Case3:11-cv-01769-SC Document1 Filed04/11/11 Page1 p1 I Jennie Lee Anderson (SBN 203586) ANDRUS ANDERSON LLP " 2 155 Montgomery Street, Suite 900 A San Francisco, California 94104 3 Telephone: (415) 986-1400 Facsimile: (415) 986-1474 4 [email protected] 5 DAVID A. P. BROWER (pro hac vice pending) BRIAN C. KERR (pro hac vice pending) 6 BROWER PP/EN A PROFESSIONAL CORPORATION 7 488 Madison Avenue, Eighth Floor New York, NY 10022 8 Telephone: (212) 501-9000 Facsimile: (212) 501-0300 9 Attorneys for Plaintiff 10 E1nQ 11 UNITED STATES DISTRICT COURT 12 NORTHERN DISTRICT OF CALIFORNIA 13 ELIZABETH M. ANDAL, Individually and behalf of all others similarly situated, V° iLi 1769 Plaintiff, CLASS ACTION V. COMPLAINT FOR BREACH OF FIDUCIARY DUTIES AND CELERA CORPORATION, QUEST VIOLATIONS OF SECTIONS DIAGNOSTICS INCORPORATED, SPARK 14(e) AND 20(a). OF THE ACQUISITION CORPORATION, RICHARD SECURITIES EXCHANGE ACT H. AYERS, JEAN-LUC BEL1NGARD, OF 1934 WILLIAM G. GREEN, PETER BARTON 19 HUTT, GAIL K. NAUGHTON, KATHY ORDONEZ, WAYNE I. ROE, AND JURY TRIAL DEMANDED 20 BENNETT M. SHAPiRO, 21 22 Plaintiff, individually and on behalf of all others similarly situated, respectfully brings this 23 shareholder class action for breach of fiduciary duty and violations of Sections 14(e) and 20(a) of 24 the Securities Exchange Act of 1934 ("1934 Act"), and US Securities and Exchange Commission 25 ("SEC") Rule 14a-9 promulgated thereunder against the herein named defendants and alleges the 26 following upon information and belief, except as to those allegations specifically pertaining to 27 plaintiff, which are predicated upon the investigation undertaken by Plaintiff's counsel: 28 COMPLAINT FOR BREACH OF FIDUCIARY DUTY Case3:11-cv-01769-SC Document1 Filed04/11/11 Page2 of 30 1 NATURE OF THE ACTION 2 1. This is a shareholder class action brought by plaintiff on behalf of all similarly 3 situated public shareholders of Celera Corporation ("Celera" or the "Company") against the 4 company and its Board of Directors ("Individual Defendants" or the "Board"), among others, in 5 connection with the proposed buyout of Celera by Quest Diagnostics Incorporated ("Quest"), 6 through its subsidiary Spark Acquisition Corporation ("Merger Sub"), which was formed solely to 7 facilitate the transaction ("Proposed Transaction"). This matter arises out of defendants' 8 dissemination of a false and misleading Solicitation/Recommendation Statement in violation of 9 Sections 14(e) and 20(a) of the 1934 Act and SEC Rule 14a-9 promulgated thereunder, and the 10 Board's breaches of their fiduciary duties owed to Celera's stockholders under state law. 11 2. On March 17, 2011, Celera entered into an Agreement and Plan of Merger 12 ("Merger Agreement") with Quest, whereby Quest would, within a week of the deal's :13 announcement, commence a tender offer ("Tender Offer") to acquire all of the issued and 14 outstanding shares of Celera common stock for $8.00 per share in cash ("Proposed Transaction"). 15 3. At the same time, the Company shocked the market by filing a host of restatements 16 to its prior Securities and Exchange Commission ("SEC"). financial filings ("Restatements"). 17 These Restatements expose the fact that Celera's management has engaged in a wide-ranging 18 accounting fraud over the past several years, which included improperly classifying and reporting 19 bad debt expenses and unreimbursed and uncollectible charges. These fraudulent accounting 20 practices materially affected Celera's financial statements. The Restatements are so expansive and 21, damning that had they been disclosed independent of a merger announcement that propped up the 22 stock price, they would have exposed the Company's senior management, as well as the entire 23 Board, to possible liability for violating the federal securities laws. 24 4. As the need for the Restatements became apparent, Kathy Ordonez, Celera's Chief 25 Executive Officer, with the assistance of the rest of the Board, moved quickly to sell the Company 26 at any price in exchange for broad indemnity and continuing employment for Celera's senior 27 management team. 28 5. To effectuate a sale in advance of the Restatements, Ordonez and the Board were 1 COMPLAINT FOR BREACH OF FIDUCIARY DUTY Case3:11-cv-01769-SC Document1 Filed04/11/11 Page3 of 30 I forced to accept an offer from the Company's long-time strategic partner, Quest that was well 2 below what Quest had previously indicated it was prepared to pay for Celera. Quest had 3 previously offered over $10 a share for Celera, but revised its offer significantly downward in light 4 of defendants' demand for broad indemnification and senior management's request for continued 5 employment post-closing. This self-interested negotiating cost Celera shareholders maximum 6 value for their shares, as the Celera Board was eventually forced to accept the $8.00 price if they 7 were to (a) strike a deal in advance of the Restatements; and (b) secure the indemnification and 8 future employment for senior management that they sought, 9 6. Pursuant to the Merger Agreement, Quest will indemnify and hold harmless, to the 10 fullest extent permitted under applicable law, each present and former director, officer, employee 11 and agent of the Company and each Company subsidiary, for the unusually long period of six 12 years from the date of closing. 13 7. Moreover, the Proposed Transaction will help ensure that Celera's senior officers 14 and board members will receive a windfall by either receiving lucrative positions with Quest or 15 substantial severance benefits. Indeed, without the Proposed Transaction, these officers and 16 directors would be forced to deal with the pending securities litigation and the Restatements' 17 negative repercussions, including possible termination, additional lawsuits, and SEC-permitted 18 claw-backs. 19 8. To ensure consummation of this liability-absolving transaction, the Board also gave 20 Quest a panoply of deal protections, including a no-shop provision ("No-Shop"), unlimited 21 matching rights ("Matching Rights"), and a $23.45 million termination fee ("Termination Fee"), 22 which represents over 10% of the total value Quest is paying to acquire Celera's operations (i.e., 23 net of cash and tax assets, both of which have a fixed and objective value and therefore should not 24 be considered in assessing the reasonableness of the termination fee). 25 9. Celera and Quest structured the Proposed Transaction as a Tender Offer so that it 26 can close within a month of the deal's announcement. This effectively eliminates the prospect of a 27 competing bid because no interested suitor could arrange financing, present a "Superior Proposal" 28 (as defined in the Merger Agreement) sufficient to allow the Board to provide it with due 2 COMPLAINT FOR BREACH OF FIDUCIARY DUTY Case3:11-cv-01769-SC Document1 Filed04/11/11 Page4 of 30 1 1 diligence, wait through the three business day delay required by the Matching Rights, complete 2 due diligence, fully digest the Company's accounting problems and the Restatements, and finalize 3 the terms of an alternative takeover transaction within this compressed time period. To be sure the 4 Proposed Transaction can be consummated by short-form merger on an expedited basis, the Board 5 granted Quest a "Top-Up Option" that helps Defendants avoid the protracted process of a 6 shareholder vote. Not only would the extended timeframe of a long-form merger increase third 7 parties' ability to assemble and present a "Superior Proposal," it would also allow for shareholders 8 to fully digest the windfall of information recently disclosed and possibly vote down the Proposed 9 Transaction. 10 10. In an attempt to secure shareholder approval of this unfair deal, on March 28, 2011, 11 defendants filed a materially misleading Solicitation/Recommendation Statement ("Proxy"). The 12 Proxy recommends that Celera's shareholders accept the offer, tender their shares, and adopt the 13 Merger Agreement. However, the Proxy is misleading because among other things, it almost 14 wholly ignores material issues relating to the motivation for, and negotiation of, the Proposed 15 Transaction, including the Restatements; the ongoing Celera securities class action and 16 shareholder derivative lawsuit; and possible civil liability looming over the Celera Board and 17 senior management. Specifically, the Proxy omits and/or misrepresents the material information 18 set forth below in contravention of Sections 14(e) and 20(a) of the 1934 Act and/or defendants' 19 fiduciary duty of disclosure under state law. 20 11. As explained herein, this information is material to the impending decision of 21 Celera' s shareholders whether to tender their shares and vote in favor of the Proposed Transaction. 22 As such, defendants' violations of Sections 14(e) and 20(a) of the 1934 Act and their breaches of 23 fiduciary duty under state law to maximize shareholder value and disclose all material information 24 in connection with a merger transaction threaten shareholders with irreparable harm for which 25 money damages are not an adequate alternate remedy. Thus, plaintiff seeks injunctive relief to 26 ensure that defendants cure their breaches of fiduciary duty and violations of Sections 14(e) and 27 20(a) before Celera shareholders are asked to tender their shares and vote on the Proposed 281 Transaction, and that defendants are not permitted to seek shareholder support of the Proposed 3 COMPLAINT FOR BREACH OF FIDUCIARY DUTY Case3:11-cv-01769-SC Document1 Filed04/11/11 Page5 of 30 1 Transaction without complying with their duty under state law to maximize shareholder value and 2 the federal securities laws and state law to provide shareholders with all material information 3 about the sales process, the merger consideration, and the company's intrinsic value.