Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Transaction ID 58965095
Case No. 12303-
Plaintiffs allegations are made upon personal knowledge as to himself and his
own acts, and upon information and belief as to all other matters, based upon the
investigation conducted by and through his attorneys, which included, inter alia, a
review of documents filed by Defendants with the United States Securities and
Exchange Commission (the SEC), news reports, and other publicly available
documents.
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I.
future control over Facebook, Inc. (Facebook or the Company), 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 nonvoting shares to current stockholders (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.
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
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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.
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.
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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.
Zuckerberg.
Facebook indefinitely, even decades after Zuckerberg gives away most of his
wealth to philanthropic and public advocacy initiatives that he and his wife will
oversee, regardless of Facebooks performance over those decades. The massive
issuance of non-voting Class C sharesand Zuckerbergs ability to sell those
shares without also selling voting shareswill allow him to retain a majority of the
voting power over Facebook even if he reduces his personal shareholdings from
14.8% to 5%. Given expected future financings, acquisitions, and equity awards
using newly issued non-voting stock, Zuckerberg can expect to retain control over
Facebook even as his percentage ownership of the Company further decreases.
9.
Company. Zuckerberg is being granted power to control the Company for decades
after he divests the bulk of his wealth, even if he is no longer CEO, and after he
has established a massive philanthropic endeavor.
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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. Its most financially sophisticated member was 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.
11.
Having taken that position, the Special Committee did not bother
The Special
for cause and upon his death. But none of the new provisions create any practical
restraint commensurate with the grant of future control:
a.
b.
c.
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12.
Zuckerberg and the other directors chose not to afford the public
stockholder, will exercise the voting power to amend the charter at the upcoming
annual meeting, without any need to obtain approval of a majority of the
unaffiliated stockholders.
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
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.
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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.
II.
PARTIES
15.
Plaintiff Kenneth Elan is, and at all relevant times has been, a
stockholder of Facebook.
16.
She has served as the Companys Chief Operating Officer since 2008. In 2015, the
Company paid Sandberg over $18 million in cash, stock, and other compensation.
18.
serves as Chief Executive Officer of WhatsApp Inc. (WhatsApp), a whollyowned subsidiary of Facebook that provides mobile messaging services. When
Koum joined Facebook as an employee in October 2014, he was given 24,853,468
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restricted stock units that will vest and settle over a four-year quarterly vesting
schedule, as long as Mr. Koum remains employed by the Company.
19.
Defendant Peter Thiel has been a Facebook director since 2005. Thiel
since 2013. She is the CEO of the Bill & Melinda Gates Foundation.
23.
III.
SUBSTANTIVE ALLEGATIONS
A.
Issuance began no later than August 2015 and were sparked by Zuckerbergs
concerns that he might lose control over the Company:
During August 2015, Mr. Zuckerberg discussed with our board of
directors that if he were to donate or otherwise dispose of a significant
number of his shares of our capital stock to further his philanthropic
aims, if we were to make one or more large stock-based acquisitions,
or if we were to issue a significant amount of equity-based
compensation awards to our service providers, we might no longer be
founder-controlled.
26.
Committee to evaluate a potential reclassification and appointed DesmondHellman, Andreessen and Bowles as its members. The Special Committee hired
Evercore Group LLC (Evercore) and Wachtell, Lipton, Rosen & Katz
(Wachtell) as its financial and legal advisors, respectively.
27.
fairness opinion.
28.
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Since its formation in August 2015, the Special Committee has met
numerous times and also has had frequent conversations. The Special
Committee has sought advice from its advisors (i) in evaluating the
benefits and disadvantages of the company implementing a
reclassification versus maintaining the status quo and (ii) in assisting
the Special Committee in its deliberations and negotiations with
respect to the terms of a potential reclassification. The Special
Committee has considered, and received advice from its advisors on,
the likely effects of a reclassification on our share price, capital
structure, governance, management, operations, and investor relations.
Furthermore, the Special Committee has reviewed and discussed
several recent reclassifications effected by other founder-controlled
companies with dual-class common stock and has considered the
terms of those reclassifications as well as the effects of those
transactions on the reclassifying companys share price, capital
structure, governance, management, operations, and investor relations.
the Share Issuance. On April 22, 2016, the Board of Directors voted unanimously
to approve the Share Issuance, with the employee directors abstaining.
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B.
that (i) if Zuckerberg sells down his Class B stock below a majority, he must
convert all Class B stock into Class A stock; (ii) Zuckerberg cannot vote for or
tender into any merger, consolidation, or acquisition that would give differential
treatment to any class of stock; and (iii) Zuckerberg must, from time to time,
discuss succession planning with the Board.
33.
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34.
exercise of control over the Company for as long as he wishes. The benefits to
public stockholders are entirely illusory.
35.
the independent directors, after which time Zuckerberg is afforded sixty days to
cure the condition, followed by another vote by 75% of the independent directors
(who Zuckerberg may replace in the interim). Approved Executive Officer, is
defined so loosely as to include service as Executive Chairman of the Board of
Directors or service in a policy making function. Zuckerberg may even take a
leave of absence to serve in a government position without triggering conversion
of his high-vote shares. Finally, the required conversion of his shares within three
years of his death is meaningless, given his stated goal of donating 99% of those
shares within his lifetime.
C.
affecting his control position. As one large Facebook investor noted in an April
28, 2016 Bloomberg report, [i]ssues of share dilution come up much sooner for
[technology] companies, which offer a large portion of compensation through
stock. Moreover, Facebook has a history of making large acquisitions with
significant stock components.
38.
effectively, gives Zuckerberg perpetual control of Facebook. Not only does the
Share Issuance give Zuckerberg a way to liquidate his own stake without reducing
his control, it means that Facebook will now be able to use Class C stock for future
acquisitions and employee compensationhalting the natural erosion of
Zuckerbergs control through future dilutive issuances.
D.
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41.
The Preliminary Proxy makes clear that the Special Committee and
Under the first heading, the Preliminary Proxy explicitly recites the
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the best interests of the Company over the foreseeable future, it is not obvious why
Zuckerbergs control over Facebok should be cemented over his lifetime, into the
far, unforeseeable future. Zuckerberg will turn 32 years of age on May 14, 2016.
He potentially could retain control over Facebook for the next six decades, long
after his percentage ownership of the Company could be miniscule. Zuckerbergs
accomplishments to date do not justify cementing his control for the next sixty
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decades. 10 At some point, Facebook will confront challenges that other mature
technology companies, such as Apple or Microsoft, face in which case different
skill sets and perspectives may be deemed essential. The Board of Directors has
foreclosed a future board from having the power to make hard decisions about the
future leadership of the Company, even after Zuckerberg may have sold off his
3
See, e.g., Tim Arango, How the AOL-Time Warner Merger Went So Wrong, N.Y.
Times (Jan. 10, 2010).
4
See, e.g., Nicholas Carlson, MARISSA MAYER AND THE FIGHT TO SAVE YAHOO!
(2015).
See, e.g., Eyder Perelta, News Corp. Takes Huge Loss, Selling Myspace for $35
million, NPR (June 29, 2011).
6
See, e.g., Jason Del Rey, Groupon Founder Says Groupon Is Like Morphine.
New CEO Says Its Just Misunderstood, RE/CODE (November 21, 2015).
7
See, e.g., Jim Cramer, What the LinkedIn disaster means to you, CNBC (Feb. 8,
2016).
See, e.g., Christopher Williams, Hard and hurting: what now for Twitter, The
Telegraph (Jan. 25, 2016).
10
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Class C stock and may have radically misaligned incentives. The Share Issuance
disables the stockholders and Board from taking action in the future to replace
Zuckerberg as CEO without cause.
E. The Board And Special Committee Were Conflicted
46.
compensated Facebook employees, Sandberg and Koum, the latter of whom was
the co-founder of WhatsApp; three other founders, Hastings, Thiel, and
Andreessen, two of whom espouse a pro-founder business approach and each of
whom has benefited professionally from their ties to Zuckerberg; plus DesmondHellman, who is closely tied to Bill Gates and the facilitation of tech founder
philanthropy.
48.
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Netflix that Hastings personally lobbied Congress for an amendment to the Video
Privacy Protection Act of 1988 to permit this form of sharing. When the initiative
was launched in March 2013, Netflix shares shot up by over 6%.
49.
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Business Insider stated that for Thiel, the appeal of being on Facebooks board is
obvious. As one source who has discussed Facebook with him put it, Is it that bad
to be on the board of a $40 billion company? No, it is not that bad. Especially for
a startup investor like Thiel, who gets good deal flow thanks to his high profile.
51.
capitalist who has benefited from his board seat at Facebook. In his own words:
Deal flow is everything If youre in a second-tier firm, you never get a chance
at that great company. In 2012, Zuckerberg agreed that Facebook would purchase
Instagraman Andreessen Horowitz portfolio companyin a cash-and-stock
transaction valued at $1 billion at a time when the company had just thirteen
employees and no revenue. As a result of the sale of Instagram, Andreessen
Horowitz made $78 million from a $250,000 seed investment. 12
In 2014,
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52.
As Felix Salmon wrote in an April 26, 2012 piece for Reuters, Andreessens main
job there [on Facebooks board] is to ensure that Mark [Zuckerberg] can do
whatever he wants, to provide a layer of insulation between Zuckerberg and
shareholders.
54.
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and yield superior investment returns. [W]e set out to design a venture capital
firm that would enable founders to run their own companies[.] (emphasis
original). 13 Andreessen could not resist Zuckerbergs attempts to cement his
control over Facebook without repudiating his firms core sales pitch.
55.
regarding the Share Issuance began and shortly before Zuckerberg announced the
Chan Zuckerberg InitiativeAndreessen sold more than 73% of his total
ownership stake in Facebook for approximately $160 million.
56.
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(a) individually, and (b) as a class action pursuant to Rule 23 of the Rules of the
Court of Chancery of the State of Delaware on behalf of himself and all
stockholders of Facebook (except the Defendants herein, and any person, firm,
trust, corporation or other entity related to or affiliated with any of the Defendants)
to redress the Defendants breaches of fiduciary duty.
58.
59.
impracticable. The Company has over 2.3 billion Class A shares outstanding.
Consequently, the number of Class members is believed to be in the hundreds of
thousands and scattered across the world.
There are questions of law and fact which are common to all Class
members and which predominate over any questions affecting only individuals,
including:
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a.
b.
62.
members of the Class alike, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the Class as a whole.
65.
COUNT I
Breach of Fiduciary Duty Against Director Defendants
66.
Plaintiff repeats and realleges each and every allegation above as if set
The Director Defendants owe Plaintiff and the Class the utmost
Defendants have violated their fiduciary duties of care and loyalty by, among other
things, agreeing to the Share Issuance which will unfairly transfer future control to
Zuckerberg.
69.
As a result of the foregoing, Plaintiff and the Class have been harmed,
as their influence over Company operations and strategy will be diminished and
they stand to be frozen out of management decisions on an ongoing, long-term
basis, and the value of their investment is at immediate risk.
70. The Plaintiff and the Class have no adequate remedy at law.
COUNT II
Breach of Fiduciary Duty Against Zuckerberg
71.
Plaintiff repeats and realleges each and every allegation above as if set
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72.
owes Plaintiff and the Class the utmost fiduciary duties of care and loyalty.
73.
duties and continue to breach his fiduciary duties. In particular, Zuckerberg has
violated his fiduciary duties by, among other things, causing the Board to agree to
the Share Issuance which will unfairly transfer future control to Zuckerberg.
74.
As a result of the foregoing, Plaintiff and the Class have been harmed,
as their influence over Company operations and strategy will be diminished and
they stand to be frozen out of management decisions on an ongoing, long-term
basis, and the value of their investment is at immediate risk.
75.
76.
Plaintiff repeats and realleges each and every allegation above as if set
breached their fiduciary duties and continue to breach their fiduciary duties.
78.
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B.
C.
D.
E.
Awarding Plaintiff and the Class such other relief as this Court deems
just, equitable and proper.
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OF COUNSEL:
BRAGAR EAGEL & SQUIRE, P.C.
Jeffrey H. Squire
Lawrence P. Eagel
David J. Stone
J. Brandon Walker
Todd H. Henderson
885 Third Avenue, Suite 3040
New York, New York 10022
(212) 308-5858
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