EFiled: Apr 29 2016 04:02PM EDT

Transaction ID 58934286
Case No. 12282-

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

-----------------------------------------------------ERIC MCGINTY, Individually and on
:
:
Behalf of all Others Similarly Situated,
:
Plaintiff,
:
:
v.
:
:
MARK ZUCKERBERG, SHERYL
:
:
SANDBERG, MARC ANDREESSEN,
:
ERSKINE B. BOWLES, SUSAN
:
DESMOND-HELLMANN, REED
:
HASTINGS, JAN KOUM, PETER A.
:
THIEL, and FACEBOOK, INC.,
:
:
Defendants.
------------------------------------------------------

C.A. No.

VERIFIED CLASS ACTION COMPLAINT

Plaintiff Eric McGinty (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 conducted by and
through his attorneys, which include, inter alia, a review of documents filed by
Defendants with the United States Securities and Exchange Commission (the
SEC), news reports, press releases and other publically available documents, as
follows:

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SUMMARY OF THE ACTION

1.

Plaintiff brings this action on behalf of himself and as a class action

on behalf of the 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 Companys shares and deprive Facebook shareholders of
their ability to vote. As detailed herein, the Reclassification effort (as defined
below) is a patent attempt to entrench Defendant Mark Zuckerberg (Zuckerberg)
as Facebooks controlling stockholder by creating a non-voting class of Facebook
stock in order to preserve his voting power into perpetuity. Presently, Facebook
has Class A shares, which have one vote per share, and Class B shares, which have
ten votes per share. Zuckerberg owns and/or has control of the majority of the
Class B shares, which currently provides him with 60.1% of the voting power.
2.

On April 27, 2016, Facebook filed a FORM PRE 14A Schedule 14A

Preliminary Proxy Statement (the Proxy Statement) with the SEC in connection
with Facebooks 2016 annual meeting of stockholders, which is currently
scheduled for June 20, 2016 (the 2016 Annual Meeting). In the Proxy
Statement, the Facebook Board has recommended, among other things,
that Facebook shareholders vote to approve the adoption of Facebooks Amended
and Restated Certificate of Incorporation, which includes provisions relating to the

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establishment of the

new

Class

capital stock

for

Facebook

(the

Reclassification).
3.

Under the Reclassification, the Board will potentially declare and

pay a dividend of two shares of the Class C capital stock for each outstanding share
of Class A common stock and Class B common stock. According to the Proxy
Statement, if the Dividend is declared and paid, Facebook intends to file the
appropriate applications so that the Class C capital stock will be listed on the
NASDAQ stock exchange. The Proxy Statement states further, if the Dividend is
distributed, we expect that the market price for the shares of our Class A common
stock will generally reflect the effect of a three-for-one stock split.
4.

Holders of the proposed shares of Class C capital stock will have no

voting rights.

This distribution of non-voting stock will allow Facebook to

purchase other companies or issue stock to employees without diluting

Zuckerbergs voting power or diminishing his iron-clad grip over Company
management and operations (which includes the ability to appoint the entire Board
of Directors).
5.

Zuckerberg has openly admitted that the Class C issuance will (and is

intended to) entrench him in power, and insulate him from having to pay attention
to the views of the stockholders who own the vast majority of the shareholder
equity. He wishes to retain this power, while selling off large amounts of his
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stockholdings, and reaping billions of dollars in proceeds. The issuance of the

Class C stock will, in effect, have the same effect as a grant to Zuckerberg of
billions of dollars in equity, for which he will pay nothing.
6.

A Special Committee of Facebook directors approved this deal, but

did not bargain hard with the Founder 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 public shareholders, who therefore are given 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) allowed director Desmond-Hellmann, who
is the Chief Executive Officer of the Bill & Melinda Gates Foundations, to serve
on the Special Committee as a disinterested member despite the relationship
between Zuckerberg, Bill Gates, and the Bill & Melinda Gates Foundation; (e)
allowed director Marc Andreessen to serve on the Special Committee as a
disinterested member despite the fact he sold his company, Oculus, to Facebook
in 2014 and thus is indebted to Facebook; (f) never had its financial advisor place a
value or range of values on the Reclassification, from the Founders' perspective;
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(g) never extracted an agreement that Zuckerberg would continue working for
Facebook, allowing him to quit at any time as he has no employment agreements
but he would continue to have voting control over Facebook; (h) did not prearrange
for compensation for the Special Committee, leaving its eventual compensation to
be decided by Zuckerberg (an arrangement this Court has previously found to taint
claims to independence); (i) adopted no independent oversight mechanism to
ensure that future issuances of Class C shares do not unduly benefit Zuckerberg; (j)
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; and (k) 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 nonvoting shares, without their consent or approval.
7.

Moreover, the process by which the Board considered the

Recapitalization was deeply flawed and rife with conflicts. For example, the Proxy
Statement says that any compensation to the Special Committee for advising on the
Recapitalization would be determined at a later time. As stated in the Proxy
Statement, the members of the Special Committee have not been compensated for
their service[,] [h]owever, our board of directors has delegated to the compensation
& governance committee the authority to approve compensation for the members
of the Special Committee. This effectively incentivized the Special Committee to
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approve the recapitalization and created a de facto contingency fee arrangement

with the Special Committee by implicitly tying future compensation to plan
approval.
8.

In addition to the foregoing, Defendants have failed to disclose all

material information regarding the Reclassification. Specifically, the Proxy

Statement fails to provide the Company's shareholders with all material
information concerning the Reclassification, as detailed herein. While the Class A
shareholders cannot block approval of the Reclassification, the proxy solicitation is
essential to the lawful adoption of Zuckerbergs Plan. A truthful and complete
Proxy Statement is mandated by law.
9.

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
obligations, agreeing to a Reclassification of the Company which benefits the
Founders to the detriment to Plaintiff and the Class of Facebook shareholders.
10.

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.

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PARTIES
11.

Plaintiff is, and at all relevant times has been, a holder of Facebook

12.

Defendant Facebook is a Delaware corporation that maintains its

stock.

corporate headquarters in Menlo Park, California. Shares of Facebooks Class A

shares are traded on The NASDAQ Stock Market under the ticker symbol FB.
Facebooks Class B shares are not traded on a public exchange. As of January 25,
2016, Facebook had approximately 2.29 billion shares of Class A common stock
and 551 million shares of Class B common stock outstanding. The outstanding
shares of Facebooks Class B common stock represent a majority of the combined
voting power of common stock. Holders of Class B common stock are entitled to
10 votes per share while holders of Class A common stock are entitled to one vote
per share.
13.

Defendant Zuckerberg is the Founder, Chairman, and Chief Executive

Officer of Facebook. Zuckerberg is responsible for Facebooks day-to-day

operations as well as the overall direction and product strategy for the Company.
As Chairman, Zuckerberg presides over meetings of the Board of Directors.
Zuckerberg founded Facebook in 2004 while studying computer science at
Harvard University. Zuckerberg is Facebooks largest and controlling stockholder.
As of March 31, 2016, Zuckerberg beneficially owns 76.4% of Facebooks Class B
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common stock, which provides him with 53.8% of Facebooks total voting power.
(Zuckerberg controls an additional 6.3% of Facebooks total voting power, for a
total of 60.1%, through a voting proxy agreement.)
14.

Defendant Sheryl Sandberg (Sandberg) is Facebooks Chief

Operating Officer. Sandberg is responsible for overseeing Facebooks business

operations. Sandberg has served as Facebooks Chief Operating Officer since
March 2008 and a member of Facebooks Board of Directors since June 2012.
15.

Defendant Marc Andreessen (Andreessen) has served as a member

of Facebooks Board of Directors since June 2008. Andreesseen is a member of

Facebooks Audit Committee and a member of Facebooks Compensation &
Governance Committee.
16.

Defendant Erskine B. Bowles (Bowles) has served as a member of

Facebooks Board of Directors since September 2011. Bowles is the chair of

Facebooks Audit Committee.
17.

Defendant Susan Desmond-Hellmann (Desmond-Hellmann) has

served as a member of Facebooks Board of Directors since March 2013.

Desmond-Hellmann is a member of Facebooks Audit Committee. DesmondHellmann serves as Facebooks Lead Independent Director and, as such, serves as
a liaison between Zuckerberg (as Chairman) and the Board of Directors other
independent directors.
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18.

Defendant Reed Hastings (Hastings) has served as a member of

Facebooks Board of Directors since June 2011. Hastings is the chair of

Facebooks Compensation & Governance Committee.
19.

Defendant Jan Koum (Koum) has served as a member of

Facebooks Board of Directors since October 2014.

20.

Defendant Peter A. Thiel (Thiel) has served as a member of

Facebooks Board of Directors since April 2005. Thiel is a member of Facebooks

Compensation & Governance Committee.
21.

Defendants Zuckerberg, Sandberg, Andreesseen, Bowles, Desmond-

Hellmann, Hastings, Koum, and Thiel are referred to herein as the Director
Defendants. The Director Defendants together with Facebook are referred to as
Defendants.
ADDITIONAL SUBSTANTIVE ALLEGATIONS
A.

Background
22.

Facebook owns and operates several online, social-media platforms.

These platforms include Facebook.com, Instagram, Messenger, and WhatsApp. In

addition, Facebook owns Oculus, a virtual reality technology and content platform.
Facebook generates the majority of its revenue from selling advertising placements
to marketers across these platforms.

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23.

Facebook went public in May 2012 with its initial public offering

raising over $6.76 billion. Through an underwriting group led by Morgan Stanley,
J.P. Morgan, and Goldman Sachs & Co., Facebook sold 180 million shares of
Class A common stock at $38.00 per share. A number of Facebook insiders
(including Zuckerberg) also sold shares in the offering. These selling stockholders
sold over 241 million shares for total proceeds of $9 billion.
24.

Neither Facebook nor its insiders sold any of the Companys Class B

common stock during the initial public offering. Facebooks Class B common
stock was identical to the Class A common stock, except that the former entitled its
owner to 10 votes per share while the latter was for only one vote per share. Shares
of Class B common stock were also convertible into shares of Class A common
stock on a one-for-one basis. Following the initial public offering, the total number
of shares of Facebooks Class A and Class B common stock equaled
approximately 2.14 billion.
25.

Facebooks prospectus and registration statement, filed with the SEC

in connection with the initial public offering, described the Companys dual class
structure of common stock as allowing Facebooks management (including
Zuckerberg) to retain control over Facebooks day-to-day operations. In pertinent
part, Facebook stated that:

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Our Class B common stock has ten votes per share, and our Class A
common stock, which is the stock we are offering in our initial public
offering, has one vote per share. Stockholders who hold shares of
Class B common stock, including our executive officers, employees,
and directors and their affiliates, will together hold approximately
96.0% of the voting power of our outstanding capital stock following
our initial public offering. Because of the ten-to-one voting ratio
between our Class B and Class A common stock, the holders of our
Class B common stock collectively will continue to control a majority
of the combined voting power of our common stock and therefore be
able to control all matters submitted to our stockholders for approval
so long as the shares of Class B common stock represent at least 9.1%
of all outstanding shares of our Class A and Class B common stock.
This concentrated control will limit or preclude your ability to
influence corporate matters for the foreseeable future.
(Prospectus, May 18, 2012, p. 33.)
26.

Facebook stated further that, [f]uture transfers by holders of Class B

common stock will generally result in those shares converting to Class A common
stock, subject to limited exceptions, such as certain transfers effected for estate
planning or charitable purposes. The conversion of Class B common stock to Class
A common stock will have the effect, over time, of increasing the relative voting
power of those holders of Class B common stock who retain their shares in the
long term. (Id.)
27.

Facebook provided the following example for illustration: If, for

example, Mr. Zuckerberg retains a significant portion of his holdings of Class B

common stock for an extended period of time, he could, in the future, continue to
control a majority of the combined voting power of our Class A common stock and
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Class B common stock. (Id.)

28.

Facebook portrayed the dual class stock structure as a benefit in terms

of anti-takeover effortsSo long as the outstanding shares of our Class B

common stock represent a majority of the combined voting power of common
stock, Mark Zuckerberg will effectively control all matters submitted to our
stockholders for a vote, as well as the overall management and direction of our
company, which will have the effect of delaying, deferring or discouraging another
person from acquiring control of our company. (Id. at 152.)
29.

The dual class stock structure had its intended effect and solidified

Zuckerbergs control over the Company.

B.

The Reclassification Zuckerbergs Attempt to Retain Control

30.

On April 27, 2016, Facebook unveiled a controversial plan the

Reclassification designed to issue new shares for the purpose of allowing

Zuckerberg to monetize his Facebook stock while at the same time avoiding any
dilution of his voting power. The creation of Class C capital stock can only be
accomplished by amending Facebooks Certificate of Incorporation. Accordingly,
at the 2016 Annual Meeting, Facebook is seeking the approval and adoption of the
Amended and Restated Certificate of Incorporation from the Companys
shareholders, which includes provisions relating to the creation of the new Class C
capital stock.
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31.

Holders of the proposed shares of Class C capital stock will have no

voting rights. As the Proxy Statement explains, the Class C capital stock, of which
there will be 15 billion authorized shares, will provide Facebook with an additional
form of stock-based currency for use in connection with future acquisitions and
equity-based employee compensation. The Boards primary purpose in creating the
additional form of stock-based currency is so that Zuckerberg can sell shares
without losing any of his voting power or threatening his domination of Facebook.
As stated in the Proxy Statement:
The Reclassification will provide our board of directors with the
ability to prolong the period of time during which Mr.
Zuckerberg maintains majority voting control over us, which, as
noted above, the Special Committee and the board of directors believe
is in the best interest of us and our stockholders (other than Mr.
Zuckerberg and his affiliated entities, as to whom no determination is
made). The Reclassification will allow Mr. Zuckerberg to sell or
transfer shares of Class C capital stock without affecting Mr.
Zuckerberg's majority voting control over us, and will also allow
us to make one or more large stock-based acquisitions and to continue
to grant equity awards to our service providers, without affecting Mr.
Zuckerberg's majority voting control over us. Being able to issue
shares of Class C capital stock in the future, instead of shares of Class
A common stock or Class B common stock, will enable our board of
directors to issue shares of capital stock without affecting our existing
voting and governance structure. (emphasis added)
In other words, as a result of the Reclassification, Zuckerberg will be able to sell
stock, and Facebook will be able to issue stock to compensate workers or make
acquisitions using the new Class C stock, without loosening Zuckerbergs iron-clad
grip over the Company.
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32.

The Proxy Statement further states that, upon stockholder approval of

the Reclassification, the Board will potentially declare and pay a dividend of two
shares of the Class C capital stock for each outstanding share of Class A common
stock and Class B common stock (the Dividend). According to the Proxy
Statement, if the Dividend is declared and paid, Facebook intends to file the
appropriate applications so that the Class C capital stock will be listed on the
NASDAQ stock exchange. The Proxy Statement states further, if the Dividend is
distributed, we expect that the market price for the shares of our Class A common
stock will generally reflect the effect of a three-for-one stock split.
33.

The Proxy Statement provides investors with a summary description

of how the Reclassification was developed. According to the Proxy Statement, a

Special Committee was established in August 2015 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 [the
Companys] founder-controlled structure, (ii) make a recommendation to [the]
board of directors regarding such a reclassification, and (iii) to the extent delegable
by [the] board of directors to the Special Committee under applicable law, approve
or disapprove such a reclassification on behalf of the board of directors. The
Special Committee consisted of Hellmann, Andreessen, and Bowles.

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34.

The most significant points of the negotiations between Zuckerberg

and the Special Committee were the change in corporate governance, four new
automatic sunset triggers, and the agreement of Zuckerberg to enter into a
separate agreement referred to as the Founder Agreement. On April 22, 2016,
the Special Committee met and unanimously declared that the Reclassification and
Dividend were advisable and in the best interests of us and our stockholders
other than Zuckerberg and his affiliates, as to whom no determination was made.
35.

The Special Committees negotiations with Zuckerberg did not

amount to arms length bargaining. The sunset triggers were proposed by

Zuckerberg to ensure that Zuckerberg does not leave the Company and use his
talents to compete against [the Company]. This provisions is meaningless as
Zuckerberg clearly has no intention of leaving the Company that has made him
billions and that he founded. Further, the so-called amendments to Corporate
Governance did nothing to change the status quo because the Company already has
an independent compensation and governance committee. The Proxy states,
In connection with the proposed reclassification described in Proposal
Seven, we are amending our corporate governance guidelines to
provide that we will not avail ourselves of the "controlled company"
exemption with respect to the independence of the members of our
compensation & governance committee. Therefore, we intend to
continue to have a compensation & governance committee that is
composed entirely of independent directors. (emphasis added)
36.

In addition, the Founders Agreement, whereby in any takeover or

15

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merger Class B shares would receive the same consideration of Class A and Class
C shares, is speculative and meaningless, as a practical matter. Facebook has a
market capitalization of $332 billion which dwarfs its competitors and almost any
other company on the planet--it is not a realistic takeover candidate. Nor, given
Delaware precedent, would a plan involving disparate treatment likely succeed.
The Founders Agreement is thus nothing more than a fig-leaf protection.
37.

The Special Committees efforts did not amount to arms length

bargaining. The Special Committee: (a) agreed to allow Zuckerberg to approve this
deal by fiat at the upcoming annual meeting, as there is no provision allowing
Class A stockholders to vote as a separate class with regards to the
Reclassification, thus allowing Zuckerberg to control the vote through his
ownership of a majority of the Class B shares; (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 armslength bargaining; (d) allowed director Desmond-Hellmann, who is the Chief
Executive Officer of the Bill & Melinda Gates Foundations, to serve on the Special
Committee as a disinterested member despite the relationship between
Zuckerberg, Bill Gates, and the Bill & Melinda Gates Foundation; (e) allowed
director Marc Andreessen to serve on the Special Committee as a disinterested
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member despite the fact he sold his company, Oculus, to Facebook in 2014 and
thus is indebted to Facebook; (f) never had its financial advisor place a value or
range of values on the benefit of the Reclassification to Zuckerberg; (g) did not
prearrange for compensation for the Special Committee, leaving its eventual
compensation to be decided by Zuckerberg; (h) adopted no independent oversight
mechanism to ensure that future issuances of Class C shares do not unduly benefit
Zuckerberg; and (i) failed to bargain for the right of Class A shareholders to elect
even one independent director, so that such shareholders might have a voice; and
(j) 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. It also does not appear
that the Special Committee ever threatened to simply walk away from the deal.
Rather, they seemed to approach the proposal as something they had to approve
even if all they obtained were anemic and meaningless concessions.
38.

The Reclassification is part of an effort to further entrench

Zuckerbergs 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 Facebooks corporate governance and leaving them without
meaningful voice on important issues that the Company will face in coming years,
even as the controlling stockholder plans on reducing his stake in the Company.
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39.

Moreover, the Reclassification and potential Dividend will inject an

element of uncertainty into what should be a blue-chip investment made by

Facebooks stockholders. For example, Class C shares will likely trade at a
discount to Class A shares, or the market for these shares may not fully develop,
creating liquidity issues for the Companys stockholders. As stated in the Proxy
Statement:
We believe that a robust and sufficiently liquid market for the Class C
capital stock will develop following the Dividend, if it is declared and
paid, particularly due to the fact that the Dividend would be structured
to provide the Class C capital stock with greater liquidity than the
Class A common stock. However, it is possible that such a liquid
market will not develop. Even if such a market does develop, there
can be no assurance that the Class C capital stock will not trade at a
discount to the Class A common stock. If a liquid market does not
develop or the Class C capital stock trades at a discount to the Class A
common stock, it is possible that we will not be able to achieve all of
the benefits that we anticipate from the issuance of the Class C capital
stock.
40.

It is elsewhere iterated in the Proxy Statement that the disparity in

voting rights may result in disparate trading prices for Class A and Class C stock:
The trading prices for shares of Class A common stock and Class C
capital stock may be affected by the relative voting rights between
these two classes of stock. Because the Class A common stock carries
voting rights, it is possible that it could trade at a premium compared
to the Class C capital stock. This is particularly true if investors were
to place a premium on owning our shares that have voting rights, as
opposed to shares without voting rights.
Furthermore, the trading price of shares of Class A common stock and
Class C capital stock will continue to depend on many factors,
including our future performance, the relative trading liquidity of the
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Class A common stock and the Class C common stock, general

market conditions, and conditions relating to companies in businesses
and industries similar to us. Accordingly, we cannot predict the prices
at which shares of Class A common stock and Class C capital stock
will trade following the Reclassification, just as we could not predict
the price at which shares of Class A common stock would trade absent
the Reclassification and the potential Dividend.
41.

In addition, while the Company has said that it will use Class C non-

voting stock for employee compensation and acquisitions, it cannot be said with
certainty how employees and companies will value non-voting shares and it is
possible that acquisition targets will discount Series C shares, forcing Facebook to
pay for such companies at a premium. As stated in the Proxy Statement:
We may use shares of Class C capital stock from time to time as
consideration in connection with the acquisition of other companies. It
is possible that companies that we are interested in acquiring will not
agree to accept shares of Class C capital stock because such shares of
capital stock carry no voting rights, or we may decide to issue Class A
common stock or Class B common stock in connection with an
acquisition for other reasons. In these instances, if we still wanted to
pay for the acquisition with stock consideration, we would have to
issue shares of Class A common stock or Class B common stock,
which would result in both economic and voting dilution to all
stockholders. Companies that we are interested in acquiring may also
refuse to accept shares of Class C capital stock if such stock trades at
a significant discount to the shares of Class A common stock or if the
trading market for the shares of Class C capital stock is not well
developed or suffers from limited liquidity.
Employees or other service providers may not wish to receive shares
of Class C capital stock as part of our equity-based compensation
programs. This is particularly true if the shares of Class C capital
stock trade at a significant discount to the shares of Class A common
stock or if the trading market for the shares of Class C capital stock is
not well-developed or suffers from limited liquidity. If employees are
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not adequately incentivized by receiving shares of Class C capital

stock, then we might have to issue shares of Class A common stock in
order to provide sufficient equity incentives, which would result in
both economic and voting dilution to all stockholders. Alternatively,
we might have to find other ways to incentivize our employees.
If the Class C capital stock trades at a discount to the Class A
common stock, companies that we are interested in acquiring may
demand more shares of Class C capital stock in exchange for
accepting such stock as consideration. The same is true for employees
in connection with equity-based compensation. If this occurs, then
issuances of Class C capital stock may ultimately be more
economically dilutive to all of our stockholders than issuances of
Class A common stock.
42.

The example of Google is instructive. As depicted in the following

chart, immediately after Googles stock split in April 2014, Class C shares (dotted
line) immediately began trading at a discount to Class A shares (solid line), and
never looked back:

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Google Stock Performance - Class A v. Class C

725

675

625

575

525

475

C.

The Proxy Statement Is Incomplete and Misleading

43.

The Proxy Statement fails to provide the Companys stockholders

with material information, and provides them with materially misleading

information, in breach of Defendants fiduciary duties of good faith and candor
that they owe to Facebooks investors. For example:
a)

The Proxy Statement does not disclose the compensation being

paid to the Special Committee, including whether it was made
contingent on the Reclassification being approved and the
Dividend declared;

b)

The Proxy Statement does not disclose the terms of Wachtell,

Lipton, Rosen & Katzs or Evercore Group L.L.C.s engagements,
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including whether their fees were contingent on the

Reclassification (in the case of Wachtell) or the Dividend (in the
case of both Wachtell or Evercore) being approved;
c)

The Proxy Statement does not disclose any analyses, opinions on

fairness or other report prepared by Wachtell or Evercore, or a fair
summary of same, with respect to the Reclassification and
Dividend;

d)

The Proxy Statement fails to disclose the criteria used by the Board
in selecting Desmond-Hellmann, Andreessen, and Bowles to serve
on the Special Committee;

e)

The Proxy Statement fails to disclose what, if any, efforts were

taken by the Special Committee to condition approval of the
Reclassification on a majority-of-the-minority vote, to negotiate
for directors to be elected by solely Class A stockholders, or to
take any other efforts to protect the substantive and procedural
interests of the Companys non-controlling stockholders;

f)

The Proxy Statement states that [i]f the Dividend is declared and
paid, [Facebook] believe that the market price for the shares of
Class A common stock will generally reflect the effect of a threefor-one stock split once the Dividend is paid and, accordingly, the
market price of the Class A common stock will decrease by
approximately two-thirds. Assuming that the Dividend is declared
and paid, [Facebook] expect[s] the market price of shares of Class
C capital stock to be approximately equal to the market price of
shares of Class A common stock (as such price is adjusted as a
result of the Dividend). The Proxy Statement must disclose the
reasons Facebook believes that Class C stock will not trade at a
discount to Class A stock, as well as the analyses, if any conducted
by the Board and/or its advisors in determining whether the Capital
C capital stock will trade at a discount to the Class A common
stock.

44.

While the Class A stockholders cannot prevent the Reclassification

given the current unfair procedure of the upcoming vote, Facebook nonetheless is
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requiring a stockholder vote. A truthful and complete Proxy Statement in advance

of this vote is mandated by law.
45.

Accordingly, Plaintiff seeks injunctive and other equitable relief to

prevent irreparable harm to the Companys stockholders.

46.

Plaintiff has no adequate remedy at law. Only through the exercise of

the Courts equitable power will Facebooks stockholders be protected from

irreparable injury that would arise from the creation of a non-voting class of
stockholders and the entrenchment of Zuckerberg.
IRREPARABLE HARM
47.

Plaintiff has no adequate remedy at law. Only through the exercise of

the Courts equitable power will Facebooks shareholders be protected from

irreparable injury that would arise from Facebook creation of a non-voting class of
stockholders and the entrenchment of Zuckerberg.
CLASS ACTION ALLEGATIONS
48.

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 stockholders of Facebook (except Defendants
herein, and any person, firm, trust, corporation or other entity related to or
affiliated with any of Defendants) who are or will be harmed as a result of the

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breaches of fiduciary duty and other misconduct complained of herein (the

Class).
49.

This action is properly maintainable as a class action.

50.

A class action is superior to other available methods of fair and

efficient adjudication of this controversy.

51.

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 to pursue redress on their own.
52.

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 Companys shareholders; and

(b)

whether the Class is entitled to injunctive relief and/or damages.

53.

Plaintiffs 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 other class members. Plaintiff will fairly and adequately
protect the interest of the Class.
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54.

Plaintiff is committed to prosecuting this action and has retained

competent counsel experienced in litigation of this nature.

55.

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 relief with respect to the Class as a whole.
56.

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.
CAUSES OF ACTION
COUNT I
Breach of Fiduciary Duty Against the Director Defendants
57.

Plaintiff repeats and realleges each and every allegation above as if set

forth in full herein.

58.

As Directors of Facebook, the Director Defendants owe to Facebooks

stockholders fiduciary duties of loyalty, good faith and 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 Companys insiders.

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59.

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 the domination of Zuckerberg over Facebooks operations and filed an
incomplete and misleading Proxy Statement in defense of their illegal and
improper conduct.
60.

As

Facebooks controlling stockholder, Zuckerberg owes to

Facebooks stockholders fiduciary duties of loyalty, good faith and candor. These
fiduciary duties required him to place the interest of Facebook and its shareholders
above his own interests and/or the interests of the Companys insiders.
61.

Zuckerberg breached his fiduciary duty when he acted to create a new

class of non-voting shareholders for the sole purpose of entrenching the

domination of Zuckerberg over Facebooks operations and filed an incomplete and
misleading Proxy Statement in defense of his illegal and improper conduct.
62.

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, and the value of their investment is at immediate risk.
63.

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

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COUNT II
Breach of Fiduciary Duty Against Defendants
64.

Plaintiff realleges the preceding paragraphs as set forth above and

incorporates them herein by reference.

65.

Plaintiff brings this claim individually and not on behalf of the class.

66.

Defendants disseminated the Proxy Statement which contained false

and misleading statements and omitted material facts, including material

information concerning the Reclassification.
67.

The acts of Defendants in distributing the materially false and

misleading Proxy Statement have injured the Company by interfering with proper
governance on its behalf that follows the free and informed exercise of the
stockholders right to vote.
68.

The misrepresentations and omissions in the Proxy Statement are

material to Plaintiff, and Plaintiff will be deprived of his entitlement to make a

fully informed decision if such misrepresentations and omissions are not corrected
prior to the Special Meeting.
PRAYER FOR RELIEF
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:

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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;

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 any 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.

Dated: April 29, 2016

Of Counsel:
LEVI & KORSINSKY, LLP
Nicholas I. Porritt, Esq.
1101 30th Street N.W., Suite 115
Washington, D.C. 20007
Telephone: (202) 524-4290
Email: [email protected]

MCCARTER & ENGLISH, LLP

/s/ Michael P. Kelly

Michael P. Kelly (#2295)
Benjamin A. Smyth (#5528)
Renaissance Centre
405 N. King Street, 8th Floor
Wilmington, DE 19801
(302) 984-6301
Attorneys for Plaintiff

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