FACEBOOK &

OCULUS VR INC.
Step into the world of infinite possibilities
provided by virtual reality
Table of contents

 1- Introduction
 2- Getting to know your dance partner
 3- Why engage in a dance?
 4- Contract dissection
 5- Where does the synergy stand today
 6- Facebook v. Zenimax: The Oculus VR lawsuit
 7- The role of Technology in the world of M&A
Contract Dissection

Risk Present
Considerat Mechanics Performan
-ion Allocation Representa -ce
Structure of Access to Financial
the Deal -tion &
information
Warranties Analysis

Termination
Scope of the
& FB v. Zeni
Purchase & Authority
Price Indemnifica Max
-tion
Other Third Party
Ongoing Consents and
Financial Boiler Plate
Regulatory
Relationships Approvals

Post – Closing Intellectual

Adjustments Property

Dispute
resolution &
Litigation

Employees
and RB Plans
Meet the "Next Media Platform"
2 – Getting to Know Your Dance Partner
 Facebook Inc. (California)

 Facebook is an online social networking service that allows its users to share and connect
with each other
 AMU 1.2 billion users
 Mission: Give people the power to build community and bring the world closer together.
 Founders: Mark Zuckerberg, Dustin Moskovitz, Eduardo Saverin, Andrew McCollum, Chris
Hughes
 Subsidiaries: Oculus VR, Onavo, Atlas Solutions, WhatsApp Inc., among others
2 – Getting to Know Your Dance Partner (continued)
 Oculus VR Inc. (Delaware)

 Oculus VR was initially formed as a California limited liability company in June 2012
 Was later converted into a California corporation in September 2012
 Reincorporated as a Delaware corporation in May 2013
 Technology company that develops a virtual reality headset for immersive gaming
 It also offers PC, mobile, and audio for developers;
 It operates a platform that allows users to download and submit content, and obtain
services related to products
3 – Why Engage in a Dance?
 Oculus VR Inc.

 In evaluating the Merger, the Oculus VR Board consulted with Oculus VR's management
and legal advisors
 Oculus VR's lack of operating history,
 Difficulty of predicting future performance & acceptance
 The absence of any established consumer market for VR products
 Anticipated competition from established companies (Sony, HTC, among others)
 Lack of substantial investment necessary to bring a consumer version of Oculus VR’s Oculus
Rift product to market
 General risks associated with Oculus VR's ability to continue to execute its financial plan;
and
 The likelihood of creating stockholder value in excess of the Merger consideration being
offered by Facebook;
3 – Why Engage in a Dance? (continued)
 Facebook

 Oculus will be the first step towards developing immersive VR gaming later to include all
sorts of virtual experiences, including social networking
 Opportunity to diversify services and sources of revenue (from advertising to consumer
products)
 Producers can reuse components mass-produced for phones that can render a world quickly
enough to not make a person feel motion sickness
 Aligns with Facebook's long term strategy
 The next media platform
 Endless possibilities
List of Documents Exchanged between the parties:

Below is a sample list of the legal documents done for

the deal:

 Board Recommendation, Fairness Hearing or

Registration Statement, Stockholder Approval and
Stockholder Notice.
 No solicitation
 Confidentiality; Public disclosure – January 23 2014
 Reasonable best efforts; Regulatory Approvals
 Third party Consents; Notices
 Litigation
 Original agreement dated March 25, 2014
 Amended and Restated Agreement and Plan of
Merger
 Termination of Benefit Plans
 Nasdaq Listing
List of Documents Exchanged between the parties:

Before the outline of the Agreement it listed the

attached annexes to it as the following:
 Definitions
 Form of Stockholder Agreement
 Form of first Certificate of Merger
 Form of second Certificate of Merger
 Legal option matters
 Form of Escrow Agreement
4.A Consideration
4.A.1 Structure of the Deal
4.A.2 Scope of the Purchase & Price
4.A.3 Other Ongoing Financial Relationships
4.A.4 Post – Closing Adjustments
4.A.1 – Structure of the deal

 The acquisition took place in the form of 2 mergers in order to effect a Reorganization
per the definition of "368(a) of the Internal Revenue Code"
 "§368(a)(1)(A): Type "A" Reorganization, Statutory Merger
 In a type "A" reorganization one corporation acquires the assets and assumes the liabilities
of another corporation. The target corporation transfers its assets and liabilities in
exchange for the acquiring company's stock.
 The target corporation goes out of existence in the merger or consolidation transaction
under state law.
 At a minimum, at least 40% of the proceeds of the sale must come in the form of stock in
the acquiring corporation; the remaining 60% can be in cash.
 If cash is paid to the target's shareholders, then some gain may be recognized.
4.A.1 – Structure of the deal (continued)

 There are five types of acquisitive tax-free reorganizations. To qualify for any of them,
the Code outlines requirements that must be present in the transaction structure:

 There must be a Continuity of Ownership Interest;

 There must be a Continuity of Business Enterprise;
 The transaction must have a Bona Fide Business Purpose and not be for the purpose of tax
avoidance;
 The transaction must not fail under the Step Transaction Doctrine*; and
 The transaction must take place pursuant to a Plan of Reorganization

* Tests include: Binding Commitment - Mutual Interdependence – Intent Test

4.A.1 – Structure of the deal (continued)

 To effect "Reorganization" under the acceptable definition of 368 (a) as well as benefit
from the free taxation, a two- step merger was effected to include:
 Facebook, Inc. (Delaware) – "Acquirer"
 Oculus VR, Inc. (Delaware) – "The Company"
 Inception Acquisition Sub, Inc. (Delaware) – "Merger Sub I" wholly owned by
Facebook
 Inception Acquisition Sub II, LLC. (Delaware) – "Merger Sub II" wholly owned by
Facebook
Summary of the Reorganisation & Acquisition
Merger Sub I merges with and into
Oculus VR, as a result of which Oculus
VR becomes a wholly- owned subsidiary
of Facebook

The surviving entity of the First Merger

merges with and into Merger Sub II, as
a result of which Merger Sub II
continues as the surviving entity.

The surviving entity of the Second

Merger continues as a wholly- owned
subsidiary of Facebook for the
foreseeable future.
4.A.2 – Scope of the Purchase & Price

 The Acquirer, Facebook underwent a stock purchase acquisition plan of Oculus VR.
Inc. The resultant subsidiary is in the form of a limited liability company registered in
Delaware fully owned by Facebook Inc.
 Research indicates that Facebook had its strategic plans oriented in the direction of the
intellectual property owned by Oculus
 Neither joint ventures nor licenses would have served Facebook's long term growth
plans and strategy to acquire both talents and intellectual property.
 "Total Consideration" is USD 460,000,000 in cash and 26,532,083 shares of Facebook
Common Stock (Class B), of which $60,000,000 in cash (the “Contingent Cash
Payment Consideration") and 3,460,706 shares of Facebook Common Stock (the
"Contingent Stock Payment Consideration") are payable and issuable, respectively,
following the Closing and upon the achievement of certain milestones (the "Contingent
Payment").
4.A.2 – Scope of the Purchase & Price (continued)

 The calculation for the stock purchase was through the following:

Estim ated
%Own ersh ip Sh ares of Estim ated Sh ares % of Total
CS of Ocu l u s VR
of Ocu l u s VR Facebook Con sideration ) Con sideration
Com m on
Class A Com m on Stock 754,667 36% 8,383,339 1,242,107 35.89%
Class B Com m on Stock 66,025 3% 733,449 108,671 3.14%
Series A Preferred Stock 573,066 27% 6,365,996 943,210 27.26%
Series B-1 Preferred Stock 683,124 32% 7,588,593 1,124,354 32.49%
Vested Options 25,739 1% - 42,364 1.22%

2,102,621 100% 23,071,377 3,460,706 100%

4.A.2 – Scope of the Purchase & Price (continued)

 Common Per Share Stock Consideration:

 X = 23,071,377 / (A – B)

 Common Per Share Cash Consideration:

 Y = (C + (D * B) - (69.35 * B * X)) / A

 Option Per Share Consideration:

 Z = (Y + (X * $69.35)) – E where: A = Fully-Diluted Company Common Stock;

 B = Total Vested Options;

 C = $400,000,000, minus unpaid Transaction Expenses and Closing Net Working
Capital Shortfall;
 D = Weighted-average exercise price of the Total Vested Options; and
 E = Exercise price of the applicable vested Company Option.
4.A.3 – Other Ongoing Financial Relationships

 Facebook will have to file the proper documents with NASDAQ to issue the shares
relating to the merger and set them aside (Class B)
 Both parties will have to file the proper documents for the review with the Federal
Trade Commission under Hart – Scott – Rodino Act.
 Tax Matters:

 The acquirer, stockholders' agent and the Company will do their reasonable best to
cooperation and file all the required tax returns or legal proceedings relating to the tax.
Furthermore, the companies will do their reasonable best to ensure to limit, mitigate or
eliminate the taxes relating to the transaction.

 Acquirer, the Company, the Stockholders' Agent and the Company Security holders agree to
retain all books and records with respect to Tax matters pertinent to the Company
relating to any taxable period beginning before the Closing Date until expiration of the
statute of limitations of the respective taxable periods, and to abide by all record retention
agreements entered into with any Tax Authority.
4.A.4 – Post Closing Adjustments

 Facebook's total consideration for the purchase of Oculus VR is dependent on attaining

certain levels of net working capital before closing
 NWC = CA – CL => Valuation indicator
 Consideration will be amended as per the shortage of the actual net working capital at the
closing relative to the net working capital threshold set during the contract
4.B MECHANICS
4.B.1 Access to Information
4.B.2 Authority
4.B.3 Third Party Consents & Regulatory Approvals
4.B.4 Intellectual Property
4.B.5 Dispute resolution & Litigation
4.B.6 Employees and Retirement Benefit Plans
4.B.1 – Access to Information

 The acquirer during the period from the Agreement Date and continuing until the
earlier of the termination of this Agreement and the Effective Time Oculus shall afford
Acquirer and its Representatives reasonable access during business hours to the
Company’s complete properties, information and personnel among others
(Article 5.7).
4.B.2– Authority

 Authority:
 Subject to obtaining the Company Stockholder Approval, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the Transactions.
4.B.3 – Third party Consents and other regulatory Matters

 Anti-trust laws applicable – Hart-Scott-Rodino Act – 1976,

 Provides the Federal Government with the chance to assess the impact of M&As on the
economy
 All parties to a transaction submit completed filings and pay the filing fee (generally
$45,000 per transaction imposed upon the acquiring person),
 30 day waiting period before the transaction may be completed
 The Act aims to provide stability and predictability in the US market and economy

 The parties obtained the requisite approval on April 22nd 2014

4.B.4 – Intellectual Property
 IPs are lawfully owned by the Company:

 The Company and each Subsidiary has full title and ownership of, or is duly
licensed under or otherwise authorized to use, all Intellectual Property
necessary to enable it to carry on the Business, free and clear of any Encumbrances
and without any conflict with or infringement upon the rights of others.
 The Company Intellectual Property collectively constitute all of the intangible
assets, intangible properties, rights and Intellectual Property necessary for
Acquirer’s conduct of, or that are used in or held for use for, the Business without :
 The need for Acquirer to acquire or license any other intangible asset,
intangible property or Intellectual Property Right . This clause is to ensure that
Acquirer has full right to use the IPs without prerequisites or approvals from other
parties
 The breach or violation of any Contract: Neither the Company nor any
Subsidiary has transferred ownership of, or granted any exclusive rights in,
any Company Intellectual Property to any third party. This clause aims to redeem the
Acquirer from any litigation under the pretense of violation or breach of contracts and
places the liability on Oculus to resolve such matters before the agreement.
4.B.4 – Intellectual Property (continued)
 No third party has any ownership right, title, interest, claim in or lien on any
of the Company-Owned Intellectual Property.
 Company Registered Intellectual Property: Schedule 2.9(c) of the Company
Disclosure Letter lists all Company Registered Intellectual Property, the
jurisdictions in which it has been issued or registered or in which any application for
such issuance and registration has been filed or the jurisdictions in which any
other filing or recordation has been made and all actions that are required to be taken
by the Company or any Subsidiary within 120 days following the Agreement Date in
order to avoid prejudice to, impairment or abandonment of such
Intellectual Property Rights.
4.B.4 – Intellectual Property (continued)
 Founders: All rights in, to and under all Intellectual Property created by the
Company’s founders for or on behalf or in contemplation of the Company or any
Subsidiary (i) prior to the inception of the Company or (ii) prior to their
commencement of employment with the Company have been duly and
validly assigned to the Company

 Non-Infringement: To the knowledge of the Company, there is no unauthorized

use, unauthorized disclosure, infringement or misappropriation of any
Company-owned Intellectual Property by any third party.
4.B.4 – Intellectual Property (continued)
 Restriction on the Use of IPs: During the period from the Agreement Date and
continuing until the earlier of the termination of this Agreement and the Effective
Time, the Company shall not do, cause or permit any of the following:

 Intellectual Property: Transfer or license from any Person any rights to any
Intellectual Property, or transfer or license to any Person any rights to any Company
Intellectual Property, etc.
 Patents: Take any action regarding a patent, patent application or other Intellectual
Property right, other than filing continuations for existing patent applications or
completing or renewing registrations of existing patents, domain names, trademarks or
service marks in the ordinary course of business consistent with past practice.
 Material Contract: Contract that grants exclusive rights under any Company-Owned
Intellectual Property to any third party, including any Contract that restricts the Company
from licensing or selling Company Products or Services or Company-Owned Intellectual
Property for use in any given vertical market or application.
4.B.5 – Dispute resolution and Litigation:
 Arbitration – Submission to Jurisdiction

 The disputes with intellectual property rights and confidentiality

information as subject matters shall be settled by arbitration and all other
subject of claims are raised before the competent court.
 The governing law are the laws of the State of California except if any matter
related to the effectiveness of the Merger shall be governed by the laws
of the State of Delaware.
4.B.6 – Employees and Employees RB Plans
 Oculus didn’t promise the former or the present employees to retain their contracts
and left that matter subject to the discretion of Facebook. Nonetheless, Oculus pledges
to assist Facebook in retaining a minimum of 85% of the total employees of
the original firm that is excluding key employees who have been provided with
employment offers from Facebook.
 Employee benefit plans, Pay increases: Facebook will NOT be liable
towards hiring any employee, effecting Oculus' compensation benefit
plans, or paying any special bonus or special remuneration to any employee or
non-employee .
 That there are no pending obligations or expected litigations from the
company’s directors, officers or employees.
4.B.6 – Employees and Employees RB Plans (continued):
 To the knowledge of the Company, no current or former employee, consultant, advisor
or independent contractor of the Company or any Subsidiary:
 (i) is in violation of any term or covenant of any Contract relating to
employment, invention disclosure. Or

 (ii) has developed any technology, software or other copyrightable,

patentable or otherwise proprietary work for the Company or any
Subsidiary that is subject to any agreement under which such employee,
consultant, advisor or independent contractor has assigned or otherwise
granted to any third party any rights
4.C RISK ALLOCATION
4.C.1 Representations & Warranties
4.C.2 Termination and Indemnification
4.C.3 Boiler Plates
4.C.1 – Representations and Warranties
 Termination: The agreement will terminate in case of a result in the creation of any
Encumbrance on any of the material assets of the Company, any Subsidiary
or any of the shares of Company Capital Stock.
 Survival : Disclosure letters will remain in full force for 12 months
following the closing date. As effect of the closing, all obligations and covenants
shall expire except to the extent of those to be performed after the closing.
 Financial Statements:
 No Undisclosed material liabilities & absence of material changes
 The Company has delivered to Acquirer its unaudited, consolidated financial
statements for the Company's fiscal year ended December 31, 2013 and its unaudited,
consolidated financial statements for the two-month period ended February 28, 2014.
4.C.1 – Representations and Warranties
 Business as Usual: The Company and each Subsidiary has conducted the
Business only in the ordinary course of business consistent with past practice
from the date of agreement until the earlier of termination of this agreement and the
effective time of this agreement such as conduct of this agreement (Ex. IPs, dividends,
capital expenditures, etc.)
 Litigation: There is no Legal Proceeding to which the Company is a party
pending before any Governmental Entity, or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or any of their assets or any of
their directors, officers etc.
 Restrictions on Business Activities: There is no contract or order binding upon
the Company or any Subsidiary that restricts or prohibits, has or would
reasonably be expected to have, whether before or immediately after
consummation of the Merger.
4.C.1 – Representations and Warranties (continued)
 Material Adverse Effect: There has not occurred a Material Adverse Effect/event
with respect to the Company or any Subsidiary and neither the Company nor any
Subsidiary has done, caused or permitted any of the actions described that may have
adverse change on the terms of the contract and the subsidiary resulting from the
series of mergers. Such events could lead to the termination of the contract
prior to the closing.
4.C.2– Termination and Indemnification
 At any time prior to the Closing, whether before or after the Company Stockholder
Approval is obtained.
 By mutual written consent duly authorized by Acquirer and the Board
 By written notice to the other, if the Closing shall not have occurred on or before
September 23, 2014
 If acquirer shall have provided to the Company at least 30 days prior written notice
 If any order of a governmental entity of competent authority preventing the
consummation of the Merger shall have become final and non-appealable.
 By Acquirer, by written notice to the Company, if there shall have been an inaccuracy in
any representation or warranty, or a breach of any covenant, agreement or obligation;
and
 By either Acquirer or the Company, if the Stockholder Meeting shall have been held and
the Company Stockholder Approval has not been obtained.
4.C.2– Termination and Indemnification
 Effect of Termination:

 In the event of termination of this Agreement as provided above, this Agreement shall
forthwith become void and there shall be no Liability on the parties; provided that
 (i) Section 5.3 (Confidentiality; Public Disclosure), Section 5.9 (Expenses), this Section
7.2 (Effect of Termination), Article IX (General Provisions) and any related definition
provisions in or referenced in Exhibit A and the Confidentiality Agreement shall
remain in full force and effect and survive any termination of this
Agreement and
 (ii) nothing herein shall relieve any party hereto from Liability in
connection with an intentional misrepresentation of any representation or
warranty, or a willful breach of any covenant, agreement or obligation, made by or of
such party herein.
4.C.2– Termination and Indemnification
 Indemnification: For example

 Breach of any representation and warranties, disclosure letters

 As of the agreement date, representations and warranties shall be true
 Failure of any certification
 Material contracts and adverse changes in representations, warranties and covenants
 Any Fraud or intentional misrepresentation
 Threshold for the items listed above was set greater than USD 5,000,000
as such, it will not affect the Escrow fund and the related payment.
4.C.3 – Boiler Plate Conditions:
 Representations true and complete: To the knowledge of the Company, as of the
Agreement Date, none of the representations or warranties made by the Company
contains any untrue statement of a material fact, or omits to state any
material fact necessary in order to make the statements contained herein or therein,
in the light of the circumstances under which made, not misleading.

 Assignment: Neither this Agreement nor any of the rights and obligations under this
Agreement may be assigned or delegated, in whole or in part, by operation
of law or otherwise by any of the parties hereto without the prior written consent
of the other parties.
 Severability: In the event that any provision of this Agreement, or the application
thereof, becomes or is declared by a court of competent jurisdiction to be illegal,
void or unenforceable, the remainder of this Agreement shall continue in full
force and effect and shall be interpreted so as reasonably necessary to effect the
intent of the parties hereto.
4.C.1 – Closing Date
 Closing Date of the Transaction: September 23, 2014 (article 7)
FINANCIAL ANALYSIS
Where does the synergy stand today
5 – Financial Analysis
 The following table summarizes the allocation of estimated fair values of the net assets
acquired during the year ended December 31, 2014, including the related estimated
useful lives, where applicable:
5 – Financial Analysis (continued)
 Results of Operations: The following tables set forth our consolidated statements of
income data:
5 – Financial Analysis (continued)
 Revenue in 2015 increased $5.46 billion , or 44% compared to 2014 . The increase
was primarily due to an increase in advertising revenue.
 Payments and other fees revenue in 2015 decreased $125 million , or 13% , compared
to 2014 relating to revenue generated from games on personal computers.
5 – Financial Analysis (continued)
 Cost of revenue in 2015 increased $714 million , or 33% , compared to 2014. .
 The increase was primarily due to an increase in operational expenses related to the
Company's data centers and technical infrastructure of $480 million,
compared to 2014.
 Amortization of intangible assets in 2015 also increased $100 million compared to
2014 , mostly due to the full year impact of acquisitions completed in the second half
of 2014.
5 – Financial Analysis (continued)
 In the short run we notice no immediate boost in earnings accompanied by an
increase in costs associated with the acquisition, R&D, and infrastructure.
 The Dilemma of long v. short term investments and shareholders' demands for
tangible evidence that justifies such capital expenditures arises.
6- FACEBOOK V. ZENIMAX:
The Oculus VR lawsuit
Summary of Facts & Findings
 Oculus to pay $500 million in ZeniMax lawsuit Executives violated a ZeniMax non-
disclosure agreement in the early days of building the Oculus Rift VR headset.
 The award is composed of $200 million for NDA violation, plus $50 million for
copyright infringement, a $50 million award against both Oculus and co-founder
Palmer Luckey for false designation, and $150 million against former CEO Brendan
Iribe for false designation and $50 million for false designation.
 The complaint argued that he had created a barely functioning prototype that Carmack
greatly refined — among other things, it said the Rift's software development kit was
adapted from ZeniMax technology
7- THE ROLE OF TECHNOLOGY IN
THE WORLD OF M&A
The Role of Technology in the World of M&A
 Certain software enabled companies to conduct huge portions of the due diligence
process
 "BIG DATA" can be analysed through a series of algorithms to pin point discrepancies.
 Facebook was able to feed all the information it got from Oculus into a system which
generated the valuation in less than 24 hours
 This did not negate the fact that due diligence had been an integral step of the
interaction between the parties
 Due diligence started from the late 2013 and continued until the agreement was
consummated
Conclusion
 Thank you