EFiled: Apr 29 2016 05:38PM EDT Transaction ID 58935276 Case No. 12283-
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PEDRO RAMIREZ JR., Individually and on Behalf of all Others Similarly Situated, Plaintiff, vs. MARK ZUCKERBERG, SHERYL SANDBERG, MARC ANDREESSEN, ERSKINE B. BOWLES, SUSAN DESMOND-HELLMANN,, REED DESMOND-HELLMANN HASTINGS, JAN KOUM, PETER A. THIEL, and FACEBOOK, INC., Defendants.
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C.A. No.
VERIFIED CLASS ACTION COMPLAINT
Plaintiff Pedro Ramirez Jr. (“Plaintiff”), by and through his undersigned counsel, alleges upon knowledge as to himself and his own actions, and upon information and belief as to all other matters, based upon the investigation alia, a review of conducted by and through his attorneys, which included, inter alia, documents filed by Defendants with the United States Securities and Exchange Commission (the “SEC”), news reports, press releases and other publicly available documents, as follows: SUMMARY OF THE ACTION
1.
Plaintiff brings this action on behalf of himself and as a class action
on behalf of the Class A shareholders of Facebook, Inc. (“Facebook” or the
“Company”), other than the named defendants, for breaches of fiduciary duty arising from an effort to reclassify the Company’s shares. The Defendants to this action are Facebook, Inc. (“Facebook”) and the members of Facebook’s Board of Directors. As detailed herein, the reclassification effort is a transparent attempt to entrench Defendant Mark Zuckerberg (“Zuckerberg”) as Facebook’s dominant shareholder by creating a non-voting class of Facebook stock in order to preserve his voting power power into perpetuity. perpetuity. Presently, Facebook Facebook has Class A shares, which have one vote per share, and Class B shares, which have ten votes per share. Zuckerberg owns more than 76% of all Class B shares and an irrevocable voting proxy covering an additional 8.9% of all Class B shares. Zuckerberg also owns 3,999,241 Class A shares, less than 1% of the Class A common stock. In all, Zuckerberg holds more than 60% of voting power over Facebook. 2.
Under the Reclassification, if not enjoined, Facebook’s Certificate of
Incorporation will be amended to reclassify stock, increase the authorized shares of Class A stock, implement an “equal treatment” provision, and implement triggering events under which Zuckerberg’s Class B shares could be required to be converted into Class A shares. 3.
Under the proposed reclassification, once implemented, Facebook
would issue a third class of stock, Class C shares, which will have no voting rights. All Class A shareholders will receive a dividend of two shares of non-voting Class 2
C stock for each Class A share they own. So although Class A shareholders would receive what amounts to a 2-for-1 stock split, receiving 2 Class C shares for every Class A share they own, Facebook’s Facebook’s voting proportions remain remain unchanged. unchanged. This distribution of non-voting stock will allow Facebook to use Class C stock to purchase other companies or issue stock to employees without diluting Zuckerberg’s voting power or diminishing his vise-like grip over Company management and operations (which includes the ability to appoint the entire Board of Directors). 4.
Facebook’s preliminary proxy statement filed April 27, 2016
(“Preliminary Proxy”) states that the Class C issuance will (and is intended to) ensure that the Company continues to be controlled by Zuckerberg. This will only exacerbate the effect of entrenching him in power and insulating him from having to pay attention to the views of the shareholders who own the vast majority of the shareholder equity. Zuckerberg wishes to retain retain this power, while while maintaining the right to transfer or sell large amounts of his stockholdings, reaping billions of dollars in proceeds. The issuance of the Class C stock will effectively gift billions of dollars in equity to executives and directors, for which they will pay nothing. Moreover, this is done with the explicit intent of ensuring Zuckerberg’s continued domination of the Company, as an “incentive.”
3
5.
A Special Committee of Facebook directors approved this deal, but
did not bargain hard with Zuckerberg to obtain anything of meaningful value in exchange for the extraordinarily valuable benefit that is being bestowed upon them. The Special Committee: (a) agreed to allow Zuckerberg to approve this deal by fiat at the upcoming annual meeting, without any provision for approval by a majority of the the public shareholders, shareholders, who therefore are accorded no say; (b) never sought or received an opinion from its financial advisor that the Reclassification is fair to the public Class A shareholders; (c) obtained “concessions” from Zuckerberg that are essentially meaningless, thus negating any possible claim that there was arm’s-length bargaining; (d) never had its financial advisor place a value or range of values on the Reclassification, from Zuckerberg’s perspective; (e) did not prearrange for compensation for the Special Committee, leaving its eventual compensation to to be decided by the compensation compensation and governance committee; committee; (f) failed to bargain for the right of public Class A shareholders to elect even one independent director, so that such shareholders might have a voice; (g) adopted no independent oversight mechanism to ensure that future issuances of Class C shares do not unduly benefit Zuckerberg at the expense of Facebook’s public shareholders; and (h) failed to provide for any compensation for the Class A shareholders whose investments will be adversely affected by having their holdings cleaved into voting and non-voting shares, without their consent or 4
approval. As to this last point, Google and and Under Armour recently recently adopted similar Reclassifications, and have seen Class C non-voting non-voting shares trade at a discount: on April 28, 2016, Under Armour Class C stock closed at $41.66, a 6.2% discount to the Public voting stock, while Google Class C stock closed at $691.02, a 2% discount.
A discount here of 2-6% would cost Facebook public shareholders
billions of dollars. Whereas Google and Under Armour (after shareholder challenges) addressed this disparity by offering compensation to such shareholders, Facebook has not done this. 6.
In addition to the foregoing, the Defendants have failed to disclose all
material information regarding the Reclassification. Specifically, on April 27, 2016, Facebook filed its preliminary Proxy Statement with the SEC which fails to provide the Company’s shareholders with all material information concerning the Reclassification, as detailed herein. 7.
Although Class A shareholders cannot block approval of the
Reclassification, the proxy solicitation is essential to the lawful adoption of Zuckerberg’s Plan. Therefore, a truthful and complete Proxy is mandated by law. 8.
The Director Defendants have a fiduciary duty to act in the best
interests of Facebook’s shareholders, and to treat them with loyalty, care, and candor. Unfortunately, the Director Defendants failed to live up to their fiduciary
5
obligations, agreeing to a Reclassification of the Company which benefits Zuckerberg to the detriment of Plaintiff and the Class. 9.
For these reasons and as set forth more fully herein, Plaintiff seeks to
enjoin Defendants from proceeding with the Reclassification. In the event that the Reclassification is consummated, Plaintiff seeks to recover damages from the Director Defendants for their breaches of fiduciary duty. PARTIES
10.
Plaintiff is, and at all relevant times has been, a holder of Facebook
11.
Defendant Facebook is a Delaware corporation that maintains its
stock.
corporate headquarters in Menlo Park, California. 12.
Defendant Mark Zuckerberg (“Zuckerberg”) is the Chief Executive
Officer and Chairman of the Board of Directors at Facebook. Zuckerberg founded Facebook in 2004 while studying computer science at Harvard University. He is the largest and controlling shareholder of Facebook. 13.
Defendant Sheryl Sandberg (“Sandberg”) is the Chief Operating
Officer (“COO”) and a Director of Facebook. She has been the COO since 2008, and has served on the Board of Directors since 2012. Ms. Sandberg has also served as a Director of the Walt Disney Company since December 2009, and SurveyMonkey since June 2015. 6
14.
Defendant Marc L. Andreessen (“Andreessen”) has served as a
Director of Facebook since June 2008. In addition, Mr. Andreessen is a co-founder and has served as a General Partner of Andreessen Horowitz, a venture capital firm, since July 2009. He also serves on the board of directors of the HewlettPackard Enterprise Company and other private companies. 15.
Defendant Erskine B. Bowles (“Bowles”) has served as a Director of
Facebook since September September 2011.
In addition, addition, Bowles Bowles helped helped found Bowles
Hollowell Connor Connor & Co., Co., and Kitty Kitty Hawk Capital. Capital. He served as as White House House Chief of Staff from 1996 to 1998. 16.
Defendant Susan D. Desmond-Hellmann (“Desmond-Hellmann”) has
served as a Director of Facebook since March March 2013. She also serves on the board of directors of Procter & Gamble Company. 17.
Defendant Reed Hastings (“Hastings”) has served as a Director of
Facebook since June 2011. 18.
Defendant Jan Koum (“Koum”) has served as a Director of Facebook
since October 2014. He serves as the co-founder and Chief Executive Officer of WhatsApp Inc., a wholly-owned subsidiary of Facebook. 19.
Defendant Peter A. Thiel (“Thiel”) has served as a Director of
Facebook since April 2005. Mr. Thiel has has served as President of Thiel Capital Capital
7
since 2011, has been a Partner of Founders Fund, a venture capital firm, since 2005, and has been President of Clarium Capital Management since 2002. 20.
Zuckerberg, Sandberg, Andresseen, Bowles, Desmond-Hellmann,
Hastings, Koum, and Thiel are collectively referred to as the “Director Defendants”. ADDITIONAL SUBSTANTIVE ALLEGATIONS A.
Background
21.
Mark Zuckerberg launched TheFacebook.com on February 4, 2004,
while he was a student at Harvard University. On July 29, 2004, TheFacebook.com was formally incorporated in Delaware. 22.
Facebook rapidly grew from a site aimed at Harvard students into a
global phenomenon. Hundreds of millions of people use Facebook’s social network, through either facebook.com or through mobile applications. 23.
Facebook announced its intention to commence an IPO on February 1,
2012. On May 18, 2012, Facebook’s Registration Statement became effective. Ultimately, Facebook’s IPO sold more than 421 million shares of Facebook Class A common stock at a value of more than $16 billion. 24.
The IPO created a Class A common stock class that had voting power
of one vote per share. Class B common stock, of which 1,504,592,619 shares were
8
outstanding after the IPO, maintained (and still maintains) voting power of 10 votes per share. 25.
Following the IPO, Facebook remained a controlled company, with
Facebook’s prospectus reflecting that Zuckerberg would “have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors, as well as the overall management and direction of our company. In the event of his death, the shares of our capital stock that Mr. Zuckerberg owns will be transferred to the persons or entities that he designates.” 26.
This control was maintained in large part through the dual tier
structure, with Class A common stock being purchased by the public through the IPO and subsequent public transactions and Class B stock, which was allocated primarily to Facebook directors and management maintaining vastly greater voting power (10:1). Class B common stock is not publicly traded, but is convertible into one share of Class A common stock at any time at the option of the holder or upon most transfers of such shares by Class B common stockholders. 27.
According to Facebook’s 10-Q dated November 5, 2015, this voting
disparity now permits Class B common stockholders to “control all matters submitted to shareholders for approval so long as the shares of Class B common
9
stock represent at least 9.1% of all outstanding shares of [Facebook] Class A and Class B common stock.” 28.
Facebook’s dual class stock structure had its intended effect and
solidified management and permitted Zuckerberg to continue to dominate Facebook, allowing him the ability to continue to appoint all directors unilaterally and insulate himself from dissenting views. At the time of the IPO, however, there was certainly no plan announced to perpetuate the Zuckerberg’s domination if he lost such dominance due to share sales or otherwise. Nor was there a plan announced to allow Zuckerberg to remain in control through a reclassification that would effectively turn half the publicly-traded Class A shares into non-voting shares, under a plan in which all detriments would be borne by the Class A shareholders, and all benefits would be enjoyed by Zuckerberg. B.
The Reclassification – Zuckerberg’s Attempt to Retain Control
29.
On April 27, 2016, Facebook unveiled a controversial plan (the
“Reclassification”) designed to issue new shares in a new class of common stock without diluting Zuckerberg’s voting power or threatening his domination of Facebook. The Reclassification would, through an amendment of the Certificate of Incorporation, allow the Company to create a new class of non-voting shares that could be distributed to existing Class A common stock shareholders in what is effectively a 2-for-1 stock split, termed a “dividend” to Class A stockholders. Once 10
the Reclassification occurs, the Class A shareholders would be issued two shares of Class C stock for each Class A share they hold. The Class C shares will have no voting rights. As a result of the Reclassification, Facebook will be able to issue stock to compensate workers or make acquisitions using the new Class C stock, without loosening Zuckerberg’s iron-clad grip over the Company. In fact, the Reclassification is specifically taken with the purpose of ensuring his complete control. 30.
According the Proxy Statement, the Reclassification came to be
proposed after discussions between Zuckerberg and the Board of Directors beginning in August 2015. Those discussions involved Zuckerberg’s indication that if he were to donate or otherwise dispose of his shares of Facebook stock, Facebook might cease to be controlled by him. 31.
According to the proxy statement, Following these discussions, the
Facebook Board of Directors decided to establish a Special Committee to “review, analyze, evaluate, and negotiate a potential reclassification of our capital stock or voting structure in order to maintain our founder-controlled structure, (ii) make a recommendation to the 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.” directors.” 11
32.
The board then appointed a Special Committee comprised of
Defendants Desmond-Hellmann, Andreessen, and Bowles (collectively, the “Special Committee”). The Special Committee retained legal counsel and a financial advisor and proceeded to meet numerous times between August 2015 and April 14, 2016. 33.
During these meetings, the Preliminary Proxy reflects that the Special
Committee negotiated four automatic sunset triggers – Zuckerberg’s death, Zuckerberg’s disability, Zuckerberg’s removal “for cause” (which is narrowly defined in the amended certificate), or Zuckerberg’s voluntary resignation as an Approved Executive Officer. The Special Committee also negotiated to reduce the scope of certain exceptions to the trigger for voluntary resignation. 34.
The Special Committee unanimously determined that creating the
Class C common stock and issuing the stock as a “dividend” to Class A shareholders and the new Certificate were in shareholders’ best interest. They further recommended that the Board of Directors adopt the resolutions approving the creation of Class C capital stock, issuing the dividend, adopting the New Certificate, amending the Company’s corporate governance guidelines, and the Founder Agreement. 35.
The Special Committee’s negotiations reflect an intention to maintain
Zuckerberg’s control regardless of its advisability. Their negotiations resulted in a 12
largely meaningless Founder Agreement and extremely limited protections within the Certificate itself. 36.
The Founder Agreement adds little to protect shareholders, only
offering protection in the event that Zuckerberg elects to surrender control by requiring Zuckerberg to convert his Class B common stock to Class A common stock before his ownership drops below a majority of Class B shares. 37.
Similarly, the Founder Agreement’s “Equal Treatment Provision,”
whereby in any takeover or merger Class B shares would receive the same consideration of Class A shares, is largely meaningless. As a practical matter, Facebook’s market capitalization of over $320 billion makes it the sixth largest publicly-traded company in the United States; in other words, it is not a realistic takeover candidate. Nor, given Delaware precedent, would a plan involving disparate treatment likely succeed. 38.
The Special Committee’s negotiation of certain “trigger” provisions
that would automatically convert Zuckerberg’s Class B common stock to Class A common stock are no more effective. Rather, they largely entrench Zuckerberg’s authority without any meaningful benefit to shareholders. For instance, while the conversion can be triggered by termination for Zuckerberg “for cause,” the Certificate limits cause to “(i) [Zuckerberg’s] willful and continued failure substantially to perform his duties and responsibilities to the corporation (other 13
than a failure resulting from incapacity due to physical or mental illness) that is materially and demonstrably injurious to the corporation; (ii) [Zuckerberg’s] deliberate violation of a policy of the corporation applicable to [Zuckerberg] that is materially and demonstrably injurious to the corporation; (iii) [Zuckerberg’s] commission of any act of fraud, embezzlement, willful dishonesty or any other willful misconduct with respect to [Zuckerberg’s] duties as an Approved Executive Officer that has caused a material and demonstrable injury to the corporation; (iv) [Zuckerberg’s] deliberate unauthorized use or disclosure of any proprietary information or trade secrets of the corporation or any other party to whom the Founder owes an obligation of nondisclosure as a result of his duties as an Approved Executive Officer that is materially and demonstrably injurious to the corporation; or (v) [Zuckerberg’s] willful breach of any written agreement or covenant with the corporation that is materially and demonstrably injurious to the corporation . . . ”. The Special Committee’s certainty that Facebook currently derives value from Zuckerberg’s presence will, in effect, become a permanent adjudication. Zuckerberg would, even if removed for incompetence, continue to control the Company, wholly precluding any ability on the Board’s part to act on behalf of the vast majority of shareholders. shareholders. 39.
The Special Committee’s efforts did not approximate arm’s length
hard bargaining. bargaining.
The Special Committee: (a) agreed agreed to allow Zuckerberg to to 14
approve this deal by fiat fiat at the upcoming upcoming annual meeting, without any provision provision for approval by a majority majority of the public public shareholders, who therefore are accorded no say; (b) never sought or received an opinion from its financial advisor that the Reclassification is fair to the public Class A shareholders; (c) obtained “concessions” from Zuckerberg that are essentially meaningless, thus negating any possible claim that there was arm’s-length bargaining; (d) never had its financial advisor place a value or range of values on the Reclassification, from Zuckerberg’s Zuckerberg’s perspective; (e) did not prearrange for compensation for the Special Committee, leaving its eventual compensation to be decided by the compensation and governance committee; (f) failed to bargain for the right of public Class A shareholders to elect even one independent director, so that such shareholders might have a voice; (g) adopted no independent oversight mechanism to ensure that future issuances of Class C shares do not unduly benefit Zuckerberg at the expense of Facebook’s public shareholders; and (h) failed to provide for any compensation for the Class A shareholders whose investments will be adversely affected by having their holdings cleaved into voting and non-voting shares, without their consent or approval. 40.
The Proxy Statement does not reflect any indication that the Special
Committee ever threatened to simply walk away from the deal. Rather, the paucity of discussion of the Special Committee’s negotiations reflect that they obtained 15
anemic and meaningless “concessions” that baldly accepted the proposition that being wholly controlled by Zuckerberg was essential to the Company’s success – now and forever. 41.
As a result of the Reclassification, which can be ratified with
Zuckerberg’s voting power alone, Zuckerberg’s control can be insulated for life. While Zuckerberg may serve a key role to Facebook’s success, this lifelong authority to control the company has transparently negative effects for Facebook shareholders, because Zuckerberg will be able to remain in power even if his performance deteriorates, and even if he would otherwise be removed for poor performance. 42.
In short, the Reclassification should be seen for what it is – a thinly
veiled effort to further entrench Zuckerberg’s voting power and control over the Company without any legitimate business purpose. Moreover, this ploy will harm Plaintiff and the Class by further distancing them from Facebook’s corporate governance and leaving them without a voice on important issues that the Company will face in coming years. 43.
Moreover, as this entrenchment device is relatively novel and largely
untested in American corporate culture, it injects an element of uncertainty into what should be a blue-chip investment made by Facebook’s shareholders. For example, Class C shares may, and likely will, trade at a discount to Class A shares, 16
or the market for these shares may not fully develop, creating liquidity issues for Facebook’s shareholders. In addition, while the Company has said that it may use Class C non-voting stock for acquisitions, it cannot be said with certainty how companies will value non-voting shares and it is possible that acquisition targets will discount Class C shares forcing Facebook to pay a high premium for such companies. 44.
Academic and institutional investors have long experience with non-
voting stock, and have concluded that it is far more detrimental than beneficial. The basic concerns of institutions were summarized recently by Ann Yerger of the Council of Institutional Investors: The Council of Institutional Investors opposes dual-class stock structures because we are opposed to unequal voting rights. While dual-class structures may seem attractive when brilliant founders are running the entity, we believe the structure is fundamentally flawed as a long-term capital model. The Council has long believed that when it comes to public equity markets voting power should be proportional to the economic interests of the holders. When the Council formulated its bill of rights after it was formed in 1985, the first provision was “one share, one vote.” The vote is very important. It’s a tool for holding management accountable and having a say on major issues…. Council members want boards that are empowered to actively oversee management and to make course corrections when appropriate. When directors essentially can be hired or fired by a single person or a family makes it difficult for directors to exercise fully their legal duties to act in the best interest of all shareholders. Finally, to those proponents who argue that the structure promotes long term thinking which is in the best interest of the company and its 17
shareholders, let me make this observation. Clearly, Council members are long-term owners. They have long investment horizons, they’re passive, so they applaud boards and management for focusing on the long term. However, I think dual-class stock is created with short-term thinking in mind, because this is really about entrenching leaders — those taking a company public — at the expense of the company’s long term.1 45.
The Reclassification’s entrenchment motive is well-acknowledged by
analysts, with headlines recognizing Facebook’s ploy as “How Facebook Is Making Sure Zuckerberg Stays In Control Forever”. As Bloomberg As Bloomberg View reported, View reported, Yesterday Facebook announced earnings, which were good. They were so good, in fact, that Facebook also announced a little present for Mark Zuckerberg, the co-founder and chief executive officer who got it to this happy place. Facebook said that it will create a new class of common stock, Facebook's third, to ensure that Zuckerberg can control Facebook as long as he wants to. Right now, Facebook has Class A stock, the normal publicly traded stock, with one vote per share, and Class B stock, mostly held by Zuckerberg, which has 10 votes per share. This structure, combined with a proxy agreement in which Zuckerberg gets to vote another shareholder's B shares, gives him voting control of the company even though he only owns about 15 percent of it economically economically . . . Under the new proposal, holders will get two new Class C shares for each A or B share they now hold. The Class C shares will have zero votes. . . . Facebook will now have three times as many shares, each worth a third as much as a share is worth now. But all those new shares won't get any extra votes. Everyone's proportional ownership, by vote and value, will stay the same. . . .
1
Ann Yerger, “Dual Class Stock: Governance at the edge”, Directors and Boards, Third Quarter 2012, at 38. 18
So why do it? Well, because Zuckerberg has said he will give away a lot of his shares during his lifetime. He elaborated on that plan yesterday, noting that he and his wife Priscilla Chan have big plans that include "helping to cure all diseases by the end of this century, upgrading our education system so it's personalized for each student, and protecting our environment from climate change." Curing all the diseases will cost money. The vast majority of Zuckerberg's wealth is in Class B shares, and if he gives away too many of those, he'll lose voting control of his company. The cut-off is now about $6.1 billion worth (ignoring the proxy agreements) If he sells more than about $6.1 billion, he'll fall below a majority of the votes. But in the new regime, he won't: Instead of selling his voting shares, Zuckerberg could just sell $6.1 billion worth of zerovote C shares, so he wouldn't lose any voting power at all. The real magic, though, is that he can sell up to about $32.7 billion worth and stay above 50.1 percent . . .
46.
At its June 20, 2016 shareholders meeting, the proposal to amend the
Certificate to accomplish the Reclassification will be voted upon by Facebook’s shareholders. However, because of Zuckerberg’s voting power, he will effectively ratify his own entrenchment, regardless of the views of the majority of Facebook’s equity holders. Absent an injunction, Zuckerberg’s entrenchment will be accomplished without any representation of the views of Class A shareholders or any “majority of the minority” vote. C.
The Special Committee was Conflicted and Self Interested
47.
In addition to the foregoing, the process by which the Board of
Directors considered the Reclassification was deeply flawed and rife with conflicts. 19
For example, the Proxy Statement says that the Special Committee’s compensation for advising on the Reclassification would be determined at a later time. Given Zuckerberg’s initiation of the Reclassification, this effectively incentivized the Special Committee to approve the Reclassification and created a de facto contingency fee arrangement with the Special Committee by implicitly tying future compensation to plan approval. 48.
The Special Committee’s lack of independence is reflected by its
apparent failure to negotiate for any shareholder approval or majority of the minority protections for Class A shareholders. Nor did the Special Committee and Board do anything to mitigate the financial harm public shareholders will suffer from the discount discount that likely likely will develop as to their new Class C shares. If the pattern for Facebook non-voting stock follows that of Google and other companies who have recently adopted non-voting classes, these shareholders receiving Class C shares stand to suffer losses that could could equal billions billions of dollars. dollars. In similar circumstances, Google (after shareholder challenges) adopted an “adjustment” formula to lessen this harm, as did another public company, Under Armour. Facebook and its Board have failed to do likewise. 49.
As such, Class A shareholders’ vote is strictly advisory and, given the
pre-ordained. fait accompli with accompli with which they are presented, the result is effectively pre-ordained. D.
The Proxy Statement is Incomplete and Misleading 20
50.
In addition to the foregoing, the Reclassification is being
recommended to Facebook’s shareholders through an incomplete and misleading Proxy statement, in breach of the Defendants fiduciary duty of good faith and candor to Facebook’s investors, for example: (a)
The Proxy fails to discuss that non-voting shares have
traditionally traded at a discount to voting shares, where issued by other public companies. Instead, the Proxy treats treats the anticipated discount in a cursory manner, and merely as a possibility, rather than as the historical certainty it truly is. (b)
The
Proxy
Statement
does
not
adequately
detail
the
qualifications of Evercore Group L.L.C. to advise the Special Committee on the terms of the engagement or provide any analysis of the value of the Reclassification to Zuckerberg or the shareholders of the Reclassification. This is material information to Facebook’s shareholders. (c)
The Proxy Statement says that compensation for the Special
Committee will be determined at a later time, but gives no guidance on the mechanism for determining whether to compensate the Special Committee and/or the range of possible compensation. This is material information that should be disclosed to Facebook’s shareholders. (d)
Accordingly, Plaintiff and the class seek injunctive and other
equitable relief to prevent irreparable harm to the Company’s shareholders. 21
IRREPARABLE HARM
51.
Plaintiff and class members has has no adequate adequate remedy remedy at law. law. Only
through the exercise of the Court’s equitable power will Facebook’s shareholders be protected from irreparable irreparable injury that would arise from Facebook’s Facebook’s creation of a non-voting class of shares and the entrenchment of Zuckerberg. In addition, Class members are in danger of making investment decisions based on the incomplete and misleading Proxy. CLASS ACTION ALLEGATIONS
52.
Plaintiff, a shareholder in the Company, brings this action as a class
action pursuant to Rule 23 of the Rules of the Court of Chancery of the State of Delaware on behalf of itself and all shareholders of Facebook (except the Defendants herein, and any person, firm, trust, corporation or other entity related to or affiliated with any of the Defendants) who are or will be harmed as a result of the breaches of fiduciary duty and other misconduct complained of herein (the “Class”). 53.
This action is properly maintainable as a class action.
54.
A class action is superior to other available methods of fair and
efficient adjudication of this controversy.
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55.
The Class is so numerous that joinder of all members is impracticable.
Consequently, the number of Class members is believed to be in the thousands and are likely scattered across the United States. Moreover, damages suffered by individual Class members may be small, making it overly expensive and burdensome for individual Class members members to pursue redress redress on their own. 56.
There are questions of law and fact that are common to all Class
members and that predominate over any questions affecting only individuals, including, but not limited to: (a)
whether the Director Defendants have breached and continue to
breach their fiduciary duties by entrenching themselves at the expense of the Company’s shareholders; (b)
whether the Class is entitled to injunctive relief and/or
damages. 57.
Plaintiff’s claims and defenses are typical of the claims and defenses
of other class members and Plaintiff has no interests that are antagonistic or adverse to the interest of of other class members. Plaintiff will fairly and adequately adequately protect the interest interest of the Class. 58.
Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature.
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59.
Defendants have acted in a manner that affects Plaintiff and all
members of the Class alike, thereby making appropriate injunctive relief and/or corresponding declaratory declaratory relief with respect to the Class as a whole. 60.
The prosecution of separate actions by individual members of the
Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for Defendants; or adjudications with respect to individual members of the Class would, as a practical matter, be dispositive of the interest of other members or substantially impair or impede their ability to protect their interests. CAUSE OF ACTION COUNT I Breach of Fiduciary Duty Against The Director Defendants
61.
Plaintiff repeats and realleges each and every allegation above as if set
forth in full herein. 62.
As Directors of Facebook, the Director Defendants owe to Facebook’s
shareholders fiduciary fiduciary duties of loyalty, good faith and candor. candor. These fiduciary duties required them to place the interest of Facebook and its shareholders above their own interests and/or the interests of the Company’s Executive Management and Directors.
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63.
The Director Defendants breached their fiduciary duty when they
acted to create a new class of non-voting shareholders for the sole purpose of entrenching Zuckerberg’s domination over Facebook operations and filed an incomplete and misleading Proxy Statement in defense of this coronation. 64.
As a result of the foregoing, Plaintiff and the Class have been harmed
as their influence over Company operations and strategy will be diminished and they stand to be frozen out of management decisions on an ongoing, long-term basis. 65.
Plaintiff and the Class and have no adequate remedy at law. RELIEF REQUESTED
WHERFORE, Plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in its favor and in favor of the Class and against the Defendants as follows: A.
Certifying this case as a class action, certifying the proposed Class
and designating Plaintiff and the undersigned as representatives of the Class; B.
Enjoining Defendants and any and all other employees, agents, or
representatives of the Company and persons acting in concert with any one or more of any of the foregoing, during the pendency of this action, from taking any action to consummate the Reclassification until such time as Defendants have fully complied with their fiduciary duties, including issuing a legally compliant Proxy; 25
C.
Awarding Plaintiff and the Class appropriate compensatory damages,
together with pre- and post-judgment interest; D.
Awarding Plaintiff the costs, expenses and disbursements of this
action, including an attorneys’ and experts’ fees and, if applicable, pre-judgment and post-judgment interest; and E.
Awarding Plaintiff and the Class such other relief as this Court deems
just, equitable and proper. COOCH AND TAYLOR, P.A.
/s/ Blake A. Bennett Blake A. Bennett (#5133) The Brandywine Building 1000 West St., 10th Floor Wilmington, DE 19801 Telephone: 302-984-3800 Facsimile: 302-984-3939
[email protected] [email protected]
DATED: April 29, 2016
Counsel for Plaintiff Ramirez
OF COUNSEL: HAUSFELD LLP Michael D. Hausfeld William P. Butterfield Timothy S. Kearns (No. 4878) 1700 K Street, Suite 650 Washington, DC 20006 Telephone: 202-540-7200 Facsimile: 202-540-7201
[email protected] 26
[email protected] [email protected] THE PASKOWITZ LAW FIRM P.C. Laurence D. Paskowitz 208 East 51 st Street, Suite 380 New York, Yor k, NY 100 10022 22 Telephone: 212-685-0969 Facsimile: 212-685-2306
[email protected]
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