Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Transaction ID 58965095
Case No. 12303-
v.
MARK ZUCKERBERG, MARC
ANDREESSEN, PETER THIEL,
REED HASTINGS, SUSAN
DESMOND-HELLMANN, ERSKINE
BOWLES, SHERYL SANDBERG,
JAN KOUM and FACEBOOK, INC.,
Defendants.
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at which Plaintiff will seek a final injunction of the Share Issuance. The grounds
for the motion are as follows:
BACKGROUND 1
1.
future control over Facebook, the fifth most valuable public corporation in the
world. By approving and declaring advisable charter amendments that will
facilitate the issuance of a massive number of non-voting shares to current
stockholders (i.e., the Share Issuance), Facebooks board of directors has agreed
to give future control over Facebook to its founder and current controlling
stockholder, Mark Zuckerberg.
2.
These facts are taken from the Summary of the Action section of Plaintiffs
Verified Class Action Complaint, which is filed concurrently herewith and
incorporated herein by reference.
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3.
holding the great bulk of his shares and not issuing additional shares. But holding
the great bulk of his shares is not Zuckerbergs ambition. In December 2010,
Zuckerberg announced that he had signed up for the Giving Pledge, an initiative
set up by Bill Gates that asks signatories to commit to donating the majority of
their wealth. At the time, Zuckerberg publicly announced that he wanted to donate
great wealth sooner rather than later in life:
People wait until late in their career to give back. But why wait when
there is so much to be done? With a generation of younger folks who
have thrived on the success of their companies, there is a big
opportunity for many of us to give back earlier in our lifetime and see
the impact of our philanthropic efforts.
4.
Priscilla Chan, would, within their lifetime, donate 99% of their Facebook shares
through a personal philanthropic vehicle, the Chan Zuckerberg Initiative LLC.
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6.
Facebooks Board could insist that Zuckerberg pay for the power to exert control
in the future, or insist that Zuckerberg face the diminution of his control over time.
Just as you cant have your cake and eat it too, you cant retain corporate control
while donating your shares to charity. The Board possessed the power to say no.
8.
Company. Zuckerberg is being granted power to control the Company for decades
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after he divests the bulk of his wealth, even if he is no longer CEO, and after he
has established a massive philanthropic endeavor. Current directors have no
reliable means to predict whether Zuckerbergs unfettered control over the
Company will be beneficial decades hence, when the Company will be operating in
a new environment, Zuckerbergs economic stake in the Company will be far
diminished, and his attention to the Companys affairs may also be far diminished.
10.
Board of Directors over whether Zuckerberg could retain control and at what price.
The Special Committee was established for the express purpose of arriving at a
transaction structure that would maintain our founder-controlled structure. The
Chairperson of the Special Committee was Susan Desmond-Hellmann, the Chief
Executive Officer of the Bill & Melinda Gates Foundation, who has a massive
professional interest in facilitating the transfer of Zuckerbergs wealth to charitable
ends. Special Committee member Marc Andreessen, a venture capitalist who
relies heavily on his prestigious association with Facebook to capture deal flow,
and markets his firm, Andreessen Horowitz, as enabl[ing] founders to run their
own companies. The members of the Special Committee convinced themselves
that it was a critical benefit[] to Facebook that the Company remain under
Zuckerbergs control even as [he] sells or transfers a significant number of his
shares.
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11.
Having taken that position, the Special Committee did not bother
b.
c.
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youth and his intent to donate the bulk of his wealth in the near term.
There was never any likelihood that Zuckerbergs descendants would
exercise what the proxy statement refers to as multi-generational
majority voting control of the company.
12.
Zuckerberg and the other directors chose not to afford the public
Zuckerberg timed his bid for untethered future control over Facebook
when he was at the zenith of his influence. His success as founder and CEO of a
company now worth over $337 billion is unparalleled. But past performance is no
guarantee of future results. The Board of Directors abdicated their responsibilities,
unfairly benefited Zuckerberg at the Companys expense, and acted for an
improper purpose when they agreed to grant Zuckerberg free future control over
Facebook, knowing that Zuckerberg will be divesting himself of a commensurate
economic interest in the Company, knowing that he will be undertaking new
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responsibilities apart from Facebook that may end up consuming the bulk of his
attention, and knowing that history is filled with examples of individuals who
could not sustain early success. The Boards grant of future control to Zuckerberg
is as reckless as it is unprecedented and vast.
14.
of Directors must exercise stewardship over the business and affairs of the
corporation. Facebooks Board of Directors unlawfully acquiesced to the grant of
future control to the Companys controller. Absent an injunction of the issuance of
the Class C non-voting shares, the public stockholders will become subject to a
single individuals unconstrained exercise of control in circumstances never
previously authorized.
ARGUMENT
15.
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A.
16.
scholarship and Delaware precedent support the proposition that the same
standard of judicial review should apply to the different types of transactions by
which controllers can extract nonratable benefits, and that entire fairness should
not be limited to squeeze-out mergers or other transformative transactions. In re
EZCorp Inc. Consulting Agmt. Deriv. Litig., 2016 WL 197814, at *21 (Del. Ch.
Jan. 25, 2016). The transfer of future corporate control to Zuckerberg by means of
the Share Issuance is a form of asset tunneling, which is the transfer of major
long-term (tangible and intangible) assets from the [controlled] firm for less
than market value. Id. at *22 (quoting Vladimir Atanasov et al., Law and
Tunneling, 37 J. Corp. L. 1, 5 (2011)).
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19.
was the standard of review at the pleading stage because the challenged transaction
confers a benefit on a controlling stockholder that was not shared with the rest of
the stockholders. That benefit was liquidity. In re Activision Blizzard, Inc.
Sholder Litig., Cons. C.A. No. 8885-VCL, tr. at 114 (Del. Ch. June 6, 2014). The
fact that the controlling stockholder came to the corporation to facilitate the
controllers ability to liquidate its stake could be used and potentially exploited to
benefit the corporation. And what is alleged is that fiduciaries, instead, worked out
a transaction that worked to the great benefit of certain of them. Id. at 112-13.
20.
facilitate his desire to transfer the great bulk of his economic stake. Rather than
negotiate against Zuckerberg with the objective of guiding the corporation along a
path by which corporate control could transfer to the public over time, or by which
Zuckerberg would pay to retain corporate control, the Special Committee and
Board acquiesced to Zuckerbergs desire to cement his control for as long as he
wished to exercise it, even after he transferred the great bulk of his economic stake.
21.
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triggering. No apparent effort was made by the Special Committee to bargain with
Zuckerberg over the value of the corporate control that he sought to guarantee for
himself for so long as he chose to exercise it. See In re S. Peru Copper Corp.
S'holder Derivative Litig., 52 A.3d 761, 801 (Del. Ch. 2011) (A reasonable
special committee, evaluating a conflicted transaction with a controlling
shareholder, would have a continuing and relentless focus on the actual giveget involved in real cash terms.). See also In re Dairy Mart Convenience Stores,
Inc., 1999 WL 350473, at *17 (Del. Ch. May 24, 1999) (apply entire fairness to
transaction with controller that was restructured in a manner that gave two
management directors the ability to secure near 41% of the voting power and
effective voting control for the Company at no cost to those insiders).
22.
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Put differently, directors may not act with the primary purpose of
entrenching a top manager in office. See id. at 42 n.11 (collecting cases); Giurich
v. Emtrol Corp., 449 A.2d 232, 239 (Del. 1982) (The Courts of this State will not
allow the wrongful subversion of corporate democracy by manipulation of the
corporate machinery or by machinations under the cloak of Delaware law.).
24.
Defendants will likely try to argue that the Proposed Share Issuance is
subject to business judgment rule review under the majority opinion in Williams v.
Geier, 671 A.2d 1368 (Del. 1996), in which the plaintiffs failed to establish that
the implementation by charter amendment of a tenured voting scheme that
benefited a controlling family group had a sole or primary purpose of
entrenchment. Id. at 1384. In Geier, there was no evidence offered to show that
the Board was dominated or controlled by the Family Group. Id. at 1378. Here, as
discussed at length in the complaint, Zuckerbergs hand-picked directors were
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25.
Once the Share Issuance occurs, public stockholders can begin trading
Class C stock, Zuckerberg can transfer it, and Facebook can begin using it for
acquisitions, equity awards and other corporate purposes. It is practicable to
schedule an expedited trial and, if necessary, schedule a hearing on a motion for
preliminary injunction, before any third-party rights in Class C stock can vest.
Plaintiff would be prepared to try the case within six months. This brief delay
would not unduly prejudice Zuckerberg or Facebook.
CONCLUSION
For all the foregoing reasons, Plaintiff respectfully requests entry of an
Order, substantially in the form of the proposed order submitted herewith,
expediting the proceedings, including:
expedited production of board minutes, banker books, and emails
concerning the Share Issuance;
expedited depositions; and
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Jeffrey H. Squire
Lawrence P. Eagel
David J. Stone
J. Brandon Walker
Todd H. Henderson
BRAGAR EAGEL & SQUIRE, P.C.
885 Third Avenue, Suite 3040
New York, NY 10022
(212) 308-5858
DATED: May 6, 2016
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