1 FARUQI FARUQI, LLP VAHN ALEXANDER...
Transcript of 1 FARUQI FARUQI, LLP VAHN ALEXANDER...
Case5:11-cv-00640-LHK Documental Filed06/30/11 Pagel of 33
1 FARUQI & FARUQI, LLPVAHN ALEXANDER (167373)
2 1901 Avenue of the Stars, Second FloorLos Angeles, CA 90067
3 Telephone: (310) 461-1426Facsimile: (310) 461-1427
4 valexanderriblaruqilalAi.corn
5 Attorneys for Plaintiff
6 UNITED STATES DISTRICT COURT
7 NORTHERN DISTRICT OF CALIFORNIA
8 SAN JOSE DIVISION
9JOEL KRIEGER, Individually and on Behalf Case Number 11-CV-00640-LHK (HRL)
10 of All Others Similarly Situated, CLASS ACTION
11 Plaintiff,FIRST AMENDED CLASS ACTION
12 vs. COMPLAINT FOR VIOLATIONS OFSECTIONS 14(a) AND 20(a) OF THE
13 SECURITIES EXCHANGE ACT OFATHEROS COMMUNICATIONS, INC., 1934
14 DR. WILLY C. SHIH, DR. TERESA H.MENG, DR. CRAIG H. BARRATT, JURY TRIAL DEMANDED
15 ANDREW S. RAPPAPORT, DAN A.ARTUSI, CHARLES E. HARRIS, Judge: Hon. Lucy H. Koh
16 MARSHALL L. MOHR, CHRISTINE Ctrm.: #4 5 th FloorKING, QUALCOMM INCORPORATED, Date Action Filed: February 10 2011
17 and T MERGER SUB, INC.,
18 Defendants.
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FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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1 Plaintiff Joel Krieger ("Plaintiff'), by and through his attorneys, alleges the following as to
2 himself and on information and belief (including the investigation of counsel and review of publicly
3 available information) as to all other matters stated herein:
4 INTRODUCTION
5 1. This is a shareholder class action brought by Plaintiff on behalf of himself and
6 similarly situated shareholders of Atheros Communications, Inc. ("Atheros" or the "Company")
7 concerning the acquisition of the Company by Qualcomm Incorporated, and its wholly owned
8 subsidiary T Merger Sub, Inc., (collectively "Qualcomm").
9 2. On January 5, 2011, Atheros and Qualcomm issued a press release announcing that
10 they had entered into a definitive merger agreement (the "Merger Agreement") pursuant to which
11 Qualcomm would acquire Atheros for $45.00 per share in an all-cash deal valued at approximately
12 $3.1 billion (the "Merger").
13 3. On February 11, 2011, Atheros and the Individual Defendants (defined below) filed
14 a Schedule 14A Definitive Merger Proxy ("Definitive Proxy") with the United States Securities and
15 Exchange Commission ("SEC").
16 4. On March 7, 2011, as a result of and to address this litigation as well as parallel
17 related proceedings in Delaware state court, Atheros and the Individual Defendants amended their
18 Definitive Proxy (the "Proxy Supplement"). The Proxy Supplement disclosed the following
19 material facts, among others, that had been omitted and/or mischaracterized in the Definitive Proxy:
20 (i) approximately 98% of the $24,000,000 fee owed by the Company to Qatalyst Partners
21 ("Qatalyst"), the Company's financial advisor on the Merger, was contingent upon the completion
22 of the Merger; and (ii) the Company's Chief Executive Officer ("CEO"), defendant Craig Barratt,
23 had learned at least as far back as October 29, 2010, that Qualcomm intended to employ him after
24 any merger between the companies.
25 5. On March 28, 2011, 74.6% of Atheros shareholders voted to approve the Merger
26 based on the statements in the Definitive Proxy and the Proxy Supplement.
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1 6. Unbeknownst to Atheros' shareholders, the Definitive Proxy failed to disclose the
2 existence and nature of two key financial analyses that were performed by Qatalyst in support of its
3 fairness opinion and provided to and relied upon by the Company's board of directors (the "Board")
4 in connection with the Board's decision to to approve the Merger. The two analyses at issue were a
5 "Summary of Analyst Estimates & Valuation Methodologies" and a "Historical Termination Fee
6 Analysis." Each of these analyses is set forth in detail below and was omitted from the Definitive
7 Proxy.
8 7. As a result of the false and misleading Definitive Proxy and related filings thereto,
9 the Merger was consummated and Atheros' public stockholders were unlawfully divested of their
10 holdings in the Company.
11 JURISDICTION AND VENUE
12 8. This Court has jurisdiction over all claims asserted herein pursuant to 28 U.S.0
13 §1331 in that Plaintiff's claims arise in part under the Constitution and laws of the United States,
14 including the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78aa1 and 28 U.S.C.
15 §1331. This Court also has supplemental jurisdiction pursuant to 28 U.S.C. §1367(a).
16 9. Venue is proper in this Court pursuant to 28 U.S.C. §1391 because Atheros
17 maintains its principal place of business in San Jose, California, and is therefore a resident of this
18 District.
19 PARTIES
20 10. Plaintiff was a holder of Atheros common stock at all relevant times prior to the
21 consummation of the Merger. Plaintiff is a citizen of New York.
22 11. Atheros was a corporation organized and existing under the laws of the State of
23 Delaware, with a principal executive office at 1700 Technology Drive, San Jose, California 95110.
24 As a result of the consummation of the Merger, Atheros is now a wholly owned subsidiary of
25 Qualcomm and operates as Qualcomm Atheros, Inc. (also "Atheros"). Atheros is a leading global
26 provider of innovative technologies for wireless and wired communications products that are used
27 by a range of customers, including manufacturers of personal computers ("PC's"), networking
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1 equipment for digital home, small office/home office (SOHO), enterprise and carrier deployments,
2 and consumer electronics for home and mobile applications. The Company's product portfolio
3 includes solutions for wireless local area network ("WLAN"), Mobile WLAN, Ethernet, Bluetooth,
4 global positioning system ("UPS"), and powerline communications ("PLC"). Atheros had a long-
5 standing relationship with defendant Qualcomm that has resulted in numerous Joint Design wins
6 with leading Original Equipment Manufacturers ("OEMs"). Prior to the consummation of the
7 Merger, Atheros' stock was listed on the NASDAQ exchange under the symbol "ATHR."
8 12. Defendant Dr. Willy C. Shih ("Shih") served as a Director of the Company from
9 November 2006 and was Chairman of the Company's Board starting in October 2010.
10 13. Defendant Dr. Teresa H. Meng ("Meng") was co-founder of the Company and
11 served on the Board starting in May 1998. Meng served as a consultant to the Company from
12 October 2000 through December 2006. Meng was President and CEO of the Company from May
13 1998 to October 1999.
14 14. Defendant Dr. Craig H. Barratt ("Barratt") served as the Company's President and
15 CEO starting in March 2003. Barratt served as a Director of the Company starting in May 2003.
16 Barratt was Vice President of Technology of the Company from April 2002 until March 2003.
17 15. Defendant Andrew S. Rappaport ("Rappaport") served as a Director of the Company
18 starting in December 1998.
19 16. Defendant Dan A. Artusi ("Artusi") served as a Director of the Company starting in
20 July 2008.
21 17. Defendant Charles E. Harris ("Harris") served as a Director of the Company starting
22 in January 2010. Harris is the former CEO of Intellon Corporation, which was acquired by Atheros
23 in December 2009.
24 18. Defendant Marshall L. Mohr ("Molu-") served as a Director of the Company starting
25 in November 2003.
26 19. Defendant Christine King ("King") served as a Director of the Company starting in
27 April 2008.
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AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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1 20. Defendants Shih, Meng, Barratt, Rappaport, Artusi, Harris, Mohr, and King are
2 sometimes collectively referred to herein as the "Individual Defendants" or the "Board."
3 21. Defendant Qualcomm is a Delaware corporation headquartered at 5775 Morehouse
4 Drive, San Diego, California 92121. Qualcomm is a designer and manufacturer of semiconductors
5 for wireless phones and other equipment for advanced commercial wireless applications. The
6 company is the chief architect and proponent of the third-generation code division multiple access
7 ("CDMA") wireless standard. Qualcomm holds an extensive intellectual-property portfolio for
8 spread-spectrum technologies, including CDMA and WCDMA/UMTS. The company produces
9 semiconductors for mobile phones as well as integrated processors and basebands for mobile PCs.
10 In addition, Qualcomm produces wireless communications and tracking systems for commercial
11 applications. The company also promotes BREW technology, which permits carriers to
12 differentiate their services with proprietary software applications. Qualcomm's stock is traded on
13 the NASDAQ under the symbol "QCOM."
14 22. Defendant T Merger Sub, Inc. ("T Merger Sub") was a Delaware corporation and a
15 wholly owned subsidiary of Qualcomm.
16 23. Defendants Qualcomm and T Merger Sub are sometimes referred to herein
17 collectively, as "Qualcomm."
18 24. The Individual Defendants, Qualcomm and Atheros are sometimes referred to herein
19 collectively, as "Defendants."
20 CLASS ACTION ALLEGATIONS
21 25. Plaintiff brings this action individually and as a class action pursuant to Rule 23 of
22 the Federal Rules of Civil Procedure on behalf of all holders of Atheros stock who were harmed by
23 Defendants' actions described herein (the "Class"). Excluded from the Class are Defendants, and
24 any person, firm, trust, corporation, or other entity related to or affiliated with any Defendants.
25 26. This action is properly maintainable as a class action. The Class is so numerous that
26 joinder of all members is impracticable. As of the record date for the March 18, 2011 vote on the
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1 Merger, Atheros had in excess of 73 million shares of common stock outstanding. Hundreds, if not
2 thousands, of beneficial holders, owned these shares.
3 27. There are questions of law and fact which are common to the Class and which
4 predominate over questions affecting any individual Class member. The common questions
5 include, inter al/a, the following:
6 (a) whether the Company and the Individual Defendants violated §14(a) of the
7 Exchange Act by issuing a Definitive Proxy concerning the Merger that contained false or
8 misleading statements or omissions of material fact;
9 (b) whether the misstatements or omissions were made with the requisite level of
10 culpability; and
11 (c) whether the statements or omissions provided an essential link in the
12 accomplishment of the Merger.
13 28. Plaintiff's claims are typical of the claims of the other members of the Class and
14 Plaintiff does not have any interests adverse to the Class.
15 29. Plaintiff is an adequate representative of the Class, has retained competent counsel
16 experienced in litigation of this nature, and will fairly and adequately protect the interests of the
17 Class.
18 30. The prosecution of separate actions by individual members of the Class would create
19 a risk of inconsistent or varying adjudications with respect to individual members of the Class that
20 would establish incompatible standards of conduct for the party opposing the Class.
21 31. Plaintiff anticipates that there will be no difficulty in the management of this
22 litigation. A class action is superior to other available methods for the fair and efficient
23 adjudication of this controversy.
24 32. Defendants have acted on grounds generally applicable to the Class with respect to
25 the matters complained of herein, thereby making appropriate the relief sought herein with respect
26 to the Class as a whole.
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1 SUBSTANTIVE ALLEGATIONS
2 A. Background
3 33. Atheros was founded in 1998 by defendant Meng and Reid Weaver Dennis, a
4 Professor of Electrical Engineering at Stanford University. Meng and the Atheros team created a
5 technology breakthrough, by combining its wireless and networking systems expertise with high-
6 performance radio frequency (RF), mixed signal and digital semiconductor design skills to provide
7 highly integrated chipsets that are manufactured on low-cost, standard complementary metal-oxide
8 semiconductor ("CMOS").
9 34. One of Atheros' first designs was the CMOS wireless LAN 802.11a radio chipset, a
10 two-chip "radio-on-a-chip" ("RoC") chipset that combines features such as a radio, power
11 amplifier, low-noise amplifier and a media access control ("MAC") processor so its customers can
12 build sleeker wireless networking equipment. The chipsets are standardized on the 0.25 micron
13 digital CMOS process.
14 35. Due to the Company's innovative design and technology, the Company was able to
15 raise $100 million in venture funding before its initial public offering ("IPO") in 2004.
16 36. At the time of its IPO, the Company was entering the public marketplace as part of
17 the white-hot Wi-Fi movement, which analysts viewed as a watershed year for the 802.11 chip
18 market. A Wi-Fi enabled device such as a personal computer, video game console, smartphone or
19 digital audio player can connect to the Internet when within range of a wireless network connected
20 to the Internet. The Wi-Fi movement was seen as a progression in technology as silicon vendors
21 push beyond the small office/home office scene, coffee houses and airports and into the enterprise,
22 cell phone, and DSL markets.
23 37. Atheros was poised to take advantage of this market as it had advanced Wi-Fi
24 technologies such as Super G and Wake-on-Wireless. Atheros' Super G technology allowed for
25 packet bursting, data compression and the ability to support larger frames and a dynamic multi-
26 channel mode, delivering 108Mbps data links with actual end user TCP/IP throughput of up to
27 90Mbps in 802.11a/b/g, 802.11b/g and 802.11a wireless networks. Atheros' Wake-on-Wireless
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1 capability extended network management to the Wi-Fi environment, while also providing
2 compatibility with existing network equipment, management software, and industry standards for
3 remote wakeup functionality.
4 38. At the time of its IPO, Atheros included as customers Hewlett-Packard, IBM, NEC,
5 Sony and Toshiba and wireless LAN gear manufacturers, D-Link, JO Data, Linksys and Microsoft.
6 39. Atheros then leveraged its design expertise on CMOS in high-performance radio
7 frequency, mixed signal and digital semiconductor solutions, to drive design integration of multi-
8 chip solutions down to single chips.
9 40. By 2006, the Company had shipped more than 75 million wireless LAN ("WLAN")
10 chipsets. 2006 marked the announcement of Atheros' strategic collaboration with heavyweight
11 Qualcomm for the development of advanced cellular mobile handsets with Wi-Fi connectivity.
12 Specifically, on February 10, 2006, the Company announced a collaboration with defendant
13 Qualcomm to develop interoperability between Atheros' highly integrated, single-chip Radio-on-
14 Chip for Mobile ("ROCm") solution and select Qualcomm Mobile Station Modem ("MSM")
15 chipsets. These MSM integrated circuits were designed to offer connectivity to WLAN, as well as
16 to existing wireless networks, and featured compatibility with 802.11b and 802.11g protocols on
17 both CDMA2000 and WCDMA networks. The combined solutions enabled cellular devices to
18 support a new level of 802.11g and 802.11a/g WLAN technology, which addressed the growing
19 demand for data-intensive products, such as advanced mobile handsets, on select MSM integrated
20 circuits.
21 41. It was thought that by putting both WLAN and cellular capability in one phone, there
22 would be a migration of consumers using a single phone and switching off to VoIP (voice over
23 Internet Protocol) when they come home, eventually helping users get rid of their landline phones
24 and pay less for the calls they make at home. The integration of cellular and Wi-Fi technologies
25 also made it easier and less expensive for phone makers to come out with dual-mode devices.
26 42. Commenting on the collaboration, defendant Barratt stated.
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We are pleased to work with Qualcomm, the recognized leader in CDMA and 30
1 cellular technologies. Our relationship has resulted in the combination of two of theworld's most popular wireless technologies in a single solution. This will result in true
2 mobility, enabling wireless users to achieve anywhere, anytime connectivity to people,content and services.
3
43. Furthermore, Mike Concannon ("Concannon"), Vice President of Strategic Products4
for QUALCOMM CDMA Technologies, stated.5The strategic collaboration between QUALCOMM and Atheros focuses on the
6 growing worldwide demand for additional connectivity features in mobile handsets.Having support for Atheros' ROCm solutions on our MSM chipsets helps us continue
7 to bring a new level of mobility to wireless users and deliver numerous new
8possibilities to the wireless industry.
44. While growing its Wi-Fi leadership position, Atheros also expanded its portfolio of9
communications solutions with the addition of PAS cellular, mobile WLAN, Bluetooth, Ethernet10
and UPS technologies. In turn, by 2007, Atheros become a leading supplier of communications11
semiconductor solutions with revenue of $417 million in 2007. That same year, Atheros was also12
awarded the Fabless Semiconductor Alliance's Most Respected Emerging Public Fabless Company,13
based on industry-wide peer opinion.14
45. With bandwidth-intensive applications such as video streaming becoming more15
commonplace, Wi-Fi has demanded the evolution of higher speed technologies. To meet this need,16
Atheros has transitioned from pioneering the world's first 802.11a technology, to becoming a17
leading supplier of 802.11g, to now providing the most widely adopted 802.11n ("11n") technology18
worldwide. Align, which is Atheros' single-stream 11n technology, offers the fastest Wi-Fi19
connectivity for netbooks and value-class notebooks. The Align product family began shipping in20
Q4 of 2008 and has had the fastest and largest-volume chip ramp in Atheros history. Align is21
currently used by seven of the top 10 PC OEMs and in access points/routers of the top 5 retail22
networking vendors.23
46. ABI Research, a consumer-electronics consultant, has projected that 802.11n single-24
stream chipsets will be the dominant protocol shipped in the next few years, due in large part to the25
ever increasing slew of new devices that are Wi-Fi enabled.26
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1 47. By 2008 the Company returned 55% annually from mid-2005 through mid-2008.
2 Fortune listed the Company on its list of 100 fastest-growing companies in 2008.
3 48. On February 16, 2009, Atheros announced a further development in its long standing
4 collaboration with Qualcomm by announcing the availability of its latest-generation AR6002 Radio-
5 on-Chip for Mobile ("ROCm") WLAN single-chip with Qualcomm's BTS4025 Bluetooth System-
6 on-Chip ("SoC") that supports EDR 2.1 with class 1.5 power. This combined solution was
7 designed to deliver advanced system performance to OEMs and ODMs developing cellular phones
8 based on any of Qualcomm's Mobile Station Modem ("MSM") chipsets for CDMA and WCDMA
9 (UMTS), including multiple MSM product families. According to the press release announcing the
10 development.
11 The combination of Atheros and Qualcomm solutions has resulted in feature-richplatforms that have been vigorously vetted by developers, customers and consumers,
12 and readily meet today's demanding smartphone requirements. To date, thecompanies have achieved numerous joint design wins, with dozens of end-products in
13 the market today.
14 49. The AR6002 ROCm featured industry-leading RF performance, power consumption,
15 solution size and coexistence with Qualcomm's BT54025 SOC. The AR6002 platform set an
16 industry benchmark for high performance, low power mobile WLAN solutions, consuming 30
17 percent less power in active mode than the nearest competitive solution and near-zero power in
18 standby mode. The AR6002 also offered the advantage of being a fully independent WLAN device,
19 which does not tax the cellular phone's host processor like competing solutions. Further,
20 Concannon of Qualcomm has stated in pertinent part:
21 This seamless combination of Qualcomm's Bluetooth and Atheros' WLAN for mobilewill help our customers easily integrate high-performance wireless functionality into
22 their products and ensure fast time-to-market. Atheros' AR6002 and Qualcomm'sBTW4025 products have been rigorously validated and tested in combination to assure
23 a highly reliable and satisfactory user experience.
24 50. Moreover, Amir Faintuch, Vice President and General Manager at Atheros' Mobile
25 Wireless Business Unit, added:
26 We are pleased to generate new synergies with Qualcomm solutions to benefit our
27customers. Together, we bring a fully-integrated, complementary offering to market.
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AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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This combined solution featuring Qualcomm's Bluetooth and Atheros' WLAN
1 technologies is optimized with the next-generation mobile phone system in mind.
251. The Atheros and Qualcomm collaboration resulted in significant and numerous Joint
3Design wins with leading OEMS (based on Qualcomm platform) with the collaboration accounting
4for the vast majority of these wins.
552. Atheros' outstanding design technology has also resulted in impressive financial
6growth over the years. By 2009, revenues exceed $542 million. 2009 also marked the Company's
7eighth consecutive year of annual revenue growth, with gross margins consistently near 50 percent.
8The Company also ended the year with over $400 million in cash, with no long term debt.
953. 2009 also marked a meaningful progression in the Company's goal of revenue
10diversification, as over 20% of 2009 revenue came from outside of its core WLAN business. The
11Company's diversification strategy was also enhanced by the completion of its acquisition of
12Intellon Corporation, thereby securing the leadership position in the power line communications or
13PLC market.
1454. More recently, for example, on April 19, 2010, the Company announced financial
15results for its first quarter ended March 31, 2010. Revenue in the first quarter of 2010 was a record
16$214.7 million, up 16 percent compared to $185.7 million reported in the fourth quarter of 2009.
17First quarter 2010 revenue increased 144 percent compared to $87.9 million reported in the first
18quarter of 2009. The Company recorded net income in the first quarter of 2010 of $19.7 million or
19$0.27 per diluted share. This compares with GAAP net income of $15.6 million or $0.24 per
20diluted share in the fourth quarter of 2009. Net loss in the first quarter of 2009 was $7.6 million or
21$0.12 per diluted share. Cash, cash equivalents and marketable securities were $443.6 million at
22March 31, 2010, up $41.4 million from the balance at December 31, 2009. Non-GAAP gross
23margins in the first quarter of 2010 were 49.5 percent, compared to 50.2 percent reported in the
24fourth quarter of 2009 and 48.1 percent in the first quarter of 2009. Commenting on these
25impressive results, defendant Barratt stated.
26We experienced broad-based strength across our PC OEM and Networking channels
27 including strong momentum for our newly acquired PLC business. Our success in
1
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growing the top line, and more importantly, the design win momentum in each of our
1 sales channels, further validate our hybrid networking strategy and demonstrate our
2diversification initiatives are paying dividends.
55. On the ensuing Conference Call held on April 20, 2010, Atheros issued impressive3
4 second-quarter guidance, for a seasonally slow quarter. According to Atheros' Chief Financial
Officer ("CFO") Jack Lazar ("Lazar") the Company expected to grow sales by about 9.5% quarter-
6
5
over-quarter, and net income was expected to exceed the $0.60 mark per share. In response,
Atheros common stock jumped from $38.15 before the conference call to reach an all time high7
8 $43.90 on April 21, 2010, the day after the call.
56. Moreover, although the Company has been affected by the lingering effects of the9
10 economic recession, Atheros has been able to achieve consistent growth. For example, on July 19,
2010, Atheros announced financial results for its second quarter ended June 30, 2010. Revenue in11
12 the second quarter of 2010 was a record $238.2 million, up 11 percent compared to $214.7 million
13 reported in the first quarter of 2010. Second quarter 2010 revenue increased 112 percent compared
14 to $112.2 million reported in the second quarter of 2009. The Company recorded net income in the
15 second quarter of 2010 of $29.7 million or $0.41 per diluted share. This compares to GAAP net
16 income of $19.7 million or $0.27 per diluted share in the first quarter of 2010. Net loss in the
17 second quarter of 2009 was $0.3 million or $0.00 per diluted share. Cash, cash equivalents and
18 marketable securities were $508.4 million at June 30, 2010, up $64.8 million from the balance at
19 March 31, 2010. Non-GAAP gross margin in the second quarter of 2010 was 49.8 percent of
20 revenue, compared to 49.5 percent reported in the first quarter of 2010 and 47.4 percent in the
21 second quarter of 2009. Non-GAAP net income in the second quarter of 2010 was $49.2 million or
22 $0.67 per diluted share, compared to $40.7 million or $0.57 per diluted share in the first quarter of
23 2010 and $12.3 million or $0.20 per diluted share in the second quarter of 2009. Commenting on
24 these results, defendant Barratt stated.
Strong demand from our networking and consumer channels enabled us to post record
25 revenue, operating profit and cash flow generation in the second quarter. Connectivitysolutions for our consumer channel are being widely adopted by a variety of customers
26 reflecting new market opportunities for our portfolio of communications products.Our networking channel was also strong in the second quarter, and with the anticipated
27 acquisition of Opulan Technologies, Atheros is further broadening its platform1
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solutions for these customers. We believe our vision of driving widespread
1 connectivity into an expanding number of hybrid networking, PC and consumer
2solutions, positions us well for the future.
57. Over the next several months, however, Atheros shares fell dramatically in an3
overreaction to disappointing news announced by competing chip makers in the video game and PC4
industry market. Specifically, Intel Corporation and Advanced Micro Devices, Inc. guided5
6 expectations lower, citing reduced sales of computers. Despite having less than one-third of its
business focused on the PC business, Atheros shares declined nearly 40 percent from its 52- week7
8 high.
58. The Company also suffered from a perception that it lacked exposure to the booming9
10 tablet market, which many believed was cannibalizing the netbook market where Atheros had
several big customers.11
12 59. Several analysts noted this overreaction. Christopher McHugh, senior portfolio
13 manager at Turner Investment Partners stated:
You've had a lot of negative news hitting Atheros over the last three or four months.
14 Going forward, you won't have those issues. It's a stock with a very cheap valuation,that's a market leader in several businesses.
15
16 60. On October 25, 2010, Atheros reported consolidated earnings results for the third
17 quarter and nine months ended September 30, 2010. Revenue in the third quarter of 2010 was a
18 record $247.1 million, up 58 percent compared to $156.6 million reported in the third quarter of
19 2009. The Company recorded net income in the third quarter of 2010 of $28.1 million or $0.39 per
20 diluted share, compared to net income in the third quarter of 2009 of $38.6 million or $0.60 per
21 diluted share. For the nine months, the Company reported income from operations of $80.9 million
22 and net income of $77.6 million or $1.07 per diluted share on net revenue of $700.0 million
23 compared to income from operations of $5.7 million and net income of $30.8 million or $0.49 per
24 diluted share on net revenue of $356.8 million reported in the same period last year. Commenting
25 on these results, defendant Barratt noted:
26 While we continue to see weakness in certain channels, increasing demand forAtheros' ROCm® low-power mobile connectivity solutions in a growing number of
27 consumer electronics products fueled our record revenue in the third quarter.
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Additionally, with our recently completed acquisition of Opulan, we further
1 strengthened our networking product line, enabling us to address an even larger
2portion of the rapidly expanding global networking market.
3 61. Defendants recognized that Atheros common stock was "undervalued," and the
4 Company was optimally poised for future growth and strong financial performance. Rather than
5 permitting the Company's shares to continue to trade freely and allowing its public shareholders to
6 reap the benefits of the Company's increasingly positive prospects, the Individual Defendants have
7 acted for the benefit of Qualcomm, and to the detriment of the Company's shareholders, by entering
8 into the Merger. The Individual Defendants effectively capped Atheros' price at a time when the
9 Company's stock was suffering the effects of a lingering economic recession and when it was
10 poised to capitalize on its positive and encouraging financial outlook.
11 B. The Merger
12 62. On January 5, 2011, Atheros and Qualcomm issued a press release announcing that
13 they had signed a definitive agreement for Qualcomm to acquire Atheros in a cash transaction
14 valued at approximately $3.1 billion.
15 63. Under the terms of the Merger Agreement, Atheros shareholders were to receive
16 $45.00 in cash for each share of Atheros they owned.
17 64. In connection with the announcement of the Merger, defendant Barratt stated:
18 Qualcomm and Atheros have a long history of collaboration and share a culture oftechnical innovation and execution excellence. The Atheros team will build upon
19 Qualcomm's strengths and leadership to bolster our customers' ability to deliver
20innovative and differentiated products in the increasingly connected world.
21 65. Moreover, Dr. Paul E. Jacobs, Chairman and CEO of Qualcomm stated.
22 It is Qualcomm's strategy to continually integrate additional technologies into mobiledevices to make them the primary way that people communicate, compute and access
23 content. This acquisition is a natural extension of that strategy into other types ofdevices. The combination of Qualcomm and Atheros is intended to accelerate this
24 opportunity by utilizing best-in-class products for communications, computing andconsumer electronics to broaden existing customer relationships and expand access to
25 new partners and distribution channels.
26 66. Despite Defendants' positive statements regarding the Merger, the transaction is
27 unfair to Atheros' stockholders. Indeed, the consideration offered to Atheros' stockholders in the
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1 Merger is unfair and grossly inadequate because, among other things, the intrinsic value of Atheros'
2 common stock is materially in excess of the amount offered for those securities in the Merger given
3 the Company's prospects for future growth and earnings.
4 67. The Merger consideration represents a premium of 22 percent over the Company's
5 closing share price on Monday, January 3, 2010, the day before The New York Times reported the
6 deal. The $45 per share offer is also a nominal premium to the 52 week high of $43.90 set just last
7 year on April 21, 2010, after the Company issued upbeat guidance and prior to the announcement of
8 the anticipated 10% decline for the third quarter of 2010.
9 68. Moreover, on January 5, 2011, Morningstar reported "[by comparison, Intel INTC
10 paid a near 60% premium for McAfee in 2010, and we've seen other smaller chip deals go for 30%-
11 50% premiums in the past year."
12 69. Several analysts noted that most chip companies, including Atheros, were trading
13 with abnormally low 2010 and 2011 P/E multiples. According to The Benchmark Company
14 research note on July 14, 2010, "the chip group trades with an abnormally low P/E when the
15 semiconductor cycle is tolling over and estimates have yet to discount such an inflection."
16 70. Qualcomm's opportunistic bid occurred during a relatively weak point in Atheros'
17 business cycle. As previously discussed, in October, management guided for a 9-11% decline in
18 sales as consumer PC and networking weakness migrated in to the fourth quarter of 2010.
19 71. Moreover, defendant Barratt acknowledged on December 18, 2010, during a
20 Barclays Capital Global Technology Conference that:
21 ... In the guidance for the Q4 that we gave in October, we did reflect at the time thatwe expect PCs to continue to be a weak channel for us in the fourth quarter but we
22 did indicate we expected, in October, for that to be the low point and based on designwin activity and based on presence in some new technology area like Bluetooth, we
23 definitely see PC returning to growth."
24 72. On January 7, 2011, International Business Times reported that:
25 Analysts said the size of the premium leaves room for another bidder to emerge.Intel Corp and Marvell Technology Group Ltd are potential suitors, said Roth
26 Capital analyst Arnab Chanda.
27
1
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'If you look at the purchase price, it is clear there were not multiple bidders,' Chanda
1 said.
273. In fact, Qualcomm stock had steadily increased after the announcement of the
3Merger, which is a rarity.
474. In acquiring Atheros, Qualcomm obtained a company with a leading market share
5that was well positioned for growth. Atheros was No. 2 in Wi-Fi chips, a market with great
6potential considering the explosion of devices that connect to the Internet not just PCs and
7wireless routers, but increasingly televisions, cameras, e-book readers and more. IDC Worldwide
8Quarterly PC Tracker ("IDC") estimated that the market for such chips would grow at a 16% annual
9rate from 2008 through 2013. Moreover, Qualcomm obtained a company that recorded $542
10million in revenue last year, posted 60 percent growth for the first quarter of 2010 and has cash
11reserves of $450 million, with no long-term debt.
1275. Moreover, Qualcomm obtained a Company with a distinct advantage in Wi-Fi
13technology, which according to consulting firm In-Stat, is expected to see the number of times
14people use Wi-Fi hot spots rising to 11 billion annually by 2014, from 2 billion in 2010. Companies
15such as AT&T are expanding their Wi-Fi coverage, part of a plan to relieve congestion on cellular
16networks. The Atheros acquisition gave Qualcomm a powerful weapon against Irvine-based
17Broadcom, whose combination Wi-Fi and baseband chips are used by the likes of Apple.
18According to analyst Gary Mobley ("Mobley") of Benchmark Company, "If Qualcomm can add
19features like Wi-Fi, it will increase the average selling price they can charge and their available
20market." Mobley further opined to News Weeek that, "What Qualcomm would gain is having the
21full suite of connectivity offerings."
2276. According to a research report by Piper Jaffrey analyst Auguste Gus Richard
23("Richard"), Qualcomm is well positioned for the "ultramobile era" with the Atheros purchase.
24Richard argued that Atheros products would integrate well with Qualcomm's Snapdragon chip. In
25addition, the combination of Qualcomm and Atheros, which approaches a $1 billion annual revenue
26run rate, will be better positioned to take on Broadcom or Marvell.
27
1
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1 77. Atheros shareholders are also now shut out of the Company's increasingly
2 competitive position in chipsets. The Company was well-positioned in the growing market for
3 802.11n wireless solutions. According to Consumer-electronics consultant, ABI Research, on
4 August 18, 2009, 802.11n single-stream is projected to be the dominant protocol shipped in the next
5 few years, due in large part to the ever increasing slew of new devices that are Wi-Fi enabled. Q1
6 2010 reported that 1 in technology is used in netbooks and value-class notebooks by 9 of the top 10
7 PC OEMS and in access points/routers of five of the top five retail networking vendors. Align,
8 which is Atheros' single-stream 1 in technology, began shipping in Q4 of 2008 and has had the
9 fastest and largest-volume chip ramp in Atheros history.
10 78. According to Adam Benjamin ("Benjamin"), an analyst at Jefferies & Co.,
11 Qualcomm is the "most significant beneficiary of the upgrade to 30 and 40 wireless." Benjamin
12 noted that the Merger is a very good deal for Qualcomm, "as it would quickly turn what is currently
13 a glaring weakness in its cellular portfolio into a strength and also gives Qualcomm strong channels
14 into the PC market as tablets become more important."
15 79. Moreover, Mark McKechnie ("McKechnie") of Gleacher & Co. noted that the
16 Atheros acquisition would accelerate Qualcomm's move into tablet computers, as "Atheros's Asia-
17 based design team has over 10 years of experience in working with notebooks OEMs. We believe
18 the Atheros team could accelerate Qualcomm's efforts to add 30/40 LTE (Long Term Evolution,
19 the acronym for the next wireless services) to tablets and notebooks."
20 80. Analysts uniformly recognized the benefits Qualcomm will reap by acquiring
21 Atheros for just $45 per share. For example, analysts expressed the following opinions:
22 "The combination of QCOM and ATHR would be the main beneficiary of 2 keytrends in semiconductors - the 4th wave of computing/ultramobility and the
23 proliferation of internet connectivity. Moreover, we see the combination as
24complementary with little to no customer or product overlap." — Piper Jaffray
"We model Atheros would potentially add $935M of revenue in 2011 and $1B in 2012
25 resulting in $0.05 and $0.07 accretion, respectively, but note that Atheros' 19%-20%operating margins fall below QCOM 26%-29% QCT operating margins and would, we
26 calculate, result in 80-90 bps of margin pressure to QCT....From a strategic point ofview, we believe the proposed acquisition would be a natural fit as the two companies
27 have an existing reference design relationship." — Morgan Stanley1
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"The deal makes great sense strategically for QCOM as it would provide QCOM with
1 core competencies in PCs, tablets and WiFi, all of which we are at an early stage forQCOM.... ATHR's roadmap for WiFi is broader and deeper than QCOM, which is
2 playing 'catch-up.' .... Our quick analysis suggests any price around $45 would beslightly accretive to QCOM assuming a cash deal. At $45, ATHR is valued at 22.5x
3 our CY11 estimate of $2.00." — Gleacher & Co.
4 "Is another bidder possible for Atheros? It's possible, but we think this one makessense at current price levels. Atheros had revenues last year of —$923M with GM's
5 approaching 50%, so a price tag of $3.2B suggests 2.9x EV/Sales. And fightingMarvell, Broadcom, Ralink, and Realtek on price isn't a fun dance to watch." — RBC
6 Capital
781. In fact, Qualcomm CEO Paul Jacobs acknowledged on a conference call with
8analysts that Atheros' technology would help it connect phones with multiple emerging devices
9such as tablets:
10This acquisition makes sense on a lot of levels. From a vision standpoint we believe
11 that communications capability will go into more and more devices in the worldaround us and that the phone will be used to interact with these devices. From a
12 strategy standpoint we will continue to lead in technology through significant R&Dinvestments and this acquisition allows us to profit from those investments across a
13 larger base of devices. From a tactical standpoint we will have access to a strongteam and a new set of technologies, partners, and distribution channels and we will
14 also be able to broaden our relationships with existing customers.
15 82. Qualcomm Executive Vice President Steve Mollenkopf ("Mollenkopf') added:
16 Our announcement today is an important step for our business. It is a clear indicationof our strategy to move aggressively into silicon beyond cellular. We believe that it
17 will expand our opportunities with new products, new customers, and new saleschannels. It will enable us to grow a platform business in additional areas such as
18 consumer electronics, networking, and computing. You have heard us talk about ourvision around the convergence of mobility computing and consumer electronics.
19 Our announcements today should be viewed as a statement about our commitment toprovide a complete set of solutions to address this trend as it is clearly unfolding in
20 front of us today.
In the big picture, Qualcomm's purchase of Atheros illustrates how the company
21 plans to become more of a platform provider. To Qualcomm, the future ofcomputing is more about tablets and smartphones than the PC. Simply put,
22 Qualcomm will be on a collision course with the likes of Intel.
23 83. Furthermore, Mollenkopf added:
24 First of all, we think that the platform strength of smartphones is really going togenerate an enormous pressure on a number of adjacent markets to adopt a similar
25 type technology platform. And you are already starting to see that in the case oftablets where the tablets, instead of using technology which historically may have
26 come from platform technology which may have historically come from the PCworld, it is really pulled the phone world up, including bringing technology
27 providers and application suppliers from that world. As we start to drive that1
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strategy, which has been a stated strategy for some time, we start to encounter really
1 two areas that we think are addressed by this acquisition. The first one is that youstart to encounter more technology that you need to connect to different things that
2 you need to connect to in the phone. The wireless LAN that you might need tosupport a platform play in a tablet may be different than what you use for a handset.
3 As we do that we either have to invest in that or we need to partner and so weobviously know which direction we went there. We think there is going to be a lot
4 of momentum in other markets in a lot of places where people are going to want tohave that same smartphone experience but throughout their entire daily life. And I
5 think it's going to really require us to add a larger platform of goods and
6technologies that the Atheros team has.
7 84. The Merger also suffered from several conflicts of interest. The Merger was
8 primarily negotiated by defendant Barrat, Lazar, Atheros' Chief Financial Officer and Senior Vice
9 President of Corporate Development, and Adam Tachner, Atheros' Vice President and General
10 Counsel. Simultaneously while negotiating the Merger Agreement, Barrat, Lazar, and Tachner
11 negotiated their continued employment with Qualcomm after the Merger, along with that of other
12 key Atheros executives, including Hing Chu, Amir Faintuch, Richard Hegberg, Daniel A.
13 Rabinovitsj, Gary L. Szilagyi, David D. Torre, and Jason Zheng.
14 85. Specifically, defendant Barratt, who joined Qualcomm as president of networking
15 and connectivity, continues to receive the same ($430,000) or higher annual salary, retention
16 bonuses equal to 100% of his annual salary at the end of each of his first two years of continued
17 employment with Qualcomm, target bonuses equal to 100% of his annual salary at Atheros plus
18 75% of his annual salary at Qualcomm and ten semi-annual grants of Qualcomm restricted stock
19 units with each giant having a grant date fair market value of $2,000,000, or $20,000,000 in
20 restricted stock units alone over the first five years.
21 86. The employment offers to each of the other executives, including Lazar, and
22 Tachner, guarantee them a salary equal to or greater than the salary received from Atheros, plus
23 retention bonuses up to 100% of their annual salary at the end of each of their first two years of
24 continued employment, plus baseline bonuses of up to 70% of their annual salary, stretch bonuses
25 of up to 60% of their annual salary, an inducement giant of up to 37,500 Qualcomm restricted stock
26 units, and four semi-annual giants of Qualcomm restricted stock units with each giant having a
27 giant date fair market value of up to $550,000.
1
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1 87. Moreover, each of the executives, including defendant Barratt, Lazar and Tachner,
2 were able to negotiate a continuation of their change of control agreements such that if they are
3 terminated without cause, if there is a material reduction change in their authorities, duties or
4 responsibilities, or if they are required to relocate by more than 50 miles within twelve months of
5 the Merger, they will receive, at a minimum, a lump sum payment of one year's full salary and
6 annual bonus, accelerated payment of any unpaid retention bonus payments and, most notably, a
7 lump sum cash payment equal to the aggregate giant date fair market value of all semi-annual
8 Qualcomm restricted stock unit grants contemplated by the offer letter that have not been granted as
9 of the date of termination, which in the case of Barratt could have a value of up to $20,000,000.
10 Moreover, Atheros' preliminary proxy statement ("Preliminary Proxy") filed with the SEC on
11 February 1, 2011 revealed that as of January 18, 2011, Barratt alone held 138,646 unvested options
12 to purchase Atheros stock, with an estimated value of $1,750,927, and 236,668 unvested Atheros
13 restricted stock unites ("RSUs"), with an estimated value of $10,650,060, both of which would
14 immediately vest and be cashed out under the negotiated change of control provisions. Thus, in
15 total, between vested and unvested options and RSUs alone, under the negotiated change of control
16 provisions, Barratt would be entitled to a lump sum total payment of over $47.4 million.
17 88. According to the Preliminary Proxy, the executive officers', including defendant
18 Barran's, outstanding Atheros RSUs and stock options would be converted into Qualcomm RSUs
19 or stock options, using the same terms and vesting schedule. Thus, the executive officers did not
20 suffer the adverse tax consequences upon the close of the Merger as did the Company's public
21 shareholders. These RSUs and options converted to an opportunity to receive or purchase, as
22 applicable, Qualcomm stock based on the ratio of the merger consideration (i.e., $45) to the average
23 closing price of Qualcomm stock for the twenty days prior to the close of the Merger. This is
24 particularly significant as Qualcomm stock jumped given the market's perceived strategic benefits
25 of the Atheros acquisition. As noted in the Company's SEC filings, the components of executive
26 officer compensation not only consist of a base salary and bonus, but also of stock options and
27 restricted stock units grants:
1
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Moreover, our named executive officers were granted the following Time-based
1 RSUs and Performance-based RSUs. Our Compensation Committee also consideredDr. Barratt's potential to enhance long-term stockholder value. By including a cash
2 bonus based on the achievement of performance objectives that is greater than amajority of Dr. Barratt's total potential cash compensation, and including significant
3 giants of restricted stock units that are subject to vesting over four years andadditional restricted stock units that are subject to vesting based on achievement of
4 corporate financial performance goals, our Compensation Committee has tied Dr.Barratt's cash and equity-based compensation directly to our performance, both in
5 the near term over the following year and in the long-term.
689. The options held by the Individual Defendants other than Barratt, however,
7immediately vested and were cashed out in the Merger. As demonstrated by the chart below,
8through this immediate vesting and cash out, the Individual Defendants received lump sum
9payments of up to $6.2 million:
10Total Number of
11 Options Subjectto Accelerated Dollar Value ofVesting at the Accelerated Total Number of Dollar Value of
12 Closing(1) Options(2) All Options(1) All Options(2)
Daniel A. Artusi 22 500 $ 358 321 52 500 $ 816 675,13 Charles E Harris(3) 5,937 $ 70,532 38,725 $ 1,231,623
Christine King 20,157 $ 406,775 36,250 $ 754,300
14 Teresa H Meng 1,250 $ 14,850 175,000 $ 6,267,436Marshall L Mohr 12 501 $ 222 936 52 500 $ 1 224 975
15 Andrew S Rappaport 1,250 $ 14,850 52,500 $ 1,224,975Willy C. Shih 12,501 $ 222,936 67,500 $ 1,326,750
16
17 (1) The numbers in this table were calculated assuming that the closing of the Merger occurred on April 1, 2011 andthat the directors received no further option grants prior to the closing
18 (2) The dollar value of options was calculated by subtracting the per share exercise price of the options from $45.00
per share and multiplying the amount of this difference by the number of shares subject to the options(3) Mr. Harris was an employee director who was entitled to the same equity award treatment as non-employee
19 directors
20 90. Atheros' business was inextricably intertwined with Qualcomm as the majority of
21 the Company's design wins are based on Qualcomm platforms. Moreover, at all times since the
22 inception of the companies' joint venture, Qualcomm has been well aware of the financial plans and
23 significant non-public details about Atheros' operating and financial conditions. This business
24 relationship and knowledge of the Company's operating and financial details provided Qualcomm
25 with additional leverage and advantages it was able to utilize in negotiating the terms of the Merger.
26
27
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1 91. Defendant Barratt explained the close connection between Atheros and Qualcomm in
2 response to an analyst's question during a quarterly conference call on April 19, 2010 (more than
3 one month after Barratt had commenced negotiations with Qualcomm), when he stated.
4 I think what we've said in previous quarters still applies today. Our relationship withQualcomm is still strong. Our teams do work closely together. Qualcomm still
5 continues to work on their own internal technology and solutions. And I think theproducts we are developing are largely complementary to the ones that Qualcomm is
6 bringing to market. And you are correct that still the majority of our wins are onQualcomm-based platforms. But in some cases they're more directly with the
7 customer rather than necessarily through that channel. And of course, we haveadditional baseband partnerships as well that are generating some wins in a variety of
8 other handset opportunities too.
9 92. This close relationship with Qualcomm is further demonstrated by the negotiations
10 leading to the Merger. For example, the Definitive Proxy reveals that the Individual Defendants
11 never seriously solicited or considered bids from other prospective financial or strategic bidders.
12 Indeed, the Definitive Proxy reveals that defendant Barratt and various other Company executives,
13 with Board authorization, engaged in continuous ongoing negotiations and preliminary due
14 diligence with Qualcomm beginning on March 17, 2010, but the Board did not even retain a
15 financial advisor until September 8, 2010. Even then, the Board failed to request that Qatalyst, its
16 financial advisor, assemble a list of other potential interested parties until November 8, 2010— after
17 the Company had already received a bid from Qualcomm Qatalyst subsequently identified eleven
18 possible competing bidders and on December 1, 2010, for the first time, the Board authorized its
19 financial advisor to engage in discussions with potentially competing bidders, but inexplicably, with
20 only with two of the eleven identified companies. Less than one week later, and before Qatalyst
21 even received any final responses from these two potential competing bidders, the Individual
22 Defendants entered into an exclusivity agreement with Qualcomm, virtually assuring that
23 Qualcomm would not face any competing offer for the Company.
24 C. The False and Misleading Definitive Proxy and Filings Related Thereto
25 93. On February 11, 2011, Atheros and the Individual Defendants filed the Definitive
26 Proxy with the SEC.
27
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1 94. On March 7, 2011, as a result of and to address this litigation and parallel related
2 proceedings in Delaware state court, Atheros and the Individual Defendants amended the Definitive
3 Proxy by filing the Proxy Supplement with the SEC. The Proxy Supplement disclosed the
4 following facts, among others, that had been omitted and/or mischaracterized in the Definitive
5 Proxy: (i) approximately 98% of the $24,000,000 fee owed by the Company to Qatalyst was
6 contingent upon completion of the Merger; and (ii) the Company's CEO, defendant Barratt, learned
7 at least as far back as October 29, 2010 that Qualcomm had intended to employ him after any
8 merger between the companies.
9 95. On March 28, 2011, 74.6% of Atheros shareholders voted to approve the Merger
10 based on the statements in the Definitive Proxy and the Proxy Supplement.
11 96. The Definitive Proxy stated on page 28:
12 Atheros retained Qatalyst Partners LP, or Qatalyst Partners, as its financial advisorfor the purpose of advising Atheros in connection with a potential transaction such as
13 the Merger and to evaluate whether the consideration to be received in the Merger bythe holders of Atheros common stock (other than QUALCOMM or any affiliate of
14 QUALCOMM) was fair, from a financial point of view, to such holders. QatalystPartners has provided its written consent to the reproduction of the Qatalyst Partners
15 opinion in this proxy statement. At the meeting of Atheros' Board of Directors onJanuary 4, 2011, Qatalyst Partners rendered its oral opinion that, as of such date and
16 based upon and subject to the considerations, limitations and other matters set forththerein, the consideration to be received by the holders of Atheros common stock
17 (other than QUALCOMM or any affiliate of QUALCOMM) in the Merger was fair,from a financial point of view, to such holders. The Qatalyst Partners written
18 opinion, delivered following the Board meeting and dated January 5, 2011, issometimes referred to herein as the Qatalyst Partners opinion.
1997. The Definitive Proxy further stated on page 29, "The following is a summary of the
20material financial analyses undertaken by Qatalyst Partners in connection with rendering the
21Qatalyst Partners opinion."
2298. The Definitive Proxy then provided a summary of the material financial analyses that
23were performed by Qatalyst and titled as follows: (i) "Implied Transaction Premiums;" (ii) "Implied
24Multiples Analysis;" (iii) "Discounted Cash Flow Analysis;" (iv) "Selected Companies Analysis;"
25and (v) "Selected Transactions Analysis." The summary of these analyses is found on pages 30
26through 34 of the Definitive Proxy.
27
2
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1 99. The Definitive Proxy, however, failed to disclose two financial analyses that were
2 performed by Qatalyst and provided to and relied upon by the Board in approving the Merger. As
3 set forth in a Qatalyst board presentation (the "Qatalyst Presentation"), dated January 4, 2011, a
4 copy of which is attached as Exhibit A hereto, Qatalyst also performed in support of its fairness
5 opinion two analyses titled as follows: (i) "Summary of Analyst Estimates & Valuation
6 Methodologies;" and (ii) "Historical Termination Fee Analysis."
7 100. The Summary of Analyst Estimates & Valuation Methodologies is found at Exhibit
8 A on page 13 of the Qatalyst Presentation, the contents of which are incorporated by reference
9 herein.
10 101. The failure to include a fair summary and key inputs from the Summary of Analyst
11 Estimates & Valuation Methodologies renders the Definitive Proxy false and misleading because:
12 (i) the Definitive Proxy falsely represented that shareholders were being provided with "a summary
13 of the material financial analyses undertaken by Qatalyst Partners in connection with rendering the
14 Qatalyst Partners opinion," when in fact shareholders had not been provided with all material
15 financial analyses undertaken by Qatalyst; and (ii) the Definitive Proxy's summary of Qatalyst's
16 analyses is misleading as a result of the omission of the aforementioned data relating to analyst
17 estimates and valuation methodologies.
18 102. The Historical Termination Fee Analysis is found on pages 36 and 37 of the Qatalyst
19 Presentation, the contents of which are incorporated by reference herein.
20 103. The failure to include a fair summary and key inputs contained in the Historical
21 Termination Fee Analysis renders the Definitive Proxy false and misleading because: (i) the
22 Definitive Proxy falsely represented that shareholders were being provided with "a summary of the
23 material financial analyses undertaken by Qatalyst Partners in connection with rendering the
24 Qatalyst Partners opinion," when in fact shareholders had not been provided with all material
25 financial analyses undertaken by Qatalyst; and (ii) the Definitive Proxy's summary of Qatalyst's
26 analyses is misleading as a result of the omission of the aforementioned data for historical
27 termination fees in comparable transactions.
2
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FIRST CAUSE OF ACTION 1
Violations of Section 14(a) of the Exchange Act and Rule 14a-9
2 (Against Atheros and the Individual Defendants)
3 104. Plaintiff incorporates each and every allegation set forth above as if fully set forth
4 herein.
5 105. Atheros and the Individual Defendants caused the Definitive Proxy and the Proxy
6 Supplement to be issued with the intention of soliciting shareholder support of the Merger.
7 106. Section 14(a) of the Exchange Act requires full and complete disclosure in
8 connection with proxy solicitations.
9 107. Section 14(a) of the Exchange Act makes it unlawful to solicit a proxy "in
10 contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate
11 in the public interest." 15 U.S.C. §78n(a).
12 108. Rule 14a-9, which the SEC promulgated under §14(a), provides that no proxy
13 statement shall contain "any statement which, at the time and in the light of the circumstances under
14 which it is made, is false or misleading with respect to any material fact, or which omits to state any
15 material fact necessary in order to make the statements therein not false or misleading . . . ." 17
16 C.F.R. §240.14a-9(a).
17 109. The Definitive Proxy violated §14(a) because it contained the materially false and
18 misleading statements set forth above concerning the two undisclosed financial analyses performed
19 by Qatalyst
20 110. In the exercise of reasonable care, Atheros and the Individual Defendants should
21 have known that the Proxy was materially false and misleading because they received and relied on
22 the information contained in the Qatalyst Presentation.
23 111. Atheros shareholders voted to approve the Merger based on the false and misleading
24 statements in the Definitive Proxy, and the Merger was consummated as a result thereof
25
26
27
2
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1 SECOND CAUSE OF ACTION
2 Violations of Section 20(a) of the Exchange Act(Against the Individual Defendants)
3
4 112. Plaintiff incorporates each and every allegation set forth above as if fully set forth
5 herein.
6 113. The Individual Defendants acted as controlling persons of Atheros within the
7 meaning of §20(a) of the Exchange Act as alleged herein. By virtue of their positions as officers
8 and/or directors of Atheros, and participation in and/or awareness of the Company's operations
9 and/or intimate knowledge of the false and misleading statements contained in the Definitive Proxy
10 filed with the SEC, they had the power to influence and control and did influence and control,
11 directly or indirectly, the decision making of the Company, including the content and dissemination
12 of the various statements which Plaintiff contends are false and misleading.
13 114. Each of the Individual Defendants was provided with or had unlimited access to
14 copies of the Definitive Proxy and the statements alleged by Plaintiff to be false and misleading
15 prior to and/or shortly after these statements were issued and had the ability to prevent the issuance
16 of the statements or cause the statements to be corrected.
17 115. In particular, each of the Individual Defendants had direct and supervisory
18 involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
19 the power to control or influence the particular transactions giving rise to the securities violations
20 alleged herein, and exercised the same. The Definitive Proxy contains the unanimous
21 recommendation of each of the Individual Defendants to approve the Merger. The Individual
22 Defendants were, therefore, directly involved in the creation of the Definitive Proxy.
23 116. In addition, as the Definitive Proxy sets forth at length, and as described herein, the
24 Individual Defendants were each involved in negotiating, reviewing, and approving the Merger.
25 The Definitive Proxy purports to describe the various issues and information that the Individual
26 Defendants reviewed and considered. The Individual Defendants participated in drafting and/or
27 gave their input on the content of those descriptions.
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28 5 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)
AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Case5:11-cv-00640-LHK Document50 Filed06130111 Page27 of 33
1 117. By virtue of the foregoing, the Individual Defendants violated §20(a) of the
2 Exchange Act.
3 118. As set forth above, the Individual Defendants had the ability to exercise control over
4 and did control a person or persons who have each violated §14(a) and SEC Rule 14a-9, by their
5 acts and omissions as alleged herein. By virtue of their positions as controlling persons, these
6 defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of
7 Individual Defendants' conduct, Plaintiff and the Class were injured thereby.
8 THIRD CAUSE OF ACTION
9Equitable Assessment of Attorneys' Fees and Expenses
10 (Against All Defendants)
11 119. Plaintiff incorporates each and every allegation set forth above as if fully set forth
12 herein.
13 120. Plaintiff filed a meritorious lawsuit.
14 121. On February 15, 2011, Plaintiff filed a motion for a preliminary injunction raising
15 issues relating to, among other things, the Company's inadequate disclosures in the Definitive
16 Proxy concerning Qatalyst's compensation and defendant Barratt's employment at Qaulcomm post-
17 Merger.
18 122. On February 24, 2011, Plaintiff's counsel sent a letter to Defendants' counsel
19 demanding, among other things, supplemental disclosures to the Company's Definitive Proxy.
20 123. On March 4, 2011, the Delaware Court of Chancery issued its Order and
21 Memorandum Opinion, enjoining the Merger due to the Company's inadequate disclosures
22 concerning the contingent nature of Qatalyst's compensation and defendant Barratt's knowledge
23 concerning his employment at Qaulcomm post-Merger.
24 124. Thus, as a result of and in order to address the lawsuit and related litigation in
25 Delaware state court, the Company made supplemental disclosures on March 7, 2011 as set forth in
26 the Proxy Supplement. As a result, Plaintiff assisted in and conferred a benefit on the Company's
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2
28 6 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)
AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Case5:11-cv-00640-LHK Document50 Filed06130111 Page28 of 33
1 shareholders by requiring Defendants to provide the additional disclosures contained in the Proxy
2 Supplement.
3 125. To date, Plaintiffs counsel has not received any fees for the benefit provided to
4 Atheros' shareholders. Nor has counsel been reimbursed for their out-of-pocket expenses relating
5 to securing the benefit.
6 126. Accordingly, Plaintiffs counsel is entitled to a fee in an amount to be determined by
7 the Court or the trier of fact in addition to reimbursement for their actual out-of-pocket costs. The
8 Individual Defendants and Atheros should pay Plaintiffs counsel's fees and reimburse their out-of-
9 pocket expenses because it was, in the first instance, the Individual Defendants' duties and
10 obligations to disclose all material information to Atheros' shareholders.
11 127. Plaintiff has no adequate remedy at law.
12 PRAYER FOR RELIEF
13 WHEREFORE, Plaintiff on behalf of himself and on behalf of the proposed Class, prays
14 that the Court provide relief, including:
15 A. Declaring that this action is properly maintainable as a Class action and certifying
16 Plaintiff as Class representative and Plaintiffs counsel as Class Counsel;
17 B. Declaring that Atheros and the Individual Defendants violated §14(a) of the
18 Exchange Act;
19 C. Declaring that the Individual Defendants violated §20(a) of the Exchange Act;
20 D. Declaring that Plaintiff is entitled to an Equitable Assessment of Attorneys' Fees and
21 Expenses;
22 E. Rescinding, to the extent already implemented, the Merger or any of the terms
23 thereof, or granting Plaintiff and the Class rescissionary damages;
24 F. Directing Defendants to account to Plaintiff and the Class for all damages suffered as
25 a result of the Individual Defendants' wrongdoing;
26 G. Awarding Plaintiff the costs and disbursements of this action, including reasonable
27 attorneys' and experts' fees; and
2
28 7 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS 14(a)
AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Case5:11-cv-00640-LHK Document50 Filed06130111 Page29 of 33
1 H. Granting such other and further equitable relief as this Court may deem just and
2 proper.
3 JURY DEMAND
4 Plaintiffs demand a trial by jury.
5
6Dated: June 30, 2011 FARUQI & FARUQI, LLP
7By: Is/Vahn Alexander
8 VAHN ALEXANDER
9 1901 Avenue of the Stars, Second FloorLos Angeles, CA 90067
10 Telephone: (310) 461-1426
11Facsimile: (310) 461-1427
FARUQI & FARUQI, LLP12 Juan E. Monteverde
Richard W. Gonnello
13 369 Lexington Avenue, Tenth FloorNew York, NY 10017
14 Telephone: (212) 983-9330
15Facsimile: (212) 983-9331
16Counsel for Plaintiff and the Proposed Class
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28 8 FIRST AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF SECTIONS I4(a)
AND 20(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Case5:11-cv-00640-LHK Docu me nt50 Filed06/30/11 Page30 of 33
CERTIFICATION OF JOEL ICRIEGERIN SUPPORT OF CLASS ACTION COMPLAINT
Joel Krieger ("plaintiff') declares, as to the claims asserted under the federal
securities laws, that:
I. Plaintiff has reviewed the complaint prepared by counsel and has
authorized its filing.
2. Plaintiff did not purchase the security that is the subject of the complaint at
the direction of plaintiffs' counsel or in order to participate in any private action arising under the
federal securities laws.
3. Plaintiff is willing to serve as a representative party on behalf of a class,
including providing testimony at deposition and trial, if necessary.
4. During the proposed Class Period, plaintiff executed the following
transactions relating to Atheros Communications, Inc.:
Purchase of 100 shares at $45.943 per share on 01/04/11
5. In the past three years, plaintiff has not sought to serve as a representative
party on behalf of a class in an action filed under the federal securities laws.
6. Plaintiff will not accept any payment for serving as a representative party
on behalf of a class beyond plaintiffs pro rata share of any recovery, except such reasonable costs
Case5:11-cv-00640-LHK Document50 Filed06/30/11 Page31 of 33
and expenses (including lost wages) directly relating to the representation of the Class as ordered
or approved by the Court.
The foregoing are, to the best of my knowledge and belief, true and correct statements.
June 7, 2011
1 JOEL KRIEG ' R
Case5:11-cv-00640-LHK Document50 Filed06130111 Page32 of 33
1 CERTIFICATE OF SERVICE
2 I hereby certify that on June 30, 2011, I electronically filed the foregoing with the Clerk
3 of the Court using the CM/ECF system, which will send notification of such filing to the e-mail
4 addresses denoted on the Electronic Mail Notice List, and I hereby certify that I have mailed the
5 foregoing document Ina the United States Postal Service to the non-CM/ECF participants
6 indicated on the Manual Notice List.
7Dated: June 30, 2011 /s/Vahn Alexander
8 Vahn Alexander
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