18-03-08 Delaware Evans Complaint
18-03-08 Delaware Evans Complaint
,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
EFiled: Mar 08 2018 05:57PM EST
Transaction ID 61779422
Case No. 2018-0164-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
Plaintiff,
C.A. No.
v.
QUALCOMM INCORPORATED,
BARBARA T. ALEXANDER,
JEFFREY W. HENDERSON,
THOMAS W. HORTON, DR. PAUL E.
JACOBS, ANN M. LIVERMORE,
HARISH MANWANI, MARK D.
MCLAUGHLIN, STEVE
MOLLENKOPF, CLARK T. RANDT,
JR., DR. FRANCISCO ROS, and
ANTHONY J. VINCIQUERRA,
Defendants.
brings this Verified Class Action Complaint (the “Complaint”) individually and on
successors and assigns, other than Defendants and their affiliates, against the board
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James Evans v. Qualcomm, Inc., et al.,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
Investment in the U.S. (“CFIUS”) order the last-minute postponement of the long-
they were going to lose. On information and belief, they had CFIUS modify its
initial order to preserve a stale record date and to permit their defeated slate to
solicit proxies for an additional thirty days in an effort to reverse the outcome of
the election.
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depriving the Qualcomm stockholders of their right to choose directors and asking
(“Hill”), John H. Kispert (“Kispert”) and Harry L. You (“You”), are apparently
U.S. citizens and the one who apparently is a citizen of another country, is not
from China. The Independent Nominees are not directors, officers or controlling
other corporations, including other U.S. companies. Their credentials are similar
to the experience Qualcomm claims makes its nominees for outside directors
highly qualified.
to the Qualcomm Board, the Independent Nominees will act in accordance with
their independent judgment and Delaware law fiduciary duties to Qualcomm and
its stockholders, and that Broadcom will not dictate their decisions as Qualcomm
directors. Indeed, precedent indicates that the Independent Nominees will act in
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representations about the independence of its proposed nominees and stated that
the nominees would act in the Airgas stockholders’ best interest. Air Prods. &
Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 72 (Del. Ch. 2011). After the Air
Products nominees were elected Airgas directors, they were some of the most
vocal opponents of the proposed transaction between the two companies. Id. at 89.
Yet here, even though these experienced director nominees would serve
corporate law, Defendants seek to have these fine business people disqualified
been put in office by Qualcomm’s public stockholders (over 90% of whom are
U.S. citizens), not Broadcom. However, the Board is asserting that CFIUS should
choice.
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bylaw and stock plan amendments, executive compensation and even selection of
matters.
and their secret lobbying efforts. Qualcomm stockholders are entitled to know that
transaction with Broadcom and the opportunity of the stockholders to vote for new
Plaintiff
stockholder of Qualcomm.
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Defendants
and Chairman of the Board. Jacobs has been Executive Chairman and Chairman
since March 2014 and March 2009, respectively, and a director since June 2005.
Jacobs was Chief Executive Officer (“CEO”) of Qualcomm from July 2005 to
March 2014, Group President of Qualcomm Wireless & Internet from July 2001 to
July 2005, and an Executive Vice President from February 2000 to July 2005.
Since 2014, Jacobs has received over $80 million in compensation and benefits
and a director of Qualcomm. Mollenkopf has been Qualcomm’s CEO since March
2014 and a director since December 2013. Mollenkopf was CEO-elect and
President of Qualcomm from December 2013 to March 2014 and President and
Mollenkopf was Executive Vice President and Group President from September
Qualcomm in 1994. Since 2014, Mollenkopf has received over $90 million in
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Qualcomm director since July 2006 and is the Chair of the Compensation
Committee.
director since December 2008. Horton is the Presiding Director of the Board and a
Committee.
director since October 2013 and is the Chair of the Governance Committee.
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Ros was a senior director of business development at Qualcomm from July 2003 to
April 2004.
cash or deferred stock units, additional retainers for service as the Presiding
Director or committee chairs, meeting fees for committee meetings and $200,000
annually in deferred stock units. Though the outside directors all receive in excess
of $300,000 per year in compensation from Qualcomm, the Board considers them
“independent.”
the laws of the State of Delaware, with its principal executive offices located at
5775 Morehouse Drive, San Diego, California 92121. Qualcomm develops and
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the NASDAQ Global Select Market under the symbol “QCOM.” As of January 8,
corporation. On February 23, 2018, Broadcom filed Amendment 1 to its Form S-4
takes any action toward redomestication, thereby halting the process of Broadcom
owned less than a million (or 0.069%) of Qualcomm’s nearly 1.5 billion
outstanding shares.
experience with large technology companies. From 2012 to May 2017, Elhage
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headquartered in Finland that trades on the New York Stock Exchange. Elhage’s
positions at Nokia included serving as: (i) President of the Mobile Business Group
from 2016 to May 2017; (ii) Chief Financial Officer (“CFO”) and COO of Nokia
subsidiary Nokia Siemens Networks from 2012 to 2015; and, (iii) as CFO and
COO of Nokia subsidiary Nokia Networks from 2012 to 2013. At Nokia, Elhage
Nortel, Elhage served as President of the Carrier Voice and Applications division
from 2008 to 2010 and in various other leadership positions from 1998 to 2008.
Elhage also has board experience that includes having served as director at A-L
from 2016 to April 2017 and Quickplay Media Inc., a private corporation located
in Canada, from 2012 to 2016. In 2016, 2015 and 2014, Elhage earned
excludes the income he received from his board service at A-L and Quickplay
Media, Inc. Elhage holds bachelor’s degrees from the University of Ottawa and a
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Blackbaud, Inc., a $4.9 billion Delaware corporation and cloud software company
headquartered in South Carolina, from 2010 to 2017; (ii) Everyday Health, Inc.,
formerly a Delaware corporation headquartered in New York, from 2009 until its
sale in 2016; and, (iii) Barnes & Noble, Inc., a Delaware corporation headquartered
in New York, from 2010 until 2015. Golden also currently serves on the boards of
several private companies and is a member of the Advisory Board of Partners for
Growth, L.P., a leading venture lending firm located in San Francisco, California.
California, since 2013; a Partner and Executive Vice President at Revolution LLC
Case and headquartered in Washington D.C., from 2006 to 2012; and, as Executive
Chairman at Code Advisors, a private investment bank in San Francisco, from its
founding in 2010 through 2012. In 2017 and 2016, Golden received $219,999 and
$194,992 in director fees for his service on the board of Barnes & Noble
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Revolution, Golden spent 18 years, including five years as Vice Chairman, with
J.P. Morgan Securities. Golden also has legal experience, including working as an
associate from 1984 through 1987 at the law firm of Davis Polk & Wardwell and a
law clerk for the Honorable Charles M. Merrill of the U.S. Court of Appeals for
the Ninth Circuit. Golden received an A.B. from Harvard University and a J.D.
from Harvard Law School, where he was an editor of the Harvard Law Review.
lead independent director from 2014 to 2016; and American Water Works
since 2016. In 2016, Hagen received a total of $780,110 in director fees for her
and American Water Works Company. In 2015 and 2014, Hagen received a total
of $560,264 and $518,453 in director fees from Newmont Mining Corporation and
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managing companies as part of the senior management team. Hagen served as the
President and CEO of Polymer Group, Inc., a leading global producer and marketer
and CEO of Sappi Fine Paper, a division of the South African based global paper
and business unit president. Hagen holds a bachelor’s degree from the University
of Southern California.
companies in the U.S., since 2004; WellPoint Health Networks Inc., an $80 billion
U.S. health insurer, since 1994; Lend Lease, Ltd., a $7 billion multinational
and, Holcim US, the U.S. subsidiary of Holcim Limited, a supplier of cements and
aggregates, from 2003 to 2007. Hill has also been a trustee of the Lord Abbett
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Family of Mutual Funds, the oldest U.S. mutual fund management firm with $100
billion currently under management, since 2004. In addition, Hill chairs the Board
Paul Merage School of Business Dean’s Advisory Council and Center for Real
Estate Advisory Board, the Foundation Board, the Social Ecology School’s Dean’s
Leadership Council, the School of Medicine’s Dean’s Advisory Board, the Law
School Board, and the Center for Digital Transformation Board. Hill has owned
The Hill Company, an investment, consulting and advisory company, since 2002.
In each of 2016, 2015 and 2014, Hill received more than $300,000 in director fees
from her board service at Anthem. Hill’s income was materially greater than this
during these years, as this amount excludes the income Hill received from her
services at Wellpoint Health Networks Inc., Lord Abbett and the University of
California at Irvine and her ownership of The Hill Company. Hill holds a B.A.
from the University of California Los Angeles and a master’s degree from the
University of Georgia.
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in Delaware and headquartered in California, from 2015 until 2016; and, Spansion,
manufacturer of flash memory products, from February 2009 until March 2015.
a venture capital firm located in Los Gatos, California, since March 2016, and as
President and CEO of Spansion from February 2009 until March 2015, when
Spansion completed its merger with Cypress. In 2016, Kispert earned nearly $1.4
million in director fees from his board service at Gigamon Inc., Barracuda
Networks, Inc., TriNet Group, Inc., Extreme Networks, Inc. and Cypress
board service at Gigamon Inc., Trinet Group, Inc. and Extreme Networks, Inc.
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Black Diamond Ventures. Kispert holds a B.A. from Grinnell College and an
has extensive experience running large technology companies. Since 2016, You
has been the President, CFO and director of GTY Technology Holdings Inc., a
software and services. From 2008 to 2016, You served as the Executive Vice
Inc. From 2005 to 2007, You was CEO of BearingPoint Inc., a leading IT and
Virginia. He also served as BearingPoint’s Interim CFO from 2005 to 2006. From
2004 to 2005, You served as Executive Vice President and CFO of Oracle
run with the takeovers of Peoplesoft, Inc. and Retek in 2005. From 2001 to 2004,
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the Computer and Business Services Group. You’s board experience includes
from 2004 to 2016, and Oracle Japan. You has been a trustee of the U.S. Olympic
Committee Foundation since 2016. In 2016, You received over $3.4 million in
connection with the merger of EMC Corporation and Denali Holdings, Inc. Since
co-founding GTY Technology Holdings, Inc. in 2016, You has received 13.68
million shares of EMC, which as of March 6, 2018, has an equity value of over
$136 million. You holds a B.A. from Harvard College and an M.A. from Yale
University.
BACKGROUND
recent years. Since closing at a high of $81.32 per share on April 17, 2014,
31. On April 14, 2016, Kenneth Y. Hao (“Hao”), a Broadcom director and
Managing Partner and Managing Director at Silver Lake Partners (“Silver Lake”),
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2016, but the parties did not discuss specific terms or pricing and, thereafter,
discussions stalled for reasons Qualcomm has not disclosed. However, because of
maneuvers.
announced that it entered into a Purchase Agreement with NXP pursuant to which
Qualcomm would acquire NXP in a tender offer (the “Tender Offer”) for $110 per
NXP share (the “NXP Transaction”). The Tender Offer was conditioned on the
tender of at least 95% of the outstanding shares of NXP or, if certain NXP
shareholder approvals were obtained, the tender of at least 80% of the outstanding
shares of NXP.
33. The announcement did little to improve the Company’s stock price,
which closed at $70.09 per share following the announcement of the NXP
Transaction. Over the next 12 months, the Company’s stock price steadily
declined.
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34. As the stock price fell, the Board revised its director and officer
September 21, 2017, the Compensation Committee adopted the 2018 Director
nonemployee directors. The plan became effective on January 1, 2018 and ensures
that the Qualcomm directors will receive their annual retainer of $100,000 for the
calendar year in cash or deferred stock units ($120,000 for non-U.S. resident
directors) in addition to $200,000 worth of deferred stock units for their service on
the Board. The plan also ensures that the Presiding Director and committee chairs
will be paid additional yearly retainers ranging from $15,000 to $35,000 and
meeting fees for committee meetings. Also, on September 21, 2017, the
units to the Company’s named executive officers with the exception of Mollenkopf
awards, granting each of them five years’ worth of restricted stock units in 2014.
Company’s bylaws which purportedly will impact the super majority voting
The Qualcomm Board has not disclosed the text of the proposed bylaw
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amendments but asserts that these amendments will become effective upon the
over 20% below the trading price of the Company’s stock upon the announcement
of the NXP Transaction. The next day, rumors began circulating in the media that
Broadcom was planning to unveil a bid to acquire Qualcomm. Reuters noted that
the “bid comes as Broadcom plans to move its headquarters to the United States
United States . . . .”2 Upon those reports, Qualcomm’s stock price jumped nearly
3, 2017.
1
Liana B. Baker and Greg Roumeliotis, Broadcom plans record tech deal with
Qualcomm bid: sources, Reuters (Nov. 3, 2017).
2
Id.
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Transaction”) for $70 per share, consisting of $60 in cash and $10 per share in
Broadcom stock (the “Initial Proposal”). The Initial Proposal represented a 28%
premium over the unaffected price of Qualcomm stock on November 2, 2017 and a
Qualcomm issued a press release announcing that the Board unanimously rejected
the Initial Proposal. According to Horton, the Presiding Director of the Board,
“the Board has concluded that [the Initial Proposal] dramatically undervalues
Qualcomm and comes with significant regulatory uncertainty.” The press release
39. Later that day, Broadcom issued a press release announcing that it
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40. On November 16, 2017, Qualcomm filed with the SEC a Form 8-K
with NXP stockholders for the Tender Offer. As of November 16, 2017, only
2.4% of NXP shares had been validly tendered (and not withdrawn) in connection
with the NXP Transaction. The next day, Qualcomm extended the offering period
of the Tender Offer from November 17, 2017 to December 15, 2017.
stock in connection with the Proposed Transaction.3 Reuters noted that Broadcom
had made “several requests for a meeting with Qualcomm since it unveiled its offer
on Nov. 6,” but that “Qualcomm has so far rejected these meeting requests . . . .”4
Broadcom issued a press release announcing that it had notified Qualcomm of its
intention to (i) nominate a slate of 11 directors for election to the Board to replace
3
Liana B. Baker and Greg Roumeliotis, Broadcom considering sweetened
Qualcomm bid: sources, Reuters (Nov. 22, 2017).
4
Id.
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the incumbent directors, and (ii) present other unspecified proposals for
intention to nominate four alternate nominees in the event that (i) Qualcomm
increased the size of the Board, (ii) Qualcomm took action to disqualify
45. Later that day, Qualcomm issued a press release confirming receipt of
transaction “which could not be completed for well over a year, if ever, given the
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issues . . . .” The press release also took issue with the purported “uncertainty
regarding its financial performance for the fourth fiscal quarter and fiscal year
ended October 29, 2017. During the earnings call, Broadcom rebutted
“confident that [its] shareholders will support this move . . . .” Broadcom also
in a timely manner.”
Improvements Act of 1976 with the U.S. Department of Justice Antitrust Division
and the Federal Trade Commission in connection with the Proposed Transaction.
Limited (“Elliott”) publicly advocated its position that NXP was worth $135 per
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share, or $25 more than the $110 per share transaction price. That same day,
Qualcomm issued a press release stating that “Elliott’s value assertion for NXP is
unsupportable and is clearly nothing more than an attempt to advance its own self-
serving agenda. We remain fully committed to closing the acquisition of NXP and
believe that the agreed-upon price of $110 is full and fair.” (Emphasis added).
49. On December 15, 2017, Qualcomm extended the offering period of its
Tender Offer from December 15, 2017 to January 12, 2018. Qualcomm also
disclosed that only 1.9% of the outstanding NXP common shares had been
51. Also, on December 20, 2017, the Board, upon the unanimous
Severance Plan (the “Severance Plan”). The Severance Plan broadly defines
(who is regularly scheduled to work at least twenty (20) hours per week) . . . .” As
noted by Bloomberg, the Severance Plan provides that employees will be eligible
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for severance under a broad range of conditions, such as being fired “without
cause” or if they choose to leave for “good reason,” such as “a material reduction
in their salary or a move of their main workplace to a location more than 50 miles
away.”5 While severance payments are determined based on “salary, rank and
tenure . . . . [t]he amounts would range from at least four weeks of salary for lower-
Plan defines the “Company” to mean “Qualcomm Incorporated and any successor
thereto or, if applicable, the ultimate parent of any such successor.” (Emphasis
likely pursue if the transaction is completed.”6 Given the size of Qualcomm and its
employees, these severance costs will be substantial, and will further increase in
5
Alex Barinka, Qualcomm Workers Would Get Payouts If Broadcom Shakes
Things Up, Bloomberg Technology (Jan. 10, 2018).
6
Id.
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Qualcomm.7
53. Also on December 20, 2017, the Qualcomm Board, upon the
Plan and the Qualcomm Incorporated 2006 Long-Term Incentive Plan (together,
the “LTIPs”) which call for increased compensation for LTIPs participants—
directors are not reelected. Specifically, the amendment to the LTIPs (the “LTIP
The LTIPs provide for the acceleration of the exercisability and vesting of awards
granted under the LTIPs in the event of a termination upon a Change of Control.
54. Thus, in the face of Broadcom’s proxy fight, the Qualcomm Board
took defensive measures that would ensure a payday for certain employees and
7
According to a Form 6-K filed by NXP with the SEC on March 2, 2018, NXP
“has 30,000 employees in more than 30 countries . . . .”
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incumbent Qualcomm directors in the event that (i) the Independent Nominees
terminated. The Qualcomm proxy issued in advance of the Annual Meeting values
$20,634,358, respectively.
Annual Meeting. As the Broadcom Proxy indicates, none of the 11 nominees are
employed by, affiliated with, or have any material relationship with Broadcom,
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the independent nominees because the Board refused to engage with Broadcom in
its $70 per share acquisition proposal, despite Broadcom’s repeated efforts to enter
into negotiations. The Broadcom Proxy provides that Broadcom expects that the
independent nominees, if elected, will engage with Broadcom in good faith and in
without stockholder approval up to and including the date of the Annual Meeting
that changes the bylaws in any way from the version that was publicly filed with
statement for the Annual Meeting (the “Qualcomm Proxy”), confirming the
the expiration of the NXP Tender Offer from January 12 to February 9, 2018.
Qualcomm also disclosed that, as of January 11, the number of NXP’s outstanding
shares validly tendered (and not withdrawn) had further decreased to 1.7%.
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61. On January 23, 2018, Qualcomm filed a Schedule 14A with the SEC
and sent a letter to stockholders expressing the Qualcomm Board’s view that
standalone entity and identifying concerns about the risk that the proposed
Qualcomm to offer terms for an improved acquisition proposal. Qualcomm did not
Co. LLC (“Goldman”), stated it would need to speak with Qualcomm, but
Broadcom did not hear back from Goldman, and Qualcomm did not otherwise
respond.
Board outlining the terms of its improved proposal, which included increasing the
per share in cash and $22 per share in Broadcom stock. Broadcom’s improved
proposal was a 56% premium to Qualcomm’s 30-day VWAP, and a 50% premium
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last trading day prior to media speculation regarding the Potential Transaction. In
its letter, Broadcom wrote, “[w]e believe any responsible board would engage with
us, without further delay, to turn this proposal into an executed definitive
agreement.”
64. According to proxy advisor Glass, Lewis & Co. (“Glass Lewis”),
Broadcom’s increased bid ranked among the top decile of premiums paid in
announced transactions greater than $25 billion since 2001 (excluding financially
distressed targets). Indeed, Qualcomm’s stock has traded above $82 per share on
only three days during the Company’s 26+ year history as a public company.
in the cash consideration if the Proposed Transaction is not consummated one year
Qualcomm Chairman Jacobs and a second Qualcomm director to join the board of
acquiring NXP on the currently disclosed terms of $110 per NXP share; and (ii)
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Qualcomm not delaying or adjourning its Annual Meeting past March 6, 2018.
66. Also, on February 5, 2018, Broadcom filed a Schedule 14A with the
only one [issue] that is a clear-cut antitrust hurdle, and that’s with
respect to the Wi-Fi networking processors. But this is not a problem
for the transaction because Broadcom has always understood that it
would need to sell that part of Qualcomm, and that’s Broadcom’s
plan. In fact, Broadcom has already begun advising the antitrust
regulators that it intends to divest that business. There shouldn’t be
any problem selling it, because it’s a valuable business and Broadcom
is quite experienced in divesting businesses, so that overlap—the most
serious antitrust issue in this deal—won’t be a problem.
2018 in which Broadcom wrote: “It is clear from our discussion with investors and
8
See, e.g., Kevin O’Leary, Shark Tank, CNBC (Feb. 5, 2018) (“There are many
shareholders, including me, who think Qualcomm is very poorly managed. I
would like adult supervision to come in from Broadcom . . . .”).
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2, Qualcomm promptly issued a press release confirming its receipt of the revised
proposal, which the Qualcomm Board stated it would consider and assess.
about the specific terms of Broadcom’s improved proposal (i.e., the amount of the
reverse termination fee), Qualcomm rejected Broadcom’s $82 per share proposal
a meeting on February 10 or February 11, but Qualcomm stated that it was unable
to meet until at least February 13. Undeterred by the Board’s delay, Broadcom
regulatory reverse termination fee and a 6% per annum regulatory ticking fee on
the cash portion of the merger consideration (net of dividends). Broadcom also
publicly filed a copy of the draft merger agreement with the SEC.
February 23, 2018. As of February 8, only 1.5% of NXP’s outstanding shares had
been validly tendered (and not withdrawn). Thus, as Broadcom continued its
preferred deal with NXP continued to slip out of reach at the agreed-upon price.
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Broadcom entered into a commitment letter with a group of twelve (12) financial
revolving credit facility and bridge financing. Broadcom also secured $6 billion of
convertible note financing from investment funds affiliated with Silver Lake,
Kohlberg Kravis Roberts & Co. L.P. and CVC Capital Partners Advisory (U.S.)
sufficient to fully fund the $60 per share component of Broadcom’s proposal and
Broadcom eliminated any purported concern about its ability to finance the cash
portion of its acquisition proposal – one of the Qualcomm Board’s early critiques
of Broadcom’s proposal.
73. Also, on February 12, 2018, Broadcom filed another Schedule 14A
with the SEC addressing Qualcomm’s purported concerns about the regulatory
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(Emphasis added).
74. Qualcomm’s defensive and feigned concern over the regulatory issues
plaguing Qualcomm. Since early 2017, Qualcomm has been embroiled in a bitter,
multi-country legal dispute with one of its largest and most important customers,
Apple Inc. (“Apple”), over accusations that Qualcomm overcharged Apple for the
use of its technology. The damages in the Apple dispute total over $1 billion. In
addition to the Apple dispute, Qualcomm has drawn the ire of regulators across the
Company’s trade practices have also subjected it to fines of $927 million by the
Korean Fair Trade Commission and $778 million by the Taiwan Fair Trade
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Nominees Elhage, Golden, Hagen, Hill, Kispert and You. Broadcom explained in
a press release that day that it reduced the number of its nominees in recognition of
board. . . .”
76. On February 14, 2018, Qualcomm and Broadcom finally met. At the
meeting, Broadcom stated that its $82 offer was its “best and final” proposal and
77. Two days later, Qualcomm Chairman Jacobs stated that Broadcom’s
maximizing value for Qualcomm stockholders given “the tenor of [the Board’s]
stockholders that the Qualcomm Board could use the NXP Transaction as a
defensive measure. ISS noted that while the NXP Transaction “will doubtfully get
done at $110 since NXP continues to trade around $117[,] . . . the Qualcomm
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79. On February 20, 2018—despite having stated just two months prior
that the $110 per share tender offer for NXP was “full and fair”—Qualcomm and
Purchase Agreement”) which increased the Tender Offer consideration from $110
per share to $127.50 per share and reduced the minimum number of NXP shares
80. Broadcom criticized the Qualcomm Board for executing the Amended
Purchase Agreement. Broadcom noted that: (i) Qualcomm previously stated that
$110 per NXP shares was a “full and fair” price; (ii) Qualcomm did not have
(which was among Qualcomm’s criticisms of the Proposed Transaction); and (iii)
disregard for its fiduciary duty to maximize value for Qualcomm’s stockholders.
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Broadcom regarding its value-maximizing offer and the terms of the NXP
Transaction.
81. Also, on February 20, 2018, Glass Lewis issued its recommendation
regarding the Annual Meeting in which Glass Lewis characterized the timing of
“FOR” all of the Independent Nominees at the Annual Meeting. Glass Lewis
explained that the Board’s behavior in dragging its feet through the Broadcom
negotiations suggested that the Board was unwilling to engage in substantive, good
faith negotiations and “should concern shareholders” such that “a change in the
Broadcom lowered its acquisition proposal to $79 per Qualcomm share (consisting
of $57 in cash and $22 in Broadcom stock). Thus, not only did the Amended
Purchase Agreement divert $4.10 per share from Qualcomm stockholders, but it
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also resulted in a $3 per share reduction in the price Qualcomm stockholders could
receive in the Proposed Transaction. Even at $79 per share, however, the Proposed
remained the same, including the $8 billion reverse termination fee. The proposed
per Qualcomm share, or a total of $82 per Qualcomm share, in the event the NXP
February 22, 2018, Broadcom filed a Schedule 14A with the SEC reporting that, as
of that date, Broadcom (i) committed to divest two main areas of product
chip businesses (which Qualcomm stated otherwise posed antitrust concerns); (ii)
agreed to take any other actions required by regulatory agencies with respect to
Qualcomm’s other businesses and assets subject to the “Material Adverse Effect”
standard; (iii) was working on an anticipated second request from the U.S. Federal
Trade Commission; and, (iv) met with MOFCOM in China and started a pre-filing
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86. Facing likely defeat in the proxy contest based on the votes
determined they would seek to preclude the Qualcomm stockholders from any
2018, Defendants secretly filed a voluntary unilateral notice for CFIUS to review
Broadcom’s solicitation of proxies. Defendants still have not released their secret
letter or provided a full and fair summary of its contents to the Qualcomm
stockholders. Indeed, Defendants’ proxy materials filed after January 29, 2018 do
not mention the letter or their subsequent communications with CFIUS and various
stockholder would want to know that the incumbent directors were seeking to take
the decision of who should be the directors of Qualcomm out of the hands of the
Qualcomm stockholders and place that decision into the hands of a committee of
political appointees from various federal agencies presided over by the politically
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Homeland Security, Energy, State and Commerce and other political appointees.
87. To turn the decision of who should be Qualcomm directors into even
more of a political football, Defendants then enlisted various U.S. Senators and
totalitarian states that purport to have elections, Defendants are using political
pressure and government power to force the opposition slate out of the contest.
Hunter made a similar appeal to the Secretary of Defense by letter dated March 1,
Qualcomm may not have had to directly ask for a CFIUS review,
however, because some friends reportedly did it for the company.
According to recent reports, Sen. John Cornyn, R-Texas, and Rep.
Duncan Hunter, R-Calif., sent letters requesting the review.
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Independent Nominees.
connections and capital given the ongoing federal criminal investigation into
funds for personal use. His campaign expenditures came under scrutiny in April
expenditures by his campaign for video games and school tuition, leading to
executed a search warrant for the offices of Hunter’s campaign treasurer seeking
involving the video game purchases and the falsification of documents. Since
April 2016, Hunter has reimbursed his campaign for more than $60,000 in
expenses for, among other things, video games, oral surgery, groceries, garage
door repair, family vacations, surfing equipment, dance recital trips, school
9
Therese Poletti, Qualcomm was losing in takeover battle with Broadcom, then the
government stepped in, Marketwatch.com (March 5, 2018).
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lunches, school tuition and school uniforms, which he claimed were personal,
91. On February 26, 2018, U.S. Senator John Cornyn wrote to Treasury
few days prior by Representative Hunter and urging CFIUS to act prior to the
on March 6.” On February 28, 2018, Congressman Scott Peters, who received
the Treasury Secretary demanding that CFIUS prevent “the Chinese company
Board. Instead, the March 1, 2018 letter asserts that CFIUS can “review proxy
contests” and disqualify the Independent Nominees “because the proposed change
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investments in China.
94. Qualcomm has been successfully investing in China for more than
fourteen years and has made substantial investments in recent years. In March 8,
technology and supercomputers; (ii) work with Chinese companies like Huawei to
break into overseas markets and to develop multinational brands; and (iii) $150
95. Broadcom identified some, but not all, of the joint ventures and
Guizhou Province unveiled a $280 million joint venture, which was majority
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stated that its $79 per share proposal was its best and final proposal. According to
Broadcom, at the meeting, “Qualcomm refused to confirm that it will hold its
Broadcom CEO Tan in connection with the parties’ February 23 meeting. Jacobs’
letter stated that Broadcom’s proposal, including its prior $82 per share proposal,
include, among other things, mutual due diligence and entering into a non-
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concerns regarding regulatory issues and other terms of the merger agreement.
effort to delay the March 6, 2018 Annual Meeting. Broadcom stated that its
proposal
99. Defendants’ scheme to have the federal government save them from
losing the election contest worked. On March 4, 2018, CFIUS issued an Interim
Order (the “Order”), which is essentially an injunction against the Annual Meeting,
including the election of directors. Section 1.1 of the Order provides that (i) the
Nominees); (ii) the acceptance or counting of any votes or proxies for Qualcomm
directors must stop; and (iii) no action may be taken to complete the election of
directors. Section 1.2 of the Order prohibits Qualcomm and the Board from
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stockholders from voting and requiring that Qualcomm’s incumbent Board remain
in office. It appears that now all incumbent boards need to do to avoid electoral
defeats is scream “China” and the federal government will mandate that they
remain in office.
100. Section 2.4 of the Order provides that the Order can be modified in
writing by CFIUS, including upon written request from Qualcomm. The Order
initially delayed the Annual Meeting and precluded the further acceptance or
counting of proxies. However, Defendants did not want (i) the meeting postponed,
which would require a change in the record date, or (ii) the acceptance and
counting of proxies to stop. The incumbent directors were losing and wanted 30
more days to solicit proxies from additional stockholders and superseding proxies
from stockholders who had already voted for the Independent Nominees. They
also wanted to keep the stale January 8, 2018 record date. CFIUS promptly
modified the Order to require that the March 6, 2018 Annual Meeting be opened
but then adjourned for 30 days without any substantive action, while deleting the
provision freezing the acceptance and counting of proxies (the “Modified Order”).
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the Annual Meeting. Thus, CFIUS (presumably at Defendants’ urging) changed its
Order to provide that, rather than be postponed 30 days, the Annual Meeting would
be opened on March 6 and then adjourned for 30 days, thereby allowing the
incumbent directors to keep the old record date. The Order was also modified to
allow the incumbent directors to solicit proxies for another 30 days in an effort to
101. Of course, the CFIUS Order and Modified Order did not restrict the
further defensive measures, such as proceeding with the NXP Transaction. These
one-sided orders gave the incumbent directors a 30 day do-over of the proxy
contest they had lost and 30 more days to deploy further defensive measures. The
CFIUS Modified Order gives the incumbents 30 days to use the orders from
CFIUS may just declare the incumbents as winners by default. In short, the weight
of the federal government has been thrown in favor of the incumbent slate in a
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102. Apparently the only bases for CFIUS preventing the Independent
Nominees from being elected were that they were nominated by Broadcom and
$100,000 is far less than the over $300,000 in compensation the incumbent
provides:
However, state law fiduciary duties were simply disregarded in the effort to have
103. Following its receipt of the Order and Modified Order, on March 5,
Stockholders and election of directors for at least 30 days so that CFIUS can fully
Qualcomm then announced on March 5, 2018 that to implement the March 4, 2018
Order:
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Qualcomm’s employees:
This delay extends the stockholder voting period so you will likely
continue receiving communications soliciting your vote. If you
haven’t already voted, it remains critically important that you vote only
on the WHITE proxy card to support Qualcomm’s highly-qualified
Board and discard any blue proxy materials you receive from
Broadcom.
Qualcomm’s plan to keep the record date, solicit additional proxies and try to
change existing votes during the federal injunction. Of course, Defendants are
taking full advantage of having had the federal government extend the game and
change the rules to favor the incumbent directors. Defendants are now seeking to
have the federal government decide the contest by throwing the Independent
106. While Defendants have claimed they were attempting in good faith to
engage with Broadcom, a March 5, 2018 letter from CFIUS confirms they were in
fact seeking not only to have the federal government preclude any transaction with
Broadcom, but also to preclude any election of directors other than the incumbents.
According to the March 5, 2018 letter of Aimen N. Mir of the Department of the
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Treasury announcing the CFIUS Order, Qualcomm initiated the CFIUS review that
The March 5 letter adopts Qualcomm’s self-serving descriptions of its business and
the Order nor the later Modified Order “preserve the status quo between Broadcom
and Qualcomm.” Those orders instead enable the incumbent directors to snatch
victory from the jaws of defeat through government intervention. The March 5
letter gives every indication that CFIUS has already determined the matter against
will now use the CFIUS letter to convince stockholders to change their votes.
107. News of the Order reached the market by the early morning of March
5, 2018, but Qualcomm did not publicly confirm receipt of the Order until a few
minutes prior to market close that day. By close of trading the next day, after
Qualcomm also released a copy of CFIUS’s March 5, 2018 letter and the Modified
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Order, Qualcomm’s stock closed at $62.14 – $2.60 lower than the $64.96 closing
108. The CFIUS Orders were an extremely odd move by the U.S.
company.11 It rarely reviews mergers before companies have entered into binding
contest for control over a board.12 As one DealBook article explained: “[CFIUS]
typically works behind closed doors and reviews deals only after they are
announced.”13
Proposed Transaction may have never attracted the regulatory body’s serious
10
Kate O’Keefe, Stue Woo, and Ted Greenwald, U.S. Government Intervenes in
Broadcom’s Bid for Qualcomm, Wall Street Journal (March 5, 2018).
11
Koh Gui Quing,Sonam Rai, U.S. security panel deals major blow to Broadcom’s
bid for Qualcomm, Reuters (March 5, 2018).
12
Therese Poletti, Qualcomm was losing in takeover battle with Broadcom, then
the government stepped in, Marketwatch.com (March 5, 2018).
13
Alan Rappeport, Cecilia Kang, and Chad Bray, Trump Administration Stalls
Largest Tech Merger in New Sign of Protectionism, DealBook.com (March 5,
2018).
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operations in the U.S.14 Its corporate headquarters are already in San Jose,
management team, including Broadcom CEO Tan, are American. U.S. investors
the U.S.
the U.S. business climate was improving. He further exalted Broadcom as “one of
the really great, great companies,” noting that Broadcom employs more than 7,500
workers across the U.S.15 According to Broadcom, it plans to re-domicile “no later
than May 6” – a move that would remove the transaction from the CFIUS’s
14
In its SEC filings, Qualcomm only discloses four companies that it believes
constitute “significant subsidiaries” within the meaning of Item 601(b)(21)(ii) of
Regulation S-K. Two of those four subsidiaries (Qualcomm Global Trading Pte.
Ltd. and Qualcomm Asia Pacific Pte. Ltd.) are incorporated in Singapore.
15
Trump announces semiconductor company with Lehigh Valley operations
moving headquarters to U.S., The Morning Call (Nov. 2, 2017).
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regulatory purview. However, the Order requires Broadcom to give five days’
Schedule 14A it filed with the SEC on March 5, 2018, Broadcom emphasized that
Qualcomm failed to mention its secret requests for CFIUS review at its February
and prevent its own stockholders from voting for Broadcom’s independent director
News, Qualcomm stockholder T. Rowe Price Group Inc. (“T. Rowe Price”), which
holds approximately 2.31% of Qualcomm’s outstanding shares, voted for all six
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would give the Board, among other things, an opportunity to change T. Rowe
Price’s vote.17
Broadcom Ltd. is on course to win all six of the seats it’s seeking on
Qualcomm Inc.’s board, giving it a majority to push forward with its
hostile takeover even as a U.S. government panel forced a delay of the
final tally. . . .
second-lowest number of votes among the combined 17 nominees from both sides,
indicating that he would personally lose a seat on the Board. Likewise, according
16
Ian King and Ed Hammond, Qualcomm Holder T.Rowe Price Said to Have
Voted Broadcom Slate, Bloomberg News (March 5, 2018).
17
Id.
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on the board.”18
115. In addition to extending and skewing the proxy contest, the Modified
Order creates an unlevel playing field which allows the incumbent Board time to
close the NXP Transaction while the stockholders are prevented from voting them
Tender Offer from March 6 to March 9, 2018. Qualcomm further disclosed that
only 10.5% of NXP’s outstanding shares had been validly tendered (and not
withdrawn), such that Qualcomm could not yet close the NXP Transaction. Thus,
had the Annual Meeting taken place that day, Qualcomm stockholders would have
had the opportunity to elect the Independent Nominees and oust a majority of the
democracy is now dead in the U.S. and the federal government, not stockholders,
18
Ed Hammond and Ian King, Broadcom Said on Track for Qualcomm Majority
Amid Vote Delay, Bloomberg News Enterprise (March 5, 2018).
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failing to disclose the Board’s efforts to secure CFIUS review of any transaction
Nominees.
118. Qualcomm’s proxy statement did not discuss CFIUS or indicate that
the Company was actively trying to have CFIUS delay or preclude election of the
Independent Nominees and prevent any transaction with Broadcom. Though filing
various additional 14A materials, Qualcomm did not disclose its January 29, 2018
considering the Qualcomm incumbent directors’ requests for their votes, the
were actively seeking to have CFIUS prevent the stockholders from voting for
119. Qualcomm’s failure to disclose its CFIUS request also rendered other
filed a Schedule 14A stating that Qualcomm “has repeatedly attempted to engage
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clear the way for a price discussion with Broadcom.” On March 1, 2018,
Qualcomm filed a Schedule 14A with the SEC similarly stating that the Board “has
are materially false and misleading without the further disclosure of Qualcomm’s
voluntary and unilateral January 29, 2018 request to CFIUS, and the further
120. Thus, stockholders have been misled to believe that the Board
improve or otherwise secure better terms in a deal with Broadcom, when, in fact,
the Board has been engaged in a lengthy campaign to have U.S. regulators scuttle
any chances for a deal with Broadcom and even to prevent the stockholders from
121. Defendants also failed to disclose their role in the modification of the
Order and the reasons for and effects of the modification. The Qualcomm
stockholders are entitled to know whether and how the incumbent directors have
changed the rules for the proxy contest. They are also entitled to know about
convince CFIUS to bar the Independent Nominees and/or enjoin any transaction
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with Broadcom. These matters affect the stockholders’ basic rights under
common stock on January 8, 2018 and their successors and assigns (except
Defendants herein and any person(s), firm, trust, corporation or other entity related
to or affiliated with them and their successors in interest) who are or will be
threatened with injury arising from Defendants’ wrongful actions, as more fully
described herein.
125. There are questions of law and fact common to the Class including,
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(b) Plaintiff and the other members of the Class are being and will
continue to be injured by the wrongful conduct alleged herein and, if so, what is
(c) Plaintiff and the other members of the Class will be irreparably
typical of the claims of the other members of the Class, and Plaintiff has the same
of the Class.
Class would create the risk of inconsistent or varying adjudications with respect to
Class, which would as a practical matter be disjunctive of the interests of the other
128. In addition, the Director Defendants are acting and refuse to act on
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Class as a whole.
COUNT I
herein.
undermine the actions of target directors who may act in their own interests.
Moreover, the Qualcomm stockholders had a right to vote and the directors took
Qualcomm’s incumbent directors, bear the burden of persuasion to show that their
motivations were proper and not selfish and their actions were reasonable in
relation to a legitimate objective. They must show that in taking defensive actions,
they had reasonable grounds for believing that a danger to corporate policy and
effectiveness existed and that the response selected was reasonable in relation to
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in office. Their motivations were selfish and improper. The defensive measures,
effective January 1, 2018, which ensures that the incumbents are compensated on
incumbent Board—in the event that the Director Defendants no longer constitute a
(d) the February 20, 2018 decision to cause Qualcomm to enter into
the Amended Purchase Agreement for the NXP Transaction, which increased the
Tender Offer consideration from $110 per share to $127.50 per share and reduced
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the minimum number of NXP shares required to tender in order to consummate the
(e) the voluntary and unilateral January 29, 2018 request for
CFIUS to preclude any transaction with Broadcom and delay the Annual Meeting
CFIUS’ review of the Proposed Transaction and the proxy contest in advance of
the March 6, 2018 Annual Meeting to ensure that the meeting would not be held;
and
(g) the apparent requests that CFIUS modify its original Order
cancelling the March 6, 2018 Annual Meeting so that Defendants could preserve
the record date and solicit votes for the incumbent Board.
the duty of loyalty. The Court should declare defensive measures that provided
financial benefits to the Director Defendants invalid and void and require the
repayment and cancellation of any financial benefits. The Court should enjoin
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COUNT II
135. Plaintiff repeats and realleges the allegations above as if fully set forth
herein.
136. Incumbent directors who face a proxy contest have a structural and
situational conflict because their own director seats are at risk. Maintaining a
proper balance in the allocation of power between the stockholders and directors
gives directors substantial managerial power, it is vital that the stockholders have a
genuine and fair opportunity to elect new directors. Board actions designed to
137. The Director Defendants did not just take defensive actions against a
modification of the Order, they pursued a nuclear option not only to preclude any
transaction with Broadcom, but also to preclude the Qualcomm stockholders from
injunction against an election they were losing and a Modified Order that permits
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them to redo the election while seeking federal disqualification of the opposing
slate. Thus, their intent is to disenfranchise the stockholders by director action that
had the effect of coercing the stockholders into voting for the incumbent slate as
the only available alternative, rather than having free choice to vote for directors.
138. The Director Defendants’ action in seeking the Order from CFIUS
enjoining the March 6, 2018 election of directors and a modification of that Order
contrary to the will of the incumbent directors and to replace incumbent directors
in a contested election. They asserted to CFIUS that the contested election touched
of directors and precluding the full and fair vote on March 6, 2018. They also bear
that same burden with regard to the Modified Order allowing them to keep the
record date and to solicit proxies for an additional 30 days in an effort to overturn
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the vote that should have occurred on March 6. Finally, they must prove a
prevent a free election and have CFIUS order that the incumbent directors cannot
be replaced by the Independent Nominees and that the Independent Nominees are
that the Qualcomm stockholders were voting for the Independent Nominees out of
ignorance or some mistaken belief about what course is in their best interest. The
Director Defendants’ actions were not reasonable because they were premised on
the notion that they know better than the Qualcomm stockholders about who
justification for tilting the proxy contest playing field and preventing the March 6,
breached their fiduciary duties by seeking to deprive the stockholders of their right
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C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
142. The Director Defendants’ efforts to prevent the March 6, 2018 vote
successful proxy contest unattainable. Indeed, they are seeking to preclude any
proxy contest at all by Broadcom. They are asking CFIUS to preclude the
stockholders from making the Independent Nominees a new Board majority. The
end.
143. The Court should invalidate any purported election of the incumbent
directors. It should direct that proxies and other documents relating to the votes
determined what the vote would have been had Defendants not held the polls open
for another 30 days. The Court should grant such other equitable relief as is
COUNT III
144. Plaintiff repeats and realleges the allegations above as if fully set forth
herein.
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James Evans v. Qualcomm, Inc., et al.,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
information from the Qualcomm stockholders including the January 29, 2018 letter
and other communications with CFIUS and members of Congress and other
information on their efforts to preclude (i) any transaction with Broadcom, (ii) the
proxy contest and (iii) the election of the Independent Nominees. They have also
with Broadcom. Finally, they have not disclosed their role in the modification of
the Order to allow them to keep the record date and solicit proxies for another 30
days.
have been prevented from expressing their voting rights by electing directors at the
March 6, 2018 Annual Meeting. The Director Defendants continue their efforts to
pre-order the results of the Annual Meeting by having the Independent Nominees
Defendants inflicted, and seek to further inflict, harm to the corporate electoral
of their voting franchise and to a fair proxy contest with an informed electorate. In
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James Evans v. Qualcomm, Inc., et al.,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
contrast, the risk that the Qualcomm stockholders may elect directors who the
vested right to remain in office and will suffer no harm if they are defeated.
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James Evans v. Qualcomm, Inc., et al.,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
have had a full and fair opportunity to nominate and vote for
alternative directors;
cancelled;
Broadcom;
K. Such other and further relief as the Court deems just and
equitable.
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James Evans v. Qualcomm, Inc., et al.,
C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)
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