2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 00 23 24 25 26 27 28 SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN MATEO , Individually and on Behalf ) of All Others Similarly Situated, ) Plaintiff, ) VS. ) APIGEE CORPORATION, ) CHET KAPOOR, ) TIM WAN, ) BOB L. COREY, ) NEAL DEMPSEY, ) PROMOD HAQUE, ) WILLIAM " BJ" JENKINS, JR., ) EDMOND MESROBIAN, ) ROBERT SCHWARTZ, ) STUART G. PHILLIPS, ) BAY MANAGEMENT COMPANY X, LLC, ) BAY PARTNERS X, LP, ) MORGAN STANLEY & CO. LLC, ) J. P. MORGAN SECURITIES LLC, ) CREDIT SUISSE SECURITIES ( USA) LLC, ) PACIFIC CREST SECURITIES, a division of ) KEYBANC CAPITAL MARKETS INC., ) JMP SECURITIES LLC, ) NOMURA SECURITIES INTERNATIONAL,) INC. and ) DOES 1- 25, inclusive, ) Defendants. VIA FAX Case No. ' CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS _____________
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN MATEO
, Individually and on Behalf ) of All Others Similarly Situated, )
Plaintiff, )
VS. )
APIGEE CORPORATION, ) CHET KAPOOR, ) TIM WAN, ) BOB L. COREY, ) NEAL DEMPSEY, )
PROMOD HAQUE, )
WILLIAM " BJ" JENKINS, JR., ) EDMOND MESROBIAN, ) ROBERT SCHWARTZ, ) STUART G. PHILLIPS, ) BAY MANAGEMENT COMPANY X, LLC, ) BAY PARTNERS X, LP, ) MORGAN STANLEY & CO. LLC, ) J.P. MORGAN SECURITIES LLC, ) CREDIT SUISSE SECURITIES ( USA) LLC, ) PACIFIC CREST SECURITIES, a division of )
concurrent jurisdiction in state and federal courts over claims arising under the Act. It also specifically
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COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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provides that such claims brought in state court are not subject to removal to federal court."); Plymouth
Cty. Ret. Sys. v. Model N, Inc., No. 14- cv-04516- WHO, 2015 U.S. Dist. LEXIS 1104, at * 8 ( N.D. Cal.
Jan. 5, 2015) (" Since 2013, , .. every court in this district to [ adjudicate a motion to remand an action
brought in state court pursuant to the 1933 Act] Irms-granted remand.").'
3. The violations of law complained ofherein occurred in this State and in large part in this
County. Defendant Wan, the Company' s Chief Financial Officer (" CFO"), resides in San Mateo
County, the controlling shareholder entities of the Venture Capital Defendants ( defined herein) are
domiciled in San Mateo County, and defendant Phillips resides in San Mateo County as well. Each of
the Underwriter Defendants (defined herein) has a sizable San Mateo County practice and maintains
substantial and continuous contact with California by conducting significant investment banking
operations in this County and throughout this State.
PARTIES
4. Plaintiff purchased Apigee common stock pursuant and traceable to the
IPO, and was damaged thereby.
5. Defendant Apigee is a San Jose, California-based software development company that
has developed a software platform designed to enable application -programming interface (" API") based
digital strategies and business insights for enterprises.
6. Defendant Chet Kapoor (" Kapoor") is, and was at the time of the IPO, a member
Apigee' s Board ofDirectors and its ChiefExecutive Officer. Defendant Kapoor joined Apigee in 2007,
after its founding but before its IPO.
7. Defendant Tim Wan (" Wan") is, and was at the time of the IPO, the CFO of Apigee.
Defendant Wan joined Apigee in March 2015, one month before the IPO.
8. Defendants Bob L. Corey, Neal Dempsey (" Dempsey"), Promod. Haque, William B̀J"
Jenkins, Jr., Edmond Mesrobian and Robert Schwartz are, and were at the time ofthe IPO, members of
the Apigee Board of Directors (the " Board").
9. The defendants referenced above in 1116- 8 signed the false and misleading Registration
Statement used to- conduct the IPO and are referred to herein as the " Individual Defendants." The
defendants referenced above in 116- 7 are executives ofApigee, participated in the roadshow to sell the
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COMPLAINT FOR VIOLATIONS OF TIM FEDERAL SECURITIES LAWS
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IPO and are sometimes referred to herein as the " Executive Defendants." Defendant Apigee and the
Individual Defendants are strictly liable for the false and misleading statements incorporated into the
Registration Statement.
10. Defendants Dempsey, Stuart G. Phillips (" Phillips"), Bay Management Company X,
LLC and Bay Partners X, LP (the " Venture Capital Defendants") are part of a venture capital stake in
Apigee and beneficially owned, through partnerships they controlled (Bay Partners X Entrepreneurs
Fund, LP and Bay Partners X, LP), over 18% of the Company' s shares at the time of the IPO. Those
shares controlled by the Venture Capital Defendants, Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C, D, E, F and G Convertible Preferred Stock, and Series H
Convertible Preferred Stock, automatically converted into publicly tradable common stock immediately
prior to the completion of the IPO, on a 1: 1. 261, 1: 1. 363, 1: 1, and 1: 1. 037 basis, respectively. These
shares represented over 18% of the voting power on Apigee' s Board just prior to the IPO. As of the
IPO, Dempsey and Phillips were co -managers of Bay Management Company X, LLC, the general
partner to Bay Partners X, LP and Bay Partners X Entrepreneurs Fund, LP, and as such had voting and
dispositive power over the shares held by those entities. As a result of those holdings and by having a
director on Apigee' s Board, the Venture Capital Defendants effectively controlled Apigee and caused it
to conduct the IPO. Indeed, the Registration Statement refers to the Venture Capital Defendants as
follows: "[ O] ur directors ... and significant stockholders that beneficially own more than 5% of our
common stock will continue to have substantial control over us after this offering." The offices of the
Venture Capital Defendants are in San Mateo County.
11. Defendants Morgan Stanley & Co. LLC, J. P. Morgan Securities LLC, Credit Suisse
Securities ( USA) LLC, Pacific Crest Securities, a division of KeyBanc Capital Markets Inc., JMP
Securities LLC and Nomura Securities International, Inc. are investment banking firms that acted as
underwriters of the IPO, helping to draft and disseminate the IPO documents. These defendants are
referred to herein as the " Underwriter Defendants." Pursuant to the 1933 Act, the Underwriter
Defendants are liable for the false and misleading statements in the Registration Statement as follows:
a) The Underwriter Defendants are investment banking houses which specialize,
inter alia, in underwriting public IPOs of securities. They served as the underwriters of the IPO and
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COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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shared more than $6 million in fees collectively. The Underwriter Defendants determined that in return
for their share of the. IPO proceeds, they were willing to merchandize Apigee stock in the IPO. The
Underwriter Defendants arranged a multi -city roadshow prior to the IPO during which they, and the
Executive Defendants, met with potential investors and presented highly favorable information about
the Company, its operations and its financial prospects.
b) The Underwriter Defendants also demanded and obtained an agreement from
Apigee that Apigee would indemnify and hold the Underwriter Defendants harmless from any liability
under the federal securities laws. They also made certain that Apigee had purchased millions ofdollars
in directors' and officers' liability insurance.
c) Representatives of the.Underwriter Defendants also assisted Apigee and the
Individual Defendants in planning the IPO, and purportedly conducted an adequate and reasonable
investigation into the business and operations of Apigee, an undertaking known as a " due diligence"
investigation. The due diligence investigation was required of the Underwriter Defendants in order to
engage in the IPO. During the course of their " due diligence," the Underwriter Defendants had
continual access to confidential corporate information concerning Apigee' s operations and financial
prospects.
d) In addition to availing themselves of virtually unbridled access to internal
corporate documents, agents of the Underwriter Defendants met with Apigee' s management, top
executives and outside counsel and engaged in "drafting sessions" between at least November 2014 and
April 2015. During these sessions, understandings were reached as to: ( i) the strategy to best
accomplish the IPO; (ii) the terms ofthe IPO, including the price at which Apigee stock would be sold;
iii) the language to be used in the Registration Statement; ( iv) what disclosures about Apigee would be
made in the Registration Statement; and (v) what responses would be made to the SEC in connection
with its review of the Registration Statement. As a result of those constant contacts and
communications between the Underwriter Defendants' representatives and management and top
executives, the Underwriter Defendants knew, or should have known, ofApigee' s existing problems as
detailed herein.
MCOMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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e) The Underwriter Defendants caused the Registration Statement to be filed with
the SEC and declared effective in connection with offers and sales thereof, including to plaintiffand the
Class ( defined herein).
12. The true names and capacities ofdefendants sued herein under California Code ofCivil
Procedure §474 as Does 1. through 25, inclusive, are presently not known to plaintiff, who therefore
sues these defendants by such fictitious names. Plaintiffwill seek to amend this complaint and include
these Doe defendants' true names and capacities when -they are ascertained. Each of the fictitiously j
named defendants is responsible in some manner for the conduct alleged herein and for the injuries'
suffered by the Company as a result of defendants' wanton and illegal conduct.
SUBSTANTIVE ALLEGATIONS
Apigee' s Business Leading Up to the IPO
13. Apigee provides a software platform designed to permit businesses to design, deploy,
and scale APIs as a connection layer between their core IT systems and data and the applications
through which their customers, partners, employees and other users engage with their business. Using
Apigee' s platform, businesses are supposed to be able to securely connect their core services and data to
developers to enable them to develop applications and experiences for customers, partners, employees
and other users.
14. An API is a set ofprogramming instructions and standards for accessing a Web -based
software application or Web tool. Simply stated, an API is the way software applications talk to one
another. A software company releases its API to the public so that other software developers can design
products that are powered by its service.
15. For example, Amazon.com released its API so that website developers could more easily
access Amazon' s product information. Using the Amazon API, a third -party website can post direct
links to Amazon products with updated prices and an option to " buy now." Another example is the
ability to look at a Google map inside Yelp.com. This is possible because Google " exposes" its
mapping capabilities via an API, which Yelp uses in its app, enabling the Yelp app to retrieve data from
Google Maps. Yelp doesn' t have to know how Google Maps works internally but just has to know their
API to use it in its app.
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COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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pt
16. To be sure, an API is a software -to -software interface, not a user interface. With APIs,
applications talk to each other without any user knowledge or intervention. -For example, when a
consumer purchases movie tickets online and enters his or her credit card information to do so, the
movie ticket website uses an API to send the credit card information to a remote application that
verifies whether that credit card information is correct. Once payment is confirmed, the remote
application sends a response back to the movie ticket website saying it is appropriate to issue the tickets.
17. An API resembles Software as a Service (" SaaS"), since software developers do not have
to start from scratch every time they write a program. Instead ofbuilding one core application that tries
to do everything — e-mail, billing, tracking, etc. — the same application can contract out certain
responsibilities to remote software that does it better.
18. Apigee was originally incorporated in Delaware as Nexgen Machines, Inc. on June 3,
2004. The Company changed its name to Sonoa Systems, Inc. on November 15, 2004, and then
changed its name to Apigee Corporation on September 21, 2010.
19. At the time of its IPO, Apigee' s product offerings included: Apigee Edge: a self-service
API-gateway/management solution that enables businesses to manage exposure of their services and
data through APIs to the use of those APIs by developers who are building consumer -facing and I
enterprise applications, that was the foundation ofthe Company' s platform strategy and responsible for
95% of its historical revenues; andApigee Insights: a self-service predictive analytics software toolset
designed to help companies analyze big data to provide personalized experiences for customers thathad
not been launched until September 2014. Both Edge and Insights could be deployed either in the cloud
or on a customer' s premises. When implemented on -premises, Apigee' s platform is behind the user' s
firewall whereas when implemented in the cloud it is an SaaS offering. At the time of the IPO,
approximately 60% of Apigee' s new customers were selecting cloud deployments while 40% were
selecting on -premise deployments.
20. In terms of revenues, the on -premises solution is sold either as a perpetual license
recognized -upfront or as a term license recognized over the term of the contract, while the cloud' s
solution is sold as a subscription recognized ratably. At the time ofits IPO, the Company reported three
COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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revenue line items: License, Subscription, and Support, and Professional Services.' License revenue
reflected the revenue recognized from sales ofon -premises software licenses. A substantial majority of
License revenue was from perpetual licenses, under which Apigee generally recognized the license fee
portion of the arrangement upfront. Subscription and Support revenue was derived primarily from
subscription fees from the customer accessing Apigee' s software in the cloud. Apigee also generated
revenue from maintenance and support agreements for on -premises licenses. Apigee typically
recognized Subscription and Support revenues ratably over the term ofthe arrangement. Professional
Services revenues (associated with implementing the Company' s solutions) were recognized primarily
on a time and materials basis as services were delivered. For the Company' s three fiscal years ended
prior to its IPO, the Company had reported the following revenue breakdown:
FISCAL
YEAR
TOTAL .
REVENUES LICENSE
SUBSCRIPTION
AND SUPPORT
PROFESSIONAL
SERVICES
2012 27.7M 9.5M 7.3M 10. 8M
2013 43.2M 13. 9M 15. 2M 14.OM
2014 52.7M 11 AM 20.2M 21. 1M
21. There is more fluctuation in sales ofperpetual licenses, meaning License revenue is more
lumpy quarter to quarter, and. so Apigee sought to increase subscription sales which revenue is
recognized on a ratable basis. According to the Company at the time of its IPO, 70% of new paying'
customers over the prior few quarters had been opting for the cloud product. However, some
companies cannot put their and their customers' data on the cloud. due to regulator and other issues,
making subscription sales more difficult to obtain.
22. Moreover, by the time of the IPO the Company' s revenues from one of its largest
customers and an early -adopter of its technology, AT&T Corporation (" AT&T"), were significantly
decreasing. In 2011, AT&T had started using Apigee' s platform as part of its digital initiative to
securely open up its network -based services, such as location, messaging, payment and speech, and
enable outside developers to create an ecosystem of innovative apps using AT&T' s network. Using
Apigee Edge, AT&T securely managed and shared select back -end services ( defined through APIs)
At the time of the IPO, Apigee provided a free, self-service, non -expiring cloud -based trial ofApigee Edge to developers to entice them to develop compatible apps..
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with third -party developers. Additionally, in 2013, AT&T expanded its use of Apigee' s platform to
manage APIs and data delivery for its mission -critical system used by national reseller partners to
securely activate AT&T mobile phones. As a result, for fiscal years 2014, 2013 and 2012, respectively,
AT&T had accounted for 15%, 36% and 38% of the Company' s total revenues. In fiscal 2012, AT&T
accounted for 35% ofApigee' s License revenue, 20% of its Subscription and Support revenue, and 53%
of its Professional Services and Other revenue; in fiscal 2013, AT&T accounted for 54% ofApigee' s
License revenue, 10% of its Subscription and Support revenue, and 47% of its Professional Services
and Other revenue; and in fiscal 2014, AT&T accounted forjust 7% ofthe Company' s Subscription and
Support revenue and 30% of its Professional Services and Other revenue. AT&T had made an
unusually large License purchase in 2013 that had not repeated in 2014; and then in 2014, AT&T began
reducing its reliance on Apigee' s Professional Services. By 2015, following the IPO, AT&T would
account for just 5% of the Company' s revenues.
23. As a result, the Company was growing more dependent upon sales through channel
partners including Accenture and SAP. The Accenture partnership was forged in 2013 when Accenture
signed a Master Alliance Agreement with Apigee that gave Accenture the right to co -sell as well as
resell Apigee as part of its own larger implementations. Accenture also has a minority investment in
Apigee. The Company' s OEM and reseller partnership with SAP dates back to July 2014. Under the
agreement, SAP agreed to deliver a comprehensive API management application built on Apigee Edge
product on SAP' s Hana Cloud to SAP' s cloud customers, as well as resell the Apigee Edge product on a
stand- alone basis to its on -premises customers.
24. Because of the Company' s relatively short operating history, its unusually long sales
cycle (typically lasting six to nine months), its historically high telco company customer concentration,
the loss of much of AT&T' s business going into the IPO, the Company' s statements describing its
business metries, sales trends, achievements in diversifying its customer base, and its financial
prospects were all particularly material to would-be investors going into Apigee' s IPO. This was
especially true because Apigee expressly stated in its offering documents that the Company did not
intend to pay a dividend on its common stock in the foreseeable future, meaning that being able to cash
COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
1 in on stock price appreciation resulting from strong financial performance marked investors' only
2 opportunity to profit on their investment in Apigee common stock.
3 25. Apigee' s fiscal year runs from August 1 to July -31. So the Company' s April 24, 2015
4 IPO was being conducted just days before the third quarter 2015 (" 3Q 2015") ended on April 30, 2015.
5 The False and Misleading Registration Statement
6 26. On or about November 28, 2014, Apigee filed with the SEC its registration statement on
7 Form S- 1 ( Registration No. 333- 202885), which, following several amendments made in response to
8 comments received from the SEC and being declared effective by the SEC on April 23, 2015, would
9 later be utilized for the IPO (the " Registration Statement"). On or about April 24, 2015, Apigee and the
10 Underwriter Defendants priced the IPO at $ 17 per share, filed with the SEC the final prospectus for the
11 common stock IPO (the " Prospectus"), which forms part ofthe Registration Statement ( the Prospectus
12 and Registration Statement are collectively referred to herein as the " Registration Statement"), and sold
13 5, 115, 000 shares of Apigee common stock to the investing public.
14 27. . The Registration Statement was negligently prepared and, as a result, contained untrue
15 statements of material facts or omitted to state other facts necessary to make the statements made not
16 misleading, and was not prepared in accordance with the rules and regulations governing its
17 preparation.
18 28. Concerning the Company' s relationship with Amazon, the Registration Statement stated
19 that Apigee was then procuring from Amazon Web Services (" AWS") " a distributed computing
20 infrastructure platform for business operations, or what is commonly referred to as a cloud computing
21 service," stating that it had " architected [ its] software and computer systems so as to utilize data
22 processing, storage capabilities and other services provided by AWS" and that " the vast majority of
23 [ Apigee' s own] cloud service infrastructure [ was then being] run on AWS." What the Registration
24 Statement failed to disclose was that Amazon was then developing and would soon introduce its own
25 Amazon API Gateway, a " fully managed service that makes it easy for developers to create, publish,
26 maintain, monitor, and secure APIs at any scale," and that potential new customers already using the
27 Amazon stack would prefer the Amazon API Gateway over Apigee' s Edge. The Registration Statement
28 further failed to disclose that Amazon' s API Gateway was equivalent to a free offering, and could
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COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
I potentially appeal to companies that were already integrated with AWS and leveraging all that that.
2 platform offered. While identifying both International Business Machines Corporation and Oracle
3 Corporation as potential competitors, "both ofwhich;" the Registration Statement stated, could "bundle
4 competing products and services with other software offerings, or offer them at a low price as part ofa
5 larger sale," the Registration Statement stated nothing about Amazon' s efforts to create a competing
6 platform in-house, despite' that Amazon was in a very good position to do so based on Amazon' s
7 operation of the very distributed computing infrastructure platform Apigee was using and the popularity
8 of Amazon' s own AWS.
9 29. Concerning steadiness of growth in the Company' s bookings and revenue growth, the
10 Registration Statement provided the following quarterly sales figures,