apparent l inear ity of r :v nues and th ; amount of deferred reve nues ,

40, To accomplish their illegal plan, Bonus's senior accounting and Finance staff, with

the knowledge and approval of the Company's senior management, including but not limited t o

defendant Nill, employed accounting trickery in order to i Manipulate contracts to "SIT1ooth out' s

Sonus's otfherwise serrated revenue pattern . According to a former senior sales manager who had.

responsibility for approximate ly 35% of Sonus' revenues in 2003 : "'l"fhey (senior management )

tried to take a business with non-lirneaar rev noes and rno n-linear orders and perceive it. to the

Street as linear ..., they were always pulling things into the next quarter to make things linear . "

41 . By their nature, So nu#s's contracts involved hardware and software items, the

delivery of which directly i pacted the timing of'WIfIcr9 Sonus could prope rly record revenues-

Other f atures of the contracts that i pacted the timing Of rCVLIIL,e recognition included custome r

acceptance, the provision of rn- ijntenance serv.icces, and the delivery of software upda tes . i.. Unde r

Statement oA'Position (`S()P") 97-2, Sonus was required to report revenues from se cc. retract .

as they were bundled, with no segre gat .ion ofthe hardware and software components . I n

#ff.11436 is

violation of GAA.P, however, defendants 'improperly unbundled certain software deliver y

elements in order to manipulate the timing of revenue recognition, for the purpose of smoothin g

out Somis's quarterly revenue curve ,

42. For example, at the behest of senior management, certain ClCmeft.S of Sonus' s

contract with (west Communications International Inc. ("(west") - the Co.m.pany's largest and

most signi.fica .nnt contract were improperly unbundle d from the contract and treated separatel y

so that the Company could manipulate the timing of recognition of'revenl e . The elements that

were improperly Unbundled included software updates and releases that were to he provided t o

Qwcst . By unhu rid .ling the contract in this laslvonn, and making the delivery of the u pdates an d

releases subject to separate "side agreements," the Company was able to sidestep (_3AAP an d

advance the recognition of revenue under the (west Q011I. r a .ct and, urt.tier, manipulate the

recognition cif` futur e revenues by controlling delivery of the updates and releases which had been

improperly Pulled from the C nntr .a.ct . M.'li al SO MIS was manipulating the Qwest contract to

"manage" its reported quarterly revenues was continually discussed among the sales and

technical taf ' ~~emb r employed in the Company's Denver-based Western regional sales office ,

according to a senior sales director who worked in that office, . The Denver of ficre was

responsible for implementing and maintaining the Qw .st. co nt.ract . According to a forme r

Account Director who report ed directly to an o lacer-level sales executive during the relevan t

time period . Sonus unbundled the Qwest contract in order to stage-manage the recording of the

revenues. ' .I'l e unbundling of the contracts for the purpose ofmanipulating software deliverable s

and, ► lt .imately, to "smmmc:mth" out reported revenues was known, and/or recklessly Condoned, b y

the Individual Defendants .

#111436 19

43. The soft.waar . element of Bonus's contracts necessarily included a large iref. :rred

revenue compon ent.. llnde.r GAAP and the Company' : own revenue recognition guideli ties ,

deferred revenues could only be recognized upon the per `brmance of hiture obligations, such as

the delivery of sof'twar updates and releases required by the terms of the contracts . According to

the source identified in the precedi .n partagraph, S MIS was able to, and did, manipulate th e

timing of its reported revenues by claiming that the so t .ware updates had in .fact been delivered a t

the time revenue therei r̀orn was recorded .Itn truth, the Qwest updates were not delivered and, in

many instances,, wer : not every ready to be delivered .

44. Defendant Nil], working in concert with 'onus's i rmer controller, Peter I femme ,

improperly .recognized tens of Millions dollars in revenues under a contract with Soiius's the n

largest customer, Qwest .. As part of this Plan, these individuals imprope rly recorded revenue s

under the ()west contract by manipulating the supposed delivery of software releases an d

updates In truth, the updates were not in fact delivered, yet . Son .us nevertheless recorded

revenues as though they were, in violation of SOP 97-2 .A.ccordin to a :former Sonus vice

president who had responsibility tor, infer ad,, the Company's soft switches (a significant .

componen t. of the Qwest contract ), "S«rnus was simply gerrym andering results as to the (wes t

Contract . "

45 . According to several former senior sales and technical officers and stall ; includin g

a fiomwr onus Vice President in charge of business deve lopment, F armer sales engineer who

reported directly to Bonus's Director of lingilieering , and a former Vice President wit h

responsibility for various functions within the Co .mpa:ny's :I nt :llige t int.e:rnet. Protocol divi ; icrn ,

the misstatement of tile Company' r :vennues resulting from these improper accounting method s

41 11436 20

was material and ongoing . For example, de#end.i mt Nil], working in tandem with forme r

Controller Hemme, arranged ti r Sonus to imprope rly .recogni e $2 7 .5 million in Q2 2002 by

r ;cording revenues on software updates which had not been delivered to Qwest in that quarter .

Similarly, the Company improperly recorded $11 million in Q4 2001 under the Qwest contract ,

again where the software releases had not been. delivered . This i.«-iit wful practice occurred wit h

other accounts, including a contract. with ATT . This improper revenue re cognition practice was

known, approved and condone d by def .ndanlt. Hill, who, togethe r with farmer Controller H arm-110 ,

tightly controlled the revenue reporting function at SO PUS, under the supervision of defen(ant .

Ahmed . According to aformer accounting department. employee whoa reported directly to

iJer me, L :le m.7 me "was' told to get a number" in order to make the quart .r by senior Compan y

managers, including defendant Nill .

46. A forme r SonUS vice president who had responsibility For, inter alia, preparing

and interacting with I lemn.me tin fi nancial statement preparation, described how, in either Q3 or

Q4 2001, d efendtant Nill, alon with former Controller I .lemme, had .requested that an acceptance

letter be sent to Michael .I'erruuse, a former senior vice; resident of f ."'ngineeri.ng at (west . Th e

purpose of t,l e acceptance letter was to purportedly confirm the delivery of approximately 1 8

mil lion worth of hardware and software to QrNest, pursuant to its $ i 00 n-~illion contract wit h

Soles. The letter was in : act issued, under either Nill or .: .lemnme's Signature" even though the

product .had not been delivered, and in fact was not even ready to be delivered . Instead, the

product remained in the laboratory of 4onus's Telecom Technnologies, Inc . subsidiary i n

Richardsotn, 'T'exas, after the letter had been sent to Perruse . Perruse went. along with the fraud.

because of certain reciprocal revenue arrangements which he had entered into with SaciUS .

#111436 21

.,otters were sent to other customers as well, including C::; .lobal.. Crossing and (..)

Conuniun .i.cations, each for the purpose of "confirming- the delivery of product or th e

pcr:lorma.uce of contract milestones, even though no such delivery or performance had ac tuall y

occurred, in many instances, Sorm did not even have product ready to d(-;liver at . the time the

revenues were hooked. According to the afore mentioned source, defendant t u-ned was mad e

aware of these improper practices .in 2001, specifically with regard to the Q west . contract, bu t

took no action to stop theta . As a result , SOS LtS was able to improperly hook millions of dollar s

ill ri v nu s , ill violation? ( :)f`CGiAAP and, in particular, SOP 97-2 ,

47 . The pressure by senior management to smooth out reported revenues was kno wn

within Several areas of the C .,ompany, nnot. just. by accounting persox nel . For example, man y

members of Some s sales staff knew about and openly discussed senior management' 5 attempt to

create a perception o revenue linearity through the manipulation of contract deliverables . The

reason is because these sales personnel were constantly under pressure by senior management t o

pull such deliverables from the contracts and include them instead in special "side agreem nt .s"

with customers. It was known and understood by 7t~~~ 's ;al :tall that. their commission

compens tiom would he withheld iithe y Ihiled to exclude the deliverables from the contracts .

This was an .issue that created ill will among the Company' s sales personnel . As one :former

senior sales account manager, who had responsibility for Sonus's Verizon contract, stz :at d :

"The company was pushing-out or spreading revenues acrossquarters to get .revenue as linear as possible . This was the easewith V ri ~~rw, There was always sonic pressure not to include allot'thes future deliverables . For instance, with Veri con, theIspreading;' had to do with contract rttiaintenalice terms, thatincluded software updates .

#1114 ( 22

Qwest was always an account that involved some futuredeliverable that was pushed out quarter after quarter to get revenueas linear as possible . I believe that there was informa lco. mu.n,ication involved outside of the contact . XOCommanicati.o ns, I believe was another such account . Accountssuch as l?pana and I1)1' were accounts where . some salespeoplecomplained that they were not going to get their commissionsbecause the fUtu re deliverable if left in the contract would delay thecontract from being r"ogni ed "

48 . Sonuss accounting shenanigans were widespread and conuTionly know n

throughout the Company . For example, according to a former accounting department employ e

who reported directly to I lex me, .F .Jem.me materially overstated Sonus7s reported revenues on it s

contract with AT&T in Q4 of 2003 . I .Ie did so by manipulat.inx the delivery ot'va,rious features

under the contract. According to the aioremcentio ed source. "f: :1einme was taking sales into

revernLLe that were not there ." It was also well-known and d iscussed among the members of tlh e

(."ompany's accounting department including accounting staff me .nibers Fergus Ryan ,

:c.Ken ie Lyons and Richard Sharpe - that t his improper conduct had occurred With the AT&T

contract., among others- This topic was .I:requently discussed internally among staffers wit .hin3 th e

Comp ally, and was }a subject of some concern on the part of certain accounting p rscaIlnel ,

including Ryan and Lyons . According to the afc:~renientic~r~ d ourc the Company's revenu e

-manipulations were part of an ongoing pat.tern, and practice at the C"ompazny .

49- The accounting misconduct occurred at the behest and under the direction o f

Sonus's senior managene t . "throughout the Class Period, defendant Ahined, S0nLLS'S CE(.) ,

knew or at a minimum Was reckless in disregarding that Souris had improperly manipulated its

revenues by booking sales o n software releases under the Qwest contract that were in I xc1. no t

delivered at the time the revenues had been recorded- ,limed approved of the plan to "S.moott h

#111436 23

out" Bonus's reported revenus : because fie was the person within the Company who had primar y

responsibility l or inter lacing with Wall Street analysts, and he was intent on making analysts

believe and report that the Company"s revenues were, [:'or the i-nost part., imear between reporting

periods .

5 0_ According to several .former e ployees, including a former Account l;:)i .rector who

reported directly to the Vice President of Sales, a 6(.)rmer regional Sales Director who reporte d

directly to a regional Vice President of'Sales, and a sales engineer who reported directly to th e

Company's Director of F ngineerin , the fact that So m.us's senior management was "managing"

quarterly revenues was well known arid openly discussed by Bonus's personnel, including the

sales and technical personnel involved with servicing the Qwcst contract . 1 hese individual s

knew and discussed t.fhal. senior management was under pressur to report. cont inual quarterly

growth to Wall Street, notwithstanding the significant downturn i n spending by major telecom

companies in 2001 and 2002 and the tct that Certain customers would (wall out of the marke t

troin time to time, which, in the absence ot'ciele ndanlt s' ability to orchestrate the "borrowing" of

revenues between quarters, would have c aused severe gyrations in reported revenues . The

prey ure on salespeople not to include certain delive rables as terms in the contracts was intense

and across-the-hoard, with sales ecople being threatened with having their commissions withhel d

if they failed to exclude such deliverables as contract maintenance from the contracts . According

to a former senior sales manager with responsibility R )r a significant contract with one of Sollus', s

larger telecom Custtfliiers, at least 10 to 15 different salespeople had complained at one time o r

another about the overt pressure that they received from Bonus's management to improperly pull-

out contract deliverable: and make them subject to special, undisclosed side-agreements . This

{i111436 24

source also quoted Hemrm i~ as repeatedly telling salespeople that "if you can get away From no t

including future deliverables in contracts do it! "

5 1 . To further accommodaw de( .r cla3 ts' illegal revexnue .r portinng scheme during the

Class Period, 4 former 1 ecount Director who reported directly to the Vice President of'Sale s

described how Sorius began the practice of segregating out future "deliverables"firom it:s .nma jo r

contracts, including the Qwest contract, liar thQ purpose of "pushi .ng" reported .revenues . Thi s

practice violated C,AAP and SOP 97-2 . 1 hider S(.;)I :' 97-2, the Company could not properl y

.recognize revenues under the contracts if there were any u n.rmmet future obligations, including th e

obligation to deliver soft.wa :r(~ :rel rases, which would then render the seller's obligations under the

contract incomile.te or indeterminable, Ir.i order to make an end-r LInn around S(I)P 97-2, SOrIUs' s

senior accounting and finance management, including del nchant Nil], approved of a practice o f

pulling out Son us's obligations to provide Future deliverables (i .e ., softwar : updates and releases )

born the contracts, and instead would agree to deliver them ass part of special "side deals ." In this

way, defendants were able to spread rev ikws over several .reporting quarters, instead C)! waitin g

until such time that the software updates had in :l ct bee.n.i. delivered, According to th e

a orenwiltioned Source, this improper practice occurred in connection in the Company's contracts

with [;)west, . {) Communications, l.,pana, iI)'I' and Verizo , among others

:/ #111 36 25

52, The following graph hi 'fhli hits the linearity ot` Bonuss reported revenues during

the Class Period, as compared to f ow they should have been reported (per the re . tat.enlent) :

Qusrttrly Sonus Rav€r1us0r3ginslly Reported vs . Po3tatc3c i

3/3112002 10 9/30/200 3

`500,000

$50,0001

Reven U a $44,000(0C7Q3)

$30,000

520,000

$ 10,00 0

so

M

C. Sonuj Admits Accounting Misstatements,

53 . I.)urirrng, the (.,'lass .P'er.iod, SonLIS engaged in a variety of improper practices whic h

were designed to make its :l nanc.ial results look attractive to existing and/or potential invtestors .

According to Sc.mrrs's own . February 11, 2004 pres s relea s e;, ;"S onus Networks and it s

independent auditors have identified certain issues, practices and actions OE`c stain employe e

relating to both t:he timing of revenue recc>gnircd :from certain custoriier transactions and to

certain other financi al statement accou.nt.s, which may afflict the (..`ompany's 2003 financia l

statements and possibly financial statements f<)r prior periods . Revenue or deficrred rev .nue

in periods previously reported could increase, decrease or rema in unchanged in those periods as a

t1114i6 26

Fir-02 JLin,02 Sep-02 Dec-02 M r .O :i Jun- .03 Sep-03

F ..epofling Period Fnde d

- .. O rigins11y P ep ted Revenues

......°" Restated RflVerlUk;$. . . . . . . .. . . . . . . . . . . .

result of this reassessment ." Echoing the February 11, 2004 pre ss release, on March 29, 2004 ,

Soinis aiinouncecl that ,

Souris Networks is performing a detailed review of the timing of`revenue recognized from customer transactions and of otherfinancial statement accounts, The revenue issues underexamination re late to the proper timing ofrevenue recognition . . .

On .lute 29, 2004, Sonus "announce ! that. it ha s received a.formal order of private investigation

from the Securities and Exchange Commission . . . , The matter has been the subject of an

informal inquiry by the Commxmissionn ." ()II July 1 9, 2004, Sonus announced as fellow s

As a result of the financial review, Sonus will restate itsconsolidated financial results fo:r fiscal 2001 and 2002, and the firstthree quarters of fiscal 2003. As previously reported . the primaryimpact ol'the r .statements is the adjustment to the tinting ofrevenue recognition and certain otlwr financial statement accounts .Principal adjustments to revenue relate to the timing of revenuewhere the revenue has been d .lk.rred and recognized in subsequentperiods . hi addition, other restatements include ad U .St. leIlts topurchase accourntin , impairments, accruals and de ll'rrec lconlp~,, .llsa ti 011 ,

On July 28, 2004, 5onu.s reported its financial results for the fourth quarter and fiscal year elided

2003 and the first. quarter cf :i scal year 2004 'I e pre ss release indicated that "the primar y

irmmpact Ipreviously announced I of the rest.<awments is the aRtjUS mennt to the timing Of revenu e

recognition and certain other financial statement accounts . Principal adjustittents to revenu e

relate to the timing of revenue where the revenue has been dekrre d and recognized in subsequen t

periods . In addition, other material restatements include adjustments to purchase accounting ,

imxmpairmT1e nts, accruals, and deft rred compensation . "

54 . Financial results for the third quarter of fiscal year 2003 likewise were restated

and are contained in Sonus's Form l 0-lK/ .A (Amendment No. 1) filed July 28 , 2004, Son us' s

4111436 27

2003 .t"o'rr 1 .I0-K/A begins with all introductory explanation of the reasons for Bonus 's decision

to restate its Previously issued results :

During the course of our review and the audit corttrrzitt.c c'investigation, we determined that the accounting with respect tocertain prior period. transactions required adjustment . As a result,we have restated our cc~t ;4:~lidated :tit~a vial statements for the yearsended D ec iiiher 31, 2002 and 2001 and the nine months endedSeptember 30, 2003 . The restated financial statemetits include anumber o :f'adjustnients, the largest of'which relate to revenue,deferred revenue, inventory reserves, purchase accountinng,impairments, accrued expenses and stock-based comp nnsation .Adjustments to revenue result priniarily in revenue being deferredand recognized in subsequent periods . Adjustnierits to inventoryand accrued expenses are primarily to increase or decrease reservelevels previously reported. Ad'jusmictnts to purchase accounting,impairmennt, and stock-based compensation relate primarily to thetirrrin ; o f xpen recognition .

55 . The explanatory sect ion of the .Form 10-K/A (Amend.m :nt. No:o, 1 ) also states : I n

co lection with our restatement, we and E:rn .st Young LLP, our independent auditors ,

identified and reported to our audit committee significant internal control matters tha t

collectively constitute material wea .knesses . . . . . ." These, material weaknesses were describe d

as f`c.7llc:Yws :

We have identified. mats rial weaknesses in our controls andprocedures, which, it not remedied efTee .iv ply, could seriouslyharm our business . Management and our independent auditorshave concluded that our controls and procedures had materialweaknesses as of December 31, 2003 . We have commenced t ..hedesign and implenie t rtion of new and enhanced controls andprocedures to address those material we.~a.knesses .

4onuis later commented on the discovery of problems with its controls and procedures in its Form

10-Q for the quarterly period ended March 3 1, 2004 :

In Co nrneCtioxn with the restatement of our conso lidated f o,ianci rlstatements for the years ended December 31, 2002 and 2001 an d

#111436 28

the nine months ended September 30, 2003, we and Er st Young

11,11, our independent auditors, identified and reported to our auditcommittee significant internal control matters that collectively

constitute "Mal.e.r.1al weaknesses." These internal control matters,

any one or more of whic h may individually or together constitute a

material weakness, include . insufficient contract, review anddocumentation ; inadequate supervision and review within the

finance and accounting department ; inadequate segregation 1:'duties; insufficient sup potting documentation for and review of

account reconciliations ; lack of adequate controls over cashreceipts ; lack of adequate technical aCCOUl .tiing expertise ;

insufficient equity review procedures and documentation ; flawed

foundations fbr ac.cou.nting estimates; and inadequate quarterly and

year-end financial statem nt close and review procedures .

56 . Somis thereby acknowledged that its internal control and disclosure procedure s

that related to disclosures and statements made by onus during the Class Period were mate riall y

deficient . Sonus discussed these weaknesses again in its Foray 10 -Q f T the quarterly period

ended .June 30, 2004, filed August 20, 2004 : " Management and our indeie:ndent auditors hav e

concluded that our controls and procedures had i Material weaknesses as of June 30, 2004_ - . " ,

Sonnets again &- scribed its control and disclosure procedures as materially weak: "we have

identified .material w .ak.nesses in our :internal controls and procedures, as they existed . 4as of Jun e

30, 2004 ." :Furdwrmore, Sonus stated that :

Based on the evaluation of the ef ctive.rness Of our disclosurecontrols and procedures as of -Jane 30, 2004, which included allevaluation of't.ile OJQctive.ness of our disclosure controls andprocedures applicable to the periods covered by the filing of thisperiodic report, and subject to the inti rniatio .n set :forth in this Item4, our principal executive officer and co-principal fin{: vial officershave concluded that our disclosure controls Inc{ procedure wereinadequate . . . .

9.111436 29

In its l orrn I0m() for the quarterly period ended June 30, 2004, Sonus thereby again confirme d

that its disclosure controls and procedures were Materially inadequate and i nef ff( ct.i .ve during the

Class Period .

57 . Sonus's Form I O-K ./A further admits that "(w .]e do not anticipate amending ou r

previously filed annual reports on Form 1 .0-K. or our quarte rly reports on Form I O-Q for any

periods prior to 2003, I 'he consolidate d l:i.n ticial statements and .related consolidated financia l

information conwined in previously filed reports, including :for the years ended [X=mber 31 ,

2002 and 2001, and for the quarterly reports during 2002 and the first three quarters of 200 1

s ould no longer be relied upo n." (emphasis added)-

Deferral or Product Revenu e

58. hi Bonus ' s 2003 Form I 0-K/A., Sonus admits to :

rl)Ie .ferr(ingf rev .nues of $36 7 .million previously reported in2001 from a particular customer transaction . The amount of $27 .5Ill illion was subsequently recognized in the second quarter of 2002,while the remainder was allocated to maintenance revenue andrecognized over the period the services are provided . Thistransaction involved a complex multiple element arrangement that .requires significant analysis with respect to the fuels surroundingthe transaction and technical accounting analysis to deters Stinewhen revenue should be recognized We previously recognizedrevenue in 2001 under this contractual arrangement upon deliveryand acceptance of certain product and software releases . As aresult of a comprehensive review and analysis of this arrangement,and based on the application of complex . revenue recognitionguidance, we have now determined that there was insufficientsupport to establish vendor specific objective evidence o1' :lair value(V (:)l) with respect to certain undelivered software releases andwe have determined the exist .nce of certain previousl yEunidentil ed specified software releases . As a result., we have

deferred product revenues associated with products and ; ollware

releases shipped by this customer in 20() t until the second quarter

of'2002, when all software releases under the arrangement were

delivered ,

9111436 3()

Bogus thereby admitted that recognizing $36.7 million in revenue in 2001 from a "particular

Customer transaction" i .e, Qwest, was improper because a portion of that revenue should not

have been recognized by Sonu, until the second quarter of 2002 and the remainder should hav e

been recognized on an allocated basis covering the period when the services were provided .

59 . Sonus again improperly recog.nifed revenue with this same customer (Qwe ; t,) i n

the .fou.rth (p.mrter o[ 2002, According to SOnUs'S 2003 Form I0- /A .

In the fourth quarter of 2002, 1 Sonus ..I amended our arrangementWith this Customer lo .i c: .lude among other items, certain additionalfuture software releases. W pr .viously recognized revenue fromthis arrangement in the fourth quarter of 2002 and in each ol't.lhefirst three quarters at 2003 upon delivery of the products andSoftware releases . Upon review and analysis of` the arrangement,we have determined that, based on a technical analysis of so :(twarerevenue recognition rules, that VS0 1 ,' [;vendor specific objectiveevidence I was not established for certain Undelivered 'softwarereleases. As a result, we have deterred revenues of $16 .2 millionassociated with products and software release s shipped to thiscustomer during the fourth quarter 0'2002 and the first threequarters of 200 3 . We recognized $10 .9 million of those revenuesin the f` urth quarter of°2003 when th : final software releasespecified in the amendment was delivered to the customer, and thremaining amount was de:ltrred and allocated to maintenance andescima,Gl.ed discounts on future .pu.rchases .

Bonus improperly recognized $16 .2 million in revenue from C i .s custome.r ([west) at the Outse t

ofthe contract . Pursuant to the re tat.ement, recognition of $10.9 million of that r ~vernuue shoul d

have been delayed until the .io urth quarter of 2003 . 1'he remaining an)OLUnt was allocated t o

maintenance services and future discounts .

6() . 'transactions relating to this single customer show that So .nus irn ro crl y

recognized $52 .9 million of revenue .

11

111 11436 31

2. Revci. ue Kestatenient -- Mai ntenance . Revenu e

6 1 . Many ai` Satins's transactions with customers involved receiving revenue fir bot h

the delivery of product as well as the provision of' maintenance services as part ala bundled

offering. Sonus' s Form I O-K/A indicates that certain customer transactions involved

maintenance services o flered to customers at no charge or at discounts, but the associate d l 3:i r

value o the transaction was not property allocated between product revenue and maintenance

revicernue. This resulted inn .revenue associated with the value of the undefivQred maintenanc e

rvices not being properly recognized over the entire service period . The rest{ tements include

the :reclassification of product revenue to service revenue Over thte applicable periods .

Furthermore , other customer transact.ions allocated insuihc ient. value to .maintenance_ Son us ha s

now reclassified revenues from product revenues try service revenues :for applicable periods . The

restatement has reclassi fle d :revenue relating to the value of ww .widelivered ► paint .nuance services

originally set out in the second quarter 0! 2002 and the fourth quarter of 2003 . This revenue ha s

been re-allocated so as to apply "over the five-year periodi in which the maintenance services are

provide('

3. Rev(I''nuG Restatement --l)elive r

62, Certain Sc nus transactions involved delivering some but not all of the c:ont.ract.ed-

ffor prodms. Prior to the restat,i meat, revenue was recognizcd based on the products that wer e

delivered and de rred the remaining revenue "based on the pricing in the arran e-ment ., ,

Pursuant to the restatement, however, Sonus has deferred all rev .znuue in these circumstances unti l

"ill elements of the transact ion were deliv reci „

II

#111436 32

4. Revenue Restatement -- Customer .Acceptanc e

63 . Bonus has adm itted that revenue was recd nni ed in a period other 01a11 when the

customer accepted product or contingencies were settled . Sonus restated this revenue so as to b e

"recorded i n the period in which customer acceptance occurred or other contingencies were

resolved," Sonus ha further admitted that it actually recognized revenue Cor some products that .

had never been accepted by the c uusta.rxme.r .

5. Revenue Restatement - Other

64, The "Other" category involves errors affecting revenue . Sonus's 2003 Form 1 0-

/A indicates that. the Company has identified s it.uiations involving Sonu% providing equipment

to satisfy a contractual requirement and an incident involving a customer providing equipment t o

Son.us as part o.'a. contractual renegot,iation . The restatement reflects adjustments relating t o

these errors .

6. Nµ ~,g e,Agjqstments-- Accrued Ex rases

65 . Sonus's improper accounting was .not limited to manipulating timing and othe r

orators concerning revenue. Bonus also improperly allocated its expenses, requiring a thoroug h

resta :tenie .nt . of'various types of' expenses- So no 's Form 10-K/A has admitted to adjusting :

aWCFiual balances <'as the result of: (1) using more appropriatebusiness tassuir. ptions to estimate certain liabilities, such as

warranty reserves and post-shipment obligations to customers; (2 .)in those instances lacking available iounc.lat.ion or support. (()r

recorded balances at the time the original accrual was established,

using currently known information, including actual disbursements

and Contemporaneous documentation in order to record theappropriate balances, such as royalties and pro :lessional :f ;es; and

(3) appropriately classifying certain balance sheet items, such as

customer deposits to deferred revenues .

#6111436 3 3

Scmu: improperly accounted for accrued expenses and .rr, acic s ecific tTdjustm nt. ; fbV e .1xmployee

compensation and related costs, professional fees, royalties, warranty .r sQrve, post-shipmen t

obligations to customers, customer deposits, and other accrued expense categories . These

expense categories are identified ism Sonus's For . 10 K/A its f'bllows .

Accrued Expense Category Dec. 31, 2001 Dec. 3m1 .2002 Sept . 30, 2003

Accrued expense

adjustments ....

increase/(decrease) for ,

f` mp)oyee compensatio nand related costs

$1,217,000 $208,00() ($991 ,000 )

Professional : fees ( .$1,544,000) ($1,239,000) ($l, ()80,000 )

Royalties ($ 1,360,000) $1,492,00() $1,163,000

Warranty reserve . (`2,378,(100) ($3,385,000) ($3,109,()()0 )

Post.-shipment obligationsto customers

($2,800,000) ($2,527,000.) (2,527,000 )

Customer deposits -- ($7,240,000) ($6,576,000 )

Other (52,360,001) ($4,199,000) (52,333,000 )

.1otal Accrued ExpenseAd,justinents

(59,225 ,000) ($1.61,890,000) ($ 15,453,000 )

7. Expense .djus1:r tints --kRestructuri ng Expense And Bene fits

66 Soiiiis dramatically and improperly allocated restructuring expenses an d

associated benefit s . As sta ted in its .Form 10-K./A :

Sonus I determined that. a restructuring benefit of'$16,557,000 fora lease renegotiation originally recorded in 2002 should have beenrecorded in 2001 . In addition, we reduced 20()1 restructuringexpense and related accruals by $1.,929,00() related to balances thatlacked support and inerQased 2002 expenses by $1,306,000, Theeffect of°these adjustments was to reduce restructuring expensefrom $25,807,000 to $7,321,000 .in 2001, and to ,aJ.jusl the

4.111436 34

restructuring item from a bene fia of $10,125,000 to all expense of$7,739,000 in 2002,

In other words, Bonu s not only improperly recorded t. ese item ;; in the wrong time pe riod, bu t

blatantly mischaracterized therm .

8 . Valuation Of Intangible s

67. Sonus acquired two companies during 2001 . Telecom Teclhnologies, A rne . (" .1711- )

and i,ingu Yteq, Inc . ("I nguateq") . 4onus re exanmimed these acquisitions with the assistance o f

an "independent third-party appraiser ." Based on this re-appraisal, Sonus allocated the purchas e

price into tangible and intangible assets, determining that the tangible assets should have bee n

adjusted by $1,096,000 for a restated value o :f'$9,392,000 and the intang ible assets should hav

been adjusted by (,$3,l50,000) . The purchase prict! tar thesc companies should have been

adjusted by a total of ($2,054,000) for a restated va.lu of'$552,376,000 .

9. 1rnpgaE'menti

fib. Son us perforined an original impair ment assessment an the intangible ' i'l-

acquisition assets in light of negative industry and economic condi ions, a general decline it s

technology valua tions, and OOILr decisions to discontinue the development and use af'eert .ai n

acqu ired technology ." "l.'I~ r tat ~ ent reflects this result of a "new .impairme nt assess mment." that

was perf` .miied "with the assistance of a new third-party appraiser" to reflect the new valuatio n

given to intangible assets at L I°I . The restatement ' s treatment o impairment reflects an

adjustment of $9,102,000 or a total restated "impairment charge" of $10,950,000 .

10 . Stock-Based Compensatio n

69. Sonuu: improperly accounted for stock-based compensation expcenses. As stated in

Sonus ' s Form 10-1:111,., "C;t.ihese items pertain to errors involving the amortization and recapture

41:11436 35

of deferred compensation, the 2002 exchange cioutstanding employee stock options, an d

intrinsic value charges for restricted stock options grants and modifications " Soiius uses th e

"ia.ceelerated method Of amortizing all d (erred compensation defined under Financia l

Accounting Standards Board (FAS 1 3) Financial Interpretation (FIN) 28, <°c°rxr.r.rrtrtr r f~a ► ° ~S~c► i. k

Appr°e eiattrrtr Rights and Other Variable Sto k Option or Aw ar'r:( Plans. " As SOFIUUS note', in th e

Form 10-K./A,

Ill the event of ft rfeiture of°t stock-based award, FIN 44,Accounting, f r• Certain Transactions Involving ,StockCompensation, an inteq e'ialion of.APBB Op inkm No, 25, requiresthat compensation expense be adjusted to recapture tilecompensation ex ernse previously recorded related to nvestcdstock-based awards, in the period c (' #crxf it4~re. We previouslyhad not recorded rec apture of any such excess compensationexpense upon the forfeiture of a stock-based award uponemployee termination . As a result, we have decreased stock-based compensation by $229,000 for the .nine i nornths endedSeptember 30, 2003, $4,926,000 in 2002 and $3,179,000 in 2(.)x)1,in these restated f nancia .l statements, which includes the recaptureof excess compensation related to the items discussed in thel'ollowing two paragraphs . (Emphasis added)-

Somas has admitted to ma king frequent .mat t rial errors in accounting :f r• compensation -rela ted

expenn.ses .

1 :1 . Invento ry Reserves

7()- According to Sonus',.-., 2003 F orm 10-K/A, the Company "determined that our

excess, obsolete ., and evaluation reserve balances were not con istemlly calculated and, as a resul t

of our review o four reserves and consideration of contemporaneo us facts and c1rCumstances, we

reduced our reserves and reduced cost of product reserves by $937,00() as of and for tile nin e

months ended September 30, 2003, and we increased our reserves and charged cost of-produc t

revenues by $522,00() and $3,297,000 is of and for the years ended December 31, 2002 an d

t1. 11436 36

2001, re pectively ." So nuns did nc)t teal ly conasisterr.t acco unt .irng pri .rnciples witlh r aspect . to

innv .ntory res .rvc accountin categories, resulting in sigrr .ificant restatcIrtents-

I. , [.)thc.r,I3t ll n ce Sheet Adjustments

71 . As noted in Sonus's 2003 Form 10- :1. ., "Cw;1e identified certain customer checks

received by us prior to the end o f f sc a .l year 2002 and the quarter arced September 30, 2003 ,

which were deposited after the reporting period and not recorded in the period received .

Accordingly, we .have increased our cash and cash equivalents and deferred revenue balances by

$8,078,000) and $6,971,000 as of`September 30, 2003 rnd .December 31, 2002-" Somas yet agai n

failed to properly report revenue in the cor rect time period . In its 2003 l orrri I O- / .A . Sc nus

aa.cinaitted xs follorvs .

We preva)usly click .not record deferred revenue for product.shipments and related services for which customers had beeninvoiced but for which no revenue was recognized and f r whichpayment had not been collected . In this rest rtement, customerbillings fir which we have a contractual right to invoice andcollectibility is probable have been recorded as accounts receivableon the balance sheet, with a corresponding increase: to ei :r.redrevenue. Accounts receivable and cie .terred revenue have increasedby $2.123,000 and $90,000 at September 30, 2003 and December31,2002-

We previously reported custom :r deposits as {accrued liabilities . Inconnection with our review and analysis, we have determined t . ha.a.t,

we should report customer deposits as deferred revenue rather thanaccrued expenses. Accordingly, deferred revenue his increased

and accrued liabilities have decreased by $6,576,000 and

$7,240,000 as of September 30, 200' and December 31, 2002 .

D. Songs's False A rc i isIeadin ,_A ril 2003 Public Offering

72. On April 21, 2003, Sonus Ii led a Rule 424(b)(5 .) Prospectus Supplement to its

June 25, 200 1 Registration tat me sat and Prospectus , .relat i ng to the offe ring (420,000,000

4111436 37

shares of its Common stock .. According to the Prospectus Supplement, "[t his prospectus is par t

o:'a registration Statement that we filed with the Securities and Exchange Coniniissi >n ., or S C,

using a `shelf" registration process." onus issued materially false and misleading statement s

concerning its financial results by incorporating in its April 21, 2(0)3 Prospectus Supplemen t

pr :vLOusly filed SI. . C reports that contained material misrepresentations and/or OflhiS5WJi S .

71 ]'he following So.nus documents containing material misrepresentations and/or

omissions were incorporated by rct ~rertce in the April 21, 2003 Prospectus Supplement, For m

I O-K Ear the year ended December 31, 2001, Form l 0-K or the year ended December 31, 2002 ,

F{c:)rm 1 O-Q for the quarte rly :period ended March 31, 2002, Form 10-Q C or the quarterly perio d

end .ci June 30, 2002, and Form I . 0-Q for the quarterly .Period end d Sept .mber 30, 2002. he

.April 21, 2003 Prospectus Supplemennt . was materially false and misleading as it incorporated b y

re:fQrencc the materially misleading doc uments identified above, and otherwise made n o

disclosure of SOnus's revenue manipulations .

C+;. ~,nu ' False. And Misleading September 2003 PqbIjcjj([grj!jg

74, On September 23, 2003, Sorias filed a Rule 424(h)(5) Prospectus Suppleme nt to

its June 25, 2001 Registration Statement and Prospectus, relating to the offering of 17,000,00 0

shares of its common t.ock . According to t.li Pro jpc u ctus S pplc meat, [ 1. ~1}i ros e ctck ; i #R t.

c7 °a registration statement that we fled with the Securities and Exchange (",ommission, or SI'C'

using a "she!! registration process ." Sonus issued materially :false and misleading statement s

co ncertnirng .its : M.111 ia.l results by incorporating in its September 23, 2003 I'rospect u

Supplement previously filed SEC, reports that contained material. misrepresentations and/or

OFfli55 0115 .

#11 1436 38

75 . The following Sonus ch)Q meri ts containing material misrepresentations and/or

omissions were: incorporated I y reference into the September 23, 2003 ProspecEL S u .upple: tment :

form .l 0-. for the year ended December 3 1, 2001, t,on7 I O-K. for the y .ar• wended .I...)ecember 31 ,

2002 , Formn l O- for the quarterly period ended .March 31, 2002, . ,orm 1 O-Q for the quarterly

period en&d June 30 , 200?, Form. IO-Q for the quarterly period ended September 30, 2002 ,

Form 10-Q for the quarterly period ended, March 31, 2003, and Form 10-Q for the quarterly

period ended .June 30, 2003 . The September 23, 2003 Prospectus Supplement was materiall y

lose and misk,,ading as it incorporated by reference the materially misleading docunwnt s

identified above, <md otherwise made no discl osure of Sonas's revenue maan .ipL.11Wionns ,

F . Defendant Ahmed Directly Participated In And Furthered T he FraudulentAccounting Practice

76, fay signing t he following certifications of public statements and Form 10-K .s

iss .ied by Sonus curing th (lass Period, def6idant Ahmed rnade t Misrepresentations and

<.)ifiSsi(afS of material fact ,

Sonus' s Fora 10-K for the year ended December :3 J . 2001, filed .March

28, 2002 ;

2 . Certification pursuant to section 906 of the Sarhanc s-()xley Act . o :1"2002 ,

18 U .S .C. § 1350 . of onus's Form I0 -Q tar the quarterly period ended Jung 30, 2002 , fil ed

Art Lust 14, 2002 ;

3 . C er6 fi ca.a .ion s pursu ant to Sec tions 302 and 906 of the S irbaiies-(..)xle:y Act

of 2002, 18 C.,r,S,(.,' . 1350, o.f' anus"5 1•"o .rrlm I0-Q for the quarterly period ended Septeniber 30 ,

2002, filed November 1 3, 2002 ;

U. 111436 39

4. Sonus's Form 10-K for the year coded December 31 .2002, :tiled March

19, 2003, including certifications pursuant to Sections 302 and 906 of the Sarlra,nes-Oxley Act o f

2002, .18 § .1350,

5 , Documents containing material misstatements or omissions that were

incorporated by r e .fc.rence .i.nto Sonus's April 21, 2003 Prospectus Supple ment to its Registratio n

Statement and Prospectus dated June 25, 2001, filed April 21, 2003, as alleged hereinabove ;

6, C"ert.iUcat:ions pursuant to Sections 302 and 906 oft.he Sarha es-Oxley Act

of 2002, 18 [ .1 .S .C, §1350, of Sonus's Form l0-Q for the quarterly period ended .arch 31 , 2003 .

filed May 9> 2003;

7 . Certifications pursuant to Sections 302 and 906 of the Sarharies-Oxl .ey Ac t

ol`200 , 18 l..T_S .C' . § .1350, ofSonus's Form IO-Q for the quarterly period ended June 30, 2003 ,

filed August 14, 2003 ;

8 . Doculilents containing material misstatements or omissions that were

incorporated by rc~:t renc irate} September 23, 2003 Prospectus Supplement to it s

Registration Statement nd .Prospec ts dated :June 25, 2001, filed Se ptember 23, 2003 ; and

9. Certifications pursuant to Sections 302 and 906 of the Sarbarnes-Oxley .A.c t

ol`2002, 18 1 1,S .C' . 1350, cal` onus's Form 10-Q for the quarterly p ;riod ended Septeinber 30 ,

2003, filed November 10, 2(R.)3-

C, Defendant Nill Directly Participated In And Furthered'] I he FraudulentAccounting Practices --

77_ By signing the f:` ilowi .ng public statements issued by Bonus during the Clas s

f er.iod , d. fondant Nill made imsrepreserrtation s and omissions of material tact :

0111436 40

I . Sonnus's worm .I 0-K :for the year ended . .kcember 31, 2001, file d

March 28, 2002 ;

2 . Soonus's Forin I O-Q &or the quarterly period ended March 31, 2002, flied

May 1 0, 2002:

3 _ onus 's la'orm 10-c? for the quarterly Nriod ended June 30, 2002, filed

August 14, 2002, including a certification purse ant to Secfio n 906 of'the Sarbanes-Oxicy Act ()l:

2002, 18 1 ..1 .S .C. § 1350 .

4 . Sonus, Form I 0-Q for the quarterly period ended September 30, 2002 ,

filed November 13, 2002, including certifications pursuant to Sections 302 and 906 of'the

Sarhanes-(.)xley Act of2002, 18 U .S .C § 1350 ;

5 . Sonus's Form I O-K for the year ends! [.)eceniher 31, 2002, filed Ma rch

19, 2003, including certifications pur,rsu annt . to Sections 302 and 906 e1` the Sarballo-( .)xley Act O F

2002, 181 J,S,C. . §1350 ;

6 . Documents containing material misstatements or omissions that . were

incorporated by r ;l .rennce into S011LIS's April 21, 2003 Prospectus Supplement to its Registratio n

Statement and Prospectus dated June 25, 2001, filed April 21, 2003, as alleged hereinabove ;

7 . 4Or7LES'S 1:7 o .rina 10-Q For the quarte rly period ended M arc .lh 31, 2003, filed

May, 9, 2003-including certifications pursuant to Sections 202 and 906 oi't .be Sarbanes-Oxle y

Act of 2002, 18 [. .[,S,(', §1350 ,

1 . Sonus ' s .I-"oriel 10-Q to :r the quarterly period ended Jute. 30, 2003, filed

August 14, 2003, including certifications pursuant to Sections 302 and 906 of the Sarbanes-

Oxley Act W'2002, 18 U .S.C, §1350;

41'fl 1 1436

9. Documents containiiig material misstatements or omissions that, were

incorporated by refirence into Sond .os's September 23, 2003 Prospectus Supplement to its

Re istration Statement and Prospectus dated Raw 25, 2001, filed September 23, 2001 as allege d

here :inabove, and

10. Sonus's F orm IO-Q for the q larterly period ended September 30, 2003 ,

filed November 10, 2003, including certifications pursuant to Sect ions 302 and 906 of tkhe

Sairbanesm( .) .xley Act o4'2002, 18 l.t .S .C .' . §§1350 .

'T'IL E F U I I E( IN f0 H AVU-

78, Fiftt Q n days prior to its first public acknowledgment ol'accounti ng-relate d

problems, Bonus issued the following press release : "January 5, 2004 ... .. Souris Networks . . , has

scheduled a confer(. nce Call ('Or '1 .uesda,y, January 20, 2004, at 4 :45 pm :;astern to announce it s

Q4 and FY200 i financial results, Bonus expects to issue its financial results after .the close of th e

m arket on Tear sclay , January 20, 2004." January 2004 S onus i'r s Release, "Somis Network s

to [-lost Conference Call to .Discuss Q4 and FY2003 . ...in ncial Results . "

79), However, rather than releasing its financial results f-or Q4 and liY2003, Sonus

delayed the annoanwi ent. Un .fanuary 20, 2004, Bonus issued a press release admitting that i t

Postponed the r lease of its .. ..ta"Icial results . "January 20, 2004 , .,, Sonnu s Netwo.rks . . . today

postponed the release of its Q4 and :cull year 20 0 3) financial results pending the completion of it;

2003 audit ." January 20, 2004 Sonus Press Release, "Sous Networks Delays Release of it Q4

and FY2003 Fin racial Results "

80. On February 11., 2004, Sonus issued the I Mowing press release :

WESIT'ORI), MaAss ., .February 11, 2004 .. ... onus Network s(N chiq . SONS) today provided additional information regarding

-01 11436 42

the delay :in reporting its fourth quarter and full fiscal year :financialresults for the year ended !) .cembe:r 31, 2003 . In connection withthe year-end. audit, So.nus .Network : and its independent auditors,have identified certain issues, practices and actions of c.ertairnemployees relating to both the tim.ing of revenue recognized from

certain customer transactions and to Certain other financialstatement accounts, which .may affect the Company's 2003

financial wf metits and possibly financial statements for priorperiods .

The revenue issues identified relate to the proper tip,ijig o fC'~(? t~.tr'IIE :r vertu :'.1'om Certain customer transactions, and not

whether the sales can he recorded as .revenue. For the customertransactions under .review, the prt.. ducts have been delivered,customers are using the products in their networks and So rlu'sNetworks his either received payment or is receiving payment f:a rthe products in the ordinary course . The Company is reassessingthe proper periods in which revenue should be recognized for thesetransact :ions . Revenue or chi :ferred revenue :in periods previouslyreported could increase, decrease or remain unchanged in thoseperiods as a result of this reassessment .

In response to the issues identified, the Company has taken thefollowing steps :

The Company is performing a detailed review of th timing issuesand practices and o ,f'certa.in other financial wwm

The Audit Committee of Sc .nus Networks' Board c f .l) .irectc,r isconducting an independem investigation, employing the services ofHale ale and l..)orr and Price waterhou se(-;capers .

• The Company has to:rmirnated certain .110e-exec.retiv4. employees .

Sonus Network's has notified the Securities and .Exchang e("or mission of the Co:ni.N ny's independen t investigation and isfully reporting 'die resu lts of that ongoing investigation to th .C."omm ission ,

"We are deeply cc:~E7c me and disappointed to have discoveredthat certain employees at. onus Networks were engaged inbehavior that, violated our code of Qonduct and may havecompromised tht., integrity cif`c.>t►r fina cial .r. pc~rt .ir ;," said HassanAhmed, president and CEO, Bonus Networks . . . .

4 1 11436 43

At this time, Sonus Networks cannot provide an anticipated date,for the completion of its; review or the year-e.nd audit, or fir therescheduling of the release of its fi urth quarter and fiscal yearresults for the year ended December 31, 2003 .

81 . On March 15, 2004, Son us announced its intention to seek a filing extension From

the SF:iC :

cER? ..., :MS.FOR1.), Mass, March 15, 2004 ..... Sotius Networks(Nasdaq, SONS) announced that it intends to i:ale its 2003 AnnualReport on Form I0 - .K thr the year ended .Decemh .r 31, 2003 today,excluding its audited financial statements and o ther relatedh: na.raciai information . T ht. Company also announc ed that it plansto isle a Form 1 2b-25 (Notifca :t:ioan of L..,ate Filing) with theSecurities and Exchange Commission (SEC) today requostiiig a 15-day extension to pile the audited .f:inaa.ncial statements and otherrelated financial iralormation for its 2003 Annual Reps> rt on Form10-K .

The de lay in filing the financial statements is the result of theCompany's p reviously announced detailed review of certainrevenue la.ax i .n .a.s at r~aaci practices and of cert a..in other financialstatement accounts ,

82. ' ereatIer , Bonus issued the following press release on March 29 , 2004 :

CHELMSFORD, D, Mass ., March 29, 2004-.... S ornus Networks(Nasdaq : SONS). a leading provider of voice over Ili' (VoIP)infrastructure solutions, today announced that the fling of its

ended Annual Report on Form i 0-K/.A for the fiscal year ende di)ecember 31, 2003 will be delayed . The (Ior . m.p a:.ny, having madesubstantial progress towards the c ompletirna of its review of 2003arid 2002 i ancial results, is now considering whether to expandthe review to include additional prior Nriods . . . .

Soxmus Networks is performing a detailed review of the liming ofrevenue recognized from customer transactions and of otherFinancial statement accounts, The revenue issues underexamination relate to the Proper timing of revenue recognition andnot whether the :ales could ultimately he .recorded as revenue . Fo rthe c stomeA transactions under review, the products have been

delivered and Bonus Networks has either received payment or i,receiving payment .for the products in the ordinary cc :H .a .r ;a ,

#Il143fi 44

At this tir .ne, the Company expects that review will lead to arestatement of historical financial statements for the :fiscal yearended December 31, 2002 and fi>r the first three quarters of fiscalyear 2003. As a result, existing financial statements for thoseperuxi: should not be relied upon . . . .

As as result Of the Company's delay in fling its .Form I O for2003, Sonus Networks expects t .o .receive .noti cation from Nasdaqthat it is not in compliance with the filial; requirements forcontinued listing on Nasdaq and that its securities could be subjectto delistin from the Nasdaq National Marko .

83 . Soon thereafiter, Sons received a notice from NASI.)AQ that. as a result of

Soanus's delinquency, its shares would be traded under ti' le symbol "SONS .I:E",

CHELMSFORD, Mass., March 30, 2004 ..... Sonus Networks

(Nasdaq. S('.)NS) . . . today announced that consistent with the

information provided in its press release on March 29, 2004, the

Company has received a Nasdaq Staff Determination . The letter

indicates that because the Company has not tinwly filed its Form

10-K for the .i Kcal year ended December 31, 2003, it is not i n

cc ipliance with the Nasdaq continued listing requirements setforth in Nasdaq Marketplace Rrrle 4310(c)(14) . As a .resu .lt of thedelinquency . Sonus Networks will be in trading kinder th symbol"S(.)NSI..," effective at the opening of 'business on Wednesday,March 31, 2004,

onus Networks will request a hearing with the Nasdaq Listing

Qualifications Pa.anel within seven clays of the dale of the

I.)c.te .n.nin xtion for ca.rytirnued listing on the Nasdaq National

Market, Sonus Networks' securities will remain listed on the

Nasdaq National Market pending the outcome of the hearing .

"There can be no assurance that the Panel will grant a request for

continued listing .

84. In recognition of the severity of its accounting problems, Sonus sought assistance,

with the leadership of the Coo any and hired Bert Notini to serve as President and C'00 ,arid t o

take charge of Sonus's 1 nancial operations :

C'I iE~l.,MSF'( .)Rl), Mass ., April 6, 2004 ........ Sonus Networks (Nasdaq :S()NSI ) . . . today announced that .Bert Nonni has joined 4anu a s

# 111436 45

president and Chief Operating Officer (C00.), reporting tip I :i~~ t~r7Ahmed. Ahmed will continue to serve as chief executive otfCe .r((':"l!i)) and, in addition, has been appointed chairman of Sonus' :board of~ d irectors . R«binn (ruber, a :under of the company, hasbeen named chairman c.mer.itus, and will ColllilniLe to onbushes cie v ~opm t, reporting to A.hmec .

.Nt)tini brings strong leadership and perspective to So n us,

combining broad operations experience in global technology

companies with an ext nsive background in the financial and legal

fields, lie most recently served as chief financial officer (( .'.'I-'0) ofMantifin .ure s Services 1...,imite&

. . . Reporting to Ahmed, Notini will lead . the company's day-to-day op .rations . Notini will also assume responsibilities for thefinancial operation s of the company .as Stephen Nil], Sonus'sCFO, today transitions to it new role as vice president ofbusiness operations . Notini will serve its head of financialoperations until a new CFO is named, (Emphasis added) .

85 . As a result of Sonus's inability to timely file its financial .results, the NASDAQ

staff Se m Sousa letter alertin the company that it was .not in compliance with NAS1)AQ' s

filing

(..I ..:IFI .MS F'OR.I ), Mass., May 24, 2004 So us Networks(Nasdaq . 4C]NSE)_ . . reported that the Company has received alet.te.r from the Nasdaq staff indicating that the ( ;017mpalny has :fitile dto file its Fo rm I (.)-Q .ft)r (1 Fiscal 2004.

Bonus Networks announced are .March 30, 2004 that it was not inccLnpliance with the filing requirements fir continued listing, onNasdaq as required by Nasdaq Marketplace. Rule 4310(c)(14) clueto the C;ompa y's inal . .iJity to timely .file its Form 10-K i it the2003 Fiscal Year . The Company appealed the delistingnotification to the Nasdaq l ..listinngs Qualifications Panel and iscurrently in the a ppeals process, which will address thedelinquency of both th I a.rm 10-K and the Form 1 0-Q.

Sonus's securities will remain listed pending a decision-

#11.1436 46

86, The need, for a restatement of .iscal year 2001, 2002, and the frst three quarters of`

2003 was announced on July 19, 2004 .

C1:.IELM .F"O.I .), Mass, July 19, 2004 ........ Sonus Networks, Inc .(Nasdaq . SONSE) . . . today provided an update on its previouslyan nou.nced finartciaf :review. Sonus Networks has co . rm leted thedetailed review cif` its financial state ents f r fiscal years 2003,2002 and 200 f . Additionally, tile Audit Committee of Somis'sBoard of' Directors has co n.7pleted its, inter al investigation

.As a result of the financial review, So nus will re tate itsconsolidated financial results for fiscal 20() f <m d 2002, and the firstthree quarters of f scal 2003 . As previously reported, the primaryi pact o!` the .reswements is the adjustment to the timing cif"revenue recognition and certain other financial statement accounts .Principal adjustments to revenue refute to the timing of'revenuewhere the revenue lia.is been deferred and recognized in subsequentperiods, In addition, other material restatements includ ea41J US IlClIts to 1 LINhase accounting, m1pai~rments , accrual s and

deferred compensation.

SONUS'S Fj1,ULtt.R..E "1'(:l IMPLEMENT ANDMAINTAIN Af . . Q UAT E lN't'j+,RNA .I.., .A.(:'C :'OE iN'1'IN( (.O.N '['R()LS

87 . All defendants knew or recklessly disregarded, throughout the Class Period, that

Satins was ex erie ncirn such pervasive deficiencies .in its .internal controls and accounting

Practices that the ffn -l ancial information gener ated for inclusion its statements

was grossly inaccurate and unreliablce .

88 . The Foreign Corru pt, Practices Act ("I CP'A"), 15 U . .E' . §78i n(h )(2), was enacte d

on the principle that accurate record-keeping is an essential ingredient in prommmo t .izng .rmmta ,cnagemtmeznt

responsibility and is an affirmative requirement. for publicly held American corporations t o

strengthen the accuracy of corporate hooks and records, which are "the bedrock elements of` ou r

system of corporate disclosure and. accouritahi .lity ." :Remarks of Senator Ilarri on Williams, 1.23

Coll- . Rec. 519, 400 (Daily Edition .f. c. 6, 1.977) cfr . c t. ci in D . Goelzer , -1"1he .Ac;coux tin g

# 1 11436 47

Provisions ofthe I'CPA -The Federalization of Corporate Recordkeeping and Internal Control, "

5 i Corp, L. I ( 1 979), The representations .made: by a company in its financial statements and i n

other fi ancial disclosures to the public are the representations of that corrtpany's mmnagem « .t .

89 . Pursuant to the FCPA, every .issuer having a class of securities registered pursuan t

to § 12 of the Exchange Act, 15 f..1 .S_C. §781, s hall,.

ca . Make anti keep hooks, records, and accounts which, in reasonable detail ,

accurately and Cairly reflect. t} e transactions and dispositions of the assts of the issuer; and

b . Devise and maintain a sys tem of internal accounting control sufficient to

provide reasonable assurances tha t

transactions are executed in accordance with management's generaa j

or sp cific authorization ;

ii . transactions are recorded as necessary (I ) to permit prep .Eratio .n of

financial statements in conformity with generally accepted accounting principles or any othe r

criteria applicable to Such statements, and (2) to maintain accountability For assets :

iii, access to assets is permitted only in accordance with rnanage ment.' s

general or specific authorization; and

iv. the recorded accountability for assets is compared with the existin g

assets at reasonable intervals and appropriate action is t ken with respect to any dif lerence.s ,

90. Moreover, SEC Rule I3h-2, promulgated pursuant to the FCPA., was enacted to

(1) W;SLITe that azrI iss uce:r's books and records accurate ly and flOrly reflect its transactions and the

disposttion of assets, (2) protect . the .integrity 01` the independ ent aud it of issuer financia l

statements that are required under the Exchange Act, and (3) pro, mt.. to the reliability an d

t# 1 11436 48

completeness of finwa icial irrformation that issuers are required to file with Ow, C.'crr~~m i sion «r

disseminate to investors pursuant. to the .1: xchange Act, Rule 1 3h-2 provides :

a. Ru42 13b2-1 . No person shall, directly or indirectly, iilsi ('y or cause to h e

falsified, any hook, record o r account. subject to Sect ion '13(b)(2)(A) of the Fxchange Act-

h. Rule I 3h?-2: No director or officer of an issuer shall, directly or indirectly ,

make or cause to be made a materially f alse or .misleading st.atement, or to omit to st, jte, or cause

anothe r P rsonn to omit to state, any ma terial fact necessairy in order to make statements mad(:, in

light iof'th ci cum to under which such statements were made, not misleading to an

accountant in connection with (1) any audit or examination of the lilnanc ;ial Statement s of the

issuer r(;q to he made pursuant to this suhpa ;•t or (2) the preparation or filing of aun y

docu:m .e.nt or report required to be filed with the Commission pursuant to this subpart o r

otherwise .

9 1 . I b Comply with the 'C PA, (-rAAP and S l :.`(...' rules, and to accomplish th e

objectives (. (accurately recording, processing , summarizing and reporting financial data, a public

company is required to establish and maintain adequate intern financial and accounting

controls . Contrary to the requirements clothe FC: PA, ("FA.AP and SEC , rules, Sonus a nd the

Individual i.)ef`c..ndants f iked to implement and maintain adequate internal accounting .and

financial controls when issuing and publicly disseminating the. Company's :finYancia l statements-

The Company 's lack of adequate internal controls and a wo rking internal audit fl.i action created

an environment roll that encouraged the type of accounting irregularities that dependants now admi t

caused the material misstatements of Sonus's f mancial results during the Class Period .

/1111436 49

Moreover, the # :udivi .f~~ ~f :#::)c, :f ~f<cxts knew of material problems in the Conipany' .s, accounting

systemr: .

92_ I)etentiants knew or recklessly disregarde d nunwrous red flags evidencing thefact

that the Company's internal Controls were grossly deficient and that the financial data being

generated by the Company's financial reporting system was so Pervasively inaccurate an d

I Tt,-liabl that reliance on that It3f (?T31is.1 .3(.)t3 for financial statement purposes was precluded by

(JAM' and (GAAS_ Nev..rtheless, despi te the ut ter lack of trustworthiness of a .raus's financia l

reporting system, delendant.s issued and/or consented to the issuance of nutnerous fake an d

misleading financial State tile tits as alleged herein, lilsely representing that those l nanncia l

statements had been prepared in accordance with {iAAP .

(.,' .AA f' VIOLATION S

93_ (.;AAP are those principle : recognized by the accounting pro#e ssio.n as the

conventions, riles and procedures necessary to define accepted accounting practice at a particula r

t,immW_ SFC Regulation S-X (17 C,'_F .J . `210,4-01(a)(.l )) :prcovides that financial statements :faile d

with the S .FC which art,- not prepared in c :tmpliance with (i .A. I::' are presu med to be misleading

and inaccurate, despite footnote or other disciosUre . Regulation S-X requires that interi m

financial statements must also comply with C..iAAP, with the exception that interim financial

;tote mments need not include disclosure which would be duplicative ~~#'cf .i clc~ al ; accompanying

annual fihvinci al s tateii ents , 17 (..'- " .R.. §§2 10, 1 (:)-t) .1. (a) ,

94 . " .'he responsibility for preparing financial stateme nt: that conform to (~iAAP rest s

with corporate management a s set forl.h in Section 110.02 of'the .M( TA. Pro. ssional tandards' :

f°he Finn uncial statements are management's responsibility . . .Mt:3na e . ment. is responsible for adopting sound accounting policies

##111436 0

and for establishing and r a~i .i~atcai. rira ; .itat rra . l controls that will,among other things, record, process, suumma.arire . an :reporttransactions (as well as events and conditions) consistent withmanagement's assertions embodied in the financial statements,The entity's transixt.ic .ms and the related ass t.s, liabilit.ies, andequity are within the direct knowledge and control of management, , . Thus, the fair presentation 0! financial statements in Conformitywith I(iAAPj is an implicit, and integral part of'm nagement'sresponsibility .

95 . 1 he Individual I) .fondants knowi :n ly or with recklessness caused onus t o

materially misstate the ( .. ompany's revenues throughout the Class :Period as alleged .here in, in

violation o(`CiAA:P, So.Raus's disclosure that it would restate its previously reported financial

results during the Class Period constitutes an admission that each of the Company press role see

and Forms 10 -K. and 10-0 issued during the ('.laws Period were materially ft►l : c and misleadin

when issued . Under Statement of Financial Accounting Standards No_ 16, Prior P .riod

Adjust .n ents, restatements, area only permitted . .. . and are required . .... for material accounting er.rors

or irregularities . Section 316 of the American Institute of Cert ified Public .1 ccc.. untant's

Codi .fxcat .ion cal Statements on Au.Editinn Standards defines accc7r~.~~tin irr l ar.iti as .

[I Intentional misstatements or omissions of amounts or disclosuresin financial statements . Irregu a rlties 111C.Iude fraudulent financial

reporting undertaken to render st stc .raar ats .~aai l a in , sometimescalled management Fhmd . . . Irregularities may involv acts such isthe following: manipulation, ICxlsifcation, or alteration ofa iccotmting records or supporting documents firom which financialstatements are prepared ; misre resentatic7 1as or intentiona ltiomfl omission

of events, transactions, or other significant information; intentionalmiSapp] ication of accou nti .n principles rekaing to amounts,classification, manner of presentation, or di clo ~ .~ .re .

96 . As a result c, .E.' .its accounting improprieties . particularly with respect to reverate

recognition during the (.`lass Period def ndants caused SoM ls reported k n anc .ia .l results to

violate at least the following provisions o :f'GA.AP for which each defendant is responsible ,

#111436 51

LL the Principle that revenues must he realizable (collectible) and earned prio r

to reco nnit..io .n., Statement al` Financial Concepts ("( .:`c) .jaccepts Statement"), No. 5,183 ,

b, the principle that financia l .reportirng should provide inf r.ination that i s

useful to Pr :SCltt and Potential investors and creditors and other users in rnaking rationa l

investment., credit and similar decisions (Concepts Snatetfleft No . 1, i34) ;

C . the principle that financial .repo tirng should be .reliable in that it. represent s

What it purports to represent, That information should be reliable as well as relevant is <a notion

that is central to accour ,nnti .n (C one pts Statement No- 2, ~ [58-59) ;

d- the principle of completeness, which means that nothing is le, l out cif tlh .

ins ormat:ion tlu:it. .may be necessary to ensure that it validly represents underlying events an d

conditions (Concepts Statement. No, 2, 179) ;

e l the principle that conservatism be used US aI prudent reaction to uncertaint y

to try to ensure tNI:xt UrnCertainties axnadE risks inherent in business situations are adequatel y

considered . The best way to avoid injury to investors is to try to su.re that what is reporte d

represents what it purpo rts to represent (Concepts Statement No. 2,1[1 95, 97) ;

1.̀ GAAP's requirement of the disclosure of an existing condition, Situation

or scat of circumstances involving an uncertainty when there is at least a reasonable possibilit y

that a loss or an additional liability may have been incurred. (Staternerit of Financial Accounting

Standards No. 5 (Accounting for Contingencies)) ;

- the principle that .financial reporting should provide information about. an

enterprise s :financial performance during a period . Investors and creditors often use i .znR rnntatio n

about. the past. to lhel p in assessing the prospects of-an ent .e:rprise. Thus, although :investment. and

0111436 52

credit decisions reflect investors , expectations about Future ent erprise performance ., those

expectatiom; are Commonly based at least partly on evaluations of past enterprise performarnc e

{[..oncept .s Statenient .No . 1, 1E42) ; and

li , the Principle that financial reporting should provide information abou t

how management o f an enterprise has discharged its stewardship responsibility to owner s

(stockholders) for the use of enterprise r sources entruste d . to it_ To the extent that manageme x t

offers common stock of the enterprise., to the pudic, it vole nt.Ui .ly acc:eits wider re ; ponsi.bilities

for accountability to prospective investors and to the public in general . (ConcQpts Statement No .

1, ~~5(Dj .

97. The i Magri tude, duration and pervasiveness of tlhe LICCOUrItIlIg manipulations

alleged herein, all of'whicb violated the foregoin. ; provisions of(.;AAP, compels the con :70 usiMI

that tlws(e mQdiods wer .im.pleinented by de f: -n(ants intentionally, or that, at a minimum,

delaenclant.s recklessly disregarded the overwhelming prevalence iof t .l c se i.mPrope.r frromlures

and the resulting material ftalsifications of Sonus s f nancial tat z~ e ~. E ,

98 . onus sells telecorzm munications eq uipment, and software . The A IC. PA .l as

adopted guidelines concerning reveMW re cognition anti has issued a Stater .:ertt o 'Position

("SC)P ' ) ors this subject, S(:)P) 97-2 . SO P 97-2 states th t reve. ffle related tip so t:ware must not. lie

recognized until thee: following arc establishM,

(1) There :is persuasive evidence that an arra gen me nt exists ;

(2) i.:)elivery (and acceptance ) has occurred ;

(3) Thu cost of the software is fixed anti determinable an d

(4) Collect .ihi :lity is likely (probable) .

f#111436 53

Before revenue relating to software can he recognized, all four aspects of ibis Lest. must he

satisfied, Despite Setting , forth the clear, established rules regarding revenue :recognition in. it s

publicly availa ble financial statements filed with the Sf::J(.', So.nus f'ai.led to adliere to SOP 97-2 b y

improperly recognizing revenue rQlating to sotwaare t.ransalctions. The Individual Defendant s

knew the proper method of recognizing revenue from software transactions yet ignor d thes e

rules in order to inflate and make.. "prt d ict.able" So nulti}S reported revenues .

99 . The A. K.. PA. adopted the current guideline relating t .[.1 sot ware recognition in

(..l .tober 1997, making them effective on January 1, 1998, approximately four years prior to the

filing ul Sonus s misleading 200 1 1:,orm 10-K .. Defendants .Ahnied and Ni .l1 were both extremel y

sophisticated with years of experience in the software .industry. Defendant Ahmed has led Sonu s

since .November 1998. Prior to that position, fie was the. Executive Vice Presiden t and Genera l

Manager of'tfhe "("lore Switching Division " o(` Ascend E'.'ommunicatiions ., "a provider of wide area

network switches and access data networking equipment ." Prior to that position, Ahmed Was the

C'hief'J.'echnology f..)f icer and Vice Presid ent of Engineering for Cascade (... ominunicaticn s C'o, rp .

"a provider of wide area network switches-" P rior theret o Ahmed was "a bender and Pre s ide I t

of WaveAcce ss, Inc ., a supplie r of wireless communications ." lie also held positions at Analog

l..)evic". and VI..,SI Systems at Motorola Codex . Ahmed had years of experience working in and

is intimately Carr iliar With the telecommunications and software irlclustries, including the rule s

for revem:te recognition .

100- L Pendant Ni .!! also had vast experience working with software revenue issues .

Althoug h defendant. N111 has since resigned from S anus at the request ofthe Company, hi s

resignation came only after he had worked as Son us's CF0, its Vice President o f finance and

11111436 54

Administration (since September 1999) and as SonLis ' s Treasurer (since 2000). Prior to holding

these finance-related positions at Sonus, Nil .l was the Vice .President of Finance and Cl i f .

Financial Officer cat`VitfeoServ r, Inc_, now Ezenia!, Inc . Prior t.hereto, N.ilf served as Corporat e

Controller and Chief'Account.in Officer at Lotus Development Corporation . a software

supplier . Nilf had previously held various financial positions with C:'o .mputervitiioil, hnac_, a

supplier «f`workstation-based soft.war ., International Business Machines Corporation and Arthur

Andersen LL :P . Nil] graduated with a R .A . in accounting from New :MeXico State University an d

has an i1!N: . . :.3 .A . .(rom I Uarvard I Jn .iversity . 1:;?e: endannt Nill has had extensive experience workin g

with some of the world's most prominent software companies and accounting firms and wa s

thereby .fully .fitmi .fi rr with the requirements ofG A.AP and, in particular, S(;)P 97-2 .

101, So naus and the .individual Dekndants publicly represented that it was the policy o f

Satins to recognize revenue only in conformity with GAAP . Fac-r example, in Sonus's Form 10-K

for the year ended 2001, Bonus and the Individual T..)ef .cha ts represented as fc .flows :

RF,VENtiES . Revenue is r .cognized from product. sales. to endusers, resellers and distributors upon shipment, provided there areno uncertainties regarding persuasive evidence of anarrangement exists, the sales price is fixed or determinable andcollection of th ; related receivable is probable . If urncerttintiesexist , we recognize revenue when those uncertainties areresolved, In multiple element arrangements, i .rn accordance withStatement of Position 97-2 and 98-9, we LL s( . the residual mahod torecognize revenue when vendor-specific objective evidence doesnot exist for one of the deliver d ell masts in the arranger ment .Service revenue is recognized as the services are provided-Revenue from maintenance and support arrangements isrecognized ratably over the term of the contract . Amountscollected prior to satisfying the revenue recognition criteria arereflected as deferred revenue . We estimate and record warrantycosts at. the time of product revenue recognition .

It] 11 .436 55

f't3is policy was adso set forth or incorporated in each of the SEC .` filings mast by Bogus during

the (lass Period as alleged in Paragraph 3 hereof. Thus, de: pite publicly representing that

Sonus 's Policies t r recognizing revenue complied with the requirements of the relevant (J .l .A .l' ,

So nus and the Individual I.M.endtrnts Railed to &ol .iow the Company's own policies, eventuall y

requiring Sonnus to issue restate llollis o f .its :financial res !ts _

M.AITRIAI ..JX FAlSE AND MISLEADING'STATE.ME.NIS MADE DURING TLLI (..' .[..,ASS PERIOD

102 . Despite their knowledge, or recklessness in not knowing, of the existence of h e

car c~ir~ unproper practices , ind accounting mam pr.1ha.Eioris, defendants during the Class Period

issued nun Brous financial statements and other statements concerning the nature and status Of

Sonus operations . These statements were i iise when made because of S nnus s fraudulen t

accounting practices alleged above and bec :u .~se of a complete breakdown in internal controls .

These events r su.,lt, d in material Of revenue and other inc.ticia of So.nus"s financia l

pertorma.nc e.

A. 2091 Year-End Result s

103 . The (ass Period bins on March 28, 2002, when om:is .i .ied its .Forer I O-K fo r

the year ended December 31, 2001 (hereinafter, "2001 Form I 0-K") . It was signed by, amon g

others, del .ndant.s Ahmed and .Hill . Thew defend-ants reviewed, approved of'. and c .a. scd

Sonus's 2001 : form 10-K to be filed with the SEC .

104. By virtue okhe restatement of its reported 2001 financial results, SOOL .v, has

admilied that these .results were Calse . In its 2003 Form 1()-K/A, onus announced that its 200 1

product revenues were overstated by $48 .002 million and that . its 2001 service revenues wer e

understated by $3 .603 million, Sams thus overstated its 2001 total revenues by $44 . ;99 million ,

4111436 56

misstated its .net loss by $9,81 .3 million, and Misstated its net loss per share by $0 .06. Absent the

accounting improprieties, onus would have reported net income (loss) per share of'($3 .68). in

addition, 4omis misstated its cost of revenues or products by $12.305 million and its cost o f

revenues for services by $0 .415 million, msulting in an ad ustIl1QIIt for the total cost of revenues

of$12.920 million. With respect to expexn.ses. Sornuus Misstated its research and development

expenses by $1 .108 tnillion, misstated its sales and marketing ex en see by $1 .39 1 million, and

misstated :its general and administrative ex e see by $0 .241 trillion . Further, Sonus misstated its

stock-based compensation by $ .1 .368 million, .misstated its aniortization of goodwill and

purchased intangible assets by $3 7 .208 million, misstated its write-off ot` oodwill and purchased

intangible assets by $ .17,652 million, misstated its restructuring charges by $18,486 milliort, and

misstated its in-process research and development expenses by $0 .800 million, Sonus misstated

its total op .mt:ing expenses by $4 .1,350 million, In addition, onus misstated its loss frorri

operations by $9,871 million and its interest exp .nses by $0.058 million,

105, In Sonuss o3nso lidated Statement. of Cash Flow ; in its original 2001 Form 0-K,

4t:y .nus list's deferred revenue as ($6 .78 l million ) . However, Bonus's 2003 Fornl . I O-K/A. lists the

restated defier°red revenue as ($4.801 million) -•• an adjtistinent of $1 .98 million. With respect to

inventories stated in te:rins o:t`cash flaws, Sonus's original 2001 :I""orm 10-K lists "inventories" 4j .t

$2 .284 million while Bonus's 2003 .Form. 10-K/A lists "inventory„ 81. ($8 .57! million) - all

adjustment of $10.885 million, With respect to Sonus's accrued expenses as stated in terms of

cash lows, Se mm,s's 2001 Dorm 10-K lists $27 .659 ;r illion in accrued expenses while its 2003

Form .10-K/A lists its accrued expenses as $18,356 million ...., . 01 AJUSMm.Mt of $9 .303 million .

#11 .1436 57

106, Sonus originatly falsely claimed its 200) . excess, obsolete and evaluation reserv e

balance/inventory rc,serve to be $9 .629 million . In its 2003 Forni 10- : :/A, "ores increased its

.reserves and charged cost ofproduct revenues by . . . $3,297,000 as of and for the year( ..] ended

December 31, . . . 2001,,, fcir a .r stated to tal of $12,926 million.

107, In addition to the tbregoir- quantitative misstatemenlts, SOr WS made materiall y

false statements in .its 200 1 Form 10-K concerning Sonus's po .(icies .respectin revenue

recognnitio n . The Company falsely cia .ittmed that "j.ojeur revenue recognition policy complies With

SEC Staff Accounting Bulletin :No, I01, RFVFM RECOGNITION IN 1"INANCIA L

ST.ATE: :MJ:.. NTS." In the 2001 Form t 0- ., SOJIUS discussed its revenue recognition Policy and

Conti led to f lsoly claim that ,

Soxnus recognizes revenue from product sales to end users, resellersand distributors upon shipment, provided there are 110 uncertaintiesregarding acceptance, persuasive evidence of an arrangementexists, the sales price is fixed or detcerinmable and collection of therelated receivable is probable . If uncertainties exist, SonUsrecognizes revenue when t .hos u c rt i. a .ti s are resolved . Inmultiple Clement arrangements, in accordance with Statement ofPosition 97-2 and 98-9, Bonus uses the residual m thod whenvendor-specific objective: evidence does not exist for one of thedelivered elements in the .arrangement . Service revenue isrecognized as the services are provided . Revenue :frommaintenance and support arrangements is recognized ratably overthe t .rrn of the contract. Amounts collected prior to atisfyi.ng therevenue recognition criteria are reflected as deferred revenue _Warranty costs are estimated and recorded by Soo wws at the time ofproduct revenue recognition .

As con f r ned by the restatements, onus did .not recognize revenue in conformity with it s

announced policy .

B. 2002 ± is { uarter :Results

108. On April 9, 2002, Onu s issued a press release announcing it s

I/ 1 .11436 58

I financial results For the first quarter of 2002, which ended on March 31, 2002 . The press release,

represented that .

Reveimes For th . Iir t. quarter«f ti s E 2()f)? w r ` 2!_2 t~7illi«t

compared with $41 .5 r zillion in the same period last year .

Adjusted .net, loss for the first, quarter o .l' :iisca.l 2002 was $12 .8million or $0 .07 per share compared with adjusted not income l(.)r

the first quarter of fiscal 2001 of $ft2 million or $0 .00 per share .

A( ual .nLt loss for thefirst_ p.u ,r o:k' :t scal 2002 was $16,2 millio n

r :;h{:ire. cc tiip~ireci wi01 an actual net Loss for the first

quarter of fiscal 2001 of $g2 .5 r pillion or $0 .51 per share .

(Emphasis ad&(L)

109. On May 10, 2002, Sonus filed with the SL-k! its report on F orm I O-Q to the

gLarterly period ended March 3 .1, 2002 (hereinafter "1Q 2002 .Form IO Q„) . The numbers i n

onus's IQ 20021'or.m 10-Q match those reported in its April 9, 2002 press release , and are

materially incorrect . Defendant Nill signed the IQ 2002 .Form l()-Q . Defendant Nill reviewed ,

approved of, and CLI LLsed the I Q 2002 Form I O-Q to be filed with the SEC.' . The I Q 2002 Form

I0-Q stated that :

11w accompanying unaudited condensed consulidal .4Cl financial

statements have been prepared by Sonus Networks, Inc . (Sonus)

and reflect all adjustmecnts, consisting only of'normal recuurri .n

adjustments, which in the opinion of management are necessary ror

a fair statement of the results fc~r the interim periods. The

unaudited condensed consolidated financial st.at.Gnients have N en

prepared in accordance with the regulations of the Securities and

Exchange Commission (S C.)and omit or condense curtain

information and li ot.not . di : closure pursuant to existing SEC.' rules

and regulation s .

'l. 'he 1 Q 2002 .l orr m I O-Q report inch ded So nus's C{14 ;o financial result. : [ or the lirst (.ILI< rte^r O1 '

fiscal 2002.

110 . By virtue of its restatement of its reported 2002 fmit quarter results is announce d

in the C ompany 's 2003 Form 10-K./.A. filed July 28, 2004, on us .ha.s admitted that .its reported

#111436 59

financial results f'or the l rst quarter of 2002 were s ate :ri .ally alse . According to the Quarterl y

Results of Operations (unaud .it :d ) section in oasis's 2003 Form 1.0-K!A. :iled July 28, 2004,

Sonus's revenues were overstated by $0 .650 i rillion, its net income (loss) was overstated by

$1.7,373) m illion , and its net income (loss) per share was overstated by $0.09 . Thus, absent. the

accounting impropraet,ies, the Company would have reported net income ( loss) per share of

($0.18) . The 2003 Fort 10-K/i also states that revenues, as restated , were $20-508 million and

t. ll It net income (lo ss), as restated, was ($33 .567 millio.n)- In addition , Sonus' .,; cost of revenues

were overstated by $2 .521 million - restated as $1 6.788 milli.o .n . Sous misstated its gross profi t

by $1,871 million -- restated as $3 .720 million . Bonus misstated its research and developmen t

expenses by $0.316 million . Restated, Sonus's research and development expenses wer e

$14.131 million . Sonus misstated its sales and marketing expenses by $0 .948 million. Restated,

Sonus's sales and marketing expenses w ere $7 .459 million. Soims misstated its general and

administrative expenses by $1 .121 million. Restated, SOTirtti'S general and admfnin ;tr3tivc

expenses were $2 .587 tt'.tillion. SO OLIS misstated it :; . tock-base d COIT1 1pe 1 n ;ation expense's b y

$1 .056 million Restated, (~t~u ' ; I.c>ck-based compensation expenses were $6 .799 million .

Sonus misstated its a,ETiortization of goodwill a ml purchased intangible assets by $0 .784 .m.illion .

Restated, Sonus's amortization Of goodwill and purchased intangible assets were $1 .190 .million-

Sonus misstated its restructuring charges (benefit), net by $16 .893 t ,million . Restated

, restructuring chargeswere $4.752 n~ill .ifa~~ - Sondes misstated its total opcraling cx . . crises by

$14) .222 million . Restated, Sonus's total operating expenses were ; 3 7 .718 million. Soar s

misstated its income (loss) from oper ations by $17 .351 million . Restated, Bonus's income (.loss )

from operations was (,$33 .99 8 million) .

4111436 6()

M - i _ hh-1 r.I .ciditiml to the previously l lentioned quantitative misstatements, Sonus mad e

materially flilse stateme.1.nt.s in its .lQ 2002 Form 10-Q Q0T1Cerniza.g SOMISs s policies ocn .revenue

recognition. With respect to revenue recognition, the Company falsely claimed that :

Somas recognizes revenue from product sales to end users, re:scUer ;and distributors upon shipment, provided there are no uncertainties

regarding acceptance, persllat;i Ve evidence (1l' an arrangemen t

exists, the %ales price is fixed or determinable and call ction of therelated receivable is probable . If uncertainties exist, Sonrlsrecognizes revenue when those unc .rl. airities arc resolved, inmultiple element arrangements, in accordance with Statement ofPosition 97-2 and 98-9, Bonus uses the residual method whe nv ndor-specific objective evidence does not exist . For cr~lc~ of thedelivered elements in tf arrangement . Service revenue isrecognized as the services are provicl . .ci_ Revenue Frommaintenance and support arrangements is recognized ratably overthe terns of the contract . Amounts collected prior to Satisfying therevenue recognition criteria are reflected as d li rred revenue-Warranty costs are estimated and recorded by Bonus at the time ofproduct. revenue recognition.

As co n firmed by the. r tat eats, Sorts did not recognize revenue in cozalorm .ity with it s

announced policy .

C. 2(1(l ~~ccr~n~t rst rter Result s

112, (.)n July 11, 2002, Somas i5 sued a press :relea se aMUOLMC.hlg it s

financial :results for the second quarter o f 2002, whic h rW~,nded June 30, 2002 . The pre release

represented that :

Revenues tc r th sc ,or7c cjtittrt i_9 ffsca .l 2002 were $21. .3 millioncompared with $52 .6 million in the same period fast y .ar .Adjusted net loss b or he second qt rter of fiscal 2002 was $10 .5million or $0 .06 per share compared with adjusted net income forthe second quarter of, fiscal 2001 of $ t .2 million or $0 .0 1 per share .Actual net less R n- tile second cquag er of fiscal 2002 w s $l .million .or f)=(3) r har Compared with all actual net lass for thesecond quarter of fiscal 2001 of $51 .4 million or $() .3() per share,(F."11mlphhasis added . .)

#111436 61

113 . Bonus has now admitted that its reported :tinannciaJ results for the second quarter o f

2002 were .materially t,lse. Sonus's revenues were E nder ;tated by $30.480 million, its net los s

was rtmi sttited by 21,393 r -rillic n . and .its net loss per share: was mis t.at. .ci by $0 .11 . Absent (lie

accounting improprieties, the Company would have reported revenues of $5 1,775 million, ne t

income (loss) of $3 .575 million, and net income (lo: s) per share of 0 .02 . fn addition, SOnLI S

understated its cost. of tCVC11ues by $9 .712 rrpillion . Restated, Sonu 's cost. ofteveriLtes wa s

$19.660 million., Bonus understated its gross prof! by $20 .768 n3illion, Restated, Sonus's gross

profit was $32 .115 million . Sonus mi toted its research and development expenses by 1 .06

million. Restated, Sonus's research and development expenses were $11,165 ni.i .llion. S011LIs

misstated its sales and marketing expenses by $1 .137 million, Restated, Sonnus's sales and

marketing expenses were $9 .417 million.. Santis misstated its general and administrativ e

ex lens s icy 50 .498 million . Restated, SOnUS'S ;e ner l an ac~a~ inistrative expe see were $1 .192

million . oil us misstated its stock-based corn p :nsaa ion expenses by S1 , 032 million . Restated,

S MIN'S stock-based compensation expenses were $4,918 niill.ion. St us misstated its

amortization of goodwill and purchased intangible assets by $0.807 million. R.e t .z.ited, Sonus's

amortization of goodwill and purchased i Mangible assets was $1 .190 million_ Sonus .misstated

its total operating expenses by $0,646 niillioz . Restated, Sonus's total operating expenses were

$28 .895 Ey ilfion . Sonus misstated its .loss from operations by $2 .1 .414 million. Restated , Sonus s

income (loss ) from operations was $3 .220 million .

114 . On August 14, 2002, So~ .j nuus .filed with the SEC its report on Form 1 [)-Q f sr th e

second quarter offiscal 2002 (here i .na :lter , "2Q 2002 Form I { Q"). It was signed by defe ndant

Nifl . Furthermore, both defendant Nih and defendant Ahmed signed and certi fied the. 2Q 2002

41 1 1436 62

Form IO-Q puirsuant to the Sarbanes-Oxley Act of 2002 . Def: .ndants Ahmed and Nill reviewe d

and caused the 2Q 2002 Form 1 0-( report to be filed with the SE'C . I 'lie 2Q 2002 Form 10-C

report stated that :

The accompanying unaudited condensed consolidated financial

statements have been prepared by Sonus Networks, Inc- (Sonus)

and reflect all adju tnwrits, consisting only of normal recurring

adjustments, which in the opinion of .managet ent are necessary fir

41 N:`air statement of the .results for the interim periods . The

unaudited condensed consolidated financial statements have been

prepared in accordance with the regulations of the curio and

l.;xchan e Commission. (SEC), and omit or condense certain

Information and footnote disclosures pursuant to existing SECrules and regulations ,

Despite this claim, the 2Q 2002 Form 104) included alse fillancia l result . . for th second quarte r

of 2002 . which were materially misstated as alleged in. the preceding ..am graph .

115 . In addition, Sonus made materially false statements i. .. .its 2Q 2002 F orm 1 0

Concerning miss policies cart revenue recognition . With respect to revenue reco , n :it.io .n, the

(.'ompany falsely clain-ued that ,

SonL:is rect.)gnizes revenue 1r(m product sales to end users, resellers

and distributors upon shipment, provided there are no uncertainties

reg,--I-Vding accept .ann.ce, persuasive evidence cif an arrangemen t

exists, the sales price is fixed or determinable and collection of tilerelated receivable is probable . N:N'r.an ert aintie exist, Soiiusr Lcogni es revenue when i.l,ose uncertainties are resolved, Inmultiple element arrangements, in accordance with Statement . ofPosition 97-2 and 98-9. Sonus rases the residual method whe nve ndo~r- : ecific objective evidence does not exist for one of the

delivered ,dements in the arrangement . Service :revenue is

recognized as the services are provided. c venue frommaintenance and support. arrangemernts is recognized ratably over

the term of the contract . Amounts collected prior to satisfying dIQ

revenue recognition criteria are reflected as deferred revenue .

Warranty cost.s are estimated and .recc:rrd d by Sonus at the time ofproduct revenue recogiiihort .

4111436 63

As confirmed by the restatements, Sono did not . recognize revenue in coril'ormity with it s

announced policy-

Boras .I lsely clai .nied to co.nipiy with St:;C revenue recognition guidelines. "[0J Ur

rev : .nu : r cogn ition policy complies with S C;: SLLt'f'Accounting Bull t.il1 No, 101, REVENI_ .fl:

R.FX.O(:iNNTION IN FINANC ..1AL STATE i..?NTS." Sonus 's misstated and misleading financia l

results confirm that So.nus's statements about revenue recognition were materially ftifse whe n

made.-

1 :16 . i..)efendant! Ahmed and Nil] mad materially false claims on August 14, 200 2

when they certified the 2Q 2002 Form I 0-Q, as Fol lows :

In comiect. on with the Quarterly Report of Sonnus Networks, Inc .

(the "C.'c .tripatiy" on Form 10-Q fbr the pc riod ending June 30,2002, as filed with the Securities and Exc hange Commission cointhe date hereoC (tite} 'Report"), each of the undersi .ned, f assaan M. .

A li med, President and Chief f-Aecutive Officer and Stephen .I . Nill,

Chi ;f' F'inancial Officer, Vice President cat' Ii"in ance andAdministration and Tre asurer of the C'o) .mpany, certify, pursuant to

18 1 J'S .C, Section 1 150, a s adopted pursuant to Secti on 906 of theSarbanes-().xlcy Act ol'2002, that :

(I) The Report fully complies with the re uire mments of Section13(a) or 15(d) of the Sccu .rit1Ls and 1,.;,xchaI1ge Act of 1934, and

(2) The information contained in the Repo rt Caitly presents, In allmaterial respects, t.lh Q financial condition and results o f operationsof the C,'o rrnpany .

D. 2002 Third Quarter 11e.5 lts

117 . On October 9, 2002, ,onus .issued a press release announcing it :

fin a .ncial results for the third quarter of"2002, which envied September 30, 2002, The pres s

release :ta lse1y represented that :

It 11 1436 64

Revenues for the third quarter of fiscal 2002 were $7.4 aiflioncoinpa:red with $40 .; million in the sam period last year .Adjusted net loss for the third quarter of fiscal 2002 wav $14 .6i-nillion or $0,08 per share compared with an adjusted net loss f 'orthe third quarter o1'i ;cal 2001 of $11 .4 million or $0.06 per share .Actual net loss for the third quarter of fiscal 2001 ol`$498.2 millionOr $2 .81 per Share .

118. Bonus has admitted that. its repo rted financial results liar the third quarter o .f'2002

were m 11 aterially false . SOfILS'S third quarter 2002 revenues were understated by $1 .713 m illion,

its actual not loss was misstated by $8 .816 million, and its net loss per share was misstated b y

(.) .() Absent. accounti improprieties, the E ...ompany would have reported r .venues of $9 .158

million, net income (loss) o f($30,454 million ), and net income (loss) per share of ($0 . .16 )

according to Sonus's restated 2003 Form .10- ./A, . .Furthermore, «nnL.V., misstated its total co,,( of

revenues by $3,172 million. Restated, Sonus's total cost of rev nnues was $7 .911) million . Sonu s

misstated its gross profit by $1 .459 million. Restated, S011LI:'s gross profit : was $1 .239 million ,

Son us misstated its research and d .velopment operating expenses by $0,467 million . R stated ,

SOI'M's's research and development expenses were $9.218 million. Soaus misstated its sales and

market.bn expenses by $1,054 million . Restated., Bonus's sales and marketing exile nse ; were

$4 .466 million Som .us .misstated its general and i:idm:iznistrativc expenses by $0,487 million .

Restated, Bonus's genera! and administrative expenses were $2 .932 million . Sonnus misstated it s

stock -btsed corampernsation expenses by $1 .7 34 mxmillion. l~~ tote d, c~~ ~ " tc.>c k-t.~as c l

compensation expense ; were $2.228 naillion . SofiLs niisswt.ed its amortization ot`goodw ,ill and

purchased intangible assets by $0 .806 million, Restated, Bonus's amortization o :i'gaodwill and

purchased intangible assets was $1 .173 million. Sorms misstated its write-off of goodwill and

pu Wch ased intan g ible assets by $9.277 millio n . Restated, 4onus 's writ.e-of f o f goodwill and

4 1 1146 6

purchased .intangible as sets was $10.950 million . Sonus nii st. a,t.eci its restructurin charge s

(benefit), net by $0 .02 m. ifl .ion.. Restated, Sonus s restrui t.uar :in charges were $1 .007 million .

Bonus misstated its total operating expenses by $7,335 mi llion . Restated, Sonus's total opc:ratirn g

expenses were $31 .974 million . Sous mist tee its Joss from operations by $8 .794 million .

Restated, onus's income (loss) from operations was (530.735 million) .

119, On November 13, 2002, Sonus :tiled with the .t:: C its report on Form I O-Q :tbr th e

third quarter of 2002 (hereinafter "3Q 2002 Form 10-Q") . It was signed by defendant Nilf . In

addition, de :fendannts Ahmed and Nill certified this 3Q 2002 Form 10-Q pursuant to the

requirements of the Sarbanes-Oxley Act of 2002, Defendants Ahmed .nd .Nall reviewed and

caused the IQ 2002 F"orni lO-to be filed with the SEC, The 3Q 2002 Form I0 .Q report falsel y

stated that,

The accompanying unaudited condensed consolidated financialstatements have been prepa:med. by onus .Naworks, Inc . (Sontus)and reflect all adjustments, consisting only of normal recurringadj ustments, which .in the Opinion of management are necessary fora fhir statement of the re :. ults for the interim periods . Theu .n audited condensed consolidated financial statement's have been

prepared in accordance with the regulation of the Sec urit .i s and

L`xchange Commission (SEC), and omit or condense certain

information and footnote disclosures pursuant to existing S .R.'

rules and regulations ,

f spit' the above assu rta.nce, Sonus' : 3Q 2002 fac:7rm I O-Q included Sonus' ; f ils . flmilwial

results for the third quarter of fiscal 2002, which were .materially misst wd ,

120. SOMIS .made additional materially false statements in its original 3Q 2002 F orm a

10-Q concerning Bonus' : policies about . revenue Tt-cWg nitionn. With respect to .re:vernu e

recognilion, the C ompany falsely claimed that ,

!4111436 66

Sonus recognizes revenue front product sales to end users, reseller .and distributors upon shipment, provided there are no uncertaintiesregarding acceptance, persuasive evidence ol'an arrangemen texists, t e sales price is fixed or determinable and collection of therelated receivable is probable . U' u ncertaiznties exist, So :ariuusrecognizes revenue when those uncertainties are resolved . Inn1L11 .ipJQ element arrangements, in accordance with Statement ofPosition 97-2 Land, 9 -9, Sorg as uses the residual method whenvendor-specific objective evidence does not exist for one of tihadelivered elements in the arrangenment . Service revenue isrecognized as the servic s are provided., Revenue fromn aintenance and support arrangements is recognized ratably overthe term of the contract . Amounts collected prior to satisfying therevenue recognition criteria are reflected aIs cdel6rred revenue,Warranty costs are estimated and recorded b y Bonus at the time ofproduct r .venue recognition .

As con firmed by the restatemenl.s, Somis did not recognize revenue in conlcarality with its

announced poliQy-

`7a .tius r pee led its materially false claim that it adhered to SEC' guidelines concerning

revenue r :cognit.ion : "[o]rar revenue recognition policy complies with S1 :: C,' Staff- Accountin g

.13ulf0n No . 101, .Rove ue Rec'ognittc,r in Marwicrl Ah alenwnts ." SOnUs's claims about

Compliance with revenue recognition guidelines were materially It :alse when node .

121 . Bonus also made materially false statements concerning its internal controls and

procedures in its 3Q 2002 Form 10-Q :

(a) Evaluation of disclosure control~ and procedures . Sorms' Chief

executive officer and hi f` fia~{:lr~ci l officer have reviewed and

evaluated the effectiveness o :f Sor ALs' disclosure controls and

procedures (as (k,-fined in Exchange Act Rules 240 .1 a-14(c) and

IM 14p)) as of a Kim within ninety days before the filing of this

quarterly report . Based on that evaluation, the chief CU MM'

Offer too d chief financial officer have concluded that Sonus's

current disclosure controls and procedures are ef:'tt'ctive to ensure

that information required to he disclosed by Sonus in reports that .it

files or submits under the Exchange Act is recorded, l r ~c4 ; c1 ,

4111436 67

summarized and reported within the time periods specified inSecurities and Exchange Commission rides and forms .

(b) C'Iwrxgfe~s in.. internal confr h 'T'here have not been anysignificant changes in 4orius' internal co nt.rols or in other (actorsthat could significantly affect these controls s ubsequ . e nt to the (lateoftheir evaluation, Therre were no significant deficielicies ormaterial weakness in the internal controls, and therefore nocorrective actions were taken .

122 . De.x iida .rat Ahmed made materially t Is statements on November 12, 2002 whe n

he certified the Rdiowing :

I, Hassan M . Ahmed . President and Chief Executive ()[`ficer ofSonus Networks, file ., certify that. :

1 . 1 have reviewed this quarterly report ?. n form I O -Q of SonusNetworks, Inc . (the "Registrant") ;

2 . Based on n)y knowledge, this quarterly re Tort . does not Containany untrue stt teT7ment. 01'a material fact or omit to state a material

fact necessary to make the statements mad , in light of t hecircumstances under which such statements were made, notmisleading, with respect to the period covered by this report ;

3 . Based on my knowledge, t1 . OmmQ .ial statem :tits, and otherfinancial itnformat.ion included in this report, fairly present. in allmaterial respects he financial condition, results of`operations andcash flows of the Registrant as of, and for, the periods iresented inthis quarterly report ;

4 . The Registrannt's other certifying officer and I are re ponsit. .le:for establishing and rilaintainning disclosure controls and procedure :(as defined in Exchange Act Rules 13a-14 and 15d-14) for theRegistrant and we have :

(i) designed such disclosure controls and procedures to ensure thatmaterial information relating to the Registritrtt, including itsconsolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterlyreport is hexing prepared ;

!:1 11416 68

(ii) evaluated the eli :ctiv ness oft he Registrants disclosure

controls and procedures as o :f'a date within 9 0 days prior to the

filing dai of'P.lii : gt .ialrtuiy rLport (tbL "f:?,v lluation 'Xit.c") ; and

(iii) presca ted in this quarterly report our conclusions about theeffectiveness co r the (liScios ure controls and procedures based onour evaluation as of the Evaluation Date ;

5 . The Registrant"s other certifying officer mid I have di : closed,based on our most recent evaluation, to the Registrant's auditors

and the audit committee of Registrants board o f direc t,ors :

(i) all significant deficiencies in the design or operation of internalco w.rols which could adversely afThct the R.e istra.nnt's ability t orecord, process, siL [ i mari ze and report financial data and have

identified for the Re-is tra tit's auditors any material weaknesses in

internal control : ; and

(ii) any Ira.ud, wh .ther or not 1mmateriaal, that involves managementor other employees who have a significant role in the Registrarnt'sinternal controls ; and

6 . The R gistrant,'s other certifying officer and f have indicated inthis quarterly report whether or not there were significant changes

in internal controls or in other factors that could significantly a.fkctinternal controls subsequent to the date of our motif . recen tevaluation, including any corrective actions with regard t o

significant deficiencies and. material weaknesses .

Sonus later admitted that the published financial results and assertions regarding internal control '

were untrue, as it acknowledged the existence during the Class Period of `° sig.ni,f::icant interna l

control matters that COUCctivel constitute ` material weaknesses.," f .)e .fendant Ahmed's

certification was thereby r aterially false when math .

123 . (::)e .endan.t .Nill made niaterially false statements on .Nov .mber 1 2, 2002 when he

certified the following :

1, Stephen ,I . Nall, Chief Financial Officer, Vice Pr ;ident ofFinance and Administratio n .end Treasurer of Scnn«s Networks,Inc: ., certify that :

01 11436 69

I . I have reviewed this quarterly report on Form I O-Q of SollusNetworks, Inc . (the "Registrtant") ,

2. Based on illy knowledge, this quarterly report does not containany untrue statement of a material fact or omit. to state a Materialfact necessary to make the statements made, in light of tilecircumstances under which such statements Were m,msade, .notmisleading with respect to the period covered by this report ;

I . Based on illy knowledge, the financial staternent .s;, and milerfinancial information included in this report, fairly present in allmaterial re"' ects the financial condition, results of operations andcash flows of the Registrant. as of, and for, the periods presented inthis quarterly report ;

4. The Registrant's other certii ;yi .ng officer and .1 are responsible:for establishing and maintaining disclosure controls and procedures(as de lined in Exchange Act Rules is-14 and 15d-14) for theRegistrant and we have :

(i .) designed : ucil disclosure controls and procedures to ensure thatmaterial information relating to the .Red istrant, includin :it.sconsolidated subsidiaries, is, made known to us by others withinthose entities, particularly during the period in which this quarterlyreport is being prepared ;

(ii) evaluated the effectiveness oft.he Registrant's disclosurecontrols and proc .dures as of a date within 90 days prior tip thefiling date of this quarterly report (tile "Evaluation an d

(iii) presented in this quarterly report our conclusions about tilee `kctivenness Ox°the disclosure controls, and procedures based onour evaluation as of the Evaluation 1;)ate ;

5. The Registrant's other certifying officer and I have disclosed .based on our .rnost recent evaluation., to the Registrant's auditorsand the audit committee of Registrant's board of directors :

(i) all significant deficiencies in the design or operation of internal

controls which could adversely ,„fact the Registrant's ability to

record, process, summarize a d report financial data and haveidentified ...r t .h . Registrant's auditors any material Weaknesses ininternal controls ; and

1/111436 70

(ii) any fr iicl , whetfhe:r Or not material, that involves managementor other employees who have a significant role in the Registrant's

internal controls, an d

6, The Registrant's other certifying officer and l .have indicated inthis quarterly report whether or not there were significant changesin internal Controls or in ollwr f jct.ors that, could significantly affectinternal controls subsequent to the date of our most recen teva.luati m, including any corrective actions with regard tosignificant deficiencies and material weaak .nesses .

Son us later admitted that, the published f nanc ial results and assertions regarding internal controls

were untrue , as it acknowledged the existence during the Class Period of "significant interna l

control tatters that collectively constitute `material weaknesses ."' Dcli:ndant Nill ' ; certificatio n

wa:s thereby materially false when made .

124, In his Certification Pursuant to 18 L.i_S_C. Section 1350, as Adopted Pursuant t o

Section 906 of the Sarhanes-Oxl .y Act o['2002, defendant Ahmed made additional materia l

t isstatements on November 12, 2002 by certifying that..

(I) tlh Report fully complies with tl~ :requir meat of Section13(a) or .I 5(d) of the Securities .Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all

material respects, the financial condition and results of operationsofthe Company .

As Sonus's 3Q 2002 Form l 0-Q contains several material misstatements, defendant AFimcd' s

certification was materially f lse when made .

125_ In his Certi fication Pursuant to IS tJ .S .{:' . Section 1350, as adopted Pursuant t o

Section 906 of the Sarhaiies-Ox)ey Act of 2002, defend ant Nil .] made additional materia l

misstatements On Novembe r 12, 2002 by certifying that .

(I) the Report. (telly complies with the requirements of Sectioll13(a) or 15(d) of the Securities I- xchange Act of 1934 ; and

4 9. 1 1436 71

(2) the information contained in the Report fairly presents, in allmTI".1torial respects, the :tinancia.l . condition and results of operationsof the Company .

As SoanLIS's 3Q 2002 Form I O-Q cent i ris several .material misstatements, defendant 1Vil .F' s

certification was :materially :false when made ,

F. 2002 Fo urth Chucarter and Year- :End Result s

126. On January 22, 2003, Sonus issued a press release announcing its financial result s

for 2002, which ended December 31, 2001 ' .l'hhe press release represented that .

Bonus Networks, Inc . (Nasdaq. 4E)NS) . . . today reported itsfinancial results for its kourtha quart :r and fiscal. year endedDecember 31, 2002, in accordanc :, with U_S . generally acceptedaccounting principles (GAAP) .

Reven r ics For the fourth cgxrter arty fiscal 002 Were . E? ,7 millionco r'm ared with $3 8 .9 million in the s;; me period last year . . .Net lossfor the fourth cu wrier of fiscal 2002 ws $12 .9 million or $007 pershare compared with a net. loss or the fourth quarter of fiscal 2001of $13 .4 million or $0M7 per share .

2.. r e n Ui swfc r fiscal ar 2002 were (i2_(i ►~ ~11 compared with$173_2 million for Fiscal year 2001 ,

Net. loss car fiscal year 2002 was $68 .5 million or $0.36 per sharecompared with a net. loss for fi cal year 200 .1 of $645 .4 .million or$3 .74 per share . (I:Irnphasis added . )

127 . Son.us has admitted that. its reported financial results for the fourth quarter of

li ct~:l 2002 included in its Form 10-K for the year ended .i )ece;x mbcr• 31, 2002 (hereinafter, :2002

Form 10-K.") were false . Soaus's seventies were overstated by $0 .184 million and its net los s

was misstated by $0 .575 rnillion . Absent the accounting improprieties, the Company Would hav e

reported revenues for the fourth quarter of'$12.476 million and net income (loss) of ($13 .395

million) . In addition, Sonus misstated its Ibu rth quarter 2002 cost oJ'revenues by $0-911 million .

f! 111436 72

Restated, on us's cost. Of revenues was $7 .209 million . Bonds misstated its 'Fo r°th quarter 2002

gross profit by $1 .095 million- Res tated, Sonus"s gross proM. was $5 .267 :million, Sonus

r misstated its fourth quarter 2002 research and development expenses by $0 .494 rd7illion ,

jRes iced, Somi 's research and developmem expenses were $9 .277 rrnllion Sons. s misstated it s

sales and marketing expense s by $0 . 788 million . Restated, ~~a3E~s ' ~.l s and .marke ting

expenses were $6 .444 I illion . SOITUs misstated its fourth quarter 2002 general an d

administrative expenses by $2 .001 million. Restated, Sonus's general and administrative

expenses were (S1,463) c ffl .lion) . Souris misstated its :fourt.h quarter 2(002 stock-based

co mpensad.on expenses by $0,915 million . Restated, Sonus's stock -based compensatio n

expenses were $2 .926 million . Sonus misstated its i urth quart ,r 2002 amortization of goodwill

and purchased intangible assets by $0.317 tnillio:n . R e: tate,d, So.nus"s amortization of'goodwill

and purchased intangible assets was $0 .676 lriillion_ Sonus misstated .its li. urth quarter 2002

writ;-ottoffgoodwill and purchased intangible asset .:; by $0.175 million. Restated, Sonus had no

write-off o :f goodwil l and purchased intangible aassets . Sonus misstated its ii>tErth quarter 2002

restructLtrin-tg charges (benefit), net by $0 .951 million. Restated, Sonus's restructuring charges

were. $0 .967 million. Sonus misstated it ; !i u.rt.h quarter 2002 total operating expenses by $0 .54 1

million. Restated, Sonus' s total operating expenses were $18 .827 million, Sous misstated it ,

fourth quarter 2002 loss Cron o pera tions by $0.554 millionn_ Restated, Sonus's income: (loss )

from operations was ($13 .56() .million) .

12 . In addition, Sonucs has admitted that its reported f na racial results for 2002 as a

whole were false . SOnus s 2002 Form 10-K reported the same . e false 2002 fi~ya ci l .r a lts that

appeared in the January 22, 2(0)3 press release, which were materially misstated due to imprope r

4111436 73

accounting entri ti requiring 0,11 tjt.Itit171e iit.'10 revenues of $ 31 _359 million, an adjustment to net

income (loss) :x o r : scal y ar 2{.))2 of $5 .285 million, and any adju tz~~ i~ 't. to net income (loss ) per

share of $0 .03 .

129. By Virtue or the restatement of its reported 2002 financial results, Sonus ha s

admitted that, its reported fiscal 2002 'fin ncial results were In its 2003 Form i D-K/A ,

onus announced that its 2 002 produc t revenues were understated by $27 . 1 77 .t .illion and that it s

2002 service revenues were and rstated by $4 . :182 million . Sonus thus understated its 2002 tota l

rev(~ .mws by $ 1 .359 milliwi , mi; st.t.Yted its ne t loss by $5 .371 million, and misstated its net los s

per share by $0.03 . Absen t the oQcc.> u tin improprie ties. Sonus would have report d net income

(loss) per share of ($0 .39) . In addition, SmILIS .1mmisstat :d its write-o 'I:'of inven't .o .ry i d purchas e

commitments by $3,304 m illion, its cost of rQveii iir*s fir products by $14 . 031 .n m.i .llion, and cos t

of revenues for service,,, by $0 .540 million, resulting in an adjustment for the total cost of

revenues of $11 .274 million . With respect to expenses, Sonus misstated its research and

development expenses by $0 .717 million, ni.isstated its sales and marketing expenses by W077

million , and misstated its general and administrative expenses by $0 .893 million. Sonus

misstated. its stock-based compensation by $2 .624 m •tillion, misstated its amortization o1 goodwil l

and purchased intangible assets by $2,715 million, misstate(l its w:rii.e-o f` o .[' goodwill an d

purch a sed intangible assets by $9 .102 million . and misstated its .restructuring charge s by $17 .804

Million . Bonus misstated its tota l operating expenses by $25.370 million, In addition, Sonus

misstated its loss from operations by $5,285 ly il ] ion .

130. In Sonus's Consolidated Balance Sheets Stateinent in its original 2002 Form 10-

, Son.us lists deferred revenue as $29 .235 rill] lion- [lowever, the 2003 Form 10-K.IA divides

4111436 74

deb rred revenue into "°cuxrrexnt portion of deferred revenue" (restated as $51 .728 ni .illion, adjusted

by $22.493 million) and "long-term deferred revenue" (restated as $8 .024 million, adjusted b y

$8.024 million). Total Clef rred revenue;, $59,752 million, min s the current portion nl duf'rre d

revenue, ($51 .728 million), results in a restated figure for long-te:rr a clef: ;r:red revenue of $8 .024

million ft r 2002 . With respect to inventories as stated on SOtIUS s Consolidated Balance Sheets ,

Bonus's origin it 2002 Form 10-K lists ".inventories" at $10,776 million while onus 's 2003

l orr t 10- /A. lasts inv..ntory, net" at. $10 .449 .million - an adjustment of f) . 327 illili :ion . With

respect to Bonus's accrued expenses as stated on onus's Consolidated Balance Sheets, 4onus' s

2002 Form 10-K, lists $13 .379 million in accrued expenses while its 2003 Form I O-K/A restates

its accrued expenses as $16 .489 million ... . an adjustment of $16 .890 million .

1 .31 . Sonars originally misstated its 2002 excess, obsolete and evaluation reserve

balances/inventory reserves as $17.784 millionn_ In its 2003 Form I O-K/A, Sonu announced tha t

inventory reserves "Wm" not. consistently c a.lculated axsnd, as aI r su .ilt u(` it.s review of tkhese

reserves and co m1 deraiion of contemporaneous fact's and circumstances, Sonus increased it s

reserves and charged cost of product revenues by $522,000 . . . .for the year[j ended December

3 .1, 2002 . . . .", for a total of $18 .306 m illion .

132. Sonus aim roperly reported the assessment of the 2002 carrying value of goodwil l

and lurch 1se(l intangible asset ; , originally reporting a total impairment charge of $1 .848 million .

As a result of Son us perfioniiing ab new i pair zee t a ss ;sm ext. with the assistance of a new third-

party , Bonus restated its 2002 impairment charge in its 2003 Form 10- /A I~br the year ending

2002 as $10.95() million - an adjustment of $9.102 million .

# 11.1436 75

133, In addition to t'he previously mentioned quantitative 9' 71 st lt'6l'14 nts, Sonus mad e

materially .thlse statements .in its 2002 Forin I0-K concerning its Contro ls and Procedures ,

Claim ing that,

(a) Evaluatio n gfrdisclosure controls ancd p-ocsed hires . Sonus' chief

executive officer and chief OAaiancial officer have reviewed and

evaluated the of `activeness 0 C Soiruu : ' disclosure Cp ntr<:> l S zI.tndprocedures (as c efined in 1:xchhange Act Rules 13a-14 and I5d- 14)

as of a dat : within ninety &ys before t.lheilin , of this annualreport.. Based on that evaluation, the chief executive oihc r and

chief financial officer have concluded that Sonus' currentdisclosure controls and procedures are efl' ct .ive to ensure that

informs a tion required to be disclosed by Sonus in reports that it file

car submits render the f:' xchange .Act. is recorded, processed,

summarized and reported within the time periods specified in I: C

rules and forms .

(h) Changes in interna l controls, 't'here have not beets anysignificant Change", in Son us' innt .rnal controls or in other fincto .rsthat could significantly ff.ect these disclosure control : subsequentto the date o :ftheir evtalu atic:ran_ ''her(-2 were no significantdeficiencies or material weakness in the internal contro ls, andtherefore no corrective actions were t. akena .

1 14 . Sonus a lso made mawrial misstatements concerning revenue recognitio n in it :

2002 F'«rm I0-K under "Critical Accounting l :'olic .ies and Estimates" :

We recognise revenue from product sales to end users, resellersand distributors upon shipment, provided there are no uncertaintie sregarding acceptance, l ersuasive evidence of an arrangement

exists', the sales price is fixed or deter minable and collection of therelated receivable is prob able [1' Inc rt. int.i sit, ~v r cc~ xairevenue when those Uncertainties are r 5 ~lvc d . In multiple e] rx-ientarrangements, in accordance with Statement of .Position 97-2 and98-9, we use the residual mo.hod when vendor-specific objectiveevidence does not exist 1c.~r one of the delivered elements in thearrangemmzennt . . Service revenue is recognized as the services areprovided. Revenue from maintenance and support arrangements isrecognized ratably over the term oft e contract ,

#1 11436 76

Furthermore, Banns falsely claimed that "Amounts collected prior to satisfying the revenue

recognition criteria are re lected as 4 Gf '.rred reveille. We estimate and record warranty costs i t

the time of'produlct. revenue recognition ."

135 . Defendant Ahmed made additional material misstatements on .March 19, 2003 b y

certifying the k6llowirig :

1, Hassan .1M . 11,h med, Pre> idetit and (t'hief' Fxecultive Officer OfSonus Networks, Inc ., certify that :

1 . 1 have reviewed this annual report on Form IO-K for the yearended December 3 1, 2002 ("Annual Report") of Sonus Networks,Inc . . (the "Registrant") ;

2. Based on my knowledge, this Annual Report does not containany untrue s41 .#,111Q t of a material fact or omit to state a material

fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not .misleading with respect to the period covered by this Annual(Report.;

3, Based on Kay knowledge, the financial totem nt , and otherfinancial information included in this Annual Report, I tirly presentin all material respects the financial condition, .results of operationsand cash [lows of'the Registrant as of, and or, the periodspresented in this Annual Report ;

4 . The Registrant's oilier certifying officer anti .l are responsiblefor establishing and maintaining disclosure controls and procedure :(as defined in Exchange Act Rules 13a-14 and 13d-14) for theRegistrant and .have .

(a) IJesigned such disclosure controls and procedures to cw ur : thatmaterial information relating to the Registrant, including itsconsolidated subsidiaries, is i jade known to us by others withintho particularly during the period in which this AnnualReport is being prepared ;

(b) Evaluated the effectiveness of the Registrant' ;; disclosurecontrols and procedures as of a date within 90 days prior to thefiling date of this Annual Report (the "Evaluuation. 1. ate"); and

#.111436 77

(c) Presented in this Annual Report our conclusions about thee.lThctiveness of t.h e disclosure controls and procedure ; based onour evaluation as of the Eva luation Date ;

5 . The Registrant's odwr certifying officer and I have dis :lose d,based on our t post recent evaluation, to the Registrant's auditorsand the audit committee of Registrant's hoard of directors :

(a) All significant deficiencies in t e design or operation of int .er i-I alcontrols which could adversely affect . the Registrant's ability torecord, process , summarize and report financial data and haveidentified for the Registrant.'s {auditors any material weaknesses ininternal cont.ro ls ; and

(h) Any fraud, whether or not material, ti.lat involve s managementor other employees who have a significant role in the Re ist ant'sinternal controls ; and

6. The Registrant's other certi lyin officer and I have indicated inChi Annual Report whether there Were significant. changes ininternal controls o r in o ther factors that could significantly aff ctintern al COMMIS subsequent to the date of`our most recentevaluation, including any corrective actions with regard t oi nil:hcant deficiencies and material weaknesses .

136, 1)e{ ndant .Nil .t made additional m a .t ri al .mi st<tc m is on March

19, 2003) by cert :it'yiK g the following :

I . Stephen J . Nill, (... hief {'inancial Officer, Vice President ofFinance and Administration and 'l'reasumer of Bonus Networks,Inc., Cerli#y t.lhat :

I - I have reviewed this annua l report. on Form I O-K for the yearended Dcwntx-:r 31, 2002 ("Annual Report") ofSon u.s Networks,Inc, . (the "Registrant") ,

2 . Based on my knowledge, this An nrual Report does not containany untrue statement of a mat 'rial Fact or omit to state a material

tact necessary to make the statement's made, in light of thecircrtnlsI.ances under which such statements were made, notmisleading with respect to the period covered by this AnnualReport ;

41 11436 78

3. Based on my knowledge, the financial statem nts, and otherFinancial inf~brmation included in this Annual Report, tair .ly presentin all luaterial respects tll ; financial condition, results of operationsand cash flows; of the Reg istrant as of, and for , t.tlr p nodspresen ted in this Annual Report ;

4. The Registrant's other certifying officer and f are responsiblelor establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13 ;l- 1 4 and 15d- 1 4) for theRegistrant and we have :

(a) Designed such disclosure controls and procedures to ensure thatmaterial information relating to the Registrannt, si-tcltidi .n itsconsolidated sub idiari s, is ni.a& known. to us by others withinthose ntities, particularly during the period in which this AnnualIReport is being prepared ;

(b) Evaluated th . ef"i: c;tiven ,ss of the Registrant.' ; disclosurecontrols and procedures as of a (We within 9() clays Prior to thefling, date of this Annual Report (tile "Evaluation Date") ; and

(c) Presented in this Annual .Report our c onclusions about theeffective ness of the disclosure co ntrols and procedures based onour evaluation as of the .Eva luation Dale ;

5, The Registrant's other certifying officer and l have disclosed,based on our mom. recent evaluation, to the .R gi : trant's auditorsand the audit comm:itwe of- I2egistraW's board of directors :

(a) All significant deficiencies in the design or operation of` int rna .lcontrols which could adversely af`f°ect the Registrant's ability t orecord, process, summarize and report firtancial data and haveidentified ft .r the Registrant.'s auditors any material weaknesses ininternal controls ; and

(b) .Any fraud, whether or not . material, that involves managermni:or other employees who have a significant role in the R .egistrantsinternal controls ; and

6_ The Registrant's other certifying officer and I have i ndicated inthis Annual R .pc>.rt whether there were significant changes ininternal controls or in other factors that could significantly affectinternal controls subsequem to th date of our most recen t

8 111436 79

evaluation, including any corrective actions with regard to

sign i .(ic ;int deficiencies and material weaknesses ,

137. In his Certification Pursuant to 18 I .T,S .C, Section 1350, as Adopted Purst .► ant . t o

Section 906 of the Sa :rhanes-Oxley Act of 2002, defendant Ahmed made additional materia l

r il isstatements by Certifying on March 19 . 2003 that. :

(1) the Report fully complies with the .requirements of Section13( ..i) or 15 (d) of the Sccixrit .iv l:'.xchtiunigc Act of 1934, and

(2) the information contained in the Report fairly presents, in allmaterial r spect:s, the financial condit i on and results of Operationsof the Company .

138, In his (' rtification .('~trsuan t to 18 l..J .S .C' . Section 1350, as A .dopt.ed .Pursuant to

Section 906 of t e Sarhanes-Oxley Act of 2002, defendant Nill made additional . materia l

in issmisstatements by rt.ilyin on March 19, 2003 that :

(1) the Report. Fully complies with the requirements of Section

13(a) or 15(d) of the Securities 1 xch.angc Act of 1934 ; and

(2) the inlbrrrsation contained in the Report fairly presents, in allmaterial respects, the financial condition and results ol`opcrationsof' the Company .

139, On March 19, 2003, Bonus filed with the its 2002 Form 10-K, for the fiscal

year ending i..) :comber 31, 2002, e knclants A.hnied and Nil!, among others, signed SOOOLIS' S

2(002 F'c : rm 10-K, . 'N.'liese def.e darts reviewed, approved of, and caused Sonus' :5 2002 Form 10- .1

to he filed with the 4E~iC, which included Soints's materially hilse statements (or both the fourt h

quarter and year end 2002 .

F. ' «jxcct_uw Aq lernentthited An IN21 . 2003

140. Bonus's Prospectus Supple ment chit. : l April 21, 2003, incorporates by re krence

other SEC :filings as follows : Form l.O- . for t:he year ended December 31, 2001, Form 10- . Fo r

i 1 .I:1436 80

the year ended .December 31, 2002, Form I O -Q for the quarterly period ended March 31, 2002 ,

Form I 0-Q lcor the quart rly period ended .Tune 30, 2002, and Form l0 Q fOr the quarterly period

ended September 30, 2002, Because the (brcgoin g iclentiFied SEC filings were materially false

and misleading for the reasons alleged herein above, the April 21, 2003 Prospectus Supplemen t

was also materially false and misleading . There was no disclosure its the April 21, 200 3

Prospectus Supplement of'a.ny of the :mm ateria .l adverse fi' .ct ; as alleged herein which were i n

existence: as of that date .

G. 2O )3 First Quarter Result s

141 . On April 9, 2003, Sonus issued a pr "s release announcing its financial results fo r

tile first quarter cif 2003, which ended o n March 3 1, 2003 . Sonus Falsely represented that ,

Smius Networks, Inc . (Nasdaq : SONS) - - - today reported itsl nancial results for the first quarter elided March 3 1 , 2003, in

accordance with [) .S . genet-Aly accepted accounting principles(CiAAP) ,

t~v nu for f.li first quarter L rf~Pis~,Yl 2f1()3 w r _L(i ,Q millioncompared with $12 .7 million the fourth quarter of fiscal 2002, e(

2()(} w E ,4 .4 ]z1~ 11~ c7~3 i~r i() .()2loss for the :First. wmrter of fisca lSr_517rg compared with a net loss f'(. )r the fourth quarter offiscal

2002 of $12,8nmillion or $0 .07 per share, Revenue ; for the. firstqu rt r f_ Fis i l 20_02 were $21 .2 million and the net loss for thefirst quarter of fiscal 2002 was $16 .2 million or $0 .09 per share .

"Our I:irrancial results for the first quarter reflected good progresstoward our business objectives," said t .lass i Ahmed, presidentand ("1=,{,0, Bonus Networks . "Wee grew our revenges 27_erc ntc>v r ft c~ ►Ntrcc~_r, and by continuing to manage our business withprecision, we further narrowed our net loss . . . ." (Emphasisadded)

142- Sonnuus has admitted that its reported financial results for the first quarter of fisca l

2003 were f's lse and restated its first quarter 2003 financial results in its First quarter 2004 For m

111436 81

I () Q (hereinafter, "IQ 2004 Form I0-Q") . SOt LS', .revenues were overstated by $6,81 0 million,

its net. loss was mi sstated by $5.326 million, and .its net loss per share was misstated by $() .01

Absecnt the accounting improprieties, the Company would have reported revenues of $9 .209

million, net H iconic (losses) of ($9 .707 million), and basic and diluted net loss per share o f

($0.05), Furthe rmmmore, Samos misstated its first quarter 2003 product revenues by $7 .61 million .

Restated, Bonus's prodLtQt revenues were $3 .5 1 7 million . Sonus misstated its firs t. quarter 2003

service revenues by 0.80() .million . Restated, Bonus's service revenues were $5,692 m. million .

Sonus misstated its first quarte r 2003 cost of revenues for products by $ 1,692 n .mil .lion . Restated ,

Sonus's cost of revenues for products is $1 .538 .r.nill ion . SunLEs rtuisst. wd its first quarter 2003)

cost o .f' :revenues for services by $0,380 million . Restated, Sonnus's cost. of revenues fc :~r ; rvice

was $2 .555 Trillion . Onus misstated its first quarter 2003 write-o.f"f'(bene it) of inventory an d

purchase commitme nts by $0.735 million. Sono . included no write-off (benefit) of inventor y

and Purchase commitments in its restatement in its J Q 2004 1 orm I0-0 . Sorncus misstated its firs t

quarter 2003 total cost o .f" :revenues by $1 .337 million, Restated, Sonus's total cost ol'revennues

was $4.093 million. Sonus misstated its .firs t quarter 2003 gross profit by $5 .473 million .

Restated, Sollus's gross profit was $5,11 (.i million . 4onus .misstated it.^s first quarter 200 3

research and development Operating expenses by $0.003 million. Restated, Sonus's r . ar f~ and

development operating expenses were $7 .705 rymillion . Sonus misstated its first. quarter 2003

sales and marketing expenses by $1 .303 million, Restated, 4Octrts'S sales and marketin g

expenses were $3 .971 millio n. Sonus misstated its general and administrative expenses; by

$(.) .759 million, Restated, Sonus's gene ral and administrative expenses were $1 .839 million _

Sonus misstated its first quart :r 2003 stack-based compensation expenses by $0 .030 million .

4111436 82

Restated, Sc Mrs's stock-based compensation expenses were $0 .924 miilio n. Bonus misstated i t

first gLl.tirter 2003 amortization of goodwill and purchased inntangibkk assets by $0 .331 million _

Rest'at'ed . ,Bonus' : amortization of purchased intttingihle assets was $0 .602 million. Son u

misstated its first quarter 2003 total operating expenses by $0 .18 million_ Restated . Bonus's tota l

operating expenses were $15 .041 n.mi.llion. SOnUS misstated its first quarter 2003 loss fro m

operations by $5, 293 million . Restated, So u,Es's income (loss ) from operations was ($9.925

million ) . Sonus made several niateriol misst.ate:R. ments of its financial results b r the first quarte r

of2003 financial reporting period .

143_ In Sonus's original first quarter 2003 C"on ;scolidated. Statements of Cash Flows i n

its Form '10-Q for [lie quarterly period ended March 31, 2003 (hereinafter, "1Q 2003 Form 10-

0".), So:nus listed cie "erred revenue as $2 .596 million, . iowev :r, the 1 Q 2004 Form O-Q restate d

an adjuLstnment. of $1 .020 .y lillion. With respect t o

inventories as stated on Sonus's first quarter 2003) Consolidated Statement of-Ca .,ih Flows, Sonus

listed "inventories" as ($0 .51 1 million) while Bonus's IQ 200417orm 10-0 listed "inventory" a s

($1521 million)- an adjustment of $2 .0 1 million . With respect to c7t~L~ ' accrued expenses Ll

stated in its first quarter 2003 Consolidated Statements of'('ash Flows, Sonus's 1Q 2003 Form

l0-Q listed ($4 .379 mzmill .ioti ) i.ti saccrued expenses while its IQ 2004 F orm I O restated it s

accrued expenses as ($3 .694 million) ....... w3 adjustment of $0,685 million .

144. In addition, <.i l4R~c~ .► at. . .f~ .~ ed s statement .. "iwle grew ou :r revenues 27 percent.

over hast quarter- - . ," - made in SOIUS's April 9, 2003) press release wax ; materially false. Based

on restated revenues sot tc)rth in Sonus 's 2003 Form IO-K.JA, revenue (k-,creased from $12.476

million to $9 .209 million during this period .

4111430 83

145, On May 9, 2003, the Company filed with the SEC its IQ 2003 .Form I0-Q. It was

signed by def` .nda.nt Nill . In additio n , del ndarits Ahmed and .Hill signed both the "C ertifleatioil"

and the "G.. rtilicatirnn Pursuant t.o 18 U.S.C. Section 1-3SO, as adopted Pursuant to Section 906 of

the Sarbaties m(..?xIeey Act of 2002 ." De}tndants Ahmed and NiE1 reviewed , approved of, an d

caused the f Q 2003 Form I O-Q report to be filed with the SEC . 'I:'.Rhe 1Q 2003 Form 1 O-Q stated

that :

'The accompanying unaudited condensed consolidated Financial

statements have been prepared by So.nuus and reflect all

adjustments, consisting only of'tnormal recurring adjustments that

III the opinion of management are necessary for a fair Stateme nt ofthe results For the interim periods . The unaudited condensed

consolidated financial statements have been prepared in accordance

with the regulations of the Securities and Exchange Commission

(SEC), and omit or condense certain information and (ootnote

disclo ures pursuant to existing St .C' rules and regulations .

The 1Q 2()03 Form iO-Q report included onus's :false financial results Fur the first quarter of

fiscal 2003, which were materially tu isst xted .

146, So nLus also made material misstatements concerning revenue

recognition in the first quarter of 2003 :

Bonus recognizes revenue From product sides to end users, resellersand clistribut.ors upon shipment, provided there are no unc rt.aint iregarding accept.[: nee, persuasive evidence of an arrangement

exists, the sales price is fixed or determin4:ibie and collection of tilerelated receivable i .s probable: . If. uncertainties exist, Sonu.usrecognises revenue when those uncertainties are resolved . IIImultiple Clement arrarngement:, in accordance with Statement ofPosition 97-2 and 98-9, Sonus uses the residual i cthod whenvendor-specific objective evidence (toes not exist for one of thedelivered elements in the arrau ement_ Service revenue .isr :cogni/,ecd as the services are provided . Revenue Frommaintenance and support arrangements is recognized ratably overthe term o[`the contrwact .. ,.mounts collected prior to satisfying therevenue recognition criteria are. reflect d are deferred revenue .

A11436 84

Warranty costs are estimated and recorded by Sonus at the time ofproduct revenue recognition .

Despite the preceding, mate.ria.lfy fuse representation, Sonus did not follow the SE: C, the ACC PA ,

or its own policies for appropriately recognizing revum .t.e .

147, Bonus also .made the following materially false statements Concerning its interna l

controls and procedures in its I Q 2003 Form I O -Q .

(a) ..l ' alnation of c.lisclosur•e controls Our chief

executive officer and chief financial officer have reviewed andevaluated the eli! ctiveness of`the design and operation of our

disclosure controls and procedures (as defined in Exchange .ActRules 240.13a-1 4(c) and 15d- I 4(c)) as of a date within ninety days

before the filing o :fthis quarterly rep ort_ 1:3ased on that evaluation,our chief executive officer and chief : financial off:icer have

concluded that our current disclosure controls and procedures aredesigned to ensure that information required to be disclosed by us

in reports that we iile or submit under the Exchange Act is

recorded, processed, Summarized and reported within the time

periods specified in Securities and Exchange Com .tnissi n rules

and forms and are operating in an effective manner-

(h) Changes in internal controls . There have not been any

significant c.h{ages in our internal controls or in other factor; that

could significantly allect these disclosure controls subsequent to

the date of'the r evaluation . " .lucre were no significant deficienciesor material weakness in the internal controls as of such (late., andtherefore no corrective actions were taken-

As specifically discussed in Sonus' s 2003 Form f 0-K../A.. Sonus made material mi t ►tement s

concerning internal control and disclosure issues .

148 . In his May 9, 2003 "Certification," def :ndannt Ahn-med ma-We additional materia l

misstatements by signing and certifying the l Mowing, ;

1, I lassan M. Ahmed, President and Ch.ief` .1::;xec; itive Officer W.Sonus Networks, Inc ., certify that :

9111436 85

i . 1 have reviewed this quarterly report on Form I0-Q f :or the

period ended March 31, 2003 ("Quarterly Report") of'Sonus

Network .,;, Inc_ (die "Reg,istraw'") ;

2, .Based on my knowledge, this Quarterly : port dos not containany Untrue state ment o fa material fact or (rflit to s tate a material

tact necessary to make the stateme tits made, in light of thecircumstances under which such statements were made, notniisleadlng with respect to the period covered by this QuarterlyReport ;

3 . Biased on my knowledge, the financial statements, and otherfinancial in .forniation included in this Quarterly Report, fairlypresent in all fat rial respects the financial condition, result. ofoperati ons and cash flows of the Registrant as of, and for, theperiods presented hi this Quarterly Report ;

4. 'Flie Registrant's other certifying officer and I are responsiblefor establishing and maintaining disclosure controls and procedures(as limed in Exchange Act Rules l3a-14 and 15d-14) for til eRe istraz t, and we have:

(a) designed such disclosure controls and procedures to ensue that

material inform nation relating to the, Registrant, i nclUding its

consolidated subsidiaries, is made known to a#,,.,- by others withinthose entities, particularly d ur.hng the period in which this Quarterly

Report is being prepared ;

(h) evaluated the efl etivenes : of the Registrant's disclosurecontrols and procedures as of a date within 90 ci .ys prior to thefiling date of this Quarterly Report (the " .:valuation Date") ; and

(c) Presented in this Quarterly Report our conclusions about thee: fectiveines: of the disclosure contro ls and procedures based onour evaluation as of the Evaluation Date ;

5. the Registrant's other certifying officer and l have disclosed,based on our .most recent evaluation, to the Registrant.' s auditorsWI d. t e auudit. committee of Registrant's board ol'dir .ctor: :

(a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the Registrant's ability torecord, process, summarize and repo rt . financial data and, hav e

#111436 86

id ntrfied 6 or the Rcgist rani .'s auditors any material we ak .nesses ininterna l controls; and

(b) any fraud, whether or not i a il.erial, that . involves rn. . na . e m entor other employees who have a significant role in the Rc istrant'sinternal controls ; and

6 . The Registrant's other certifying officer and I have indicated inthis Quarterly Report whether or no t there were significant changesin internal controls or in other fit.ctors that could significantly affectinternal controls subsequent to the date of our most recen tevaluaiLkm , includi n any corrective actions with regard tosignificant deficiencies and material weakne sses

149 . En hi: May 9, 2003 "C ert, i fi cation ," defi ndant Nil] made additional materia l

i Misstatements by signing and certifying the fo llowing :

1, Stephen J, Nill, Chie f Financial Officer, Vice President ofFinance and Administration and 'f're a su.urer (A' 501111'Networks,In- certify that :

I, 1. have reviewed this quarterly report on Form IOW[ 1'(.)r theperiod end .d March 31, 2 (.)03 ("Quarterly Repo rt'") of Sonus.NetYYoAks, .I .nc . (the "Registlant") I

2 . Based on my knowledge, this Quarterly Report does not contain

any untrue statement of a Inate :ria:l fact or omit to state a material

fact necessary to make the Statements made, in light of the

c irc;umstannces LUICIer which such statements were .made, notmisleading with .respect to the period covered by this QuarterlyReport ;

3 . Based on my knowledgQ, t.lhe .i .nancial statemennts, and otherfinancial information included in this Quarterly Rep frt, ftiirlypresent in all material respects the financial condition, results ofoperations and cash flows <,f't.he Registrant as of. and I:'or, theperiods presented in this Quarterly Report ,

4_ The Registrant's othe r certifying officer and 1 . are responsiblefor establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a- 14 and 15d- 14) for theRegistrant and we have:

41 11436 87

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(2) the information contained in the Report fairly presents, in all

material respects, the financial condition and results of operations,of, the Company.

As Sonus's IQ 2003 Form I O-Q contains several material .isstatements, defendant Ahmed' s

certificatio n was .rxmaterially false when made .

151, In his Certification Pursuant to 18 U.S_C . S .ction 1350, as Adopted PUNLW. nt t o

Section 906 of the Sarbanes-Oxley Act of'2002, defendant Nil l made additional materia l

misstatements by certifying on May 9, 2003 Chat .

(1) the Report f'«I f y complies with the requirements O(` S ct .ion13(<a) or 15(d) of the Securities f : xchange Act of 1.934, and

(2) the information contained in the Report fairly presents, in allmaterial respects, the .financial condition and results o,f'operationsof the Company .

As Sonus's I Q 2003 Form I O -Q contains several material rnisstatement.; , &J ndant N i1 .1' s

certification was materially Fake when made .

It . 2003 Second O u arter Results

152 . (.)rt JLdy 10, 2003, Songs is sued a pros ; release announcing i ts financial results for

the second quarter of 2003, which ended June 30, 2003 . Sonus falsely represented th a.t :

Sonus Networks, Inc . (Na.s&q: S() :NS) . . , today reported itsfinancial results For the second quarter ended June 30, 2003 .

Revenues for the second c arter of fiscal 2003 were $ 21 .4 millioncompared with $16 .0 million for the first. quarter of fiscal 2003 and$21 .3 million for the second quarter of fiscal 2002 . Not loss for thesecond quart r c7fw f i ctrl 2003 was .2 million or $0.01 er t t rcompared with a net loss for the Iir ; t quarter of fiscal ?(. 03 of$4 .4million or $0 .02 per share and a net loss of $17,8 millioln Or $0 . 09per share for the second quarter of fiscal 2002 .

4-1 11436 8 1.)

We are pleased with the progress that, we made in the secondquarter, par l trly with our 3% : i:c rs ittial revenue =r c, : wt1i" saidHassan AbmQcI, president. and CE (.), Souris Networks . (1,.Inp basisadded, )

153, The July 10, 2003 press .release falsely represented that Son s's second quarte r

2003 revenues were $21 .4 million, that Sonus's second quarter 2003 ne t loss was $3,2 million,

and that its second quarter 2003 net loss per share was ,$0,01 .

154 . l urtl rmor , elimci<t.t~t t~.~ ri' stat tta tat 44(wf e tx .re pleased witty t.13 . progres s

that we made in the second quarter, particularly with our 33% sequential r .venue growth" .

contained in Sonus's July 10, 2003 press release was materially false, Based on Bonus's 200 3

restated revenues, Sontus's revenues grew from $9 .209 million to $15, 366 million .. .. growth of

approximately 67%, not the stated 33%-

1. 55- So nus .hay admitted that its reported f nancial results for the second .q uarter o f

fiscal 2003 were materially false . Sc.~i3l .l ;' r venues were overstated by $5 .99() million , its .ne t

income (loss) was till Sstated by $4,091 million, and its net income (loss) per share was misstate d

by $0,01 .Absent the accounting improprieties, the Company would have reported revenues o f

$15 .366 million, net income (loss) of ($7301 million ), and net income (lows) per share o f

($0,03) . Furthermore, Sonus originally reported its second quarter 2003 prod ruct revenues as

$14.929, overstating these revenues by $6-674 million. Restated, Sonus's product revenues were

$8.255 m illion. Sonus originally reported its second quarter 2003 service revenues .as $6 .427

million, understa ting these revenues by $0 .694 rrmilliorl . Re aWd, Sorius's service revenues wer e

$7,1 .1 .1 million_ So .rrrus originally report d its second (.la arter 200 3 cost of revenues for products

as $5 .662 tnill .ion, misstating the cost of revenges I 'or products by $1 . 66 tamillion . Restated,

Sonus's cos t of` re;venu s for products was $3.896 million. Son us originally reported its second

41114.36 90

quarter 2003 cost of revenues :tar services as $3 .131 million , misstating the cost ofrevenues fo r

services by W238 million. Restated, Sonwi's cat 01 revenues for services was $3 .369 million .

Sonus originally reported its sccond quiaxrter 2003 total cost of revenues as $8,793 million ,

misstating, the total cost of revenues by $1 .528 million. Restated, Sonus's tota l cost. of revenue s

was $7.265 million, Sonus originally reported its second quarter 2003 gross profit as $12 .563

million, nniisstating sonus'S gross profit by $4.462 million. Restated, Bonus's gross profit. was

$8 .101 million- Bonus orig .hla.lly reported its se cond quarter 2003 research and developmen t

operating expenses as $8,245 million, misstating research and development expenses by $[) .259

pillion. Restated, Sonus's .rescarch and 1. veloprmlernt expenses were $8 .504 million . Sonus

originally reported its sales and marketing expenses as $5,643 mil lion, misstating its sales and

zmlark .ting expenses by $1 .167 t Pillion . Restate d, Bonus's sales end .marketing expenses wer e

$4,476 .million . Sonus originally reported its second quarter 2003 general and adrninistrat:ive.

expenses as $1 . 1 88 million, rnhisstatin its general and administrative expenses by $0 .268 mmmillion .

Rest .ted , SOPLts's gene ral and . t: dminist:rat.ive expenses were $1 .456 million . Bonus originall y

reported its second quarter 2003 stock -based compensation expenses as $0 .739 million ,

misstating its stock-based compensation expenses by $0.094 million Restated, Sonus's stock-

based compensation expenses were $0 .645 million . Sonus originally reported .its second quarte r

2003 amortization o f goodwill and purchas .d intangible assets as 0 .271 million, misstating th e

amortization of goodwill and purchased intangible assets by $0.331 m illion . Rest lted , Sonrxs' s

amortization of goodwill and purchased intangible ; was $0.602 million, Sonuus originally

reported its second quarter 2003 total operating expenses as $16 . 086 million, misstating tota l

operating expenses by 50.403 .million . Restated , SornrIs"s total operating expenses were $15 .68 3

#111436 91

mill .iarn . Somas Ofigiflally reported its second quarter 2 003 loss from operations as ($3-52 3

rrtilli on), i risstating los From operations by $4 .059 million, Restated, Sonus's income (loss )

from ope.rat:ions wa s ($7 .582 million) . Bonus made several material tn isstat :xmme nts in its Form

I O-Q for the quarterly period ended June 30, 2003 (hereinafter, "2Q 2003 Form 10-Q") a s

indicated by the re : taternenls found in So.nus"s 2Q 2004 Form 1 O-Q and 2003 Form 1 O- /A .

156, In Bonus's original sewncl quarter 2003 Consolidated Statements of Cash Flow s

in its 2Q 200' Form 10-Q, Sonrts misstated de:Eerred revenue as $14 .94 7 amm.illion. However, th e

2Q 2004 Form I04) .restated M r:red revenue as $15 .412 million - an adjustment of $ .10,46 5

million . With respect to inventories as stated on Somas°s second quarter 2003 Consolidate d

Statement (Cash Flow : ;, Bonus misstated "inventories as (50 .776 million) while Sollus's 2Q

2004 Form I 0-0 restated "inventory" as ($4.957 million) - an adjustment o[' 4 .1. 81 million .

With respect to SOnus", accrued expenses a: stated in its second quarter 2003 Consolidate d

Statenieifls of C"a : h Flows, Sonus misstated accred expenses as ($3 .910 million ) while its 2Q

2()04 Form 10-Q restated accrued expenses as ($2,764 million) an adjLIMMen1. of $1,14 6

million .

57 . On August 14, 2003, the Company filed with the SEC a report on Form 10-Q for

the second quarter of '2003, It. was signed by defendant. Nil] . It was also signed and certified

pursuant to sections 302 and 906 of the Sarhanes-Oxley Act of 2002 by both defendant Ahmed

and defendant Nill . Defendants Ahmed and .Nil l reviewed, approved of, and caused the 2Q 200 3

Form I0-Q report to be tiled with the S P C . The 2Q 2003 Form l0-Q stated that :

' h e accompanying unaudited co densed consolidated financial

statements have been prepared by onus end reflect all

adjustments, consisting only of norma1 recurring adjustments that

in the opin ion of manaagemetit are necessary for a lair Statement o f

0111436 92

the results for the interim PQ.riods . The unaudited condensedconsolidated financial staterne its have been prepared in accordancewith the regulations of the Securities and Exchange Commission(SEC'), and o3tl .it or Condense certain ax~l<? ra~~a .fi« .a7 and f'c otnotedisclosures pursuant to existing S C rules and regulations .

The 2Q 2003 Form 10-Q report included So~~ ;' .f .1 4 . nancial results !'car the second quarter of

fiscal 20(.)3, which were materially m nisstated .

158 . Sonus also rnacle material misstatements concerning revenue recognition in its 2 Q

2003 Form 10-Q:

S01111'; recognizes revenue from product sale to end u ers, res llersand distributor : upon shipment, provided there are no uncertaintiesregarding acceptance, persuas ive evidence of an arrangement

exists, the sales price is fixed or determinable and collection of the

related receivable is probable . If uncertainties exist., Sorirrs

recognizes revenue when those r .kricerlai sties are re olved . In

multiple element arrangements, in accordance with Statement of

Position 97-2 and 98-9, Bonus uses the residual method when

vendor-specific ob cctive evidence does not exist for one of the

delivered elements in the rrMa,rngement, Service revenue is

recognized as, the services are provided . R everwe from

maintenance and support arrangements is recognized rat 'ably over

the term of the contract . Arnount.s collected prior to satisfying the

revenue recognition criteria are reflected as deferred roven .k.w,

Warranty costs are estimated and recorded by Sonus at the time of

product revenue rrecogrnitio .

onus's .rest rt :ment indicates that Sonus did not hallow the SE,( ;`, the AI CPA, or its own policies

fOr appropriately recognizing revenue,

159. So.nus also made the f:Oliowing materially false statements concerning its interna l

controls and procedures in its 2Q 2003 Form I O-Q :

(r) "'valuation ol,do' closur°e controls a d procedures . Our thief'executive officer and chic F fi ncial officer have reviewed andevaluated the ff`ectiveness of the design and operation of outdisclosure controls and procedures (as defined in .Exchallge ActRules 240,13a.-l 5(e) arld 15d- I 5(.e)) is (.):('the end o:f'the period

# 111436 93

covered by this quarterly report . Based on that evaluation, our chiefexecutive officer and chief financial officer have concluded tha tour current disclosure controls and procedures are designed toensure that infic r.mation required to be disclosed by Lis in reportsthat. we file or submit render the Exchange Act is recorded,processed, summarized 3d reported within the time periodsspecified in Securities and 1: 1'xchange Conimission rules and .foamsand are operating in an e :f'f: .ctive ma .n.ner .

(b) Changes in internal control over / n.uncial reporting. Therewas no change in our internal controls over financial reportingdaring the period covered by this quarterly report that ha sm,-.aerially affected, or is reasonably likely to materially affect, ourintenia l control over fn ancial reporting .

SOT1L1S la ter admit ted the existence during the Class Period of mate rial weaknesses concernin g

int..rnal control matters, thereby confirming this representation was .materially false when made .

160, In his August 13, 2003 Certification Pu rsuant to Section 302 of th e

Sarba nes-Oxley Act of 2002, defendant Ahmed made additional material misstateme nts by

signing and certif.yirig the following :

I . .l :las an M . Ahmed, President and Chief Executive ( :)I Beer of

Sonus Networks, :Inc ., certify that :

I . I have reviewed this quarterly report on f orr ,m 10-Q for theperiod ended June 30, 2003 ("Quarterly Report") of SonusNetworks, Inc . (the "Registrant") ;

2 . F3ased on my knowledge, this Quarterly Report clues not . containany untrue s tatement of a material flict or omit to state a i ater.ia l

f:10 necessary to lake the Statements made, in light of tileQirCLirtl :staflces under which such statements were made, no t

misleading with respect to the period covered by this QuarterlyReport ;

3. Based on itty knowledge, the financial statements, and otherfiIN1116 aal i nnlO rmatioxn included in this Quarterly Report, .fairly

present in all niate:ria.l respects the financial condition , results ofoperations and cash flows o ! the (Reg istrant. aas of, and f or, the

periods presented in this Quarterly Report ;

#111436 94

4. The Registrants other certifying officer and 1. are responsiblefor establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules I L a-15(e) and 15d-15(x:)) orthe Registrant and have,

(a) Designed such disclosure controls and procedures, or causedsuch disclosure controls and procedures to he designed under oursupervision, to ensure that material information relating to theRegistrant.. including its consolidated subsidiaries, is made knownto us by other within those entities . particularly during the periodin which this Quarterly Report is beinng,p. repaared ;

(c)1::'vatuated the of Activeness oft he Registrant's disclosurecontrols and procedures and presented in this Quarterly Report ourconclusions about the e ect,iveness of the disclosure controls andprocedures, as of the end. of the period covered by this QuarterlyReport b sQd on such evaluation ; and

(d) Disclosed in this Quarterly Report any change in theRegistrant's internal control over financial reporting that occurredduring the Registrant's most recent fiscal quarter (the lac i t.r nt'l iurth Fiscal quarter in the case Of an {IJIM l report) that hasmaterially fff-cted, or is reasonably likely to materially 4 .i1'lkct, theRegistrant's internal control over financial reporting ; and

5 . The Registrant's other certifying officer and I. :hav ; disclosed,based on our rno t rece nt evaluation of internal control owrFinancial reporting, to the Registrants auditor s and the {: editcommi ttee oI` Regis tra.ant 's board of directors ,

(a) All significant deficie ncies and mate rial weaknesses in thedesign or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Registrant.' ;ability to record, process, summarize and report financia lin fo rmation ; and

(h) Any fraud, whether or not .material, that involves managementor other employees who have a significant. role in the Registrant'sintermd. control over financial reporting ,

11111436 95

As Sonus has admitted the existence during l he Class Period of significant internal contro l

matters that co llectively Constitute 'material weaknesses,"' defendant J11nied's Section 30 2

C:;erti ication was material ly thise when made.

161 . In his August 1 3, 2003 CortiRica iion Pursuant to Section 302 of the Sarhanes-

Oxley Act of 2002, defe ndant Nill made additional material misstatements by signing and

Certifying the l allowing ;

I, Stephen J . Nill., Chief F inanci al Officer, Vice :President ofFinance and Administration and ' I f easarer of Somis Networks,Inc ., Certify that .

1 . .1 have reviewed this quarterly report on Form 1 0-Q for thepe riod ended June 30, 2003 ("Qua rterly Report" .) of SoxnusNetworks, Inc . (t .he "Registrant") ;

2 . Based on my knowledge, this Quarterly Report does not containany untrue state. iont of 'a matQrial k ict or omit to state a material

duct necessary to make the statements i tack, in light o,f't : aecircumstances under which such statements were made, notnn .is .leadin with respect to the period covered by this QuarterlyReport ;

3 . Based on my knowledge, the financial statements, and otherfinancial information included in this Quarterly Report, fairlypresent in all material respects the financial Condition, results ofopQrations and cash flows of t (. Registrant as of, and k.)r, theperiods presented in this Quarterly Report ;

4- The :Registrant's other certifying officer and I are responsiblefor establishing and maintaining disclosure cmtrols and procedures(as defined in [. xchange Act. Rules I3a - 15(e) and I3d-i SS(e)) ft rthe i e ist,rant and have :

(a) Designed such disclosure controls and procedures, or causedsuch disclosure controls and procedures to he designed under oursupervision, to ensure that material information relating to theRegistrant, including its consolidated : ubsidiarices, is .made knownto us by others within those entities, particularly during the periodin which this Quarterly Report is being prepared ;

#111436 96

(c) Evaluated the ei'ct :i.veness of the Registrant"s di : closurecontrols and procedures and presented 41 this QE3a1rterly Report ourConclusion : about. the electiveness of the disclosure controls andproceduures, as of'the end of the period covered by this, Quart .rlyReport based on such CWdLW.tioV ; and

(d) Disclosed in this Quarterly Report any change : in theRe gist.rant's internal control over financial reporting that occurredduring, the Registrant's most regent fiscal quarter (the Registrant'sfourth fiscal quarter in the case of an annual report) that hasr iateria .lly .ff:ected, or is reasonably likely to materially affect, theRegistrant's internal control over financial reporting ; and

5 . The t egistrant's other certifying officer and 1 have disclosed,based on our most recent. evaluation of internal control overlirrtaricia .l reporting, to the Registrant's a dito .rs and the auditcommittee ofRegistran.t's board of directors ,

(a) All significant (101ciencies and material wa akl3 in thedesign or operation of int.ern al control over financial reportingwhich are: reasonably likely to adversely affect . e :R.egist :rant'sability to record, process, summarize and report :financia linformation; and

(h) Any Fraud, whether or not ni aterlal, that. involves managementor other employees who have a significant role in the ltegisi.raa isinternal Control over financial reporting .

As Sonus admitted the existence (:)!'" Control matters that collectivel y

constitute 'material weak n css s, . ' during the Class Period, de endant Ni11's Sec tion 302

(:..utific a,tion was rnaterially fi ::else when made .

162 . On August 13, 2003, dekndant Ahmed made additional material l~ i tat. xa x~t s

by signing the C ertiicatio ln P U P5LIa nt to 18 X,i .S .C. Section 1350, as Adopted .Pursuant to Section

906 of the Sarh nes-Oxl :y Act of'2002 :

In connection with the quarterly report on Form IO-Q of-So nusNetworks, Inc . (the "C'ompamy") for the period ended June 30 ,

4111436 97

2003 as .fled with the Securities and k a ckhange (.'on m .m.ission on thedate heruc}f'(the ".R ;E)o .rt"), the undersigned, I.laswara M_ Abmced,President and Chief' Execrutive [ ;:) :f cer of the Company, therebycertifies, pursuant to 18 t.1,s,(.I . Section 1350 . a, adopted pursuantto Section 906 of the Sarhanes-Oxley Act of 2002, that :

(1) the Report fully complies with the requirements of Section13(a) or 15(d) ofthe Securities Exchange Act of 1934; and

(2) the inlormation contained in the Report . fairly presents, in allmaterial respects, the financial condition and ri sult . ; oI operationsof the Company .

As Bonus's 2Q 2003 Form 1 ()-Q contains several material misstatements, d a~cl<aaat . .f~c c cl '

Section 906 certification was materially false when tnade .

1(3, On August 13, 2003, defendant Nill made additional material misstatkmient: by

signing and certifying the :following Lcrtilication Ptirsuant to 1 1..J. ' . Section 1350, as

Adopted Pursuant to Section 906 of the Sarbanes-Ox.iey Act of 2002 :

In connection with the quart ;rly report. on Form l0-Q of onusNetworks, Inc_ (the "Company") for the period ended June 30,2003 as filed with the Securities; a d f: xchang,e Commission on thedate hereof'(th e "Report"), the undersigned, Stephen J Nil], ChiefFinancial (,)Ricer, Vice President of Finance and Administrationand ':I"r a. rasa r cafe the Comp rtny, her by c rt.i fie , pursuant to18 U,S C. Section 1350, as adopted pursuant to Section 906 of heSitrWnes'4)x.ley Act of 2002, that. :

(l .) the Report :Itrlly complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1 934; and

(2) the it formation contained in the Report .iuiriy presents, in allmaterisll respects, the financial condition and results of ?perations

r>f the CIompany .

As Sonus's 2Q 2003 . .or,m J.O-Q contains several z a t. rial mi t.<ateme ts, d endant Ni91" s

Section 906 certification was ma terially k alse when made .

1 1

9.11 1436 (.)$

1f . rosPc tL ru .ale tter~ [) xtweci_ c ► tmlfiL r 21 211()3

164. Sonus's Prospectus Supplement dated September 23, 2003 incorporates b y

reference other S 1.11C, filings as t.ollows: Form IO-K for the year ended .December 31., 2001, 1-orm

10-.l( for the year ended December 31, 2002, Form I 0Q .f r the quarterly period ended Marc h

31, 2002, Form I 0-Q for the quarterly period ended June 30, 2002, Form l O-Q for the quarterly

period ended September 30, 2002, Form I O-Q for the gt .i.arierly period ended March 31, 2003 ,

and F'o .rtn 10-Q for the quarterly period ended .l ine 30, 2003, The forego .ing identified SE C

filings were .i7rateria.lly Calse and misleading for the reasons alleged hereinabove . 'I herelore, the

September 23, 2003 Prospectus Supplement was also materially Else and misle ading- 17.hae:re was

no dis C lo ure in the September 23, 2003 Prospectus Supple ment ol'any of the ma erial adverse

l: w. as alleged herein which were in existence as ot 'that date .

, . 2[)(13 wThkKcI_Quartgr Result s

16-5, On October 8, 2003, Sonus issued tt press release announcing its financial result s

for the third quarter of fiscal 2003, which end .cI. September 30, 200' . Sonus represented that :

Sonus Networks, Inc. (Nasdaq . SONS) . . . today reported itsfinancial results for the third quarter ended September 30, 2(.)(.)3 inaccordance with I. .1 . . generally accepted accounting principles(( .iAAP) .

l µ r c~c t E ar the third quarter of' :fisc;al 2003 were $28',6 millioncompared with $21 .4 million fir the second quarter of:'fscal 2003and $7,4 million for the third quarter of fiscal 2002 . Net incomeE'ort the third gL_Lar ter of fisca.I 2003 was $1 .2 m.i Ilion or $0.0 1 perdilUted share compared with a net. Ions for the ecr.7~~ 1 quarter offiscal 2003 of $3 .2 tuillion or $() .01 per diluted share and a net losso[' $21 .6 million or $0.11 per diluted share :for the third quarter ofFiscal 2002 .

111436 99J

This was a strong quarter for Bonus Networks, ~? ur Fourthcon.,c utive quart r of revenue growth,, said Hassan Alitned,president and ['t O, Bonus Networks . Our revenues grew 34%S ietntially to $28 .6 million, reflecting increased market demandfor packet telephony and the expanding number of customers whohave adopted Souris" solutions ." (F; mphas is added . )

160, The October 8, 2003 press .release t isel,y represented that Sonuss revenues fo r

the third quarter of fiscal 2003 were $28 .6 mr illion, that Sonus s not income .fur the third quarter

of fiscal 2003 was $1 .2 .million, that Sonus's net. income (loss) per share was $0 .01 per share, and

that fiour consecutive quarters of revenue growth occurred by the third quarter of 2003 . Erich o f

these statements was materially False when made .

167 . Sonus has admitted that its reported financial results for the third qttarwr of 200 3

were materially false . In Sonus's Form I O -Q for the third quarter ofi ; cal 2003 (hereinafter "3 Q

2003 Form I O- Q"), Sons, overstated revenues by $6.393 million, overstated its net income by

$6.238 million, and ove rstated its net income (loss) Iper : ha.r ~ by $0.03_ Absent the accountin g

improprieties, the Company would have reported total revenues of $22 .25 1 . million, .net incom e

(loss) of ($5 .029 million), and net income (loss) per share of ($0 .02) . .f: urtlh .rti10rew Sonu s

originally reported As third quarter 20031 produa revenues as $22.352 xa:t .illion, overstating these

product. r :venues by $7 .824 million. Restated, Sonus's p roduct revelwes were $14,528 million ,

Son us originally reported its third quarter 2003 service revenues as $6.292 million, understatin g

these service revenues by $1 .431 million. Restated, Sonus's service :rove. ies were $7 .723

million . Sonnus originally reported its third quarter 2003 cost of revenues for products as $7,237

million, misstating the. cost o :f' .revenues for products by $1 .855 million, Rest rted, Sonus's cost o f

revenues for products was $5 .382 i illion. Sonus originally reported its third quarter 2003 cos t

of revenues or service ; as S3,810 million, misstating the cost of`revenues for services by $0,064

#111436 100

s illion. Restated, So nus's cost of revermes fhr services was $3,874 million . Bonus originall y

reported its third quarter 2003 total cost of`revennu.ues as $11 .047 million, misstating the total cos t

of revenues by $1,791. million, Restated, Sonus's total cost of revenues was $9,256 million .

Sonus originally reported its third quarter 2003 gross prolit as $17 .597 million, misstating

Sonus's gross profit by $4,602 .million . Restated, Sonus's gross profit was .$12.995 million .

Sonus originally reported its, third quarter 2003 research and development . operating expenses as

$7.984 m l .lxc).~ .. .~ isstat n research and development expenses by $ 0 052 million . Restated,

Bonus's research and development expenses were $8.036 million, So xus originally reported its

third quarter 2003 sales and marketing expenses as $6 .536 million, misstating its sales and

marketing expenses by $ 1 . 1 96 million . Re: tate :d, onw.,'s sales and marketing expenses were

$7 .732 milbon_ Scones originally reported its third quarter 2003 general and administrative

expenses as $0 .999 .mil .hon, misstating its general and administrative expenses by $0.157 million _

Restated, onus's general. and adm inistr at.iv4 expenses were $0 .842 millionn . Sonus originall y

reported its third quarter 2003 stock-biv3Qcl compensation expenses as $0,866 million, misstating

its stock-based compensation expenses by 0 .181 I Pillion . R .sta.t d. onus's stock-based

compensation expenses were $1,047 million . Son us originally reported its third quarter 2003

amortization of 'goodwill and purchased intangibl issot.s as $0,271 million, misstating; the

milortization of oodwiil and purchased intangible assets by $0 .331 million. Restated, Sonus' :

amortization of goodwill and purchased intangibles was $0_602 million . Sonus originall y

reported its third. quarter 2003 total operating expenses as $16,656 million, misw.ling; tota l

operating expenses by $1 .603 million . :Restated, Sonus' s total operating expenses were $18,25 9

mm illion . S anus originally reported its third quarter 2003 income (loss) from Operations as $0.94 1

!#111436

million, misstating loss from operation s by $6,205 million, Re stated , Sonuss income ( lows) from

operations was ($5 .264 million). Sonus thereby made several material 131i k .<rcc~:~xa ~~t in its Form

10-Q !'car the quarterly period . ended September 30 , 2003 as con firmed by the restatements foun d

in Sonus's 3Q 2004 Form IO-Q and 2(0)3 Form I O-K1.A .

168 . In Sonus's original third quarter 2003 Condensed C,'onsolidat .d Stat.eme tits o f

( .."ash 'lows in its 3Q 2003 Form 10- (. , Souris misstated def rred revenue as $4 .801 million .

However. the 3Q 2004 Form I0-1) restated deferred revenue as $25,411 million , ... an a (JJ L.iskMerl t

of $20.610 million. With respect to inventories as stated in Bonus's third quarter 200 3

Condensed Consolidated Statement ol'C ;'ash Flows, Sonus misstated "ill ventori s" 4a,s ($1 .557

million ) while Sonus 's 3() 2004 Form 10-() restated "inventory" as ($5 .973 nil Mon) ... .. an

adjustment of $4 .4 .16 millio n . With respect to Sonus's accrued expense. ;s a stated in. its third

quart er 200' Condensed Consolidated Statements ofC.'ash Flows, Soan«s 1 Misstated accrued

expenses as ($2 .707 nillioni ) in :.accrued expenses while its 3Q 2004 Form 1.0-Q restated it s

accrued expenses as ($0 .9#9 million) ... an ad,justi lent of $ l _718 million ,

169, f )el'c nckmt. Ahmed made at least two statements in So .is' s

(October 8, 2003) press release- "`'['his was a strong quarter :R r• Sonus Networks, of r fc}u .rth

consecutive quarter of revenue growt h,' said I lassan Ahmed, pre sident and ["l: O, Sonnu s

Networks . 'Our revenues grew 34% sequentially' to $28 .6 inillion_ . . _ ` First, defendant /th med d

falsely C laimed that Sonus had achieved $28 .6 million in revenues car the third quarter of`2003

when, in fact, SOnLIS had achieved only $22,251 million in revenue for this qua rter . Second,

Sonus's restated total revenues were 12 .476 million in the lourkh qt rter of 2002, then $9 .209

million in the first quarter of 2003, then $15,366 m illion in the second quarter o 2003, and

0 1 11436 102

uinally $22.251 million in the third quartet of 2003, This restated revenue profile : shows that

Bonus's revenues had only been increasing for three consecutive quarters at the time deftn lan t

Ahmed In:tde his stateniexi .

170 . On November 1 0, 2003, the Company filed with the SEC a report on Form 10µ Q

for the third quarter of 2003, Defendant Nil! signed the 3Q 2003 Form 10-Q_ In addition, both

dekndant Alined and de.6(;.a (kmt Nil! certiFied and signed the accompanying Section 302

Sarhan .s-Oxley Certification and the accompanying Section 906 arbanesw()xley Certifi cation

. and Nil! reviewed, approved of, and caused the 3Q 2003 Form 1 O-Q to h e

fl d with the S1-?(', 'I:'he 3Q 2003 Form !()-Q report. stated that :

The accompanying unaudited condensed consolidated financialstatements have been prepared by SonIus and reflect alladjustments, consisting only oFnormal recurring adjuI : tnient.s tha tin the opinion of management are l cce ..1. :}iiry or a fair statement o f

the results fir the interim periods. The unaudited condensedconsolidated :financial statements have been prepared in accordancewith the re u .lations of the Securities and [I'Xchallge Commission(S.R"), and omit or condense certain information and loohlowdisclosures pursuant to exiting SF C rules and regulations .

The 3Q 2003 Form I O-Q .report included Sonnus's f a .lse financial results C or the third quarter o f

fiscal 2003, which were materially misstated .

171 . Sonxuus al so > aclc ill aterial r 7. isstatenlents concerning revenue. recognition in the

third quarter of 2003 :

Sorius recognizes product sales to end users,

resellers zmd distributors upon shipment, provided there u t : nouncertainties regarding; acceptance, persuasive evidence oFa n

arranges m nt exists, the sales price is fixed or determinable andcollection of the related receivable .is probable. If uncertaintiesexist, SOM.F., recognizes revenues when those uncertainties ar eresolved . In multiple element arrangem nts, in accordance withStatement of Position 97-2 and 98-9, Sonuus uses the residua l

!11 1143 6 103

method when vendor-specific objective evidence does not exist forone of the delivered elements in the arrangement . Service r .venuesare r cognized as the services are provided . Revenues frommaintenance, and ti pport arrangements are recognized ratably over

the term of the contract . Amounts collected prior to : atis lying the

revenue recognition criteria are reflected as deferred revenues .Warranty costs are estimated and recorded by Somis at the time ofproduct revenue recognition .

Sonus'S restatement admits that Sonus did not follow the SE V, the A1C'P'A., or i ts own policies

for ::approp riately recognizing revenue ,

172, Somas also made the following materially false statements concerning it, ., interna l

controls and procedures in its 3Q 200 3 !Form I0-Q:

(a) 0/discio.sur'42 controls urul proceelurr°c,s•. Our

anagen rat., with t. e participation Of'aur Chief executive officerand chief financial officer, has evaluated the el'fc:ctiven ess of ourdisclosure controls and procedures (as defined in Rules 240 .13a-1 5(e,) and .l 5(1-15(e) oCtite l: .xchannge Act,) as ofth(.- end of tileperiod covered by this quarterly report . Based on that evaluation,our Chief executive officer and chief financial officer haveconcluded that, as of the end of the period covered by this quarterlyreport, our disclosure controls and procedures were (l ) designed toensure that material information relating to us, Including ourconsolidated ub idi ries, is made known to our chief executiveofficer and chief f nancial officer by others within those entities,particularly during the period in which this report was being .prepared, and (2) e'lIbctivc, in that they provide reasonabl easstir nQe that information required . to he di closed by us in Oreports that we File or submit under the Exchange Act is :recorded,processed, summarized and reported within the lime period ssp Qif'lL.ci in l.la(~ SEC's rules and f:orr is .

(b) (.7i ag e,s' in internal control over , fmane, irrl r e j)or t ingg, Therewas no change in our internal control over financial reporting (usdefined in tale : 240-13a-15(f) and 15(1-15(f) of the Exchange Act)during the period covered by this quarterly report that hasmaterially 4:ifl'ected, or is reasonably likely to materially {:affect., ourinternal co m.rol over I:inancia.l reporting .

4111436 l()4

S .rnus has ad mmitted the existence during the Class Period of material weaknesses concernin g

So.nus's internal controls, rondeting this representation r xaterially false, whey .m.ade .

173 . In his November 10, 2003 Certification 1 ursuant to Section. 302 of the Sarbanes-

Ox.le:y Act cif' 2002, defendant Ahmed made additional material misstatements by signing anti

Certifying the following ,

.I, Hassan M_ .Ahmed, President and Chief Excottive Officer ofSonus Networks, Inc-, certify t.hat. :

1 . 1. have r ;viewed this quarterly report on Form I0-Q .for theperiod ended September 30, 2003 ("Quarterly Report") of Soria :;Networks, Inc . (t.he "Registrant") ;

2. 1: aseci on my knowledge, this Quarterly Report does not containany untrue statement caf°a material fact or omit to state a materialfact n cessary to make the statements, made . in light of thecircumstances and .r which such state ents were made, notmisleading with respect to the period Cover . d by this QuarterlyReport ,

3 . Based on my knowledge, the financial statements, and otherfinancial information ImIt ded in this Quarterly Report, thirlypresent in all material respects the financial condition, results Ofoperations and cash flow, of the Registrant as coy and Ibr, theperiod, presented .in this Quarterly Report ;

4. ' .ftc f. .egistrant"s other certifying o{'fiver and I are responsiblel'or establishing and maintaining disclosure controls and procedures(as defined in 1 xchange Act .Rules 1.3a-15(e) and 15d- l 5(e)) fo rthe Registrant and have :

(a) Designed such disclosure controls and procedure,,,, or Caused:;rich disclosure controls and procedures to h designed under oursupervision, to ensure that .material information relating to theRegistrant, including its consolidated subsidiaries, is grade .knownto in, by others within those entities, particularly during the periodin which this Quarterly Report is being prepared ;

01 1436 105

(c) f va.lurated the e ..f~ectiveness of the Registrant's disclosurecontrols and procedures and presented in this Quarterly Report ourconclusions about the effectiveness of the disclosure controls andprocedures, as of the end of the period covered by this QuarterlyReport based on such evaluation ; and

(d) I)i :sclosed in this Quarterly Re port any change in the

Registrant's internal control over Iinancial reporting, that occurred

during, the l.Leg;istrant's most recent fiscal quarter (t.hhe .Registrant's

fourth fiscal quarter in the case of an rnnml report) that hasmaterially affected, or is reasonably likely to materially aff'ect, the

Registrant's internal control over financial reporting, and

5 . The Registrant's other certifying officer and I have disclosed,based on o r most recent evaluation of internal control overfinancial reporting, to the Regis t .r4artt's auditors and the auditconimittee of R.egistra.nt's board of directors :

(ar) All significant deficiencies and material weaknesses in the

design or operation of internal control over financial reporting

which are reasonably likely to adversely affect the Registrant's

ability to record, process, summarize and rep rt financia l

information, an d

(b) Any fraud, whether or not material, that involves managementor otht r employees who have a significant role in the: R.egistr ant'sinternal control over financial reporting .

As Sonus admitted the existence during the Class Period c71""` i r~ificant internal control matter s

that collectively constit ute 'ma terial weaknesses ."' del ncianf Afhmed's Sectio n 302 (.. ertillica tton

w{:l.S r i :rter sally false when made .

174. In his November 10, 2003 Certification Pursuant to Section 302 ofthe Sarhanes-

(..)xlcy Act of 2002, ddendant Nil] macs . additic.x mi l material mi ;tat ~~i rat. ; by i ning and

certifying the following ,

I, Stephen .I . Nils, (Biel' Financial Officer, Vice President o fI inance and Administration foal l'rea ►k-W.rer of Sonus Networks,Inc . . certify that :

#111436 106

1 . .I have reviewed this quarterly report on Form I O-Q for theperiod ended September 30, 2003 ("Quirt .rly Report"} of Son usNetworks, Inc, (the "Registrant" )

2. l:3aased on my krnowled e, this Quarterly Report does not contain

any untrue statement of a material fact or c .m.lt to state a material

fact necessary to make the statements made, in light of the

Circumstances under which such statements were made, not

misleading with respect to the period covered by this Quarterly

Report;

3 . Based on my knowledge, the financial Statements, and otherf: na cial .infor ration included in this Quarterly R.eport, f`a .irlypr sent in all m aterial respects the financial condition, results ofoperations and cash flows of the Registrant as of, and for, theperiods presented in this Quarterly Report ;

4_ The Registrant's other certifying officer and I arcs responsiblefor establishing and maintaining disclosure controls and procedures(as defined in Exchange /et .Rule 13a-I5( (.,, ) and 15d-15(e)) liarthe Registrant and have :

(a) Designed such disclosure controls a.nd procedures, or causedsuch diselOsUre controls and procedures to be designed under oursup ervision., to ensure that. material information relating to theRegistrant, including its consolidated subsidiaries, is made knownto us by others within those ent,it:ies, particularly during the periodin which this Qua .rterly Report is being prepared ,

(c.) E:i,valuated the eti ctiveness of the Registrant's disclosurecontrols and procedures and presented in this Quarterly Report ourconclusions about the . 1'ectiveness of'ti-ic disclosure: controls andprocedures, as of the end of the period covered by this QuarterlyReport bas d on such evaluation ; and

(d) Disclosed in this Quarterly Report any change in theRegistrant' ; internal control over fnancial reporting that. occurredduring the Registrant's most recent liscaa] quarter (the Registrant'st uirth .i.sc;al quarter in the case clan annual report) that .hasmaterially affected, or is reasonably likely to materially affic;t, theRegistrant's internal control over financial reporting ; and

4111436 107

5 . 'I he Registrant's other certifying officer and I have disclosed,based on our most recent evaluation of internal control overfinancial reporting, to tF.ie Regist:r trnt's auditors and the auditcommittee of Re istr ant's board of directors :

(a) All significant deficiencies and material weaknesses in thedesign or operation of internal control over financial reportingwhich are reasonably .likely to adversely {if"fhct the .Registra:nt'sability to record, process, summarize and report financia linformation; and

(b) Any fraud . whether o r not t aterial , that invo lves managementor other employees who have a significant :role .in the Registraxnt'sinternal control over financial reporting .

As Scams has admitted the .xistence during the Class Period of "significant internal contro l

matters that collectively con stitute; 'material weaknesses,"' defendant Nifl's Section 30 2

Certification was materially false when made .

175 . On November 10, 2003, defendant Ahmed made additional materia l

misstatements by signing and Certifying the f flowing Certification Pursuant to .18 U .S.C" . Section

1350, as Adopted Pursuant to Section 906 ofthe ASarha .nes Oxley Act of 2002 :

In connection with the quarterly report on .Form 1( .)-Q of Sonu ."

Networks, Inc, (tile "Company") for the period ended September

30, 2003 as filed with the Securities and 1 :?xcl~tul t' Colllllmissionl on

the date hereof (the "Report"), the undersigned, Hassan M . Ahhrti.ed,

President and Chief J . xecut €ve Officer of the [_'omm Panay, hereby

certifies, pursuant to 18 U . .C . Section 1350, as adopted pur uarli .

to Section 906 of t.bc drharncs-Oxley Act of 2002, that :

(I .) the Report fully complies with the :requirenicrits of'Sectionn13( .a) or 15(d.) of the Securities :k::?x.chang : .Act of 1934, an d

(2) the information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operationsof the C. omampainy .

It 1 11436 108

So nus', Q 2003 Form 10-Q contains several material misstatements as herein alleged, renderin g

defendant Ah .rned`s certification t Mate rially l: Ise when made .

176 . (,)n .November 10, 2003, defendant Nill made additional qu a litative material

n iisstaternent: by signing and certifying the Following Certification .Pursuant to 18 C_) .S . C . Section

1350, as Adopted Purs uant to Se ction 906 o:(' i.he Sark a. es-Oxley Act of 2002 ,

In connection with the quarterly report on Form 10-Q of Sf nusNetworks, Inc. (tile "( ' I ompany") f ,r the period ended September30, 2003 as Wed with the Securities and Exchange Commission onthe date hereof (Ou" "Report"), the undersigned, Step lien J . M ALChief Financial Officer, Vice 11residen.t of'Fin nce andAdininistration and ` .f"reasurer of~the C.:'ompany . hereby certifies,pursuant to 18 t .l, .C , Section 1350, as adopted pursuant to Section906 of the Sarha.nes-Oxley Act of 2002, that :

(1) the Report :hilly complies with the neqtjjrQjjjeIIts of Section13(aa) or 15(d) ofthe Securities Exchange Act of 1934; and

(2) the information contained in the Report f iirly presents , in allmaterial respec ts, the financial co nciiti on and .results of operationsof the Company .

;arr.'s 3Q 2003 Form 10 contains seve ral mate rial r Yisstatement.s as herein alleged, renderin g

de .t ;ndarit Nil!"s certification a ateri a.lly f lse when made .

177, The above representations and df,:f nd a.nt certifications were .materially fill . and

misleading when made becau se, as cleh. d.ants knew or recklessly disre irded, onus" s financia l

statements were not prepared in accordanc e with (IAAP and Sonus's internal controls were

materially deficient and inef'.fectivc during the Class Period .

11

1 1

#111436 109

NO SAVE HARBOR

178, The statutory safe harbor period provided for forward-looking state ments rude r

certain circumstance s does no t apply to the allegedly false statements pleaded .in this complaint .

Many of the specific statements pleaded herein were not id ntified its "forward-lookbi g

st. t.eme t.s"' when r nacle . To the extent there were any forward-looking statements, there were no

m eanningful Cautiona ry statements identifying iaipo rtannt factors that could cause actual results to

di1 Cr materially from those in the purportedly (i.~rrnrtz.r lwlc~~7l{ic t; tat meat .

179. Alternative ly, to the extent that the statutory safe harbor applies to any iorward-

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

statements because at the time each of' t.ho se .Forward-looki .n g statements was made, the particular

speaker knew that the part.icul ar forward-looking statement was false, and/or forward-lookin g

statement was a~.dh~rrii.ed and/or approved by an executive officer of Bonus who knew or was i n

a position to know that. those statements were fa lse when made .

FIRST CLAI M

Violation Of Sections 10(h) And 20(a) Of The ExchangeAct .A .n I Rule 1.(lb-5 ins,t,w. !<I I)el' yncll xr is

180 . 1..,e ad Plaintiff repeats and realleges each and every allegation made above as i f

hilly se t forth herein .

181- During the Class Period, clc fenda ~t. , and each of them, c arried out a plan, schem e

and course of conduct. which was intended to and, throughout the Class Period, did (i) deceiv e

the investing public, including Lead Plaintiff and other ("lass i embers, as alleged herein ; (ii )

artificially inflate and maintain the market price of So nus's Securities ; and (iii) cause Lead

['laintiIiand other members of the Class to purchase Son us's securities at arfijiQl,a.Jjy inflate d

##1'1 t436

prices . In furtherance of' this unlawful schenw, plan and course (.7f-conduct, defendants, and eac h

of then-m, took the actions set firth herein .

182 . t)efindants ( i) employed devices, schemes . and artifices to deirar, d (ii) made

untrue statements of materi'd ( act andlor omitted to state material faet5 necessary to make the

statements not rrrisleading ; and (iii) engaged in acts, practices, and a course o,f business which

operated as a fraud and deceit upon the purchasers of'the Com.pany's securitk--5 in an effort to.

mai main artificially high market prices for SOnnuS'% Securities in violation c :Of° Section I O(b) of tlhe

Exchange Act anus .Rule l Ob-5 Promulgated thereunder . All de ndants aJ:re sued either as primary

participants in the wrongful and illegal conduct charged . herein or as controlling perso is a s

alleg ;d helow _

183 . In addition to the duties o ffull disclosure imposed on defendant as a result o f

their making affix atiYe stateni nts and report's, or participation in the 1l Yaking o f of irmat,iY e

statements and reports to the investing public, defendants had a duty to pro mmptly disseminate

truthful irnfur ..nIat.ion that would he material to investors in compliance with the integrated

disclosure provisions of the SEC as embodied in SEC.' .Regulation S-X (17 C .F .R . Section 210 .01

cat seq) and Regulation S-K (17 C; . F .R . Section 229. 10 Cl secy) and other SEC re ulat.io s

including accurate and truthful .iri!ornmrat .ic7 .ra with respect to the Co, r Vnipany's operations, financial

condition and earnings so that the market price of the Company's securities would be based o n

truthful, complete and accurate information .

184- ..)e!'hnda nts, individually and in concert, directly a nd indirectly, by the use , means

or instrumentalities of interstate commerce and/car the mails, engaged and participated in a

#111436

continuous coulrs ofconduct to conceal adverse material i formation {ghoul . the businness ,

operations, .finances and future prospects of Sonus as specified heret n ,

185 . Each of the defendants employed devices, scheme s and arti fices to de fraud, while

in possession o C rm Mteri al adverse non-public information and. each of them engaged in acts ,

practices, and a course of conduct as alleged herein in an ef'fbrt to assure investors of Sonus' s

value and performance and continued substantial growth, which included the mak ing of, or t h

participation in the making of, untrue Statements of material tc .t and omitting to slate materia l

facts necessary in order to make the statements made about 501-iLL and its business operations ,

finances and f ut.u:re prospects in the light of tlhi circr ►rt, Lance under which they were made, no t

rT.tisle adintg, as set forth more particularly hereinn, and engaged in t .ra nsaa.ctions, practices and a

course of bus iness which o perated as a fraud and deceit upon the purchas ers of Son u:'s securities

(luring the (lass Period .

186 . Each def'endants' primary liability, and control ling person liability, arise s .from th e

f flowing fthcts . (i) the Individ u;.rl l)Qf'mck nt.s were high-level executives a .nd./ot directors at th e

Company during the Class Period and members of the Company's management . team or had

control thereof ; ( ii) each of these defendants, by virtue of his responsibilities and activities as a

senior officer and/or director of the Company wa, privy to and participated in the creation ,

development and reporting of the Coin fany's internal budgets, plans, pro ectio .ns and/or reports ;

(iii) each of'i .hc se deftndams enjoyed significant personal contact and iamiliarit.y with the othe r

defendants and was advised of and had access to other members of the Company's manager- nt .

team. .internal reports and other data and iril'ormation about the Company's finances, operations ,

and sales at all. relevant times ; and (iv) each of these defend ixnts was, aware of the C'om pany' s

#111436 112

dissemination of inforlm ationn to the investing public which they knew or recklessly disregarded

was materially f{.►Ise and misletWin .

187, The defendants had actual knowledge of the misrepresentations and omissions o f

material fact sit forth herei n at the time they were r ade and/or omitted, or acted with reckles s

disregard for the Milli in that. dwy :fa.iled to ascertain and to disclose such facts, even though suc h

facts were available to them . Such defendants' material misrepresentations and/or omissions

were clone .knowingly or recklessly and for the purpose and effect of Concealing Sonus's tru e

operating condition , finances and I iture business prospec ts from the investing public and

supporting the art.ificially .11MIted price of it securities, As demonstrated by clef ► ciw~~ll. '

overstatements and rnisstat.e..nients of the Comp lny's business, revenues finances, operations and

earnings throughout the Class Period, defendants, if they d id no t have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by

deliberately refraining .from taking those steps necessary to discover whether those statement s

were false or risk d ing .

188. As a resu lt of the dissemination of-the mate rially false and misleading irifor-matioll

and I`ttilu re to disclose material facts , as se t forth {.above , the market price of S nu :, : securiti s

was artificially inflated during tlxe ('lass Period, In ignorance, o f' thce f xt that the marke t price of

So.nus's publicly-traded securities was artificially inflated, and relying; directly or indirectly o n

the lidse and misleading statements made by clefkndants, car upon the integrity of the market M

which the securities t .ra&., and/or on the absence of nmaterial adverse information that . was known

to or recklessly disregarded by defendants but not disclosed in public statements by defendant :

1-011436 113

during the :"lass Period, Lead I' ai tiffancl . the other members of the Class acquired Somis

securities during the Class f eriod at artificially inflated prices and were damaged thereby .

189. At the time of said misrepresentations and omissions, Lead Plaintiff' and othe r

member; of the (lass were ignorant of their fbisity, and believed them to be true . Had l ..lead

Plaintiff and the other members of the class and the marketplace known of the true f 11111,116,I ]

condition and business frospee ts of SOMIS, Which Were not di closed by dO.' nd ants, Lead

Plaintilland other members of tlhe Class would not have purchased or otherwise acquired thei r

Scows securities, or, iitllc y bad acquired such securities during the (lassPeriod, they would not.

have done so at the artificially inflated price s which they paid .

1.90, By virtue of the foregoing, defendants have violated Section I O(h) of' 01e

Exchange Act and Rule l 0b-5 promulgated thereunder .

191 . This Claim with regard to Section 20(a) of the I xchan e Act is assQacd by Lead

Plaintiffand the Class against defendants Ahmed and Nill based on Ahmed's and Nill's contro l

of Sonus . In addition, this control parson claim is asserted against defendant Ahmed basal o n

his control of'def ;ndant Nill _

192 . [)efenaciants Ahmed and Nill were controlling persons of4onus within th e

meaning of Section 20(a) of the Lxc .hange Act . By virtue of their executive positions, Boar d

membership (in the case of Ahmed), and stock ownership, these defendants had the power t o

in[ltence and control (and did 1111 1uenee and control , directly or indirectly .) the decision -making

of the Company, including the content and dissemination of` tt e various : tatement.s which Lea d

Plaintiff co nte nds are materially false and mnisle a .di .ng . 'Fl se defendants were provided with or

had unlimited access to the Company's inte rnal re orts , press releases, public filings, and othe r

111.1.1436 114

statements alleged to he misleading prior to and/or shortly after these statements were issued an d

had the ability to prevent the issuance o!'the folse statements Or cause. the fake statements to he

corrected .

193. Bones violated Section 1 0(b) and Rt.ile 10b 5 by the issuance of materially fals e

and mis.leaci .ixn statements as alleged herein, 1.1 y virtue oftheir positions as c ontrolli .inIg persons

of `onus , defendants Ahmed amd Nil! are liable to Lead Pla intiffand the C lass pursuant. to

Section 20(a) of the Exchange Act .

194_ I)e(cndant Ahmed was a c ont.ro l .lin person of N.ill within the meaning of Sectio n

2(:)(a) ofthe Exchange Act . By virtu . of Ahmed's .longstandiing, hierarchical busines s

relationship with de :lk .ndant Nil], deicndant. A.hmed's position as l?reside t. and CEO, an d

de i nd nt ill's duty to report . directly to defendant Ahme d, de[ ndaw Ahmed had the pow r and

ix fluence to control, and did influence and control, directly and indirectly, the conduct : f

defendant Nil! in connection with .his So .ni:ts-related activities ,

195 . As a direct and proximate result of dcf endiants' wrongful conduQL, Plaintif f

and the other members of the Class suffered damages in Connection With their .respective

purchases cal' Bonus securities during the Class Period, The price ofS anus's securities decline d

materially upon the public di closer s of facts which had been previously misrepresented or

concealed as alleged he rein,

SECOND CLAI M

Vio lation Of Sections 1.1 And 1 5 Of"The Securities Ac t

196 . Lead Plaintiff incorporate,,; by referee e and realleges Paragraphs f through 17 9

above as though fully se t forth lwrcein . However, for purposes of this claim, :Lead Plaintiff '

#111436 115

expressly disc laims and excludes any allegations that could be construed its alleging IraLLd O r

intentional or reckless misconduct, as this claim is based solely o n a claim of Strict. li ahil .i.ty (as to

ci .f`en(lant Bonus) Or negligence (its to defendants Ali.med and Nill) under the Securities Act .

197, 1 . e ac P laintifassert s this Claim on behalf of itself and members of the Subclass

who acquired SOIiUS common share ; pursuz<. nt. to the Prospectus Supplement dated September 23 ,

2003 which was issued pursuant to and as a part of the Registration St a .tement. and Prospectus

dated June 21, 2001, Registration No . 333-61940_ This claim is based on vio lation o.f Section I l

o:ftlie Securities Act, 15 U . ; . C . 77k, against Son4.p.s, Ahmed, and Nitl . In addition, I.,eud

Plaintiff asserts this Count fur violation of Section 15 of the Securities Act, 15 [ .1_s-C' §770 ,

against det dints Ahmed, and Nil] ,

198 . '!'the defendant,,; nanwd in this Claim issued, caused to be issued or participated i n

the issuance o f'the Sept .mber 24, 2003 Pro spectus Supplement and rela ted Reg istratio n

tatement. .

199. At the time it became efl' ctive, the Prospectu Supplement conta ined untrue

statements ofilmateri a .l :fact and/car omitted to state nia.teriaal k acts required to be stated therein

which were necessary to make the statements therein neat misleading , as further alleged above, in

violation of Section 1 f of the. Securities Act .

200, Detuitidant So nus is absolutely liable liar any mat riF .a.l misrepresentation o r

omission in [lie Prospectus Supplement . D endants Allmed and Nill each had a duly to make a

reasonable and diligent investigation ol, the statements contained in the Prospectus Supp!e .rrment ,

and to assure (bat such statements were true and that there was no oni .ission of material facts

required to he stated in order to make the statements contained therein not misleading .

4.1'11436 116

2(]l . Delenad nts Ahmed and Nil! each C iled t.o make a reasonable investigation anti

(lid not possess a .reaso .nable ground for the belief that the statements contained in the Prospectu s

Supplement were true or that there was no omission ofnlatirial fact necessary to make th e

statements made; therein no t misleading at the t :i.me .it became e,fIIQc1.ive .

202_ Lead Plaintiff' and me mbers of tF.re Subclass acquired Soma s shares pursuant to the

Prospectus Supplement without. knowledge of the untruths Or omissions alleged herein As a

direct and proximate result of (h'J'(2n&nts issuance of the Prospectus Suupplemmme t . containing

material misstatements and omissions, Lead Plaintiff and the Subclass ni .embers have suffered

sub tantial dal'a ages .

203 'l:'his Claim with regard to Section 15 of the Securities Act is asserted by Lead

Plaintiff and the Subclass against defendants Ahmed and Nii .i based on Ahmed's and dill' s

control of Sonus . In addition, this control person claim is as: ertcd againsa defendant A hlned

based on his control of del' ndal,t. Ni .11 .

204 . J.) iendant.s Albmed and Nall were controlling persons o .l' Sonus within the

meaning of Section 15 of the Securities Act. By virtue of' their executive positions, C:.ioard

membership (in the case of Ahmed), and stock ownership, these defendants had the power t o

inl:lu .enwe and control (and die! influence and control, directly or indirectly) the decision makin g

of the Company , it ciiidiing the content. and dissemination oft.he various statemems which 1.,ead

l'lai .nt'i .ff'contends are materially Use and misleading. These defendants were provided with o r

had u nlimiuM access to the Company's internal reports, press releases, public filings , and other

statements alleged to be misleading prior to and/or shortly after these statements were issued an d

#111436 117

had the ability to prevent the issuance of the :tialso statements or cause the li:ilse Statements to b e

corrected .

205. Sonus violated Section I '1 of the Securities Act by the issuance of the materiall y

thise and misleading Prospectus Suupplemennt and documents incorporated therein as herein

alleged . 1.3y virt:t ()l:'

their posi tions as control ling persons of Sonus, de ,.ndants Ahmed and Nil!

are liable to Lead Pliiintif' and the Subclass pursuant to Section 15 of'thQ Securities Act .

206. l..)c:i ndant Ahmed was a c ntrollin person ( )f Ni .ii within the meaning of

Section 15 o.f'tbe Securities Act, By virtue o#'A.hmed's longstanding, hierarchical business

relationship with defendant Ni .ll, de endant .Ahmed's position as President and CE.(), and

del ndarit Nill's duty to report directly to dcfiendant Ahmed, defendant Ahmed had the power an d

influence to control , and did influence and control, directly and indirectly, the conduct of

d6(Mchrnt Ni11 in connection with his Sonus-related {activities .

207. This action was brought within one year after the discovery of the 1.11ntrue

statements and on' issions (and within one y ar after such discovery should have been made in th e

exercise of re so abl diligence) and within three years after the issuance ofthe September 2(0) 3

Prospectus Supplement .

THIRD C AI M

VioIat.iou Of Section 12(a)(2) And 15 O .Me Secur it ies Act

208 . Lead Plaintiff incorporates by reference and .realleges :Paragraphs I through .179

above as though fully Set forth hherein, I lowever, for purposes of this Claire , Lead Plaintiff

expressly disclaims and excludes any allegations that could be construed as alleging, fraud o r

intentional or reckless .misconduct .

##11l436 118

209, Lead Plaintiff asserts this Claim on behalf of .itself and members of the Subclass

who acquired Sonus wine-non shares pursuant to the Prospectus Supplement dated September 23 ,

2003, This claim is based on violations of Section 12(a)(2) of (lie Securities Act, 15 U_S,C ,

§771( .1)(2) against de fendants Sours, Ahmed , and Nill. In asserts this

Claim fcrr v iolation of Section 15 oftine Securities Act, 15 U .S .C . §77o, against def dant.

Ahmed, and Nill . l .,ead Plaintiff and members of the Subclass acquired Sonus shares pursuant t o

the Prospectus Supplement .

210 . Defendants Sornus, Ahmed, and Nill actively and jointly caused to be drafted ,

revised. and approved the Prospectus SLipp] emrment., including the false and misleading document s

incorporated therein, finalized them 4Ind ca ed them to become of ective . But 1`i>r these

defendants having drafted, tiled, irid/or signed the Prospectus SLipp) C11Ient , the offering woul d

not have clo sed and Lead Piaintifand the Subclass members would not haw been issued Sonus

shares, as further alleged herein, I'hese defendants also solicited institutional i .nvest.ors, fund

managers and other investment prot'essiona!s to acquire Sonus shares pursuant to the .Prospectus

Sup lement..

211 . Absent the welling e!Thrts by Sonus, Ahrtned, and Nill, as set forth above, the sal e

of Sonus shares pursuant to the Prospectus Su.upplement would not have been consummated, A t

all relevant times, these defendants knew, or in the exercise of reasonable care should hav e

known, of the r usstatcrnents and omissions contained in the Prospectus Supplement as set fort h

above .

212, None of the material false and misleading statements and omissions contained i n

the Prospectus Supplement a s, alleged herein were known to Lead PlaintiCfat the time it wa s

issued Sonusshares purs uant to the Prospectus Supplement .

-#111436 119

213, '[-his C: (aim with regard to Section 15 ofthe Securities Act is asserted by Lea d

Plaintiff and the Class against defendants Ahmed and Nil! based on .I hmecf's and Nil!'s contro l

c}1` 4onus . In addition, this ontrol person claim is asserted against defenclant Ahmed based o n

his control of defendant Nill .

214 . 1,.)ef ndants Ahmed and Nil! were controlling Persons of Sonus within th e

nwaning of Section 15 of the Securities Aet . By virtue oftheir executive positions, Board

membership ( :in the ease of Ahmed), and stock ownership, these deItndants had the power t o

influence and Control (and did .influence and co atrol, directly or indirectly) the deci-siom-tnakiti g

c f`the C`o mmpny, including the coat nt and dissemination of the various statements which Lea d

Plaintiff contends are materially False and misleading, `I`hf se defendants were provided with or

had unlimited access to the C ;ompany"s internal .reports, press releases, Public filings, and other

statennents alleged to be .misleadin prior to and/or shortly after these .t ttements were issued an d

had the ability to prevent the issuance of the (il e state ments or cause the thhse statements to be

corrected.

215- Sonu violated Section 12(a)(2) of the Securities Act by the isStl:.Ince of the

m Material ly false and misleading Pros ectus Supplement as alleged here in . By virtue of tlwi r

positions as controlling persons of Sonus, dei nda.rrts Ahmed and Nill are liable to f.. ead Plaintiff

and . .he Subclass pursuant to Section 15 of the Securities Act .

216, Defendant Ahmed was a coiitrolling person of Nill within the me .rr ing o f

Section 15 of the Securities Act . By virtue of Ahmed 's longstanding, hierarchica l business

relationship with de endant Nill, defendant Ahmed's position as President and CFO, and

d Pendant Nill's duty to report directly to defendant Ahmed, I'i nd crt Ahmed had the power an d

1111 1436 120

influence to conLrc .l, and did influence and control, directly and indirectly, the conduct o f

&. end{ant Nill in connection with his Sonus :related . activities .

217 . By reason ofthe conduct. {alleged herein, defQndants viola d Section .12(a)(2) of

the Securities Act., As a direct and proximate cause of the de endants' violation o f

Section 12(a)(2), Lead Pla,inti IT and the members of the Subclass have sustained dam. ages .l .cead

Plaintiff, on behalf of itselfand the Subclass, seeks rescission to recover the consideration pai d

for its Sonus shares acquired pursuant to the September 20(3 Prospectus Supple ment, less an y

income derived thereon . Lead Plaintiff hereby tenders its Bonus shares or the proceeds from th e

Sale thereof" to Sornus in exchange for the valu : of the consiclerat .ion paid tier such shares, plu s

interest . In the alternative, Lead Plainti l '(' ; eeks recovery ofd mages in a n amount to be prove n

at trial .

BASIS OF A.LLE(. A'CION S

218 . Lead Plaintiff makes the foregoing alle gations based upon personal knowle dge as

to Paragraph 14 and as to all other allegations based upon the investigation of I ca d t'lainti f F s

( .'oLlnse1 , which included review of LC filings by Bonus, as well as regulatory filings and

reports, interviews of perci ient witnesses and ko rmer employee; at-the Co m lpanny, Securitie s

analysts' reports and advisories about the Company, press releases and other public statement s

issued by the Company, media reports about the Company, and expert analysis . L,cad Plaint.i11

beliceve s that. substantial additional evidentiary support will exist bit the allegations set :forth

herein after reasonable opportunity ft,r discovtery .

PRAYER FOR RELIE F

W.f f fIR.f: FORT, Lead Pla.inti,ff; .R1 ; 'f Global. Asset .Manage .m.ent .f . LT, prays for relief and

judgment, as tollows :

!1111436 121

A- That the Court d Aermine that this action is a proper cl ass action and certifying

Lead Plaintiff as a cl ~ s representative under Rule .2 ; of the Federal Rules of'C' .ivil Procedure ;

13 . That.. the Court award compensatory and rescissory damages in favor of l . ..cad

Plaintiff a .nd the other Class and SUN-41s m emmmbers aas appropri ate against all de ;ndants, -joi ntly

and severally. for all damages sustained as a result of defendants' wrongdoing, in an amount t o

be proven at trial, including interest thereon ;

(' . That the Court award Lead Plainti f aand the Clan's and Subclass their reasonabl e

costs and expenses incurred in this action, including counsel fiees and expert :f :es ; and

1) . That the Court award other and further relief as the C Curt may d ;emjust an d

Proper .

JURY TRIAL D. 4', : A . .D .I",J )

1 : .e,.►d Plainti ffhereby do rn an& a trial by j ury-

I ..)ated: August 5, 2005 [ :.~[::)1 ) BFNNF [ P ('ERA & Si .. )J.?N . :. R. ..,1.. '

By /s/ Solomon B . ('er a

Solomon B. C'eraSteven (.) . Sid everGwendolyn R. GiblinKi~nnah A . Frost595 Market Street, Suite 2300San Francisco, CA 94105J'Qlephone ( 415) 777-2230Facsimile: (4 :15) 777-5189

E-mail : ssidenerLrr?ubcslaw . :o .m}:r-mail : ggihlitlfr lghcslaw,coE-mail : t<mµ%~:.~ . t r) I U, It~rh cc>r 7

Attorneys fur :....'ead PlaintiffBM Global .Asset Management

#1.11436 122

C:' . : .RT .Il :ECA]'i OFSl RVICE

1, Kiad,anc F . C...ianta n, hereby declare under penalty of perjury is fbIlows :

1 ztni employed by Gold Bennett Cera & Sidener I.,I .,P, 595 Markel freet ,

SL .Lto 2300, Sar Francisco, C'ali!'ornia, 94105-2835, f am over the age of eighteen years and a m

not a party to this act ion .

On August 5, 2005, a true and correct copy of the af'oreinentione d

FIRSTAMENDEL) (;'(.)NS{. UDAT . +; .) CLASS ACT ION COMPLAINT FO R

VIOLATION OF THE FEDERAL SECURITIES LAWS" was d liverod . to all counsel of

record by electronic service pursuant to the Court's Order Regarding Electronic Service and

served Io counsel not on the ( . O1LrE.'S electronic service by causing true and correct copies o f same

to he enclosed in scaled envelopes and deposited in the C ..x .S Mail, postage prepaid, or delivered

as otherwise indicated on the attached Exhibit C .

Executed on August 5, 2005, at San Francisco Cal ifornia.

I . iml .ane 1."'._ (iantan

1()9222

EXHIBIT I

VIA. FE D .ExThomas .I . C)ou .her(yMatthew J . :MatuleMichael S . . Ii nesSkaclden, Ares, Slate, Meagher & Horn U-11One Beacon Stree t

Boston, MA 02109Telephone : (617) 573-4800

VIA FE1:)E .X

Jeffrey 1.3 . Rudman

James W . Prendergas t

Daniel W. FfafstoniDaniel 1L [_: idWilnier Cutler Pickering Hale and Dorr L1,1160 State Stree tBoston, MA 02109Telephone: (617) 526-600()

VIA F . `rnE XRobert S . Frank, Jr .

John R . J3ara.niak, Jr_

Paul E- I3onanrna

Choate, flail & Stewart

t'wo .111 rnational IINQe

Boston, MA 021 1 0

II - .iephone : (61 7) 248-500()

109222 -2-