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James Evans v. Qualcomm, Inc., et al.

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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

JAMES EVANS, on behalf of himself
and all other similarly situated
stockholders of Qualcomm
Incorporated,

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.

VERIFIED CLASS ACTION COMPLAINT
Plaintiff James Evans (“Plaintiff”), by and through his undersigned counsel,

brings this Verified Class Action Complaint (the “Complaint”) individually and on

behalf of a class (the “Class”) of common stockholders of defendant Qualcomm

Incorporated (“Qualcomm” or the “Company”) as of January 8, 2018 and their

successors and assigns, other than Defendants and their affiliates, against the board

of directors of Qualcomm (the “Board”) for breaches of fiduciary duty. The

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allegations of the Complaint are based on Plaintiff’s knowledge, and on

information and belief, including the investigation of counsel and review of

publicly available information as to all other matters.

NATURE OF THE ACTION
1. This class action on behalf of Qualcomm stockholders challenges an

unprecedented attempt by incumbent directors to have the United States (“U.S.”)

federal government preclude stockholders of a Delaware corporation from electing

independent directors, including U.S. citizens, to replace incumbent Board

members. As the latest in a series of entrenchment measures, the incumbent

directors conspired with protectionist politicians to have the Committee on Foreign

Investment in the U.S. (“CFIUS”) order the last-minute postponement of the long-

scheduled March 6, 2018 annual meeting of Qualcomm stockholders (the “Annual

Meeting”), thereby preventing an election of directors that the incumbents knew

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.

2. The incumbent Board is now seeking to have CFIUS override

Delaware law and stockholder democracy by banning six independent director

nominees nominated by Broadcom Limited (“Broadcom”) (the “Independent

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Nominees”) and entrenching the entire eleven-member incumbent Board in office

against the will of Qualcomm’s stockholders. The incumbent directors are

depriving the Qualcomm stockholders of their right to choose directors and asking

CFIUS to award them the victory.

3. All but one of the Independent Nominees, Samih Elhage (“Elhage”),

David G. Golden (“Golden”), Veronica M. Hagen (“Hagen”), Julie A. Hill

(“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

stockholders of Broadcom. They are current and/or former directors/officers of

other corporations, including other U.S. companies. Their credentials are similar

to the experience Qualcomm claims makes its nominees for outside directors

highly qualified.

4. Broadcom and the Independent Nominees have agreed that, if elected

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

accordance with their fiduciary duties.

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5. In the similarly contentious Airgas proxy fight, Air Products

nominated three directors to serve on the Airgas board, made similar

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

Qualcomm and its stockholders within the well-defined parameters of Delaware

corporate law, Defendants seek to have these fine business people disqualified

simply because they were nominated by Broadcom.

6. In complete disregard of the U.S. federal-state structure, the

incumbent Board seeks a federal takeover of Delaware corporation law to ensure

their continuation in office. Broadcom holds less than 1% of Qualcomm’s

1,480,385,456 outstanding shares. If elected, the Independent Nominees will have

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

preclude the Qualcomm stockholders from electing independent directors of their

choice.

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7. At Defendants’ instigation, CFIUS ordered the cancellation of the

entire March 6, 2018 Annual Meeting, including stockholder votes on certificate,

bylaw and stock plan amendments, executive compensation and even selection of

Qualcomm’s independent public accountants. At the insistence of Qualcomm’s

incumbent directors, a federal committee is now deciding whether and when

stockholders of Delaware corporations are allowed to vote on state law governance

matters.

8. The Qualcomm incumbents have also violated the voting rights of

Qualcomm stockholders through materially misleading and incomplete disclosure

concerning their secret voluntary application to CFIUS, the CFIUS proceedings

and their secret lobbying efforts. Qualcomm stockholders are entitled to know that

the incumbent directors initiated and engineered proceedings to preclude any

transaction with Broadcom and the opportunity of the stockholders to vote for new

independent Qualcomm directors.

PARTIES AND RELEVANT NON-PARTIES

Plaintiff

9. Plaintiff James Evans is and at all relevant times has been a

stockholder of Qualcomm.

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Defendants

10. Defendant Dr. Paul E. Jacobs (“Jacobs”) is the Executive Chairman

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

from the Company.

11. Defendant Steve Mollenkopf (“Mollenkopf”) is Qualcomm’s CEO

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

Chief Operating Officer (“COO”) from November 2011 to December 2013.

Mollenkopf was Executive Vice President and Group President from September

2010 to November 2011, Executive Vice President and President of Qualcomm

CDMA Technologies from August 2008 to September 2010. Mollenkopf joined

Qualcomm in 1994. Since 2014, Mollenkopf has received over $90 million in

compensation and benefits from the Company.

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12. Defendant Barbara T. Alexander (“Alexander”) has served as a

Qualcomm director since July 2006 and is the Chair of the Compensation

Committee.

13. Defendant Jeffrey W. Henderson (“Henderson”) has served as a

Qualcomm director since January 2016.

14. Defendant Thomas W. Horton (“Horton”) has served as a Qualcomm

director since December 2008. Horton is the Presiding Director of the Board and a

member of the Governance Committee.

15. Defendant Ann M. Livermore (“Livermore”) has served as a

Qualcomm director since October 2016.

16. Defendant Harish Manwani (“Manwani”) has served as a Qualcomm

director since May 2014 and is a member of the Compensation Committee.

17. Defendant Mark D. McLaughlin (“McLaughlin”) has served as a

Qualcomm director since July 2015 and is a member of the Compensation

Committee.

18. Defendant Clark T. Randt, Jr. (“Randt”) has served as a Qualcomm

director since October 2013 and is the Chair of the Governance Committee.

19. Defendant Dr. Francisco Ros (“Ros”) has served as a Qualcomm

director since December 2010 and is a member of the Governance Committee.

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Ros was a senior director of business development at Qualcomm from July 2003 to

April 2004.

20. Defendant Anthony J. Vinciquerra (“Vinciquerra”) has served as a

Qualcomm director since 2015.

21. Defendants Jacobs, Mollenkopf, Alexander, Henderson, Horton,

Livermore, Manwani, McLaughlin, Randt, Ros and Vinciquerra are collectively

referred to herein as the “Director Defendants.” The non-employee directors of

Qualcomm receive a $100,000 annual retainer ($120,000 for foreign directors) in

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.”

22. Defendant Qualcomm is a corporation organized and existing under

the laws of the State of Delaware, with its principal executive offices located at

5775 Morehouse Drive, San Diego, California 92121. Qualcomm develops and

commercializes technologies and products used in mobile devices and other

wireless products, including network equipment, broadband gateway equipment

and consumer electronic devices. Shares of Qualcomm’s common stock trade on

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the NASDAQ Global Select Market under the symbol “QCOM.” As of January 8,

2018, Qualcomm had 1,480,385,450 shares of common stock outstanding.

Broadcom and the Independent Nominees

23. Non-party Broadcom is a corporation organized and existing under

the laws of the Republic of Singapore, with co-headquarters in Yishun, Singapore

and San Jose, California. Broadcom is a designer, developer and supplier of

semiconductor devices. Ninety percent of Broadcom’s stockholders are U.S.

citizens. Hock Tan (“Tan”), Broadcom’s CEO, is a U.S. citizen. On November 2,

2017, Broadcom announced that it intended to re-domicile as a Delaware

corporation. On February 23, 2018, Broadcom filed Amendment 1 to its Form S-4

Registration Statement/prospectus for shares of Broadcom Limited, a Delaware

corporation, that will be issued to redomicile Broadcom to Delaware. Broadcom

expected to become a Delaware corporation in May 2018 or shortly thereafter.

Defendants, however, caused CFIUS to require 5 days’ notice before Broadcom

takes any action toward redomestication, thereby halting the process of Broadcom

becoming a Delaware entity. As of January 5, 2018, Broadcom and its affiliates

owned less than a million (or 0.069%) of Qualcomm’s nearly 1.5 billion

outstanding shares.

24. Non-party Elhage is an Independent Nominee. Elhage has extensive

experience with large technology companies. From 2012 to May 2017, Elhage

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held various executive positions at Nokia Corporation (“Nokia”), a $26 billion

communications, information technology and consumer electronics company

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

was a driving force behind Nokia’s acquisition and integration of Alcatel-Lucent

Corporation (“A-L”), a French company. Prior to Nokia, Elhage served in various

positions from 1998 to 2010 at Nortel Networks Corporation (“Nortel”), a

telecommunications and data networking manufacturer located in Canada. At

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

approximately $5 million, $3 million and $3.6 million, respectively, at Nokia. This

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

Master’s degree from the Ecole Polytechnique de Montreal.

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25. Non-party Golden is an Independent Nominee and a U.S. citizen.

Golden has extensive experience serving on the boards of public Delaware

corporations, including multi-billion dollar companies. Since 2015, Golden has

served as a director of Barnes & Noble Education, Inc., a Delaware corporation

headquartered in New Jersey. Golden previously served as a director of: (i)

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.

Golden also has extensive financial services experience, including as Managing

Partner at Revolution Ventures, a venture fund headquartered in San Francisco,

California, since 2013; a Partner and Executive Vice President at Revolution LLC

(“Revolution”), a private investment company organized by AOL co-founder Steve

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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Education, Inc. It is reasonable to infer that Golden’s income was materially

greater as a result of his role as Managing Partner at Revolution Ventures. Prior to

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.

26. Non-party Hagen is an Independent Nominee and a U.S. citizen.

Hagen has extensive board experience on large-cap public companies, including

serving as a director of Newmont Mining Corporation, a $20 billion Delaware

corporation headquartered in Colorado, since 2005; the Southern Company, a $44

billion Delaware corporation headquartered in Georgia, since 2008, including as

lead independent director from 2014 to 2016; and American Water Works

Company, Inc., a $14 billion Delaware corporation headquartered in New Jersey,

since 2016. In 2016, Hagen received a total of $780,110 in director fees for her

service on the boards of Newmont Mining Corporation, the Southern Company

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

the Southern Company, respectively. Hagen’s professional experience includes

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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

of specialty materials located in South Carolina, from 2007 to 2013, as President

and CEO of Sappi Fine Paper, a division of the South African based global paper

products leader, Sappi Limited and multiple positions at Alcoa Corporation, a

metals engineering and manufacturing company incorporated in Delaware and

headquartered in Pennsylvania, including Vice President, Chief Customer Officer

and business unit president. Hagen holds a bachelor’s degree from the University

of Southern California.

27. Non-party Hill is an Independent Nominee and a U.S. citizen. Hill

has extensive experience serving on the board of large-cap companies and

Delaware corporations, including serving as a director of Anthem, Inc., an Indiana

corporation headquartered in Indiana and one of the largest health benefits

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

construction, property and infrastructure company headquartered in Australia, from

2006 to 2012; Resources Connection, Inc., a multinational business consulting firm

incorporated in Delaware and headquartered in California, from 2003 to 2006;

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

of Trustees of the University of California at Irvine and serves on the University’s

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.

28. Non-party Kispert is an Independent Nominee and a U.S. citizen.

Kispert has board experience on public companies, including Delaware

corporations, and technology companies. Kispert served as a director of Gigamon

Inc., a provider of network traffic visibility solutions incorporated in Delaware and

headquartered in California, since 2013; Barracuda Networks, Inc., a security,

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networking and data storage company incorporated in Delaware and located in

California in 2016; TriNet Group, Inc., a $3 billion cloud-based professional

employer organization incorporated in Delaware and headquartered in California,

from 2014 to 2017; Extreme Networks, Inc., a network hardware company

incorporated in Delaware and headquartered in California, from 2012 until 2017,

including as Chairman from 2015 to 2017; Cypress Semiconductor Corporation

(“Cypress”), a $6 billion semiconductor and electronics manufacturer incorporated

in Delaware and headquartered in California, from 2015 until 2016; and, Spansion,

Inc. (“Spansion”), a Delaware corporation headquartered in California and a

manufacturer of flash memory products, from February 2009 until March 2015.

Kispert also has professional experience running companies, including technology

companies. Kispert has served as a Managing Partner of Black Diamond Ventures,

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

Semiconductor Corporation. In 2015, Kispert received over $700,000 from his

board service at Gigamon Inc., Trinet Group, Inc. and Extreme Networks, Inc.

These income figures exclude the amount he received as Managing Partner of

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Black Diamond Ventures. Kispert holds a B.A. from Grinnell College and an

M.B.A. from the University of California, Los Angeles.

29. Non-party You is an Independent Nominee and a U.S. citizen. You

has extensive experience running large technology companies. Since 2016, You

has been the President, CFO and director of GTY Technology Holdings Inc., a

public blank check company incorporated in the Cayman Islands and

headquartered in Nevada that focuses on the technology industry, including

software and services. From 2008 to 2016, You served as the Executive Vice

President in the Office of the Chairman of EMC Corporation (“EMC”), an

information infrastructure solutions company incorporated in Massachusetts and

headquartered in Massachusetts until EMC’s merger with Denali Holdings,

Inc. From 2005 to 2007, You was CEO of BearingPoint Inc., a leading IT and

management consultancy firm incorporated in Delaware and headquartered in

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

Corporation (“Oracle”), a global information technology provider incorporated in

Delaware and headquartered in California, and helped begin Oracle’s acquisition

run with the takeovers of Peoplesoft, Inc. and Retek in 2005. From 2001 to 2004,

You served as CFO of Accenture Ltd., a global management consulting and

professional services company incorporated and headquartered in Bermuda. You

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also spent 14 years in the financial services industry, including as a managing

director in the Investment Banking Division of Morgan Stanley, where he headed

the Computer and Business Services Group. You’s board experience includes

serving as a director of Korn/Ferry International, a $2.4 billion global executive

recruiting company incorporated in Delaware and headquartered in California,

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

Qualcomm Entertains Strategic Opportunities
to Improve Its Financial Performance

30. Qualcomm stockholders’ investment in the Company has suffered in

recent years. Since closing at a high of $81.32 per share on April 17, 2014,

Qualcomm’s stock price collapsed almost 50% to close at a low of $42.96 on

February 10, 2016.

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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approached Mollenkopf and Qualcomm CFO George S. Davis (“Davis”) about a

potential transaction between Qualcomm and Broadcom. Qualcomm and

Broadcom subsequently held an introductory meeting, on August 4, 2016,

regarding a potential business combination. Discussions continued in September

2016, but the parties did not discuss specific terms or pricing and, thereafter,

discussions stalled for reasons Qualcomm has not disclosed. However, because of

Broadcom’s interest, the Director Defendants embarked on a series of defensive

maneuvers.

32. First, Qualcomm turned its attention to an acquisition of Dutch chip-

maker NXP Semiconductor N.V. (“NXP”). On October 27, 2016, Qualcomm

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

compensation and Qualcomm’s governance documents. In particular, on

September 21, 2017, the Compensation Committee adopted the 2018 Director

Compensation Plan to establish additional compensation to be paid to

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

Compensation Committee granted millions of dollars’ worth of restricted stock

units to the Company’s named executive officers with the exception of Mollenkopf

and Jacobs because the Compensation Committee previously front-loaded their

awards, granting each of them five years’ worth of restricted stock units in 2014.

35. On October 9, 2017, the Board passed a resolution amending the

Company’s bylaws which purportedly will impact the super majority voting

requirements for the removal of directors without cause, bylaw amendments,

certain charter amendments and certain transactions with interested stockholders.

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

filing of a proposed amended charter, if approved by Qualcomm’s stockholders at

the Annual Meeting.

Broadcom Makes an Offer to the Board to Acquire
Qualcomm at a Substantial Premium, which the Board Rejects

36. By November 2, 2017, Qualcomm’s stock price had fallen to $54.84,

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

from Singapore . . . [and] as Qualcomm is trying to close its pending $38-billion

acquisition of NXP Semiconductors NV . . . .”1 Reuters further noted that

Broadcom planned to complete its re-domiciliation “before completing any

Qualcomm deal, avoiding scrutiny by the Committee on Foreign Investment in the

United States . . . .”2 Upon those reports, Qualcomm’s stock price jumped nearly

13%, from a closing price of $54.84 on November 2, 2017 to $61.81 on November

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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C.A. No. 2018-0164-, compl. (Del. Ch. Mar. 8, 2018)

37. On November 6, 2017, Broadcom publicly made a proposal to the

Board to acquire all of the outstanding shares of Qualcomm (the “Proposed

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

33% premium to the Company’s unaffected 30-day volume-weighted average price

(“VWAP”) of $52.71 calculated as of November 2, 2017. Broadcom stated that

the Initial Proposal stood regardless of whether Qualcomm consummated or

terminated the NXP Transaction at $110 per share.

38. After only one week of deliberation, on November 13, 2017,

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

did not elaborate on what Horton meant by “significant regulatory uncertainty.”

39. Later that day, Broadcom issued a press release announcing that it

“remains fully committed to pursuing its acquisition of Qualcomm . . . .”

Broadcom CEO Tan emphasized Broadcom’s “strong preference to engage

cooperatively with Qualcomm’s Board of Directors and management team.”

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40. On November 16, 2017, Qualcomm filed with the SEC a Form 8-K

scheduling the Annual Meeting for March 6, 2018.

41. Meanwhile, Qualcomm was encountering difficulties gaining traction

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.

42. On November 22, 2017, Reuters reported that, “following

consultation with several of Qualcomm’s top shareholders,” Broadcom was

considering raising its offer to acquire Qualcomm by offering more Broadcom

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 Launches a Proxy Contest after Qualcomm
Refuses to Meet to Discuss a Possible Transaction

43. In light of Qualcomm’s stonewalling, on December 4, 2017,

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

consideration at the Annual Meeting. Broadcom also provided notice of its

intention to nominate four alternate nominees in the event that (i) Qualcomm

increased the size of the Board, (ii) Qualcomm took action to disqualify

Broadcom’s original designees, or (iii) any of Broadcom’s original nominees were

unable or unwilling to serve as a director of Qualcomm.

44. According to Broadcom CEO Tan:

We have heard from many Qualcomm stockholders who have
expressed their desire for Qualcomm to engage with us. We also
continue to receive positive feedback from customers and, having had
initial meetings with certain relevant antitrust authorities, remain
confident that any regulatory requirements necessary to complete a
combination will be met in a timely manner. Although we are taking
this step, it remains our strong preference to engage in a constructive
dialogue with Qualcomm. We have repeatedly attempted to engage
with Qualcomm, and despite stockholder and customer support for the
transaction, Qualcomm has ignored those opportunities. The
nominations give Qualcomm stockholders an opportunity to voice
their disappointment with Qualcomm’s directors and their refusal to
engage in discussions with us. In light of the significant value our
proposal provides for Qualcomm stockholders, we believe Qualcomm
stockholders would be better served by new independent, highly
qualified nominees who are committed to maximizing value and
acting in the best interests of Qualcomm stockholders.

45. Later that day, Qualcomm issued a press release confirming receipt of

Broadcom’s slate of director nominees. Despite refusing to meet with Broadcom,

Qualcomm assailed Broadcom for asking Qualcomm’s stockholders to vote on a

transaction “which could not be completed for well over a year, if ever, given the

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regulatory issues, [and] the absence of commitments by Broadcom to resolve those

issues . . . .” The press release also took issue with the purported “uncertainty

surrounding [Broadcom’s] transition from Singapore to the United States.”

46. On December 7, 2017, Broadcom held an earnings conference call

regarding its financial performance for the fourth fiscal quarter and fiscal year

ended October 29, 2017. During the earnings call, Broadcom rebutted

Qualcomm’s accusations regarding the redomestication, noting that Broadcom was

“confident that [its] shareholders will support this move . . . .” Broadcom also

reiterated its “strong preference to engage in a constructive dialogue with

Qualcomm” on a proposed transaction, and expressed Broadcom’s “confiden[ce]

that any regulatory requirements necessary to complete a combination will be met

in a timely manner.”

47. On December 11, 2017, Broadcom issued a press release announcing

that it filed a premerger notification under the Hart-Scott-Rodino Antitrust

Improvements Act of 1976 with the U.S. Department of Justice Antitrust Division

and the Federal Trade Commission in connection with the Proposed Transaction.

48. While Broadcom stood ready and committed to complete a premium

transaction with Qualcomm, Qualcomm’s troubles with the NXP Transaction

worsened. On December 11, 2017, NXP stockholder Elliot Advisors (UK)

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

tendered and not withdrawn.

Qualcomm’s Board Rejects Broadcom’s
Independent Nominees and Takes Further Defensive Measures

50. On December 20, 2017, the Board, following the recommendation of

its Governance Committee, unanimously determined not to nominate any of the 11

director nominees proposed by Broadcom.

51. Also, on December 20, 2017, the Board, upon the unanimous

recommendation of the Compensation Committee, unanimously approved the

adoption the Qualcomm Incorporated Non-Executive Officer Change in Control

Severance Plan (the “Severance Plan”). The Severance Plan broadly defines

“employee” to include “any regular, full-time employee or part-time employee

(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-

ranking workers to at least 52 weeks of salary for senior vice presidents . . . .

Senior employees would also get pro-rated annual bonuses.”

52. The Severance Plan is an entrenching defensive measure.

Qualcomm’s 8-K admits it was passed in contemplation of “a change in control of

the Company, and the uncertainty it creates . . . .” Consequently, the Severance

Plan defines the “Company” to mean “Qualcomm Incorporated and any successor

thereto or, if applicable, the ultimate parent of any such successor.” (Emphasis

added). As Bloomberg observed, “[t]he [Severance Plan] would make it more

expensive for an acquirer to make sweeping changes to the structure of the

organization—something Broadcom Chief Executive Officer Hock Tan would

likely pursue if the transaction is completed.”6 Given the size of Qualcomm and its

employment of approximately 33,800 full-time, part-time and temporary

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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the event the NXP Transaction concludes prior to Broadcom’s acquisition of

Qualcomm.7

53. Also on December 20, 2017, the Qualcomm Board, upon the

unanimous recommendations of the Compensation Committee, unanimously

approved amendments to the Qualcomm Incorporated 2016 Long-Term Incentive

Plan and the Qualcomm Incorporated 2006 Long-Term Incentive Plan (together,

the “LTIPs”) which call for increased compensation for LTIPs participants—

including members of the Board—in the event a majority of the incumbent

directors are not reelected. Specifically, the amendment to the LTIPs (the “LTIP

Amendment”) provides that:

[A] “Change in Control” shall occur in the event that individuals
who, as of December 20, 2017, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director
subsequent to December 20, 2017 whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board . . . .

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

replaced incumbent Qualcomm directors and terminated the employment of certain

Qualcomm officers and/or (ii) following Qualcomm stockholders’ determination

that Broadcom’s offer was a superior alternative to the NXP Transaction or

Qualcomm as a standalone company, certain incumbent directors and officers were

terminated. The Qualcomm proxy issued in advance of the Annual Meeting values

Jacobs’ and Mollenkopf’s Change of Control payments at $22,029,134 and

$20,634,358, respectively.

The Proxy Contest Continues

55. On January 5, 2018, Broadcom mailed a definitive proxy statement to

Qualcomm’s stockholders (the “Broadcom Proxy”) soliciting Qualcomm

stockholders to elect 11 independent nominees to the Qualcomm Board at the

Annual Meeting. As the Broadcom Proxy indicates, none of the 11 nominees are

employed by, affiliated with, or have any material relationship with Broadcom,

Qualcomm or their respective subsidiaries.

56. The Broadcom Proxy further provides:

Each of the Broadcom Nominees has specifically acknowledged that
there is not, and cannot be, any agreement between such Broadcom
Nominee and Broadcom regarding the decisions such Broadcom
Nominee will make as a director of Qualcomm. Accordingly, we
expect that the Broadcom Nominees will exercise their independent
judgment in all matters before the Qualcomm Board in accordance
with their fiduciary duties to Qualcomm and the Qualcomm

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stockholders and applicable law, including with respect to the
Proposed Transaction. . . .

57. The Broadcom Proxy includes the Form of Nomination Agreement

executed by the independent nominees. It also discloses that Broadcom nominated

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

the best interests of Qualcomm’s stockholders.

58. Broadcom also solicited Qualcomm’s stockholders to approve

amendments to Qualcomm’s bylaws to undo any bylaw amendment adopted

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

the SEC on July 15, 2016.

59. On January 5, 2018, Qualcomm issued its competing definitive proxy

statement for the Annual Meeting (the “Qualcomm Proxy”), confirming the

Annual Meeting for March 6, 2018.

60. On January 12, 2018, Qualcomm announced yet another extension of

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

Broadcom’s offer undervalued Qualcomm relative to Qualcomm’s value as a

standalone entity and identifying concerns about the risk that the proposed

transaction would not obtain the required regulatory approvals.

Broadcom Materially Improves Its Acquisition
Proposal, which Qualcomm Rejects Outright

62. On February 2, 2018, a representative of Broadcom contacted

Qualcomm to offer terms for an improved acquisition proposal. Qualcomm did not

respond. Also, on February 2, 2018, Broadcom’s financial and legal advisors

contacted Qualcomm’s financial and legal advisors to provide terms for an

improved acquisition proposal. Qualcomm’s financial advisor, Goldman Sachs &

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.

63. Accordingly, on February 5, 2018, Broadcom sent a letter to the

Board outlining the terms of its improved proposal, which included increasing the

Proposed Transaction consideration to $82 per Qualcomm share, consisting of $60

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

to Qualcomm’s unaffected trading price of $54.84 on November 2, 2017—i.e., the

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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.

65. Broadcom’s improved proposal also addressed Qualcomm’s purported

regulatory concerns. Broadcom included a “ticking fee” providing for an increase

in the cash consideration if the Proposed Transaction is not consummated one year

after executing a definitive agreement and a “reverse termination fee” payable to

Qualcomm stockholders if the Proposed Transaction is not consummated because

of Broadcom’s inability to obtain required regulatory approvals. Broadcom also

expressed its willingness to agree to a regulatory efforts provision and to invite

Qualcomm Chairman Jacobs and a second Qualcomm director to join the board of

the post-transaction entity. Broadcom conditioned its proposal on (i) Qualcomm

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.

The Qualcomm Board took steps to defeat both conditions.

66. Also, on February 5, 2018, Broadcom filed a Schedule 14A with the

SEC again addressing Qualcomm’s purported concerns about the Proposed

Transaction’s regulatory risks. Among other things, Broadcom stated that in

Qualcomm’s January 16, 2018 investor presentation regarding the Proposed

Transaction, Qualcomm identified:

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.

67. Broadcom also issued a public letter to its employees on February 5,

2018 in which Broadcom wrote: “It is clear from our discussion with investors and

customers of both Broadcom and Qualcomm that there is overwhelming support

for Qualcomm to engage with us immediately regarding this transaction.”8

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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68. In contrast with its non-response to Broadcom’s outreach on February

2, Qualcomm promptly issued a press release confirming its receipt of the revised

proposal, which the Qualcomm Board stated it would consider and assess.

69. On February 8, 2018, before meeting or speaking with Broadcom

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

but indicated the Board would nevertheless meet with Broadcom.

70. Broadcom reached out to Qualcomm on February 9, 2018 to schedule

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

provided Qualcomm with a proposed merger agreement providing for an $8 billion

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.

71. Also on February 9, 2018, Qualcomm announced the extension of the

expiration of the Tender Offer on the NXP Transaction from February 9 to

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

efforts to provide Qualcomm stockholders with a premium transaction, the Board’s

preferred deal with NXP continued to slip out of reach at the agreed-upon price.

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Broadcom Continues to Pursue Qualcomm

72. Broadcom continued to pursue the Proposed Transaction despite

Qualcomm’s reluctance to engage with Broadcom. On February 11, 2018,

Broadcom entered into a commitment letter with a group of twelve (12) financial

institutions for up to $100 billion in debt financing, including a $5 billion

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.)

Inc. On February 12, Broadcom announced that it secured financing commitments

sufficient to fully fund the $60 per share component of Broadcom’s proposal and

post-closing working capital needs, including restructuring activities. Thus,

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

risks of the Proposed Transaction. Broadcom stated:

Qualcomm’s management is trying to hide behind a smokescreen of
unspecified “regulatory risk.” It consists mostly of general statements
about antitrust risks inherent in any deal between competitors, not
about this deal in these markets. . . . The most important point anyone
needs to know about antitrust risk in this deal is that the vast majority
of Broadcom’s and Qualcomm’s businesses do not raise any antitrust

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issues at all . . . for defensive purposes, Qualcomm is making more of
those issues than anyone seeking to maximize value for Qualcomm
shareholders would.

(Emphasis added).

74. Qualcomm’s defensive and feigned concern over the regulatory issues

facing the Proposed Transaction pale in comparison to 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

globe who have accused the Company of anti-competitive trade practices. In

January 2018, the European Commission fined Qualcomm $1.2 billion in

connection with a scheme by which Qualcomm promised Apple payments and

other remuneration if Apple only used the Company’s technology. 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

Commission in fiscal year 2017. In addition, Qualcomm is currently defending a

lawsuit filed by the U.S. Federal Trade Commission.

75. On February 13, 2018, Broadcom issued a proxy supplement

soliciting Qualcomm stockholders to vote for just six nominees—Independent

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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

Qualcomm stockholders’ desire “for appropriate continuity on the Qualcomm

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

reiterated its intent to seek to replace a majority of the Qualcomm Board.

77. Two days later, Qualcomm Chairman Jacobs stated that Broadcom’s

proposal remained unacceptable because it undervalued Qualcomm.

78. On February 16, 2018, proxy advisors Institutional Shareholder

Services (“ISS”) issued a report questioning the Board’s commitment to

maximizing value for Qualcomm stockholders given “the tenor of [the Board’s]

engagement leading up to the present . . . .” ISS then warned Qualcomm’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

board [] does not want to be perceived by shareholders as overpaying for NXP,

making it seem like an imprudent defensive acquisition.”

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Qualcomm Raises Its Price to Acquire NXP

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

NXP entered into an amendment to the Purchase Agreement (the “Amended

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

required to tender in order to consummate the NXP Transaction to 70% of all

outstanding NXP shares. Qualcomm also announced that 28% of NXP

shareholders, including Elliott, entered into tender and support agreements to

tender their shares at the increased Tender Offer price.

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

approval of the Ministry of Commerce (“MOFCOM”) of the Government of China

(which was among Qualcomm’s criticisms of the Proposed Transaction); and (iii)

the Amended Purchase Agreement (a) transferred $4.10 per share—approximately

$6.2 billion—from Qualcomm stockholders; and (b) demonstrated Qualcomn’s

disregard for its fiduciary duty to maximize value for Qualcomm’s stockholders.

Broadcom further criticized Qualcomm for failing to responsibly engage with

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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

the Amended Purchase Agreement as “questionable.” Glass Lewis recommended

that Qualcomm stockholders vote “AGAINST” the Qualcomm directors and

“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

composition of the board is warranted.”

82. Glass Lewis further reasoned:

Reconstituting the Qualcomm board would go a long way to ensuring
shareholders have a fully informed opinion regarding the prospects of
the Company as compared to the attractiveness and risks of a potential
Broadcom deal, in our view.

83. On February 21, 2018, Broadcom re-affirmed its commitment to

acquire Qualcomm. In light of the drastic and unwarranted increase in the

consideration being offered to NXP stockholders in the defensive acquisition,

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

Transaction consideration is a 44% premium to the unaffected $54.84 closing price

of Qualcomm stock on November 2, 2017.

84. Broadcom’s proposed terms under the draft merger agreement

remained the same, including the $8 billion reverse termination fee. The proposed

merger agreement, however, would account for an automatic increase of $3 in cash

per Qualcomm share, or a total of $82 per Qualcomm share, in the event the NXP

Transaction was not consummated.

85. Broadcom, meanwhile, continued to publicly address the Qualcomm

Board’s purported regulatory concerns regarding the Proposed Transaction. On

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

overlap—Qualcomm’s Wi-Fi Networking Processors and RF Front End (RFFE)

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

consultation process. Broadcom further indicated that it remained confident in its

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ability to complete the Proposed Transaction within approximately twelve (12)

months following the signing of a definitive agreement.

Defendants’ Secret Scheme to Have CFIUS Bar Any Transaction with
Broadcom and Award Them Victory in the Proxy Contest

86. Facing likely defeat in the proxy contest based on the votes

Qualcomm was receiving as the Annual Meeting approached, Defendants

determined they would seek to preclude the Qualcomm stockholders from any

potential premium transaction with Broadcom and ensure themselves a victory in

the proxy contest by disqualifying the Independent Nominees. On January 29,

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

members of the U.S. Congress. A reasonable Qualcomm stockholder would want

to know the contents of these communications in evaluating the credibility of the

incumbent directors and deciding whether to reelect those directors. A reasonable

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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appointed Secretary of the Treasury and including the Secretaries of Defense,

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

Representatives to pressure CFIUS into barring any transaction with Broadcom

and eliminating the competing slate of Independent Nominees. In the tradition of

totalitarian states that purport to have elections, Defendants are using political

pressure and government power to force the opposition slate out of the contest.

88. On February 22, 2018, Duncan Hunter of the U.S. House of

Representatives (“Representative Hunter” or “Hunter”), 50th District, California,

wrote to President Donald J. Trump requesting that he direct CFIUS to investigate

the national security implications of Broadcom’s proposed acquisition of

Qualcomm and “block” any sale pending a full investigation. Representative

Hunter made a similar appeal to the Secretary of Defense by letter dated March 1,

2018, highlighting the upcoming director vote.

89. As one commentator noted:

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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Qualcomm’s political action committee has donated $15,000 or more
to each politician. . . .9
Qualcomm presumably leveraged its financial support of the embattled

Representative Hunter to incite opposition to the Proposed Transaction and the

Independent Nominees.

90. Representative Hunter is currently in need of allies with power,

connections and capital given the ongoing federal criminal investigation into

whether he improperly diverted hundreds of thousands of dollars in campaign

funds for personal use. His campaign expenditures came under scrutiny in April

2016 when The San Diego Union-Tribune questioned thousands of dollars in

expenditures by his campaign for video games and school tuition, leading to

complaints and government investigations. In February 2017, federal investigators

executed a search warrant for the offices of Hunter’s campaign treasurer seeking

evidence relating to the improper expenditures, as well as a possible fraud scheme

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,

mistaken or lacking documentation.

91. On February 26, 2018, U.S. Senator John Cornyn wrote to Treasury

Secretary Steven Mnuchin, expounding upon the protectionist rhetoric advanced a

few days prior by Representative Hunter and urging CFIUS to act prior to the

scheduled vote. Six additional members of Congress joined Senator Cornyn’s

request in a separate March 1, 2018 letter to Secretary Mnuchin claiming that

“Broadcom will acquire control of Qualcomm at the latter’s stockholder meeting

on March 6.” On February 28, 2018, Congressman Scott Peters, who received

financial support from Qualcomm’s political action committee in 2017, wrote to

the Treasury Secretary demanding that CFIUS prevent “the Chinese company

Broadcom Limited” from acquiring Qualcomm and prevent “[p]enetration of

Qualcomm’s Board of Directors by Chinese nationals or allies.”

92. Of course, none of the letters in this orchestrated campaign mention

the right of Qualcomm stockholders to decide the composition of the Qualcomm

Board. Instead, the March 1, 2018 letter asserts that CFIUS can “review proxy

contests” and disqualify the Independent Nominees “because the proposed change

of directors represents an attempt to take control of the company.” In other words,

CFIUS, not the Qualcomm stockholders, is to decide that there should be no

change of directors at Qualcomm, thereby entrenching the incumbents.

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93. The Congressional letters disregard Broadcom’s predominately

American board and stockholder base. They emphasize Broadcom’s connections

to China but fail to acknowledge Qualcomm’s long-standing relationship with and

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,

2018 proxy solicitation materials, Broadcom highlights just a few of Qualcomm’s

substantial investments in China including Qualcomm’s (i) assistance in the

Chinese government’s development of drones, artificial intelligence, mobile

technology and supercomputers; (ii) work with Chinese companies like Huawei to

break into overseas markets and to develop multinational brands; and (iii) $150

million investment in Chinese startup companies.

95. Broadcom identified some, but not all, of the joint ventures and

strategic partnerships between Qualcomm and Chinese companies. For example,

in January 2016, Qualcomm executives (including Mollenkopf and Derek Aberle,

Qualcomm’s then-President) and officials from the People’s Government of

Guizhou Province unveiled a $280 million joint venture, which was majority

owned by the Guizhou provincial government’s investment arm. Qualcomm also

announced that it would establish an investment company in Guizhou that will

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serve as a vehicle for future investments in China. Describing Qualcomm’s long-

term Chinese investment strategy, Aberle indicated:

The actions announced today are important steps for Qualcomm as we
deepen our level of cooperation with, and investment in, China. We
have worked actively with our partners in China for more than 20
years; however, the strategic cooperation with Guizhou represents a
significant increase in our collaboration in China. . . . We are not only
providing investment capital, but we also are licensing our server
technology to the joint venture and assisting with R&D process and
implementation expertise; this underscores our commitment as a
strategic partner in China.

Demonstrating China’s importance to Qualcomm, Qualcomm receives 65% of its

total revenues from China.

Qualcomm Continues to Rebuff Broadcom

96. On February 23, 2018, Qualcomm and Broadcom met. Broadcom

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

previously scheduled stockholder vote on March 6.” Indeed, Qualcomm was

actively seeking governmental intervention to delay the vote.

97. On February 26, 2018, Qualcomm Chairman Jacobs sent a letter to

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,

materially undervalued Qualcomm. Qualcomm, however, proposed that next steps

include, among other things, mutual due diligence and entering into a non-

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disclosure agreement (“NDA”) in order to address Qualcomm’s purported

concerns regarding regulatory issues and other terms of the merger agreement.

Qualcomm also sent a draft NDA to Broadcom.

98. Broadcom criticized Qualcomm’s “comprehensive proposal” as an

effort to delay the March 6, 2018 Annual Meeting. Broadcom stated that its

proposal

has never been conditioned on due diligence and Broadcom continues
to be prepared to move forward immediately, without diligence. In
short, there is no cause to delay the Qualcomm annual meeting.
Broadcom would be happy to provide confirmatory reverse due
diligence upon an agreement on all material terms, including price, as
is customary.

Qualcomm Cancels the Election of Directors
and Other Annual Meeting Votes

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

March 6 Annual Meeting is to be “delayed” for 30 days (presumably to allow more

time to issue an injunction permanently barring the election of the Independent

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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accepting or taking any action in furtherance of accepting Broadcom’s proposed

merger agreement or any other proposed merger, acquisition or takeover agreement

with Broadcom. CFIUS essentially entered an injunction forbidding a Delaware

corporation from holding its annual meeting as scheduled, prohibiting its

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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This tracked Defendants’ public statements concerning what they intended to do at

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

reverse their defeat. The Defendants have provided no disclosure to the

Qualcomm stockholders concerning their role in the modification of the Order or

the reasons for that modification.

101. Of course, the CFIUS Order and Modified Order did not restrict the

incumbent directors, whom CFIUS required to remain in office, from taking

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 as a weapon to coerce stockholders to vote for them because otherwise

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

proxy contest for a Delaware corporation.

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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

received $100,000 from Broadcom under their Nomination Agreement. The

$100,000 is far less than the over $300,000 in compensation the incumbent

directors bestowed on themselves. Moreover, the Nomination Agreement

provides:

Each of us recognizes that should you be elected to the Board of
Directors of the Target, all of your activities and decisions as a
director will be governed by applicable law and subject to your
fiduciary duty to the Target and to the stockholders of the Target and,
as a result, that there is and can be, no agreement between you and the
Company that governs the decisions that you will make as a director
of the Target. You agree that, if elected, you will exercise your
independent judgment in all matters before the Target Board of
Directors in accordance with your fiduciary duties.

However, state law fiduciary duties were simply disregarded in the effort to have

the federal government favor the incumbent directors.

103. Following its receipt of the Order and Modified Order, on March 5,

2018, Qualcomm announced that it would “delay its Annual Meeting of

Stockholders and election of directors for at least 30 days so that CFIUS can fully

investigate [Broadcom’s] proposal to acquire Qualcomm . . . .” (Emphasis added).

Qualcomm then announced on March 5, 2018 that to implement the March 4, 2018

Order:

. . . the 2018 Annual Meeting of Stockholders will be opened on March
6, 2018 at 8 a.m. Pacific Time and immediately adjourned to April 5,

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2018. There will be no voting or other matters conducted at the
meeting.

Defendants also said stockholders could “change their vote.”

104. In a separate “employee communication,” Defendants told

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.

105. It appears that CFIUS modified its Order to conform with

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

Nominees out of the game.

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

led to the Order:

CFIUS’s assessment thus far includes its review of the information
submitted by Qualcomm in its unilateral voluntary notice on January
29, 2018, the parties’ responses to questions posed about the potential
transaction during the interim period, and the information provided in
our multiple phone calls, emails, and meetings with representatives of
both Qualcomm and Broadcom. In addition, our assessment includes
the review of letters to CFIUS submitted by Broadcom on February
21, 2018 and March 2, 2018.

The March 5 letter adopts Qualcomm’s self-serving descriptions of its business and

its importance and makes findings concerning Qualcomm’s status as a “trusted

company” important to national security. Contrary to the March 5 letter, neither

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

Broadcom based on letters from Qualcomm and protectionist politicians. The

interests of Qualcomm’s stockholders were given no consideration. Defendants

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

price of Qualcomm stock on March 2, 2018. Nearly $4 billion of Qualcomm’s

market capitalization had been erased.

108. The CFIUS Orders were an extremely odd move by the U.S.

regulatory body. As one former CFIUS member, Mario Mancuso, explained:

“This is Halley’s comet unusual.”10 Indeed, CFIUS usually only intervenes in

transactions where a foreign entity is set to purchase a controlling stake in a U.S.

company.11 It rarely reviews mergers before companies have entered into binding

agreements, and to Plaintiff’s knowledge, has never intervened to stop a proxy

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

109. Absent Qualcomm’s campaign soliciting CFIUS intervention, the

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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interest. Broadcom is incorporated in Singapore and conducts much of its

operations in the U.S.14 Its corporate headquarters are already in San Jose,

California. Ninety percent of Broadcom’s board of directors and senior

management team, including Broadcom CEO Tan, are American. U.S. investors

own 90% of Broadcom’s stock. In fact, Broadcom and Qualcomm share a

comparable base of significant institutional stockholders that are primarily based in

the U.S.

110. Prior to the public announcement of Broadcom’s bid for Qualcomm,

Broadcom CEO Tan announced, in a White House press conference (alongside

President Trump), that Broadcom would take action to re-domicile as a Delaware

corporation. President Trump personally hailed the announcement as a sign that

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’

notice before taking any action toward redomiciliation in the U.S.

111. Broadcom publicly denounced Qualcomm’s actions to procure

unnecessary and unwarranted CFIUS intervention in the proxy contest. In a

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

14 or February 23, 2018 meeting with Broadcom, or during any other

conversations. Broadcom further characterized Qualcomm’s behavior as a

“blatant, desperate act by Qualcomm to entrench its incumbent board of directors

and prevent its own stockholders from voting for Broadcom’s independent director

nominees.” More importantly, while soliciting proxies, the Qualcomm directors

failed to disclose their clandestine efforts to preclude Qualcomm stockholders from

voting for the Independent Nominees.

112. CFIUS’s belated intervention, however, came at an opportune time for

Qualcomm’s incumbent directors, because a majority of the Board was about to be

voted out of office by the Qualcomm stockholders. According to Bloomberg

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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Independent Nominees.16 A commentator noted that delaying the Annual Meeting

would give the Board, among other things, an opportunity to change T. Rowe

Price’s vote.17

113. According to a March 5, 2018 Bloomberg article, titled “Broadcom Is

on Course to Win Majority of Qualcomm Board Seats”:

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. . . .

Based on a count of more than half of the votes already cast,
Broadcom would win a majority of Qualcomm’s board seats,
according to information obtained by Bloomberg. If that result holds
up when the final vote takes place, Broadcom would have a mandate
to overturn Qualcomm management’s opposition to the $117 billion
deal. . . .

114. As of March 5, 2018, Qualcomm CEO Mollenkopf had received the

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

to Bloomberg, “Chairman Paul Jacobs, son of the company’s founder, is also at

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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risk of being replaced, depriving Qualcomm’s management of any representation

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

out of office. On March 5, 2018, Qualcomm announced an extension of the NXP

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

Board to thwart or revise the NXP Transaction.

116. In sum, the Qualcomm incumbents, and their allies in Congress

appear to be converting a democratic stockholder meeting into a totalitarian one-

party election where the opposition slate is outlawed. It appears corporate

democracy is now dead in the U.S. and the federal government, not stockholders,

will determine who will serve as directors of Delaware corporations.

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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Qualcomm Issued Materially Incomplete and Misleading Disclosures

117. Qualcomm repeatedly issued materially misleading and incomplete

disclosure to Qualcomm stockholders in connection with the Annual Meeting by

failing to disclose the Board’s efforts to secure CFIUS review of any transaction

with Broadcom and an injunction preventing the election of the Independent

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

request or other communications with CFIUS or members of Congress. In

considering the Qualcomm incumbent directors’ requests for their votes, the

Qualcomm stockholders would consider it important to know that those directors

were actively seeking to have CFIUS prevent the stockholders from voting for

Independent Nominees and from selling their shares to Broadcom.

119. Qualcomm’s failure to disclose its CFIUS request also rendered other

disclosures materially misleading. For example, on February 26, 2018, Qualcomm

filed a Schedule 14A stating that Qualcomm “has repeatedly attempted to engage

with Broadcom on issues including price, including at meetings on February 14

and February 23 . . . Qualcomm made a comprehensive proposal . . . in order to

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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

repeatedly and genuinely attempted to engage with Broadcom....” These assertions

are materially false and misleading without the further disclosure of Qualcomm’s

voluntary and unilateral January 29, 2018 request to CFIUS, and the further

communications with CFIUS and members of Congress.

120. Thus, stockholders have been misled to believe that the Board

members up for re-election have been engaged in good faith negotiations to

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

voting for anyone nominated by Broadcom, no matter whether they are

independent and a U.S. citizen.

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

Defendants continuing communications with CFIUS, including any efforts to

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

Delaware law to vote their stock and sell their shares.

CLASS ACTION ALLEGATIONS
122. Plaintiff brings this action pursuant to Rule 23 of the Rules of the

Court of Chancery, individually and on behalf of all other holders of Qualcomm

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.

123. This action is properly maintainable as a class action.

124. The Class is so numerous that joinder of all members is impracticable.

The Company has hundreds or thousands of stockholders who are scattered

throughout the U.S. As of January 8, 2018, there were 1,480,385,450 shares of

Qualcomm common stock outstanding.

125. There are questions of law and fact common to the Class including,

inter alia, whether:

(a) The Director Defendants breached their fiduciary duties;

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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

the proper remedy and/or measure of damages; and

(c) Plaintiff and the other members of the Class will be irreparably

harmed by Defendants’ conduct.

126. Plaintiff is committed to prosecuting the action and has retained

competent counsel experienced in litigation of this nature. Plaintiff’s claims are

typical of the claims of the other members of the Class, and Plaintiff has the same

interests as the other members of the Class. Plaintiff is an adequate representative

of the Class.

127. The prosecution of separate actions by individual members of the

Class would create the risk of inconsistent or varying adjudications with respect to

individual members of the Class, which would establish incompatible standards of

conduct for Defendants, or adjudications with respect to individual members of the

Class, which would as a practical matter be disjunctive of the interests of the other

members not parties to the adjudications, or substantially impair or impede their

ability to protect their interests.

128. In addition, the Director Defendants are acting and refuse to act on

grounds generally applicable to the Class, thereby making appropriate final

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injunctive relief or corresponding declaratory relief requested with respect to the

Class as a whole.

COUNT I

Breach of Fiduciary Duty by the Director Defendants (Defensive Measures)
129. Plaintiff repeats and realleges the allegations above as if fully set forth

herein.

130. As incumbent directors facing a proxy contest, the Director

Defendants had a positional conflict because of their personal interest in the

outcome of the election. The realities of decision-making in that context

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

actions that have intruded on the stockholders’ decision-making. Therefore, the

Director Defendants’ conduct is subject to enhanced scrutiny.

131. With respect to defensive measures, the Director Defendants, as

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

the threat posed.

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132. The Director Defendants breached their duty of loyalty by engaging in

a series of defensive measures for the primary purpose of entrenching themselves

in office. Their motivations were selfish and improper. The defensive measures,

individually and collectively, were not reasonable in relation to any legitimate

threat to corporate policy and effectiveness.

133. The defensive measures the Director Defendants employed include:

(a) the September 21, 2017 adoption of the 2018 Director

Compensation Plan to establish compensation to be paid to nonemployee directors

effective January 1, 2018, which ensures that the incumbents are compensated on

terms of their choosing;

(b) the December 20, 2017 adoption of a Severance Plan that

makes it substantially more expensive for an acquirer, like Broadcom, to make

changes to Qualcomm’s organizational structure;

(c) the December 20, 2017 approval of amendments to the LTIPs

that call for increased compensation for participants—including members of the

incumbent Board—in the event that the Director Defendants no longer constitute a

majority of the Board;

(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

NXP Transaction to 70% of all outstanding NXP shares;

(e) the voluntary and unilateral January 29, 2018 request for

CFIUS to preclude any transaction with Broadcom and delay the Annual Meeting

and other communications with CFIUS;

(f) the efforts to enlist various members of Congress to accelerate

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.

134. The defensive measures, individually and collectively, are a breach of

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

Defendants from further defensive measures.

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COUNT II

Breach of Fiduciary Duty by the Director Defendants
(Precluding Transaction and Proxy Contest)

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

requires that the stockholders have an unimpeded right to vote effectively in an

election of directors. Because Delaware law embraces a republican model which

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

interfere with or impede the effective exercise of corporate democracy by

shareholders require careful judicial review, especially in an election of directors.

137. The Director Defendants did not just take defensive actions against a

potential transaction with Broadcom. By seeking an order from CFIUS and

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

voting on the Independent Nominees in a contested election of directors. The

Director Defendants manipulated the election machinery by obtaining an

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.

The Directors Defendants’ action was preclusive and coercive of stockholder

choice. Therefore, the Director Defendants have the burden of demonstrating a

compelling justification for their actions as a condition precedent to any judicial

consideration of reasonableness and proportionality.

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

plainly affected an election of directors. The Defendant Directors succeeded in

their attempt to prevent the Qualcomm stockholders’ ability to vote in a manner

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

on matters of corporate control.

139. The Director Defendants bear the heavy burden of establishing a

compelling justification for their actions in seeking an order preventing an election

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

compelling justification for their continuing efforts to preclude a proxy contest,

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

ineligible to be directors of Qualcomm.

140. The Director Defendants cannot justify their actions by contending

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

should be on the Qualcomm Board.

141. The Director Defendants cannot use supposed concerns about

regulatory approval of a possible transaction with Broadcom as a compelling

justification for tilting the proxy contest playing field and preventing the March 6,

2018 vote for directors. An election of the Independent Nominees is an election of

directors; it is not approval of a transaction with Broadcom. The Independent

Nominees would be duty-bound as directors to act in the best interests of

Qualcomm and its stockholders. In contrast, the Director Defendants have

breached their fiduciary duties by seeking to deprive the stockholders of their right

to choose directors of Qualcomm.

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142. The Director Defendants’ efforts to prevent the March 6, 2018 vote

were directed to thwarting the will of a majority of the Qualcomm stockholders.

The Director Defendants’ actions are intended to be preclusive by making a

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

Director Defendants’ actions were not a sufficiently tailored means to a legitimate

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

that should have occurred on March 6, 2018 be preserved so that it can be

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

necessary to remedy Defendants’ wrongful hijacking of the election of directors.

COUNT III

Breach of Fiduciary Duty by the Director Defendants (Disclosure)

144. Plaintiff repeats and realleges the allegations above as if fully set forth

herein.

145. In order to preserve themselves in office, the Director Defendants

breached their fiduciary duty of loyalty by deliberately withholding material

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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

made misleading partial disclosures including their supposed willingness to engage

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.

146. The Court should enjoin Defendants from further solicitation of

proxies until they have made full and accurate disclosure.

Lack of Adequate Remedy/Irreparable Harm

147. Plaintiff has no adequate remedy at law. Qualcomm’s stockholders

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

barred from serving as Qualcomm directors. Therefore, they have inflicted

irreparable injury by depriving stockholders of their right to vote. The Director

Defendants inflicted, and seek to further inflict, harm to the corporate electoral

process, including the right of Qualcomm’s stockholders to a meaningful exercise

of their voting franchise and to a fair proxy contest with an informed electorate. In

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contrast, the risk that the Qualcomm stockholders may elect directors who the

incumbents disfavor is no harm at all because the incumbent directors have no

vested right to remain in office and will suffer no harm if they are defeated.

PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment that:

A. Because the Director Defendants breached their fiduciary

duties, any purported election of any of the incumbent directors

is invalid and void;

B. The proxies and other documents relating to the votes that

should have occurred on March 6, 2018 are to be preserved.

C. The election of directors and other votes be determined as of

March 6, 2018, if possible;

D. An injunction is issued against any further defensive measures,

any further efforts to prevent a full and fair vote of the

stockholders and any further solicitation of proxies by

Defendants until they make full disclosure;

E. If the Independent Nominees are precluded from standing for

election, an injunction precluding any election of Qualcomm

directors or other votes at the Annual Meeting until there has

been a new record date, full disclosure and the stockholders

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have had a full and fair opportunity to nominate and vote for

alternative directors;

F. If the Annual Meeting is not held on April 5, 2018, a prompt

annual meeting is required under 8 Del. C. § 211 and a new

record date should be set under 8 Del. C. § 213;

G. Defendants must disgorge any improper financial benefits they

received as a result of the defensive measures they employed

and any prospective or potential benefits are void and

cancelled;

H. Damages are awarded to the Class and against the Director

Defendants for their breach of duty of loyalty, including for the

billions of dollars the stockholders have lost because of the

Director Defendants’ deliberate entrenching and dishonest

misconduct resulting in the loss of a transaction with

Broadcom;

I. Certification of the Class;

J. An award of attorneys fees and expenses for Plaintiff; and

K. Such other and further relief as the Court deems just and

equitable.

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Dated: March 8, 2018 PRICKETT, JONES & ELLIOTT, P.A.

OF COUNSEL: /s/ Michael Hanrahan
Michael Hanrahan (#941)
KESSLER TOPAZ MELTZER Paul A. Fioravanti, Jr. (#3808)
& CHECK, LLP Corinne Elise Amato (#4982)
Lee D. Rudy Eric J. Juray (#5765)
Michael C. Wagner 1310 N. King Street
Stacey A. Greenspan Wilmington, Delaware 19801
Christopher M. Windover (302) 888-6500
280 King of Prussia Road
Radnor, Pennsylvania 19087 Counsel for Plaintiff
(610) 667-7706

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