kessler topaz meltzer & check, llpknowledge with respect to itself and, with respect to all...

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KESSLER TOPAZ MELTZER & CHECK, LLP RAMZI ABADOU (Bar No. 222567) ELI R. GREENSTEIN (Bar No. 217945) STACEY M. KAPLAN (Bar No. 241989) PAUL A. BREUCOP (Bar No. 278807) IOANA A. BROOKS (Bar No. 253123) One Sansome Street, Suite 1850 San Francisco, CA 94104 Tel: (415) 400-3000 Fax: (415) 400-3001 [email protected] [email protected] [email protected] [email protected] [email protected]

Counsel for Lead Plaintiff PGGM Vermogensbeheer B.V. and Lead Counsel for the Class

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

IN RE HP SECURITIES LITIGATION,

This Document Relates To: All Actions

Master File No. C-12-5980 CRB CLASS ACTION CONSOLIDATED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL

Case3:12-cv-05980-CRB Document100 Filed05/03/13 Page1 of 115

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TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................................... 1

II. SUBSTANTIVE ALLEGATIONS AND DEFENDANTS’ MOTIVES ............................ 3

A. Background to the Class Period .............................................................................. 5

1. A Brief History of HP’s High-Level Corporate Leaks ................................ 5

2. Red Flags Are Raised About Autonomy Before the Class Period ........................................................................................................... 7

3. HP Hires a New CEO Desperate to Transform HP Into a Software Company .................................................................................... 12

4. Apotheker and Lynch Agree to a Deal-In-Principle .................................. 15

5. HP Conducts Cursory Due Diligence on a Polluted and Vastly Overvalued Asset ........................................................................... 18

B. The Class Period Starts with Apotheker’s Announcement of HP’s Offer to Purchase Autonomy ................................................................................. 21

1. More Suspicions Emerge About Autonomy’s Improper Course of Business Conduct ...................................................................... 23

2. Apotheker Responds to Investors’ Unease About HP’s Offer for Autonomy ................................................................................... 29

3. The Briody Matter ..................................................................................... 31

C. Unbeknownst to HP’s Shareowners, HP Sought to Withdraw the Autonomy Offer .................................................................................................... 33

D. HP Begins to Unwind Autonomy’s Improper Accounting Practices .................... 36

E. A Fourth Whistleblower Alerts HP About Autonomy .......................................... 38

F. The Relevant Truth Is Mostly Revealed, Thereby Ending the Class Period ..................................................................................................................... 40

G. Relevant Post Class Period Developments ............................................................ 43

1. HP/Autonomy Defends Autonomy’s Accounting Practices in New Hampshire ..................................................................................... 46

2. Lynch and Apotheker Respond to HP’s Accusations ................................ 48

III. JURISDICTION AND VENUE ........................................................................................ 51

IV. THE PARTIES .................................................................................................................. 51

A. Lead Plaintiff ......................................................................................................... 51


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B. Corporate “Person” ................................................................................................ 52

C. Insider Defendants ................................................................................................. 52

V. DEFENDANTS’ VIOLATIONS OF THE EXCHANGE ACT ....................................... 57

A. HP’s Quantitative Financial Statements Were Materially Misstated in Violation of GAAP and SEC Regulations ........................................................ 57

1. Applicable Accounting and Disclosure Rules ........................................... 57

2. Summary of HP’s Accounting Violations ................................................. 60

a. HP’s 4Q11 and FY 2011 Financial Statements Violated GAAP ............................................................................. 64

b. HP’s 1Q12 Financial Statements Violated GAAP ........................ 67

c. HP’s 2Q12 Financial Statements Violated GAAP ........................ 68

d. HP’s 3Q12 Financial Statements Violated GAAP ........................ 69

3. HP/Autonomy’s Financial Misrepresentations Were Material ...................................................................................................... 70

B. Defendants’ Qualitatively Materially False and Misleading Class Period Statements and Omissions ......................................................................... 72

1. August 18 & 22, 2011 ............................................................................... 72

2. September 13 & 22, 2011 .......................................................................... 76

3. Fourth Quarter 2011 and FY 2011 ............................................................ 79

4. First Quarter 2012 ...................................................................................... 81

a. HP’s 2/22/12 Press Release was Materially False and Misleading .............................................................................. 81

b. HP Announces Its 1Q12 Results ................................................... 82

5. Second Quarter 2012 ................................................................................. 83



6. Third Quarter 2012 .................................................................................... 86




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C. Loss Causation/Economic Loss ............................................................................. 90

1. HP’s August 22, 2012 Partial Disclosure .................................................. 91

2. HP’s November 20, 2012 Class Period Ending Disclosures ..................... 92

3. Relevant Post-Class Period Admissions .................................................... 93

VI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE ............................................................................................ 95

VII. APPLICABILITY OF THE AFFILIATED UTE PRESUMPTION OF RELIANCE ....................................................................................................................... 96

VIII. NO SAFE HARBOR ......................................................................................................... 96

IX. CLASS ACTION ALLEGATIONS .................................................................................. 97

X. CLAIMS FOR RELIEF ..................................................................................................... 98


COMPLAINT Master File No. C-12-5980 CRB

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“If those revenues are not what Autonomy says they are, then HP is getting the shaft.”

– eDiscovery Journal, Aug. 31, 20111

I. INTRODUCTION

1. This is a class action for violations of the federal securities laws. PGGM

Vermogensbeheer B.V. (“Lead Plaintiff” or “PGGM”) alleges the following based upon personal

knowledge with respect to itself and, with respect to all other matters, the investigation of Kessler

Topaz Meltzer & Check, LLP (“Lead Counsel”). Lead Plaintiff believes that substantial

evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for

discovery.

2. Lead Counsel’s investigation included, inter alia, a review and analysis of:

(i) Hewlett-Packard Company’s (“HP” or the “Company”) filings with the United States

Securities and Exchange Commission (“SEC”); (ii) Autonomy Corporation plc’s (“Autonomy”)

filings with the London Stock Exchange (“LSE”); (iii) the offering documents filed by HP and

Autonomy pursuant to the United Kingdom City Code on Takeovers and Mergers (the “City

Code”) for HP’s acquisition of Autonomy on October 3, 2011; (iv) foreign and domestic press

releases and other HP and Autonomy public statements, securities analyst reports and media

reports, as well as information developed from former HP and Autonomy employees;

(v) interviews with industry experts and analysts, including Alan Pelz-Sharpe (“Pelz-Sharpe”),

who referred Autonomy to the United Kingdom’s Serious Fraud Office for “alleged suspicious

practices” before the Autonomy acquisition closed on October 3, 2011 (hereinafter, the

“Autonomy Acquisition”), and Paul Morland (“Morland”), who alerted HP’s Investor Relations

Department about Autonomy’s manipulative accounting practices prior to the Autonomy

Acquisition; and (vi) internal Autonomy e-mails and other documents filed in Briody v.

Autonomy NA Holdings Inc., No. 42552 (Dep’t of Labor 2011) (the “Briody Matter”) and

Autonomy NA Holdings Inc. v. Briody, No. 218-2012-CV-1056 (N.H. Super. Ct. 2012).2

1 All emphasis is added unless otherwise noted. 2 A list of acronyms referenced in this Consolidated Complaint for Violation of Federal Securities Laws (“Complaint”) is attached hereto as Appendix A.



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3. Lead Plaintiff brings this action on behalf of all persons who purchased or

otherwise acquired HP’s common stock between August 19, 2011 and November 20, 2012,

inclusive (the “Class Period”), and who were damaged thereby. The Defendants are: (i) HP;

(ii) current HP Chief Executive Officer (“CEO”) Margaret C. Whitman (“Whitman”); (iii) former

HP CEO Léo Apotheker (“Apotheker”), who was terminated by HP effective September 22,

2011, for spearheading the Autonomy Acquisition; (iv) Autonomy’s founder and HP’s former

Executive Vice President of Information Management Michael R. Lynch (“Lynch”), who

Whitman terminated in April 2012 in connection with the Autonomy Acquisition; (v) former HP

Executive Vice President and Chief Strategy and Technology Officer Shane V. Robison

(“Robison”), who was also terminated for his role in supporting the Autonomy Acquisition;

(vi) current HP Executive Vice President and Chief Financial Officer (“CFO”) Catherine A.

Lesjak (“Lesjak”); (vii) HP’s former Executive Chairman of the Board of Directors (the “HP

Board”), Raymond J. Lane (“Lane”), who was forced to step down as Executive Chairman for

overseeing the Autonomy Acquisition; and (viii) HP’s former Senior Vice President, Controller

and Principal Accounting Officer, James T. Murrin (“Murrin”), (the individuals above are

referred to herein as the “Insider Defendants”).

4. Lead Plaintiff’s claims arise out of Defendants’ deliberately reckless and/or

knowing course of business conduct whereby they caused HP to issue materially false and

misleading statements related to the Company’s $11 billion Autonomy Acquisition and

integration. Defendants’ public misrepresentations and omissions of material adverse facts about

the Autonomy Acquisition and subsequent integration into HP caused the market price of HP

securities to be artificially inflated during the Class Period. Each of the Defendants either knew, or

recklessly disregarded, that: (i) the statements and omissions alleged herein were false and

misleading when made; (ii) such statements would adversely affect the integrity of the market for

HP securities; and (iii) would deceive investors into purchasing HP securities at artificially inflated

prices.

5. On November 20, 2012, during HP’s 4Q12 earnings conference call (“11/20/12

Conference Call”), and only about a year after the Autonomy Acquisition closed, Defendants



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announced an 85% write-down of the value of Autonomy (i.e., an $8.8 billion write-down for an

$11 billion acquisition price).3 The same day, Defendant Whitman and HP General Counsel

John Schultz (“GC Schultz”) blamed $5+ billion of the write-down on a purportedly vast

accounting fraud perpetrated by “Autonomy’s management.” In Whitman’s words, Autonomy’s

management engaged in “serious accounting improprieties, disclosure failures and outright

misrepresentations.” HP specifically attributed the remaining $3 billion of the total write-down

amount “to the recent trading value of HP stock.” In response to these disclosures, the price of

HP’s common stock fell nearly 12% on unusually heavy trading volume of 154,734,832 shares

traded on November 20, 2012, eliminating more than $3.1 billion from the Company’s market

capitalization in a single trading day.

II. SUBSTANTIVE ALLEGATIONS AND DEFENDANTS’ MOTIVES

6. This Complaint tells the story of: (i) a beleaguered HP Board who were, in their

own words, “just too exhausted from all the infighting” to effectively oversee HP’s executive

management in the months leading up to the Autonomy Acquisition; (ii) a German software

executive (Apotheker) whom a majority of the HP Board had never met prior to hiring him as

CEO in September 2010; (iii) a British software executive (Lynch) hoping to cash out of

Autonomy before it collapsed under the weight of its own fraud; (iv) an HP Board member

(Whitman) who voted for the Autonomy Acquisition but later replaced Apotheker as HP’s CEO

on September 22, 2011 – a week before the Autonomy Acquisition Apotheker spearheaded even

closed; (v) current HP CFO (Lesjak), and longtime HP stalwart, who opposed the Autonomy

Acquisition in front of the full HP Board in late July 2011; (vi) former HP Board Executive

Chairman (Lane) who, since he was elected as an HP Director in 2010, has overseen HP’s 50%

share price decline; and (vii) the self-interested auditors, Wall Street bankers and other

3 “1Q09” refers to the first quarter of 2009; “3Q09” refers to the third quarter of 2009; “1Q10” refers to the first quarter of 2010; “2Q10” refers to the second quarter of 2010; “3Q10” refers to the third quarter of 2010; “1Q11” refers to the first quarter of 2011; “2Q11” refers to the second quarter of 2011; “3Q11” refers to the third quarter of 2011; “4Q11” refers to the fourth quarter of 2011; “1Q12” refers to the first quarter of 2012; “2Q12” refers to the second quarter of 2012; “3Q12” refers to the third quarter of 2012; and “4Q12” refers to the fourth quarter of 2012.



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investment advisers who facilitated HP’s severely reckless pursuit of Autonomy in exchange for

nearly $100 million in fees.

7. Throughout the Class Period, Defendants either knowingly, or with deliberate

recklessness, made materially false and misleading statements and/or failed to disclose that: (i) at

the time the Company acquired Autonomy for $11 billion on October 3, 2011, Autonomy’s

reported operating results and growth were the product of “serious accounting improprieties;”

(ii) in the period between HP’s announcement of its offer to acquire Autonomy on August 18,

2011 and closing on October 3, 3011, Whitman and Lane sought to rescind HP’s offer to acquire

Autonomy; (iii) the Company engaged in deliberately reckless due diligence, causing HP’s

shareholders to materially overpay for Autonomy; (iv) HP’s reported goodwill4 and acquired

intangible assets were materially overstated, and its impairments were materially understated,

throughout the Class Period; and (v) in May 2012, a senior HP/Autonomy executive alerted GC

Schultz, who immediately told CEO Whitman, that Autonomy was engaging in fraud.5

8. On November 20, 2012, the last day of the Class Period, Defendant Whitman and

GC Schultz effectively accused former Autonomy CEO Lynch, who was HP’s Executive Vice

President of Information Management from November 2011 to April 2012, of engaging in

improper accounting practices, revealing that “[t]he majority of [the Autonomy] impairment

charge, more than $5 billion, is linked to serious accounting improprieties, misrepresentation[s]

and disclosure failures” committed by “former members of Autonomy’s management team.”

This misconduct, which Defendants were either aware of or recklessly disregarded, caused

material overstatements to HP’s publicly reported goodwill in its 2011 Annual Report on Form 10-K

filed with the SEC on December 14, 2011, and in the three Quarterly Reports (for 1Q12-3Q12) on

Forms 10-Q that HP filed with the SEC as alleged in ¶¶134-162, infra.

4 Goodwill is “[a]n asset representing the future economic benefits arising from other assets acquired in a business combination…that are not individually identified and separately recognized.” Financial Accounting Standards Codification (“FASC”) 350-20-20. 5 See Ben Worthen, H-P Says It Was Duped, Takes $8.8 Billion Charge, Wall St. J., Nov. 20, 2012.



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A. Background to the Class Period

1. A Brief History of HP’s High-Level Corporate Leaks

9. HP was founded by Stanford University graduates William Redington Hewlett

and David Packard in a single-car garage in Palo Alto in 1939 with an initial investment of about

$530.6 According to its filings with the SEC, HP provides products, technologies, software,

solutions and services to individual consumers, small-sized and medium-sized businesses, and

large enterprises, including customers in the government, health and education sectors. The

Company’s products and services include: personal computing devices; imaging and printing-

related products and services; enterprise information technology services; and multi-vendor

customer services, including infrastructure technology and business process outsourcing and

technology support and maintenance.

10. In a section of HP’s “Standards of Business Conduct” on its corporate website

called “Uncompromising integrity,” the Company assures its shareowners that HP “protect[s]

sensitive information.” In truth, HP’s weak disclosure controls have caused the Company’s

sensitive corporate information to leak publicly for years. The Company’s disclosure control

failures go back at least to early 2005. In January 2005, an HP insider leaked confidential Board

plans to redistribute the duties of then CEO Carly Fiorina to other executives. In response,

Fiorina authorized an investigation to determine who had leaked the plans, which later revealed

that an HP Board member had leaked the reorganization to the press. The following month, in

February 2005, Fiorina was ousted as HP’s CEO.

11. In early 2006, former HP Board Chairwoman, Patricia C. Dunn, took

controversial measures to try to stem the leaks at HP. After an HP Director appeared to have

leaked HP’s long-term business strategy to CNET News, Dunn secretly authorized a team of

independent electronic security experts to identify the source of the leak. The team thereafter

unlawfully monitored ten HP Directors’ communications by obtaining records of calls from their

homes and private cell phones. HP’s investigators obtained this information using a method

6 The name HP was decided by a coin flip between Messrs. Hewlett and Packard that Mr. Hewlett won.



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called “pretexting,” i.e., employing false pretenses to obtain a person’s private information. The

investigation ultimately revealed that long-time HP Director member George A. Keyworth II had

leaked the information. After HP’s investigatory methods came to light, California’s Attorney

General filed criminal charges against Dunn and four others involved. Thomas J. Perkins, HP

Director at the time, abruptly left the Board in protest of Dunn’s investigation.

12. In 2008, the HP Board accused then CEO Mark V. Hurd of leaking HP’s secret

plan to acquire Electronic Data Systems Corporation (“EDS”). Hurd later resigned as HP's CEO

in August 2010 and was succeeded by Defendant Apotheker, effective November 1, 2010. The

leaks at HP continued under Apotheker. Only six months after becoming HP’s CEO, on May 4,

2011, Apotheker circulated a sensitive internal memo to HP’s top executives reportedly stating,

among other things, that “Q3 is going to be another tough quarter.” Two weeks later,

Apotheker’s e-mail appeared in a Bloomberg news report dated May 16, 2011, headlined

“Hewlett-Packard CEO Expects ‘Tough Third Quarter,’ Memo Says.” The leak forced HP to

accelerate the filing of its 2Q11 earnings report to officially disclose the Company’s lower

internal revenue projections. During the Company’s May 17, 2011 hastily-scheduled 2Q11

earnings conference call (“5/17/11 Conference Call”), HP’s then Vice President of Investor

Relations, Steve Fieler, explained:

Before we get started, I wanted to explain the decision to accelerate the timing of our Q2 earnings announcement. Yesterday afternoon, we became aware of a published media report quoting from an internal HP communication.… We therefore determined that the most prudent course of action under these circumstances was to accelerate our second-quarter earnings announcement.

13. During the same call, Defendant Apotheker apologized for the leak, conveying

that he “felt announcing early was the right thing to do given the circumstances.” Apotheker was

profoundly humiliated by the leak and thereafter resolved to maintain a small circle of only his

most loyal lieutenants at HP, including former SAP AG (“SAP”) employees Apotheker brought

with him to HP. After only 11 months as HP’s CEO, Apotheker was terminated in September

2011 for spearheading the Autonomy Acquisition. Ironically, Apotheker learned of his ouster via

a September 21, 2011 leak to Fortune in an article called “HP Board May Oust Apotheker for



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Whitman.” The Company made the news official the following day, and Whitman immediately

took over as HP’s CEO.

14. After replacing Apotheker on September 22, 2011, Whitman held an internal

meeting with HP employees to introduce herself as the Company’s new CEO. As reported in a

May 2012 Fortune article called “How Hewlett-Packard Lost Its Way,” HP employees at the

meeting reportedly told Whitman that her “comments [were] being live-blogged.” Fortune,

presumably based on a leak from an HP attendee at the meeting, quoted Whitman’s response to

the comment as follows – “[y]ou all have taken leaking to a new art form.” Indeed HP has, and

many of the allegations set forth herein incorporate information about HP obtained from various

high-level internal HP sources made publicly available by news reporters with ties to current and

former senior HP executives and members of the Board.7

2. Red Flags Are Raised About Autonomy Before the Class Period

15. Defendant Lynch obtained a Ph.D. in mathematics from Cambridge University,

and later founded Autonomy out of his Cambridge garage in 1996. Prior to the Autonomy

Acquisition, Autonomy’s common shares were traded on the LSE. In an August 18, 2011 HP

press release filed with the SEC on Form 8-K (“8/18/11 Press Release”), HP touted Autonomy as

a global leader in infrastructure software for the enterprise with a customer base of more than

25,000 global companies, law firms and public sector agencies, and approximately 2,700

employees worldwide. According to HP, Autonomy’s Intelligent Data Operating Layer

(“IDOL”) platform enabled computers to “harness the richness of information, forming a

conceptual and contextual understanding of any piece of electronic data, including unstructured

information, such as text, email, web pages, voice and video.” HP’s 8/18/11 Press Release

similarly represented that “IDOL is the de-facto standard among more than 400 OEMs, supported

by substantial intellectual property (IP), and Autonomy is a significant cloud player with over 30

petabytes of customer information under management.”8

7 To date, HP has obtained neither a retraction nor a correction of the news articles quoting HP insiders as referred to herein. 8 OEM means original equipment manufacturer.



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16. Autonomy’s technological promise, and Lynch’s reportedly “aggressive

stance…towards anyone who disagreed with him,” drew the attention of HP and others as it

rapidly grew into one of the largest European software companies, generating immense revenue

growth. Between January 1, 2005 and December 31, 2009, for instance, Autonomy reported an

astonishing +893% return for its shareholders as reported in its 2009 Annual Report filed with

the LSE. Consistent with Autonomy’s meteoric rise, Lynch has long been a controversial figure

in the U.K. who was even known to “blacklist” analysts who challenged Autonomy’s publicly-

reported financial statements from participating in analyst meetings about Autonomy. An

October 20, 2009 Daily Telegraph article entitled “Autonomy Accused of Silencing Bears,” for

instance, reported that Autonomy had banned any analyst with “sell” ratings on Autonomy from

asking questions during the Company’s 3Q09 earnings conference call with investors. Lynch

would later exhibit this same disdain for HP’s due diligence of Autonomy as detailed in ¶¶36-43,

infra.

17. On at least one occasion, Lynch reportedly threatened to sue industry analyst Paul

Morland for issuing critical research reports on Autonomy’s suspicious accounting and growth.

Specifically, Autonomy’s Chief Operating Officer (“COO”), Andrew Kanter, demanded that

Morland’s superiors at Astaire Securities Plc (“Astaire”) correct and/or retract Morland’s

published research about Autonomy. Kanter’s letter reportedly accused Morland of “knowing

dissemination of false information into the marketplace.”9 Despite HP’s unequivocally positive

representations about Autonomy in August 2011, as early as 2007, troubling questions began to

emerge about Autonomy’s gravity-defying rise, high margins and spectacular revenue growth. In

January 2007, the Center for Financial Research and Analysis (“CFRA”) added Autonomy to its

“Biggest Concerns List,” finding that its reported cash flow and income “appear to have

benefited significantly” from questionable changes in the way it classified certain accounting

items. From 2001-2010, CFRA published no less than 14 reports questioning Autonomy’s

purported growth and financial reporting.

9 See Juliette Garside, UBS and Goldman Sachs Had Access to Negative Autonomy Research, Guardian, Nov. 21, 2012.



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18. In early 2008, J.P. Morgan Cazenove analyst Daud Khan (“Khan”) also expressed

concerns about Autonomy’s true organic growth rate, highlighting Lynch’s apparent efforts to

mask Autonomy’s declining growth rates via a roll-up strategy (depicted in the chart below),10

whereby Autonomy used acquisitions to boost its short-term revenues in an effort to obfuscate its

slow long-term organic growth potential:

19. Khan’s concerns about Autonomy were echoed by Autonomy analyst Morland

who published a highly critical research note about Autonomy in June 2009. The note, entitled

“Accounting Red Flags,” explained that “[a]lthough investors do not have access to the same

detailed information as auditors, there are plenty of analytical techniques that can be used to help

identify when a company’s performance might not be quite as good as it seems.” Similarly, in

2009, short seller James S. Chanos (“Chanos”) of Kynikos Associates LP warned that Autonomy

had “consistently overstated revenue and grossly understated expenses as part of its acquisition

strategy.”11

10 The chart is a reproduction of one by the Real Story Group. 11 Chanos gained international notoriety by famously shorting Enron Corporation stock before its collapse under the weight of an accounting fraud in 2002.



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20. On September 18, 2009, Morland published another negative research report

about Autonomy entitled, “Getting Worse Before It Gets Better.” In the report, Morland queried

whether it was “[t]ime to call a hearse [for Autonomy]” adding that: (i) Autonomy’s “track

record over the last few years has been exaggerated;” and (ii) Autonomy had been “[m]assaging

[its] growth rate” by recognizing revenue improperly. The report also specifically described how

Autonomy:

[C]hanged the revenue recognition policy at Zantaz [a recent Autonomy acquisition] which used to recognise its hosted revenue evenly over the period of the contract. Autonomy has changed this such that one third of hosted revenues are now taken up front (as if they were a license) with the rest spread as before. Clearly, revenues are being recognised sooner than when Zantaz was a stand alone company. We have been told by [Autonomy] management in the past that “hosting deals do not sell license.” While this is factually correct, this is extremely misleading when we know that hosting sales are reported in “license” line of the accounts.

21. In January 2010, the Financial Times reported that, over the previous 16 reporting

quarters, only two had gone by without an acquisition by Autonomy, further clouding the

market’s capacity to readily assess Autonomy’s true organic growth rate. On January 29, 2010,

Astaire “list[ed] ten observations that have contributed to the development of our negative thesis

on [Autonomy’s] stock. These include[d] a combination of flattering organic growth

calculations, poor cash conversion, unusual items in the accounts and a suggestion that revenue

recognition may have been accelerated. We would add to this evidence of disappointed

customers, growing [days sales outstanding (“DSO”)], heavy expenditure on a new product

which we don’t understand and some unusual behaviour from management at recent analyst

meetings.” Later that day, in a follow-up report, Astaire concluded that Autonomy “needs to

make an acquisition every twelve to eighteen months in order to sustain its apparent high rate of

growth.”

22. By summer 2010, analysts were still aggressively questioning whether Autonomy

was misrepresenting its organic growth rate through an aggressive roll-up acquisition strategy.

On July 2, 2010, Morland, in a research report entitled “More Questions than Answers,”

presciently noted:



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Our thesis is that Autonomy needs to make acquisitions to sustain high rates of growth and poor cash conversion is caused by working capital rising faster than growth should dictate. There is also evidence to suggest the early recognition of revenues, particularly with reference to acquired deferred income. Given our concerns and uncertainty around the next acquisition, we believe Autonomy is a stock to avoid.

Organic growth rates appear to be overstated: When Autonomy adjusts reported sales to calculate organic growth rates, the amounts added back for acquired companies are consistently below our own estimates. We have observed this with most of the acquisitions made in the last three years.

* * *

Unusual balance sheet movements around acquisitions: A detailed balance sheet analysis has revealed some unusual movements. We remain unconvinced by explanations received from the company and concerned that Autonomy needs to make acquisitions to sustain high growth rates.

23. On July 23, 2010, Peel Hunt LLP (“Peel Hunt”) reiterated that “we remain

concerned about [Autonomy’s] constant attempts to flatter the true picture and announce growth

rates which we believe are well above actual rates.” In fact, Autonomy typically completed a

large acquisition approximately every 18 months, and in 2009, a year after its acquisition of

InterWoven, Inc. (“InterWoven”) Lynch was forced to consummate a highly suspicious

convertible bond offering to raise funds for additional acquisitions. By mid-2010, however, no

such acquisitions had been finalized by Autonomy and, with no new revenue stream continuing

to prop up its revenues, Autonomy’s growth began showing signs of financial strain.

24. On October 10, 2010, the former head of investor relations at Autonomy, Marc

Geall, who became a Deutsche Bank research analyst after leaving Autonomy in 2010,

downgraded Autonomy to a “hold” from a “buy,” noting that Autonomy’s “[b]usiness model is

stretched,” and “Autonomy is a big company that is still run as a start-up.” In addition,

throughout 2010, other analysts concluded that Autonomy’s flagship product – IDOL – was

becoming increasingly outdated and rapidly losing market share to better software from larger

competitors like Google Inc., IBM Corporation and Oracle Corporation (“Oracle”). Notably, in

later attempting to justify Autonomy’s massive $11 billion price-tag, Apotheker highlighted

IDOL as the primary justification for the 11 times revenue premium HP would ultimately pay to

acquire Autonomy. On Autonomy’s October 19, 2010 3Q10 earnings conference call, Lynch



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specifically prohibited Morland from asking a follow-up question concerning Autonomy’s

reported financial performance, stating “[w]e have to move on now I’m afraid Paul. Next

question please.”

25. As analyst Khan later observed, “the wheels were starting to come off

[Autonomy] in late 2010.” For all of 2010, Autonomy reported record revenue of $870 million,

an 18% increase over its 2009 revenue, gross margins of 87% and operating margins of 43%. In

the years before the commencement of the Class Period in August 2011, therefore, two very

different narratives formed about Autonomy – namely, whether it was a “real innovation-driven

tech story [], or a M&A-led roll-up with a healthy dash of questionable accounting.”12

3. HP Hires a New CEO Desperate to Transform HP Into a Software Company

26. In September 2010, HP announced that it had hired Apotheker, effective

November 1, 2010, to lead HP. Prior to joining HP, Apotheker had a short tenure as the CEO of

German software company, SAP. Apotheker resigned seven months after becoming SAP’s sole

CEO. Before unanimously voting to hire Apotheker as CEO of HP, the majority of the HP Board

failed to so much as even meet Apotheker. A September 21, 2011 New York Times article

headlined, “Voting to Hire a Chief Without Meeting Him,” quoted an HP Director explaining

HP’s Apotheker hire as follows: “‘I admit it was highly unusual,’ one board member who hadn’t

met Mr. Apotheker [said]. ‘But we were just too exhausted from all the infighting’” to meet him.

27. After a series of failed acquisitions by HP – including its EDS and Palm, Inc.

(“Palm”) acquisition debacles – HP knew that investors were keenly focused on the price and

quality of any future HP acquisition.13 On September 30, 2010, following the announcement of

Apotheker’s appointment as HP CEO, Hapoalim Securities noted that “[t]his choice could signal

HP will more aggressively target software acquisitions going forward,” but that it “would view

12 See Jon Tseng, Autonomy on Trial: What I saw in the Autonomy Wars, Uneasy Empires (Nov. 22, 2012). 13 On November 21, 2011, the Company took a $1.65 billion impairment charge as the result of the Company’s decision to abandon products acquired when HP purchased Palm for $1.2 billion. On August 8, 2012, HP announced that it would take an $8 billion goodwill impairment charge in connection with the Company’s $13.9 billion acquisition of EDS.



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the merits of such a strategy as conditional on the prices paid for said acquisitions.” In March

2011, after only four months as HP CEO, Apotheker suddenly announced a grand new corporate

strategy to “transform” HP from a low-margin computer hardware producer into a high-margin

corporate software and services provider. In a March 14, 2011 HP press release, Apotheker

promised to move HP into higher value, higher margin growth categories. Faced with a saturated

PC market that was quickly becoming less profitable due, in part, to Apple Inc.’s hardware

dominance, Apotheker announced HP’s strategy shift because he knew that HP’s core hardware

Personal Systems Group was struggling to generate revenue growth during the first three quarters

of 2011, as depicted in the graph below:

28. In order to deliver on his promise to “transform” HP, Apotheker needed HP to

engage in a “transformative” corporate acquisition that would firmly position the Company in the

high-margin software and software services industries. At HP’s Summit Press Conference on

March 14, 2011, analysts asked Apotheker several skeptical questions about his plans to

“transform” HP. His responses to analysts’ questions were highly defensive, particularly given

HP’s declining revenues:

[John Pallatto – eWEEK:] It seems that you are playing pretty much catch up in the field of analytics, say, in high-performance computing and perhaps even cloud computing, say, vis-a-vis IBM in particular. Do you feel – will it be particularly – do you feel you will have a hard time or will it be a challenge to compete at that level with a competitor such as IBM?



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* * *

[Apotheker:] I don’t think we are playing catch up to anyone, certainly not when it comes to IBM. In fact, I found it amusing to read an interview by a senior IBM executive yesterday commenting on a strategy we just announced today. It seems to indicate some nervousness.

* * *

[] I find this amusing. HP has been in the cloud business for years. We have invested significantly in the cloud in the past. We probably do already billions and billions of dollars of cloud business. The vast majority of cloud infrastructure in the world runs on HP, so when it comes to catching up I wonder who has to catch up.

* * *

[Jo Maitland – TechTarget:] I am curious the Amazon Web services business is expected to be something like a $10 billion business within five years time. You are way, way behind here. How do you plan to catch up with the online bookselling company or the largest IT company on the planet at this point? And they are way ahead of you. So what is the plan to catch up? You have given us platitudes about launching a public cloud but you have any details?

[Apotheker:] I don’t have the feeling I gave you platitudes, but if that is your impression that is fair. Why don’t we leave it at that? Why don’t we just catch up and then you can ask me again? There is another platitude for you.

29. Following the investor conference, Apotheker resolved to deliver on his promise

to “transform” HP by no later than the close of HP’s fiscal year ending October 31, 2011. While

Autonomy had been a possible acquisition target at HP for years, the Company previously

viewed it as too expensive. Autonomy’s name, however, reportedly came up again at a retreat

for HP executives at the Rosewood Sand Hill hotel in Menlo Park, California in December 2010,

a month after Apotheker took over at HP in November 2010. By that time, Apotheker’s attempts

to pursue other potential acquisition targets at HP had failed. Potential deals with telecom

software companies Comverse Technology, Inc. (“Comverse”), Amdocs, Inc. and corporate

software maker TIBCO Software, Inc. went nowhere. Comverse, in particular, was apparently

deemed unsuitable by HP because of a prior stock options backdating scandal. Apotheker, whose

deal with Comverse was scuttled by what he viewed as HP’s stifling bureaucracy, resolved not to

let any new potential acquisition target, even one with possible accounting issues, fall through.

30. At roughly the same time that Apotheker announced HP’s “transformative”

business strategy, Lynch hired Frank Quattrone’s (“Quattrone”) Qatalyst Partners to help him

discreetly shop Autonomy to potential buyers in the California Bay Area (where Autonomy’s



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North American entity was based) and elsewhere during spring 2011.14 By the time he hired

Quattrone, Lynch was desperate to sell Autonomy. By spring 2011, Lynch began to recognize

that his aggressive, short-sighted mergers & acquisitions (“M&A”) “roll-up” strategy at

Autonomy was faltering due to his inability to continue to credibly mask Autonomy’s low

organic growth rate with even more revenue boosting acquisitions. All Lynch needed for an

impeccably-timed cash out was a buyer eager enough to acquire Lynch’s, by then, increasingly

impaired company. On March 30, 2011, Peel Hunt ominously warned that Autonomy’s “past

growth has been flattered by understating the impact of acquisitions and, possibly also, the early

recognition of deferred revenues at acquired companies. Put simply, Autonomy was probably

never growing as quickly as it said it was.” This warning was later proved correct.

4. Apotheker and Lynch Agree to a Deal-In-Principle

31. In April 2011, Quattrone brokered a meeting between Lynch and Apotheker, who,

together with Defendant Lane, met at HP’s Palo Alto headquarters. Lynch’s formidable

marketing skills and “blue-sky pitch” for Autonomy’s “meaning-based computing” impressed

Apotheker so much that, immediately following the meeting, Apotheker reportedly told

Defendant Lane that he wanted to buy Autonomy. The following month, in May 2011, HP’s

Board approved Apotheker’s proposal to look deeper into acquiring Autonomy, code naming the

plan, “Project Tesla.” The same month, HP hired financial advisers Barclays Bank PLC

(“Barclays”) and Perella Weinberg Partners (“Perella”) to evaluate a possible transaction with

Autonomy.15 Given that, in 2010, Autonomy reported gross margins of nearly 90%, and

operating margins of more than 40%, Autonomy presented Apotheker with a seemingly

exclusive opportunity to quickly and materially improve HP’s anemic financial performance and

deliver on his promise to “transform” HP.

14 Quattrone was the ex-head of Credit Suisse First Boston’s (“CSFB”) technology banking business. In 2004, he was convicted and sentenced to 18 months in prison on federal charges of trying to hinder a government investigation into whether investment bank CSFB doled out shares of hot initial public offerings to favored clients in exchange for inflated commissions. His conviction was later overturned by the Second Circuit. Quattrone pocketed $11.6 million in fees for persuading HP to grossly overpay for Autonomy. 15 Barclays and Perella made over $30 million in fees for advising HP in connection with the Autonomy Acquisition.



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32. On HP’s 5/17/11 Conference Call, Apotheker assured investors that HP was still

poised for a “transformation,” and during the June 2, 2011 Sanford C. Bernstein & Co. Strategic

Decision Conference, Apotheker shared his view that “[w]hat you want to achieve is the fastest

evolutionary path possible” to transform a company like HP. After Barclays and Perella weighed

different strategic possibilities of a transaction with Autonomy, in July 2011, Apotheker gave an

impassioned presentation on the merits of acquiring Autonomy outright to the HP Board,

reportedly saying: “[t]his Company is a burning platform. I cannot do this alone. I need your

support. We’re going to have to hold hands and go through this together.” After finishing, HP

CFO Lesjak directly, and without prior warning to Apotheker, reportedly stated, according to a

Fortune account of the meeting: “I can’t support [the Autonomy Acquisition]. I don’t think it’s a

good idea. I don’t think we’re ready. I think it’s too expensive. I’m putting a line down. This is

not in the best interests of the company.” If consummated, the Autonomy Acquisition would

virtually wipe out the $13 billion in cash HP then had on its balance sheet.16

33. Despite CFO Lesjak’s blunt objections to HP’s Board earlier that month, on July

28, 2011, after meeting at a resort on the Normandy coast, Lynch and Apotheker agreed on a

deal-in-principle for HP to acquire Autonomy. The HP Board – including Defendants Whitman

and Lane – subsequently approved due diligence for HP’s potential offer for Autonomy, which

took place between July 28 and August 18, 2011. At this same time, the HP Board split into two

teams in an effort to address a possible transaction with Autonomy while also simultaneously

weighing HP’s possible related PC hardware spinoff. The decision to divide the Board in this

manner hampered the full HP Board’s willingness and/or ability to oversee Apotheker’s pursuit

of Autonomy. Defendants Lane, Apotheker and Robison used the HP Board’s fractured

oversight to press the Autonomy deal forward even as Autonomy’s reported $6 billion market

value exceeded more than seven times its annual revenue and 15 times its operating profit during

this period.

16 The same month, the Company also was authorized to repurchase over $2.1 billion of the Company’s stock between August 2011 and October 2011 to prop up HP’s stock price. By the time the Company announced the repurchase authorization in July 2011, the HP Board had either already decided to, or was anticipating the decision to, acquire Autonomy for over $11 billion.



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34. The strong objections Lesjak had lodged earlier against a deal with Autonomy to

the full HP Board in July 2011 went undisclosed to investors until Fortune ran a May 2012

exposé quoting Lesjak’s comments.17 In stark contrast to Apotheker’s later claim that HP had

conducted “extensive” due diligence of Autonomy (see ¶¶58, 172, infra), during HP’s three-week

due diligence period, Lynch, much like he had done with skeptical analysts in the U.K., actively

limited HP’s review of Autonomy to only publicly-reported financial statements and

approximately 25 sales contracts. While HP’s due diligence team justifiably requested the

original financial materials (i.e., working papers) underlying Autonomy’s audits, Autonomy

refused to provide them, vaguely citing the U.K. City Code governing the acquisition (see ¶¶70-

73, infra). Facing immense pressure to deliver on his unequivocal promise to “transform” HP

into a high-margin software company, and deeply concerned with HP’s negative impending

quarterly earnings announcement (and the always real possibility of leaks at HP), Apotheker and

Lane disregarded Autonomy’s evasive conduct and the red flags raised about its impairments,

and continued to push the deal through at HP.

35. In the harried final few days leading up to HP’s August 18, 2011 announcement,

Quattrone and Lynch seized on HP’s time-crunch to persuade Apotheker and the HP Board –

including Defendants Lane and Whitman – to raise HP’s already overpriced offer for Autonomy.

A Wall Street Journal article headlined, “Inside H-P’s Missed Chance to Avoid a Disastrous

Deal,” detailed some of these events, in relevant part, as follows:

The full board discussed an acquisition at a meeting July 20 [2011]. Some members bristled at the likely cost. Others, including [Defendant] Lane and venture capitalist Marc Andreessen, wanted to push forward.… These people said the board authorized the CEO to bid up to a maximum of £25 a share, about $40.

The markup, about a 50% premium over the stock at the time, wasn’t unusual for a software deal, but Autonomy’s valuation was already on the high side. Its market value of about $6 billion was seven times annual revenue and 15 times operating profit.

H-P directors and bankers calculated how much revenue Autonomy would have to add over 10 years to justify such a price. Autonomy’s trajectory alone wouldn’t get there. The deal required assuming more revenue growth as a result of the tie-up than H-P usually assumed in acquisitions, said people familiar with the matter. But the directors believed they could make the numbers.

17 See n.7, supra.



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[Defendant] Apotheker and H-P’s strategy chief, [Defendant] Shane Robison, met with [Defendant] Lynch on July 28. At the meeting, held in Deauville, France, the parties agreed that a deal was possible and H-P should conduct due diligence.

In August, the H-P board pegged a coming mid-August earnings report as a target date for announcing the software deal and other sweeping changes.

On Aug. 13, with no agreement yet reached and the earnings report days away, H-P’s offer had bumped up against the self-imposed cap of £25 a share. Autonomy wanted more. [Defendant] Lane told [Defendant] Apotheker to offer an additional 25 pence, or 40 cents, per share, according to people knowledgeable about the talks.

Autonomy didn’t take it. [Defendant] Lane arranged a quick conference call of directors. They authorized another 50 pence a share. That got the deal done.18

5. HP Conducts Cursory Due Diligence on a Polluted and Vastly Overvalued Asset

36. Following his July 28, 2011 agreement-in-principle with Lynch, Apotheker

wanted to announce HP’s offer for Autonomy during HP’s 3Q11 earnings announcement on

August 18, 2011. Apotheker wanted to announce the offer by 3Q11 to deliver on the “fast[]”

“transformation” of HP that he had been promising to investors since March 2011. Unbeknownst

to investors, however, to expedite HP’s Autonomy due diligence, HP relied almost exclusively

on Autonomy’s auditor’s (Deloitte Touche Tohmatsu Limited (“Deloitte”)) prior audits of

Autonomy. While HP engaged KPMG LLC (“KPMG”) for its own purported independent due

diligence, KPMG was instructed by HP’s due diligence team to limit its work to reviewing the

audits performed by Deloitte. In fact, after the Class Period, KPMG later went on record with the

Wall Street Journal to try to defend its work on HP’s Autonomy due diligence, confirming that it

was only a “limited engagement.” A limited engagement for a $11 billion transaction.

37. HP’s internal due diligence procedures required the Board’s Finance and

Investment Committee (“Finance Committee”) to review and approve M&A transactions before

they reached the full HP Board. In fact, after Apotheker had proposed buying Comverse earlier

in spring 2011, the Finance Committee scuttled the deal, at least in part, because Comverse had

been involved in a stock options backdating accounting scandal. Even though Finance

18 See n.7, supra.



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Committee Chairman John H. Hammergren was among those HP Directors who were most

skeptical about Autonomy, the Finance Committee failed to review HP’s proposal to acquire

Autonomy prior to full Board review on August 17, 2011. According to a January 21, 2013 Wall

Street Journal article titled “Inside H-P’s Missed Chance to Avoid a Disastrous Deal,” “H-P’s

normal procedures require the board’s finance committee to review and approve deal proposals

before they reach the full board. That didn’t happen with the proposal to acquire Autonomy, said

people familiar with how the board proceeded.”

38. Instead, HP’s Autonomy due diligence team reported directly to Defendant

Robison, which, not coincidentally, stripped CFO Lesjak of her ability to scrutinize a transaction

that, Apotheker, Lane and Robison knew she vehemently opposed. The Finance Committee

failed to challenge the circumvention of HP’s internal reporting obligations for the Autonomy

transaction such that, after the Class Period, Whitman announced that she had amended HP’s due

diligence procedures so that HP M&A due diligence now purportedly reports directly to HP’s

CFO.

39. The timing of HP’s rushed three-week Autonomy due diligence was especially

critical because, as alleged in more detail in ¶¶69-73, infra, under the U.K. City Code governing

the acquisition, if potentially material issues about Autonomy were reasonably foreseeable to HP

before the offer was made, the City Code would foreclose HP’s ability to withdraw its offer for

Autonomy. Over the course of HP’s measly three-week due diligence, HP’s due diligence team,

which including KPMG, reportedly spoke by telephone with Autonomy’s auditors at Deloitte.

During the call, Deloitte reportedly disclosed that, 18 months earlier, an Autonomy finance

executive had alleged that improper accounting was occurring at Autonomy (“Whistleblower No.

1”), but represented that a subsequent review had failed to discover any material improprieties.

Autonomy later fired Whistleblower No. 1. HP intentionally failed to independently run

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Street Journal, all of the information KPMG was provided by Deloitte was “equally disclosed to

HP.”19

40. In addition, HP’s Autonomy due diligence discovered, or was severely reckless in

not discovering, that Deloitte’s Autonomy audits were prima facie unreliable. After Deloitte

signed off on Autonomy’s annual reports with the LSE, for instance, Deloitte earned £4.44

million in non-audit fees from Autonomy between 2006 and 2010. The non-audit fees

Autonomy paid to Deloitte for advice on tax, acquisitions and other services were on top of the

£5.422 million in fees Deloitte collected for actually auditing Autonomy’s financial statements

during this period. Given these issues, prior to the Class Period, investor advisory service PIRC

recommended that Autonomy shareholders vote against Deloitte’s reappointment on the grounds

that it was conflicted as a result of taking such large non-audit commissions.

41. Deloitte’s relationship with Autonomy also suffered from other debilitating

conflicts. The Cambridge-based Deloitte partner for Autonomy, Nigel Mercer, also was

Tottenham Hotspur’s (an English Premier League soccer team) auditor in 2010. That same year,

Autonomy signed a £20 million sponsorship deal with the Tottenham “Spurs.”20 HP either knew,

or was reckless in not knowing that, as U.K. entities, neither Deloitte nor Autonomy was subject

to the Sarbanes-Oxley Act of 2002 (“SOX”) which likely would have prohibited Autonomy’s

professional sports sponsorship on its auditor’s behalf. Autonomy’s own Vice President of

Finance, Steve Chamberlain (“Chamberlain”), also notably worked at Deloitte before joining

Autonomy in 2005. Despite Deloitte’s unusually close ties to Autonomy, HP relied exclusively

on Deloitte’s audits of Autonomy’s financial statements for its Autonomy due diligence. This

was severely reckless. Later, during the Company’s September 13, 2011 Deutsche Bank

Technology Conference (“9/13/11 Conference”), Apotheker was grilled about the purported

“tight” due diligence HP had performed on Autonomy. Defendant Apotheker was forced to

19 According to a former HP Global Account Finance Manager employed at HP during the due diligence period, HP forced everyone involved in its due diligence of Autonomy to sign a non-disclosure agreement. 20 The conversion rate for British pound sterling to U.S. dollar is £1 to $1.55.



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ultimately concede that, in fact, HP had deferred to Deloitte for what was supposed to be HP’s

own independent Autonomy due diligence:

I’ve got to tell you I have challenges with the question itself. Autonomy is a publicly traded company in the UK. And they are, therefore, audited like any other FTSE company, and they’re being audited on very professional standards. And, therefore, that’s where we pick up the trail and do our due – that’s the basis of our due diligence.

42. Accordingly, prior to HP’s August 18, 2011 announcement, the Insider

Defendants had access to information concerning Autonomy’s accounting improprieties and

overvaluation, including, but not limited to the following facts: (i) corporate governance firms,

auditors, media and analysts had questioned Autonomy’s market value due to concerns about its

accounting practices, and whether its reported growth rates and margins had been artificially

inflated; (ii) Autonomy only was providing HP limited information in the form of approximately

25 or so sales contracts during HP’s three-week due diligence; (iii) the enormous 11 times

revenue premium that HP was paying for Autonomy despite its aggressive accounting practices;

(iv) Defendant Lesjak vehemently opposed the acquisition to the full HP Board in July 2011

stating, in part, “I’m putting a line down. This is not in the best interests of the company;” and

(v) red flags were raised during HP’s Autonomy due diligence, including Whistleblower No. 1’s

allegations that Autonomy was manipulating its revenue recognition practices.

43. These same facts would later prevent HP from withdrawing its offer to purchase

Autonomy under the U.K. City Code because they were either known, or reasonably foreseeable,

to HP prior to the August 18, 2011 announcement. The day before the announcement, on an

August 17, 2011 HP Board conference call, CFO Lesjak again objected to the announcement of

HP’s offer to acquire Autonomy.

B. The Class Period Starts with Apotheker’s Announcement of HP’s Offer to Purchase Autonomy

44. After the market closed, on August 18, 2011, HP and Autonomy released the joint

8/18/11 Press Release captioned “HP to Acquire Leading Enterprise Information Management

Software Company Autonomy Corporation plc,” announcing HP’s offer to purchase Autonomy

for approximately $11 billion. Apotheker represented that “Autonomy is a highly profitable and



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globally respected software company,” and used Autonomy’s materially inflated revenue growth

and margins to defend the offer to HP’s investors as follows:

In 2010, Autonomy had gross margins in the high 80s and operating margins above 40%. They have demonstrated a strong consistent track record of double-digit revenue growth.

The same HP press release on Form 8-K similarly “incorporated by reference” Autonomy’s

materially inflated financial statements as follows:

Autonomy’s recent operating and financial performance has been strong, including its most recent results for the quarter ending June 30, 2011. Over the last five years, Autonomy has grown its revenues at a compound annual growth rate of approximately 55 percent and adjusted operating profit at a rate of approximately 83 percent.21

45. In response to these and other same day announcements, on August 19, 2011, and

despite Defendants’ false statements about Autonomy, the Company’s stock price fell 20% on

massive trading volume of 128,945,447 shares traded. In turn, the same day, Autonomy’s stock

price rose by approximately 75% in a single trading day, reflecting the 11 times revenue

premium HP had offered to pay to acquire Autonomy. HP’s offer terms for Autonomy precluded

HP’s shareowners from voting on the acquisition, which was funded with cash, convertible bonds

and stock options. Under the terms of the offer, Lynch would (and later did) lead Autonomy as

HP’s own Executive Vice President of Information Management – one of HP’s top 15 executive

officers as represented in HP’s 2011 Annual Report. In his new executive role at HP, Lynch

would (and later did) control one of HP’s largest divisions – the Information Management

division – and reported directly to CEO Whitman. Once the deal closed, Lynch stood to pocket,

and ultimately did pocket, $800 million in cash from unloading Autonomy on HP and

Apotheker. A November 30, 2012 New York Times article about these developments headlined

“From H.P., a Blunder that Seems to Beat All,” reported that a “former Autonomy executive

laughed this week when I asked if even Autonomy executives thought H.P. had overpaid. ‘Let’s

21 As alleged below in ¶87, infra, on November 20, 2012, GC Schultz admitted that $200 million of Autonomy’s 2009 and 2010 revenue had been recorded prematurely or improperly, thereby rendering HP’s statements referenced above in ¶44, supra, false and misleading when made.



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put it this way,’ this person said. ‘H.P. paid a very full price. It was certainly our duty to our

[Autonomy] shareholders to say yes.’”

46. Analysts described HP’s offer as “value-destroying” and “expensive,” with others

concluding that HP was “massively overpaying” for Autonomy and probably “felt compelled to

act” due to Apotheker and Lane’s earlier guarantees to “transform” HP. The offer represented a

premium of approximately 64% to the closing price of Autonomy shares on August 17, 2011, the

last business day prior to the commencement of the offer period. On August 19, 2011, Peel Hunt

commented on these developments as follows:

It doesn’t get any better than this, and [Autonomy] [share]holders should accept the offer before HP changes its mind. HP’s CEO used to be in charge at SAP, so he should understand software, but this bid seems to defy logic. We believe HP shareholders should be worried. Even before you consider the very high price, what are they going to think when they realise that margins have been contracting, profits are growing in single digits and for some reason those profits aren’t converting into as much cash as they should? And DSOs are close to 100 days despite having largely blue-chip customers; 60 days would be more normal.

1. More Suspicions Emerge About Autonomy’s Improper Course of Business Conduct

47. One week after the deal was announced, CFO Lesjak suspiciously canceled a

critical appearance at a road show meant to defend the terms of the Autonomy Acquisition. In

addition, after HP’s announcement, on August 25, 2011, U.K. research analyst Alan Pelz-Sharpe

received an anonymous e-mail from “Joe Bloggs” (“Whistleblower No. 2”), who appeared to

have damaging details about Autonomy’s publicly-reported core IDOL OEM growth. According

to Autonomy, “IDOL OEM is where Autonomy’s IDOL is embedded inside other software

companies’ products. IDOL is now embedded in most major software companies’ products

addressing most software vertical markets. This is a particularly important revenue stream as it

generates ongoing business across the broadest product set possible, in addition to up-front

development licences.”

48. The e-mail, which is reproduced in significant part below, was sufficiently

alarming that Pelz-Sharpe forwarded it to the U.K.’s Serious Fraud Office and the Financial

Times of London:22 22 The Serious Fraud Office is the U.K. equivalent of the SEC.



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Key Questions HP Should be Asking about Autonomy’s OEM Revenues

HP’s $10.3B offer to purchase Autonomy has invited additional scrutiny of Autonomy’s business model. One of the top two drivers in Autonomy’s revenues and in the valuation of the company has been the OEM business, which is reported to grow 35% y-o-Y and 27% in Q2 2011 alone.

According to Autonomy the entire software industry – more than 400 software companies by Q2 2011 – is building software applications on Autonomy’s IDOL search platform. The average OEM deal is reported as $200,000 software license with a 4% royalty rate. With almost 100% gross margin on royalties and 30% annual growth, this business is a key reason for Autonomy’s valuation.

Consider these facts:

Analyzing Autonomy’s quarterly earnings releases since 2006 demonstrates that the company has reported a suspiciously consistent number of quarterly OEM signings[.]

* * *

Uncanny consistency?

According to the November 2010 Autonomy Investor Forum presentation, a team of only 5 OEM sales reps will always deliver between 9-14 OEM deals every quarter 5 years in a row. The number of quarterly deals never goes outside this range, a consistency that is practically impossible to achieve in real life. A LinkedIn search reveals that the OEM team has had at least 5 different managers in the last five years, a turn-over rate that would make it even more difficult to achieve consistency.

Major Inconsistency in amount of reported OEM customers/applications.

In November 2005, Verity claimed to have 260 OEM applications using their technology before Autonomy acquired the company. In Q4 2005, Autonomy claimed at least 15 new agreements in 2005 (representing $13.8M in annual revenues) growing from at least 60 OEMs as claimed in the 2004 annual report. In 2011, however, Autonomy only claims 400+ OEM applications, which does not square with the historic numbers (260+336) that add up to 596. []

Few new OEM customers.

Autonomy[] has been reporting a declining number of new OEM customers with only 3 previously unannounced OEMs announced in the last 8 quarters.

Where are the references?

Autonomy’s list of OEM references on their website is full of OEMs that have been acquired (Authoria, Escalate Retail), are out of business (Coemergence), or have replaced Autonomy’s OEM software (BEA, Stellent, Sybase, Verdasys, Dassault, etc.) []



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Industry analysts now question actual OEM adoption.

Independent industry analyst Leslie Owens at Forrester Research stated that software companies are in fact NOT building applications on Autonomy IDOL. This flies in the face of Autonomy’s claims that 99% of the industry has standardized on Autonomy IDOL. []

OEMs are replacing Autonomy.

Companies such as Oracle (BEA, PeopleSoft, Siebel, and Stellent), Adobe, Huron Consulting, and Dassault Systemes have publicly announced that they are replacing their Autonomy (or formerly Verity Inc.) OEM technology with open source or competing alternatives.

Most OEMs do not actually use IDOL search platform, but only simplistic Keyview document file filtering.

Most OEMs are not building applications on Autonomy’s platform, only using simple document filtering software called Keyview (now re-branded IDOL Keyview).… “Autonomy doesn’t distinguish between its two main OEM product when it announces OEM deals, but there’s a big difference between OEMing IDOL and OEMing its Keyview document filters.… [W]e think a lot of the OEM deals are for the latter, rather than for IDOL itself, although we have no way of proving that, except to say that we speak regularly to these leading software vendors and they don’t appear to be using IDOL as their core search and classification engine nearly as widely as Autonomy claims.”

(Emphasis in original.)

49. On August 29, 2011, Pelz-Sharpe published an online report about the e-mail,

entitled “Another Look at the Autonomy IDOL OEM Business,” providing a granular

defenestration of Autonomy’s core IDOL OEM business:

Now that HP has announced its intent to buy Autonomy, the deal has come under a lot of scrutiny. One area though that few have yet to look at in detail – and of particular interest to us as buyers’ advocates – is the whole topic of the IDOL search OEM business. Much has been made of the scale and pervasiveness of Autonomy’s IDOL search engine platform, and that it is OEM’ed so widely that it has become a defacto standard.

I wonder if this is really the case.

* * * The questions raised in Autonomy’s case are twofold: first, how do you embed IDOL at all, and secondly how many people are actually doing so?

Leslie Owens over at Forrester recently wrote a piece on this issue, and described IDOL in terms of a vacuum cleaner. It’s an excellent analogy. You see, IDOL does not embed itself in other vendor’s products as much as it sits in the corner and sucks data out for processing. It is essentially a separate black box, and as such is one that could be easily replaced by any other search engine.

So, far from other vendors becoming dependent on IDOL, it is in fact loosely coupled and easily swapped out for alternatives. For example, Oracle and Sybase



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have already replaced Autonomy search technologies with alternatives. Many others have followed suit, particularly since there are now viable and considerably cheaper open source options in the various forms of Lucene/Solr. And finally, it’s important to note that where Autonomy is present in 3rd-party software, it is more typically the old (and very basic) Verity engine, not IDOL.

The argument goes that IDOL may well be expensive and complicated to use, but at the high end of the market it is the best, or as other analyst firms like to say it a “market leader.” I can’t help but wonder whether this is a victory of marketing over substance.…

For buyers, the HP acquisition of Autonomy could prove enlightening. It will doubtless prompt a shakeout and insight into the true nature of a very secretive company.…

50. A former Autonomy employee confirmed Pelz-Sharpe’s conclusions.

Confidential Witness No. 1 (“CW1”) was a former Director of OEM and Strategic Licensing at

Autonomy from approximately November 2010 to July 2011. The objective of Autonomy’s

OEM sales organization was to create deals where Autonomy’s software was licensed to

companies that would include the software in their own products. In that regard, Autonomy’s

OEM sales force did not have assigned territories or named accounts, but would instead call on

any customer that represented a potential OEM opportunity. CW1 said that Autonomy’s OEM

line of business was not necessarily very large in terms of revenue, but was always publicly

portrayed as very important by Autonomy and by Lynch in particular. CW1 initially reported to

Michael Mooney, who was head of sales at Autonomy, but later reported to Vice President of

OEM Sales for Autonomy in the U.S., Bradley Paster, who reported to Mooney. In turn, Mooney

reported to Lynch and/or Autonomy CFO Shushovan Hussain.

51. According to CW1, in the quarter that ended prior to CW1’s departure from

Autonomy in July 2011, sales for Autonomy’s OEM group had been extremely poor. However,

CW1 said that Autonomy issued a press release which touted the great success of OEM for the

company in that same quarter. The press release touted OEM sales as being the way that

Autonomy had salvaged its quarter. In fact, Autonomy’s July 27, 2011 press release specifically

identifies customer accounts that had been added and generated revenue for Autonomy.

According to Autonomy’s press release, “[i]n H1 2011 IDOL OEM revenue totalled $84 million

(H1 2010: $67 million), up 27% and representing 18% of revenues. In Q2 2011 IDOL OEM



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revenue totaled $47 million (Q2 2010: $38 million), up 26% and representing 18% of revenues.

14 new agreements were signed during Q2 2011, including deals with Xerox, Rand, McAfee

and Opentext.”

52. CW1 said that the fact that Autonomy entered into OEM deals with these

customers came as a complete surprise to CW1 and everyone else CW1 worked with in

Autonomy’s OEM organization. CW1 said that personnel in Autonomy’s OEM organization

worked directly with some of the customers referenced in Autonomy’s 2Q11 press release and

were completely unaware of any of the deals referenced in Autonomy’s press release. CW1

doubted how OEM sales outside of North America (say, in the United Kingdom or Europe) could

be responsible for Autonomy’s robust OEM sales because Autonomy maintained a list of

Autonomy OEM customers identified in the press release, which included companies that people

in the OEM organization had been working on and who were unaware of any such deals being

transacted, let alone closed.

53. CW1 said there were only a few scenarios that could explain the vast discrepancy

between what Autonomy’s July 2011 press release claimed for OEM sales and CW1’s actual

experience of what the OEM organization had achieved for the same period. The first scenario

was that someone else within Autonomy was doing OEM deals and therefore being dishonest

with the OEM sales group and keeping them out of these deals. If so, CW1 wanted no part of a

company that would be so dishonest with its own employees. Another scenario was that

Autonomy was classifying other deals it had realized in the period as OEM deals so long as there

was even a passing reference to an OEM element in the transaction. And the final scenario, as

CW1 saw it, was that the deals had never occurred. Otherwise, CW1 found it highly unlikely

that OEM deals of the number and magnitude being reported could have happened without

anyone in the very organization dedicated to OEM sales being aware of them. CW1 said the

situation was “very strange,” to the point of being “surreal.”

54. CW1 suspected that Autonomy included some OEM element in a larger

transaction and then classified the entire deal as an OEM transaction. CW1 maintained that any

sophisticated entity doing due diligence on Autonomy should have been able to determine



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whether the July 2011 press release misrepresented the success of OEM in that period. The

actual OEM sales for the same quarter had been very poor. The reason for the OEM sales miss in

the quarter was, in CW1’s view, part of a bigger trend.

55. The OEM group was part of a larger mission by Autonomy to leverage the value

of Autonomy’s IDOL intellectual property, which CW1 said had value as both a product and a

brand name. Regarding the IDOL brand name, CW1 noted that Autonomy acquired many

companies and essentially “IDOL-ified their products” a process that essentially took “good

products and added IDOL” to them. However, much of Autonomy’s OEM revenues was actually

being derived from renewing software licenses of companies that Autonomy had acquired, in

particular Verity, Inc. (“Verity”). Verity had a “filter and key word” or Key View Filter search

product which represented “a big chunk” of Autonomy’s OEM revenues. At some point,

Autonomy simply renamed the Verity product as IDOL Key View Filter, even though it was an

IDOL product in name only and “really had nothing to do with IDOL.” In that regard, CW1 said

that Autonomy “slapped the [IDOL] label on everything” but it was “a stretch” to consider these

products as actually based on Autonomy’s IDOL system.

56. CW1 believed that OEM missed its sales goals for the quarter because it was

running out of license renewal deals. CW1 commented that Autonomy struck very hard bargains

on the OEM renewal deals and CW1 speculated that customers had been figuring out “exit

strategies” to avoid having to renew their old licensing agreements with Autonomy. CW1 also

stated that it was very easy to tell that the OEM group would miss its sales and revenue targets

for the quarter because the pipeline of deals looked weak. Although it was easy to spot the

earnings miss in OEM early on in the quarter, at no time, to CW1’s knowledge, did Lynch tell

employees about the miss. “The public face” expressed by Autonomy in the July 2011 press

release was that OEM had a great quarter. CW1 added that, while Autonomy’s IDOL product

ultimately, was not an out-and-out “Ponzi scheme,” nonetheless Autonomy was a “house of

cards” that was “so oversold” that the market is “littered with the broken bodies of stargazing

customers who bought in on the vision” Autonomy sold them of IDOL’s capabilities.

57. On August 31, 2011, e-Discovery Journal separately noted that:



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Autonomy OEM business is the heart of the issue because it’s such a high-margin business. If those revenues are not what Autonomy says they are, then HP is getting the shaft. My first instinct is to believe that HP conducted the right level of due diligence before plunking $10 [sic] billion down on Autonomy. However, the sheer number of sources calling the business into question has forced us to investigate further.

2. Apotheker Responds to Investors’ Unease About HP’s Offer for Autonomy

58. Given the market’s overall negative reaction to HP’s offer to acquire Autonomy,

Apotheker moved to try to quell the public’s skepticism for the deal by deceiving investors. At

the 9/13/11 Conference approximately one month into the Class Period, for instance, Apotheker,

barely still the Company’s CEO, grossly misrepresented that HP had applied a “very

conservative” and “rigorous” process in evaluating Autonomy, claiming that HP ran “an

extremely tight and very professional due diligence process.” In truth, HP’s three-week due

diligence was neither “conservative” nor “rigorous,” it was severely reckless at best as alleged in

¶¶36-42, supra. Apotheker further grossly misrepresented that HP’s valuation and due diligence

processes for Autonomy had resulted in “a very fair price for Autonomy” –

[J]ust take it from us. We did that analysis at great length, in great detail, and we feel that we paid a very fair price for Autonomy. And it will give a great return to our shareholders.

Apotheker also misrepresented that Autonomy’s IDOL OEM business was the “de-facto standard

among more than 400 OEMs,” as the raison d’etre for the eye-watering premium HP had offered

to pay for Autonomy. Apotheker made these misleading statements even though by then he

knew, or was at least severely reckless in not knowing, that Autonomy’s IDOL OEM was far less

profitable and ubiquitous than Lynch had represented, and that, in fact, Autonomy in general was

profoundly overvalued.

59. Despite lingering market skepticism about HP’s offer for Autonomy, Apotheker’s

defensive, misleading September 13, 2011 statements dissipated some market concern about

HP’s offer terms for Autonomy. On September 14, 2011, the Silicon Valley Business Journal

reported that “[i]nvestor patience with Hewlett-Packard Co. is wearing thin, with most big

shareholders [symbolically] opposing a planned acquisition of British software company

Autonomy.”



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60. Two weeks before the offer period closed on October 3, HP’s offer to purchase

Autonomy prompted Oracle’s CEO, Larry Ellison, to publicly describe the purchase price as

“absurdly high,” while simultaneously disclosing that former HP CEO (and current Oracle Vice

President) Mark Hurd had rejected a proposal for Oracle to acquire Autonomy for $6 billion.

HP’s (soon-to-be) Executive Officer Lynch publicly attacked Ellison’s assertion that he had

shopped Autonomy to Oracle. On September 28, 2011, less than a week before Autonomy’s deal

with HP closed, Ellison gleefully issued an Oracle press release, responding to Lynch’s denial

called “Please Buy Autonomy,” which asserted:

Either Mr. Lynch has a very poor memory or he’s lying. “Some bank” did not just happen to come to Oracle with Autonomy “on a list.” The truth is that Mr. Lynch came to Oracle, along with his investment banker, Frank Quattrone, and met with Oracle’s head of M&A, Douglas Kehring and Oracle President Mark Hurd at 11 am on April 1, 2011. After listening to Mr. Lynch’s PowerPoint slide sales pitch to sell Autonomy to Oracle, Mr. Kehring and Mr. Hurd told Mr. Lynch that with a current market value of $6 billion, Autonomy was already extremely over-priced. The Lynch shopping visit to Oracle is easy to verify. We still have his PowerPoint slides.23

61. The PowerPoint slides on Oracle’s corporate website presented Autonomy’s

revenue and enterprise value as of January 24, 2011, converted to U.S. dollars, and compared it

against comparable software companies. Autonomy was then valued at about $5.7 billion, or

slightly less than six times revenue. It was later revealed after the Class Period that Lynch and

Quattrone had also shopped Autonomy to Dell Inc. Like Oracle, CEO Michael Dell had

similarly refused to give Autonomy serious consideration, reportedly stating, “[n]ot at that price.

That was an overwhelmingly obvious conclusion that any reasonable person could draw.” A

September 23, 2011, article entitled “HP and Autonomy – a Marriage Made in Hell?” by Real

Story Group observed that, “[a]s for the 400 software companies building applications on IDOL,

in effect embedding (OEM) IDOL, we just can’t find them. What we can find is [] lots of people

using basic document filtering widgets (KeyView) and some using the old Verity K2 search

23 Ellison, who had been engaged in an unrelated lawsuit with SAP and Apotheker, posted the slides Lynch used to shop Autonomy to Oracle at http://www.oracle.com/us/corporate/features/please-buy-autonomy-503330.html.



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engine, but hundreds of software firms using IDOL? They are nowhere to be seen, at least by

me, and I watch pretty closely.”

3. The Briody Matter

62. On September 28, 2011, just four days before the offering period for Autonomy

expired, former U.S.-based Autonomy Senior Account Executive Virginia Briody filed a wage

claim against Autonomy in the State of New Hampshire, Department of Labor. As is pertinent

here, Ms. Briody’s complaint raised allegations strongly suggesting that Autonomy was, in fact,

manipulating its software revenue recognition practices. Ms. Briody, who was employed at

Autonomy from June 2010 to November 2010, alleged that Autonomy had failed to pay her the

full commission on a “hosted” hardware arrangement that she negotiated with Pioneer

Investment Management USA, Inc. (“Pioneer”), an investment firm, on Autonomy’s behalf.24

The dispute over the amount of Ms. Briody’s commissions turned on exactly how Autonomy

transformed its hosted hardware deal with Pioneer into software license revenue that Autonomy

could immediately recognize up front.

63. To support her claim, Ms. Briody introduced numerous exhibits, including e-mails

from Autonomy’s Corporate Counsel, Hung Chang and others, demonstrating that Autonomy

improperly transformed its low-margin (deferred-payment) hosting contract with Pioneer into a

high-margin software licensing agreement that could be immediately recognized as revenue.25 In

a September 10, 2010 e-mail introduced as evidence in the Briody Matter, for instance, Chang

bluntly advised Ms. Briody that Autonomy was “still figuring out the best way to structure this as

a licensing deal so we can recognize this as a license revenue.” Exhibit 1. On September 13,

2010, after Ms. Briody asked Chang why the deferred payment terms for the hosting contract

were being invoiced to Pioneer up front, rather than over a period of years, Chang responded

that, “[w]e are trying to make this into a licensing agreement [when] it’s a hosting agreement,

that’s why. I am having some technical difficulties with my phone.” Exhibit 2. Subsequently,

24 “Hosting” is a hardware service whereby a vendor like Autonomy offers a physical location for the storage of web pages and files. 25 The relevant e-mails are attached hereto as Exhibits 1-6.



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in a September 28, 2010 e-mail, Ms. Briody advised Chang that Pioneer would be unwilling to

agree to pay a $1.8 million invoice up front because the agreement contemplated deferred

payments by Pioneer over the four-year term of the contract. In response, Chang wrote “they

[Pioneer] will be invoiced up front, but the payment terms are the same,” reassuring Ms. Briody

that “[a]ll good, it will take some explaining to Pioneer on why they need to keep the invoice

notice for close to 4 years. :-).” Exhibit 3.

64. Autonomy later e-mailed a software license password to the Pioneer

representative primarily responsible for the deal containing the subject line – “Autonomy

Automater Software Information for Pioneer Investment Mngt USA.” Exhibit 4. Baffled that he

had received an e-mail from Autonomy for a software license that Pioneer had not purchased, the

Pioneer representative forwarded it to Ms. Briody on October 1, 2010, asking “does anyone

know what this is about?” Equally confused, Ms. Briody subsequently forwarded the e-mail to

Autonomy’s U.K. headquarters asking, “[c]an you help me understand this?” In response, an

Autonomy representative explained that “[w]e had to ship [a software password] to recognize

revenue. That’s all this is. We will take care of the rest.” In other words, Autonomy had

shipped Pioneer a bogus software password to enable Autonomy to justify recognizing Pioneer

contract’s terms as high-margin software licensing revenue up front when, in fact, it was a

hosting arrangement that required Autonomy to defer recognizing revenues over the term of the

four-year contract.

65. On November 12, 2011, a month after the Autonomy Acquisition closed, Steve

Chamberlain (Autonomy’s Vice President of Finance and a subsequent direct report to Defendant

Lesjak) and Sushovan Hussain (Autonomy’s CFO), instructed Autonomy’s employees to treat

the contract as a “hosted” services arrangement under U.S. Generally Accepted Accounting

Principles (“GAAP”) for purposes of calculating Ms. Briody’s commission, but apparently failed

to apply the same accounting principles for Autonomy’s publicly-reported financial statements in

the U.K. Exhibit 5. In other words, Autonomy conveniently complied with GAAP to reduce Ms.

Briody’s commissions but then ignored GAAP to accelerate the revenue it could recognize on the

deal. Ms. Briody sued Autonomy to recover commissions on the $1.8 million revenue



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Autonomy actually recognized, rather than the lesser $425,000 sum Autonomy arrived at to

compute her commissions under GAAP. On September 30, 2010, an Autonomy representative

even e-mailed Ms. Briody (and others) saying “[b]ig congratulations go to Virginia for bringing

in Pioneer for [$]1.8 [million].” Exhibit 6.

66. HP either knew about, or recklessly disregarded, the Briody Matter, which

HP/Autonomy continued to litigate after HP acquired Autonomy on October 3, 2011. A written

order later entered in the Briody Matter, finding in Ms. Briody’s favor, determined that

Autonomy “had a motive” to accelerate its revenue recognition in connection with the Pioneer

deal. Exhibit 7 (attached hereto). See ¶97, infra.

67. Around this same time period, in September 2011, Morland (“Whistleblower No.

3”) sent HP’s Investor Relations Department an e-mail to “tell[] them they were making a big

mistake” in acquiring Autonomy. At HP’s InformationWeek 500 Conference on September 11,

2011, a seemingly exasperated Lane responded to growing investor unease about HP’s offer for

Autonomy, lamely stating that “Autonomy was the only answer.”

C. Unbeknownst to HP’s Shareowners, HP Sought to Withdraw the Autonomy Offer

68. On September 22, 2011 – a week before his “transformative” deal with Autonomy

had yet to even close – Whitman unceremoniously ousted Apotheker as HP’s CEO.26 Whitman

took over as CEO the same day, and, along with Defendant Lane, participated in an interview

with AllThingsD. During the interview, Whitman was specifically asked whether HP had

overpaid for Autonomy. While Whitman’s response – “[i]t is what it is” – appeared nonplussed,

behind the scenes, Whitman and Lane were anxiously seeking a way out of the deal. During an

HP analyst conference call on the same day, Lane revealingly avoided using the very term – i.e.,

“transform” – that HP had used 23 times at an investor conference the previous month – stating,

“that does not mean we are transforming – and that word has been stricken from our language,

that we’re transforming HP.”

26 Apotheker later was awarded a $7.2 million cash severance and $18 million in accelerated options – which had not yet even vested given his short tenure.



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69. Unbeknownst to investors, before HP’s offer to acquire Autonomy closed on

October 3, 2011, HP was actively seeking to withdraw its offer to purchase Autonomy due, in

part, to the profoundly negative market response to HP’s offer which had vindicated CFO

Lesjak’s summer 2011 assessment that HP was significantly overpaying for Autonomy. In

addition, Whitman, by her own later admission (¶¶88-89, 96, infra), had by then learned via

published media and analyst accounts that Autonomy had been engaging in questionable

accounting practices. Under the U.K. City Code, however, because these and other facts were

reasonably foreseeable prior to the offer, HP could not withdraw its offer to purchase Autonomy.

HP’s shareowners were never told about the Company’s failed efforts to do so at any point

during the Class Period.

70. HP’s offer to purchase Autonomy was prepared in accordance with the City Code

and other U.K. disclosure requirements. Because Autonomy was incorporated under the laws of

England and Wales, HP/Autonomy’s offering documents advised Autonomy’s U.S. shareholders

that “[i]t may not be possible to sue Autonomy or its officers or directors in a non-US court for

violations of the United States securities laws. There also is substantial doubt as to enforceability

in the United Kingdom in original actions, or in actions for the enforcement of judgments of

United States courts, based on the civil liability provisions of United States federal securities

laws.” The City Code governs all takeover offers in the U.K. and applies to British companies,

like Autonomy, whose securities traded on the LSE. Takeover offers subject to the City Code are

supervised by the Takeover Panel (the “Panel”). The City Code also mandates the timeline for

offers and responses, regulates disclosure, and specifies the duties of target companies and their

directors.

71. The City Code provides remedies to address the contravention of its provisions.

Complaints are received and reviewed by the Executive and are further reviewed by the Hearings

Committee. Rulings of the Hearings Committee are published on the Panel’s website –

something HP was highly motivated to avoid in the possibility of a negative ruling. Panel rulings

can be appealed as of right to an independent body called the “Takeover Appeal Board.” The

Chairman and Deputy Chairman of the Takeover Appeal Board are appointed by a senior English



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judge. The Panel is empowered to issue “compliance rulings” when a rule of the City Code has

been contravened, or when there is a reasonable likelihood that a rule will be contravened. The

Panel may restrain a person from acting (or continuing to act) in breach of the rules, to restrain a

person from doing (or continuing to do) a particular thing, pending determination of whether that

or any other conduct is or would be a breach of the rules, and otherwise to secure compliance

with the rules. Given HP recent EDS and Palm acquisition debacles (see ¶27, supra) HP wanted

none of this.

72. For HP to invoke a material adverse change condition under the City Code before

its Autonomy transaction closed on October 3, 2011, HP would have been required to

demonstrate to the Panel that circumstances had arisen affecting Autonomy which HP could not

have reasonably foreseen at the time of the announcement of HP’s offer on August 18, 2011,

and which were of an entirely exceptional nature. Given the numerous publicly-available red

flags about Autonomy that made it reasonably foreseeable that Autonomy was overvalued and/or

engaging in accounting improprieties when HP announced its offer on August 18, 2011, HP

could not successfully withdraw the offer.

73. Nevertheless, Lane asked HP’s financial advisers (Barclays and Perella) whether

HP could back out of the deal before it closed. He, too, was reportedly told that U.K. takeover

rules made that impossible. In addition, before the deal closed – as Whitman would later admit

in November 2012 – the HP Board learned that “bloggers and some financial analysts had

claimed in the past that Autonomy was aggressive in its accounting.” Rather than engage in

embarrassing failed foreign litigation with Autonomy, and/or otherwise disclose these material

facts, Whitman, Lesjak and Lane recklessly disregarded, and/or turned a blind eye to,

Autonomy’s overvaluation and impairments, reluctantly allowed the Autonomy Acquisition to

close, and resolved to try to quietly clean up the HP/Autonomy debacle internally. Beginning on

October 3, 2011, HP’s Autonomy unit began reporting as part of HP’s Information Management

division’s Software Segment (hereinafter, the “Software Segment”).



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D. HP Begins to Unwind Autonomy’s Improper Accounting Practices

74. After the transaction closed in October 2011, HP began to claw back commissions

paid to Autonomy salespeople that were using improper revenue recognition practices. HP also

began to change how revenue was recognized and commissions were paid by Autonomy after the

acquisition. Prior to Lynch’s departure in spring 2012, sales forecasts that were rolled up to

Autonomy’s management included only the revenue for the entire term of a contract. Following

Lynch’s departure HP changed this process requiring sales forecasts rolled up to HP’s

management to include, along with the total value of the contract, the amount of the first year’s

revenue. The change effected how HP reported Autonomy’s revenue.

75. Beginning in October 2011, HP’s Worldwide Director of Software Revenue

Recognition, Paul Curtis, began to undertake detailed studies of Autonomy’s software revenue

recognition practices. By November 2011, HP’s own auditor, Ernst & Young LLP (“E&Y”),

started reviewing Deloitte’s Autonomy audit work papers in connection with its year-end audit

for HP. One month later, in December 2011, E&Y and KPMG undertook “detailed studies of

Autonomy’s software revenue recognition with a view to optimising for US GAAP.”27

Unbeknownst to investors, “optimizing” actually meant adjusting Autonomy’s improper

accounting practices as quickly and as quietly as possible. As ZDNet’s Dennis Howlett reported

on November 21, 2012, Autonomy’s revenue recognition “problem should have been almost

immediately apparent to HP upon completion of the acquisition. It would have had costs against

which it could not book revenue coming out of unfulfilled contracts in both the unended quarter

prior to the 2011 year end plus costs going into the early quarters of 2012.”

76. On September 22, 2011, Whitman carefully assured investors that “the Autonomy

acquisition, which I’m excited about, is proceeding as planned.” On November 21, 2011,

Whitman also misrepresented that the “growth of Autonomy using the distribution capability of

27 E&Y has obtained over $500 million in fees from HP since 2001. In 2011 alone, the year HP acquired Autonomy, E&Y received $47.4 million in fees from HP, $13.9 million of which were for non-audit fees, including services related to business acquisitions. A January 17, 2013 letter to HP Director Rajiv Gupta from CtW Investment Group urged “replacement of long-time outside auditor, Ernst & Young” because “[t]here are serious weaknesses in the quality and credibility of the outside audit function and in the wake of the Autonomy debacle.”



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HP is priority number one, two and three for 2012,” without revealing that her priorities were

born of necessity. Over the following months, Whitman, who by then knew, or was reckless in

not knowing, that Autonomy was overvalued and impaired, continued to misleadingly express

her “excitement” for Autonomy, while Lesjak told investors that “[t]he integration is going well

thus far.”

77. During this same period, HP had begun a gradual wind-down of Autonomy’s

improper accounting practices. HP’s efforts began to manifest in HP/Autonomy’s publicly-

reported Software Segment results in February 2012 as set forth in ¶¶182-186, infra. In the six

quarters leading up to the Autonomy Acquisition, Autonomy’s revenues were equivalent to

approximately 31% of HP’s software revenue (or approximately 24% of the combined revenues).

Between 1Q09 and 2Q11, Autonomy’s reported operating margin ranged from 40% to 50%,28

averaging 43.4%. HP’s software revenue operating margin between 2Q10 and 4Q11 ranged

between 17.6% and 28%, averaging 23.5%. Expecting that just one-quarter of HP’s Software

Segment revenue would benefit from the high margins, that Apotheker publicly extolled about

Autonomy on August 18 and September 13, 2011, analysts had anticipated that HP’s software

margin could spike to 27.3% (J.P. Morgan), with the consensus analyst estimate at 21.9%, well

above the previous year’s 1Q11 software operating margin of 17.6%. Yet, on February 22, 2012,

HP reported only a 17.1% software operating margin. This trend continued in 2Q12 and 3Q12,

with HP software operating margins of 17.7% (v. 2Q11 of 20.2% and consensus of 20.4%) and

18% (v. 3Q11 of 19.4% and consensus of 22.2%).

78. HP’s publicly-reported license revenue growth also began to deteriorate after HP’s

Software Segment started incorporating Autonomy. HP Executive Vice President of Software,

George Kadifa later revealed, during an October 3, 2012 presentation, that HP’s license revenue

accounted for approximately 32% of HP’s software revenues (which ranged between $656

million to $1.02 billion a quarter between 1Q10 and 3Q12). Autonomy’s license revenue ranged

between $121 and $180 million between 1Q10 and 2Q11. Thus, the incorporation of

28 Autonomy’s 3Q09 operating margin was an outlier caused by significant spending on a product launch.



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Autonomy’s historical financial statement and the incorporation of Autonomy’s license revenue

on HP’s books should have increased HP’s license revenue growth significantly in 2012. In the

four quarters leading up to HP’s integration of Autonomy, HP reported license revenue growth

between 3% and 33%, averaging 23.5%. For the four quarters before the Autonomy Acquisition

was announced, Autonomy reported license revenue growth between 10% and 23%, averaging

15.5%. Yet, in 1Q12, 2Q12 and 3Q12, HP reported license revenue growth of just 12%, 7% and

2%, respectively.

79. On HP’s February 22, 2012 earnings conference call (“2/22/12 Conference Call”),

Defendant Lesjak vaguely and misleadingly reported that “first quarter operating profit for

Software was $163 million, or 17.1% of revenue, unfavorably impacted by acquisition-related

integration costs and accounting adjustments, as well as lower mix of license revenue in the

quarter.” Moreover, HP’s Forms 10-Q for 1Q12, 2Q12 and 3Q12, filed on March 12, 2012, June

8, 2012, and September 10, 2012, respectively, represented that “Software gross margin

decreased…due primarily to a lower mix of license revenue and higher acquisition-related

deferred revenue write-downs.”29 Unbeknownst to investors, HP’s “accounting adjustments,”

and HP/Autonomy’s deferred revenue write-downs were due to HP’s efforts to surreptitiously

unwind Autonomy’s then known – in HP’s words – “outright misrepresentations” and other

serious disclosure failures.

E. A Fourth Whistleblower Alerts HP About Autonomy

80. In May 2012, HP’s efforts to try to quietly clean up Autonomy were upended

when a “senior member of Autonomy’s leadership team,” raised serious accounting improprieties

at HP/Autonomy (“Whistleblower No. 4”) with HP’s GC Schultz. The same month, Schultz

informed Whitman about Whistleblower No. 4, who authorized hiring PricewaterhouseCoopers

LLP (“PwC”) to do an “investigation” into his allegations. These material developments were

concealed from investors during the Class Period. The month before Whistleblower No. 4 came

forward, in late April 2012, HP Executive Vice President Lynch was quietly removed from HP.

29 Defendants curiously did not break out HP’s Autonomy-specific financial results information during the Class Period.



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On HP’s 2Q12 May 23, 2012 earnings conference call (“5/23/12 Conference Call”), Defendant

Whitman, who by her own admission knew about Whistleblower No. 4, represented that Lynch

had been terminated because Autonomy had a “disappointing” revenue quarter. In truth, Lynch

was preemptively fired because, as Whitman and Lesjak then knew, or were severely reckless in

not knowing, HP/Autonomy’s previous “disappointing” revenue quarter – only Lynch’s second

at HP/Autonomy – was the result of HP’s aggressive internal efforts to unwind Autonomy’s

improper accounting practices.

81. On May 29, 2012, CRN reported that “roughly 250 Autonomy employees [] quit”

since the acquisition closed, including Autonomy’s President, COO, Chief Marketing Officer and

Chief Technology Officer. These mass defections were never disclosed by HP to investors

during the Class Period even though the defections indicated serious problems within

HP/Autonomy that were interfering with HP’s integration efforts. On June 5, 2012, a month after

Whistleblower No. 4 came forward, Whitman conducted another interview with AllThingsD. In

response to a question about Lynch’s ouster during the interview, Whitman stated that “for many

entrepreneurs [i.e., Lynch], processes and discipline are dirty words, and you have to have

those things, especially within the context of HP. I know exactly how this world [works]” and

that she wanted to “make sure that [Autonomy] gets integrated into the rest of HP in a good

way.” While walking right up to the line, Whitman failed to disclose that she then, at a

minimum, strongly suspected Autonomy of engaging in serious accounting improprieties. The

following month, in July 2012, former deputy general counsel Paul T. Porrini, who led HP’s in-

house legal team for the Autonomy Acquisition and signed the 8/18/11 Press Release announcing

the offer, abruptly resigned his post at HP.

82. Then, on August 22, 2012, Whitman partially disclosed that “Autonomy still

requires a great deal of attention and we’ve been aggressively working on that business.”

Whitman failed to disclose that, in truth, HP’s “aggressive[] work[]” meant HP’s aggressive

work to rectify HP/Autonomy’s accounting practices. The same day, HP revealed that its

Software Segment results had worsened, and warned that it could record a goodwill impairment

in that segment, causing at least one analyst to note that “[a]fter Autonomy’s poor performance



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the last couple quarters, we suspect that goodwill associated with Autonomy will constitute part

of the write-off.” In response to these partial disclosures and half-truths, HP’s share price fell

approximately 11.5% from a closing price of $19.47 on August 21, 2012 to a closing price of

$17.23 on August 23, 2012.

83. On October 24, 2012, five months after Whistleblower No. 4 came forward and

five months into PwC’s investigation into his allegations, a Dow Jones News Service story

entitled, “Chambers, Whitman Show Their Hands at Tech Confab,” reported that “CEO Meg

Whitman has no problem rattling off five-odd acquisitions she considers among the Silicon

Valley giant’s best – Compaq, 3Par, etc. – but stops short of naming the worst. ‘You’ll have to

remember I ran for governor of California,’ Whitman reminds IT experts at Gartner’s ITxpo in

Orlando. Unmentioned in her keynote is HPQ’s $10.3B [sic] acquisition of Autonomy under her

predecessor, Leo Apotheker.”

F. The Relevant Truth Is Mostly Revealed, Thereby Ending the Class Period

84. On November 20, 2012, six months after Whistleblower No. 4 came forward in

May 2012, and just over a year after the Autonomy Acquisition closed, Whitman revealed that

HP would write down an astonishing 85% of Autonomy’s purchase price, stating:

[W]e announced today an $8.8 billion non-cash impairment charge related to Autonomy.… The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures, and outright misrepresentations that occurred prior to HP’s acquisition of Autonomy and the associated impact on the expected financial performance of the business over the long term. The balance of the impairment charge is linked to the recent trading value of HP stock. These improprieties were discovered through an internal investigation after a senior member of Autonomy’s leadership team came forward following the departure of Mike Lynch on May 23 [2012].

Based on this information, HP initiated an intense internal investigation into the allegations, including a third party forensic review of Autonomy’s historical financial results. HP has contacted the SEC’s Enforcement Division and the UK’s Serious Fraud Office. We have requested that both agencies open criminal and civil investigations into this matter. In addition, HP intends to seek redress against various parties in the appropriate civil courts to recoup what we can for our shareholders.30

30 Nearly six months after Whitman threatened “various parties,” as of the date of this filing HP has failed to seek any such redress against anyone or recoup anything in the civil courts for HP’s shareholders.



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85. The same day, the Company finally conceded what Defendants long knew, or

were at least reckless in not knowing – namely, that “Autonomy was substantially overvalued at

the time of its acquisition” as the result of “a willful effort on behalf of certain former Autonomy

employees to inflate the underlying financial metrics of the company in order to mislead

investors and potential buyers.” The Company added that these misrepresentations had “severely

impacted HP management’s ability to fairly value Autonomy at the time of the deal.” In truth,

HP’s own CFO had earlier told the full HP Board – including Defendants Whitman and Lane –

that Autonomy was vastly overvalued during a July 2011 Board meeting (see ¶32, supra).

86. Asked whether Messrs. Hewlett and Packard’s Company was “stable” given HP’s

torrid announcements, Whitman instinctively threw former HP CEO Apotheker and M&A-head

Robison under the bus, tersely responding that “the two people that should have been held

responsible [Apotheker and Robison] are gone.” She also added, however, that “the Board

relied on audited financials, audited by Deloitte, not brand X accounting firm but Deloitte” for its

Autonomy due diligence. In a rare public rebuke, Deloitte publicly challenged Whitman’s

suggestion that Deloitte had done HP’s Autonomy due diligence, writing that “Deloitte was not

engaged by HP, or by Autonomy, to provide any due diligence in relation to the acquisition of

Autonomy.” By relying on Deloitte, HP misrepresented that it had conducted its own “rigorous,”

“very conservative,” “extremely tight and very professional due diligence process” as Apotheker

and Whitman had earlier represented.

87. During a separate same day call with news reporters, GC Schultz reportedly

disclosed that PwC’s investigation had discovered that $200 million of Autonomy’s revenue had

been recorded improperly in 2009 and 2010. Schultz also reportedly stated that “critical

documents were missing from the obvious places, and it required that we look in every nook and

cranny,” and that he was aware that there had been rumors about accounting issues at Autonomy

before the deal closed. HP’s failure to discover that “critical documents” were missing from

“obvious places” at Autonomy directly contradicted Whitman’s earlier representation that HP’s

due diligence for Autonomy was “exhaustive,” and Apotheker’s related statements that HP’s

Autonomy due diligence had been “rigorous” and “conservative.”



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88. In a lame effort to try to assure investors about these developments, HP

announced that it had asked both the SEC and the U.S. Department of Justice to open

investigations into Autonomy’s improper accounting practices, but, notably, only for those that

occurred prior to HP’s acquisition in October 2011. Whitman also confirmed that “[t]hese

improprieties were discovered through an internal investigation after a senior member of

Autonomy’s leadership team came forward [] on May 23 [2012].” Notably, prior to the

acquisition, Whistleblower No. 1 earlier referred Autonomy to the SEC for “problematic

accounting practices.” The SEC did not investigate, dismissing it as a foreign matter.31

89. During a later same day interview with CNBC News on November 20, 2012,

Whitman ultimately conceded that: “I regret that I voted for this deal,” and confirmed that she

learned of Whistleblower No. 4’s allegations in May 2012. Pressed by CNBC News to address

the numerous red flags raised about Autonomy prior to the Class Period, as alleged in ¶¶16-25,

47-57, supra, Whitman conceded that “what I do know is that after we announced the

acquisition [on August 18, 2011] there were a numbers of blogs that came to the fore about

potential issues at Autonomy.” These material facts were never disclosed to investors by HP

during the Class Period. On November 20, 2012, Forbes ran a news story that covered HP’s

negative announcement called “With Autonomy, H-P Bought An Old-Fashioned Accounting

Scandal. Here’s How It Worked,” disclosing that, among other things, an internal HP/Autonomy

employee had told the reporter in late 2011 that HP’s “Autonomy division [] was vaporware writ

large: An $11 billion software company with an overhyped flagship product [IDOL] that was

literally being given away because customers didn’t have a use for it.”

90. In response to all of this news, the Company’s common stock fell 12% in a single

day on enormous trading volume of over 154 million shares traded. As Reuters has aptly

observed, HP’s decision to “transform” HP into a software and services competitor during the

Class Period compelled HP to “suspend[] disbelief” to close its deal with Autonomy which, as

depicted in the chart below, gravely damaged HP’s shareowners during the Class Period:

31 See Francine McKenna, The SEC and Accounting Fraud Enforcement: No “There” There, Forbes (Nov. 29, 2012).



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G. Relevant Post Class Period Developments

91. On November 22, 2012, Reuters reporter Quentin Webb quoted an unnamed HP

official that reportedly provided him with additional information about HP’s November 20, 2012

announcement, as follows:32

We believe that in the two years prior to HP’s acquisition, Autonomy relied on meaningful hardware sales to boost its revenue, and many of those sales consisted of negative-margin sales of low-end hardware with little or no Autonomy software. Negative-margin low-end hardware sales estimated to have comprised 10-15 percent of Autonomy revenue.

Despite the magnitude of this non-core, non-software revenue, Autonomy does not appear to have made any appropriate disclosure of these hardware sales either as externally reported or to HP, but rather included the revenue in various software categories and in its organic growth and IDOL organic growth calculations.

32 The “unnamed official” was actually HP’s public relations firm, Edelman.



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Additionally, we believe Autonomy incorrectly accounted for the cost of these hardware sales resulting in an overstating of its gross margins.

We also believe Autonomy inappropriately recognized revenue from certain transactions with value-added resellers (VARs), typically made at quarter end, in some cases creating revenue where no end-user customer existed at the time of the sale.

We believe Autonomy substantially inflated its reported “IDOL OEM” revenue by including software license revenues that do not fit the reported definition of “IDOL OEM.” Lastly, we believe Autonomy inappropriately accelerated revenue and misstated its financial performance by converting long-term data-hosting deals into upfront licensing deals.

Notably, these were the same financial metrics that Whistleblower Nos. 1-4, as well as Pelz-

Sharpe, had been warning HP about prior to the Autonomy Acquisition.

92. The market was not impressed with Whitman’s November 20, 2012 efforts to shift

blame to Apotheker and Robison. A November 26, 2012 Wall Street Journal article headlined,

“At H-P, Judgment Goes by the Board,” for instance, observed that:

More than two people from Hewlett-Packard were responsible for the disastrous Autonomy acquisition, never mind what Chief Executive Meg Whitman says.

Ms. Whitman would like investors to believe that only her predecessor, Leo Apotheker, and former strategy chief Shane Robison really deserve blame for the Autonomy deal. Conveniently, both are already gone. Furthermore, H-P says that no one at the company had any inkling about alleged accounting problems at Autonomy until after the firing of founder Mike Lynch.

That is tough to swallow, given the many red flags raised by others about Autonomy.

* * *

Consider the multiple reports published about Autonomy by accounting research firm CFRA. Dating back to 2007, these raised questions about its lack of nonacquisition-driven revenue growth and unsustainable contributions to cash flow, among other issues. It would be surprising if no one at H-P doing due diligence on the Autonomy deal was aware of such concerns. And what of the back-office integration work once the deal closed? It isn’t uncommon for small software companies to have funky revenue-recognition policies that need updating. Such issues are typically discovered immediately by acquiring companies.

* * *

And what about the board, which unanimously voted in favor of the Autonomy deal? Ms. Whitman, also a board member, said that while directors feel “terribly” about supporting the acquisition, really it is Deloitte’s fault because the auditing firm signed off on Autonomy’s numbers.



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A similarly critical November 2012 Fortune article headlined “How HP’s Meg Whitman Is

Passing the Buck,” quoted Whitman as saying:

“We are disappointed by the news [but] that is what you do when you are on a board. You rely on the recommendations of management and the [Deloitte-audited] financials.… I voted for this deal but we are where we are.” Her carefully crafted words cast the board as the victim, wrapping it in a protective shield that directors most often use when they are sued.

93. HP’s claim that it was totally misled about Autonomy’s improper hardware

revenue recognition, hosting, OEM and reseller revenues was notable given that numerous

analysts had raised concerns about these very issues in the lead up to the Class Period. On April

16, 2010, for instance, Numis Securities Ltd. (“Numis“) voiced “concern” at “the scale of

hardware revenue that Autonomy is deriving,” questioning whether Autonomy was, as in the

Briody Matter, recognizing hardware revenue as license revenue. In May 2011, Numis Securities

also noted Autonomy’s “[l]ack of clarity over revenue recognition related to resellers.” Concerns

about Autonomy’s early recognition of hardware revenue as license revenue were also raised.

94. In a July 2010 article “Autonomy’s Q2 – Magical Stuff Happens,” the 451 group

explained that Autonomy’s publicly-reported hardware revenue had artificially inflated its license

revenue growth rate, writing that, if actual hardware revenue was accounted for, Autonomy had

“next to no organic growth” “compare[d] to the company’s claim of 19% organic growth for

IDOL.” On January 10, 2011, Peel Hunt similarly voiced concern that “hardware sales [may]

have [] been included to flatter the results, as they were in Q2 and Q3.” On February 1, 2011,

Numis further questioned whether Autonomy had reaped “IDOL [p]roduct benefits from

hardware” noting that its metrics were “consistent with elevated hardware sales.”

95. Analysts had also previously noted “strange” movements in Autonomy’s Sales

and Marketing (“S&M”) expenses. As early as July 20, 2009, Evolution Securities noted that

“[o]ur concerns over the margin profile of large deal revenues and hosted email archiving

revenues versus core perpetual licenses are highlighted by these moves in S&M, which we regard

as strange.” That Autonomy was improperly recording hosting revenues as license revenues up

front should not have come as a real surprise to HP given that, as in the Briody Matter that

HP/Autonomy is currently still litigating, Autonomy had apparently accelerated the revenue



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recognition of deals, that would have historically been sold as hosted arrangements, to up front

license sales. Autonomy’s lack of deferred revenue growth was also a consistent red flag due to

the divergence of Autonomy’s deferred revenue trends and organic growth which reflected

accelerated revenue recognition, leading to higher near-term revenue growth versus longer term

organic growth. In fact, on November 17, 2010, Numis had already observed that, “given the

ongoing controversy over [Autonomy’s] deferred revenue, we continue to question why

Autonomy declines to provide the necessary data to allow analysts and investors to undertake

the appropriate analysis.”

96. In a statement to the San Jose Mercury News on December 3, 2012, HP later

acknowledged “that it had been aware of apprehensions expressed about Autonomy, it said it []

relied on the audited financial statements and the representations of Autonomy’s management

and its auditors [at Deloitte].” These issues, however, were evident as early as 2010.

1. HP/Autonomy Defends Autonomy’s Accounting Practices in New Hampshire

97. On November 21, 2012, HP/Autonomy argued its appeal of the Briody Matter.

By the time the appeal was heard, HP had owned Autonomy for ten full months. The appeal

sought review of a July 16, 2012 order from the State of New Hampshire’s Department of Labor

sustaining Ms. Briody’s wage claim referred to earlier in ¶¶62-66, supra, reasoning that she:

[W]as terminated just before the commission was due.

* * *

Management [from Autonomy] did not provide credible testimony as to what was happening at the end of the sale and prior to the termination of the claimant. As a publically traded company the employer [Autonomy] had a motive to finish the project for the end of the quarter in order to show the profit to the shareholders. The employer also had a motive to reduce the commission to increase profits.

* * *

It is also found that the employer went out of their way to take credit for the sale and then to cut the profit down. To do so shows that the employer performed a willful act to reduce the commission owed to the claimant. The only reason to do this was to increase profits and show better numbers on the quarterly report. The finding is for liquidated damages in the amount of $97,806.62.33

33 See Exhibit 7 at 6 (attached hereto). In an order dated November 30, 2012, the New Hampshire Superior Court reversed the decision of the Department of Labor, holding that, under



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98. During the hearing, HP/Autonomy’s outside counsel relied on the prior testimony

of Autonomy’s former Vice President of Finance Chamberlain to defend some of the same

accounting practices that Whitman had lambasted HP/Autonomy’s management about the

previous day on November 20, 2012. In Autonomy’s defense, Chamberlain submitted a sworn

Declaration in the Briody Matter seemingly touting that he had a “direct reporting line to the HP

CFO Cathie Lesjak.” HP/Autonomy, which pursued the appeal to avoid paying Ms. Briody

approximately $96,000 in commissions, argued that she was only entitled to commissions on

revenue “recognizable” under GAAP. Previously, in fall 2011, while HP was purportedly doing

its “extensive” Autonomy due diligence, Autonomy apparently prematurely recognized $1.8

million in revenue from Ms. Briody’s work on the Pioneer contract as alleged in ¶¶62-67, supra.

Ms. Briody sued to recover commissions on the full $1.8 million that Autonomy recognized

rather than the lesser amount that HP/Autonomy argued was “recognizable” under GAAP. An

Autonomy PowerPoint slide summing up the deal (attached hereto as Exhibit 8) later trumpeted

that Ms. Briody’s Pioneer contract had, in fact, generated “$1.8m [in] [n]ew [r]evenue!” for

Autonomy.

99. Notably, in ruling in Ms. Briody’s favor in July 2012 and awarding her liquidated

damages, the New Hampshire Department of Labor added that Autonomy “went out of their way

to take credit for the sale…[t]he only reason to do this was to increase profits and show better

numbers on the quarterly report,” noting that “[t]he claimant was terminated just before the

commission was due.” In a November 27, 2012 Wall Street Journal story called “Long Before

H-P Deal, Autonomy’s Red Flags,” the Wall Street Journal reported on similar accounting

practices Autonomy had used to exaggerate its software license revenues – namely, that

Autonomy “recognized revenue upfront that under U.S. accounting rules would have been

deferred” and that “Autonomy’s management sometimes would swoop in at the last minute and

the terms of her employment contract, Autonomy was only required to compensate Ms. Briody for “new contract value,” not the total value of the deal. Ms. Briody is currently appealing the November 30 order.



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complete deals – an arrangement that, in some cases, cut salespeople’s commissions” CW1

has corroborated that Autonomy engaged in this misconduct.

2. Lynch and Apotheker Respond to HP’s Accusations

100. Following HP’s November 20, 2012 announcements, former HP Executive

Officer Lynch described HP’s charges against Autonomy’s management as “completely and

utterly wrong” and “reject[ed] them completely.” Lynch suggested that the size of HP’s write-

down was itself misleading because “[y]ou are talking about handing them an asset worth $12

billion and they are saying $9 billion of that they are taking off. That would be such an obvious

massive thing with 300 people and all these firms doing due diligence, how could you possibly

not spot it?” On November 27, 2012, Lynch, now $800 million richer, sent a provocative open

letter to the HP Board demanding answers about HP’s accusations against Autonomy’s

management:

Open Letter from Dr Mike Lynch to the Board of Directors of Hewlett-Packard

27 November 2012

To: The Board of Directors of Hewlett-Packard Company

On 20 November Hewlett-Packard (HP) issued a statement accusing unspecified members of Autonomy’s former management team of serious financial impropriety. It was shocking that HP put non-specific but highly damaging allegations into the public domain without prior notification or contact with me, as former CEO of Autonomy.

I utterly reject all allegations of impropriety.

* * *

I believe it is in the interest of all stakeholders, and the public record, for HP to respond to a number of questions:

Many observers are stunned by HP’s claim that these allegations account for a $5 billion write down and fail to understand how HP reaches that number. Please publish the calculations used to determine the $5 billion impairment charge. Please provide a breakdown of the relative contribution for revenue, cash flow, profit and write down in relation to:

o The alleged “mischaracterization” of hardware that HP did not realize Autonomy sold, as I understand this would have no effect on annual top or bottom lines and a minor effect on gross margin within normal fluctuations and no impact on growth, assuming a steady state over the period;



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o The alleged “inappropriate acceleration of revenue recognition with value-added resellers” and the “[creation of] revenue where no end-user customer existed at the time of sale,” given their normal treatment under IFRS; and

o The allegations of incorrect revenue recognition of long-term arrangements of hosted deals, again given the normal treatment under IFRS.

In order to justify a $5 billion accounting write down, a significant amount of revenue must be involved. Please explain how such issues could possibly have gone undetected during the extensive acquisition due diligence process and HP’s financial oversight of Autonomy for a year from acquisition until October 2012 (a period during which all of the Autonomy finance reported to HP’s CFO Cathie Lesjak).

* * *

HP raised issues about the inclusion of hardware in Autonomy’s IDOL Product revenue, notwithstanding this being in accordance with proper IFRS accounting practice. Please confirm that Ms Whitman and other HP senior management were aware of Autonomy’s hardware sales before 2012. Did Autonomy, as part of HP, continue to sell third-party hardware of materially similar value after acquisition? Was this accounted for by HP and was this reported in the Autonomy segment of their accounts?

Were Ms Whitman and Ms Lesjak aware that Paul Curtis (HP’s Worldwide Director of Software Revenue Recognition), KPMG and Ernst & Young undertook in December 2011 detailed studies of Autonomy’s software revenue recognition with a view to optimising for US GAAP?

Why did HP senior management apparently wait six months to inform its shareholders of the possibility of a material event related to Autonomy?

* * *

I am placing this letter in the public domain in the interests of complete transparency.

Yours faithfully,

Dr. Michael R. Lynch

101. Lynch’s counter-accusations against HP’s senior management were notable, not

only because they came from one of HP’s very own top 15 Class Period Executive Officers, but

because they effectively accused his former HP colleagues of making misrepresentations.

Someone is lying. To date, HP has not addressed Lynch’s specific accusations against

Defendants HP, Lesjak and Whitman. In a written statement sent to Bloomberg on December 14,



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2012, Apotheker accused the entire HP Board – including Defendants Whitman and Lane – of

failure, saying:

No single CEO is ever able to make a decision on a major acquisition in isolation, particularly at a company as large as HP – and certainly not without the full support of the chairman of the board. The HP board, led by its chairman [Defendant Lane], met many times to review the acquisition and unanimously supported the deal, as well as the underlying strategic objective to bolster HP’s market presence in enterprise data. HP was and still is in need of a transformational strategy. Unfortunately, I was never given the opportunity to implement the strategy in its totality. The new leadership has now been in place longer than my 11-month tenure. But it’s clear that HP still is in search of the right path forward.

102. In yet another open letter from HP Executive Officer Lynch right before HP’s

2013 Annual Shareholder Meeting, again questioned key aspects of HP’s belated November 20,

2012 accusations:

Posted on March 20, 2013

Open letter from Mike Lynch to the shareholders of Hewlett-Packard

Today HP will hold its annual shareholder meeting. This meeting provides a moment of accountability for HP’s Board of Directors to all its stakeholders, and is an appropriate time for the Board to address material questions.

* * *

We therefore put forward some questions that we believe HP’s Board of Directors needs to answer at the shareholder meeting:

1. …Can the Board confirm when it first became aware of these specific allegations? Will the Board provide the report from PwC on which its allegations are based to the former Autonomy management team so that this issue can move toward resolution? Will the Board also make available the conclusions of the findings of the recently appointed committee investigating the circumstances of the acquisition?

2. How did HP calculate the impairment charge it has taken against Autonomy? Several qualified commentators, including a former Chief Accountant of the SEC, have questioned how the alleged irregularities in Autonomy’s accounting could generate such a large write-down. How much of the impairment charge was related to the operating performance of Autonomy post-acquisition?

3. Did HP approach the UK Takeover Panel at any stage in an attempt to rescind its offer to buy Autonomy before completion? If so what was the reason it gave and why was this material change of view not communicated to shareholders?

4. The former management of Autonomy began alerting Ms Whitman as early as December 2011 to significant problems with the integration of Autonomy into HP that were negatively impacting its performance. When did Ms Whitman



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acknowledge that Autonomy was not performing against expectations? Why was this not communicated to shareholders at that time?

* * *

HP has acted in an aggressive and unusual manner throughout this episode, making highly damaging public accusations without providing any supporting evidence, either to the public or to the people they have accused.

As we have said before, we believe the problem with the Autonomy acquisition by HP lies in the mismanagement of that business by HP under its ownership, making it impossible for Autonomy to deliver on HP’s expectations. Autonomy’s accounts were fully audited by Deloitte throughout the period in question and Deloitte has confirmed that it conducted its audit work in full compliance with regulation and professional standards. We refuse to be a scapegoat for HP’s own failings.

Dr. Mike Lynch

103. HP has similarly refused to address these questions, or disclose the results of its

internal “investigation” into HP/Autonomy’s violations of the federal securities laws as alleged

herein.

III. JURISDICTION AND VENUE

104. The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the

Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§78j(b) and 78t(a), and Rule

10b-5 promulgated thereunder by the SEC, 17 C.F.R. §240.10b-5. Jurisdiction is conferred by

and venue is proper pursuant to §27 of the Exchange Act.

105. Venue is proper in this District pursuant to §27 of the Exchange Act. Many of the

false and misleading statements and/or omissions were made in or issued from this District, and

HP’s principal executive offices are located in this District.

106. In connection with the acts, conduct and other wrongs alleged in this Complaint,

the Defendants, directly and indirectly, used the means and instrumentalities of interstate

commerce, including the mails, telephone communications and the facilities of the national

securities exchanges.

IV. THE PARTIES

A. Lead Plaintiff

107. PGGM is a Dutch pension administrator in the healthcare and social work sector.

PGGM currently manages approximately €133 billion of pension assets for more than 2.5 million



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Dutch participants, and provides services in the field of pension fund management,

comprehensive asset management and policy advice to various pension funds.34 As set forth in

the accompanying certification and as incorporated by reference herein, PGGM purchased HP

common stock during the Class Period, and suffered damages as a result of the federal securities

law violations alleged herein, including Defendants’ deceptive and reckless conduct, and

PGGM’s reliance on Defendants’ dissemination of false and/or misleading statements and/or

material omissions as alleged herein.

B. Corporate “Person”

108. HP is a Delaware corporation with its principal executive offices and headquarters

located at 3000 Hanover Street in Palo Alto, California. HP provides products, technologies,

software, solutions and services to individual consumers, small- and medium-sized businesses

and large enterprises, and has customers in the government, health and education sectors. HP

provides customers with personal computing and other access devices, multi-vendor customer

services, imaging and printing-related products and services, and enterprise information

technology infrastructure. The Company’s common stock trades on NASDAQ, an efficient

market.

C. Insider Defendants

109. Michael R. Lynch was HP’s Executive Vice President of Information

Management between November 2011 and April 2012 and, during part of the Class Period, was

one of HP’s 15 top executive officers. Lynch previously served as Autonomy’s CEO until HP

acquired it in October 2011. He reported directly to Whitman from October 3, 2011, until

Whitman terminated him in April 2012. By virtue of his high level position at HP, the fraudulent

conduct HP accused him of engaging in during the Class Period is imputed to HP by operation of

law.

110. Margaret C. Whitman is, and has been since September 22, 2011, HP’s President,

CEO and Director. Whitman became HP’s President and CEO immediately after Apotheker’s

34 The conversion rate for euros to dollars is €1 to $1.31.



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termination was officially announced on September 22, 2011. Whitman also served as a member

of HP’s Board since January 2011. Between March 2011 and September 2011, Whitman served

as a well compensated part-time strategic advisor to Kleiner Perkins Caufield & Byers, a private

equity firm founded by Defendant Lane.

111. During the Class Period, Whitman signed and had ultimate control and authority

over HP’s 2011-2012 Annual Reports on Forms 10-K and Quarterly Reports on Forms 10-Q for

1Q12-3Q12. Whitman participated on the following earnings conference calls: (i) September 22,

2011 conference call; (ii) October 27, 2011 Personal Systems Group Decision conference call;

(iii) November 21, 2011 4Q11 earnings conference call (“11/21/11 Conference Call”);

(iii) 5/23/12 Conference Call; (iv) 2/22/12 Conference Call; (v) August 22, 2012 3Q12 earnings

conference call (“8/22/12 Conference Call”); and (vi) 11/20/12 Conference Call. Whitman also

participated at HP’s March 21, 2012 HP Annual Meeting of Stockholders, and an October 3,

2012 Analyst Meeting. Whitman held quarterly business reviews with Autonomy management

to discuss Autonomy’s financial performance during the Class Period.

112. Léo Apotheker was HP’s CEO and President from November 2010 until he was

ousted effective September 22, 2011. During the Class Period, Apotheker signed and had

ultimate control and authority over HP’s Quarterly Reports on Forms 10-Q for 2Q11 and 3Q11.

He also participated in the following conference calls: (i) 5/17/11 Conference Call; (ii) June 2,

2011 Sanford C. Bernstein & Co. Strategic Decisions Conference; (iii) August 18, 2011 3Q11

earnings conference call (“8/18/11 Conference Call”); and (iv) 9/13/11 Conference.

113. Catherine A. Lesjak is, and was throughout the Class Period, HP’s CFO and

Executive Vice President. In her 24 years at HP, Lesjak has held many financial leadership roles,

including Senior Vice President and Treasurer, Manager of Financial Operations for Enterprise

Marketing and Solutions and the Software Global Business Unit, Group Controller for HP’s

Software Solutions Organization and she managed HP’s global channel credit risk as Controller

and Credit Manager of the Commercial Customer Organization. She was HP’s interim CEO

from August 2010 to October 2010.



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114. During the Class Period, Lesjak signed and had ultimate control and authority

over HP’s 2011-2012 Annual Reports on Forms 10-K and Quarterly Reports on Forms 10-Q for

2Q11-3Q12. During the Class Period, Lesjak participated in the following conference calls:

(i) 5/17/11 Conference Call; (ii) 8/18/11 Conference Call; (iii) October 27, 2011 Personal

Systems Group Decision conference call; (iv) 11/21/11 Conference Call; (v) 2/22/12 Conference

Call; (vi) 5/23/12 Conference Call; (vii) 8/22/12 Conference Call; (viii) 11/20/12 Conference

Call; (ix) September 22, 2011 conference call; (x) February 27, 2012 Morgan Stanley

Technology, Media and Telecom Conference; and (xi) October 3, 2012 Analyst Meeting. From

October 2011 until October 2012, Autonomy’s finance department reported directly to Lesjak,

who also held quarterly business reviews with Autonomy’s management to discuss its financial

performance during the Class Period.

115. Raymond J. Lane was HP’s Executive Chairman from September 2011 until he

was thankfully forced to step down as Executive Chairman in April 2013. He served as a Non-

Executive Chairman of the HP Board since November 2010, and was appointed Executive

Chairman in September 2011. Since 2000, Lane has served as Managing Partner of Kleiner

Perkins Caufield & Byers, and is a former President, COO and Director of Oracle. During the

Class Period, Lane signed and had ultimate control and authority over HP’s 2011-2012 Annual

Reports on Forms 10-K. Lane also participated in HP’s September 22, 2011 conference call

announcing Apotheker’s termination and the March 21, 2012 HP Annual Meeting of

Stockholders.

116. James T. Murrin was Senior Vice President, Controller and Principal Accounting

Officer at HP from March 2007 to May 2012. On March 22, 2012, Murrin resigned his position

as HP’s Senior Vice President, Controller and Principal Accounting Officer effective May 1,

2012, and accepted the position of Senior Vice President and General Manager within HP’s

Enterprise Services business. Murrin, a 24-year veteran of HP, was listed as one of HP’s 15 top

executives in the Company’s 2011 Annual Report. During the Class Period, Murrin signed and

had ultimate control and authority over HP’s 2011 Annual Report on Form 10-K. Murrin also



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participated in HP’s March 21, 2012 HP Annual Meeting of Stockholders. Murrin is named

herein solely as a control person under §20(a) of the Exchange Act.

117. Shane V. Robison was HP’s Executive Vice President and Chief Strategy and

Technology Officer from May 2002 to November 2011. During the Class Period, Robison

participated in the 9/13/11 Conference. Robison was a member of HP’s Executive Council and

helped shape the Company’s corporate strategy and technology research agenda. He was the first

major executive to depart the Company after Whitman replaced Apotheker as HP CEO on

September 22, 2011.

118. The Defendants referenced above in ¶¶109-110, 112-113, 115-117 are referred to

herein as the “Insider Defendants.”

119. The Insider Defendants’ positions within the Company provided them access to

the adverse undisclosed information about HP’s financial results, its business, operations and

practices through access to internal corporate documents, conversations and contact with other

corporate officers and employees, attendance at meetings and through reports and other

information provided to them. Each of the Insider Defendants, by virtue of his or her high-level

position at HP, was directly involved in HP’s day-to-day operations of HP at the highest levels

and was privy to confidential information concerning the Company, its business, operations and

practices, including the misstatements alleged herein. The Insider Defendants’ positions of

control and authority as officers or directors enabled them to control the contents of HP’s SEC

filings, press releases, presentations to securities analysts, and other public statements made to

HP shareowners during the Class Period. Each of the Insider Defendants bears responsibility for

the accuracy of the public reports and press releases detailed herein, and is therefore primarily

liable for the misrepresentations and omissions contained therein.

120. During the Class Period, each of the Insider Defendants substantially participated

and had exclusive authority and control over the content of HP’s false and misleading statements,

financial results, and how those results were communicated to investors. Defendants also

engaged in conduct in furtherance of a fraudulent scheme and course of business and were

involved in the preparation and dissemination of HP’s false financial records, all of which made



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it necessary or inevitable that material misrepresentations and the false results of Defendants’

scheme would be communicated to, and mislead investors.

121. The Insider Defendants were obliged to refrain from falsifying HP’s books,

records and accounts, and were prohibited from using the instrumentalities of interstate

commerce or the mails to: (i) employ any device, scheme, or artifice to defraud; (ii) make any

untrue statement of a material fact or to omit to state a material fact necessary in order to make

the statements made, in light of the circumstances under which they were made, not misleading;

or (iii) engage in any act, practice, or course of business which operates or would operate as a

fraud upon any person. Defendants’ conduct violated the Exchange Act and SEC regulations

promulgated thereunder in connection with the purchase or sale of HP’s common stock.

122. Each of the Insider Defendants is liable as a participant in a fraudulent scheme and

course of business whose primary purpose and effect was to operate as a fraud and deceit on

purchases of HP securities by disseminating materially false and misleading statements and/or

concealing material adverse facts about HP’s operations and financial condition, including the

severe problems facing the Company as a result of the Autonomy Acquisition. Defendants’

scheme deceived the investing public regarding HP’s operations, financial statements, and the

intrinsic value of HP’s common stock, and caused Lead Plaintiff and other members of the class

to be damaged as a result of their purchases of HP common stock at artificially inflated prices.

123. HP’s press releases and SEC filings were group-published documents,

representing the collective actions of HP’s management. The Insider Defendants directly

participated in the management of the Company, were directly involved in the day-to-day

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

information concerning the Company and its business, operations, growth, financial statements

financial condition, and the Autonomy Acquisition, as alleged herein. The Insider Defendants

were involved in drafting, producing, reviewing and/or disseminating the false and misleading

statements and information alleged herein, were aware, or recklessly disregarded, that the false

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

these statements, in violation of the federal securities laws.



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124. Moreover, each of the Insider Defendants, including Defendants Lynch and

Apotheker, had continuous and systematic contacts with the United States and California through

HP’s conduct of its business in this District.

V. DEFENDANTS’ VIOLATIONS OF THE EXCHANGE ACT

125. HP and the Insider Defendants are liable pursuant to §§10(b) and/or 20(a) of the

Exchange Act for making materially false statements, or failing to disclose material adverse facts

that they knew of or recklessly disregarded. HP and the Insider Defendants are further liable

pursuant to SEC Rule 10b-5 for their fraudulent course of business conduct which operated as a

fraud or deceit on purchasers of HP’s common stock as alleged herein. The allegations detailed

above in §II, supra, are incorporated by reference below.

A. HP’s Quantitative Financial Statements Were Materially Misstated in Violation of GAAP and SEC Regulations

1. Applicable Accounting and Disclosure Rules

126. GAAP are the authoritative standards, interpretations, rules and underlying

concepts governing proper financial accounting and reporting practices in the United States.

Regulation S-X, to which HP is subject as a registrant under the Exchange Act, provides that

financial statements filed with the SEC which are not prepared in compliance with GAAP are

presumed to be misleading and inaccurate, regardless of accompanying disclosures. See 17 CFR

§§210.4-01(a)(1) and 210.10-01(a). The SEC recognizes the financial accounting and reporting

standards of the Financial Accounting Standards Board (“FASB”) as GAAP. See SEC Release

Nos. 33-8221; IC-26028; 34-47743; FR-70.35 SEC Rule 12b-20 requires that periodic reports

contain such further information as is necessary to make the required statements, in light of the

circumstances under which they are made, not misleading.

127. Management is solely responsible for preparing financial statements that comply

with GAAP. Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No.

1, AU §110.03, Distinction between Responsibilities of Auditor and Management; see also SOX 35 Effective in 3Q09, FASB codified existing GAAP as FASC. Accordingly, the SEC now recognizes FASC as GAAP. 17 C.F.R. §§211, 231 and 241; Release Nos. 33-9062A; 34-60519A; FR-80A.



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Title III §302 and Title IV §404. During the Class Period, Defendants Whitman and Lesjak

signed, and filed with the SEC, SOX Certifications acknowledging these responsibilities, and

representing that, in all material respects, HP’s financial information and financial statements,

inter alia: (i) did not contain any untrue statements; (ii) did not omit any statements that would

cause statements made to be misleading; and (iii) were presented in accordance with GAAP.

Whitman and Lesjak’s Class Period SOX Certifications were materially false when filed with the

SEC because, by virtue of HP’s enormous $8.8 billion write-down of Autonomy, HP’s financial

information and financial statements were not presented in a fair manner, violated GAAP and

SEC rules and contained numerous material misstatements and omissions.

128. HP’s Class Period financial statements were not prepared in accordance with

fundamental accounting principles issued by the FASB, including Statement of Financial

Concepts No. 8, OB 2-5, 16-17; QC 2-7, 9-14, 17, 20, 22, 26, 29-30 issued in September 2010.

When financial statements that are issued purport to present fairly financial position, cash flows,

and results of operations in accordance with GAAP, a description of all significant accounting

policies of the entity must be included as an integral part of the financial statements. FASC 235-

10-50-1. Disclosure regarding an estimate must be made when known information available

before the financial statements are issued indicates that: (i) it is at least reasonably possible that

the estimate of the effect on the financial statements of a condition, situation, or set of

circumstances that existed at the date of the financial statements will change in the near term due

to one or more future confirming events; and (ii) the effect of the change would be material to the

financial statements. FASC 275-10-50-8.

129. Revenue from software arrangements can be recognized when all of the following

criteria are met: (a) persuasive evidence of an arrangement exists; (b) delivery has occurred; (c)

the vendor’s fee is fixed or determinable; and (d) collectibility is probable. FAS Codification

985-605-25-3. If an arrangement includes different elements, any fee must be allocated to the

various elements based on vendor-specific objective evidence (“VSOE”) of fair value, regardless

of any separate prices stated in the contract for each element. VSOE of fair value is limited to

the following: (i) the price charged when the same element is sold separately; and (ii) for an



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element not yet being sold separately, the price established by management having the relevant

authority; it must be probable that the price, once established, will not change before the separate

introduction of the element into the marketplace.

130. If sufficient VSOE does not exist for the allocation of revenue to the various

elements of the arrangement, all revenue from the arrangement must be deferred until the earlier

of the point at which: (i) such sufficient VSOE does exist; and (ii) all elements of the

arrangement have been delivered. FASC Codification 985-605-25-9. Revenue from postcontract

customer services must be recognized over the period of the postcontract customer support

arrangement in proportion to the amounts expected to be charged to expense for the postcontract

customer support services rendered during the period if both of the following conditions exist:

(i) sufficient VSOE exists demonstrating that costs to provide postcontract customer support are

incurred on other than a straight-line basis; and (ii) the vendor believes that it is probable that the

costs incurred in performing under the current arrangement will follow a similar pattern. FASC

985-605-25-68.

131. GAAP establishes that goodwill must be tested for impairment on an annual basis,

and between annual tests in certain circumstances, including, but not limited to, when events

occur or circumstances change that would, as here, more likely than not reduce the fair value of

a reporting unit below its carrying amount. Additionally, FASB considers that an acquired entity

like Autonomy often is integrated with a part of the acquiring entity and has concluded that, in

those cases, goodwill should be tested for impairment in conjunction with more than just the net

assets of the acquired entity. “[FASB] conclude[s] that, in most cases, it is appropriate to test

goodwill for impairment in the aggregate at a level higher than that of the acquired entity and

lower than that of the combined entity.… Thus, as defined in this Statement, a component of an

operating segment is a reporting unit if the component is a business for which discrete financial

information is available and segment management regularly reviews the operating results of that

component.” FASC 142:B86 & B111.

132. In addition to the foregoing, HP is, and was throughout the Class Period, also

subject to §13(b)(2)-(7) of the Exchange Act, which required HP to make and keep books,



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records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions

and dispositions of the assets during the Class Period. HP was required to devise and maintain a

system of internal accounting controls that were sufficient to provide reasonable assurance that,

among other things, accounting transactions were recorded as necessary to permit the preparation

of financial statements in conformity with GAAP, and to maintain accountability of acquired

assets like Autonomy.

133. Ultimately, in contrast to the requirements of GAAP, HP’s Class Period financial

reporting failed to provide investors with timely, accurate, relevant and reliable information upon

which they could base their investment decisions related to the Autonomy Acquisition and

integration. In conjunction with a fair presentation of HP’s financial information during the

Class Period, Defendants were responsible for disclosing significant estimates used in preparing

the financial statements and for ensuring that those estimates were reasonable in light of known

facts and circumstances. A fair presentation of financial information includes providing

information as to the concentration of risk and uncertainties inherent within HP’s financial

information given its business and industry.

2. Summary of HP’s Accounting Violations

134. During the Class Period, HP’s publicly issued financial statements and related

earnings releases for the fiscal year ended October 31, 2011, and for each of its first three

quarters of fiscal year ended October 31, 2012, were materially misstated in violation of GAAP

and SEC regulations because Defendants: (i) failed to record an impairment loss for goodwill and

purchased intangible assets in connection with the Autonomy Acquisition, which resulted in a

material overstatement of the Company’s reported assets by at least $5.7 billion for goodwill and

$3.4 billion for purchased intangible assets; (ii) materially misrepresented HP/Autonomy’s

revenue recognition policies; (iii) failed to disclose that a material amount of the deferred

revenue acquired in the Autonomy Acquisition was improperly recorded; (iv) materially

misrepresented HP/Autonomy’s disclosures for the Software Segment; and (v) failed to disclose

known trends and uncertainties in HP Software Segment, which included Autonomy.



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135. Prior to the Autonomy Acquisition, Autonomy was subject to the accounting

principles known as International Financial Reporting Standards (“IFRS”), as well as its own

publicly disclosed accounting policies. Prior to its acquisition by HP, Autonomy recognized

revenue from sales of software licenses to resellers wherein the reseller’s obligations to HP were

substantially contingent on the reseller’s success in distributing the software licenses and

payment from its customers. After the Autonomy Acquisition, HP’s Software Segment, via

Autonomy’s operations, continued Autonomy’s practices of improperly recognizing revenue

from software licensing transactions wherein the end user was not obligated to purchase the

software license or in many cases did not exist. Further, Autonomy recognized revenue from

sales of hardware as software license revenue, accounting for the costs of the hardware as a sales

and marketing expense. HP’s Software Segment also continued Autonomy’s practice of

improperly recognized software license revenue upfront where the customer was primarily

entering into a hosting arrangement, as demonstrated in the Briody Matter, where the revenue

should have been deferred and recognized over the term of the arrangement.

136. Defendants either knew, or were reckless in not knowing, that Autonomy’s

software license revenue recognition practices were not in conformity with GAAP, or even IFRS.

GAAP, specifically software revenue recognition as set forth in FASC 985-605, required

HP/Autonomy to spread the recognition of revenue over the entire contract period for software

sales that included service relationships. Autonomy overstated its revenues by improperly

separating software sales/service contracts into software and service components and

immediately recognizing revenue from the software component. HP either knew, or recklessly

disregarded, that Autonomy was recognizing revenue from software licensing transactions,

including resellers, in violation of GAAP, both before it acquired Autonomy and during the Class

Period.

137. On November 20, 2012, HP suggested that Autonomy had concealed $100 to

$200 million of hardware costs within its reported sales and marketing expenses for 2010 and

2009 – which previously totaled $375 million for 2010 and 2009 – to inflate its reported gross

profit. HP has therefore represented after the Class Period that up to 50% of Autonomy’s



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reported sales and marketing costs were fictitious and overstated, but that HP failed to discover

this significant discrepancy in Autonomy’s results until HP accused Autonomy’s management of

fraud in November 2012. Given that HP’s own Chief of Software Recognition – Paul Curtis –

was pouring over Autonomy’s financial statements starting in October 2011, and that HP had

purportedly performed a “rigorous” due diligence of Autonomy, HP was severely reckless at best

in missing this material discrepancy. Additionally, Autonomy’s growth in DSO for 2009, 2010

and 2011, through the date of the acquisition, was also a red flag about Autonomy’s aggressive

accounting practices. Autonomy, for instance, had reported consistently high DSOs prior to the

Class Period. On December 31, 2010, Autonomy reported DSOs of 94 days, at March 31, 2011

of 102 days and at June 30, 2011 of 100 days. Furthermore, because Autonomy improperly used

“net” accounts receivable to calculate its DSO, Autonomy’s DSO was approximately 20 days

higher than it had disclosed.36

138. HP also had a heightened awareness that Autonomy’s aggressive revenue

recognition practices were a fraud risk because revenue recognition is an assumed fraud risk,

especially in the high-margin software technology sector.37 HP knew that the risk to Autonomy

was especially acute because, for years, various analysts had questioned how Autonomy had

reported such impressive license software revenue growth and high margins. At the same time it

was reporting record software license revenue growth, Autonomy barely grew its deferred

revenue balance – as would be expected if Autonomy was a maturing software company that

reportedly had sold billions in licenses with a large customer base, requiring annual revenue

generating maintenance and support contracts.

139. After the Class Period, HP also represented that Autonomy had engaged in

“channel stuffing” with resellers of its software whereby Autonomy recognized revenue on the

36 DSO is a telltale indicator of improper revenue recognition practices because extended payment terms or payment from resellers that is substantially contingent on the reseller’s sell-through of the product causes an increase in DSO. 37 A Presumption That Improper Revenue Recognition Is a Fraud Risk, Material misstatements due to fraudulent financial reporting often result from an overstatement of revenues (for example, through premature revenue recognition or recording fictitious revenues).… Therefore, the auditor should ordinarily presume that there is a risk of material misstatement due to fraud relating to revenue recognition. AU Section 316.41.



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shipment of licenses to resellers where there was no end-user in place to purchase the software

license. As a software company, resellers have no legitimate need for a “software license” in

their inventory. At the latest, Defendants learned of these irregularities when HP initiated

detailed studies of Autonomy’s revenue recognition policies in October 2011. In order to avoid

disclosing Autonomy’s improper revenue recognition practices, HP attributed certain Class

Period “adjustments” for these transactions to deferred revenue write-downs in the Software

Segment, and pre-acquisition activities and adjustments related to the Autonomy Acquisition as

alleged in ¶191, infra. Defendants, however, failed to disclose that, following its Autonomy

Acquisition and continuing through at least May 2012, HP’s Autonomy’s unit was trying to

engage in these same improper accounting practices within HP.

140. GAAP does not prescribe or preclude a time period from the date of acquisition

(when goodwill is recorded) until an impairment event or circumstance occurs causing a

goodwill or purchased intangible write-down. Such an event or circumstance can as here, occur

within weeks or months of an acquisition closing date. Given all the facts known to Defendants

as alleged throughout herein, HP recklessly failed to consider the impairment of the $6.8 billion

of goodwill and $4.6 billion of purchased intangible assets that HP falsely reported during the

Class Period as a result of acquiring Autonomy until November 2012. HP included Autonomy

within its HP Software Segment, which at October 31, 2011, reported total goodwill of $14.1

billion, of which Autonomy comprised 47%. HP gradually wrote off accounts receivable and

deferred revenue during the Class Period that it knew was uncollectible and/or improperly

recorded in an effort to address the problems at HP/Autonomy. HP also falsely misrepresented its

accounting policy disclosure for revenue recognition in connection with Autonomy’s accounting

improprieties as alleged in more detail in ¶145, infra.

141. Because HP knew, and/or recklessly disregarded, that Autonomy’s financial

statements were materially false and misleading after the acquisition on October 3, 2011, HP

could not accurately justify the fair value it assigned to Autonomy’s intangible assets in HP’s

2011 Annual Report. HP’s due diligence team, which purportedly performed “extensive” due

diligence on Autonomy, either learned of, or recklessly disregarded, that Autonomy was



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mischaracterizing low margin hardware revenue estimated to have comprised 10-15% of

Autonomy’s revenue. On November 20, 2012, HP admitted that, for 2009 and 2010, PwC’s

investigation had concluded that Autonomy had mischaracterized $160 million to $245 million of

revenue and a similar amount related to cost of sales to artificially distort Autonomy’s gross

profit. According to HP, neither HP’s due diligence, HP’s purported integration efforts nor its in-

house Worldwide Director of Software Revenue Recognition (Paul Curtis) was able to detect

Autonomy’s improper accounting practices, until six months after PwC initiated its investigation

into Whistleblower No. 4’s allegations in May 2012, as alleged herein.

a. HP’s 4Q11 and FY 2011 Financial Statements Violated GAAP

142. In contravention of GAAP, HP’s 2011 Annual Report falsely reported goodwill of

approximately $6.6 billion and purchased intangible assets of $4.6 billion, or $11.2 billion of

intangible assets, related to its acquisition of Autonomy on October 31, 2011. This represented

8.6% of HP’s total assets in its consolidated balance sheet as of October 31, 2011, and 28.7% of

its reported stockholder’s equity. Although Autonomy’s intangibles were material to HP’s

reported financial statements, HP failed to record its known impairment (when the carrying

amount of goodwill exceeds its implied fair value) of goodwill, and the impairment of purchased

intangible assets of Autonomy, as of October 31, 2011. HP’s failure to report the impaired value

of the intangible assets attributed to the Autonomy Acquisition as of October 31, 2011 caused

HP’s financial statements to be materially false and misleading when made in its 2011 Annual

Report, in violation of GAAP.

143. In addition, HP’s MD&A incorporated by reference the section of HP’s 2011

Annual Report entitled “Risk Factors” “for a further discussion of trends, uncertainties and other

factors that could impact our operating results.”38 During its Autonomy due diligence, HP either

discovered, or was severely reckless in not discovering, that Autonomy was engaging in

38 MD&A is Management Discussion and Analysis. The purpose of the MD&A is to provide a narrative explanation, through the eyes of management, of how an entity has performed in the past, its financial condition, and its future prospects. In so doing, the MD&A attempt to provide investors with complete, fair, and balanced information to help them decide whether to invest or continue to invest in an entity.



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improper revenue recognition, including materially overstating reported revenue and earnings.

Rather than disclose these facts, and the resulting impact on the value of goodwill and purchased

intangibles allocated to Autonomy due to HP exorbitant payment amount to acquire Autonomy in

excess of Autonomy’s fair value, Defendants misrepresented them. Rather than write down the

value of Autonomy’s goodwill and purchased intangibles at the time HP filed the 2011 Annual

Report, Defendants falsely reported $11.2 billion in goodwill. Investors relied on Defendants’

materially false and misleading representations and omissions.

144. All of the Defendants knew during the Class Period that accounting for goodwill

and purchased intangible assets was one of HP’s “Critical Accounting Policies and Estimates,”

because the Company represented to investors that:

We [will] review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable;

We will continue to evaluate goodwill and indefinite-lived intangibles on an annual basis as of the beginning of its fourth fiscal quarter or whenever events, changes in circumstances or changes in management business strategy indicate that there may be a potential indicator of impairment;

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired, including in-process research and development (“IPR&D”), based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. We engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets; and

The Consolidated Financial Statements of HP are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

145. HP’s 2011 Annual Report falsely represented that the Company’s software

revenue recognition policy was based on GAAP after it incorporated Autonomy. As of October

31, 2011, HP’s Software Segment, of which Autonomy was a material component, was not

complying with the revenue recognition mandates referenced in ¶¶126-132, supra. In addition,

the Autonomy portion of HP’s Software Segment as of October 31, 2011, and for earlier periods,

improperly recognized software license revenue that should have been either deferred: (1) as

service revenue; (2) as ongoing unfulfilled obligations by Autonomy; or (3) because the reseller



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did not meet HP’s revenue recognition criteria. To inflate its software revenue growth,

Autonomy included the sale of hardware as a component of its software license revenue and,

after HP acquired Autonomy’s assets, HP began writing off Autonomy’s improperly recorded

revenue without truthfully disclosing to investors why it was doing so. Instead, buried deep in its

SEC Form 10-Q for the three months ended January 31, 2012, filed on March 12, 2012, HP

stated that:

Software gross margin decreased…due primarily to a lower mix of license revenue and higher acquisition-related deferred revenue write-downs, the effect of which was partially offset by rate increases in…services.

146. HP’s deferred revenue write-down for Autonomy negatively impacted its

Software Segment gross margins either because Autonomy had fictitious customers or was

overstating deferred revenue, which would cause the amortization (recognition as revenue) of the

deferred revenue in future periods to be materially reduced. HP either identified the improperly

recorded deferred revenue during its Autonomy due diligence, or the improper accounting for

deferred revenue by Autonomy during its October 2011 fiscal year-end 2011 audit procedures.

Indeed, in the years prior to HP’s Autonomy Acquisition, Autonomy’s reporting and accounting

for deferred revenue had been repeatedly questioned as alleged in ¶¶17-25, 47-57, supra. For

example, between 2008 and 2010, excluding the deferred revenue Autonomy acquired from its

acquisition of InterWoven in early 2009, Autonomy reported deferred revenue growth of

approximately 2% to 3% in deferred revenue increases for 2009 and 2010. At the same time,

however, Autonomy was inexplicably rapidly expanding its installed base of customers with

large multi-million software licenses.

147. While Autonomy was reporting double-digit growth in its IDOL licenses in direct

and OEM channels (32% in 2010), its deferred revenue was growing a measly 2% to 3% per

year. Since most customers that invest $1 million in a software license also sign on for support

and maintenance (Autonomy’s disclosed average license transactions was $814,000 at June 30,

2011), similar growth in Autonomy’s deferred revenue account was expected. This was a glaring

red flag for HP that, at a minimum, it deliberately disregarded. HP later belatedly acknowledged



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material overstatement of goodwill and purchased intangibles related to the Autonomy

Acquisition when it disclosed in its 2012 Annual Report on Form 10-K that:

subsequent to the Autonomy purchase price allocation period, which concluded in the first quarter of fiscal 2012 [January 31, 2012], and in conjunction with HP’s annual goodwill impairment testing, HP identified certain indicators of impairment. The indicators of impairment included lower than expected revenue and profitability levels over a sustained period of time, the trading values of HP stock and downward revisions to management’s short-term and long-term forecast for the Autonomy business.

148. At the time HP’s 2011 Annual Report was filed on December 14, 2011, the

Company had substantially completed its Autonomy due diligence, operated Autonomy for

almost three months and had learned that much of Autonomy’s reported software revenue growth

was being recorded improperly.

b. HP’s 1Q12 Financial Statements Violated GAAP

149. In contravention of GAAP, HP’s 1Q12 10-Q reported goodwill of approximately

$6.8 billion (including $224 million of goodwill that HP added during the three months ended

January 31, 2012, as a result of a change in the allocation of purchase price to the fair value of

purchased intangibles for the Autonomy Acquisition), and purchased intangibles of

approximately $4.4 billion. These intangible assets represented 20.5% and 8.8% of HP’s

reported intangibles and total assets, respectively, on its balance sheet. Had HP accurately

reported the impairment of its goodwill and purchased intangibles related to Autonomy as of

January 31, 2012, HP would have reported a loss before taxes of at least $7 billion versus the

earnings before taxes of approximately $1.8 billion it actually reported for the quarter then ended.

As of January 31, 2012, Whitman and Lesjak nevertheless falsely represented that:

In the opinion of management, the accompanying Consolidated Condensed Financial Statements of Hewlett-Packard Company and its consolidated subsidiaries (“HP”) contain all adjustments, including normal recurring adjustments, necessary to present fairly HP’s financial position as of January 31, 2012, its results of operations and cash flows for the three months ended January 31, 2012 and January 31, 2011.

150. These statements were materially false and misleading because they: (i) failed to

record an impairment loss for goodwill and purchased intangible assets, which resulted in a

material overstatement of HP’s reported assets by at least $5.7 billion for goodwill and $3.4



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billion for purchased intangible assets; (ii) materially misrepresented HP’s publicly-represented

revenue recognition policies; (iii) failed to disclose that a material amount of the deferred

revenue and trade accounts receivable HP acquired in the Autonomy Acquisition was improperly

recorded, as well as causing HP’s Software Segment to report overstated revenue distorting its

growth and trends; and (iv) failed to disclose then known trends and uncertainties concerning

HP’s Software Segment due to HP’s incorporation of Autonomy.

c. HP’s 2Q12 Financial Statements Violated GAAP

151. In contravention of GAAP, at April 30, 2012, HP reported goodwill of

approximately $6.8 billion (including $224 million of goodwill that HP added during the six

months ended April 30, 2012, as a result of a change in the allocation of purchase price to the fair

value of purchased intangibles for the Autonomy Acquisition) and purchased intangibles of

approximately $4.3 billion. These intangible assets represented 20% and 8.7%, of HP’s reported

intangibles and total assets, respectively, on its balance sheet. Had HP accurately reported the

impairment of its goodwill and purchased intangibles related to Autonomy at April 30, 2012, it

would have reported a loss before taxes of at least $7 billion versus the earnings before taxes of

approximately $2 billion it did report for the quarter then ended.

152. By her own admission, no later than May 2012, before HP filed its April 30, 2012

Quarterly Report on Form 10-Q on June 8, 2012, Whitman knew that a senior member of

Autonomy’s U.S. leadership team had then accused Autonomy’s management of making

“outright misrepresentations” to mislead HP’s investors. Whitman not only failed to disclose that

fact, but she affirmatively misrepresented that:

In the opinion of management, the accompanying Consolidated Condensed Financial Statements of Hewlett-Packard Company and its consolidated subsidiaries (“HP”) contain all adjustments, including normal recurring adjustments, necessary to present fairly HP’s financial position as of April 30, 2012, its results of operations for the three and six months ended April 30, 2012 and 2011 and its cash flows for the six months ended April 30, 2012 and 2011.

153. The statements in ¶¶151-152 above were materially false and misleading because

they: (i) failed to record an impairment loss for goodwill and purchased intangible assets, which

resulted in a material overstatement of HP’s reported assets by at least $5.7 billion for goodwill



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and $3.4 billion for purchased intangible assets; (ii) failed materially misrepresented HP’s

publicly-reported revenue recognition policies; (iii) failed to disclose that a material amount of

the deferred revenue trade accounts receivable acquired in the Autonomy Acquisition was

improperly recorded causing the HP’s Software Segment to report overstated revenue materially

overstating its growth and trends; and (iv) to disclose then known trends and uncertainties

concerning HP’s Software Segment due to HP’s incorporation of its polluted Autonomy asset.

d. HP’s 3Q12 Financial Statements Violated GAAP

154. In contravention of GAAP, at July 31, 2012, HP reported goodwill of

approximately $6.8 billion (including $224 million of goodwill that HP added during the nine

months ended July 31, 2012, as a result of a change in the allocation of purchase price to the fair

value of purchased intangibles for the Autonomy Acquisition) and purchased intangibles of

approximately $4.2 billion. These intangible assets represented 25% and 9.4% of HP’s reported

intangibles and total assets, respectively, on its balance sheet. Had HP accurately reported the

impairment of its goodwill and purchased intangibles related to Autonomy as of July 31, 2012, it

would have reported a loss before taxes of at least $18 billion versus the loss before taxes of

approximately $9.1 billion it did report for the quarter then ended.

155. Before HP filed its Form 10-Q for July 31, 2012, HP knew that Whistleblower

No. 4 had alerted HP’s management that Autonomy was engaging in improper accounting and

business practices, and that PwC had been investigating this material development for four

months. HP not only failed to disclose that material accounting improprieties were then

occurring at HP/Autonomy that were having a material impact on the carrying values of HP’s

reported goodwill and intangibles, it affirmatively misrepresented that:

In the opinion of management, the accompanying Consolidated Condensed Financial Statements of Hewlett-Packard Company and its consolidated subsidiaries (“HP”) contain all adjustments, including normal recurring adjustments, necessary to present fairly HP’s financial position as of July 31, 2012, its results of operations for the three and nine months ended July 31, 2012 and 2011 and its cash flows for the nine months ended July 31, 2012 and 2011.

156. While HP’s Software Segment had improperly recognized revenue for the quarter

and nine months ended July 31, 2012, in its MD&A filed with the SEC on Form 10-Q for July



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31, 2012, HP misleadingly represented that the problems at Autonomy were related to higher

integration costs, product mix and “higher deferred revenue write-downs.”

For the three and nine months ended July 31, 2012, Software earnings from operations as a percentage of net revenue decreased by 1.5 percentage points and 1.1 percentage points, respectively. The operating margin decrease for both periods was due primarily to a lower mix of license revenue, higher deferred revenue write-downs and integration costs associated with the Autonomy acquisition, the effects of which were partially offset by rate increases in hosted license services and lower deferred revenue write-downs associated with our fiscal 2010 acquisitions than in the prior-year periods.

157. Four months after Whistleblower No. 4 had come forward, HP failed to disclose:

(i) the nature and amount of accounting irregularities at Autonomy; (ii) that HP was then

conducting an investigation into Whistleblower No. 4’s allegations; and (iii) an impairment

testing of the intangibles, which totaled in excess of the $11 billion HP reported for Autonomy,

had purportedly taken place.

158. Defendants’ 3Q12 statements were also materially false and misleading because

they: (i) failed to record an impairment loss for goodwill and purchased intangible assets, which

resulted in a material overstatement of the Company’s reported assets by at least $5.7 billion for

goodwill and $3.4 billion for purchased intangible assets; (ii) materially misrepresented HP’s

publicly-reported revenue recognition policies; (iii) failed to disclose that a material amount of

the deferred revenue and trade accounts receivable HP acquired in the Autonomy Acquisition

was improperly recorded causing HP’s Software Segment to report overstated revenue materially

overstating its growth and trends; and (iv) failed to disclose then known trends and uncertainties

concerning HP’s Software Segment due to HP’s incorporation of Autonomy.

3. HP/Autonomy’s Financial Misrepresentations Were Material

159. SEC Staff Accounting Bulletin 99 provides that the materiality of a misstatement

can turn on where it appears in an issuer’s financial statements. As here, with HP’s Software

Segment, a material misstatement may involve just a segment of a registrant’s operations. A

misstatement of the revenue and operating profit of a relatively small segment that is represented

by management to be important to the future profitability of the entity is, as here, more likely to

be material to investors than a misstatement in a segment that management has not identified as



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especially important. During the Class Period, HP materially overstated its reported assets,

specifically its goodwill, purchased intangible assets and accounts receivable as a result of

HP/Autonomy’s accounting improprieties. Table 1 below illustrates the significance of the

quantitative amount of goodwill and purchased intangible assets (hereinafter “HP Reported

Autonomy Intangibles”) to HP’s consolidated balance sheet (in millions):

TABLE 1

Period HP

Intangibles HP Assets

HP Reported Autonomy Intangibles

% of HP Reported Autonomy Intangibles

to HP Intangibles

% of HP Reported Intangibles to HP

Total Assets

10/31/2011 $ 55,449 $ 129,517 $ 11,200 20.2% 8.6%

01/31/2012 $ 54,668 $ 126,596 $ 11,200 20.5% 8.8%

04/30/2012 $ 54,746 $ 127,689 $ 11,100 20.0% 8.7%

07/31/2012 $ 44,771 $ 117,556 $ 11,000 24.6% 9.4%

160. Table 2 below illustrates the materiality of HP’s misstatements in HP’s publicly-

disseminated financial information about its Software Segment that was accomplished by

HP/Autonomy’s overstatement of accounts receivable, deferred revenue and improper revenue

recognition. Given the importance HP placed on its Software Segment, materiality for HP’s

statements about Autonomy is determined at the segment level. Based on HP’s November 2012

representations that Autonomy was engaged in accounting misrepresentations, HP’s financial

statements were materially false and misleading for all the reasons asserted by HP in November

2012. Table 2 demonstrates the effects of HP’s overstatements (“O/S”) by quarter, all of which

are material, ranging from 16% to 33% of reported Software Segment operating earnings:

TABLE 2

Three Months Ended

HP Software Revenue

HP Software Operating Earnings

HP Software Revenue O/S

HP Software Operating

Earnings O/S

10/31/2011 $ 1,023 $ 284 $ 75.0 $ 60.0

01/31/2012 $ 946 $ 162 $ 50.0 $ 40.0

04/30/2012 $ 970 $ 172 $ 40.0 $ 32.0

07/31/2012 $ 973 $ 175 $ 30.0 $ 24.0

161. The tables above highlight the significance of HP’s asset acquisition of Autonomy

and HP’s accounting improprieties after the acquisition closed. HP has represented that



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Autonomy was engaging in a widespread and prevalent accounting fraud, including “the use of

licensing transactions with value-added resellers to inappropriately accelerate revenue

recognition, or worse, create revenue where no end-user customer existed at the time of sale.”

If Autonomy was engaging in the accounting irregularities that HP has represented Autonomy

was engaging in prior to the close of the acquisition on October 3, 2011, Autonomy’s accounts

receivable and earnings were clearly materially overstated at the date HP acquired Autonomy and

thereafter, until HP’s November 20, 2012 disclosures.

162. During the Class Period, however, none of HP’s SEC filings disclosed any

accounts receivable write-offs relating to the acquisition of Autonomy within the Software

Segment. So, either HP’s financial statements included overstated accounts receivable, or HP

knew that the accounts receivable were fictitious and wrote them off during the Class Period

without disclosing the same until November 2012, artificially reducing the Software Segment’s

deferred revenue, revenue and/or earnings. In addition, Defendants either knowingly misled

investors that HP conducted a meticulous and thorough due diligence process that discovered

Autonomy’s fraudulent accounting practices, or they recklessly performed their due diligence

procedures and misled the market as to their nature, scope and results. Moreover, given that HP

learned, at the latest in May 2012, about the irregularities at Autonomy, HP had an obligation to

then inform investors about these developments under GAAP because events and circumstances

had changed to record the impairment of its recorded goodwill and purchased intangible assets at

that time HP failed to do so during the Class Period.

B. Defendants’ Qualitatively Materially False and Misleading Class Period Statements and Omissions39

1. August 18 & 22, 2011

163. HP announced its offer to acquire Autonomy in the 8/18/11 Press Release. During

HP’s subsequent 8/18/11 Conference Call with analysts, HP distributed a group of Microsoft

PowerPoint slides with details designed to promote HP’s offer for Autonomy to HP’s investors

39 All bold and italics in this section refer to Defendants false and/or misleading statements.



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(the “8/18/11 Autonomy Slides”).40 HP’s 8/18/11 Press Release falsely represented that

“Autonomy’s recent operating and financial performance has been strong, including its most

recent results for the quarter ending June 30, 2011. Over the last five years, Autonomy has

grown its revenues at a compound annual growth rate of approximately 55 percent and

adjusted operating profit at a rate of approximately 83 percent.” The 8/18/11 Press Release

also touted the “strategic and financial benefits” of HP’s offer to purchase Autonomy by

misrepresenting that:

Autonomy’s strong growth and profit margin profile complements HP’s efforts to improve its business mix by focusing on enterprise software and solutions. Autonomy has a consistent track record of double-digit revenue growth, with 87 percent gross margins and 43 percent operating margins in calendar year 2010.

164. In response to an analyst question about the Autonomy Acquisition during the

Company’s same day conference call, Apotheker echoed the 8/18/11 Press Release, stating:

Autonomy has grown its revenues at a compound annual growth rate of approximately 55% and adjusted operating profit at a rate of approximately 83% over the last 5 years. We’re buying a very strong business and we believe that we can extract a lot more out of this business by combining it with HP.

Apotheker also falsely represented that “[i]n 2010, Autonomy had gross margins in the high 80s

and operating margins above 40%,” noting that Autonomy has “demonstrated a strong

consistent track record of double-digit revenue growth.” Likewise, HP reiterated that

Autonomy was “highly profitable,” and “[e]nhances HP’s financial profile” given its “strong

growth and profit margin profile” and “consistent track record of double digit revenue growth,

with 87 per cent gross margins and 43 percent operating margins in calendar year 2010.” The

8/18/11 Autonomy Slides similarly falsely represented that Autonomy recognized $931 million

in revenue and $395 million in adjusted operating profit for the preceding twelve months

(“trailing twelve months” or “TTM”), EPS of $0.68, $0.97 and $1.11 for fiscal years 2008, 2009

and 2010, respectively, generating a 28% compound annual growth rate (“CAGR”) over three

years, based on Autonomy’s public financial results. The Autonomy Slides also informed HP’s

40 The next day, HP filed its “Recommended Cash Offer” for Autonomy dated August 18, 2011 with the SEC as an exhibit to a Form 8-K (the “Autonomy Offer”). The Autonomy Offer was also made available on HP’s website at http://www.hp.com/investor/offerdocuments.



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investors that Autonomy had adjusted gross margins of 91.1%, 88.1% and 87.2%, and adjusted

operating margins of 41.2%, 44.5%, and 43.3% for fiscal years 2008, 2009 and 2010

respectively.

165. The statements set forth above in ¶¶163-164 were materially false and misleading

because, as HP admitted on November 20, 2012, Autonomy’s revenue and adjusted operating

profit for the 12 months preceding the announced acquisition, EPS for 2009 and 2010, five-year

and three-year CAGR and gross margins for 2009 and 2010, and adjusting operating margins for

2009, and 2010, were the result of “outright misrepresentations” and disclosure failures by

“Autonomy’s management,” including Lynch, who was then employed as one of HP’s top 15

senior-most executives.

166. On November 20, 2012, HP admitted that, for at least two years prior to the

acquisition, Autonomy materially overstated its revenue and understated costs by recognizing

revenue from sales of IDOL product to resellers at quarter end where no end-user customer

existed at the time of the sale. According to HP, Autonomy also materially inflated these metrics

by classifying revenue from negative-margin sales of low-end hardware with little to no

Autonomy software as revenue from the sale of a software license to inflate its reported software

license revenue and revenue growth.

167. By accounting for the cost of the low-end hardware as sales and marketing

expenses, Autonomy also materially inflated its reported gross margins. Autonomy improperly

accelerated revenue (but not the associated costs) by, as in the Briody Matter, “transforming”

term software as a service (“SaaS”) deals into upfront licensing deals. Given that approximately

95% of Autonomy’s revenues consisted of revenue recognized from software licenses, at a

minimum, HP’s purportedly “extremely tight” due diligence recklessly disregarded that

Autonomy was recognizing revenue improperly in this manner. In addition, as early as 2007,

analysts were aggressively questioning Autonomy’s revenue recognition practices in published

research reports, including, inter alia, Autonomy’s: (i) recognition of revenue from hardware

sales as software license revenue and concern about the recognition of sales and marketing

expenses; and (ii) recognition of the majority of revenue associated with SaaS term deals up



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front. Moreover, both before and during the Class Period, analysts questioned whether

Autonomy was concealing its low organic growth rate via acquisition, license revenue growth

rate, and gross and operating margins. On November 20, 2012, GC Schultz admitted that HP’s

management was aware that, at a minimum, questions concerning Autonomy’s potentially

improper accounting were raised before the transaction closed on October 3, 2011.

168. During the 8/18/11 Conference Call, Apotheker bragged that “I have been able to

bring [to HP] solutions into 400 OEMs, which shows that they are basically a de facto industry

standard.” This statement was materially false and misleading when made because Autonomy

had substantially inflated its reported IDOL OEM revenue by including software license

revenues that did not fit into its own reported definition of “IDOL OEM,” such that HP would be

unable to draw upon a consistent, long term revenue stream upon integrating Autonomy. Given

numerous analyst reports published before the acquisition that questioned whether Autonomy

was inflating its IDOL OEM revenue by including, within that line item, non-IDOL OEM

revenue, HP knew, or was at least severely reckless in not knowing that Autonomy was

misrepresenting its IDOL OEM growth.

169. In response to a specific question about Autonomy’s purported organic growth

rate, Apotheker misleadingly stated that Autonomy was:

executing a very successful shift to SAS [sic], software as a service, delivering their software through the cloud, which is totally different revenue generation model and have done a splendid job doing so. Actually, one of the few traditional license-based companies that have executed such a successful transition.

Apotheker added that “about one-third of their [Autonomy’s] revenues are now SAS-based [sic]

and, therefore, that has a totally different growth profile than what you would see on a normal

license-based business.” The statements concerning Autonomy’s purportedly “successful shift”

to an SaaS revenue recognition model were materially false and misleading when made because

Autonomy was utilizing its SaaS revenue recognition model to prematurely recognize revenue –

but not the associated costs – from 1-3 year term deals in the quarter in which the deal was

signed in order to inflate growth and margin rates.



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170. Investors relied on HP and Apotheker’s materially misleading misrepresentations.

On August 19, 2011, for instance, RBC Capital Markets noted that, “[a]side from the

acquisition’s valuation concerns, we like the deal from a strategic standpoint and are glad

management is finally adding some structural certainty to the secular story. After the dust

settles, we expect sentiment to become more positive on the name, setting the company up for

long term margin tailwinds from mix.” On August 18, 2011, Wells Fargo observed that “HP is

paying approximately $11B in cash for Autonomy, which we believe will be a good addition to

its software portfolio.” Later, on August 24, 2011, Morningstar noted that it viewed “the

acquisition positively because it gives HP a foothold in content management, a fast-growing

market that can be bundled with its infrastructure and services offerings.”

2. September 13 & 22, 2011

171. A week before Apotheker’s ouster from HP, on September 13, 2011, Apotheker

and Robison participated at the 9/13/11 Conference on HP’s behalf. In response to a specific

question that challenged HP’s offer to purchase Autonomy at the conference, Apotheker relayed

that HP “bought a software company that generates 40% margin, which is pretty unique even for

a software company,” and noted that HP “bring[s] scale, essentially scale and complementarity

to that asset only makes it an even more palpable asset for us because it gives us the opportunity

to really provide a return very quickly for our shareholders.”

172. Apotheker’s statements were materially false and misleading when made for the

reasons set forth above in ¶¶166-167. In addition, later, during HP’s 5/23/12 Conference Call,

Whitman directly contradicted Apotheker’s statement that HP had brought “scale” to Autonomy

by blaming HP/Autonomy’s “disappointing” revenue quarter to “classic entrepreneurial

Company scaling challenges.” At the same ill-fated 9/13/11 Conference, the following exchange

took place between an analyst, Robison and Apotheker:

[Analyst:] On that last topic, a lot of questions that I get and have expressed about the valuation period for Autonomy. Back of the envelope is low, single-digit IRR on that acquisition purchase price. It seemed to be anticipating explosive growth from Autonomy going forward, yet our analysts that cover Autonomy think it’s growing in the high, single-digits organically on a year-on-year basis. So it’s high, single-digit growth, 35 times, plus kind of earnings multiple 12 times



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revenue. How does that fit into your capital allocation decision making process, and how do investors ever earn a return on that investment?

[Defendant Robison:] The first thing – I’ll let Leo talk about the capital allocation strategy. But the right way to think about Autonomy’s growth is to look at the organic growth for the IDOL engine. IDOL stands for intelligent data operating layer. And it is the platform for the 500 other functions that you then up-sell to get a complete Autonomy package. So the IDOL growth year on year is about 17%. And then we can add the rest of the packages on, as needed, depending on what the application space is that the customer is trying to address.

[Apotheker:] And let me just try to build on that and help you understand how we came to the valuation of Autonomy. We have a pretty rigorous process inside HP that we follow for all of our acquisitions, which is a DCF-based model, and we try to take a very conservative view at this.…

Now, we have identified five synergy possibilities – five synergy leverages on how we can build up the Autonomy business and how we can synergize it between HP and Autonomy. And I can walk you through that, through these various elements. But just take it from us. We did that analysis at great length, in great detail, and we feel that we paid a very fair price for Autonomy. And it will give a great return to our shareholders.

173. Apotheker’s statements concerning HP’s Autonomy valuation and due diligence,

and Robison’s representations concerning Autonomy’s purported organic growth were materially

false and misleading because: (i) HP’s “DCF-based model”41 incorporated Autonomy’s

materially inflated financial metrics, including, inter alia, Autonomy’s revenue, profits, EPS,

growth rates and margins for prior periods, rendering HP’s purported DCF-based model

irreparably flawed; (ii) HP’s due diligence had been limited to Autonomy’s publicly reported

financial results, which had been publicly maligned by analysts and others starting in 2007;

(iii) unbeknownst to investors, Defendant Lesjak had previously vehemently objected to the

Autonomy transaction as “not in the best interests of the company” to the full HP Board in July

2011; and (iv) as early as 2007, analysts had noted Autonomy’s “unusual” purported organic

growth rates.

174. In response to a specific question about HP/Autonomy’s IDOL OEM platform,

Robison later recklessly represented that:

There’s no data that indicates the core OEM franchise is deteriorating. If you look at the growth for the IDOL platform, it’s growing nicely and will continue.

41 A DCF is a discounted cash flow analysis.



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He added that “on the OEM license side, they’re about the high 90% of the market. And, for the

first half of 2011, they were growing at 27%. So that is not a decline.” In response to the same

question, Apotheker went even further, stating:

Let me maybe add one point to what Shane [Robison] has said. It’s overlooked by analysts that Autonomy has accomplished something that few software companies have been able to do. They transition from an up-front license model to a cloud model, to a SaaS model. Today, more than a third of Autonomy’s revenues are cloud-based (inaudible) and, therefore, the shift of up-front money and maintenance money into a annuity-based revenue stream. And they’ve done that very successfully, and they’re probably one of the largest cloud vendors in the world today, which, by the way, ties beautifully back into our cloud strategy that we talked about in the beginning.

175. Apotheker and Robison’s statements about Autonomy’s successful growth in

IDOL OEM revenue were materially false and misleading because Autonomy’s IDOL OEM

growth rate was materially inflated due to Autonomy’s practice of including, within its IDOL

OEM, revenue from non-IDOL OEM software licensing revenue. Robison knew, or was

severely reckless in not knowing, that Autonomy inflated its IDOL OEM revenue. Apotheker

knew, or was severely reckless in not knowing, that his statement about Autonomy’s

“successful[]” shift to a SaaS-based model was materially false and misleading when made for

the reasons set forth in ¶169 above.

176. After Apotheker was specifically asked “[w]hat specific steps around due

diligence did HP take to investigate any concerns around accounting prior to completing or

announcing the transaction,” Apotheker misrepresented that HP’s Autonomy due diligence was

“extremely tight and very professional,” which was materially false and misleading because:

(i) HP had done only a rushed three-week due diligence for Autonomy; (ii) HP agreed to raise

HP’s offering price for Autonomy after Lynch denied HP’s request for Autonomy’s work papers;

(iii) HP failed to independently investigate Deloitte’s disclosure about Whistleblower No. 1, who

came forward in 2010 with evidence of Autonomy’s improper accounting practices; and

(iv) Apotheker and Lane circumvented the Finance Committee; and (v) HP’s CFO Lesjak

opposed the transaction as alleged in ¶32, supra.

177. On September 22, 2011, the day she replaced Apotheker as CEO, Whitman

represented that while she was “supportive of the actions [to acquire Autonomy] that were



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announced on August 18 [2011],” she would “obviously step back and take a hard look at this

but from what I know now, I think the [Autonomy] strategy is right, the initiatives that we

undertook on August 18 [2011] are right, and I’ll dive in and have a more informed [] view for

you probably at our next earnings call.” During the same call, Lane lamely interjected to try to

defend HP’s offer for Autonomy, stating that:

I’d like to make a comment on this. There is a difference between a Board who looks at a set of decisions that we think are smart for investors or customers.… But that does not mean we are transforming – and that word has been stricken from our language, that we’re transforming HP. Because HP is $120 billion, and so with Autonomy’s enormous success and enormous profitability and synergies that we can gain, we think we can build a heck of the business out of it but it has nothing to do with transforming.

178. Later, on September 22, 2011, Whitman and Lane conducted an interview with

Arik Hesseldahl, a contributor to AllThingsD. During the interview, Lane misrepresented that,

although he wished HP “could have bought it [Autonomy] cheaper, [] it was market price.”

Besides Lynch, Lane was likely one of the only people in the world who would try to suggest

that HP acquire Autonomy at “market price.” The following day, on September 23, 2011, before

the Autonomy transaction closed, FBN Securities reported that “[i]ncoming CEO Whitman stated

that for now she is supportive of the August 18 [2011] decision[] to purchase Autonomy

([]expected to [close] by the end of the year,[])…but she noted that she will be evaluating the[]

decision[] closely (implying some reversal possibility, in opinion),” and that “[w]ith Autonomy,

there is a contractual commitment, but there is the possibility of a negotiated solution.”

Whitman’s and Lane’s statements were materially false and misleading when made because, by

the time they made them, they had already directed HP and its advisors to try to withdraw HP’s

offer to purchase Autonomy on August 18, 2011, but were unable to do so under the City Code

as alleged in ¶¶69-73, supra.

3. Fourth Quarter 2011 and FY 2011

179. After the acquisition closed on October 3, 2011, HP began undertaking detailed

studies of Autonomy’s software revenue recognition practices as detailed in ¶75, supra, and, on

November 21, 2011, announced its financial results for the three months and fiscal year ended

October 31, 2011. On a conference call the same day, Whitman represented that “[s]oftware



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ought to be a big improvement with Autonomy,” reiterating that she was “really excited” about

Autonomy. These statements were materially false and misleading when made for the same

reasons set forth above in ¶¶165-167, 169, 175-176, 178. By the time HP filed its 2011 Annual

Report on December 14, 2011, HP had owned Autonomy for three months. Whitman, Lesjak,

Murrin and Lane signed the 2011 Annual Report for which Whitman and Lesjak also separately

certified under SOX that:

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit 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 report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

180. Whitman and Lesjak also misrepresented, pursuant to Section 906 of SOX, that

“the Annual Report on Form 10-K of Hewlett-Packard Company for the fiscal year ended

October 31, 2011 fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K

fairly presents, in all material respects, the financial condition and results of operations of

Hewlett-Packard Company.” The 2011 Annual Report also represented that, “[i]n connection

with [the Autonomy] acquisition, HP recorded approximately $6.6 billion of goodwill and

amortizable purchased intangible assets of $4.6 billion.”

181. The representations referenced above in ¶¶179-180 were materially false and

misleading because the value of the goodwill and the purchased intangible assets associated with

HP’s Autonomy integration were materially inflated. HP’s Autonomy-related goodwill and

purchased intangible assets were materially impaired by approximately $9 billion as of October

31, 2011 because HP accounted for the value of these assets based on Autonomy’s admittedly

falsely-reported revenue, operating profits, EPS, growth rates and margins. Whitman, Lesjak and

Lane either knew, or were severely reckless in not knowing that, inter alia, Autonomy’s financial

results for at least two years prior to the acquisition were materially inflated for the reasons set

forth above in ¶¶165-167, 169, 175-176, 178.



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4. First Quarter 2012

a. HP’s 2/22/12 Press Release was Materially False and Misleading

182. On February 22, 2012, HP filed its press release filed with the SEC on Form 8-K

announcing its financial results for the three months ended January 31, 2012 (“2/22/12 Press

Release”), and held a conference call for analysts and investors to discuss the Company’s

financial results. The 2/22/12 Press Release reported goodwill and purchased intangible assets of

$54.6 billion for 1Q12 that failed to disclose that the value of HP’s reported goodwill and

purchased intangible assets was materially impaired for the reasons set forth above in ¶150. HP

also failed to disclose in the 2/22/12 Press Release that: (i) HP’s Software Segment’s operating

margins were flat year-over-year and lower quarter-over-quarter despite Autonomy’s 10-15%

higher operating margins because Defendants were aggressively working to unwind Autonomy’s

improper accounting practices; (ii) the Software Segment’s license revenue growth was down

more than 50% quarter-over-quarter and year-over-year, despite Autonomy’s purported double-

digit revenue growth prior to the Class Period; (iii) HP began clawing back commissions from

Autonomy sales personnel whose were failing to account for their deals under GAAP; and

(iv) HP’s acquisition-related deferred revenue write-offs were, in fact, caused by Autonomy’s

improper revenue recognition practices.

183. Whitman and Lesjak also knew, or were deliberately reckless in not knowing, that

HP’s goodwill and intangible assets were materially overstated at the end of 1Q12 because they

participated in a quarterly meeting with HP/Autonomy’s executives to examine HP/Autonomy’s

financial results. In addition, after reviewing HP/Autonomy’s software revenue recognition

practices for two months, HP engaged KPMG and E&Y to conduct “detailed studies of

Autonomy’s software recognition with a view to optimizing for GAAP.”

184. HP’s 2/22/12 Press Release also disclosed that “[s]oftware revenue grew 30%

year over year with a 17.1% operating margin, including the results of Autonomy. Software

revenue was driven by 12% license growth, 22% support growth, and 108% growth in services.”

During the Company’s 2/22/12 Conference Call, Whitman added that “Software is a critical part



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of our portfolio,” thereby conceding materiality here. Additionally, Defendant Lesjak stated that

“first quarter operating profit for Software was $163 million, or 17.1% of revenue, unfavorably

impacted by acquisition-related integration costs and accounting adjustments, as well as lower

mix of license revenue in the quarter.”

185. Despite HP’s cautiously positive representations about Autonomy’s performance,

HP’s 1Q12 17.1% reported software operating margin was well below analyst consensus of

21.9%. Prior to HP’s 1Q12 earnings release, Morgan Stanley and J.P. Morgan had each

predicted a 1Q12 HP software operating margin of 23% and 27.3%, respectively, with the

addition of Autonomy. HP reassured investors about the Autonomy integration, however, with

Whitman and Lesjak stating that “[t]he Autonomy acquisition is going well,” and that HP was

“pleased with the Autonomy acquisition,” respectively. On February 22, 2012, Wells Fargo

relayed that “the company noted [that the Autonomy integration] was progressing well,” and, on

February 23, 2012, FBN Securities concluded that HP’s “strong Y/Y growth was helped by the

company’s recent acquisition of unstructured search company Autonomy.”

186. The statements set forth above in ¶¶184-185 were materially false and misleading

because HP’s Software Segment’s disappointing gross margins and license revenue growth were

caused by HP’s aggressive efforts to unwind the Autonomy unit’s materially inflated high growth

rates and margins. Rather than disclose that HP was experiencing lower than expected operating

margins and license revenue growth as a result of HP’s aggressive work to unwind Autonomy’s

materially inflated revenue, profits, EPS, growth rates and margins, Whitman and Lesjak

concealed these facts. Notably, the decline in HP’s software license revenue growth in this

quarter coincided with explosive growth in HP’s software services revenue, strongly suggesting

that Autonomy’s revenue recognition for SaaS term deals were being aligned with GAAP

negatively weighing on HP/Autonomy’s reported license revenue growth.

b. HP Announces Its 1Q12 Results

187. HP filed its quarterly report for the three months ended January 31, 2012 with the

SEC on Form 10-Q on March 12, 2012, which Lesjak signed on HP’s behalf. Whitman and

Lesjak attached SOX certifications as exhibits to the 1Q12 Form 10-Q that they each also



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personally signed.42 HP reported $14.4 billion in goodwill in its software division and company-

wide goodwill of $44.6 billion for the period ended January 31, 2012, and $10 billion in net

purchased intangible assets. The 1Q12 Form 10-Q reported earnings from operations as a

percentage of net revenue of 17.1% for the three months ended January 31, 2012:

Software earnings from operation as a percentage of net revenue increased by 0.5 percentage points for the three months ended January 31, 2012. The operating margin improvement was due primarily to rate increases in services and lower integration costs associated with fiscal 2010 acquisitions, the effect of which was partially offset by a lower mix of license revenue, higher deferred revenue write-downs, and integration costs associated with the Autonomy acquisition.

188. Additionally, HP reported “[s]oftware net revenue increased 30.5% (29.1% when

adjusted for currency) for the three months ended January 31, 2012 due to revenues from

acquired companies, primarily Autonomy, as well as growth in the organic business. Net

revenue from services, support and licenses increased by 108%, 22% and 12%, respectively.”

HP also reported, however, that “Software gross margin decreased due primarily to a lower mix

of license revenues and higher acquisition-related deferred revenue write-downs.” These

statements were materially false and misleading for the reasons set forth in ¶¶182-183, 186.

189. At HP’s March 21, 2012, annual shareholder meeting, Whitman noted “some

weakness in the portfolio” including that “License Revenue didn’t grow like we wanted it to.”

This statement was materially false and misleading for the reasons set forth in ¶¶182-183, 186.

5. Second Quarter 2012


190. On May 23, 2012, HP filed its press release with the SEC on Form 8-K

announcing its financial results for the three months ended April 30, 2012 (“5/23/12 Press

Release”). The same day HP held a conference call for analysts and investors to discuss HP’s

financial results. The 5/23/12 Press Release reported goodwill and purchased intangible assets of

$54.6 billion for 1Q12. The press release failed to disclose that Whistleblower No. 4 had by then

already revealed HP/Autonomy’s “outright misrepresentations” and other disclosure failures 42 Whitman and Lesjak also executed SOX Certifications for 2Q12 and 3Q12.



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about Autonomy’s “management,” that HP had already engaged PwC to conduct an investigation

into his allegations, and that Lynch had been fired as a result of the foregoing.

191. During the Company’s 5/23/12 Conference Call, Lesjak represented that HP’s

“second-quarter operating profit for software was $172 million, or 17.7% of revenue,

unfavorably impacted by acquisition-related integration costs and accounting adjustments, as

well as a lower mix of license revenue in the quarter,” with Whitman adding that “Autonomy

had a very disappointing license revenue quarter, with a significant decline year-over-year,

resulting in a shortfall to our expectations.” Lesjak also noted that Autonomy’s “[s]ales

execution was a challenge, and big deals are taking longer to close.” Asked by Cross Research

analyst Shannon Cross whether the “weakness in [Autonomy] revenue…changes [HP’s] outlook

on the business at all,” Whitman misleadingly assured investors that:

[w]hen Autonomy turned in disappointing results, [HP] actually did a fairly deep dive to understand what had happened here. And in my view, this is not the product. Autonomy is a terrific product. It’s not the market. There is an enormous demand for Autonomy. It’s not the competition. I was wondering, is there a competitor that we didn’t see, and the answer to that is no. This is classic entrepreneurial Company scaling challenges.

“But,” she cautioned, “it may take us a couple of quarters to work through some of the growing

pains of the organization.”

192. Analysts echoed Whitman’s representation that HP’s scaling issues with

Autonomy would be remedied. On May 24, 2012, for instance, BMO Capital Markets noted

that:

We had expected HP to show much better performance in licenses and software growth, given that the Autonomy acquisition should have helped the comparison. Further, operating margins were down about 210 bps to 17.7% in the April quarter…We note that HP has indicated management changes in its software group to improve the execution going forward. Net, we think that we and investors expect HP to do well in the software business, given the company’s comments about the strong pipeline for its autonomy products.”

RBC Capital Markets similarly noted that, while:

[s]oftware revenues were…relatively light given the acquisition of Autonomy.… The company noted that Autonomy’s softer license revenue lead to a shortfall in expectations but believe that Autonomy’s competitive position remains strong.



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193. Whitman’s and Lesjak’s statements set forth above in ¶¶190-191 were materially

false and misleading when made because HP’s software results had been “disappointing” due to

HP’s active undisclosed efforts to unwind Autonomy’s materially inflated revenues, profits,

growth rates and margins. In addition, Whitman and Lesjak then had access to information about

a potential fraud Autonomy from four separate whistleblowers, PwC’s ongoing investigation into

the allegations and HP’s own “deep dive” into Autonomy’s revenue recognition practices.

194. Later, during a June 5, 2012 interview with AllThingsD, Whitman misleadingly

stated that:

In my view, this is the classic case of scaling a business [Autonomy] from start-up to grownup.[43] Going through that barrier of a billion dollars in sales is not easy because you can’t run the organization at $1.5 billion the same way you did at $500 million. You just can’t. And for many entrepreneurs, processes and discipline are dirty words, and you have to have those things, especially within the context of HP. I know exactly how this world [works]. My view was that we needed to make a change to someone who can take Autonomy to the next level. I have every confidence that Autonomy will be a very big and very profitable business. It’s taking advantage of a big shift in the industry toward big data and unstructured data. But we needed different leadership to age Autonomy, and by that I mean age it kind of like wine.

195. The statements alleged above were materially false and misleading when made

because Whitman knew that: (i) Whistleblower Nos. 1-4 had by then already raised

HP/Autonomy’s “outright misrepresentations” and related disclosure failures; (ii) HP had

engaged PwC to conduct an internal investigation into Whistleblower No. 4’s allegations;

(iii) HP had terminated Lynch in response to Autonomy’s improper accounting practices; and

(iv) HP’s Software Segment’s disappointing margins and license revenue growth in 1Q12 and

2Q12 were due to HP’s surreptitious efforts to unwind Autonomy’s fraudulent accounting for

license revenue.


196. HP filed its quarterly report on Form 10-Q (“2Q12 10-Q”) on June 8, 2012, which

Lesjak signed on HP’s behalf. The 2Q12 Form 10-Q reported $14.7 billion in goodwill in HP’s

Software division and Company-wide goodwill of $44.9 billion for the period ended July 31,

43 See ¶24, supra.



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2012, and $9.8 billion in net purchased intangible assets which was materially false and

misleading when made for the reason set forth above in ¶150.

197. HP’s 2Q12 Form 10-Q reported that the Company recognized earnings from

operations as a percentage of net revenue of 17.7% for the three months ended April 30, 2012

and 17.4% for the six months ended April 30, 2012, and that:

For the three and six months ended April 30, 2012, Software earnings from operations as a percentage of net revenue decreased by 2.1 percentage points and 0.9 percentage points, respectively. The operating margin decrease for both periods was due primarily to a lower mix of license revenue, higher deferred revenue write-downs and integration costs associated with the Autonomy acquisition, the effect of which was partially offset by rate increases in hosted license services and lower integration costs associated with our fiscal 2010 acquisitions.

The Company also represented that HP’s “[s]oftware gross margin decreased for the three and six

months ended April 30, 2012 due primarily to a lower mix of license revenue and higher

acquisition-related deferred revenue write-downs, the effect of which was partially offset by rate

increases in hosted license services associated with the Autonomy acquisition,” and that:

Software net revenue increased 21.7% (21.4% when adjusted for currency) and 25.9% (25.1% when adjusted for currency) for the three and six months ended April 30, 2012, respectively. The net revenue increase for both periods was due to revenues from acquired companies, primarily Autonomy, as well as modest growth in the organic business, including solid growth in our security support offerings. For the three months ended April 30, 2012, net revenue from services, support and licenses increased by 72%, 17% and 7%, respectively. For the six months ended April 30, 2012, net revenue from services, support and licenses increased by 89%, 19% and 10%, respectively.

198. These statements were materially false and misleading when made for the reasons

set forth in ¶¶182-183, 186.

6. Third Quarter 2012


199. On August 22, 2012, HP filed its press release with the SEC on Form 8-K

announcing its financial results for the three months ended July 31, 2012 (“8/22/12 Press

Release”), and held a conference call with analysts and investors to discuss the Company’s

results. The 8/22/12 Press Release reported goodwill and purchased intangible assets of $44.7



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billion, which was materially false and misleading when made for the reason set forth above in

¶150.

200. HP also reported that its “[s]oftware revenue grew 18% year over year with an

18.0% operating margin, including the results of Autonomy. Software revenue was driven by

2% license growth, 16% support growth, and 65% growth in services.” HP Software Segment’s

reported 18% operating margin failed to meet consensus estimate of 22.2% and the 19.4% HP

had reported for 3Q 2011. With respect to Autonomy specifically, Whitman partially revealed

that “Autonomy still requires a great deal of attention and we’ve been aggressively working on

that business.” In truth, Defendants’ “aggressive[] work” actually meant aggressively working

to unwind Autonomy’s improper accounting practices. During the same conference call, Lesjak

added that HP, in fact, had “a lot of work to do over the next several quarters to improve

Autonomy performance.”

201. Additionally, during the call, Lesjak stated:

With that context, we expect fiscal year 2012 non-GAAP EPS to be between $4.05 and $4.07, at the low end of our previous outlook for the fiscal year. From a GAAP perspective, we expect a full-year GAAP loss per share to be in the range of $2.23 to $2.25. We typically conduct an annual review of the carrying value of goodwill during the fourth quarter of each fiscal year.

Any one of these factors or any combination thereof may require us to record in Q4 an additional impairment charge against the carrying value of the goodwill in the HP portfolio. Our largest balance for goodwill is in the Software segment.

Lesjak’s statements were materially false and misleading because she failed to disclose HP’s

need under GAAP to take an impairment charge against the balance of goodwill and purchased

intangibles in its Software Segment for the reasons alleged in ¶¶140-144, 150, supra.

202. After three consecutive quarters of HP’s confounding publicly-reported

HP/Autonomy financial results, investors began to panic in earnest. In response to a specific

question from BMO Capital Markets analyst Keith Bachman regarding HP’s negative reported

“revenue trends” in the Software Segment, Lesjak stated on the 8/22/12 Conference Call that HP

“expect[s] to see well below normal seasonality when you go from Q3 to Q4 in revenue,” in part,

“due to…our challenge in getting our Software license growth where it needs to be.” In response

to Lesjak’s vague disclosures, on August 23, 2012, BMO Capital Markets warned that, “with



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each passing quarter, the very expensive Autonomy acquisition is looking incrementally worse,

in our view.” On August 23, 2012, Jeffries issued a research note highlighting that:

[m]anagement noted [] that they may write off more goodwill in FQ4 and highlighted that Software was their main area of remaining goodwill after writing off $8B in Services in FQ3. After Autonomy’s poor performance the last couple quarters, we suspect that goodwill associated with Autonomy will constitute part of the write-off. We believe the negative headlines generated by this could weigh on the stock.

203. On September 7, 2012, Morningstar followed up noting that “[t]he software

division…stands out with its failure to deliver growth,” adding that the results were “a far cry

from the growth trajectory that HP must have expected to justify the steep price tag of this

[Autonomy] acquisition.” The following day, Indigo Equity Research observed that “HP hinted

at possible further write-downs next Q for Autonomy,” explaining that “[s]oftware is relatively

limited and uncompetitive, despite the Autonomy acquisition” and that “HP’s expansion

in…[s]oftware (via Autonomy) is not paying off.” In response to this news, HP’s stock price fell

a staggering 11.5%, from a closing price of $19.47 on August 21, 2012 to $17.23 on August 23,

2012.


204. On September 10, 2012, HP filed its quarterly report with the SEC on Form 10-Q,

which Lesjak signed on HP’s behalf. The 3Q12 Form 10-Q reported that HP recognized $14.6

billion in goodwill in its software division and company-wide goodwill of $38.8 billion for the

period ended July 31, 2012, and that HP had recognized $7.9 billion in net total purchased

intangible assets. With respect to goodwill, HP’s 3Q12 Form 10-Q specifically represented that:

During its fourth quarter of fiscal 2012, HP will perform its annual goodwill impairment review for all of its reporting units as of August 1, 2012. If there are changes in HP’s stock price, or significant changes in the business climate or operating results of its reporting units, HP may incur additional goodwill impairment charges. The Software segment includes $14.6 billion of goodwill, of which $7.7 billion relates to the legacy HP software business and $6.9 billion relates to the Autonomy acquisition. Based on HP’s last annual goodwill impairment review completed as of August 1, 2011, the excess of fair value over carrying value of the legacy HP software business was 38% of the carrying value, which is lower than that of HP’s other reporting units. At the time of the Autonomy acquisition in October 2011, the fair value of Autonomy approximated the carrying value.



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205. These statements were materially false and misleading when made for the reasons

set forth in ¶201. In addition to HP’s goodwill and intangible assets, HP recognized earnings

from operations as a percentage of net revenue of 18% for the three months ended July 31, 2012,

and 17.6% for the nine months ended July 31, 2012:

For the three and nine months ended July 31, 2012, Software earnings from operations as a percentage of net revenue decreased by 1.5 percentage points and 1.1 percentage points, respectively. The operating margin decrease for both periods was due primarily to a lower mix of license revenue, higher deferred revenue write-downs and integration costs associated with the Autonomy acquisition, the effects of which were partially offset by rate increases in hosted license services and lower deferred revenue write-downs associated with our fiscal 2010 acquisitions than in the prior-year periods.

206. The 3Q12 Form 10-Q also represented that “[s]oftware gross margin decreased for

the three and nine months ended July 31, 2012 due primarily to a lower mix of license revenue

and higher acquisition-related deferred revenue write-downs, the effect of which was partially

offset by rate increases in hosted license services associated with the Autonomy acquisition.”

Likewise, HP reported that “[f]or the three months ended July 31, 2012, net revenue from

services, support and licenses increased by 65%, 16% and 2%, respectively. For the nine months

ended July 31, 2012, net revenue from services, support and licenses increased by 81%, 18% and

7%, respectively.” These statements were materially false and misleading when made for the

reasons set forth in ¶¶182-183, 186.

207. During HP’s October 3, 2012 Analyst Meeting, HP’s Executive Vice President of

Software George Kadifa conceded for the first time that “Autonomy is going to be a long-term

project for us,” and that HP was “going to be taking Autonomy from what is today a start-up

from an operational maturity point of view. Although the technology is great, the operational

framework is still non-scalable. So, we’re going to go and build on that and turn it into a very

scalable and grown-up organization.” Kadifa explained that “the [Autonomy] back-end

operational processes were start-up-like. They were not mature the way we want them to be.

And we’re working on that element, too.”

208. The next day, on October 4, 2012, Jeffries & Co. relayed that HP “management

described Autonomy’s back-end operations as ‘immature’ and believes it will likely take years to



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correct. Overall, HP described Autonomy as very much a start-up organization, which we find

surprising given the $10B+ price tag.” The same day, J.P. Morgan reported that: “[i]n terms of

Autonomy, HP expects that it will be a long-term project. According to HP, Autonomy was not

operationally scalable at the time of the acquisition and continues to struggle with its sales

model within the larger HP.… The transformation is expected to take 1-2 years which could

frustrate investors, in our view.”

209. Exactly one year earlier (see ¶24, supra), in October 10, 2011, Autonomy’s own

former head of Investor Relations, Marc Geal, publicly warned that “Autonomy is a big company

that is still run as a start-up.”

C. Loss Causation/Economic Loss

210. Throughout the Class Period, the market for HP’s publicly-traded securities was

open, well-developed and efficient. As a result of Defendants’ materially false and misleading

statements and failure to disclose material facts as alleged above, HP’s publicly traded common

stock traded at artificially inflated prices during the Class Period. Lead Plaintiff and other

members of the Class purchased or otherwise acquired HP common stock relying upon the

integrity of the market price of HP’s common stock and market information relating to HP, and

have been damaged thereby.

211. Throughout the Class Period, Defendants engaged in a fraudulent course of

conduct that artificially inflated HP’s stock price and operated as a fraud or deceit on Class

Period purchasers of HP common stock. Defendants achieved this façade of success, growth,

responsibility and strong future business prospects by misrepresenting the benefits and value of

its acquisition and integration of Autonomy. Defendants’ false and misleading statements and

material omissions had their intended effect, causing HP’s common stock to trade at artificially

inflated prices throughout the Class Period, reaching as high as $30 per share on February 17,

2012.

212. The economic loss, i.e., damages, suffered by Lead Plaintiff and other members of

the Class was a direct result of: (i) Defendants’ efforts to conceal the negative effects of the

Autonomy Acquisition and integration to artificially inflate the Company’s stock price; and



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(ii) the subsequent significant decline in the value of HP’s stock price as the relevant truth was

revealed in two materially adverse disclosures. When Defendants’ prior misrepresentations were

disclosed and became apparent to the market, HP’s stock price fell as the prior inflation came out

of HP’s stock price. By the time the market had fully digested these disclosures, HP’s stock

price closed at $11.53 per share on November 20, 2012.

213. Defendants’ false and misleading statements and omissions about the Autonomy

Acquisition and integration, and the resulting impact on HP, caused and maintained the artificial

inflation in HP’s stock price throughout the Class Period until the facts about the Company’s true

financial condition were revealed to the market. These revelations did not happen all at once, but

rather were the result of investigation by investors, analysts, rating agencies and journalists. The

timing and magnitude of HP’s stock price declines, as detailed herein, negate any inference that

the loss suffered by Lead Plaintiff and the Class was caused by changed market conditions or

other macroeconomic factors unrelated to Defendants’ fraudulent conduct.

1. HP’s August 22, 2012 Partial Disclosure

214. On August 22, 2012 HP filed its negative press release with the SEC on Form 8-K

as alleged in ¶¶199-201, supra. In response to Defendants’ August 22, 2012 disclosures,

TheStreet.com published a same day story entitled “Autonomy Disappoints a Year After HP’s

Big Software Bet,” reporting that:

A year into the turnaround push, HP’s earnings confirm a transformation will not come quickly, as doubters mount.

Third quarter earnings did little to reverse a trend of falling profit margins and a growth slowdown at HP’s software and services units, integral to any transformation. HP’s software license growth fell to 2% in the third quarter from 7% in the second quarter and from 12% in the first, while the unit’s operating margins rose slightly to 18% after dropping to 17.7% in the second quarter.

The next day, on August 23, 2012, Jeffries reported that:

Management noted [] that they may write off more goodwill in FQ4 and highlighted that Software was their main area of remaining goodwill after writing off $8B in Services in FQ3. After Autonomy’s poor performance the last couple quarters, we suspect that goodwill associated with Autonomy will constitute part of the write-off. We believe the negative headlines generated by this could weigh on the stock.”



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215. TheStreet.com article entitled “Hewlett Packard’s Whitman May Write Off

Transformation” followed up on its report on August 23, 2012 by further relaying that:

Autonomy’s third quarter earnings underperformance, in addition to falling services based revenue, gives HP investors little reason to believe a turnaround is imminent as personal computer sales tumble.

In fact, after a massive non-cash third quarter writeoff of its $13 billion-plus acquisition of business services and hardware giant EDS – a key to the company’s IT services push – Autonomy, the software and big data analytics leg of HP’s transition strategy, may be the next writeoff.

HP management noted on the third quarter earnings call that they may write off more goodwill in the fourth quarter and highlighted that software was their main area of remaining goodwill after writing off $9 billion in services in the latest results.

It may not be [the] time to write off HP or Whitman, but signals that an Autonomy is now on the table doesn’t help to instill much confidence.

216. In response to this news, which partially revealed the truth regarding Autonomy’s

impairments, the Company’s share price fell approximately 11.5%, from a closing price of

$19.47 on August 21, 2012, to a closing price of $17.23 on August 23, 2012.

2. HP’s November 20, 2012 Class Period Ending Disclosures

217. On November 20, 2012, Defendants revealed that “[f]ourth quarter and full year

fiscal 2012 results include a non-cash goodwill and intangible asset impairment charge of $8.8

billion relating to the Autonomy business within the Software [S]egment.” The same press

release also disclosed, for the first time, that the impairment of Autonomy was the result of

alleged accounting improprieties:

The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP’s acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge is linked to the recent trading value of HP stock.

During HP’s 4Q11 and fiscal year 2012 earnings conference call, Defendant Lesjak also

disclosed that:

Of the $8.8 billion non-cash write down, over $5 billion is related to accounting improprieties, disclosure failures and misrepresentations that occurred prior to HP’s acquisition of Autonomy and the associated impact on the financial performance of the business over the long term. The balance of the write down is linked to the recent trading of HP stock.



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218. In response to this and other negative news, HP’s stock fell approximately

11.92%, on extremely high volume, from a closing price of $13.09 on November 19, 2012 to a

closing price of $11.53 on November 20, 2012.

3. Relevant Post-Class Period Admissions

219. On January 14, 2013, HP began to lay off Autonomy employees to adjust for the

vastly less profitable asset that HP had purchased in Autonomy. An internal HP memo

reportedly announcing the layoffs is reproduced, in substantial part, below:

From: Robert Youngjohns – HP Software Autonomy IM Sent: Monday, January 14, 2013 7:50 AM Subject: HP Autonomy Increases R&D Investments & Refocuses Aurasma

Team,

As we enter 2013, the focus of the HP Autonomy team is to position our business for growth and success. We have three priorities: making customer success the heart of everything that we do; building great products with a clear, funded roadmap; and leveraging the rest of HP to gain access to markets and customers. Our priorities are aligned with both HP Software as well as the larger HP, and I am pleased with the progress we’ve made so far and very optimistic about the future of the business.

In the spirit of being open and transparent, I want to let you know about two changes we’re making in the business:

First, we continue to invest in HP Autonomy and are aligning our resources with the priorities for HP Software overall. As part of this, we are continuing to invest in our R&D capabilities around the world; in fact, we expect to hire at least 50 additional engineers for Autonomy in the near term to lead new initiatives and further our technical prowess.

Secondly, with the announcement of Aurasma 2.0, we are ready to move to the next stage of this exciting business and focus on commercialization and revenue generation.…

This transition will require some changes to the Aurasma business as we to move to the next stage. While a number of roles will remain largely unaffected by this, other roles within Aurasma will no longer be required going forward and some work force reduction is likely.

We will of course hold individual discussions with employees who may be potentially affected, although the timing will vary by country, and will follow the appropriate legal processes relative to reorganizing and workforce reductions. Where applicable, we have consulted with all appropriate Workers’ Councils.

We will be working with affected employees to redeploy as many as possible into other job opportunities across our business where skill sets and interests align with our business priorities.

Thank you for your continued professionalism and for your ongoing efforts in helping us build the HP Autonomy business into a tremendous success story.



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My staff and I are available should you have any questions or needs.

Robert44

220. On March 20, 2013, HP filed its Annual Report Form 10-K with the SEC for the

fiscal year ending on October 31, 2012, signed by Defendants Whitman and Lesjak, further

detailing HP’s belated Autonomy related impairment charge as follows:

HP initiated its annual goodwill impairment analysis in the fourth quarter of fiscal 2012 and concluded that fair value was below carrying value for the Autonomy reporting unit. The fair value of the Autonomy reporting unit was based on the income approach.

The decline in the estimated fair value of the Autonomy reporting unit results from lower projected revenue growth rates and profitability levels as well as an increase in the risk factor that is included in the discount rate used to calculate the discounted cash flows. The increase in the discount rate was due to the implied control premium resulting from recent trading values of HP stock. The lower projected operating results reflect changes in assumptions related to organic revenue growth rates, market trends, business mix, cost structure, expected deal synergies and other expectations about the anticipated short-term and long-term operating results of the Autonomy business. These assumptions incorporate HP’s analysis of what it believes[45] were accounting improprieties, incomplete disclosures and misrepresentations at Autonomy that occurred prior to the Autonomy acquisition with respect to Autonomy’s pre-acquisition business and related operating results. In addition, as noted above, when estimating the fair value of a reporting unit HP may need to adjust discount rates and/or other assumptions in order to derive a reasonable implied control premium when comparing the sum of the fair values of HP’s reporting units to HP’s market capitalization. Due to the recent trading values of HP stock, the resulting adjustments to the discount rate to arrive at an appropriate control premium caused a significant reduction in the fair value for the Autonomy reporting unit as well as the fair values for HP’s other reporting units.

221. On April 19, 2013, the New York Times ran a news story about HP called “The

Case of HP’s Obstinate Director.”46 The story described how, after HP “announced earlier this

month that two directors were resigning and that Raymond Lane was giving up his title of

chairman, the company portrayed the moves as selfless and purely voluntary.” According to HP,

“[e]ach one of our directors considered the results of our recent shareholder meeting and made

the personal decision to do what they felt was best for H.P.… Today’s announcement is a

44 The memo was leaked to AllThingsD’s Arik Hesseldahl who ran a story about the layoffs on January 14, 2013. 45 Whitman’s November 20, 2012 accusations were far less equivocal. 46 The obstinate director is Defendant Lane.



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testament to our chairman’s and departing board members’ statesmanship and sterling

professional standards.” When it came to Defendant Lane, however, the New York Times

disclosed that Lane was actually forced to give up the Chairman’s title. “Even then,” according

to the New York Times, Defendant Lane refused to leave the board entirely. Defendant Lane

demonstrated this same misguided obstinance during HP’s ill-fated Autonomy Acquisition.

222. Adding insult to injury, on April 29, 2013, an Investors.Com report titled “HP’s

Autonomy Could Face Uphill Battle in Data Market,” called into question the miniscule

remaining value HP has continued to tout for its Autonomy unit. The article reported that

“Autonomy, already steeped in controversy in the fallout of its acquisition by Hewlett-Packard,

faces bigger battles in its market.” The article reported that new open source options have made

Autonomy’s IDOL platform even less profitable than it was even before the Class Period, and

that large customers are beginning to demand SaaS arrangement where payments are made on a

monthly basis rather than up front as with licensing deals.

VI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

223. At all relevant times, the market for HP’s common stock was an efficient market

for the following reasons, among others:

(a) HP common stock met the requirements for listing, and was listed and

actively traded on the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, HP filed periodic reports with the SEC and the

NASDAQ;

(c) HP regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the

national circuits of major newswire services and through other wide-ranging public disclosures,

such as communications with the financial press and other similar reporting services; and

(d) Numerous securities analysts employed by major brokerage firms followed

HP and wrote reports which were distributed to the sales force and certain customers of their



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respective brokerage firms. Each of these reports was publicly available and entered the public

marketplace.

224. As a result of the foregoing, the market for HP’s securities promptly digested

current information regarding HP from all publicly available sources and reflected such

information in the prices of the Company’s common stock. Accordingly, all purchasers of HP’s

common stock during the Class Period suffered similar injuries through their purchase of HP’s

common stock at artificially inflated prices such that a presumption of reliance applies here.

VII. APPLICABILITY OF THE AFFILIATED UTE PRESUMPTION OF RELIANCE

225. Lead Plaintiff and the putative Class are also entitled to the Affiliated Ute

presumption of reliance due to Defendants’ failure to disclose Autonomy’s overvaluation and

impairments, which information Lead Plaintiff would have wanted to know and which would

have caused investors to have avoided purchasing shares of HP common stock at the prices they

traded at during the Class Period.

VIII. NO SAFE HARBOR

226. The Private Securities Litigation Reform Act of 1995 statutory safe harbor for

forward-looking statements under certain circumstances does not apply to any of the allegedly

false statements pleaded in this Complaint. Many of the specific statements pleaded herein were

not identified as and were not forward-looking statements when made. To the extent there were

any forward-looking statements, there were no meaningful cautionary statements identifying

important factors that could cause actual results to differ materially from those in the purportedly

forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply

to any forward-looking statements pleaded herein, the Insider Defendants are liable for those

false forward-looking statements because, at the time each of those forward-looking statements

were made, the particular speaker knew that the particular forward-looking statement was false,

and/or that the forward-looking statements were authorized and/or approved by an executive

officer of HP who knew that those statements were false when made.



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IX. CLASS ACTION ALLEGATIONS

227. Lead Plaintiff brings this action as a class action pursuant to Rule 23 of the

Federal Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired

HP publicly traded common stock during the Class Period.

228. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. HP has over 1.94 billion shares of common stock outstanding, owned

by thousands of persons.

229. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) whether Defendants violated the federal securities laws;

(b) whether Defendants omitted and/or misrepresented material facts;

(c) whether Defendants’ statements omitted material facts necessary to make

the statements made, in light of the circumstances under which they were made, not misleading;

(d) whether Defendants knew or deliberately disregarded that their statements

were false and misleading;

(e) whether the prices of HP publicly-traded common stock were artificially

inflated; and

(f) the extent of damages sustained by Class members and the appropriate

measure of damages.

230. Lead Plaintiff’s claims are typical of those of the Class because Lead Plaintiff and

the Class sustained damages from Defendants’ wrongful conduct.

231. Lead Plaintiff will adequately protect the interests of the Class and has retained

counsel who are experienced in class action securities litigation. Lead Plaintiff has no interests

which conflict with those of the Class.

232. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.



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X. CLAIMS FOR RELIEF

COUNT I For Violations of §10(b) of the Exchange Act and Rule 10b-5(b) Against All

Defendants and Rule 10b-5(a) & (c) Against Whitman and Lane

233. Lead Plaintiff incorporates ¶¶1-222 by reference herein.

234. During the Class Period, HP and the Insider Defendants participated in the

preparation of and/or disseminated or approved the false statements specified above, which they

knew or deliberately disregarded were misleading in that they contained misrepresentations and

failed to disclose material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading.

235. HP and the Insider Defendants violated §10(b) of the Exchange Act and Rule 10b-

5 in that they made untrue statements of material facts or omitted to state material facts necessary

in order to make the statements made, in light of the circumstances under which they were made,

not misleading. HP and the Insider Defendants, individually and together, directly and indirectly,

by the use, means or instrumentalities of interstate commerce and/or the mails, engaged and

participated in a continuous course of conduct to conceal the truth and/or adverse material

information about the business, operations and future prospects of HP as specified herein.

236. HP and the Insider Defendants had actual knowledge of the misrepresentations

and omissions of material fact set forth herein, or recklessly disregarded the true facts that were

available to them. Defendants’ misconduct was engaged in knowingly or with reckless disregard

for the truth, and for the purpose and effect of concealing HP’s true financial condition from the

investing public and supporting the artificially inflated price of HP’s common stock.

237. Lead Plaintiff and the Class have suffered damages in that, in reliance on the

integrity of the market, they paid artificially inflated prices for HP publicly traded common stock.

Lead Plaintiff and the Class would not have purchased HP publicly traded common stock at the

prices they paid, or at all, had they been aware that the market prices for HP’s common stock had

been artificially inflated by HP and the Insider Defendants’ materially false and misleading

statements.



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238. Whitman and Lane also violated Rule 10b-5(a) & (c) in that they employed

devices, schemes and artifices to defraud and engaged in acts, practices and a course of business

that operated as a fraud or deceit upon Lead Plaintiff and others similarly situated in connection

with their purchases of HP publicly traded common stock during the Class Period as alleged

herein.

COUNT II For Violations of §20(a) of the Exchange Act

Against All of the Insider Defendants

239. Lead Plaintiff incorporates ¶¶1-238 by reference.

240. During the Class Period, the Insider Defendants acted as controlling persons of

HP within the meaning of §20(a) of the Exchange Act. By reason of their high-level positions

with the Company, participation in and/or awareness of the Company’s operations, direct

involvement in the day-to-day operations of the Company, and/or intimate knowledge of the

Company’s actual performance, the Insider Defendants had the power to influence and control

and did influence and control, directly or indirectly, the decision-making of the Company,

including the content and dissemination of the materially false and misleading statements alleged

herein.

241. By reason of such conduct, Insider Defendants are liable pursuant to §20(a) of the

Exchange Act.

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff prays for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Fed. R. Civ. P. 23;

B. Awarding Lead Plaintiff and the members of the Class damages, including

interest;

C. Awarding Lead Plaintiff reasonable costs and attorneys’ fees; and

D. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

JURY DEMAND

Lead Plaintiff demands a trial by jury.



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Dated: May 3, 2013 Respectfully submitted,

KESSLER TOPAZ MELTZER & CHECK, LLP

/s/ Ramzi Abadou RAMZI ABADOU ELI R. GREENSTEIN STACEY M. KAPLAN PAUL A. BREUCOP IOANA A. BROOKS One Sansome Street, Suite 1850 San Francisco, CA 94104 Tel: (415) 400-3000 Fax: (415) 400-3001 [email protected] [email protected] [email protected] [email protected] [email protected] -and- DAVID KESSLER DARREN J. CHECK 280 King of Prussia Road Radnor, PA 19087 Tel: (610) 667-7706 Fax: (610) 667-7056 [email protected] [email protected] Counsel for Lead Plaintiff PGGM Vermogensbeheer B.V. and Lead Counsel for the Class



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CERTIFICATE OF SERVICE

I hereby certify that on May 3, 2013, I authorized the electronic filing of the foregoing

with the Clerk of the Court using the CM/ECF system which will send notification of such filing

to the e-mail addresses denoted on the attached Electronic Mail Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on May 3, 2013.

KESSLER TOPAZ MELTZER

& CHECK, LLP

/s/ Ramzi Abadou RAMZI ABADOU


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2 of 3 5/3/2013 11:26 AM


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Manual Notice List

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3 of 3 5/3/2013 11:26 AM



CERTIFICATION OF FEMKE VAN 'T GROENEWOUT IN SUPPORT OF PGGM VERMOGENSBEHEER B.V.'S MOTION FOR APPOINTMENT AS LEAD PLAINTIFF

AND APPROVAL OF ITS SELECTION OF COUNSEL

PGGM Vermogensbeheer B.V. ("PGGM" or "Plaintiff') declares, as to the claims asserted under

the federal securities laws, that:

1. PGGM did not purchase the security that is the subject of this action at the

direction of Plaintiffs counselor in order to participate in any private action.

2. PGGM is willing to serve as a representative party on behalf of the Class,

including providing testimony at deposition and trial, if necessary.

3. Attached in Schedule "A" are PGGM's transactions in Hewlett-Packard Company

(NYSE: HPQ) securities during the Class Period.

4. PGGM has full power and authority to bring suit to recover for its investment

losses.

5. PGGM has fully reviewed the facts and allegations of a complaint filed in this

action. Plaintiff has authorized the fiI ing of a motion for appointment as lead plaintiff on its

behalf in this action.

6. I, Femke van 't Groenewout, Senior Advisor Responsible Investment and

Attorney at Law at PGGM, am authorized to make legal decisions on behalf of PGGM with

regard to this action.

7. PGGM intends to actively monitor and vigorously pursue these actions for the

benefit of the Class.

8. PGGM will endeavor to provide fair and adequate representation and work

directly with the efforts of Class counsel to ensure that the largest recovery for the Class

consistent with good faith and meritorious judgment is obtained.


9. PGGM is currently serving as a representative party for a class action filed under

the federal securities laws during the three years prior to the date ofthis Certification in In re

Bank of America Corp. Securities, Derivative, and Employment Retirement Income Security Act

(ERISA) Litigation, No. 09 MOL 2058 (S.D.N.Y.).

10. PGGM will not accept any payment for serving as a representative palty on behalf

of the class beyond Plaintiff s pro rata share of any recovery, except such reasonable costs and

expenses (including lost wages) directly relating to the representation of the class as ordered or

approved by the Court.

I declare under penalty of perjury under the Jaws of the United States of America that the

foregoing is true and corre9t. .~ +L.

Executed this~~ day ofJanuary, 2013.

By:

PGGM Vermogensbeheer B. V.

~~~"J ~~~d-J Femke van 't Groenewout Senior Advisor Responsible Investment & Attorney at Law


SCHEDULE A

Security B uriS ell Date Quantitv Price Com Stk Buy 2/2912008 181,305 $47.77

ComStk Buy 3/3112008 174,461 $46.01 Com Stk Buy 3/3112008 18,600 $45.66

Com Stk Buy 5/30/2008 142,218 $47.06 Com Stk Buy 6/20/2008 925 $45.64

ComStk Buy 6/30/2008 5,326 $44.41

Com Stk Buy 7/2/2008 4,482 $43.91

Com Stk Buy 7/7/2008 76,483 $44.00

ComStk Buy 7/8/2008 470 $43.09

ComStk Buy 7/8/2008 28,915 $43.45

Com Stk Buy 8/28/2008 60 $47.13 Com Stk Buy 8/29/2008 115,599 $46.98

Com Stk Buy 10/112008 6,148 $45.43

Com Stk Buy 10/3112008 81,968 $38.33 ComStk Buy 11118/2008 12,151 $33.55 Com Stk Buy 11121/2008 904,079 $33.26 ComStk Buy 1112112008 904,078 $33.25

Com Stk Buy 11/28/2008 272,425 $35.01 ComStk Buy 12/2/2008 220 $34.24 Com Stk Buy 12/2/2008 8,980 $34.27 Com Stk Buy 12/8/2008 2,772 $34.71

Com Stk Buy 12/1112008 1,978 $35.73

Com Stk Buy 12/19/2008 5,707 $35.40 Com Stk Buy 12/29/2008 144,419 $35.58 Com Stk Buy 12/30/2008 880 $35.76 Com Stk Buy 12/3112008 116,033 $36.29

Com Stk Buy 1/7/2009 52,557 $37.99 Com Stk Buy 2/27/2009 130,448 $29.03

Com Stk Buy 3/5/2009 1,772 $27.40

Com Stk Buy 3/19/2009 80,960 $29.30 Com Stk Buy 3/3112009 102,482 $32.06 Com Stk Buy 4/1/2009 1,027 $32.88 ComStk Buy 5/29/2009 280,701 $34.35

Com Stk Buy 6/1/2009 29,608 $36.02


Schedule A - 1


Com Stk Buy 7/3112009 724,261 $43.30

Com Stk Buy 8/31/2009 92,453 $44.89 Com Stk Buy 8/31/2009 108,829 $44.89 Com Stk Buy 91112009 26,750 $43.89 Com Stk Buy 9118/2009 101,590 $46.15

Com Stk Buy 9/30/2009 39,574 $47.21

Com Stk Buy 9/30/2009 21,498 $47.21


Com Stk Buy 10115/2009 7,091 $48.00

Com Stk Buy 121112009 27,773 $49.62

Com Stk Buy 1129/2010 1,583 $47.40

Com Stk Buy 2/26/2010 34,937 $50.79

Com Stk Buy 3119/2010 77,454 $52.49


Com Stk Buy 6/30/2010 20,024 $43.28

Com Stk Buy 7/30/2010 10,325 $46.04

Com Stk Buy 7/30/2010 25,728 $46.04

Com Stk Buy 8/31/2010 21,433 $38.48

Com Stk Buy 8/31/2010 107,478 $38.48

Com Stk Buy 8/31/2010 170,700 $38.48

Com Stk Buy 91112010 7,167 $39.13

Com Stk Buy 9117/2010 154,450 $39.17

Com Stk Buy 12/31/2010 66,968 $42.10

Com Stk Buy 12/3112010 25,126 $42.10

Com Stk Buy 12/3112010 31,440 $42.10 Com Stk Buy 2/28/2011 119,780 $43.63 Com Stk Buy 3118/2011 429 $41.32

Com Stk Buy 3118/2011 114,130 $41.32

Com Stk Buy 4/29/2011 131,602 $40.37

Com Stk Buy 4/29/2011 48,250 $40.37

Com Stk Buy 5/3112011 1,142,009 $37.38

Com Stk Buy 5/31/2011 134,827 $37.37 Com Stk Buy 5/3112011 52,697 $37.38

Com Stk Buy 61112011 132,444 $36.69 Com Stk Buy 6117/2011 149,310 $35.00

Com Stk Buy 7/6/2011 13,288 $36.20

Com Stk Buy 8/2/2011 7,792 $34.35

Com Stk Buy 8/31/2011 23,038 $26.03

Schedule A - 2


Corn Stk Buy 11130/2011 291,680 $27.95 Corn Stk Buy 12/20/2011 8,429 $25.91 Corn Stk Buy 113112012 22,740 $27.98 Corn Stk Buy 113112012 90,532 $27.98 Corn Stk Buy 113112012 1,373,166 $27.91 Corn Stk Buy 2/29/2012 30,490 $25.31 Corn Stk Buy 2/29/2012 41,939 $25.31 Corn Stk Buy 2/29/2012 149,673 $25.45 Corn Stk Buy 3/16/2012 2,173 $24.49 Corn Stk Buy 3/30/2012 1,783,062 $23.78 Corn Stk Buy 3/3012012 9,297 $23.83 Corn Stk Buy 3/30/2012 56,067 $23.83 Corn Stk Buy 4117/2012 9,906 $24.72 Corn Stk Buy 5/3112012 23,169 $22.68 Corn Stk Buy 5/3112012 25,302 $22.68 Corn Stk Buy 5/3112012 21,277 $22.68 Corn Stk Buy 5/31/2012 40,780 $22.68 Corn Stk Buy 6120/2012 11,361 $21.16 Corn Stk Buy 6/29/2012 28,361 $20.11 Corn Stk Buy 7/31/2012 60,933 $18.24 Corn Stk Buy 7/3112012 9,647 $18.24 Corn Stk Buy 8/2112012 1,537 $19.93 Corn Stk Buy 1019/2012 15,478 $14.37 Corn Stk Sale 3/20/2008 88,384 $46.51 Corn Stk Sale 3/25/2008 3,500 $48.18 Corn Stk Sale 5/30/2008 40,909 $47.06 Corn Stk Sale 6/18/2008 101,813 $46.59 Corn Stk Sale 7/31/2008 100,259 $44.79 Corn Stk Sale 8/29/2008 188,973 $46.95 Corn Stk Sale 9/22/2008 340 $47.88 Corn Stk Sale 9/30/2008 133,663 $46.24 Corn Stk Sale 10/3112008 132,382 $38.28 Corn Stk Sale 11117/2008 210 $29.88 Corn Stk Sale 1/28/2009 36,942 $37.16 Corn Stk Sale 1130/2009 169,475 $35.06 Corn Stk Sale 1/30/2009 100,594 $34.75 Corn Stk Sale 2/27/2009 2,586,305 $29.37 Corn Stk Sale 2/27/2009 66,418 $29.37 Corn Stk Sale 3/6/2009 120 $26.17 Corn Stk Sale 3/17/2009 80,960 $29.27

Schedule A - 3


Com Stk Sale 3/20/2009 25,736 $28.86 Com Stk Sale 3/25/2009 1,950 $31.15 Com Stk Sale 4/30/2009 54,847 $36.03 Com Stk Sale 5/20/2009 365 $35.25 Com Stk Sale 5/27/2009 29,608 $34.43 Com Stk Sale 5/29/2009 107,035 $34.35 Com Stk Sale 61112009 2,830 $35.48 Com Stk Sale 6116/2009 51,264 $36.84 Com Stk Sale 6/19/2009 865 $38.29 Com Stk Sale 6/19/2009 7,782 $38.36 Com Stk Sale 6/25/2009 21,843 $37.80 Com Stk Sale 7/31/2009 177,681 $43.30 Com Stk Sale 8/27/2009 26,750 $44.50 Com Stk Sale 9/15/2009 101,590 $45.60 Com Stk Sale 9/18/2009 4,198 $46.15 Com Stk Sale 9/18/2009 13,731 $46.17 Com Stk Sale 10/30/2009 10,765 $47.46 Com Stk Sale 1112512009 27,773 $50.07 Com Stk Sale 11130/2009 38,271 $49.06 Com Stk Sale 12118/2009 7,180 $51.50 Com Stk Sale 12/18/2009 4,142 $51.52 Com Stk Sale 12/31/2009 106,270 $51.51 Com Stk Sale 12/3112009 255,486 $51.51 Com Stk Sale 12/3112009 166,776 $51.51 Com Stk Sale 2/12/2010 1,545 $48.46 Com Stk Sale 2112/2010 6,732 $48.47 Com Stk Sale 2/24/2010 34,937 $50.86 Com Stk Sale 3116/2010 77,454 $52.31 Com Stk Sale 3/19/2010 7,028 $52.50 Com Stk Sale 3119/2010 2,768 $52.49 Com Stk Sale 3/31/2010 118,664 $53.15 Com Stk Sale 3/3112010 179,359 $53.16 Com Stk Sale 4/30/2010 51,954 $51.97 Com Stk Sale 4/30/2010 134,626 $51.97 Com Stk Sale 5/24/2010 16,571 $46.21 Com Stk Sale 5/28/2010 62,125 $46.01 Com Stk Sale 619/2010 49,715 $45.41 Com Stk Sale 6118/2010 6,129 $47.99 Com Stk Sale 6118/2010 12 $47.98 Com Stk Sale 6/23/2010 18,820 $46.84

Schedule A - 4


Com Stk Sale 6/30/2010 131,239 $43.28 Com Stk Sale 8/27/2010 28,600 $37.78 Com Stk Sale 9/14/2010 154,450 $39.57 Com Stk Sale 9/17/2010 31,737 $39.51 Com Stk Sale 10129/2010 92,917 $42.06 Com Stk Sale 10/29/2010 41,904 $42.06

Com Stk Sale 11116/2010 2,190 $41.80

Com Stk Sale 11130/2010 118,037 $41.93 Com Stk Sale 1111/2011 36,269 $45.43

Com Stk Sale 113112011 89,836 $45.69

Com Stk Sale 113112011 18,708 $45.69 Com Stk Sale 2/24/2011 119,780 $42.63 Com Stk Sale 3/15/2011 57,065 $40.85

Com Stk Sale 3116/2011 57,065 $40.67

Com Stk Sale 3/3112011 140,542 $40.97 Com Stk Sale 3/3112011 47,899 $40.97 Com Stk Sale 5/25/2011 132,444 $36.00

Com Stk Sale 6114/2011 74,655 $34.80

Com Stk Sale 6115/2011 74,655 $34.27 Com Stk Sale 6/17/2011 7,944 $35.00

ComStk Sale 6/28/2011 47,912 $35.09

Com Stk Sale 7/29/2011 2,256,952 $35.31 Com Stk Sale 8/3112011 1,142,009 $26.03

Com Stk Sale 9/16/2011 4,726 $23.53

Com Stk Sale 11/22/2011 99,172 $26.30

Com Stk Sale 11/23/2011 96,254 $25.81

Com Stk Sale 11/28/2011 96,254 $26.39 Com Stk Sale 12116/2011 49,427 $25.84 Com Stk Sale 2/23/2012 74,837 $27.31

Com Stk Sale 2/24/2012 74,836 $26.72 Com Stk Sale 3/30/2012 11,960 $23.83 Com Stk Sale 4/4/2012 5,605 $23.26 Com Stk Sale 4/30/2012 21,119 $24.76

Com Stk Sale 5118/2012 3,838 $21.66

Com Stk Sale 7/10/2012 11,882 $19.11 Com Stk Sale 7/3112012 69,860 $18.24 Com Stk Sale 7/3112012 66,299 $18.24

Com Stk Sale 9114/2012 1,733,786 $18.17

Schedule A - 5

�� A

APPENDIX A

Case3:12-cv-05980-CRB Document100-1 Filed05/03/13 Page1 of 2

Term DefinitionCAGR Compound annual growth rate DCF Discounted cash flow DSO Days sales outstanding FASB Financial Accounting Standards Board FASC Financial Accounting Standards Codification FQ Fiscal quarter FTSE Financial Times and Stock Exchange, a British provider of stock

market indices FY Fiscal year GAAP Generally Accepted Accounting Principles IDOL Intelligent Data Operating Layer, a platform by Autonomy that

enables computers to search and process text taken from databases, audio, video, text files or streams

IFRS International Financial Reporting Standards IP Intellectual property IPR&D In-process research and development IT Information technology LSE London Stock Exchange M&A Mergers and acquisitions MAC Material adverse change condition MD&A Management Discussion and Analysis O/S Overstatement OEM Original equipment manufacturer PC Personal computer PCAOB Public Company Accounting Oversight Board PE Price-to-earnings ratio PIRC Pension & Investment Research Consultants, Ltd, a UK investor

advisory service PSG Personal Systems Group, a division of Hewlett-Packard S&M Autonomy’s Sales and Marketing SaaS Software as a service, i.e., providing users with computer

applications via the internet as opposed to installing the software on their computers

TTM Trailing twelve months VAR Value-added reseller VSOE Vendor-specific objective evidence y-o-y or Y/Y Year over year


EXHIBIT 1



From: Sent: To: Subject:

Hi Vi rgini a.

Hung Chang < [email protected] > Friday, September 10, 2010 11:00 AM Virginia Briody; Matt Stephan Re: update

I think the basie pricing that we talked about is okay. I copied Matt from fi nance here as a FY I. Matt's team is still liguring out the best way to structure thi s as a licens ing deal so we can recogni ze thi s as a license revenue. So you ean present the number to the customer. wi th the caveat that our fina nce team is stilllVorki ng oul the detail s.

H ling

From: Virg inia Bri ody <Virgini [email protected]> Date: Fri. 10 Sep 20 10 09:25:50 -0500 T o: Il ung Chang<hung.ehang@ auto llomy.com> Subject : update

Am I ready to go with the priCing?

•

Autonomy .. II .'. ' .. ,' j .. .

Virginia Briody " A cOllnl Excculive, Information ,C Vf- rnance ~lIlon0IllY, Inc ~loiJrI(' 203.912.0~86

111 II virginia.briodv@ autollomy.com VI<;!I "',V N ~lu101101l i com

EXHIBIT 2




You are too kind. Good luck!

Hung Chang <[email protected]> Monday, September 13, 2010 7:02 PM Elizabeth Lederer; Virginia Briody RE: Pioneer

Hung Chang I Corporate Counsel I Autonomy, Inc. I +1 415-595-7093 [email protected]

From: Elizabeth Lederer [mailto:[email protected] Sent: Monday, September 13, 2010 11:50 PM To: '[email protected]'; Virginia Briody Subject: Re: Pioneer

I'll email him tomorrow to thank him and tell him how great you are to work with . Thanks so much . Elizabeth A Lederer Director Sales- Protect Autonomy Cell-631-764-6432 [email protected]

From : Hung Chang <hung [email protected]> To : Virginia Briody; Elizabeth Lederer Sent: Mon Sep 13 17:36:31 2010 Subject: RE : Pioneer

It's 11:35 p.m., so he's probably not going to appreciate being ca iled on. © In any event, I chatted with him, and he's okay wi th what we have provided per his di scussion with Joel.

Hung Chang I Corporate Counsel I Autonomy, Inc. I +1 415-595-7093 I [email protected]

From: Virg inia Briody [mailto:[email protected] Sent: Monday, September 13, 2010 11:29 PM To: Elizabeth Lederer; Hung Chang Subject: RE: Pioneer

Name: Stephen Chamberlain Job Title: Vice Pres ident, Fin ance Brand: Autonomy Office: Cambridge Country : UK Email: stephenc@autonom y .com Phone Numbers: + 44 (0) 7795 601794 (Mobile) + 44 (0) 1223 44B017 (Land Li ne)

Case3:12-cv-05980-CRB Document100-3 Filed05/03/13 Page3 of 4.........

Autonomy ·· : ~ 1 ... 1 £_ "" COV ' II

Virginia Briody Sr. Account Executive, Information Governance Autonomy, Inc. Mobile: 203.912.0586 E-mail: virgi [email protected] Visit www.autonomy.com

From: Elizabeth Lederer Sent: Monday, September 13, 2010 5:53 PM To: Virginia Briody; Hung Chang Subject: RE: Pioneer

How are we doing on this cont ract?

Sushovan asked me to emai l Steve. May I please have his email address .

. "

Autonomy t I N I{ ~ I;I,' O \' EII

Elizabeth A Lederer Director, Sales- Information Governance Autonomy, Inc. Mobile: 631. 764.6432 E-ma il: el [email protected] Visit www.autonomy.com

From: Virginia Briody Sent: Monday, September 13, 20104:31 PM To: Hung Chang Cc: Elizabeth Lederer Subject: Re: Pioneer

Hung Liz talked to Steve and we are going to write it my way ... Call steve chamberlain ... I need the contract

On Sep 13, 2010, at 4: 14 PM, "Hung Chang" <[email protected]> wrote:

2


We are trying to make this into a licensing agreement with it's a hosting agreement, that 's why. I am having some technical difficulties with my phone. Once it ' s set, I will set up a cal l where we can discuss. Thanks.

Hung Chang I Corporate Counsel I Autonomy, Inc. I +1 415-595-7093 I [email protected]

From: Elizabeth Lederer [mailto:Elizabeth,[email protected]] Sent: Monday, September 13, 20108:27 PM To: [email protected] Subject: Pioneer

Those payment terms will not work why can't we have it back to

$46,665.00

2- 12 @ $ 175,000.00

<imageOO I .git>

Elizabeth A Lederer Director, Sales-Information Governance

Autonomy, Inc. Mobile: 631. 764.6432 E-mail: [email protected]

Visit www.autonomy.com

3

EXHIBIT 3




Hung Chang < [email protected] > Tuesday, September 28, 2010 8:37 AM Virginia Briody RE : Pioneer I Updated payment terms

All good, it will take come explaining to Pioneer on why they need to keep the invoice notice for close to 4 years. :-J

Hung Chang I Corporate Counsel I Autonomy, Inc. I +1415-595-7093 I [email protected]

-----Origina l Message-----From: Virginia Briody [mailto:Virginia [email protected]) Sent: Tuesday, September 28, 2010 1:34 PM To: [email protected]

Subject: Re : Pioneer I Updated payment terms

Oh

On Sep 28, 2010, at 8:20 AM, "Hung Chang" <[email protected]> wrote:

> No, they will be invoiced up front, but the payment terms are the > same. In other words, they won't receive individual invoices for each > payment. >

> -----Original Message-----> From : Virginia Briody <[email protected]> > Date: Tue, 28 Sep 2010 06:56:00 > To: Hung Chang<[email protected]> > Cc : Ivan Rothman<[email protected]> > Subject: Re: Pioneer I Updated payment terms >

> Hung > They want to pay just the way we have it set up, they will not py all > upfront. But if finance has to write it that way for rev rec then I > can explain that . Each of the pricing sections ca nce l each other out?? >

> On Sep 28, 2010, at 6:35 AM, "Hung Chang" <[email protected]> > wrote: > » Hi Ivan, » »Virginia and I discussed, and we needed to update the license fee and » support fee as shown below. I have also attached the revised » agreement for your reference. What we have done is take the overall »contract amount, $1,715,000, and break them down into license fee and »3.5 years of support fee (since the contract term is 42 months,


» rather than 36 months). The payment term amount is also adjusted to

» reflect the parties' intention to have a small payment right now (-$ » 46,000) and 13 quarterly payments over the span of 3.5 years. Pleas » e let me know if you have any questions. Thanks. » » Virginia, to answer your question, the preferred method here is to » invoice them all up front, and set up different payment terms / due » dates for specific payments. As such, they will rece ive one big » invoice when this contract is signed. Please let me or Ivan know if » Pioneer has problems with the method, and I wil l chat with the » finance group to see what we can accommodate. Thanks. »

» Hung » » 1. License Fee » » : » » US $1,008,823.52, invoiced immediately. » » » 2. Support Fee (first year) » » : » » US $201,764.71 per yea r for Support Services, and US $100,882 .35 for » the remaining 6 months of the Term after the third anniversary of the » Commencement Date. The Support Fee shall be invoiced immediately. » » » 3. License and Support Fee Payment Term s » » » : »

» The License Fee and Support Fee shall be due as follows: » Amount » » Due Date » » $ 46,450 » » Com mencement Date »

» $128,350 »

» January 8, 2011 »

» $128,350 »

» April 8, 2011 »

2


» $128,350 » » July 8, 2011 »

» $128,350 » »September 8,2011 »

» $128,350 » »January 8,2012 » » $128,350 »

»April 8, 2012 » » $128,350 »

»July 8, 2012 » » $128,350 »

»September 8, 2012 » » $128,350 »

» January 8, 2013 » » $128,350 » » April 8, 2013 » » $128,350 » » July 8, 2013 »

» $128,350 » »September 8, 2013 » » $128,350 » » January 8, 2013 » » »

» » Hung Chang I Corporate Counsel » Autonomy, Inc. I One Market, Spear Tower, 19th Floor, San » Francisco, CA 94105 »+1415-595-7093 I hung [email protected] »

3


» P Please consider the environment before printing this message.

» This message is for the so le use of the intended recipient(s) and » may contain confidential and privileged information. If you are not » the intended recipient, then please contact the sender by replying » to this email and destroy all copies of the original message. Thank » you. »

»-------------------------------»<2010-09-28 Pioneer License and Subscription Agmt (A-RED) .doc>

4

EXHIBIT 4



From: Elizabeth Lederer Sent: To:

Friday, October 01, 201010:07 AM Virginia Briody

Subject: RE: Autonomy Automater Software Information for Pioneer Investment Mngt USA

We had to ship to recognize revenue. That 's all th is is. We will take ca re of the rest.

•

Autonomv .' ~ t , .. '~ ., ..

Elizabeth A Lederer It'f )r Sclll'<'" Info r- motlon Governa nce

1\[ (I nlHny, Ill(

rio/,II,- t J1.76·1 b~J)

[ 11,,,11 [email protected] VI .II 1/' .. " W llJ tollomy COIll

From: Virginia Briody Sent: Friday, October 01, 2010 10:05 AM To: Elizabeth Lederer Subject: Fwd: Autonomy Automater Software Information for Pioneer Investment Mngt USA

Can you help mc understand this?

Begin f())'warded mcssage:

From: "Stunney. Gera ld" <[email protected]> Date : October 1. 2010 7:16 :13 AM EDT To: "Cheung, Norman" <[email protected]>, "Noll. Peter" <Petcr. Nollililpionceri n vcstments.com>. Vi rgi nia Briml y <V i rginin . Briml y@)A utonomv.com> Subject: FW: Autonomy AutomateI' Software Information for Pioneer Investment Mn~t

USA

Does anyone know what this is about?

From: Rosie Deo [mailto:[email protected]] Sent: Thursday, September 30,2010 7:11 PM To: Stanney, Gera/d Cc: Virginia Briody Subject: Autonomy Automater Software Information for Pioneer Investment Mngt USA

Hello Gerry Stanney, 1


Your Autonomy software per Digital Safe License and Subscription Services Agreement is ready on Autonomy CSS.

Your password at Autonomy CSS has been assigned.

Your new login information is:

Login username: gerald [email protected] Computer generated password: axeman-au!

It is highly recommended that you log into the CSS (http://customers.autonomy.com ) to change your passwords as soon as possible . To do so, please click the "Change Password" link once you have logged into the site.

Remember, with an Autonomy CSS account you can not only download all your licensed Autonomy software you can also raise any technical issues you may have via the integrated ticketing system ..

Thank you for using Autonomy Customer Support Site.

If you have any questions, please contact us at [email protected] or call us at 1-877-333-7744.

Sincerely,

Technical Support Autonomy Inc. One Market SI. Spear Tower, 19th Floor San Francisco, CA 94105 1-877-333-7744

"The information in this e - mail and in any attachments is confidential and intended solely for the attention and use of the named addressee(s) . This information may be subject to legal , professional or other privilege and further distribution of it is strictly prohibited without our authority . If you are not the intended recipient , you are not authorised to and must not disclose , copy , distribute , or retain this message or any part of it , and should notify us immediately .

This footnote also confirms that this email has been automatically scanned for the presence of computer viruses , profanities and certain file types ."

2

EXHIBIT 5



.-rom: ent:

ro: Cc: Subject:

yes

Steve Chamberlain VP, Finance Autonomy

Cambridge Business Park Cowley Road Cambridge CB40WZ

Direct tel: 01223 448017 Mobile tel: 07795 601794 Fax: 01223448040

Stephen Chamberlain [[email protected]] Monday, November 15, 20102:59 AM Laura Dann [email protected] RE: Pioneer Commissions

E-mail: [email protected] Web: WVNJ.autonomy.com

The information contained in this message is for the intended addressee only and may contain confidential and/or privileged information. If you are not the tended addressee, please delete this message and notify the sender, and do not copy or distribute this message or disclose its contents to anyone. Any views or pinions expressed in this message are those of the author and do not necessarily represent those of Autonomy Systems limited or of any of its associated

;ompanies. No reliance may be placed on this message without written confirmation from an authorised representative of the company. Autonomy Systems limited, Registered Office: Cambridge Business Park, Cowley Road, Cambridge CB4 (JoNZ, Registered Number 03063054.

From: Laura Dann [mailto:[email protected]] Sent: Friday, November 12, 2010 5:12 PM To: Stephen Chamberlain Ce: [email protected] Subject: RE: Pioneer Commissions

Do I need to deduct $95,882.35 from the $425,000?

The $95,882.35 is the portion of the new Pioneer deal that exceeds three years.

In the CA plan the sales reps are compensated up to a maximum of the first 3 years in a multi year contract.

,-hanks , Laura

Multi year contract term Transactions

"NCV/CV Quota Credit and Commissions will be determined based upon a maximum of the first 3 years of any Transaction regardless of the length of the Transaction. The NCV/CV Quota Credit for Transactions greater than 3 year terms wi ll be calculated as the net incremental NCV/CV divided by the total number of months in the contract term and multiplied by 36 months.

Any exception to this rule will be on a fu lly discretionary basis as approved in writing by CA Executive Management.

Special ru les apply to Customer Portfolio Managers and Customer Portfolio."


From: Stephen Chamberlain [mailto :[email protected]) Sent: Friday, November 12, 2010 8:00 AM

3: Laura Dann ,c: [email protected]

Subject: RE: Pioneer Commissions

Treat all as hosted.

SIeve Chamberlain VP, Finance Autonomy


Direct tel : 01223 448017 Mobile tel: 07795 601794 Fax: 01223 448040

E-mail: [email protected] Web: www.autonomy.com

The information contained in this message is for the intended addressee only and may contain confidential andlor privileged information. If you are not the intended addressee, please delete this message and notify the sender, and do not copy or distribute this message Of disclose its contents to anyone. Any views or opinions expressed in this message are those of the author and do not necessarily represent those of Autonomy Systems Limited or of any of its associated companies. No reliance may be placed on this message without written confirmation from an authorised representative of the company. Autonomy Systems

'mited. Registered Office: Cambridge Business Park . Cowley Road. Cambridge CB4 OWZ. Registered Number 03063054 .

From: Laura Dann [mailto: [email protected]) Sent: Friday, November 12, 2010 3:58 PM To: Stephen Chamberla in Cc: [email protected] Subject: RE : Pioneer Commissions

Thank you.

I will use $425,000 in the comm ission calculation.

Do you a breakdown of the $425,000 by license, maintenance, services, elc?

Thanks, Laura

From: Stephen Chamberlain [mailto:[email protected]) Sent: Friday, November 12, 20106:25 AM To: Laura Dann Cc: [email protected] Subject: RE: Pioneer Commissions

Laura

'he Pioneer deal was a pretty poor rework. Under the old deal we were due to receive $1,225,000 for the period until 30 Nov 2013.

2


The new deal runs unlil31 Mar 2014 and the total fees over that period are $1,650,000.

Incremenlal fees are therefore only $425,000.

teve

Steve Chamberlain VP, Finance Autonomy


Direct tel : 01223 448017 Mobile tel : 07795 601794 Fax: 01223 448040

E-mail : [email protected] Web: www.autonomy.com

The informatioo contained in this message is for the intended addressee only and may contain confidential and/or privileged information. If you are not the intended addressee, please delete this message and notify the sender, and do not copy or distribute this message or disclose its contenlS to anyone. Any views or opinions expressed in this message are those of the author and do not necessarily represent those of Autonomy Systems Limited or of any of its associated companies. No reliance may be placed on this message without written confirmation from an authorised representative of the company. Autonomy Systems limited, Registered Office: Cambridge Business Park, Cowley Road, Cambridge CB4 OWl, Registered Number 03063054.

"rom: Laura Dann [mailto:[email protected]] ;ent: Friday, November 12, 2010 1:22 AM ra: Stephen Chamberlain Cc: [email protected] Subject: FW: Pioneer Commissions

Hi Steve.

On the 03 Pioneer deal, do you have the amount from the original Pioneer deal closed by CA that was replaced/swapped by the new Pioneer deal?

I want to be sure that this portion is backed out to ensure commissions are not paid twice.

Thanks, Laura

From: Stephen Chamberlain Sent: Friday, October 08,2010 1:06 AM To: Laura Dann; Lisa Harris; Allison Mui Subject: FW: Pioneer Commissions

One to look oul for. Don't recall seeing her name on the 03 accruals?

Steve Chamberlain VP, Finance <l.utonomy

Cambridge Business Park Cowley Road Cambridge

3

EXHIBIT 6



From:

Sent: To:

Subject:

Elizabet h Lederer

Thursday, September 30, 2010 7:03 PM

Anthony Russo; Garrett Taylor; Virginia Briody; Steven Behrendt; Michael Gui lfoyle; EI ic Lundgren; Patrick Seilsopour

Thank You

Thank you all for the efforts and success's in 03.

It was our f irst full quarter at Autonomy and we had a lot go ing on. Training, comp plan, new system>, new products etc. .. all of that is behind us now and we are now veteran Autonomy Protect Enterpri se reps.

We were able to ge t some nice deals clone with a lot of great ones coming in early October and Q4 wh ich ends our fiscal year.

It is shaping up to be t ile best one yet..

nig congratulation s go to Virgini a for bringing in Pioneer for 1.8. A special thanks to Patrick dnul:ric fu r supporting our effort s and helping us when needed ..

Tomorrow is Q4 please put together your deals fo r 04 and send to me so we can rev iew on our week ly ca ll. I want to review how you' re go ing to exceed your number to end the year on top

Those 03 deals that slipped should close early October so let's kick 04 off ahead of the game and then just pile it on as we end our year.

Thank you so much for your work and commitment liz

Autonomy " 1 ,,,

Elizabeth A Lederer I I 1 \I

cI i ;:uhct h.l cdcrcr({(J<.l utollom y.com IIi",11

EXHIBIT 7


George N. Copadis Commissioner 01 Labor

David M. Wlhby Deputy Labor Commissioner

Virginia Briody 62. Blossom Road Windham, NH 03086

Department of Labor

July 16, 2012

NH Department of Labor Spaulding Building PO Box 2076 Concord, NH 03302·2076 603/271·3176 TDD Access: Relay NH 1·800· 735·2964 FAX: 603/271·2668 hUp:llwww.labor.slate.nh.us

RE: Virginia Briody v Autonomy NA Holdings Inc. Case No. 42552

Dear Ms. Briody:

Enclosed is the Decision from the hearing held before this Department on April 17, 2012 and June 15, 2012. Your Wage Claim was found to be valid.

If the employer does not comply with the order to send payment to this Department within twenty (20) days, and does not appeal the Decision, this Department will forward information regarding the manner in which you can enforce this Decision.

Any party aggrieved by this Decision may appeal it in the manner specified by RSA 275:51 V not later than twenty (20) days from the date of this Decision by petition to the Superior Court setting forth that said Decision is erroneous, in whole or in part, and specifying the grounds upon which same is claimed to be in error. The scope of review by the Superior Court is limited to questions of law. In the event that an appeal is filed, the party appealed against will be served with a notice of the appeal from the Superior Court. The party appealed against is required to respond to this notice, in writing, to the Superior Court, and may wish to contact the Clerk of Superior Court for assistance at that time. Failure to respond in writing may result in a reversal of the Decision.

A recording of this hearing will remain available for 60 days after the date of this Decision. A copy of the recording is available on a CD-ROM for $20 postpaid. A copy of the recording must be requested in writing with payment included at the time of the request.

CC: Employer

TFHfall

Croley, Esq. Yasenka, Esq.

~ Thomas F. Hardiman Hearing Officer


George N. Copadis Commissioner 01 Labor

David M. Wlhby Deputy Labor Commissioner

Virginia Briody 62. Blossom Road Windham, NH 03086

Department of Labor

July 16, 2012

NH Department of Labor Spaulding Building PO Box 2076 Concord, NH 03302·2076 603/271·3176 TDD Access: Relay NH 1·800· 735·2964 FAX: 603/271·2668 hUp:llwww.labor.slate.nh.us

RE: Virginia Briody v Autonomy NA Holdings Inc. Case No. 42552

Dear Ms. Briody:

Enclosed is the Decision from the hearing held before this Department on April 17, 2012 and June 15, 2012. Your Wage Claim was found to be valid.

If the employer does not comply with the order to send payment to this Department within twenty (20) days, and does not appeal the Decision, this Department will forward information regarding the manner in which you can enforce this Decision.

Any party aggrieved by this Decision may appeal it in the manner specified by RSA 275:51 V not later than twenty (20) days from the date of this Decision by petition to the Superior Court setting forth that said Decision is erroneous, in whole or in part, and specifying the grounds upon which same is claimed to be in error. The scope of review by the Superior Court is limited to questions of law. In the event that an appeal is filed, the party appealed against will be served with a notice of the appeal from the Superior Court. The party appealed against is required to respond to this notice, in writing, to the Superior Court, and may wish to contact the Clerk of Superior Court for assistance at that time. Failure to respond in writing may result in a reversal of the Decision.

A recording of this hearing will remain available for 60 days after the date of this Decision. A copy of the recording is available on a CD-ROM for $20 postpaid. A copy of the recording must be requested in writing with payment included at the time of the request.

CC: Employer

TFHfall

Croley, Esq. Yasenka, Esq.

~ Thomas F. Hardiman Hearing Officer

STATE OF NEW HAMPSHIRE DEPARTMENT OF LABOR

CONCORD, NEW HAMPSHIRE

VIRGINA BRIODY

v

AUTONOMY NA HOLDINGS INC.

DECISION OF THE HEARING OFFICER

Appearances: Virginia Briody, Claimant Patrick Seilspour, Witness for the Claimant Liz Lederer, Witness for the Claimant Kristin M. Yasenka Esq., Attorney for the Claimant Joel Scott Esq., Autonomy General Counsel Neil Ararijo, Witness for the Employer Keith Orni, Director of World Wide Communications Jim Crumbeacher Esq., VP of Sales Operation/America Helen Ku, Revenue and Collection Manager Daniel A Croley Esq., Attorney for the Employer

Nature of Dispute: RSA 275:43 I unpaid commissions RSA 275:44 IV liquidated damages

Claimant: Virginia Briody, 62 Blossom Road, Windham, NH 03086

Employer: Autonomy NA Holdings Inc., 1 Market Plaza, Ste. 1900, San Francisco, CA 94105

Date of Hearing: April 17, 2012 June 15, 2012 (open for closings until July 9,2012)

Case No.: 42552

BACKGROUND AND STATEMENT OF THE ISSUES

A Wage Claim was filed with the Department of Labor on September 28, 2011. The notice was sent to the employer and there was an objection. The objection was sent to the claimant and there was a request for a hearing. The Notice of Hearing was sent to both parties on January 31, 2012.

The claimant testified that she worked for the employer Autonomy NA Holdings Inc. (Autonomy) from June of 2010 until November of 2010. She was employed as a Senior Account Executive where she acted as an "outside sales person" selling company products. She came to the company after working for six years with Computer Associates Inc. (CA) untif it was bought out by Autonomy.


Page 2

STATE OF NEW HAMPSHIRE DEPARTMENT OF LABOR

CONCORD, NEW HAMPSHIRE

VIRGINA BRIODY

v

AUTONOMY NA HOLDINGS INC.

DECISION OF THE HEARING OFFICER

Appearances: Virginia Briody, Claimant Patrick Seilspour, Witness for the Claimant Liz Lederer, Witness for the Claimant Kristin M. Yasenka Esq., Attorney for the Claimant Joel Scott Esq., Autonomy General Counsel Neil Ararijo, Witness for the Employer Keith Orni, Director of World Wide Communications Jim Crumbeacher Esq., VP of Sales Operation/America Helen Ku, Revenue and Collection Manager Daniel A Croley Esq., Attorney for the Employer

Nature of Dispute: RSA 275:43 I unpaid commissions RSA 275:44 IV liquidated damages

Claimant: Virginia Briody, 62 Blossom Road, Windham, NH 03086

Employer: Autonomy NA Holdings Inc., 1 Market Plaza, Ste. 1900, San Francisco, CA 94105

Date of Hearing: April 17, 2012 June 15, 2012 (open for closings until July 9,2012)

Case No.: 42552

BACKGROUND AND STATEMENT OF THE ISSUES

A Wage Claim was filed with the Department of Labor on September 28, 2011. The notice was sent to the employer and there was an objection. The objection was sent to the claimant and there was a request for a hearing. The Notice of Hearing was sent to both parties on January 31, 2012.

The claimant testified that she worked for the employer Autonomy NA Holdings Inc. (Autonomy) from June of 2010 until November of 2010. She was employed as a Senior Account Executive where she acted as an "outside sales person" selling company products. She came to the company after working for six years with Computer Associates Inc. (CA) untif it was bought out by Autonomy.

At Autonomy the claimant said that she had the same employment package as she did with CA The package was different from other Autonomy employees. The claimant was paid commissions at Autonomy.

While at CA the claimant sold a contract to Pioneer Investments in September of 2009. The contract was in process when CA was sold to Autonomy. There was a problem with Autonomy in that Pioneer Investments wanted a backup package. Autonomy was told that there were problems and the claimant was ordered to write another contract with Pioneer Investments and that the program was to be re-written. The claimant said that she was told that the re-write would be considered new revenue. The claimant accepted this project because she was on a quota program and this new re-write was worth $1.850 million.

The deal was closed on an amount of $1.975 million. The contract was reviewed by the legal department and the claimant was praised in company presentations. The claimant said that she was never told that the contract had any flaws and it was closed on September 30, 2010 in order to get it into a set fiscal quarter so it could be reported as revenue to shareholders.

The claimant said that she in the process of buying a house and needed an amount of commission so she could report income to the lending institution. The claimant asked her supervisor about the commission because it was due forty-five days after the deal closed or November 15, 2010. The claimant said that the employer had a history of late payments and that is why she tried to push the issue. On November 17, 2010 she was notified that she had been terminated. She questioned several of her immediate supervisors and they were not aware of the termination. The claimant is seeking $97,806.62 in commissions on the new revenue.

The claimant is also seeking liquidated damages because the employer did not pay on time and then, when questioned, the employer terminated the claimant. The employer never told the claimant's managers about the termination and she feels the termination was a means to get out of the commission payment.

One of the claimant's supervisors testified that he worked for six years with CA and then for Autonomy until April of 2011 when he was terminated. He said that people on his team were all salary plus commissions. The project(s) being worked on by the claimant were discussed at staff meetings and the Pioneer project was set at $1.8 million in new revenue. The witness said that he had never heard that this new contract (Pioneer /I) was going to be reduced by what happened in CA with Pioneer I. The proposed commission was in the hands of the "higher ups" and we never heard anything. The witness said that he knew of other accounts that came over from CA were sold new eqUipment and commissions were paid. This supervisor feels that the claimant should be paid the entire commission on the full contract.

Another witness who supervised the claimant at CA and then came over to Autonomy testified on behalf of the claimant. This witness said that she worked at CA for sixteen and a half years and at Autonomy for six months. At Autonomy the witness was demoted and so she left her employment. While at Autonomy the witness said that the claimant was the top sales person on the team.


Page 3

At Autonomy the claimant said that she had the same employment package as she did with CA The package was different from other Autonomy employees. The claimant was paid commissions at Autonomy.

While at CA the claimant sold a contract to Pioneer Investments in September of 2009. The contract was in process when CA was sold to Autonomy. There was a problem with Autonomy in that Pioneer Investments wanted a backup package. Autonomy was told that there were problems and the claimant was ordered to write another contract with Pioneer Investments and that the program was to be re-written. The claimant said that she was told that the re-write would be considered new revenue. The claimant accepted this project because she was on a quota program and this new re-write was worth $1.850 million.

The deal was closed on an amount of $1.975 million. The contract was reviewed by the legal department and the claimant was praised in company presentations. The claimant said that she was never told that the contract had any flaws and it was closed on September 30, 2010 in order to get it into a set fiscal quarter so it could be reported as revenue to shareholders.

The claimant said that she in the process of buying a house and needed an amount of commission so she could report income to the lending institution. The claimant asked her supervisor about the commission because it was due forty-five days after the deal closed or November 15, 2010. The claimant said that the employer had a history of late payments and that is why she tried to push the issue. On November 17, 2010 she was notified that she had been terminated. She questioned several of her immediate supervisors and they were not aware of the termination. The claimant is seeking $97,806.62 in commissions on the new revenue.

The claimant is also seeking liquidated damages because the employer did not pay on time and then, when questioned, the employer terminated the claimant. The employer never told the claimant's managers about the termination and she feels the termination was a means to get out of the commission payment.

One of the claimant's supervisors testified that he worked for six years with CA and then for Autonomy until April of 2011 when he was terminated. He said that people on his team were all salary plus commissions. The project(s) being worked on by the claimant were discussed at staff meetings and the Pioneer project was set at $1.8 million in new revenue. The witness said that he had never heard that this new contract (Pioneer /I) was going to be reduced by what happened in CA with Pioneer I. The proposed commission was in the hands of the "higher ups" and we never heard anything. The witness said that he knew of other accounts that came over from CA were sold new eqUipment and commissions were paid. This supervisor feels that the claimant should be paid the entire commission on the full contract.

Another witness who supervised the claimant at CA and then came over to Autonomy testified on behalf of the claimant. This witness said that she worked at CA for sixteen and a half years and at Autonomy for six months. At Autonomy the witness was demoted and so she left her employment. While at Autonomy the witness said that the claimant was the top sales person on the team.

The witness said that she worked on Pioneer I at CA and on Pioneer [I at Autonomy. There were problems with the piece of the software that was not contracted to Autonomy. This piece was called Axium and Autonomy had to develop a compatible piece to offset the problem. It became a brand new product and the claimant was tasked to sell it. The price was reviewed by upper management on a weekly basis and the cost was set at $1.6 million with $200,000.00 in services.

The witness said that the claimant sold the product and was congratulated by management and was used as an example in company promotions. The claimant often sought information as to when the payment was to be made.

The employer had the person who was over the team on which the claimant worked, testify at the hearing. This person said that he only met the claimant at the time of hire but he did get reports on the progress of sales. The claimant was at a higher salary level than most of the other sales representatives. Commissions are based on the final sale of a product. There is a commission team that reviews revenue and plans to come up with a commission. Commission statements are sent to representatives to show sale amount and commission. Although the company has a forecast process, the forecast is not binding. The forecast is broken down into a final product cost. The witness said that the marketing division set up the Power Point process to show others in the company. This was not the final determining figure upon which commissions were based.

The Director of World Wide Commissions testified that he oversaw the commission process and he also designed and created sales plans. He said that commission statements are given to representatives on a monthly basis. The company has to retain control of the commission process in order to protect the "grey" areas of a project. The final commission amount is set by the finance department and not the sales department.

The Vice-President of Sales Operations/America testified that he had been with Autonomy for about five years. Prior to this position he was the Associate General Counsel. This witness had no authority to make commission decisions only the Financial Relations had the power to set the commission amount. This witness was familiar with Pioneer /I but he did not have any role in processing the contract. The witness said that there was a cancellation clause placed in the contract a few days before the completion of the contract although he does not remember having any conversation with the claimant over this issue. The witness does not remember having a meeting with the claimant in August of 2010 about the Pioneer II contract. He said that he had a "fair" relationship with the claimant and she raised a red flag about the cancelation clause in the contract. The witness did not believe that the claimant should have had any say over the language in the contract.

The witness did say that he had a conversation with the claimant after her termination and said that he would look into the payment of the commission. The witness, when questioned, said that he did not realize right away that the commission was based on $400,000.00 and not the $1.8 million. The witness filed the objection to this Wage Claim but did not respond to the production of documents.

The Revenue and Collection Manager testified that she oversees the function until the contract is paid. The witness said that she uses the US GAAP Principal to work out revenue. She produced and totaled the cost of Pioneer II however the company reversed the cost of


Page 4

The witness said that she worked on Pioneer I at CA and on Pioneer [I at Autonomy. There were problems with the piece of the software that was not contracted to Autonomy. This piece was called Axium and Autonomy had to develop a compatible piece to offset the problem. It became a brand new product and the claimant was tasked to sell it. The price was reviewed by upper management on a weekly basis and the cost was set at $1.6 million with $200,000.00 in services.

The witness said that the claimant sold the product and was congratulated by management and was used as an example in company promotions. The claimant often sought information as to when the payment was to be made.

The employer had the person who was over the team on which the claimant worked, testify at the hearing. This person said that he only met the claimant at the time of hire but he did get reports on the progress of sales. The claimant was at a higher salary level than most of the other sales representatives. Commissions are based on the final sale of a product. There is a commission team that reviews revenue and plans to come up with a commission. Commission statements are sent to representatives to show sale amount and commission. Although the company has a forecast process, the forecast is not binding. The forecast is broken down into a final product cost. The witness said that the marketing division set up the Power Point process to show others in the company. This was not the final determining figure upon which commissions were based.

The Director of World Wide Commissions testified that he oversaw the commission process and he also designed and created sales plans. He said that commission statements are given to representatives on a monthly basis. The company has to retain control of the commission process in order to protect the "grey" areas of a project. The final commission amount is set by the finance department and not the sales department.

The Vice-President of Sales Operations/America testified that he had been with Autonomy for about five years. Prior to this position he was the Associate General Counsel. This witness had no authority to make commission decisions only the Financial Relations had the power to set the commission amount. This witness was familiar with Pioneer /I but he did not have any role in processing the contract. The witness said that there was a cancellation clause placed in the contract a few days before the completion of the contract although he does not remember having any conversation with the claimant over this issue. The witness does not remember having a meeting with the claimant in August of 2010 about the Pioneer II contract. He said that he had a "fair" relationship with the claimant and she raised a red flag about the cancelation clause in the contract. The witness did not believe that the claimant should have had any say over the language in the contract.

The witness did say that he had a conversation with the claimant after her termination and said that he would look into the payment of the commission. The witness, when questioned, said that he did not realize right away that the commission was based on $400,000.00 and not the $1.8 million. The witness filed the objection to this Wage Claim but did not respond to the production of documents.

The Revenue and Collection Manager testified that she oversees the function until the contract is paid. The witness said that she uses the US GAAP Principal to work out revenue. She produced and totaled the cost of Pioneer II however the company reversed the cost of

Pioneer J out of the figures because Pioneer II was considered new. The company never received revenue from Pioneer J and that is why it was reversed out of the figures.

The witness' work product goes to her boss and then to an external Auditor for verification. She also stated that Pioneer II was an entirely new deal and she never reviewed Pioneer I. Another group did the review of Pioneer J as were all the books from CA.

FINDINGS OF FACT

RSA 275:43 I. Every employer shall pay all wages due to employees within 8 days including Sunday after expiration of the week in which the work is performed, except when permitted to pay wages less frequently as authorized by the commissioner pursuant to paragraph II, on regular paydays designated in advance by the employer and at no cost to the employee.

803.01 (a). Pursuant to RSA 275:43, I and II, every employer shall pay all wages due to his/her employees within 8 days, including Sundays, after the expiration of the workweek on regular paydays designated in advance. Biweekly payments of wages shall meet the foregoing requirement if the last day of the second week faUs on the day immediately preceding the day of payment. Payment in advance and in full of the work period, even though less frequently than biweekly, also meets the foregoing requirement.

This is the section of the law that mandates an employer to pay an employee all wages due at the time the wages are due and owing.

RSA 275:44 IV reads: "If an employer willfully and without good cause fails to pay an emploY!3e wages as required under paragraphs I, II or III of this section, such employer shall be additionally liable to the employee for liquidated damages in the amount of 10% of the unpaid wages for each day except Sunday and legal holidays upon which such failure continues after the day upon which payment is required or in an amount equal to the unpaid wages, whichever is smaller; except that, for the purpose of such liquidated damages such failure shall not be deemed to continue after tbe date of filing of a petition in bankruptcy with respect to the employer if he is adjudicated bankrupt upon such petition."

This part of the law allows for a claimant to seek liquidated damages, up to the amount of the Wage Claim, jf there is a finding that the employer was willful and/or did not have good cause for their action(s).

It is the finding of the Hearing Officer, based on the evidence and the testimony presented at the hearing, that the Wage Claim is valid. The claimant has the burden to show that there are wages due and owing and she met this burden. The claimant was seeking $97.806.62 in commission on the Pioneer If project and sale. The claimant showed that the immediate supervisors all were aware of the commission and the amount of the project.

The claimant proved that she had to resell the project when the software was not compatible with the new companies (Autonomy) support system. It was clear that the claimant was able to do this because of her contacts and relationships carried over from CA. The project was large and was an integral part of the quarter's profits. In fact the company went out of its' way to make sure the deal was completed on the last day of the quarter.


Page 5

Pioneer J out of the figures because Pioneer II was considered new. The company never received revenue from Pioneer J and that is why it was reversed out of the figures.

The witness' work product goes to her boss and then to an external Auditor for verification. She also stated that Pioneer II was an entirely new deal and she never reviewed Pioneer I. Another group did the review of Pioneer J as were all the books from CA.

FINDINGS OF FACT

RSA 275:43 I. Every employer shall pay all wages due to employees within 8 days including Sunday after expiration of the week in which the work is performed, except when permitted to pay wages less frequently as authorized by the commissioner pursuant to paragraph II, on regular paydays designated in advance by the employer and at no cost to the employee.

803.01 (a). Pursuant to RSA 275:43, I and II, every employer shall pay all wages due to his/her employees within 8 days, including Sundays, after the expiration of the workweek on regular paydays designated in advance. Biweekly payments of wages shall meet the foregoing requirement if the last day of the second week faUs on the day immediately preceding the day of payment. Payment in advance and in full of the work period, even though less frequently than biweekly, also meets the foregoing requirement.

This is the section of the law that mandates an employer to pay an employee all wages due at the time the wages are due and owing.

RSA 275:44 IV reads: "If an employer willfully and without good cause fails to pay an emploY!3e wages as required under paragraphs I, II or III of this section, such employer shall be additionally liable to the employee for liquidated damages in the amount of 10% of the unpaid wages for each day except Sunday and legal holidays upon which such failure continues after the day upon which payment is required or in an amount equal to the unpaid wages, whichever is smaller; except that, for the purpose of such liquidated damages such failure shall not be deemed to continue after tbe date of filing of a petition in bankruptcy with respect to the employer if he is adjudicated bankrupt upon such petition."

This part of the law allows for a claimant to seek liquidated damages, up to the amount of the Wage Claim, jf there is a finding that the employer was willful and/or did not have good cause for their action(s).

It is the finding of the Hearing Officer, based on the evidence and the testimony presented at the hearing, that the Wage Claim is valid. The claimant has the burden to show that there are wages due and owing and she met this burden. The claimant was seeking $97.806.62 in commission on the Pioneer If project and sale. The claimant showed that the immediate supervisors all were aware of the commission and the amount of the project.

The claimant proved that she had to resell the project when the software was not compatible with the new companies (Autonomy) support system. It was clear that the claimant was able to do this because of her contacts and relationships carried over from CA. The project was large and was an integral part of the quarter's profits. In fact the company went out of its' way to make sure the deal was completed on the last day of the quarter.

It was also clear that the claimant and her supervisors were aware of the amount of the sale. The company, in fact, did a power point presentation on the sale. The company praised the claimant and the project's completion.

The claimant was terminated just before the commission was due. She made several inquiries into the date of the payout because she was negotiation a mortgage on a home. The company was reviewing this request when the claimant was terminated with a substantially lower commission than was expected. It is found that the employees working on the project had a figure in mind of what was going to be the sale amount and the commission. Management never did anything to show that the sale was going to be less and, therefore, the commission was going to be lower.

Management did not provide credible testimony as to what was happening at the end of the sale and prior to the termination of the claimant. As a publically traded company the employer had a motive to finish the project for the end of the quarter in order to show the profit to the shareholders. The employer also had a motive to reduce the commission to increase profits. The witnesses for the employer did not all have hands on knowledge of the project except to get it sold and on the books.

The Revenue and Collection Manager pointed out that the commission and the profit, if any, from Pioneer I were audited by another external firm and not counted with the internal audit of Pioneer II. Although the testimony shows that the Pioneer I project was tied in with Pioneer If when the final costs were calculated. This does not appear to be the case. The Wage Claim is valid in the amount of $97,806.62.

It is also found that the employer went out of their way to take credit for the sale and then to cut the profit down. To do so shows that the employer performed a wiflful act to reduce the commission owed to the claimant. The only reason to do this was to increase profits and show better numbers on the quarterly report. The finding is for liquidated damages in the amount of $97,806.62.

DECISION AND ORDER

As RSA 275:44 IV holds an employer liable to an employee for liquidated damages if the employer willfully and without good cause fails to pay wages due in the timeframe required by statute, and as this Department finds that the claimant proved by a preponderance of the evidence that the employer willfully and without good cause failed to pay wages due in the timeframe required by statute, it is hereby ruled that the employer is liable to the claimant for liquidated damages in the total of $97.806.62, assessed at 10% of the unpaid wages due per day for each day of nonpayment past the statutory limit until equal to the amount of wages due.

Based on the testimony and evidence presented, as RSA 275:43 I requires that an employer pay all wages due an employee, and as this Hearing Officer finds that the claimant proved by a preponderance of the evidence that she was not paid all wages due, it is hereby ruled that the Wage Claim is valid in the amount of $97,806.62. .


Page 6

It was also clear that the claimant and her supervisors were aware of the amount of the sale. The company, in fact, did a power point presentation on the sale. The company praised the claimant and the project's completion.

The claimant was terminated just before the commission was due. She made several inquiries into the date of the payout because she was negotiation a mortgage on a home. The company was reviewing this request when the claimant was terminated with a substantially lower commission than was expected. It is found that the employees working on the project had a figure in mind of what was going to be the sale amount and the commission. Management never did anything to show that the sale was going to be less and, therefore, the commission was going to be lower.

Management did not provide credible testimony as to what was happening at the end of the sale and prior to the termination of the claimant. As a publically traded company the employer had a motive to finish the project for the end of the quarter in order to show the profit to the shareholders. The employer also had a motive to reduce the commission to increase profits. The witnesses for the employer did not all have hands on knowledge of the project except to get it sold and on the books.

The Revenue and Collection Manager pointed out that the commission and the profit, if any, from Pioneer I were audited by another external firm and not counted with the internal audit of Pioneer II. Although the testimony shows that the Pioneer I project was tied in with Pioneer If when the final costs were calculated. This does not appear to be the case. The Wage Claim is valid in the amount of $97,806.62.

It is also found that the employer went out of their way to take credit for the sale and then to cut the profit down. To do so shows that the employer performed a wiflful act to reduce the commission owed to the claimant. The only reason to do this was to increase profits and show better numbers on the quarterly report. The finding is for liquidated damages in the amount of $97,806.62.

DECISION AND ORDER

As RSA 275:44 IV holds an employer liable to an employee for liquidated damages if the employer willfully and without good cause fails to pay wages due in the timeframe required by statute, and as this Department finds that the claimant proved by a preponderance of the evidence that the employer willfully and without good cause failed to pay wages due in the timeframe required by statute, it is hereby ruled that the employer is liable to the claimant for liquidated damages in the total of $97.806.62, assessed at 10% of the unpaid wages due per day for each day of nonpayment past the statutory limit until equal to the amount of wages due.

Based on the testimony and evidence presented, as RSA 275:43 I requires that an employer pay all wages due an employee, and as this Hearing Officer finds that the claimant proved by a preponderance of the evidence that she was not paid all wages due, it is hereby ruled that the Wage Claim is valid in the amount of $97,806.62. .

The employer is hereby ordered to send a check to this Department. payable to Virginia Briody in the total of $195.613.24. less any applicable taxes, within 20 days of the date of this Order.

~ Hearing Officer

Date of Decision: July 16. 2012

Original: cc:

TFH/al

Claimant Employer

Kristin M. Yasenka. Esq. Yasenka Law PO Box 719 Windham, NH 03087

Daniel Croley. Esq. Futterman Dupree Dodd Croley & Maier 180 Sansome Street, 1 ih Floor San Francisco, CA 94104


Page 7

The employer is hereby ordered to send a check to this Department. payable to Virginia Briody in the total of $195.613.24. less any applicable taxes, within 20 days of the date of this Order.

~ Hearing Officer

Date of Decision: July 16. 2012

Original: cc:

TFH/al

Claimant Employer

Kristin M. Yasenka. Esq. Yasenka Law PO Box 719 Windham, NH 03087

Daniel Croley. Esq. Futterman Dupree Dodd Croley & Maier 180 Sansome Street, 1 ih Floor San Francisco, CA 94104

EXHIBIT 8



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