Full Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE CLOUDFLARE, INC. CONSOLIDATED STOCKHOLDER LITIGATION C.A. No. 2026-0772-JTL OPINION GRANTING PRELIMINARY INJUNCTION Date Submitted: August 12, 2026 Date Decided: October 16, 2026 Ned Weinberger, Brendan W. Sullivan, Ryan C. Stieve, LABATON KELLER SUCHAROW LLP, Wilmington, Delaware; John Vielandi, LABATON KELLER SUCHAROW LLP, New York, New York; Jeremy Friedman, David Tejtel, Alexander M. Krischik, FRIEDMAN & TEJTEL PLLC, Bedford Hills, New York; D. Seamus Kaskela, Adrienne Bell, KASKELA LAW LLC, Newtown Square, Pennsylvania; Attorneys for Plaintiffs New England Teamsters Pension Fund and Ronald Mumme. Daniel E. Meyer, JOHNSON VAN KWAWEGEN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Edward G. Timlin, Christopher J. Orrico, Aasiya Mirza Glover, JOHNSON VAN KWAWEGEN LLP, New York, New York; Attorneys for Plaintiffs California Public Employees’ Retirement System, Handelsbanken Fonder AB, Stichting Pensioenfonds ABP, and Universities Superannuation Scheme Limited. Kimberly A. Evans, Lindsay K. Faccenda, Robert Erikson, Daniel M. Baker, BLOCK & LEVITON LLP, Wilmington, Delaware; Jason Leviton, Micah McCreary, BLOCK & LEVITON LLP, Boston, Massachusetts; Attorneys for Plaintiff Bruce Taylor. Brad D. Sorrels, Andrew D. Cordo, Nora M. Crawford, Leah E. León, Mallory V. Phillips, Amanda L. Day, Ashleigh L. Herrin, Jillian Patterson, WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Attorneys for Defendants Cloudflare, Inc., John Graham-Cumming, Carl Ledbetter, Mark Hawkins, and Stacey Cunningham. Michael A. Pittenger, T. Brad Davey, Christopher N. Kelly, Charles P. Wood, Samuel G. Gustafson, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Attorneys for Defendants Karim Lakhani, Katrin Suder, and Scott Sandell. Ryan D. Stottmann, Alexandra M. Cumings, Nicholas Gottemoller, Elaine M. McCabe, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Patrick Gibbs, COOLEY LLP, Palo Alto, California; Brian M. French, Sarah Topol, Anne Bigler, Hannah W. Rausch, COOLEY LLP, New York, New York; Attorneys for Defendants Matthew Prince and Michelle Zatlyn. LASTER, V.C. TABLE OF CONTENTS I. FACTUAL BACKGROUND ............................................................................. 10 A. The Company .......................................................................................... 10 B. The Dual-Class Structure ...................................................................... 12 C. The Steady Erosion Of Founder Control ............................................... 13 D. Equity-Grant Planning Spotlights The Erosion Issue. ......................... 16 E. The Special Governance Committee ...................................................... 18 F. The Committee Process .......................................................................... 21 1. Signal Use .................................................................................... 23 2. Centerview Identifies Options. ................................................... 25 3. The Committee Picks Its Approach. ........................................... 29 4. The Committee’s Initial Proposal ............................................... 33 5. The Founders’ Counter ................................................................ 35 6. The Committee’s Second Proposal .............................................. 36 7. Prince Explodes. .......................................................................... 37 8. The Committee Ends Up Where Prince Expected. .................... 44 G. The Agreed-Upon Terms ........................................................................ 46 H. The Stockholder Vote ............................................................................. 50 I. This Litigation ........................................................................................ 52 II. THE STANDARD FOR A PRELIMINARY INJUNCTION ............................ 53 III. A THREAT OF IRREPARABLE HARM .......................................................... 54 IV. BALANCING THE EQUITIES ........................................................................ 58 V. A REASONABLE PROBABILITY OF SUCCESS ON THE MERITS............ 59 A. The Safe Harbor Statute ........................................................................ 61 1. The Injunction Exclusion ............................................................ 71 a. The Plaintiffs’ Reading ..................................................... 72 b. The Defendants’ Reading.................................................. 77 c. Resolving The Ambiguity ................................................. 81 2. The General Controller Safe Harbor .......................................... 87 a. The Disinterest Determinations....................................... 90 b. The Approval Requirement .............................................. 97 i. When Does The Presumption Provision Apply? ... 98 ii. What Does The Presumption Provision Mean After The Pleading Stage? ................................... 106 iii. Applying The Presumption Provision At The Injunction Stage ................................................... 114 c. In Good Faith And Without Gross Negligence .............. 116 i. Acting In Good Faith ............................................ 117 ii. Gross Negligence .................................................. 126 B. Entire Fairness ..................................................................................... 129 1. Procedural Fairness................................................................... 133 2. Substantive Fairness ................................................................. 136 VI. NEXT STEPS .................................................................................................. 139 VII. CONCLUSION ................................................................................................ 141 A founder-led company has been immensely successful. Its founders currently control a majority of its voting power through high-vote common stock carrying ten votes per share. The public owns low-vote common stock carrying one vote per share. The founders’ share of the voting power—and the extent of their control as a function of voting power—depends on two inputs: how many votes they control (the numerator) and how many total votes are outstanding (the denominator). The numerator has decreased as the founders divested shares to generate liquidity, to minimize taxes, and for estate planning. The denominator has increased as the company has issued low-vote shares for employee compensation and other corporate purposes. If both forms of erosion continued at historical rates, then the founders would lose majority control by the end of 2026. The founders wanted to preserve their control, but they still wanted to achieve their liquidity, tax-related, and estate-planning goals. They also wanted the company to continue using equity for corporate purposes. For that to happen, something had to change. The board of directors created a special committee to find a solution. Early on, the committee and the founders zeroed in on creating a new class of non-voting common stock. The founders, the committee, and the company eventually agreed on a multi-step recapitalization that would implement a version of that concept. Although the transaction is perhaps more aptly described as a reclassification, this decision uses the company’s term. In the first step, the founders would exchange each of their high-vote shares for one low-vote share plus a share of preferred stock carrying nine votes (but only nominal equity value). Through that step, the basis for the founders’ voting control would shift from the high-vote common stock to the new preferred stock. In the second step, the company would distribute a new share of non-voting common stock for each outstanding share of low-vote stock, effectively splitting the equity value of the company between the two. Going forward, the founders could divest non-voting shares without affecting their control and low-vote shares without meaningfully eroding it. The corporation could issue non-voting shares for corporate purposes without affecting the founders’ control and low-vote shares without meaningfully eroding it. Problem solved. Stockholder plaintiffs have challenged the recapitalization. They contend that the founders breached their fiduciary duties as controlling stockholders by extracting an unfair deal and that the company’s directors breached their fiduciary duties by approving it. The plaintiffs seek a preliminary injunction. That form of relief preserves the status quo pending trial. The purpose of hearing a motion for a preliminary injunction is not to adjudicate the merits, but to determine whether to prevent a functionally irremediable event from happening before the court can hold a trial, judge credibility, weigh the evidence, and rule on the merits. The plaintiffs therefore must establish a threat of harm that will occur before trial and that the court cannot effectively remedy after trial. The plaintiffs also must show that issuing the preliminary injunction to 2 preserve the status quo would not do more harm than good. And it requires a sufficient showing on the merits to warrant holding a trial, i.e., a reasonable probability of success on the merits. The plaintiffs have pointed to a threat of harm that could occur between now and trial that the court could not effectively remedy later. The recapitalization will fundamentally alter the company’s capital structure and result in the issuance of new non-voting shares that will begin trading in the market. The court cannot effectively unwind it after the fact. It also seems unlikely that the court could identify a defensible method of measuring substantive unfairness and awarding damages. The plaintiffs have also shown that the balancing of the equities, sometimes called the balancing of hardships, favors injunctive relief. A court must take care that a status-quo-preserving injunction does not do more harm than good. When a subset of stockholders sues on behalf of themselves and their fellows, there is always a risk that the putatively status-quo-preserving relief could threaten the status quo and do more harm than good to the stockholders as a whole. Thus, when a third party has proposed a premium transaction, and when a putatively status-quo-preserving injunction would jeopardize it, Delaware courts have often held that the balancing of hardships weighed against injunctive relief. That is not the situation here: The company can implement the recapitalization unilaterally. The defendants argue that the founders may leave if the court delays the recapitalization, but the record provides no credible support for that contention. The court will require the case to be tried promptly, as the parties have conducted much discovery and retained experts. 3 That leaves one question: whether the plaintiffs have shown a reasonable probability of success on the merits. The principal legal issues involve Section 144 of the Delaware General Corporation Law (the “DGCL”). In 2025, the General Assembly amended Section 144 to establish safe harbors (the “Safe Harbor Statute”) that provide “powerful protection for conflicted transactions.”1 The defendants prevail on every statutory issue. The plaintiffs invoke a statutory exception for injunctive relief to argue that the Safe Harbor Statute does not apply to this case. Although the provision is ambiguous, the jurisprudential backdrop and the Safe Harbor Statute’s legislative history establish that the exception contemplates limited scenarios where enhanced scrutiny applies. The recapitalization is the type of conflicted controlling stockholder transaction where the General Assembly intended to provide protection against entire fairness review. That policy judgment deserves significant weight when resolving an ambiguous provision. The parties also disagree about a provision addressing disinterested-director status. The Safe Harbor Statute states that when a board has determined that a director qualifies as a disinterested director, then a presumption exists that the director indeed qualifies. The Safe Harbor Statute further states that the presumption “shall be heightened” and can be rebutted only with “substantial and particularized facts.” That provision is ambiguous because it uses a combination of evidentiary and pleading-stage concepts. The legislative history establishes that it 1 Dodiya v. Franklin, — A.3d —, —, 2026 WL 2517931, at *1 (Del. Ch. Aug. 26, 2026). 4 applies at the pleading stage and beyond. At trial, the heightened presumption will require that the plaintiffs prove by clear and convincing evidence that the committee members did not qualify as disinterested directors. At the injunction stage, the plaintiffs must show a reasonable probability of success on the merits of that point. The plaintiffs have not done so. But the issues of statutory interpretation do not resolve the case. The Safe Harbor Statute requires that the committee act “in good faith and without gross negligence.”2 The statute thus recognizes that even disinterested directors can fail to clear the bar.3 Delaware law presumes that disinterested directors act in good faith, so a plaintiff has a high bar to clear to prove otherwise. But that bar is not insuperable, and when assessing how a case will unfold, the court must consider the specific facts presented and the procedural posture of the case. Here, that posture is an application for preliminary injunction, not trial. Directors fail to act in good faith when they allow motives other than the best interests of the corporation to drive their decision-making. As Chancellor Allen explained, a failure to act in good faith can result from “any human emotion [that] may cause a director to [intentionally] place his own interests, preferences or appetites before the welfare of the corporation,” including greed, “hatred, lust, envy, 2 8 Del. C. § 144(b)(1). 3 See Dodiya, 2026 WL 2517931, at *13 (noting that action by a qualified committee is “necessary[,] . . . [b]ut it is not sufficient”). 5 revenge, . . . shame or pride.”4 Humans often display loyalty to other humans, as well as respect and deference for those in power. Those traits are highly beneficial for cooperation and goal achievement. But they can lead directors to favor proximate and powerful flesh-and-blood humans, when their fiduciary duties require that they pursue the best interests of a metaphysical entity and its distant and dispersed stockholders. The evidence makes it reasonably probable that the plaintiffs can show that the committee failed to act in good faith. How? By acting to placate the founders and give them what they wanted, rather than striving to obtain a transaction that served the best interests of the company and its stockholders as a whole. Contemporaneous meeting notes suggest that the committee’s advisors knew from the start that the recapitalization would happen and set out to craft a narrative to support that result, including gives from the founders that would look like gets for the committee. There was also a critical point where one of the committee members had an unauthorized conversation with one of the founders in which he told the founder that he expected the committee to give the founder what he wanted. When the committee’s next proposal differed from what the founder expected, he exploded. He berated the committee members in a text tirade, made threats, and appealed to 4 In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *15 (Del. Ch. Jan. 31, 1989) (Allen, C.); see Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003) (“The reason for the disloyalty (the faithlessness) is irrelevant, the underlying motive (be it venal, familial, collegial, or nihilistic) for conscious action not in the corporation’s best interest does not make it faithful, as opposed to faithless.”). 6 boardroom allies not on the committee. Two of his allies inserted themselves into the committee’s process. The terms ended up where the founder wanted, and there is good reason to think that the founders’ concessions were less significant than portrayed. That is not the only possible reading of the evidence. The directors may have concluded in good faith that benefiting the proximate and powerful flesh-and-blood humans would serve the best interests of the corporation and its stockholders.5 If they reached that conclusion in good faith, then the Safe Harbor Statute would apply. At this stage, the court cannot reach that conclusion. Partly that is because of the evidence. Partly that is due to the plaintiffs’ effective use of contemporaneous evidence to attack the defendants’ testimony. And partly that is due to the destruction of evidence. The founders, the committee members, and the boardroom allies who intervened used Signal to discuss the recapitalization. Signal is an ephemeral messaging service, and at critical points, key participants created Signal chats and 5 E.g., United Food & Com. Workers Union v. Zuckerberg (Zuckerberg I), 250 A.3d 862, 895–96 (Del. Ch. 2020) (“A director could believe in good faith that it is generally optimal for companies to be controlled by their founders and that this governance structure is value-maximizing for the corporation and its stockholders over the long-term. Others might differ. As long as an otherwise independent and disinterested director has a rational basis for her belief, that director is entitled (indeed obligated) to make decisions in good faith based on what she subjectively believes will maximize the long-term value of the corporation for the ultimate benefit of its residual claimants. If a director believes that it will be better for the corporation to have the founder remain in control, then the director may make decisions to achieve that goal.” (citation omitted)), aff’d sub nom. United Food & Com. Workers Union & Participating Food Indus. Empls. Tri-State Pension Fund v. Zuckerberg (Zuckerberg II), 262 A.3d 1034, 1062 (Del. 2021) (“Hastings might have a good-faith belief that founder control maximizes a corporation’s value over the long-haul. If so, that good-faith belief would play a valid role in Hasting’s [sic] exercise of his impartial business judgment.”). 7 set the messages to delete promptly, or changed the deletion settings to achieve that result. Everyone anticipated litigation; the parties’ advisors had told them to anticipate it. Yet the key participants inferably destroyed evidence. The defendants tried to discount the significance of their Signal use by claiming that none of the messaging involved substantive communications, but the plaintiffs easily demonstrated otherwise. Those credibility issues mean the court must hear the defendants testify at trial. The defendants exacerbated their credibility issues by reneging on a commitment not to proceed with the recapitalization until after the court ruled. The company broke that promise and said it planned to close the recapitalization in mid- September. After a status conference to discuss whether the plaintiffs needed to seek a temporary restraining order to preserve the court’s ability to rule, the company changed position again. The defendants run the company. They caused it to renege on its commitment. That makes it more important to assess their credibility at trial before determining whether the Safe Harbor Statute applies. Once the plaintiffs have a reasonable probability of showing that the Safe Harbor Statute does not apply, entire fairness becomes the operative standard of review. At trial, the defendants would have the burden of proving that the recapitalization is entirely fair, both as to process and price. Under the entire fairness test, the plaintiffs have a reasonable probability of prevailing on a fiduciary challenge. They point to evidence that calls into question whether the defendants can prove that the recapitalization is procedurally fair, 8 including the evidence suggesting the committee’s advisors worked to justify a pre- ordained result, one committee member’s unauthorized communications with one of the founders, one of the founder’s attacks on the committee, and the interventions by the founders’ boardroom allies. The plaintiffs also point to evidence that calls into question whether the defendants can prove that the recapitalization is substantively fair. Viewed in its totality, the evidence supports a reasonable probability that if the Safe Harbor Statute does not apply, then the defendants will not be able to satisfy the unitary standard of entire fairness. If that turns out to be the case, then the proper remedy would be a permanent injunction blocking the recapitalization. The court cannot award that remedy if the recapitalization has already closed. A status-quo-preserving injunction is warranted. The question then becomes how to manage the litigation. The Safe Harbor Statute’s powerful protections are intended to obviate the need for entire fairness review. Here, it would seem to impose a disproportionate burden on the defendants and run contrary to the statute’s intent to conduct an entire fairness trial before determining whether the Safe Harbor Statute applies. But at the same time, the court does not want to impose two trials if one is preferable. The defendants will suffer the burden of the preliminary injunction. Therefore, at the defendants’ election, the court will bifurcate the proceedings and hold an initial trial limited to the question of whether the Safe Harbor Statute applies. If the defendants choose that option, the court will require trial to be held promptly, ideally in approximately ninety days. 9 That trial would center on the committee members’ good faith. Because of that narrow focus, expert testimony should not be necessary. The number of fact witnesses should also be limited, because the issues will be what the committee members knew or believed, what they did, and what they sought to accomplish. Little (if any) additional discovery should be required. If the defendants do not opt for a separate safe harbor trial, the court will still require that the full trial be held promptly. I. FACTUAL BACKGROUND The facts are drawn from the record developed in connection with the motion for a preliminary injunction. The parties submitted more than 160 documentary exhibits plus deposition testimony from eight fact witnesses and three experts.6 At this stage of the case, the court does not make findings of fact. The account instead reflects what the evidence at trial is reasonably likely to show, based on the record developed to date. A. The Company Matthew Prince and Michelle Zatlyn (the “Founders”) met at Harvard Business School in 2007. Two years later, they and a third founder created 6 Citations in the form “PX __ at __” refer to exhibits that the plaintiffs submitted with their opening brief or reply brief. Citations in the form “DX __ at __” refer to exhibits that the defendants submitted with their answering brief. Citations in the form “[Name] Dep.” refer to witness testimony from a deposition transcript. 10 Cloudflare, Inc. (the “Company”).7 Prince serves as CEO. Zatlyn serves as the President. They co-chair the board of directors (the “Board”). The Company provides services that make web-based businesses more secure, improve the performance of their web-based applications, and eliminate the cost and complexity of managing individual network hardware. The Company’s main service protects against targeted cyberattacks and surges in traffic that could knock a site offline. Today, more than twenty percent of the Internet uses the Company’s products. In 2009, the Company raised $2.05 million in a Series A round. Nearly half of that came from Pelion Venture Partners. Carl Ledbetter, Pelion’s managing director, joined the Board. He remains a director today, seventeen years later. During that time, Ledbetter and the Founders understandably developed a close working relationship. In 2010, the Company raised approximately $20 million in a Series B round led by New Enterprise Associates (“NEA”). Scott Sandell, then NEA’s general partner and now its Executive Chairman and Chief Investment Officer, joined the Board. He remains a director today, sixteen years later. As with Ledbetter, Sandell and the Founders understandably developed a close working relationship over that time. In 2012, the Company raised around $50 million in a Series C round. Both Pelion and NEA participated. 7 Lee Holloway was the third founder. He stepped away in 2016 due to health issues. 11 In September 2019, the Company sold stock to the public at $15 per share. Since then, its market performance has been exceptional. On August 10, 2026, its stock price closed at an all-time high of $310.59 per share. The Company’s market capitalization stands at around $100 billion. Accolades for the Company and its Founders have followed. The Company was named as a “Fortune Future 50 Company” in 2023 and 2024, and it ranked as a “Time100 Most Influential Company” in 2025. Prince has been recognized as an industry leader, including being named #1 on the Time100 AI Leaders list for 2025. Prince sees the Company as “uniquely positioned” to help individuals and companies navigate an “AI-first internet.”8 B. The Dual-Class Structure The Company went public using a dual-class structure. The Founders, early investors, and employees received Class B stock carrying ten votes per share. Public investors purchased Class A stock carrying one vote per share.9 Except for their voting power and the mechanics for converting Class B shares into Class A shares, the common stock carries identical rights and votes together as a single class on all matters, unless otherwise required by law.10 8 DX 2 at 2–3. An AI-first Internet refers to a shift away from a search-driven interface where people consume original content to an AI-driven interface where people primarily use chatbots to analyze the original content. 9 See PX 8 (“Charter”), art. V, § 4.1. 10 Id. art. V, § 2 (providing that except as otherwise provided within, “shares of Common Stock shall have the same rights and powers, rank equally . . . , share 12 Each Class B share converts into a Class A share at the holder’s election or automatically upon the occurrence of specified events.11 Transferring a Class B share to a non-permitted holder is a triggering event.12 So is a Founder’s death or disability.13 All outstanding Class B shares automatically convert when the Founders own less than twenty-five percent of the number of Class B shares they owned at the IPO (respectively, the “Ownership Sunset” and the “Minimum Ownership Condition”).14 C. The Steady Erosion Of Founder Control The Founders currently own substantially all of the Class B shares. Through their holdings, they control a majority of the Company’s outstanding voting power.15 ratably and be identical in all respects as to all matters”); id. art. V, § 4.2 (providing that except as otherwise provided within or required by law, “the holders of Class A Common Stock and Class B Common Stock will vote together as a single class and not as separate series or classes”). The Charter authorizes the Company to issue preferred stock as well. See id. art. IV. It appears at this stage that any outstanding preferred stock converted into common stock for purposes of the IPO. 11 Id. art. V, § 6.2. 12 Id. art. V, § 6.2(b); id. art. V, § 1.15 (defining “Permitted Transfer”). 13 Id. art. V, § 6.2(f). 14 Id. art. V, § 6.1; see id. art. V, § 1.9 (defining “Final Conversion Date” to include the Ownership Sunset). The Final Conversion Date also covers other automatic conversion scenarios, such as the death or disability of both Founders and the election of the holders of a majority of outstanding Class B shares. Id. art. V, § 1.9. The other scenarios are not at issue. 15 That was not true immediately after the IPO, because early investors, employees, and other insiders also received Class B shares. But those holders sold their Class B shares over time, resulting in their conversion into Class A shares. For 13 But after peaking at 60% in 2021,16 their share of the outstanding voting power has steadily declined. The Founders’ share of the total voting power can be expressed as a fraction where the numerator reflects the voting power they hold and the denominator reflects the voting power outstanding. Decreasing the numerator or increasing the denominator reduces the output. Both have been happening. The numerator decreased as the Founders sold Class B shares or made charitable contributions. From 2020 through the spring of 2026, Prince sold shares worth approximately $1.18 billion, and Zatlyn sold shares worth approximately $629 million. Meanwhile, the denominator increased as the Company issued Class A shares for corporate purposes, such as for employee compensation and as consideration for acquisitions. The Company’s transactions have increased the total share count by approximately 17.8%.17 example, Pelion and NEA had sold most of their Class B shares by 2021. See PX 10 at SC0000122. 16 Id. At that point, the Founders held Class B shares reflecting approximately 93% of their post-IPO ownership. Id. 17 PX 11. 14 On March 5, 2026, the Founders controlled approximately 51% of the voting power.18 On June 5, they controlled 50.3%.19 If they continued divesting shares at their historical rates, they would lose majority control by December 202620 and trigger the Ownership Sunset in 2034.21 Of course, neither outcome was assured. The Founders could slow or stop their sales and charitable contributions. The Company, however, would need to continue issuing Class A shares as employee compensation and for other corporate purposes. Under the latter scenario, the Founders would lose majority voting control by December 2028.22 The Ownership Sunset would, in theory, never take place.23 The erosion of founder control under a dual-class structure is a well-known complication. For the Founders and their advisors, therefore, the erosion of the Founders’ control was a known risk, and something that they would need to address. 18 PX 3 (“Proxy Statement”) at 36. At that point, the Founders continued to hold Class B shares reflecting approximately 70% of their post-IPO ownership. Id. 19 Id. at 62. At that point, the Founders continued to hold Class B shares reflecting approximately 63% of their post-IPO ownership. See id. 20 PX 10 at SC0000123. That projection assumes “ongoing issuance of class A shares in-line with Street estimates.” Id. (emphasis omitted). 21 Proxy Statement at 49; DX 17. 22 PX 10 at SC0000123. This projection likewise assumes “ongoing issuance of class A shares in-line with Street estimates.” Id. (emphasis omitted). 23 See id. 15 As with many problems, the optimal time for intervention is not when the problem is imminent, but when it remains somewhat distant. D. Equity-Grant Planning Spotlights The Erosion Issue. In mid-2025, compensation-related discussions brought the erosion issue to the forefront. At the time, the Board had nine members: • The Founders; • John Graham-Cumming, the Company’s former Chief Technology Officer; • Ledbetter, a managing director with Pelion; • Sandell, NEA’s Executive Chairman and Chief Investment Officer; • Katrin Suder, a physicist and former State Secretary for the German Federal Ministry of Defense; • Mark Hawkins, former President and Chief Financial Officer Emeritus of Salesforce, Inc.; • Stacey Cunningham, former Operating Partner of global private equity company Advent International and former President of NYSE Group; and • Karim Lakhani, a Harvard Business School professor. In July 2025, the Board formed a special compensation committee charged with evaluating potential equity awards that would give the Founders “appropriate incentives to remain engaged.”24 Its members were Ledbetter, Hawkins, and Cunningham. The lead concept involved a mega-grant of Class A shares with an estimated grant-date value of over $1.1 billion, divided into tranches that would vest based on 24 PX 19 at SC0005806. 16 stock price targets over a ten-year period. The Founders would have to remain in their executive roles for at least four years and afterward either as a full-time executive chair or in another approved C-suite position. In September 2025, Ledbetter had an extensive discussion with the Founders about “tax planning, philanthropy planning, and voting control issues.” 25 Prince wanted to engage in tax planning using his Class B shares, but the structures generally triggered a Class A conversion and further eroded his voting power.26 Ledbetter promised that the compensation committee would look into solutions.27 After Ledbetter reported on his discussion to the special compensation committee, they consulted with counsel.28 Around the same time, the Founders “[h]ad an ‘aha moment’” that they would be getting Class A stock in the mega-grant, rather than Class B stock that would help preserve their voting control.29 The Founders preferred the latter and decided that the Company needed to resolve the control-erosion issue before proceeding with a 25 PX 22 at CF_008371. 26 See id. 27 Id. 28 Id. at CF_008370. 29 PX 23 at CENTERVIEW_00026890. 17 mega-grant.30 As a result of these discussions, the special compensation committee put its mega-grant work on hold later in September. E. The Special Governance Committee On October 15, 2025, the Board created a special governance committee to consider changes to the Company’s capital structure (the “Committee”).31 Its members were Lakhani, Sandell, and Suder. When creating the Committee, the Board determined that Lakhani, Sandell, and Suder were independent from the Company and the Founders and were not interested in the potential governance alternatives for purposes of Delaware law and New York Stock Exchange (“NYSE”) standards.32 The plaintiffs attack the sufficiency of the Board’s determinations regarding Sandell. They acknowledge that the Board considered Sandell’s “long-time service to the Company” and “his affiliation with [NEA] (a long-time investor in the Company),”33 but they object that the Board did not specifically consider that NEA 30 See PX 24 at CF_008142 (compensation advisor later checking in with Ledbetter about the “founder grants” and being told that “everything is still on hold until a different committee determines whether or not a separate class of shares can be used for these grants”). 31 See PX 25 at CF_000019–20. 32 DX 13 at CF_000148. The Committee discussed potential conflicts again several months later, after its work was already underway, and it did not raise any concerns to the full Board. See Dkt. 85, Ex. A (January 13, 2026 Committee meeting minutes). 33 PX 25 at CF_000019. 18 turned a $50 million investment in the Company into over $3 billion in profit, or that Sandell personally holds approximately $40 to $50 million in Company stock, mostly through NEA distributions.34 They also acknowledge that the Board considered that NEA and Prince invested in two early-stage companies together, but object that the Board did not ascribe a value to them.35 And they object that the Board failed to consider explicitly that: • NEA’s business depends on investing in startup companies and is generally deferential to founders. • Sandell uses the Founders as references when competing for deals and raising capital.36 • Sandell relied on Prince to advise an NEA portfolio company on navigating issues with the U.S. government.37 • Sandell and NEA co-invested with the Company and the Founders in the Company’s venture fund.38 34 Sandell Dep. 131–32. 35 PX 25 at CF_000019. Sandell did provide the Board with an explanation of “how those investments came about” and the “rough amounts” that “each of NEA and Mr. Prince had invested,” and “it was noted that the amounts that Mr. Prince had invested in these companies were basically rounding errors to him given his overall net worth.” Sandell Dep. 39–51. 36 Sandell Dep. 126–27, 129. 37 Id. at 117–18. 38 Barb Darrow, New $100 Million Fund Backs Cloudflare-Related Startups, FORTUNE (June 27, 2017), https://fortune.com/2017/06/27/100-million-cloudflare- fund/. 19 • NEA and Atlassian, a software company where Zatlyn is a director, co-invested in two companies.39 • Sandell and his girlfriend were among the roughly 100 to 150 attendees at Prince’s wedding.40 • Sandell attended Prince’s mother-in-law’s retirement party, visited Prince’s homes (including overnight), and spent Thanksgiving with Prince and his in- laws.41 • Prince regards Sandell as a “trusted advisor.”42 This decision addresses Sandell’s status as a disinterested director as part of the legal analysis. The plaintiffs s