Item 8.01 Other Events.
On April 6, 2022, a putative class action complaint was filed in the Delaware
Court of Chancery by Cindy Xu, a stockholder, against Cloudflare, Inc. (the
"Company") and its current directors (the "Action"). The complaint alleged
breaches of fiduciary duty against the defendants based on (a) alleged
disclosure deficiencies in the preliminary proxy statement (filed by the Company
on March 29, 2022) in connection with the Company's 2022 Annual Meeting of
Stockholders to be held on June 2, 2022 (the "2022 Stockholder Meeting"), (b) an
alleged concern that the definition of the participants in the
majority-of-the-disinterested stockholders vote at the 2022 Stockholder Meeting
to approve the issuance of stock options to purchase the Company's Class A
common stock granted to the Company's co-founders Matthew Prince and Michelle
Zatlyn (the "Performance Awards") included certain stockholders that plaintiff
alleged were interested in such vote, and (c) certain allegedly coercive aspects
of the stockholder vote on the Performance Awards. The complaint sought various
remedies, including a preliminary injunction seeking to enjoin the vote to
approve the Performance Awards at the 2022 Stockholder Meeting.
After the complaint was filed, the Company determined to take certain corrective
actions to moot the allegations in the complaint and, specifically, to (i)
supplement the disclosures in the Company's definitive proxy statement filed by
the Company on April 21, 2022, and (ii) undertake certain amendments to the
Performance Awards and other awards issued to non-founder executives to revise
the definition of the participants in the majority-of-the-disinterested
stockholders vote applicable to the Performance Awards to exclude certain
allegedly interested stockholders and to remove the allegedly coercive aspects
of the vote. Also on April 21, 2022, plaintiff withdrew the motion for a
preliminary injunction and voluntarily dismissed the Action, reserving the right
for plaintiff's counsel to apply for an award of attorneys' fees and
reimbursement of expenses.
On April 25, 2022, the Court of Chancery entered a stipulated order pursuant to
which plaintiff voluntarily dismissed the Action with prejudice as to herself
only, but without prejudice as to any other putative class member. The Court of
Chancery retained jurisdiction solely for the purpose of deciding the
anticipated application of plaintiff's counsel for an award of attorneys' fees
and reimbursement of expenses in connection with the corrective actions.
The Company subsequently agreed to pay $1,600,000 to plaintiff's counsel for
attorneys' fees and expenses in full satisfaction of the claim for attorneys'
fees and expenses in the Action. On May 18, 2022, the Court of Chancery entered
an order formally closing the Action and providing for the payment of the
attorneys' fees and expenses amount. The Court of Chancery has not been asked to
review, and will pass no judgment on, the payment of the attorneys' fees and
expenses or their reasonableness.
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