MIAMI DIVISION NORMAN ABRIL, individually and …securities.stanford.edu/filings-documents/1046/VCI00_01/...Case 1: 11 -cv-20555-CMA Document 1 Entered on FLSD Docket 02/17/2011 Page

Case 1: 11 -cv-20555-CMA Document 1 Entered on FLSD Docket 02/17/2011 Page 1 of 29

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF FLORIDA

MIAMI DIVISION

NORMAN ABRIL, individually and on behalf )of all others similarly situated, )

)Plaintiff, )

)v. )

)MANUEL MEDINA, JOSEPH WRIGHT, )MARVIN ROSEN, TIMOTHY ELWES, )GUILLERMO AMORE, ARTHUR MONEY, )RODOLFO RUIZ, ANTONIO FERNANDEZ, )MELISSA HATHAWAY, FRANK )BOTMAN, TERREMARK WORLDWIDE, )INC., VERIZON COMMUNICATIONS )INC., and VERIZON HOLDINGS INC., )

)Defendants. )

CLASS ACTION COMPLAINT

Plaintiff, by his attorneys, alleges upon information and belief, except for his own acts,

which are alleged on knowledge, as follows:

1. Plaintiff brings this class action on behalf of the public stockholders of Terremark

Worldwide, Inc. (“Terremark” or the “Company”) against Terremark’s Board of Directors (the

“Board” or the “Individual Defendants”), seeking equitable relief for their violations of Sections

14(d)(4) and 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) and for their

breaches of fiduciary duties arising out of their attempt to sell the Company to Verizon

Communications Inc. (“Verizon”) (the “Proposed Transaction”) by means of an unfair process

and for an unfair price and without adequate disclosure of information.

Case 1:11-cv-20555-CMA Document 1 Entered on FLSD Docket 02/17/2011 Page 2 of 29

2. Terremark is a leading global provider of IT infrastructure services delivered on

the industry’s most robust and advanced technology platform. Terremark delivers government

and enterprise customers a comprehensive suite of managed solutions including managed

hosting, colocation, disaster recovery, security, data storage and cloud computing services.

3. On January 27, 2011, Verizon and the Company announced a definitive

agreement under which Verizon, through its wholly owned subsidiary, Verizon Holdings Inc.

(“Merger Sub”), will commence a tender offer to acquire all of the outstanding shares of

Terremark for $19.00 per share in cash. The Proposed Transaction is valued at $1.4 billion.

Verizon commenced the tender offer on February 10, 2011, and it is currently scheduled to

expire on March 10, 2011.

4. The Board has breached their fiduciary duties by agreeing to the Proposed

Transaction for grossly inadequate consideration. As described in more detail below, given

Terremark’s recent strong performance as well its future growth prospects and the expected

growth of the cloud computing market, the consideration shareholders are to receive is

inadequate and significantly undervalues the Company. According to Gartner, Inc., the industry

for cloud computing may reach $148.8 billion by 2014 from approximately $68 billion in 2010

Indeed, the Discounted Cash Flow Analysis conducted by the Company’s financial advisor

yielded a value for the Company as high as $24.17 per share.

5. In agreeing to the unfair price of $19.00 per share, the Company exacerbated their

breaches of fiduciary duties by failing to conduct a pre-signing market check and also agreeing

to preclusive deal protection devices in the merger agreement that ensure that no competing

offers will emerge for the Company. Specifically, pursuant to the merger agreement dated

January 27, 2011 (the “Merger Agreement”), defendants agreed to: (i) a strict no-solicitation

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provision that prevents the Company from soliciting other potential acquirors or from even

continuing prior discussions and negotiations with potential acquirors; (ii) a provision that

provides Verizon with three business days to match any competing proposal in the event one is

made; and (iii) a provision that requires the Company to pay Verizon a termination fee of $52.5

million (or $37.5 million under certain circumstances) in order to enter into a transaction with a

superior bidder. These provisions substantially and improperly limit the Board’s ability to act

with respect to investigating and pursuing superior proposals and alternatives including a sale of

all or part of Terremark. As described in more detail below, the failure to conduct a proper pre-

signing and post-signing market check and the preclusive deal protection devices are significant

in light of the fact that there are likely numerous interested parties seeking to enter into the

growing cloud computing industry through acquisitions.

6. In addition, on February 10, 2011, the Company filed a Schedule 14D-9

Recommendation Statement (the Recommendation Statement”) with the United States Securities

and Exchange Commission (“SEC”) in connection with the Proposed Transaction. The

Recommendation Statement fails to provide the Company’s shareholders with material

information and provides them with materially misleading information thereby rendering the

shareholders unable to make an informed decision on whether to tender their shares in favor of

the Proposed Transaction.

7. The Individual Defendants have breached their fiduciary duties of loyalty, due

care, candor, independence, good faith and fair dealing, and Terremark and Verizon have aided

and abetted such breaches by Terremark’s officers and directors. Plaintiff seeks to enjoin the

Proposed Transaction unless and/or until defendants cure their breaches of fiduciary duty.

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JURISDICTION AND VENUE

8. This Court has subject matter jurisdiction under 28 U.S.C. § 1331 (federal

question jurisdiction), as this Complaint alleges violations of Sections 14(d)(4) and 14(e) of the

Exchange Act. This court has jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.

9. Venue is proper in this District because many of the acts and practices

complained of herein occurred in substantial part in this District. In addition, Terremark

maintains its principal executive offices in Miami, Florida.

PARTIES

10. Plaintiff is, and has been at all relevant times, the owner of shares of common

stock of Terremark.

11. Terremark is a corporation organized and existing under the laws of the State of

Delaware. It maintains its principal corporate offices at One Biscayne Tower, 2 South Biscayne

Boulevard, Suite 2800, Miami, Florida 33131.

12. Defendant Manuel Medina (“Medina”) founded Terremark in 1980 and has

served as Chief Executive Officer and Chairman of the Board of the Company since that time.

13. Defendant Joseph Wright (“Wright”) has been Vice Chairman of the Board since

April 2000.

14. Defendant Marvin Rosen (“Rosen”) has been a director of the Company since

2000.

15. Defendant Timothy Elwes (“Elwes”) has been a director of the Company since

2000.

16. Defendant Guillermo Amore (“Amore”) has been a director of the Company since

2001.

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17. Defendant Arthur Money (“Money”) has been a director of the Company since

2003.

18. Defendant Rodolfo Ruiz (“Ruiz”) has been a director of the Company since 2003.

19. Defendant Antonio Fernandez (“Fernandez”) has been a director of the Company

since 2003.

20. Defendant Melissa Hathaway (“Hathaway”) has been a director of the Company

since 2010.

21. Defendant Frank Botman (“Botman”) has been a director of the Company since

2009.

22. Defendants referenced in ¶¶ 12 through 21 are collectively referred to as

Individual Defendants and/or the Board.

23. Defendant Verizon Communications Inc. is a Delaware corporation headquartered

in New York and is a global leader in delivering broadband and other wireless and wireline

communications services to mass market, business, government and wholesale customers.

24. Defendant Verizon Holdings Inc. is a Delaware corporation wholly owned by

Verizon that was created for the purposes of effectuating the Proposed Transaction.

INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES

25. By reason of Individual Defendants’ positions with the Company as officers

and/or directors, they are in a fiduciary relationship with Plaintiff and the other public

shareholders of Terremark and owe them, as well as the Company, a duty of care, loyalty, good

faith, candor, and independence.

26. Under Delaware law, where the directors of a publicly traded corporation

undertake a transaction that will result in either a change in corporate control or a break up of the

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corporation’s assets, the directors have an affirmative fiduciary obligation to obtain the highest

value reasonably available for the corporation’s shareholders, and if such transaction will result

in a change of corporate control, the shareholders are entitled to receive a significant premium.

Moreover, such change of control or sale of the corporation subjects the Board’s actions to

heightened scrutiny, imposing upon them the burden of proving that they took all reasonable

steps to maximize shareholder value. As set forth below, the Terremark Board has failed to meet

this burden.

27. To diligently comply with their fiduciary duties, the Individual Defendants may

not take any action that:

(a) adversely affects the value provided to the corporation’s shareholders;

(b) favors themselves or will discourage or inhibit alternative offers to

purchase control of the corporation or its assets;

(c) adversely affects their duty to search and secure the best value reasonably

available under the circumstances for the corporation’s shareholders; and/or

(d) will provide the Individual Defendants with preferential treatment at the

expense of, or separate from, the public shareholders.

28. In accordance with their duties of loyalty and good faith, the Individual

Defendants are obligated to refrain from:

(a) participating in any transaction where the Individual Defendants’ loyalties

are divided;

(b) participating in any transaction where the Individual Defendants receive,

or are entitled to receive, a personal financial benefit not equally shared by the public

shareholders of the corporation; and/or

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(c) unjustly enriching themselves at the expense or to the detriment of the

public shareholders.

29. Defendants also owe the Company’s stockholders a duty of candor, which

includes the disclosure of all material facts concerning the Proposed Transaction and,

particularly, the fairness of the price offered for the stockholders’ equity interest. Defendants are

knowingly or recklessly breaching their fiduciary duties of candor by failing to disclose all

material information concerning the Proposed Transaction, and/or aiding and abetting other

Defendants’ breaches.

30. Plaintiff alleges herein that the Individual Defendants, separately and together, in

connection with the Proposed Transaction, are knowingly or recklessly violating their fiduciary

duties, including their duties of care, loyalty, good faith, candor, and independence owed to

plaintiff and other public shareholders of Terremark.

CLASS ACTION ALLEGATIONS

31. Plaintiff brings this action on his own behalf and as a class action on behalf of all

owners of Terremark common stock and their successors in interest, except Defendants and their

affiliates (the “Class”).

32. This action is properly maintainable as a class action for the following reasons:

(a) the Class is so numerous that joinder of all members is impracticable. As

of February 10, 2011, Terremark has approximately 67.40 million shares outstanding.

(b) questions of law and fact are common to the Class, including, inter alia,

the following:

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(i) Have the Individual Defendants misrepresented and omitted

material facts in violation of Section 14(d)(4) and 14(e) of the

Exchange Act;

(ii) Have the Individual Defendants breached their fiduciary duties of

undivided loyalty, independence, or due care with respect to

plaintiff and the other members of the Class in connection with the

Proposed Transaction;

(iii) Have the defendants breached their fiduciary duty to secure and

obtain the best price reasonable under the circumstances for the

benefit of Plaintiff and the other members of the Class in

connection with the Proposed Transaction;

(iv) Have the defendants breached any of their other fiduciary duties to

plaintiff and the other members of the Class in connection with the

Proposed Transaction, including the duties of good faith, diligence,

honesty and fair dealing;

(v) Have the defendants misrepresented and omitted material facts in

violation of their fiduciary duties owed by them to Plaintiff and the

other members of the Class;

(vi) Have the defendants, in bad faith and for improper motives,

impeded or erected barriers to discourage other strategic

alternatives including offers from interested parties for the

Company or its assets;

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(vii) Whether Plaintiff and the other members of the Class would be

irreparably harmed were the transactions complained of herein

consummated.

(viii) Have Terremark, Verizon, and Merger Sub aided and abetted the

Individual Defendants’ breaches of fiduciary duty; and

(ix) Is the Class entitled to injunctive relief or damages as a result of

defendants’ wrongful conduct.

(c) Plaintiff is committed to prosecuting this action, is an adequate

representative of the Class, and has retained competent counsel experienced in litigation of this

nature.

(d) Plaintiff’s claims are typical of those of the other members of the Class.

(e) Plaintiff has no interests that are adverse to the Class.

(f) The prosecution of separate actions by individual members of the Class

would create the risk of inconsistent or varying adjudications for individual members of the

Class and of establishing incompatible standards of conduct for the party opposing the Class.

(g) Conflicting adjudications for individual members of the Class might as a

practical matter be dispositive of the interests of the other members not parties to the

adjudications or substantially impair or impede their ability to protect their interests.

(h) Plaintiff anticipates that there will be no difficulty in the management of

this litigation. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy

FURTHER SUBSTANTIVE ALLEGATIONS

Company Background and its Poise for Growth

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33. Terremark is a leading global provider of IT infrastructure services.

Headquartered in Miami, Terremark is a widely recognized Infrastructure-as-a- Service leader

with a proven track record of delivering cloud-based resources with the highest levels of security

and availability in the industry. Operating 13 data centers in the U.S., Europe and Latin

America, Terremark combines secure cloud computing, colocation and managed hosting services

into a seamless hybrid environment. Its Enterprise Cloud platform provides some of the world’s

largest companies and U.S. government agencies with on-demand access to secure and reliable

computing resources.

34. The Company has been performing well recently and is poised for significant

growth. On February 4, 2010, Terremark reported its financial results for the quarter ending

December 31, 2010, its third fiscal quarter of fiscal year 2011. Terremark delivered strong

growth with total revenues of $94.3 million and adjusted EBITDA of $28.5 million for the

quarter, representing increases of 27% and 44%, respectively, over the same period in fiscal year

2010. In addition, for the full 2011 fiscal year, the Company increased its guidance for revenues

to range from $352.0 million to $355.0 million and EBITDA, as adjusted, to range from $100.0

million to $102.0 million.

35. The Company expects to continue to grow in fiscal year 2012. For the full 2012

fiscal year, the Company expects revenues between $445.0 million and $455.0 million and

EBITDA, as adjusted, to range from $145.0 million to $150.0 million.

36. The Company has many bright years in its future. The demand for cloud

computing, provided by Terremark, is expected to grow rapidly over the next few years.

According to Gartner, Inc., the industry for cloud computing may reach $148.8 billion by 2014

from approximately $68 billion in 2010.

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The Proposed Transaction is Unfair

37. Seeking to capitalize on the future growth of the cloud computing market,

Verizon is attempting to purchase the Company for wholly inadequate consideration. In a press

release dated January 27, 2011, the Company announced that it had entered into a merger

agreement with Verizon pursuant to which Verizon, through Merger Sub, will commence a

tender offer for all of the outstanding shares of the Company for $19.00 per share.

38. As stated in the press release announcing the Proposed Transaction, the

transaction “will accelerate Verizon’s ‘everything-as-a-service’ cloud strategy by delivering a

powerful portfolio of highly secure, scalable on-demand solutions to business and government

customers globally through a unified enterprise IT platform and unique business cloud offerings

that leverage the companies’ collective strengths.” As stated by Lowell McAdam, president and

chief operating officer of Verizon, “Cloud computing continues to fundamentally alter the way

enterprises procure, deploy and manage IT resources, and this combination helps create a tipping

point for ‘everything-as-a-service.’ Our collective vision will foster innovation, enhance business

processes and dynamically deliver business intelligence and collaboration services to anyone,

anywhere and on any device.”

39. Following consummation of the Proposed Transaction, Verizon plans to operate

Terremark as a wholly owned subsidiary retaining the Terremark name. While Verizon

shareholders will realize the benefits of the cloud computing growth as a result of the Proposed

Transaction, Terremark’s shareholders will lose their stake in the future growth of the Company.

40. In addition, Verizon will realize significant synergies as a result of the Proposed

Transaction. As stated by Verizon’s CFO, Fran Shammo, in a conference call discussing the

Proposed Transaction: “As far as the impacts on the income statement are concerned, we see

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increasing contributions to top-line growth, margins and earnings as a result of this transaction.

The transaction is neutral to EPS in 2011 and accretive longer-term as the business grows and

synergies are realized. We estimate synergies with an MPV of approximately $500 million

coming from a revenue lift, operating expense savings and capital avoidance. In short, we see an

opportunity for significant value creation with this transaction.” Despite the significant synergies

inherent in the transaction for Verizon, however, the Board failed to secure a fair price for the

Company, either for the intrinsic value of its assets or the value of the Company’s assets to

Verizon

41. Accordingly, given Terremark’s recent strong performance as well as its future

growth prospects and the expected growth of the cloud computing market, and the synergies

expected to be realized by Verizon shareholders, the consideration shareholders are to receive is

inadequate and significantly undervalues the Company.

42. In commenting on the Proposed Transaction, Michael Nelson, an analyst at

Mizuho Securities USA Inc., stated that the cloud-computing industry is “growing significantly

faster than the service providers’ core businesses. The industry is in its infancy right now. There

is significant potential.”

43. Indeed, the Discounted Cash Flow Analysis conducted by Credit Suisse Securities

(USA) LLC (“Credit Suisse”), the Company’s financial advisor, yielded a value for the

Company as high as $22.97 per share (not including the Company’s net operating losses), and up

to $24.17 per share including the Company’s net operating losses. These figures greatly exceed

the value presented by the Proposed Transaction, and provide a strong indicator that the

Terremark Board has egregiously failed to maximize shareholder value in agreeing to the

Proposed Transaction.

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The Unfair Process and Preclusive Deal Protection Devices

44. In agreeing to the unfair price of $19.00 per share, the Company exacerbated their

breaches of fiduciary duties by failing to conduct a pre-signing market check and also agreeing

to preclusive deal protection devices in the Merger Agreement that ensure that no competing

offers will emerge for the Company.

45. In October 2010, Verizon expressed their unsolicited interest to purchase the

Company. On December 13, 2010, Verizon indicated an interest to acquire the Company for

$19.00 per share. As part of their offer, Verizon required a 45 day exclusivity period and stated

that it “would not participate in any competitive bidding or auction process.”

46. On December 14, 2010, the strategic transaction committee (the “Committee”) of

the Board determined that the Company should engage in the proposed transaction process with

Verizon on the terms offered by Verizon.

47. Thereafter, between mid-December 2010 through January 26, 2011, Verizon

conducted due diligence on the Company and Verizon and the Company engaged in discussions

and negotiations regarding the terms of the Merger Agreement.

48. During this time, and as part of their agreement with Verizon, the Company did

not conduct any type of pre-signing market check to seek out other potential parties that might be

interested in acquiring the Company. Rather, the Company engaged in exclusive negotiations

with Verizon. As such, the Board lacks any reliable basis for concluding that the Proposed

Transaction offers the best possible value for the Company’s shareholders, and is actually in

possession of information – including the Discounted Cash Flow Analysis – that strongly

indicates that the value offered by the Proposed Tranaction is woefully inadequate and unfair.

13


49. Aware of their failure to perform a proper pre-signing market check, the

Company realized it was necessary to conduct a proper post-sign market check that included a

go-shop provision. As stated in the Recommendation Statement, at a January 13, 2011

Committee meeting, “Greenberg Traurig [the Company’s outside counsel] then described

various fiduciary protections to expose the deal to the market for purposes of facilitating a

meaningful post-sign market check, including a ‘go-shop’ provision.” Accordingly, on January

17, 2011, as directed by the Committee, Greenberg Traurig delivered to Verizon a revised draft

of the Merger Agreement, which included, among other things “insertion of a 40-day ‘go-shop’

period commencing upon the signing and first public announcement of the Merger Agreement

during which the Company would be permitted to actively solicit potential purchasers.”

50. On January 18, 2011, a representative of Verizon informed defendant Medina that

the go-shop provision should be removed. In addition, Weil, Gotshal and Manges LLP,

Verizon’s legal advisor, also communicated to Greenberg Traurig and Goldman Sachs, Verizon's

financial advisor, and Credit Suisse that “the go shop provision was not acceptable.”

51. Having not performed any type of pre-market check, the Company shockingly

agreed to remove the go-shop from the Merger Agreement.

52. Rather, as part of the Merger Agreement, the Board agreed to certain onerous and

preclusive deal protection devices that operate conjunctively to make the Proposed Transaction a

fait accompli and ensure that no competing offers will emerge for the Company. These deal

protection provisions serve only to “lock up” the Proposed Transaction for Verizon, and

continue to isolate and insulate the Proposed Transaction from any market forces that could test

the adequacy and fairness of the consideration to be offered by Verizon. As such, the Board

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continues to lack any reliable basis whatsoever to conclude that the Proposed Transaction

represents a value maximizing prospect for shareholders.

53. By way of example, §5.2(a) of the Merger Agreement includes a “no solicitation”

provision barring the Company from soliciting interest from other potential acquirers in order to

procure a price in excess of the amount offered by Verizon. This section also demands that the

Company terminate any and all prior or on-going discussions with other potential acquirors.

54. In addition, pursuant to §5.2(c) of the Merger Agreement, should an unsolicited

bidder submit a competing proposal, the Company must notify Verizon of the bidder’s identity

and the terms of the bidder’s offer. Thereafter, should the Board determine that the unsolicited

offer is superior, before the Company can terminate the Merger Agreement with Verizon in order

to enter into the competing proposal, it must grant Verizon three business days in which the

Company must negotiate in good faith with Verizon (if Verizon so desires) and allow Verizon to

amend the terms of the Merger Agreement to make a counter-offer so that the competing bid no

longer constitutes a superior proposal In other words, the Merger Agreement gives Verizon

access to any rival bidder’s information and allows Verizon a free right to top any superior offer

simply by matching it. Accordingly, no rival bidder is likely to emerge and act as a stalking

horse, because the Merger Agreement unfairly assures that any “auction” will favor Verizon and

piggy-back upon the due diligence of the foreclosed second bidder.

55. Further, the Merger Agreement provides that a termination fee of $52.5 million,

which equates to 3.75% of the $1.4 billion Proposed Transaction value (unless the Company

terminates the Merger Agreement on or prior to February 26, 2011, in which case the termination

fee payable to Verizon in this circumstance would be $37.5 million), must be paid to Verizon by

Terremark if the Company decides to pursue the competing offer, thereby essentially requiring

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that the competing bidder agree to pay a naked premium for the right to provide the shareholders

with a superior offer. The $52.5 million termination fee amounts to 76% of the Company’s cash

on hand, as detailed in their latest quarterly statement for the quarter ending on December 31,

2010.

56. The Board’s failure to conduct either a proper pre-signing or post-signing market

check and its agreement to preclusive deal protection devices are significant in light of the fact

that there are likely numerous parties interested in the Company. For example, in a January 28,

2011 article on businessweek.com titled “Verizon Terremark Deal May Spur Cloud

Acquisitions,” the article described how many companies were actively seeking to enter the

growing cloud computing industry. “We also believe other telecom providers are actively

assessing opportunities in this area,” David Dixon, an analyst at Friedman Billings Ramsey, said.

“We see significant disruption of existing business models,” he stated. In a research note

regarding the Proposed Transaction, Oppenheimer analyst Tim Horan stated:

The transaction highlights the attractive fundamentals of the Internetinfrastructure space driven by the ongoing migration to cloud computing. Otherproviders in this space that represent potential targets include Savvis, Rackspace,Cogent Communications Group, Level 3 and Limelight Networks. Potentialsuitors include the incumbents AT&T, Verizon, CenturyLink, Windstream andforeign carriers.

57. Ultimately, these preclusive deal protection provisions illegally restrain the

Company’s ability to solicit or engage in negotiations with any third party regarding a proposal

to acquire all or a significant interest in the Company. The circumstances under which the Board

may respond to an unsolicited written bona fide proposal for an alternative acquisition that

constitutes or would reasonably be expected to constitute a superior proposal are too narrowly

circumscribed to provide an effective “fiduciary out” under the circumstances.

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58. Verizon is also the beneficiary of a “Top-Up” provision that ensures that Verizon

gains the shares necessary to effectuate a short-form merger. Pursuant to the Merger Agreement,

if Verizon receives 90% of the shares outstanding through its tender offer, it can effect a short-

form merger. In the event Verizon fails to acquire the 90% required, the Merger Agreement also

contains a “Top-Up” provision that grants Verizon an option to purchase additional shares from

the Company in order to reach the 90% threshold required to effectuate a short-form merger.

59. Moreover, all of the Company’s executive officers and directors who own shares

of common stock of Terremark have notified the Company that they intend to tender their

respective shares in the tender offer. As of February 10, 2011, the directors and executive

officers together owned 5,010,587 Shares, or approximately 7% of the outstanding stock of the

Company.

60. In addition, Verizon required as a condition to entering the Merger Agreement

that three of the Company’s largest stockholders, Cyrte Investments GP I B.V. in its capacity as

general partner of CF I Invest C.V., Sun Equity Assets Limited and VMware Bermuda Limited,

together holding approximately 27.6% of the outstanding shares of the Company, enter into

separate tender and support agreements, pursuant to which each stockholder agreed to tender

their respective shares in the tender offer and vote in favor of the merger and. Accordingly, along

with the 7% of Terremark stock held by the Company’s directors and officers, approximately

34.6% of the Company’s outstanding stock is locked up in favor of the Proposed Transaction.

Terremark’s Executives Officers and Directors Stand to Receive Unique Material FinancialBenefits in the Proposed Transaction Not Available to Terremark’s Public Shareholders

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61. The Company’s executive officers and directors have material conflicts of interest

and are acting to better their own personal interests through the Proposed Transaction at the

expense of Terremark’s public shareholders.

62. The Company’s executive officers and directors hold restricted stock and/or

unvested stock options of the Company that, pursuant to the Merger Agreement, will vest and

entitle the holder to receive the Proposed Transaction of $19.00 for each such share. The chart

below shows the amount of stock option and restricted stock held by each of the Company’s

executive officers and directors:

Number of Weighted Payment inShares Average Payment in Number of Respect of

Subject to Exercise Price Respect of Shares of RestrictedOptions per Share Options Restricted Stock

Name Position (#) ($) ($) Stock ($)

Manuel D. Medina Chairman of the Board, 213,165 5.69 2,836,998 375,000 7,125,000President and ChiefExecutive Officer

Joseph R. Wright, Jr. Vice Chairman of the 63,165 5.98 822,498 — —Board

Guillermo Amore Director 63,165 5.98 822,498 — —Timothy Elwes Director 63,165 5.98 822,498 — —Jose A. Segrera Chief Financial Officer 135,000 6.25 1,721,850 188,332 3,578,308Nelson Fonseca Chief Operating Officer 87,600 7.32 1,023,280 188,332 3,578,308Marvin Wheeler Chief Strategy Officer 140,500 5.75 1,861,450 133,332 2,533,308Jaime Dos Santos Chief Executive Officer 102,500 6.81 1,249,850 36,666 696,654

of Terremark FederalGroup, Inc.

Antonio S. Fernandez Director 63,165 6.17 810,498 — —Adam T. Smith Chief Legal Officer 58,000 5.82 764,280 133,332 2,533,308Arthur L. Money Director 63,165 5.87 829,498 — —Marvin S. Rosen Director 63,165 5.98 822,498 — —Rodolfo A. Ruiz Director 63,165 6.04 818,498 — —Frank Botman Director 31,665 7.12 376,198 — —Melissa Hathaway Director 31,665 7.74 356,598 — —Potential Payments For Options and Restricted Stock: 15,938,990 20,044,886

63. Moreover, Terremark’s current management team is expected to stay on and

continue managing the company. As stated in the Recommendation Statement, Verizon has

informed the Company Verizon “currently intends to retain the executive officers and

management personnel of the Company.”

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64. Further, each of the Company’s executive officers, including Defendant Medina,

has an employment agreement with the Company which entitles them to certain severance and

other benefits in the event of their termination under certain circumstances within two years

following a change of control. The following chart shows the potential payments to each such

officer in the event of such termination:

Potential Payments Upon Termination Following a Change of ControlAccelerated Vesting of Equity Value

Severance Pay Benefit Continuation Options Restricted Stock TotalName ($)(1)(2) ($)(3) ($)(4) ($) ($)

Manuel D. Medina 3,325,000 15,000 2,836,998 7,125,000 13,301,998Jose A. Segrera 1,140,000 22,000 1,721,850 3,578,308 6,462,158Jaime Dos Santos 700,000 12,000 1,249,850 696,654 2,658,504Nelson Fonseca 1,140,000 25,000 1,023,280 3,578,308 5,766,588Marvin Wheeler 880,000 28,000 1,861,450 2,533,308 5,302,758Adam T. Smith 1,045,000 25,000 764,280 2,533,308 4,367,588

65. Based on the above, the Proposed Transaction is unfair to Terremark’s public

shareholders, and represents an effort by the Individual Defendants to aggrandize their own

financial position and interests at the expense of and to the detriment of Class members.

The Materially Misleading and Incomplete Recommendation Statement

66. On February 10, 2011, the Company filed the Recommendation Statement with

the SEC in connection with the Proposed Transaction. The Recommendation Statement fails to

provide the Company’s shareholders with material information and provides them with

materially misleading information thereby rendering the shareholders unable to make an

informed decision on whether to tender their shares in favor of the Proposed Transaction.

Disclosures Concerning the Company’s Projections

67. The Recommendation Statement fails to disclose adequate information

concerning the Company’s projections that were prepared by Company management. For

example, on page 24 of the Recommendation Statement, it states that on October 29, 2010, the

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Board “discussed the importance, at the outset of any potential process, to update, as necessary,

management’s forecasts and budgets for the three to five-year period ending March 31, 2014 and

2016.” The Recommendation Statement must disclose such forecasts and budgets, including

whether these forecasts and budgets were updated, the updates made, and the reasons for such

updates.

68. In addition, on page 45 of the Recommendation Statement, the Recommendation

Statement provides the Net Income and EBITDA projections for the Company for years ending

December 31, 2011 through December 31, 2015, but fails to disclose, the Company’s free cash

flow projections for each year, as well as all line items necessary to calculate the Company’s free

cash flows.

69. The Recommendation Statement should also disclose the assumptions used by

Company management in preparing its forecasts and projections. Disclosure of this information

is important so a shareholder can assess whether the Company properly took into account the

tremendous growth prospects of the cloud computing industry.

Disclosures Concerning The Financial Analyses Conducted by Credit Suisse

70. The Recommendation Statement completely fails to disclose the underlying

methodologies, key inputs and multiples relied upon and observed by Credit Suisse, the

Company’s financial advisor, so that shareholders can properly assess the credibility of the

various analyses performed by Credit Suisse and relied upon by the Board in recommending the

Proposed Transaction.

71. With respect to the Discounted Cash Flow Analysis, the Recommendation

Statement fails to, but should, disclose (a) the projected financial information used by Credit

Suisse in the analysis, including the earnings before interest expense/income and income taxes,

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depreciation and amortization, net working capital, and capital expenditure projections for years

2011 through 2015; (b) the projected NOLs of the Company provided to Credit Suisse for use in

its analysis; (c) the criteria and key inputs used to select LTM terminal EBITDA multiples of

7.5x to 9.5x used in the analysis; (d) the key inputs used to calculate a discount rate range of

8.00% to 11.00% used in the analysis; and (e) the reasons Credit Suisse did not consider the $3.5

million per year for NOLs acquired by the Company in the acquisition of Data Return LLC in

conducting its analysis. Disclosure of this information is important considering the wide per

share value range calculated by Credit Suisse in the analysis. Specifically, the results of the

analysis yielded a per share equity value of the Company ranging from $14.51 to $22.97 per

share not including the Company’s net operating losses, and an additional $1.10 to $1.20 per

share including the Company’s net operating losses. Shareholders need full disclosure of the

forecasts and key inputs used to calculate this range in order to properly assess the true value of

the Company.

72. With respect to the Selected Public Company Analysis, the Recommendation

Statement fails to disclose (a) the criteria used to determine the companies considered “similar”

to the Company and selected for the analysis; (b) the Company’s 2011 EBITDA used in the

analysis, including the quantitative “adjustments to EBITDA performed by Credit Suisse”; and

(c) the reasons Credit Suisse calculated an implied per share equity range for the Company using

only the EV/2011 EBITDA multiples, but did not calculate an implied per share equity range

using the EV/2012 EBITDA or the EV/Growth Adjusted EBITDA multiples that were observed.

73. With respect to the Selected Transaction Analysis, the Recommendation

Statement fails to disclose (a) the criteria used to determine the transactions that involve

companies considered “similar” to the Company selected for the analysis; (b) the criteria used to

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select the NTM EBITDA multiples reference range of 1 1.0x to 14.0x used in the analysis; and

(c) the reasons Credit Suisse did not calculate an implied per share equity range using the LTM

EBITDA multiples that were observed.

74. The Recommendation Statement states that Credit Suisse also reviewed and

considered “equity research analysts’ price targets for the Company” but fails to disclose which

analysts were reviewed and the price targets of each analyst.

Disclosures Concerning Credit Suisse’s Interest In Verizon and Terremark

75. The Recommendation Statement fails to disclose material information concerning

Credit Suisse’s interest in the parties involved in the Proposed Transaction.

76. For example, the Recommendation Statement states that in 2007, the Company

“obtained from Credit Suisse... financing to prepare [certain property] for future development,

including $13.25 million of lease financing and the issuance to Credit Suisse of $10 million

aggregate principal amount of its Senior Subordinated Secured Notes and $4 million aggregate

principal amount of its Senior Subordinated Convertible Notes.” The Recommendation

Statement must disclose the material terms of the notes issued to Credit Suisse as well as the

current status of the obligations under the notes.

77. The Recommendation Statement also states that Credit Suisse has in the past and

is currently providing services to the Company and its affiliates for which Credit Suisse “have

received, and would expect to receive compensation” but fails to disclose the amount of

compensation received and expected to be received fur such services.

78. The Recommendation Statement further states that Credit Suisse has in the past

providing services to Verizon, but again fails to disclose the amount of compensation received

and/or still owed for such services.

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79. It is material for shareholders to be informed of the financial and economic

interests Credit Suisse has in the parties involved that could be perceived or create a conflict of

interest.

Disclosures Concerning the Events Leading to the Announcement of the Proposed Transaction

80. The Recommendation Statement fails to disclose the events leading to the

announcement of the Proposed Transaction, including information pertaining to other unsolicited

offers received by the Company, and its negotiations and discussions with Verizon. In particular,

the Recommendation Statement:

(a) States on page 19 that the Company received “various unsolicited

indications of interest” from “time to time” but fails to disclose the terms/value of these

indications of interest, when they were received, and how the Company responded to such

indications.

(b) Fails to disclose the “significant percentage” of stock held by the

Company that was interested in participating in an acquisition of the Company in April 2008.

(c) States that during 2008, the Company’s strategic committee “engaged a

well-recognized independent financial advisor” but fails to disclose (i) the identity of the advisor,

(ii) the role and responsibility authorized to and conducted by the advisor, (iii) the amount of

compensation received by the advisor, including whether such advisor will be owed any

compensation as a result of the Proposed Transaction, and (iv) the reasons the committee did not

retain an advisor again in 2010 to evaluate the Proposed Transaction.

(d) Fails to disclose the criteria used to select the 21 parties contacted by

Credit Suisse in 2008 including how many parties were financial and how many were strategic

parties.

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(e) States that during the fourth quarter of 2009, “several new strategic and

financial transaction candidates submitted to the Company preliminary indications of interest to

acquire the Company” but fails to disclose the value/terms of each indication of interest, and how

the Company responded to such indications of interest.

(f) Fails to disclose the value of the “certain contracts which the Company

anticipated would be entered into” considered by the Board during the first quarter of 2010, and

whether the Company subsequently entered into such contracts or still expects to enter into such

contracts.

(g) States that “during the remainder of the first half and during the summer

of 2010, the Company continued to receive unsolicited indications of interest from financial

buyers,” but fails to disclose the terms/value of each such indication of interest.

(h) States that on October 29, 2010, the Board determined to pursue a

potential transaction with Verizon “provided that certain conditions were met” but fails to

disclose what those conditions were.

(i) States that on January 20, 2011, the Committee discussed “certain

hypothetical scenarios whereby a third-party suitor might submit an unsolicited takeover

proposal and how the provisions of the Merger Agreement would work in that circumstance.”

The Recommendation Statement should disclose the scenarios discussed and how the provision

of the Merger Agreement would work as discussed by the Committee.

(j) Fails to disclose the “period of time a bona fide third-party suitor might

need to submit a topping bid and enter into a confidentiality agreement with the Company and

conduct and complete due diligence” discussed by the Committee on January 20, 2011.

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(k) Fails to disclose whether the Company received unsolicited indications of

interest or inquiries regarding a strategic transaction from third parties during their exclusivity

period with Verizon, and if so, how many and the specific nature of such indications of interest

or inquiries.

81. Lastly, the Recommendation Statement lists the total value that each of the

Company’s executive officers and directors will receive by cashing out their stock options in the

Proposed Transaction, but fails to disclose how many of these options were already vested, and

how many were unvested and are accelerating pursuant to the Merger Agreement.

82. Accordingly, Plaintiff seeks injunctive and other equitable relief to prevent the

irreparable injury that Company shareholders will continue to suffer absent judicial intervention.

CLAIMS FOR RELIEF

COUNT IViolations of Section 14(d)(4) and 14(e) of the Exchange Act

83. Plaintiff repeats all previous allegations as if set forth in full herein.

84. Defendants have issued the Recommendation Statement with the intention of

soliciting shareholder support of the Proposed Transaction.

85. Sections 14(d)(4) and 14(e) of the Exchange Act require full and complete

disclosure in connection with tender offers. Specifically, Section 14(e) provides that:

It shall be unlawful for any person to make any untrue statement of a material factor omit to state any material fact necessary in order to make the statements made,in the light of the circumstances under which they are made, not misleading, or toengage in any fraudulent, deceptive, or manipulative acts or practices, inconnection with any tender offer or request or invitation for tenders, or anysolicitation of security holders in opposition to or in favor of any such offer,request, or invitation. The Commission shall, for the purposes of this subsection,by rules and regulations define, and prescribe means reasonably designed toprevent, such acts and practices as are fraudulent, deceptive, or manipulative

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86. The Recommendation Statement violates Sections 14(d)(4) and 14(e) because it

omits material facts, including those set forth above. Moreover, in the exercise of reasonable

care, Defendants should have known that the Recommendation Statement is materially

misleading and omits material facts that are necessary to render them non-misleading.

87. The misrepresentations and omissions in the Recommendation Statement are

material to Plaintiff and the Class, and Plaintiff and the Class will be deprived of their

entitlement to make a fully informed decision if such misrepresentations and omissions are not

corrected prior to the expiration of the tender offer.

COUNT IIBreach of Fiduciary Duties

(Against All Individual Defendants)


89. The Individual Defendants have knowingly and recklessly and in bad faith

violated fiduciary duties of care, loyalty, good faith, and independence owed to the public

shareholders of Terremark and have acted to put their personal interests ahead of the interests of

Terremark shareholders.

90. The Individual Defendants’ recommendation of the Proposed Transaction will

result in change of control of the Company which imposes heightened fiduciary responsibilities

to maximize Terremark’s value for the benefit of the stockholders and requires enhanced

scrutiny by the Court.

91. The Individual Defendants have breached their fiduciary duties of loyalty, good

faith, and independence owed to the shareholders of Terremark because, among other reasons:

(a) they failed to take steps to maximize the value of Terremark to its public

shareholders and took steps to avoid competitive bidding;

(b) they failed to properly value Terremark; and

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(c) they ignored or did not protect against the numerous conflicts of interest

resulting from the directors’ own interrelationships or connection with the Proposed Transaction.

92. As a result of the Individual Defendants’ breaches of their fiduciary duties,

Plaintiff and the Class will suffer irreparable injury in that they have not and will not receive

their fair portion of the value of Terremark’s assets and will be prevented from benefiting from a

value-maximizing transaction.

93. Unless enjoined by this Court, the Individual Defendants will continue to breach

their fiduciary duties owed to Plaintiff and the Class, and may consummate the Proposed

Transaction, to the irreparable harm of the Class.

94. Plaintiff and the Class have no adequate remedy at law.

COUNT IIIBreach of Fiduciary Duty -- Disclosure

(Against Individual Defendants)


96. The fiduciary duties of the Individual Defendants in the circumstances of the

Proposed Transaction require them to disclose to Plaintiff and the Class all information material

to the decisions confronting Terremark’s shareholders.

97. As set forth above, the Individual Defendants have breached their fiduciary duty

through materially inadequate disclosures and material disclosure omissions.

98. As a result, Plaintiff and the Class members are being harmed irreparably.


COUNT IVAiding and Abetting

(Against Terremark, Verizon, and Merger Sub)


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101. As alleged in more detail above, Defendants Terremark, Verizon, and Merger Sub

have aided and abetted the Individual Defendants’ breaches of fiduciary duties.

102. As a result, Plaintiff and the Class members are being harmed.


WHEREFORE, Plaintiff demands judgment against defendants jointly and severally, as

follows:

(A) declaring this action to be a class action and certifying Plaintiff as the

Class representatives and his counsel as Class counsel;

(B) declaring that the Recommendation Statement is materially misleading

and contains omissions of material fact in violation of Section 14(d)(4) and 14(e) of the

Exchange Act;

(C) enjoining, preliminarily and permanently, the Proposed Transaction;

(D) in the event that the transaction is consummated prior to the entry of this

Court’s final judgment, rescinding it or awarding Plaintiff and the Class rescissory damages;

(E) directing that Defendants account to Plaintiff and the other members of the

Class for all damages caused by them and account for all profits and any special benefits

obtained as a result of their breaches of their fiduciary duties;

(F) awarding Plaintiff the costs of this action, including a reasonable

allowance for the fees and expenses of Plaintiff’s attorneys and experts; and

(G) granting Plaintiff and the other members of the Class such further relief as

the Court deems just and proper.

February 17, 2011

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VIANALE & VIANALE LLP

s/ Julie Prag Vianale Julie Prag VianaleFla. Bar No. 184977Kenneth J. VianaleFla. Bar No. 1696882499 Glades Road, Suite 112Boca Raton, Florida 33431Tel.: 561-392-4750Fax: 561-392-4775

LEVI & KORSINSKY, LLPJoseph Levi, Esq.30 Broad Street, 15 th FloorNew York, New York 10004Tel: (212) 363-7500Fax: (212) 363-7171

LEVI & KORSINSKY, LLPDonald J. Enright, Esq.Elizabeth K. Tripodi, Esq.1101 30th Street, NWSuite 115Washington, DC 20007

LAW OFFICE OF ABE SHAINBERGAbe Shainberg, Esq.132 East 43 rd StreetSuite 512New York, NY 10017Tel: (212) 425-7286

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Documents

MIAMI DIVISION NORMAN ABRIL, individually and …securities.stanford.edu/filings-documents/1046/VCI00_01/...Case 1: 11 -cv-20555-CMA Document 1 Entered on FLSD Docket 02/17/2011 Page