LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA Telephone: (215) Facsimile: (215)

Transcription

1 LIONEL Z. GLANCY MICHAEL GOLDBERG ROBERT V. PRONGAY ELAINE CHANG GLANCY BINKOW & GOLDBERG LLP Century Park East, Suite 00 Los Angeles, California 00 Telephone: () 1- Facsimile: () info@glancylaw.com LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 00 Bristol Pike, Suite Bensalem, PA 0 Telephone: () - Facsimile: () - Attorneys for Plaintiff SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN FRANCISCO PLAINTIFF, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. CYAN, INC., MARK A. FLOYD, MICHAEL W. ZELLNER, MICHAEL L. HATFIELD, PAUL A. FERRIS, PROMOD HAQUE, M. NIEL RANSOM, MICHAEL J. BOUSTRIDGE, ROBERT E. SWITZ, GOLDMAN, SACHS & CO., J.P. MORGAN SECURITIES LLC, JEFFERIES LLC, PACIFIC CREST SECURITIES LLC and DOES 1- inclusive, Defendants. Case No. DRAFT CLASS ACTION FOR VIOLATIONS OF: (1) OF THE SECURITIES ACT OF ; and () 1 OF THE SECURITIES ACT OF Securities Litigation () DEMAND FOR JURY TRIAL

2 Plaintiff ( Plaintiff ), by and through his attorneys, alleges the following upon information and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff s information and belief is based upon, among other things, his counsel s investigation, which includes without limitation: (a) review and analysis of regulatory filings made by CYAN, INC. ( Cyan or the Company ) with the United States Securities and Exchange Commission ( SEC ); (b) review and analysis of press releases and media reports issued by and disseminated by Cyan; and (c) review of other publicly available information concerning Cyan. NATURE AND SUMMARY OF THE ACTION 1. This is a class action on behalf of persons and/or entities who purchased or otherwise acquired the common stock of Cyan pursuant and/or traceable to the Company s initial public offering (the IPO or the Offering ).. Cyan is a global supplier of software-defined network ( SDN ) solutions for carriers, enterprises, governments, and data center operators. The Company s products include Blue Planet SDN software, Z-Series packet-optical transport platforms, and Cyan Pro professional services.. The claims in this action arise from the materially false and/or misleading Registration Statement and Prospectus issued in connection with the Offering. In the IPO, the Company and the underwriters sold,,0 shares of common stock at a price of $.00 per share. According to the Company, the Company raised approximately $. million in gross proceeds for the Company, or $. million in aggregate net proceeds from the IPO after deducting underwriting discounts, commissions, and offering costs).. As detailed below, the Registration Statement and Prospectus contained - 1 -

3 materially false and misleading statements and omitted material information in violation of Sections and 1 of the Securities Act of (the Securities Act ), 1 U.S.C. k and o. JURISDICTION AND VENUE. The claims asserted herein arise under and pursuant to Sections and 1 of the Securities Act (1 U.S.C. k and o). This Court has jurisdiction over the subject matter of this action pursuant to Section of the Securities Act, 1 U.S.C. v, which explicitly states that [e]xcept as provided in section (c), no case arising under this title and brought in any State court of competent jurisdiction shall be removed to any court in the United States. Section (c) of the Securities Act refers to covered class actions, which are defined as lawsuits brought as class actions or brought on behalf of more than 0 persons asserting claims under state or common law. This is an action asserting federal law claims. Thus, it does not fall within the definition of a covered class action under c) and therefore is not removable to federal court under the Securities Litigation Uniform Standards Act of.. Each Defendant has sufficient contacts with California, or otherwise purposefully avails itself of benefits from California or has property in California so as to render the exercise of jurisdiction over each by the California courts consistent with traditional notions of fair play and substantial justice.. The amount in controversy exceeds the jurisdictional minimum of this Court, and the total amount of damages sought exceeds $,000.. Venue is proper in this Court pursuant to Section of the Securities Act, 1 U.S.C. v. Defendant Cyan s principal executive offices were located within this County at the time of the IPO, the individual defendants conduct business in this County, and many of the - -

4 acts and transactions alleged herein, including the preparation and dissemination of materially false and/or misleading information, occurred in substantial part in this County. PARTIES. Plaintiff purchased Cyan securities pursuant and/or traceable to the Registration Statement issued in connection with the Company s IPO and has been damaged thereby.. Defendant Cyan is a Delaware corporation with its principal executive offices located at 1 N. McDowell Blvd., Suite 00, Petaluma, California.. Defendant Mark A. Floyd ( Floyd ) was, at all relevant times, Chief Executive Officer ( CEO ) and a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 1. Defendant Michael W. Zellner ( Zellner ) was, at all relevant times Chief Financial Officer ( CFO ) of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 1. Defendant Michael L. Hatfield ( Hatfield ) was, at all relevant times, President and a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 1. Defendant Paul A. Ferris ( Ferris ) was, at all relevant times, a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 1. Defendant Promod Haque ( Haque ) was, at all relevant times, a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC.. Defendant M. Niel Ransom ( Ransom ) was, at all relevant times, a director of - -

5 Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC.. Defendant Michael J. Boustridge ( Boustridge ) was, at all relevant times, a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC.. Defendant Robert E. Switz ( Switz ) was, at all relevant times, a director of Cyan and signed or authorized the signing of the Company s Registration Statement filed with the SEC.. Defendants Floyd, Zellner, Hatfield, Ferris, Haque, Ransom, Boustridge, and Switz are collectively referred to hereinafter as the Individual Defendants.. Defendant Goldman Sachs & Co. ( Goldman Sachs ) served as an underwriter to Cyan in connection with the Offering.. Defendant J.P. Morgan Securities LLC ( J.P. Morgan ) served as an underwriter to Cyan in connection with the Offering.. Defendant Jefferies LLC ( Jefferies ) served as an underwriter to Cyan in connection with the Offering.. Defendant Pacific Crest Securities LLC ( Pacific Crest ) served as an underwriter to Cyan in connection with the Offering.. Defendants Goldman Sachs, J.P. Morgan, Jefferies, and Pacific Crest, are collectively referred to hereinafter as the Underwriter Defendants. CLASS ACTION ALLEGATIONS. Plaintiff brings this action as a class action pursuant to California Code of Civil Procedure Section on behalf of a Class, consisting of all persons and/or entities who - -

6 purchased or otherwise acquired the common stock of Cyan pursuant and/or traceable to the Company s false and/or misleading Registration Statement and Prospectus issued in connection with the Company s IPO, and who were damaged thereby (the Class ). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.. The members of the Class are so numerous that joinder of all members is impracticable. During the relevant period, Cyan s securities were actively traded on the NASDAQ Stock Exchange (the NASDAQ ). While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. The Company offered. million shares of common stock in the IPO. Moreover, record owners and other members of the Class may be identified from records maintained by Cyan or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.. Plaintiff s claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants wrongful conduct in violation of federal law that is complained of herein.. Plaintiff will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation.. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: - -

7 (a) whether the Securities Act was violated by Defendants acts as alleged herein; (b) whether statements made by Defendants to the investing public in connection with the Company s IPO omitted and/or misrepresented material facts about the business, operations, and prospects of Cyan; and (c) to what extent the members of the Class have sustained damages and the proper measure of damages. 0. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. BACKGROUND 1. Cyan is a global supplier of software-defined network ( SDN ) solutions for carriers, enterprises, governments, and data center operators. The Company s products include Blue Planet SDN software, Z-Series packet-optical transport platforms, and Cyan Pro professional services.. On or about April, 1, Cyan filed a registration statement with the SEC on Form S-1. Thereafter, the Company repeatedly amended the Form S-1, including on or about May, 1, when Cyan filed with the SEC the final Form S-1/A (collectively, the Registration Statement ) for the IPO.. On or around May, 1, the Company filed with the SEC its IPO Prospectus - -

8 (the Prospectus ), which forms part of the Registration Statement that was declared effective on May, 1.. The IPO was successful for the Company and the underwriters, who sold,,0 shares of common stock at a price of $.00 per share. According to the Company, the Company raised approximately $. million in gross proceeds for the Company, or $. million in aggregate net proceeds from the IPO after deducting underwriting discounts, commissions, and offering costs). CYAN S FALSE AND/OR MISLEADING REGISTRATION STATEMENT AND PROSPECTUS. Under applicable SEC rules and regulations, the Registration Statement was required to disclose known trends, events or uncertainties that were having, and were reasonably likely to have, an impact on the Company s continuing operations.. By the end of 1, almost all of the Company s sales had been of its Z-Series product. The Blue Planet software line was yet untested and would only be released in December 1. The Company s largest customer was Windstream Corporation ( Windstream ), who had been using the Company s Z-Series platform. For the fiscal years ended December 1, and 1, and the three months ended March 1, 1, Windstream had accounted for approximately %, % and % of Cyan s revenues, respectively. All orders by Windstream were made pursuant to purchase orders and the Company had no long-term purchase commitment with Windstream. Towards the end of 1, Windstream was struggling with slowing sales at its fixed-line business and by February 1, Windstream announced it was cutting upwards of 00 management jobs and had publicly stated that it was cutting 1 capital expenditures.. As the Company was pricing its IPO, Cyan had very recently exponentially - -

9 increased its annual sales, largely from Windstream, from $. million in fiscal to $0. million in fiscal and to $. million in fiscal 1 and recently released its new commercially untested Blue Planet software in December 1.. However, the Registration Statement failed to disclose that the Company was being negatively impacted by lower revenue growth at the time of the IPO. Specifically, the Company failed to disclose that its largest customer Windstream was already dramatically cutting its orders from Cyan and the company was unable to replace those sales or to meaningfully expand and diversify its customer base and reliance on Windstream, Therefore, the Registration Statement was negligently prepared and, as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements made not misleading, and was not prepared in accordance with the rules and regulations governing their preparation.. The Registration Statement emphasized the Company s purportedly steadily growing revenues, right up through the IPO, stating, in relevant part: Our revenue increased from $. million in the year ended December 1, to $0. million in the year ended December 1,, and to $. million in the year ended December 1, 1, and from $1. million in the three months ended March 1, 1 to $. million in the three months ended March 1, 1. * * * We believe that an improving economy, continued growth in bandwidth demand and increased acceptance of our software-defined networking technology and our high-capacity, multi-layer switching and transport platforms, as an alternative to router-based architecture, contributed to our revenue growth. To drive and support this growing demand and increase our revenue, we increased our sales and marketing headcount from March 1, 1 to March 1, The above statements were each materially false and misleading because they failed to disclose and misrepresented the following adverse facts that existed at the time of the - -

10 IPO: (a) that Windstream had indicated that it would be dramatically reducing its purchases from Cyan and had already started significantly scaling back orders; and (b) that Cyan was not successfully expanding and diversifying its customer base at the time of the IPO and Cyan remained intensely dependent upon Windstream for the bulk of its sales. 1. The Registration Statement purported to warn about the risks associated with Windstream s announcement of capital expenditure reductions, stating, in relevant part: We currently generate the majority of our revenue from a concentrated base of customers, including Windstream Corporation. Since Windstream has publicly indicated its intent to reduce its overall capital expenditures in 1, unless we can substantially expand our sales to other existing or new customers, we will not be able to grow our revenue. Windstream Corporation, or Windstream, accounted for approximately %, % and % of our revenue for the years ended December 1, and 1, and for the three months ended March 1, 1, respectively. Windstream has publicly indicated its intention to reduce its overall capital expenditures in 1. Accordingly, we expect our sales to Windstream to decline in future periods. Nonetheless, we anticipate that a large portion of our revenue will continue to depend on sales to Windstream. (Emphases in original).. The above statement was inadequate to warn investors of the true risks associated with Cyan and its dependence on Windstream, because at the time of the IPO Windstream had already indicated to the Company that it would dramatically reduce its purchases from Cyan and had already started scaling back orders.. On January, 1, the Company issued a press release entitled, Cyan Announces Preliminary Fourth Quarter 1 Revenue. Therein, the Company, in relevant part, stated: - -

11 Cyan (NYSE:CYNI), a leading provider of software-defined networking and packet-optical solutions for network operators, today announced preliminary revenue results for the fourth quarter of 1 ended December 1, 1. Revenue for the fourth quarter of 1 is expected to be in the range of $ million to $ million, below the company s previous guidance of $0 million to $ million. This is largely a result of revenue from our largest customer decreasing by approximately % from $ million in our third fiscal quarter to $ million in the fourth quarter. Revenue for the full 1 year is expected to be in the range of $1 million to $1 million. For the year, revenue excluding our largest customer is expected to be in the range of $0 million to $1 million, an increase of % to % in 1 over 1. We are very disappointed with our preliminary fourth quarter 1 revenue results, which were significantly impacted by a sharp decline in orders from our largest customer, said Mark Floyd, Cyan s chief executive officer. Although we expect revenue from this customer to represent a meaningful portion of our revenue in future periods, we expect that it will continue to fluctuate from quarterto-quarter. As we previously noted, our business in the near term is substantially dependent on this customer while we ramp revenue from new accounts and expand our customer base. On a positive note, in 1, we saw increased momentum from several of the markets we serve, with revenue excluding our largest customer increasing % to % year-over-year. Additionally, we continued to make progress with our Tier-1 opportunities as lab trials and proof-of-concept activities continue. Our BluePlanet software is a key differentiator for Cyan and we remain confident in our long-term prospects and opportunity to capitalize on the widespread and fundamental shift to software defined WAN networks.. On this news, shares of the Company s stock had a two-day decline of $1. per share, over 1%, to close on January, 1, at $. per share, on unusually heavy trading volume. FIRST CLAIM Violation of Section of The Securities Act (Against All Defendants). Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct.. This Count is brought pursuant to Section of the Securities Act, 1 U.S.C. - -

12 k, on behalf of the Class, against all Defendants.. The Registration Statement for the IPO was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein.. Cyan is the registrant for the IPO. The Defendants named herein were responsible for the contents and dissemination of the Registration Statement.. As issuer of the shares, Cyan is strictly liable to Plaintiff and the Class for the misstatements and omissions. 0. None of the Defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement were true and without omissions of any material facts and were not misleading. 1. By reasons of the conduct herein alleged, each Defendant violated, and/or controlled a person who violated Section of the Securities Act.. Plaintiff acquired Cyan shares pursuant and/or traceable to the Registration Statement for the IPO.. Plaintiff and the Class have sustained damages. The value of Cyan common stock has declined substantially subsequent to and due to Defendants violations. SECOND CLAIM Violation of Section 1 of The Securities Act (Against the Individual Defendants). Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct.. This count is asserted against the Individual Defendants and is based upon Section - -

13 of the Securities Act.. Individual Defendants, by virtue of their offices, directorship and specific acts were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of Cyan within the meaning of Section 1 of the Securities Act. The Individual Defendants had the power and influence and exercised the same to cause Cyan to engage in the acts described herein.. Individual Defendants positions made them privy to and provided them with actual knowledge of the material facts concealed from Plaintiff and the Class.. By virtue of the conduct alleged herein, the Individual Defendants are liable for the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages suffered. WHEREFORE, Plaintiff prays for relief and judgment, as follows: (a) Determining that this action is a proper class action under California Code of Civil Procedure Section ; (b) Awarding compensatory damages in favor of Plaintiff and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants wrongdoing, in an amount to be proven at trial, including interest thereon; (c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (d) Awarding rescission or a rescissory measure of damages; and (e) Such other and further relief as the Court may deem just and proper. JURY TRIAL DEMANDED Plaintiff hereby demands a trial by jury. Dated: GLANCY BINKOW & GOLDBERG LLP - 1 -

14 1 By: DRAFT Lionel Z. Glancy Michael Goldberg Robert V. Prongay Elaine Chang Century Park East, Suite 00 Los Angeles, California 00 Telephone: () 1- Facsimile: () 1-0 LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 00 Bristol Pike, Suite Bensalem, PA 0 Telephone: () - Facsimile: () - Attorneys for Plaintiff