E-Portfolio 10

Latte Mamas Inc.

LatteMamas has taken off! It held its initial public offering, but despite being publicly traded for several years
(retcon the date if necessary ), Jennifer Andersen, the founder, chairperson of the board of directors, and
chief executive officer of LatteMamas remains its controlling shareholder. She has identified a number of
pressing concerns on which she would like your opinion:
Fleeing Founder
Among the key drivers of LatteMamas success is its reputation as a family feminist organization, a term
coined by Elisabeth Anderson-Sierra during her 3 year tenure as an officer of the company. Anderson-Sierra
remains a shareholder of LatteMamas, but recently left to serve as the director of donations of Prolacta
Bioscience Inc., a Monrovia-based company that processes breast milk to feed premature babies. Anderson is
furious about Elizabeths decision. She appreciates the work the Elizabeth did and the company-saving
money she invested, but she feels circumstances led her to negotiate a bad deal with no non-compete clause!
She wants to know if there is anything LatteMamas can do.
Men & Friends
For her own account, Elizabeth is frustrated with LatteMamas. Except for Jennifer and Susan Desmond-
Hellmann, there are no female board members. And, since Elizabeths departure there are no lactating
mothers on the board or serving as officers (the burdens of running the company prompted Jennifer to stop
donating milk herself several years ago). All of the officers are friends who supported Jennifer when she was a
sole proprietor who had spent her last dime on a refrigerator. Elizabeth claims this was the most important
criteria for being installed as an officer, and Jennifer is concerned that Elizabeth might take action.
International Milk Farm
To avoid the risks of prosecution or civil liability in the US, LatteMamas has organized its breast milk
business as a platform for milk exchange and delivery. Milk consumers pay fees to access the platform to
find a person who will donate milk to them, and milk donors pay fees for LatteMamas to safely package and
process the milk they are donating to a family in need. (Think Uber or Airbnb for breast milk).
The range of breastmilk based products they sell, however, uses milk collected in retreats the company has
established in several countries abroad. Lactating women and their children live in the retreats, where they
receive room, board, and job training or educational enrichment in exchange for their full supply of breast
milk. To continue to expand the business and begin to offer a line of vegan products, senior management
believes Latte Mamas should purchase a large plantation, where the company can exercise more control over
the diet of the sources of milk (read: women living at the retreats).
The purchase and the vegan diets will be very expensive, but will yield a 30% pricing premium on products.
Management has also recently discovered that the purchase of the plantation might require payments to local
officials in order to process and approve the sale. It is possible that such payments could be construed as
bribes, which would violate U.S. Federal law. The LatteMamas board is confident that even if the company
were found to have violated a law by making these payments, the penalty for any such payments would be a
fine, and there would be no further consequences. LatteMamas is willing to pay the fine, but Anderson wants
you to have this information just in case it would alter your analysis about the plantation purchase. (The board
does not want you to investigate or evaluate the illegality of any such payments or to make any independent evaluation of any
potential criminal penalty.)
Charity & Control
Anderson recently announced that she plannedover her lifetimeto charitably dispose of the majority of
her interest in the company either by donating shares to charitable organizations or by selling shares to fund
her philanthropic endeavors. Under Andersons leadership, LatteMamas itself has engaged in charitable
activities at an increasing pace and has been responsive to the concerns of a range of non-shareholder, non-
employee stakeholders.
On November 8, 2017, LatteMamas publicly filed a Proxy Statement announcing its 2017 annual meeting. In
the Proxy Statement, LatteMamass board recommended that the shareholders vote to approve the adoption
of LatteMamass Amended and Restated Certificate of Incorporation, which includes provisions creating a
new class of publicly traded nonvoting shares in the corporation. The expressly stated purpose of the
modified capital structure was to benefit the company and its minority stockholders by (1) allowing the
company to maintain focus on Ms. Andersons long-term vision for the company, (2) encouraging Ms.
Anderson to remain in a leadership role at the company, (3) mitigating succession risk, and (4) allowing the
company to better mitigate future potential voting dilution.
Just a couple of days after the Proxy Statement was filed, two very high profile shareholders, Sondra Chely
and Norbert Levy publicly called the move an unfair deal to entrench Anderson as controlling shareholder
without bargaining hard with her to obtain anything of meaningful value in exchange for granting
Anderson added control. The angry shareholders said that Anderson wishes to retain this power, while
selling off large amounts of her stockholdings, and reaping billions of dollars in proceeds.
LatteMamas anticipated the risk of this proposal being challenged. Even though the Proxy Statement
expressly reminds shareholders that as a result of her beneficial ownership of more than a majority of our
total outstanding voting power as of the record date, Ms. Anderson has the power to approve the adoption of
the new certificate of incorporation without the affirmative vote of any other stockholder, the board of
directors nevertheless convened a special committee to approve the capital structure change. According to
the Proxy Statement:
The Special Committee was established in March 2017 as a committee of our board
of directors to (i) review, analyze, evaluate, and negotiate a potential reclassification
of our capital or voting structure in order to maintain our founder-controlled
structure, (ii) make a recommendation to our board of directors regarding such a
reclassification, and (iii) to the extent delegable by our board of directors to the Special
Committee under applicable law, approve or disapprove such a reclassification on
behalf of the board of directors.
Among other things, our board of directors authorized the Special Committee to
retain, at our expense, such legal, financial, and other advisors, consultants, and
experts as the Special Committee determined to be necessary or appropriate to assist
and advise the Special Committee in performing its responsibilities, and to enter into
contracts with such advisors, consultants, and experts for their compensation,
reimbursement of expenses, and indemnification. The board of directors also
resolved that the Special Committee would have the power to authorize and direct
the appropriate officers of the company to provide such information and assistance,
as may be requested by the Special Committee in the exercise of its responsibilities.
 Our board of directors (with the employee directors abstaining) appointed Susan
Desmond-Hellmann, Marc Andreessen, and Erskine Bowles as members of the
Special Committee. Following the establishment of the Special Committee, the
members of the Special Committee appointed Dr. Desmond-Hellmann as
Chairperson of the Special Committee. Our board of directors (with the employee
directors abstaining) determined that the members of the Special Committee (i) were
not members of our management, (ii) were independent of Ms. Anderson, and (iii)
were disinterested with respect to a reclassification, except with respect to any interest
they may have by virtue of their ownership of shares of our common stock.

In advance of the upcoming board meeting Jennifer hopes you can do the following:

Describe and evaluate the rights of the corporation, if any, with respect to Elizabeth Anderson-
Sierras actions.
Describe and evaluate Elizabeth Anderson-Sierras rights with respect her frustration with board
composition. Outline a plan of action for LatteMamas board to protect itself, if necessary and
appropriate.
Describe and evaluate the rights of Sondra Chely and Norbert Levy, with respect to the proposal
advanced in the Proxy Statement. (Assume that, except as suggested by the Proxy Statement,
provided in your previous work for the company, and expressly indicated above, LatteMamass
constitutive documents conform to the applicable default rules.) Outline a plan of action for
LatteMamas board to protect itself, if necessary and appropriate.
Prepare guidelines for the LatteMamas directors to follow in evaluating (and approving) the purchase
of the Caribbean plantation. Include an explanation of the standard by which any shareholders claim
against LatteMamas arising out of the plantation purchase would be evaluated.
Your assessments and plans should be presented in a memo to the board of directors. They are not
interested in case citations. Rather, they want to (a) understand the proper procedures, the risks involved,
and the legal standards by which their actions might be judged and (b) take action to minimize these risks.
You memo should begin with an Executive Summary, which provides no more than 8 bullet point
statements answering the questions presented above. There is no length requirement for the memo, but
you should keep in mind the various uses of a memo of this nature.
 MEMORANDUM
To: LatteMamas Board of Directors
From: Derek Depew

1. The corporation probably has no ground to seek any form of recovery from
Anderson-Sierra.
2. The corporation should amend its Bylaws to reflect the change in the composition of
the Board of Directors.
3. The corporation should rebrand the capital structure change to focus on maximizing
shareholder value, not Ms. Andersons vision.
4. Illegal acts are not protected by law, the corporation should only purchase the
plantation if it can do so without breaking any laws.

1. Now that Anderson-Sierra is just a shareholder and no longer an officer she owes no
fiduciary duty to LatteMamas as a shareholder. Prolactas area of business is
significantly different enough that even if there had been a non-compete clause, it would
not apply in this situation.

2. The corporation opens itself up to civil action if it does not follow its Bylaws. Changing
the Bylaws is as simple as voting as a Board of Directors to make amendments or
changes to the Bylaws. This needs to be done as soon as possible. Fiduciary duties
require the Board to act in the best interests of the corporation and maximizing
shareholder value, blatantly not following the corporate bylaws is not in the best interest
of the corporation.

3. The capital structure change needs to be branded as a way to get more capital for the
corporation to expand and increase shareholder value. This change will be judged by the
business judgement rule, which requires that the decision be made in good faith, with the
care of a reasonable person, with reasonable belief this will benefit the corporation. The
only thing that could be at issue would be good faith, as the committee investigation
shows reasonable care, and the directors reasonably believe this will benefit the
corporation. As long as it is branded as maximizing shareholder value and not promoting
Ms. Andersons vision there will be no claim of a breach of good faith.

4. The corporation must not engage in any illegal activity. The duty of care requires
appropriate care and diligence when acting on behalf of the corporation. Knowingly
breaking the law violates the duty of care, opening up potential for liability. The business
judgement rule, discussed above, does not protect illegal activities.