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WeWork Special Committee Sets the Record Straight Regarding its Authority to Represent the Best Interests of Minority ShareholdersThe Special Committee (the "Committee") of the Board of Directors (the "Board") of The We Company ("WeWork") today sent a letter to the Board of WeWork responding to the assertions by SoftBank Group Corp. and SoftBank Vision Fund (AIV M1) (collectively, "SoftBank") that the Committee lacks the authority to represent WeWork and its minority stockholders in the pending litigation against SoftBank. The Committee issued the following statement: SoftBank is once again attempting to use its power as WeWork's controlling stockholder to benefit SoftBank at the expense of WeWork's minority stockholders. SoftBank's latest maneuver attempts to prohibit the Special Committee, which was established and determined to be independent by the full WeWork Board in October 2019 to represent all of the Company's minority stockholders, from enforcing the contract negotiated between SoftBank and the Special Committee last year. SoftBank's ploy attempts to prevent the more than 850 current and former WeWork employees who tendered stock worth over $450 million from obtaining any remedy for SoftBank's wrongful conduct. SoftBank's refusal to consummate the tender offer, combined with its plan to limit or disband the Special Committee, demonstrates that it has no regard for its legal obligations or proper norms of corporate governance. The following is the full text of the Committee's letter to the Board: April 20, 2020 The Board of Directors of The We Company
Re: Authority of the Special Committee of The We Company Board of Directors:
Members of the Board of Directors of The We Company: I write on behalf of the Special Committee (the "Committee") of the Board of Directors (the "Board") of The We Company (the "Company') in response to Mr. Olson's (News - Alert) letter on behalf of SoftBank Group Corp. ("SoftBank"), dated April 17, 2020. As detailed below, SoftBank's letter ignores the relevant facts and is based upon a fundamental misapprehension of Delaware law as well as core principles of sound corporate governance. Not surprisingly, then, the conclusions reached in that letter are simply wrong in every respect. Should the SoftBank-controlled or affiliated directors on the Company's Board follow the "recommendations" set forth in Mr. Olson's letter, they would risk subjecting themselves and the Company to considerable liability as well as other types of damage. The Committee Is Fully Empowered to Pursue Litigation to Enforce the Terms of the MTA. The Committee was formed for the purpose of evaluating and deciding whether to approve a transaction with SoftBank that eventually was effectuated by the Master Transaction Agreement (the "MTA"). The Board chose Bruce Dunlevie and Lew Frankfort for the Committee because the Board determined that Messrs. Dunlevie and Frankfort were independent of both SoftBank and Adam Neumann. Specifically, the resolutions that the Board adopted to form the Committee (the "Resolutions") stated that the Board: desire[d] to evaluate the advisability of certain transactions proposed by Softbank (News - Alert) Group Corp., Softbank Vision Fund (AIV M1) L.P. or one or more of their respective affiliates (collectively, "SoftBank"),1 including debt financing arrangements, a tender offer by SoftBank for Company equity, an exchange of equity held by SoftBank in the ChinaCo and PacificCo joint ventures with the Company for Company equity, amendments to SoftBank's $1.5 billion warrant agreement with the Company, and changes to the Company's governance . . . which transactions, if fully consummated, would result in SoftBank acquiring majority economic ownership and voting control of the Company . . . (the "SoftBank Transaction"). (emphasis in original). The "SoftBank Transaction" described in the Resolutions refers to the transactions that were later effectuated by the MTA. All elements of the SoftBank Transaction identified at the time the Committee was formed were set forth in the Resolutions creating the Committee. The Board selected Messrs. Dunlevie and Frankfort as the members of the Committee after it "reviewed the background and relationships of Bruce Dunlevie and Lewis Frankfort and [] determined that each of them is free of any material conflict of interest relating to [the SoftBank Transaction], SoftBank and Adam Neumann." Significantly, the Resolutions included the broadest possible language under Delaware law for delegating authority in connection with the MTA. That authority indisputably includes the power to enforce the express terms of the MTA and to do so by litigation if necessary. The Resolutions empower the Committee to, among other things:
That authorization grants the Committee the full powers of the Board, allowing it to act as if it were the full Board in connection with the MTA and providing it with approval and veto power over any SoftBank Transaction. Notably, the language of the Resolutions tracks the language of Section 141(c)(2) of the Delaware General Corporation Law (the "DGCL"), which provides that a committee "shall have and may exercise all the powers and authority of the board of directors in management of the business and affairs of the corporation" with very few exceptions, none of which is implicated here. Tellingly, the present version of Section 141(c) of the DGCL was amended to eliminate a longer enumeration of items that are beyond the power of board committees. As commentators noted at the time of that amendment, "all matters" beyond certain identified exceptions-which do not include litigation-"may be placed in the hands of a committee of directors."2 Accordingly, the language in the Resolutions empowering the Committee to "exercise all rights and powers of the Board" to the fullest extent permitted by law is not a meaningless "catch-all." Rather, such language is intentional and is the strongest possible language that a board can use to empower a committee. Consistent with this statutory authority, Delaware case law leaves no doubt that the language used in the Resolutions grants the Committee authorization to take a broad array of actions on behalf of the Company, including bringing suit to enforce the terms of the MTA. See Perlegos v. Atmel (News - Alert) Corp., 2007 WL 475453, at *14 (Del. Ch. Feb. 8, 2007) (observing that where the special committee had authority to take "any action," "[t]he [b]oard's use of the term 'any action' is not ambiguous; it is a broad delegation of power" permitting "possible outcome[s]" of the committee's work); see also In re CBS Corp. Litig., 2018 WL 3414163, at *2 (Del. Ch. July 13, 2018) (noting that board resolutions similar to the Resolutions here "included a broad delegation of authority" to a special committee).3 Notably, the CBS litigation was presided over by the very same judge who is assigned to the lawsuit recently initiated by the Committee and there is no reason to believe he will interpret nearly identical resolutions any differently here. The MTA Provides that the Committee Is Fully Empowered to Pursue Litigation to Enforce the Terms of the MTA. By its terms, the MTA makes clear that the Committee is empowered to enforce that agreement. As an initial matter, Section 11.10 of the MTA expressly includes remedies contemplating litigation, including specific performance. In addition, Section 11.14 of the MTA provides that, until the consummation of the "Debt Financing" and the "Tender Offer," "any action or determination by the Company to exercise rights or enforce remedies" against SoftBank under the MTA "shall require the approval of the Special Committee" and that the Company "shall pay, on behalf of the Special Committee, for any reasonable and documented fees and expenses of professional advisors or other representatives of the Company." The disclosures sent to the Company's stockholders soliciting their approval of the MTA (which approval was a condition of the MTA) further demonstrate the authority of the Committee. For example, the disclosures describe how the Board created the Committee consisting of Messrs. Dunlevie and Frankfort based upon the Board's "determin[ation]" that they were independent of SoftBank. The disclosures then state that Mr. Frankfort will retain his Board seat until the later of "the SoftBank transactions (including the resolution of any litigation or disputes with SoftBank with respect to [the MTA])" and "the consummation . . . of the Tender Offer." There is no way to read these disclosures other than to recognize that the Committee, including Mr. Frankfort, was authorized to enforce or defend the terms of the MTA through the use of litigation if necessary. The Committee needed the authority to enforce the terms of the MTA because the MTA provided benefits to SoftBank months before SoftBank was required to consummate its obligations to the Company and its minority stockholders. Specifically, and as made clear in both the MTA and in the disclosures provided to the Company's stockholders to obtain their approval of the MTA, SoftBank obtained its additional governance and control benefits, as well as repricing of its warrants, soon after the signing of the MTA in October 2019. The benefits to the minority stockholders and the Company under the MTA, including the consummation of the Tender Offer and the additional loan to the Company upon favorable terms, were not scheduled to occur until April 2020. Because the transactions were never scheduled to occur simultaneously, the Committee required the authority to enforce the terms of the MTA in the event that SoftBank decided to take the benefits that it obtained under the MTA and not follow through on its obligations-exactly the situation that has occurred and led to this litigation. As a result, SoftBank must now live with the Board's decision to allow the Committee to have "all rights and powers of the Board to the fullest extent permitted by the [DGCL]" and "to take any and all steps that the . . . Committee deems necessary and in the best interests of the Company and the Company's stockholders"-which necessarily includes protecting the stockholders' interests under the MTA by enforcing its terms. Nothing has Changed Since the Board Determined that the Interests of the Committee Members are Aligned with the Company and its Minority Stockholders. SoftBank's assertions that the Committee members are somehow "conflicted" are frivolous. Only six months ago, the Board concluded that Committee members were "free of any material conflict of interest relating to [the SoftBank Transaction]" and gave the Committee all relevant powers of the Board precisely because they were (and are) independent, and in particular independent of SoftBank (as well as Mr. Neumann). The independence of Messrs. Dunlevie and Frankfort has not changed since that initial determination. What has changed is that SoftBank has gained additional control of the Board as a result of the governance changes it received as part of the MTA and now seeks to use this control of the Board to silence the Committee and eliminate the litigation over SoftBank's failure to abide by its obligations. SoftBank fails to offer a cogent explanation of how the Committee members' interests that were "free of any material conflict" relating to the MTA could transmute into "substantial personal conflicts of interest" in enforcing the Tender Offer and Debt Financing that-as described in the original SoftBank proposal that was ultimately effectuated in the MTA-are part of a cross-conditioned series of transactions that the Committee negotiated for on behalf of the minority stockholders. The Committee members sought to generate benefits for those minority stockholders when negotiating the MTA, and they now seek to enforce those same benefits. The analysis has not changed in the slightest. The contention that the Committee members are conflicted because they are also stockholders is contrary to long-settled and well-established principles of Delaware case law, which makes clear that the interests of stockholder-directors who stand to participate in a transaction in a manner similar to minority stockholders are aligned with the interests of other minority stockholders. See, e.g., Emerald P'rs v. Berlin, 2003 WL 21003437, at *39 (Del. Ch. Apr. 28, 2003) (noting that directors who were also minority stockholders were independent from the controller and that their "economic interests were aligned with the [] minority"); see also Globis Partners, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *8 (Del. Ch. Nov. 30, 2007) (holding that directors were not interested in a transaction where they received accelerated vesting of options because their interests were aligned with those of stockholders in obtaining the highest price); Rosenblatt v. Getty Oil Co., 1983 WL 8936 (Del. Ch. Sept. 19, 1983), aff'd sub nom., 483 A.2d 929 (Del. 1985) (finding persuasive in dismissing claims challenging a merger that a director who was a minority stockholder negotiated the merger and determined it to be fair). That the Committee members or their affiliates have large holdings does not alter this principle; to the contrary, the size of their holdings only magnifies their alignment with the Company's minority stockholders. SoftBank's supposed concerns about costs to the Company associated with litigation are a red herring. As independent and experienced directors, the Committee members are fully capable of analyzing the expenses and burdens associated with litigation, including any burdens on management, and proceeding accordingly. It appears to be lost on SoftBank that many corporate decisions are guided by independent directors, who routinely evaluate the costs and benefits of litigation from a company's perspective. In any event, SoftBank's efforts to undermine the Committee's authority will not limit the Company's exposure. To the contrary, those efforts will only result in additional and costly litigation surrounding the Board's authority to take the unprecedented and drastic action that SoftBank is encouraging. SoftBank's Desire to Impede the Committee Evidences a Fundamental Misunderstanding of Delaware Law and Furthers SoftBank's Self-Interests. It is plainly evident that SoftBank questions the authority of the Committee not out of concern for the Company, but because of its own desire to end this litigation and thereby avoid the likelihood of significant liability. SoftBank appears to ignore that the appointment of a committee designed to ensure and vindicate the rights of minority stockholders in the context of an interested transaction reflects principles of good governance counseled by practice and Delaware law. Although it is unsurprising that SoftBank rejects the concept of a fully empowered, independent committee in view of its practice of bullying companies in which it invests, it is quite common for boards to form independent committees for the purposes of overseeing management activities and pursuing litigation on the company's behalf. Independent committees regularly make important decisions on behalf of boards-such as whether to adopt a poison pill or reject a sale of a company-where there is a concern that other directors are conflicted. That SoftBank would seek to limit or disband the Committee evidences that it has no concept of governance best practices. Similarly, SoftBank's assertion that the Committee is somehow improperly focused on the interest of the minority stockholders reflects a complete misunderstanding of Delaware law. Ample Delaware precedent makes clear that this is the precise situation in which minority stockholders need protection: i.e., where a controller engages in an interested transaction with a company.4 It is entirely proper (and indeed expected) that in such situations, a committee of independent directors will be designated for the precise purpose of protecting the minority stockholders.5 SoftBank's suggestion that the SoftBank-controlled Board is better suited to determine whether and how to sue SoftBank than the Committee further reflects its fundamental misconception of Delaware law. SoftBank is clearly seeking to insulate itself from litigation risk and pursue its own interests-rather than those of the Company-by taking the position that the Committee is not a proper plaintiff in the lawsuit. The reality is that the Committee, acting on behalf of the Company, is in the best position to pursue litigation because the Company both is a signatory to the MTA and can efficiently represent the interests of those most damaged by SoftBank's wrongful conduct-more than 850 current and former employees who tendered more stock worth over $450 million under the terms of the Tender Offer. Similarly, the Committee is astounded by the suggestion that the minority stockholders' interests should be handed over to the Board (which is controlled by SoftBank), or that the minority stockholders should be left to fend for themselves (when it is the Company that is a party to the MTA). In sum, it is abundantly clear that SoftBank is intending to benefit itself, and only itself, by questioning the Committee's authority. Any effort to limit the Committee's authority with respect to the lawsuit is not only contrary to well-established Delaware law and the intent of the parties when they entered into the MTA, but also will leave the Company's minority stockholders in a precarious and unprotected position-all for the sole benefit of SoftBank. As SoftBank is a controlling stockholder of the Company, should the Board decide to pursue SoftBank's flawed plan and act to restrict or even eliminate the Committee's ability to pursue litigation, that decision will be subject to the stringent entire fairness standard of review by the Delaware court. As a result, the conflicted directors will be required to demonstrate that their decision is entirely fair not only to the Company, but also to the minority stockholders-which it cannot possibly do. Any effort to limit or disband the Committee will almost certainly be found to be invalid. See Hollinger Intern., Inc. v. Black, 844 A.2d 1022, 1080-82 (Del. Ch. Feb. 26, 2004) (finding that a controller breached his fiduciary duties and acted inequitably in adopting bylaws aimed at disabling an independent committee process), aff'd, 872 A.2d 559 (Del. 2005). Such efforts will expose the Board-and, in particular those directors who are affiliated with SoftBank or who are deemed to lack independence from SoftBank-to the risk of substantial personal liability. We assure you that the Committee is prepared to seek all appropriate legal remedies in that event.
Wilson Sonsini Goodrich & Rosati, Professional Corporation is serving as legal advisor and Perella Weinberg Partners LP is serving as financial advisor to the Special Committee of the WeWork Board of Directors.
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