BY FAX 00BORIS FELDMAN, State Bar No. 128838 Email: boris.feldman@wsgr.com IGNACIO E. SALCEDA, State Bar No. 164017 Email: isalceda@wsgr.com WILSON SONSINI GOODRICH ROSATI Professional Corporation 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: (650) 493-9300 Facsimile: (650) 565-5100 Attorneys for Defendants new . Supatiac Egg? uf Califorma County of L111: Anaeles APR '1 0 21318 Sherri R.C mini?. 1ch Officer/Clerk 3V ,Deput} i /St3ven Drew SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES DAVID SHABBOUEI and ZALMON UVAYDOV, Derivatively on Behalf of SNAP INC., Plaintiffs, V. EVAN SPIEGEL, ROBERT MURPHY, MICHAEL LYNTON, STANLEY MERESMAN, A.G. LAFLEY, SCOTT D. MILLER, CHRISTOPHER YOUNG, JOANNA COLES, ANDREW VOLLERO, IMRAN KHAN, MITCHELL LASKY, and DOES 1-25, Inclusive, Defendants. -and- SNAP INC., a Delaware Corporation, Nominal Defendant CASE NO.: 19STCV084I3 DECLARATION OF IGNACIO E. SALCEDA IN SUPPORT OF MOTION TO SEAL PORTIONS OF COMPLAINT Hearing Date: May 2, 2019 Hearing Time: 10:00 am. Department: 9 Before: The Hon. Yvette M. Palazuelos SALCEDA DECL. 150 MOTION TO SEAL CASE No. 3 Ignacio E. Salceda do hereby declare as follows: 1. I am an attorney licensed to practice law in the State of California and before this Court. I am an attorney at the law ?rm of Wilson Sonsini Goodrich Rosati, Professional Corporation, counsel for Defendants Snap Inc. Evan Spiegel, Robert Murphy, Michael Lynton, Stanley Meresman, A.G. Lafley, Scott D. Miller, Christopher Young, Oanna Coles, Andrew Vollero, Imran Khan, and Mitchell Lasky (collectively, ?Defendants?). I have personal knowledge of the facts set forth herein and, if called as a witness, could testify thereto. 2. Attached hereto as Exhibit 1 is a true and correct copy of the Stockholder Derivative Complaint (?Complaint?), re?ecting the redactions ofsensitive con?dential information requested by Defendants. 3. On January 28, 2019, Plaintiffs David Shabbouei and Zalmon Uvaydov, and Snap, executed a Con?dentiality Agreement in response to Plaintiffs? request to examine certain of Snap?s books and records pursuant to 8 Del. C. 220. A true and correct copy of this Con?dentiality Agreement is attached hereto as Exhibit 2. Under the Confidentiality Agreement, the documents Snap produced to Plaintiffs pursuant to Plaintiffs? 8 Del. C. 220 request may only be disclosed to limited persons and entities, and may only be used to investigate or litigate the claims alleged by Plaintiff in its inspection request pursuant to 8 Del. C. 220. 4. The internal Snap documents cited by Plaintiffs in their Complaint were produced pursuantto the Con?dentiality Agreement referenced above. 5. On April 8, 2019, Plaintiffs informed Defendants that they do not oppose Defendants? Motion to Seal, reserving all rights to seek to unseal the sealed material at a later stage. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed this 9th day of April, 2019 in Palo Alto, California. Ignacio E. Salceda -2- SALCEDA DECL. ISO MOTION TO SEAI: CASE NO. 19STCV08413 EXHIBIT 1 ROBBINS ARROYO LLP BRIAN J. ROBBINS (190264) FELIPE I. ARROYO (163803) CRAIG w. SMITH (164886) SHANE P. SANDERS (237146) 5040 Shoreham Place San Diego, CA 92122 Telephone: (619) 525-3990 -. Facsimile: (619) 525-3991 E-mail: brobbins@robbinsarroyo.eom L03 ANGELES SUPERIOR COURT farroyo@robbinsarroyo.com csmith@robbinsarroyo.com MAR 1 2 2813 ssanders@robbinsarroyo.com Attorneys for Plaintiffs 8- DREW SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES DAVID SHABBOUEI and ZALMON Case No. UVAYDOV, Derivatively on Behalf of SNAPINC., 19STC 0?413 STOCKHOLDER DERI Plaintiffs, COMPLAINT FOR BREACH OF FIDUCIARY DUTY, WASTE OF v. CORPORATE ASSETS, AND UNJUST ENRICHMENT EVAN SPIEGEL, ROBERT MURPHY, LODGED CONDITIONALLY UNDER MICHAEL LYNTON, SEAL - UNREDACTED STANLEY MERESMAN, A.G. LAFLEY, SCOTT D. MILLER, - CHRISTOPHER YOUNG, JOANNA COLES, ANDREW VOLLERO, IMRAN KHAN, MITCHELL LASKY, and DOES 1-25, Inclusive, Defendants. ?and~ SNAP IN C., a Delaware Corporation, Nominal Defendant. DEMAND FOR JURY TRIAL KHOLDER DERIVATIVE COMPLAINT -..22 5 523 :24 .1225 26 27 28 Plaintiffs, by their attorneys, submit this Stockholder Derivative Complaint for Breach of Fiduciary Duty, Waste of Corporate Assets, and Unjust Enrichment. Plaintiffs allege the following on information and belief, except as to the allegations speci?cally pertaining to plaintiffs which are based on personal knowledge. This complaint is also based on the investigation of plaintiffs' counsel, which included, among other things, a review of public ?lings with the US. Securities and Exchange Commission and a review of news reports, press releases, and other publicly available sources. NATURE AND SUMMARY OF THE ACTION 1. This is a stockholder derivative action brought by plaintiffs on behalf of nominal defendant Snap Inc. ("Snap" or the "Company") against certain of its of?cers and directors for breach of ?duciary duty, waste of corporate assets, unjust enrichment, and violations of law. These wrongs resulted in billions of dollars in damages to Snap's reputation, goodwill, and standing in the business community. Moreover, these actions have exposed Snap to billions of dollars in potential liability for Violations of state and federal law. 2. Snap calls itself in its public ?lings "a camera company." It does not make cameras, however. Instead, its ?agship product is Snapchat, an application for mobile devices that allow users to communicate through short Videos and images called Snaps. Therefore, Snap is more akin to a social networking technology company like Facebook, Inc. (?Facebook?) or Twitter than a camera company like Kodak. 3. Like many early stage technology companies, Snap has yet to record a pro?t. Thus, as it was preparing for its initial public offering the Individual Defendants, as de?ned herein, told investors and the public to pay attention to what it described as its key performance indicators and most speci?cally of its daily active users rather than pro?ts and losses. 4. In the documents ?led in connection with the IPO, the Individual Defendants painted a rosy picture of Snap with drastically increasing year?over-year DAUs. Though DAU growth slowed in the most recently reported quarter, the Indivdiual Defendants blamed that on "lumpiness" in growth that would soon turn around. 5. This was not true. The Company's DAU growth was drastically slowing as its primary competitor, Facebook's Instagram, copied many of Snapchat's features and rapidly took off in 1 STOCKHOLDER DERIVATIVE COMPLAINT 1.75122 5323 112.24 ??25 26 27 popularity. In addition, the Company's historical DAU numbers were unreliable and in?ated. 6. The internal books and records provided in response to plaintiffs? inspection demands demonstrated that the Individual Defendants knew these facts. They were constantly being updated on DAU growth, as well as reviewing the threat from Instagram. Moreover, they knew about the unreliable DAU numbers and had known for years. 7. In 2015, a recently hired employee at the Company discovered that Snap was overstating its DAUs and using unreliable programs to account for DAUs. This employee, Anthony Pompliano brought these issues up directly to the Company?s Chief Executive Of?cer and Cofounder, defendant Evan Spiegel (?Spiegel?). Defendant Spiegel, in turn, dismissed Pompliano's concerns and terminated his employment with Snap. 8. Pompliano, under seal, sued the Company for wrongful termination, among other things. The Individual Defendants, including Snap's Board of Directors (the "Board"), knew about this lawsuit and its allegations. Nevertheless, despite this being clearly material information, they failed to include any mention of the Pompliano lawsuit or its allegations in the Offering Documents (as de?ned herein). Further, when word of the Pompliano lawsuit began leaking to the press, the Individual Defendants caused or allowed Snap to deny any wrongdoing and disparage Pompliano as merely a disgruntled ex- employee. 9. Without any mention of Pompliano, his allegations, or slowing DAUs because of Instagram, the IPO was a success. The Company and other early investors sold 230 million shares at $17 each. The Company sold approximately $2.6 billion worth of stock. The Individual Defendants, either personally or through their investment funds, sold nearly $900 million worth of their own personally held stock.1 10. However, when Pompliano's lawsuit was unsealed, his detailed allegations against Snap were supported by its own prior actions, namely reviewing and restating its DAUs back in 2015. Then, on May 10, 2017, repmting its results for the ?rst time as a public company, Snap disclosed an anemic 1 The Company's'offering commenced on March 1, 2017 and closed on arch 7, 2017. -2- STOCKHOLDER DERIVATIVE COMPLAJNT 9922 C923 ??25 26 27 28 DAU growth rate. 11. Investors were disappointed. However, defendants attempted to prop up the Company's stock price by suddenly switching focus from DAUs to the type of growth the Company was experiencing. In particular, defendant Spiegel claimed that Snap did not engage in "growth hacking,? pushing out e?mails and other notices to get people to sign up for Snapchat inorganically. 12. However, even these statements were improper. The next quarter defendant Spiegel admitted that the Company engaged in the very growth hacking he previously disparaged. 13. In the wake of these disclosures, Snap's stock plunged more than 72%, or $22 per share, from its relevant period high, to just $4.99 per share on December 21, 2018, over $13 billion from the high it reached soon after the IPO, and signi?cantly below the Company's IPO price of $17 a share. 14. Further, as a direct result of this unlawful course of conduct, Snap is now the subject of a federal securities class action lawsuit filed in the US. District Court for the Central District of California on behalf of investors who purchased Snap stock. This action has already survived the defendants? motions to dismiss under the exacting pleading standards of the Private Securities Litigaiton Reform Act. In addition, the Company and certain of the Individual Defendants were also sued in California state court on behalf of investors that bought in or traceable to the IPO. Finally, the Company has revealed that both the Department of Justice and the SEC are investigating the statements it made to the public in connection with the IPO. JURISDICTION AND VENUE 15. This Court has jurisdiction over all causes of action asserted herein pursuant to the California Constitution, Article VI, section 10, because this case is a cause not given by statute to other trial courts, as this derivative action is brought pursuant to section 800 of the California Corporations Code to remedy defendants? violations of law. 16. This Court retains general jurisdiction over each named defendant who is a resident of California. Additionally, this Court has Speci?c jurisdiction over each named nonresident defendant because these defendants maintain sufficient minimum contacts with California to render jurisdiction by this Court permissible under traditional notions of fair play and substantial justice. Snap is headquartered in California, and because the allegations contained herein are brought derivatively on 3 STOCKHOLDER DERIVATIVE COMPLAINT -3122 3 923 524 "'25 26 27 ?8 behalf of Snap, defendants' conduct was purposefully directed at California. Finally, exercising jurisdiction over any nonresident defendant is reasonable under these circumstances. l7. Venue is proper in this Court because one or more of the defendants either resides in or maintains executive of?ces in this County, a substantial portion of the transactions and wrongs complained of herein, including the defendants? primary participation in the wrongful acts detailed herein and aiding and abetting and conspiracy in violation of ?duciary duties owed to Snap occurred in this County, and defendants have received substantial compensation in this County by doing business here and engaging in numerous activities that had an effect in this County. THE PARTIES Plaintiffs 18. Plaintiff David Shabbouei was a stockholder of Snap at the time of the wrongdoing complained of, has continuously been a stockholder since that time, and is a current Snap stockholder. Plaintiff Shabbouei ?rst purchased Snap stock on March 2, 2017, and has continued to hold since that date. In addition, plaintiff has standing to challenge the pre-IPO conduct pursuant to section 800(b) of the California Corporations Code. 19. Plaintiff Zalmon Uvaydov was a stockholder of Snap at the time of the wrongdoing complained of, has continuously been a stockholder since that time, and is a current Snap stockholder. Plaintiff Uvaydov ?rst purchased Snap stock on March 2, 2017, and has continued to hold since that date. In addition, plaintiff has standing to challenge the pre?IPO conduct pursuant to section 800(b) of the California Corporations Code. Nominal Defendant 20. Nominal defendant Snap is a Delaware corporation with principal executive of?ces located at 2772 Donald Douglas Loop North, Santa Monica, California. Snap is a camera company whose ?agship product is Snapchat, a camera application that allows users to communicate visually through short Videos and images called Snaps. The Company generates revenue primarily through advertising to users. As of December 31, 2018, the company had approximately 2,884 employees. -4- STOCKHOLDER DERIVATIVE COMPLAINT 3:923 PM ?25 26 27 28 Defendants 21. Defendant Spiegel is Snap's Cofounder, Chief Executive Of?cer, and a director and has been since May 2012. Defendant Spiegel was a member of Snap?s Pricing Committee that was formed to establish the price at which Snap shares would be sold in the IPO. Defendant Spiegel is named as a defendant in one related class action complaint that alleges he violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act?) and sections 11 and 15 of the Securities Act of 1933 (the ?Securities Act"); one class action complaint that alleges he violated sections 11 and 15 of the Securities Act; and one class action complaint that alleges he violated section 11 of the Securities Act. While in possession of material, nonpublic information concerning Snap's true business health, defendant Spiegel sold sixteen million shares of his stock for $272 million in proceeds. Snap paid defendant Spiegel the following compensation as an executive: Stock All Other Year Salary Bonus Awards Compensation Total 2018 $1 - - $800,846 $800,847 2017 $98,078 - $636,612,889 $1,079,925 $637,790,892 2016 $503,205 $1,000,000 - $901,635 $2,404,840 22. Defendant Robert Murphy (?Murphy") is Snap's Cofounder, Chief Technology Of?cer, and a director and has been since May 2012. Defendant Murphy is named as a defendant in one related class action complaint that alleges he violated sections 10(b) and 20(a) of the Exchange Act and sections 1 1 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. While in possession of material, nonpublic information concerning Snap?s true business health, defendant Murphy sold sixteen million shares of his stock for $272 million in proceeds. Snap paid defendant Murphy the following compensation as an executive: All Other Year Salary Compensation Total 2018 $19,232 $8,584 $27,816 2017 $250,000 $52,247 $302,247 23. Defendant Michael Lynton ("Lynton") is Snap's Chairman of the Board and has been since September 2016 and a director and has been since April 2013. Defendant Lynton was a member of Snap's Pricing Committee that was formed to estabiish the price at which Snap shares would be sold -5- STOCKHOLDER DERIVATIVE COMPLAINT '22 11-323 ""25 26 27 28 in the IPO. Defendant Lynton is also a member of Snap's Audit Committee and has been since January 2018. Defendant Lynton is named as a defendant in one related class action complaint that alleges he violated sections 1 1 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. While in possession of material, nonpublic information concerning Snap's true business health, defendant Lynton sold 102,670 shares of his stock for over $1.7 million in proceeds. Snap paid defendant Lynton the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $42,500 $120,409 $125,194 $288,103 24. Defendant Stanley Meresman ("Meresman") is a Snap director and has been since July 2015. Defendant Meresman is also Chairman and a member of Snap's Audit Committee and has been since at least February 2017. Defendant Meresman was also a member of Snap's Pricing Committee that was formed to establish the price at which Snap shares would be sold in the IPO. Defendant Meresman is named as a defendant in one related class action complaint that alleges he violated sections 1 1 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. Snap paid defendant Meresman the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $25,000 $120,409 $125,194 $270,603 25. Defendant A.G. Lafley is a Snap director and has been since July 2016. Defendant La?ey was a member of Snap's Pricing Committee that was formed to establish the price at which Snap shares would be sold in the IPO. Defendant Lafley is named as a defendant in one related class action complaint that alleges he violated sections 11 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. Snap paid defendant Lafley the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $202,917 $120,409 $125,194 $448,520 2017 $200,000 - $200,000 26. Defendant Scott D. Miller ("Miller") is a Snap director and has been since October 2016. Defendant Miller is also a member of Snap's Audit Committee and has been since at least February 6 STOCKHOLDER DERIVATIVE COMPLAINT j77723 ?324 ?25 26 27 28 2017. Defendant Miller is named as a defendant in one related class action complaint that alleges he violated sections 11 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. Snap paid defendant Miller the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $39,167 $120,409 $125,194 $284,770 2017 $35,000 - $35,000 27. Defendant Christopher Young (?Young") is a Snap director and has been since October 2016. Defendant Young was also a member of Snap's Audit Committee from at least February 2017 to January 2018. Defendant Young is named as a defendant in one related class action complaint that alleges he violated sections 11 and 15 of the Securities Act, and one class action complaint that alleges he violated section 1 1 of the Securities Act. Snap paid defendant Young the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $54,167 $120,409 $125,194 $299,770 2017 $35,000 - - $35,000 28. Defendant Joanna Coles ("Coles") is a Snap director and has been since December 2015. Defendant Coles is named as a defendant in one related class action complaint that alleges she violated sections 11 and 15 of the Securities Act, and one class action complaint that alleges she violated section 11 of the Securities Act. Snap paid defendant Coles the following compensation as a director: Fiscal Option Year Fees Paid in Cash Stock Awards Awards Total 2018 $39,167 $120,409 $125,194 $284,770 2017 $35,000 $861,179 $896,179 29. Defendant Andrew Vollero ("Vollero?) was a Snap's Nonemployee Advisor from May 2018 to August 2018; Chief Financial Officer from February 2016 to May 2018; and Vice President, Finance from August 2015 to February 2016. Defendant Vollero is named as a defendant in one related class action complaint that alleges he violated sections 10(b) and 20(a) of the Exchange Act and sections 11 and 15 of the Securities Act; one class action complaint that alleges he violated sections 11 and 15 of the Securities Act; and one class action complaint that alleges he violated section 11 of the Securities 7 STOCKHOLDER DERIVATIVE COMPLAINT 3'22 3 #23 ?1'25 26 27 28 Act. Snap paid defendant Vollero the following compensation as an executive: Stock All Other Year Salary Awards Compensation Total 2018 $176,539 $15,926,542 $661,245 $16,764,326 30. Defendant Imran Khan ("Khan") was a Snap's Chief Strategy Of?cer from January 2015 to November 2018. Defendant Khan is named as a defendant in one related class action complaint that alleges he violated sections 10(b) and 20(a) of the Exchange Act, and one class action complaint that alleges he violated sections 11 and 15 of the Securities Act. Snap paid defendant Khan the following compensation as an executive: Stock All Other Year Salary Bonus Awards Compensation Total 2018 $391,154 - $2,372,615 $28,737 $2,792,506 2017 $441,923 - $100,061,275 $69,728 $100,572,926 2016 $241,539 $5,239,460 - $14,658 $5,495,657 31. Defendant Mitchell Lasky (?Lasky") was a Snap director from December 2012 to August 2018. Defendant Lasky was a member of Snap's Pricing Committee that was formed to establish the price at which Snap shares would be sold in the IPO. Defendant Lasky is named as a defendant in one related class action complaint that alleges he violated sections 11 and 15 of the Securities Act, and one class action complaint that alleges he violated section 11 of the Securities Act. Lasky is a partner at Benchmark Capital, a Silicon Valley venture capital ?rm that, through its af?liates, was one of Snap's largest investors. Benchmark Capital sold nearly 10.7 million shares of its Snap stock directly to the public in the IPO and another 9.3 million shares to the Company's underwriters. In total, defendant Lasky, through Benchmark Capital, sold twenty million shares of its Snap stock on March 7, 2017, for proceeds of $340 million. 32. The defendants identi?ed in 111121-22, 29-30 are referred to herein as the "Of?cer Defendants.? The defendants identi?ed in 111121-28, 31 are referred to herein as the "Director Defendants.? The defendants identi?ed in 111124, 26-27 are referred to herein as the ?Audit Committee Defendants." The defendants identi?ed in 111121, 23-25, 31 are referred to herein as the "Pricing Committee Defendants." The defendants identi?ed in 1121?23, 31 are referred to herein as the ?Insider STOCKHOLDER DERIVATIVE COMPLAINT 15/22 1 923 1.2.324 ?25 26 27 28 Selling Defendants." Collectively, the defendants identi?ed in ?Bl-31 are referred to herein as the "Individual Defendants. 33. The true names and capacities of defendants sued herein under California Code of Civil Procedure section 474 as Does 1-25, inclusive, are presently not known to plaintiffs, who therefore sue these defendants by such ?ctitious names. Plaintiffs will seek to amend this complaint and include these Doe defendants' true names and capacities when they are ascertained. Each of the ?ctitiously named defendants is responsible in some manner for the conduct alleged herein and for the injuries suffered. DUTIES OF THE INDIVIDUAL DEFENDANTS Fiduciary Duties 34. By reason of their positions as of?cers and directors of the Company, each of the Individual Defendants owed and owe Snap and its stockholders ?duciary obligations of trust, loyalty, good faith, and due care, and were and are required to use their utmost ability to control and manage Snap in a fair, just, honest, and equitable manner. The Individual Defendants were and are required to act in furtherance of the best interests of Snap and not in furtherance of their personal interest or bene?t. 35. To discharge their duties, the of?cers and directors of Snap were required to exercise reasonable and prudent supervision over the management, policies, practices, and controls of the ?nancial affairs of the Company. By virtue of such duties, the of?cers and directors of Snap were required to, among other things: accurately guide the investing public and other constituents about the state of the Company's business; refrain from acting on the basis of material, nonpublic information: conduct the affairs of the Company in an ef?cient, business?like manner in compliance with all applicable laws, rules, and regulations so as to make it possible to provide the highest quality performance of its business, to avoid wasting the Company's assets, and to maximize the value of the Company's stock; and remain informed as to how Snap conducted its operations, and, upon receipt of notice or information of imprudent or unsound conditions or practices, make reasonable inquiry in connection therewith, and take steps to correct such conditions or practices and make such disclosures as 9 STOCKHOLDER DERIVATIVE COMPLAINT I722 123 1.224 ?25 26 27 2s necessaiy to comply with applicable laws. 36. The Company has a Code of Conduct that memorializes some of these duties. The Code of Conduct applies to "all [Snap?s] personnel, including of?cers, directors, employees, and interns." 37. The Code of Conduct instructs people to notify management immediately if there are concerns about user data, stating, "If you have questions about user data, or if you learn of a potential incident involving user data, please report it immediately on the Privacy page of the company Intranet." 38. Concerning disclosing the Company?s ?nancial information, the Code of Conduct explains: "Securities laws call for full, fair, accurate, timely, and understandable disclosures in Snap lnc.'s periodic reports. You must not take any action that might lead to inaccuracies in our public ?lings, and you must notify the ?nance or compliance teams if you learn of any inaccuracies in our books and records." 39. Speci?cally conceming ?duciaries, the Code of Conduct explains: Directors, of?cers, and compliance executives hold unique and privileged positions of authority. They are expected to lead by example and will be held to a higher standard of conduct. The Board of Directors will form a special committee represented by independent legal counsel to investigate alleged violations of this Code by such personnel. 40. The Company also has Corporate Governance Guidelines that address what it means to be a director at the Company. In particular, the Guidelines state: ROLE OF THE BOARD OF DIRECTORS Our stockholders select directors to provide oversight and strategic guidance to senior management. A director's responsibility is to ful?ll his or her ?duciary duties of care and loyalty, and otherwise to exercise his or her business judgment in the best interests of Snap Inc. and our stockholders. Board service requires signi?cant time and attention. More speci?cally, the Board has responsibilities to review, approve, and monitor fundamental ?nancial and business strategies, assess Snap lnc.'s major risks, and consider ways to address those risks, select and oversee management, and establish and oversee processes to maintain Snap lnc.'s integrity. To ful?ll their duties, directors must prepare for meetings and discussions with management, participate in Board meetings, review relevant materials, and serve on committees. We expect directors to maintain an attitude of constructive involvement and oversight, ask relevant and incisive questions, and demand honest and accurate answers. Directors must act with integrity and we expect them to demonstrate a commitment to Snap Inc., our values, our business, and long?term stockholder value. -10- STOCKHOLDER DERIVATIVE COMPLAINT 155422 f723 .9324 26 27 28 CONFIDENTIALITY Directors have an obligation to protect and keep con?dential all Snap Inc. non?public information unless Snap Inc. has authorized public disclosure or unless otherwise required by applicable law. Con?dential information includes all non-public information entrusted to or obtained by a director by reason of his or her position on the Board. This includes information regarding Snap Inc.'s strategy, business, ?nances, and operations, and will include minutes, reports, and materials of the Board and committees, and other documents identi?ed as con?dential by Snap Inc. Directors may not use Con?dential information for personal bene?t or to bene?t other persons or entities other than Snap Inc. Unless authorized by Snap Inc. or applicable law, directors will refrain from disclosing con?dential information to anyone outside Snap Inc., eSpecially anyone af?liated with any entity or person that employs the director or has sponsored the director's election to the Board. These obligations continue even after service on the Board has ended. Any questions or concerns about potential disclosures should be directed to the General Counsel, who then may communicate with the President and Chief Executive Of?cer or the Nominating and Corporate Governance Committee regarding those potential disclosures. Breaches of Duties 41. The conduct of the Individual Defendants complained of herein involves a knowing and culpable violation of their obligations as of?cers and directors of Snap, the absence of good faith on their part, and a reckless disregard for their duties to the Company that the Individual Defendants were aware or reckless in not being aware posed a risk of serious injury to the Company. 42. The Individual Defendants, because of their positions of control and authority as of?cers and/or directors of Snap, were able to and did, directly or indirectly, exercise control over the wrongful acts complained of herein. The Individual Defendants also failed to prevent the other Individual Defendants from taking such illegal actions. As a result, and in addition to the damage the Company has already incurred, Snap has expended, and will continue to expend, signi?cant sums of money. Additional Duties of the Audit Committee Defendants 43. In addition to these duties, the Audit Committee Defendants, defendants Meresman, Miller, and Young, pursuant to the Audit Committee Charter, owed speci?c duties to Snap to assist the Board. In particular, the Audit Committee Charter provides that the purpose of the Audit Committee, among other things, is to: "help the Board of Directors oversee Snap Inc.'s corporate accounting and ?nancial reporting processes, systems of internal control, and ?nancial?statement audits"; (ii) "review - 11 STOCKHOLDER DERIVATIVE COMPLAINT 7122 any reports or disclosures required by applicable rules and regulations of the SEC and applicable stock exchange"; "oversee the organization and performance of Snap Inc.'s internal audit function?; and (iv) "provide regular reports and information to the Board with respect to material issues." 44. The Audit Committee Charter further charges the Audit Committee with "oversee[ing] Snap Inc.?s ?nancial reporting process on behalf of the Board." Included among the Audit Committee's duties are: 6. Audited Financial Statement Review; Quarterly and Annual Reports. The Audit Committee will review the annual audited ?nancial statements and quarterly ?nancial statements with Snap Inc. management and the independent auditors. The Audit Committee will be responsible for recommending to the Board whether the proposed annual audited ?nancial statements should be included in Snap Inc.'s Annual Report on Form 7. Earnings Announcements. The Audit Committee will review and discuss with Snap Inc. management and the independent auditors any earnings press releases and other ?nancial information regarding Snap Inc.?s results of operations. 9. Accounting Principles and Policies. The Audit Committee will review and discuss with Snap Inc. management and the independent auditors signi?cant issues any other signi?cant reporting issues and judgments, signi?cant regulatory, legal, and accounting initiatives, or developments that may have a material impact on Snap Inc.'s ?nancial statements, compliance programs, and policies. 45. The Audit Committee Charter also requires the Audit Committee to review the Company's internal controls regarding risk assessment. In particular, the Charter states: Risk Assessment and Management. The Audit Committee will review and discuss with Snap Inc. management and the independent auditors Snap Inc.'s policies on ?nancial risk management and assessment. The Audit Committee will provide regular reports to the Board about material issues affecting the quality or integrity of Snap Inc.?s ?nancial statements, compliance with legal or regulatory requirements, the performance or independence of the independent auditors, the performance of Snap Inc.'s internal audit function, and other matters as the Audit Committee deems appropriate. 46. Finally, the Audit Committee Charter requires the Audit Committee to "review with Snap Inc. management legal and regulatory compliance and any actual, pending, or threatened legal or ?nancial matters that could signi?cantly affect Snap Inc.'s business or ?nancial statements." -12- STOCKHOLDER DERIVATIVE COMPLAINT C22 3523 {-24 25 26 27 28 CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION 47. In committing the wrongful acts alleged herein, the Individual Defendants have pursued, or joined in the pursuit of, a common course of conduct, and have acted in concert with and conspired with one another in furtherance of their common plan or design. In addition to the wrongful conduct herein alleged as giving rise to primary liability, the Individual Defendants further aided and abetted and/or assisted each other in breaching their reSpective duties. 48. During all times relevant hereto, the Individual Defendants, collectively and individually, initiated a course of conduct that was designed to and did: deceive the investing public, including stockholders of Snap, regarding the Individual Defendants' management of Snap's operations; (ii) facilitate the Insider Selling Defendant's illicit sale of nearly $900 million worth of their personally held shares while in possession of material, nonpublic information; and enhance the Individual Defendants' executive and directorial positions at Snap and the pro?ts, power, and prestige that the Individual Defendants enjoyed as a result of holding these positions. In furtherance of this plan, conspiracy, and course of conduct, the Individual Defendants, collectively and individually, took the actions set forth herein. 49. The Individual Defendants engaged in a conspiracy, common enterprise, and/or common course of conduct. During this time, the Individual Defendants caused the Company to issue improper ?nancial statements. 50. The purpose and effect of the Individual Defendants' conspiracy, common enterprise, and/or common course of conduct was, among other things, to disguise the Individual Defendants? violations of law, breaches of ?duciary duty, waste of corporate assets, and unjust enrichment; and to conceal adverse information concerning the Company's operations, ?nancial condition, and future business prospects. 51. The Individual Defendants accomplished their conspiracy, common enterprise, and/0r common course of conduct by causing the Company to purposefully or recklessly release improper statements. Because the actions described herein occurred under the authority of the Board, each of the Individual Defendants was a direct, necessary, and substantial participant in the conspiracy, common enterprise, and/or common course of conduct complained of herein. 13 STOCKHOLDER DERIVATIVE COMPLAINT 322 $323 135724 ?25 26 27 28 52. Each of the Individual Defendants aided and abetted and rendered substantial assistance in the wrongs complained of herein. In taking such actions to substantially assist the commission of the wrongdoing complained of herein, each Individual Defendant acted with knowledge of the primary wrongdoing, substantially assisted in the accomplishment of that wrongdoing, and was aware of his or her overall contribution to and furtherance of the wrongdoing. IMPORTANT EVENTS AND FACTS RELATED TO THIS LITIGATION 53. Defendants Spiegel and Murphy founded Snap in 2010. Snap describes itself as a "camera company.? In reality, however, it owns a social media messaging application, Snapchat, that is the focus of the Company's business. Formerly known as Snapchat, Inc., the Company changed its name to Snap Inc. in 2016. 54. The Company's primary revenue source is advertising. The Company's KPIs, especially DAU, are major factors companies consider when decided whether to purchase advertising. Snap's KPIs attempt to show how many people are using an application, for how long, and how engaged the person is. 55. Since it began commercial operations in 2011, the Company has never been profitable. As of its most recent quarter, Snap has accumulated a de?cit of $5.9 billion. As the defendants explained in the Offering Documents, since Snap was (and remains) unpro?table, the Company, and thus investors, should "assess the health of [Snap's] business by measuring Daily Active Users because [it] believe[s] that this metric is the most reliable way to understand engagement on [its] platform." The Offering Documents also stated that ?Daily user engagement with [its] products is a critical component to [Snap's] business because it in?uences [the Company's] advertising inventory as well as [its] expenses." 56. As explained in more detail below, the Company?s KPIs, and in particular DAUs, were um?eliable and misstated. Further, the Individual Defendants knew about these problems with the DAUs in particular, as the result of, among other things, the warnings of former Snap employee Pompliano. Pompliano was a former Facebook employee that certain of the Individual Defendants lured to the Company. Once at Snap, Pompliano discovered that the Company was overstating its DAU metrics and was using unreliable programs to track DAUs. Pompliano raised these concerns to the highest levels of 14 - STOCKHOLDER DERIVATIVE COMPLAINT 523 91524 1.25 26 27 28 the Company, including defendant Spiegel. Defendant Spiegel, however, dismissed Pompliano's concerns and terminated his employment with Snap. 57. As a result, Pompliano ?led a lawsuit against Snap for wrongful termination, among other claims. The complaint initiating the lawsuit was ?led under seal, thus preventing the public from learning about the alleged wrongdoing. However, both Pompliano's data metrics concerns and his lawsuit were discussed by the Board at its meetings. 58. In addition to Snap's faulty metrics, it was increasingly facing competition. In particular, in August 2016, Facebook's competition application to Snapchat, Instagram, released "Stories,? which duplicated much of Snapchat?s functions. As explained below, and which the Individual Defendants knew, Instagram Stories was growing signi?cantly faster than Snapchat and was slowing DAU growth. This information, however, was not disclosed to the investing public. IMPROPER STATEMENTS 59. The Individual Defendants' improper statements began in the lead up to Snap's IPO. The ?nancial and technology media was closely scrutinizing Snap as it prepared for its offering. About a month before the IPO, Pompliano ?led his initial complaint under seal on January 4, 2017. While the contents of the complaint were unavailable, the media recognized the parties and began to ask Snap about the lawsuit. In response, the Company claimed the lawsuit "ha[d] no merit" and was ?totally made up by a disgruntled former employee.? Snap continued to make similar disparaging comments when it moved to keep Pompliano's complaint under seal on January 18, 2017, calling it a "late?breaking bid" to stickup the Company before its IPO. Snap also stated that the "allegations against Snap are false from top to bottom and right out of his playbook." 60. In connection with the IPO, the Company ?led its Registration Statement and Prospectus (the "Offering Defendants Spiegel, Murphy, Vollero, Coles, La?ey, Lasky, Lynton, Meresman, Miller, and Young signed the Offering Documents. The Offering Documents were 2 The preliminary versions of the Offering Documents were ?led with the SEC on Form S- on February 2,2017. Snap subsequently ?led amendments to the Offering Documents on February 9,2017, February 16, 201,7 and February 27 2017. -15- STOCKHOLDER DERIVATIVE COMPLAINT 1:122 ch .- 23 525:324 "25 26 27 28 materially misleading as they failed to disclose known facts concerning the impact of Instagram Stories' function, the untrustworthy DAU data, and Pompliano's lawsuit. 61. In particular, the Offering Documents repeatedly discuss the Company?s DAUs, claiming that as of the fourth quarter of 2016, Snap had 158 million DAUs, a year-over?year growth of 48%. The Offering Documents point this out when discussing its product: "Our ?agship product, Snapchat, is a camera application that was created to help people communicate through short videos and On average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day." They do so again when discussing the risks to investors, while noting that DAUs is a critical measure, stating, "We had 158 million Daily Active Users on average in the quarter ended December 31, 2016, and we view Daily Active Users as a critical measure of our user engagement." Once again, this amount of DAUs is mentioned in the "Overview? of Snap, stating, "On average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day." When discussing the DAU metric, the Offering Documents stated: We assess the health of our business by measuring Daily Active Users because we believe that this metric is the most reliable way to understand engagement on our platform. It helps us understand if people are continuing to invest their time, energy, and creativity in our products. Daily engagement also in?uences our advertising inventory. We had 158 million Daily Active Users on average in the quarter ended December 31, 2016, an increase of 48% as compared to our Daily Active Users in the quarter ended December 31, 2015. 62. The Offering Documents also contained the following chart, demonstrating the 158 million users and the 48% year?over-year growth: -16- STOCKHOLDER DERIVATIVE COMPLAINT 37-22 :23 p.24 25 26 27 28 Qua Average Ba fly Active ?rm? ("in millions} 1.12?? :29 111 a" 1? a? 1111m11 1163. Defendants included similar charts discussing the Company's supposed growth in DAUS based on different regions around the world. In particular, the Offering Documents stated: Earth Amarim?? Europe? Resiof Work! 63 151 war Sega-13* 1111 1105.91.35 6 $90 . 95? ?05? 91.35 1:91? orb-1* ?34 Giff-'3? aft" ,j??fy-k 1? 64. The regions for growth were important to investors because the Company stated its innovations were best suited for developed markets, stating, "We expect growth to continue to come from developed markets with readily available high-speed cellular internet and high-end mobile devices because we prioritize our investment in product that often requires a lot of bandwidth and 17 STOCKHOLDER DERIVATIVE COMPLAINT 723 2924 '25 26 27 28 intensive processing. 65. The Offering Documents admitted that the "[t]he rate of net additional Daily Active Users was relatively flat in the early part of the quarter ended December 31, 2016," but downplayed any concerns by stating that growth was historically that it ?atness was "primarily related to accelerated growth in user engagement earlier in the and that DAU growth "accelerated in the month of December." 66. The Offering Documents explained that slowing growth in Snap's core markets of North America and Europe was a result of success in previous quarters. In particular, the Offering Documents stated: The rate of net additional Daily Active Users accelerated in the ?rst half of 2016 compared to the second half of 2015, largely due to increased user engagement from product launches and increased ad0ption rates among older demographics and international markets. This created a higher baseline of Daily Active Users heading into the third and fourth quarters, so incremental net additions within these quarters were more dif?cult even with strong year?over-year growth. 67. Further, the defendants had the Company partly blame its ?at growth on "diminished product performance and increased competition," which "especially impacted the growth of outside of North America and Europe.? Regarding the diminished product performance, the Company attempted to claim the issue was mainly isolated outside of the core markets of North America and Europe, stating: mid-2016, we launched several products and released multiple updates, which introduced a number of technical issues that diminished the performance of our application. We believe these performance issues resulted in a reduction in the growth of our Daily Active Users, particularly among Android We believe that the effect of some of these factors is amplified in countries outside of North America and Europe due to infrastructure and user behavior. 68. Despite Facebook already introducing "Stories" to Instagram, a practical carbon copy of Snap's features, the Offering Documents merely claimed that it "may be directly competitive." The Offering Documents contained similar language about possible risks of competitors copying its products, without explaining that it actually occurred and was negatively affecting the Company. In particular, the Offering Documents stated under "factors that could negatively affect user retention, rowth, and enoa ement," would be if "users increasin enoaoe with com etin roducts instead of a -18- STOCKHOLDER DERIVATIVE COMPLAINT 17322 423 35524 26 27 28 ours" and that "our competitors may mimic our products and therefore harm our user engagement and growth." 69. The defendants knew that the DAU metric was unreliable and there were credible allegations raised about this unreliability. Yet, this information was not disclosed in the Offering Documents. Instead, it stated that the Company's metrics were ?calculated using internal company data" that was "based on what we believe to be reasonable estimates of our user base for applicable period of measurement.? 70. In addition, the Offering Documents stated the following concerning a reduction in previously stated DAUs, without ever mentioning the reduction was prompted by a review from an internal whistleblower or that the whistleblower sued the Company for retaliation after he was terminated for bringing Snap?s faulty DAU metric to insiders? attention: In the past we have relied on third-party analytics providers to calculate our metrics, but today we rely primarily on our analytics platform that we developed and operate. For example, before June 2015, we used a third party that counted a Daily Active User when the application was opened or a noti?cation was received via the application on any device. We now use an analytics platform that we developed and operate and we count a Daily Active User only when a user opens the application and only once per user per day. We believe this methodology more accurately measures our user engagement. Additionally, to align our pre?June 2015 Daily Active Users with this new methodology, we reduced our pre?June 2015 Daily Active Users by the amount by which we estimated the data generated by the third party was overstated. Since this adjustment is an estimate, the actual pre-June 2015 Daily Active Users may be higher or lower than our reported numbers. As a result, our metrics may not be comparable to prior periods 71. This failure to include the reasons behind the Company's restatement of user metrics, namely Pompliano's whistleblower action, rendered the discussion above improper. This is parituclarly true because the Offering Documents noted that Snap's user metrics, including its most imponant metric, DAUs, had to be reliable. In particular, the Offering Documents stated, "[R]eal or perceived inaccuracies in [user] metrics may seriously harm and negatively affect our reputation and our business." The Offering Documents continued: If advertisers, partners, or investors do not perceive our user, geographic, or other demographic metrics to be accurate representations of our user base, or if we discover material inaccuracies in our user, geographic, or other demographic metrics, our reputation may be seriously harmed. -19- STOCKHOLDER DERIVATIVE COMPLAINT 1,;322 7523 :24 ?25 26 27 28 72. Also missing from the Offering Documents was any discussion of Pompliano's lawsuit, which was ?led under sea]. This omission was improper for two reasons. Under Generally Accepted Accounting Principles, Accounting Standards Codification Topic 450 450?), the Company was obligated to disclose all contingencies "reasonably possible" to result in a material loss. In such circumstances, the company must either disclose the loss or disclose the nature of the contingency and explain why the loss is not estimable. ASC 450?20-55-13 provides that a loss contingency involving a ?led claim must be disclosed if there is a reasonable possibility that the outcome will be unfavorable. Here, despite the likelihood of the Pompliano lawsuit resulting in an unfavorable outcome, the Offering Documents failed to disclose it. 73. Defendants admit in the Offering Documents that such a lawsuit is material. In particular, the Offering Documents explain: From time to time, we are involved in class-action lawsuits and other litigation matters that are expensive and time-consuming. If resolved adversely, lawsuits and other litigation matters could seriously harm our business. Any such negative outcome could result in payments of substantial monetary damages or ?nes, or changes to our products or business practices, and accordingly our business could be seriously harmed. Although the results of lawsuits and claims cannot be predicted with ceitainty, we do not believe that the final outcome of those matters that we currently face will seriously harm our business. 74. The Offering Documents discuss other litigation besides the Pompliano lawsuit. In particular, the Offering Documents discussed two lawsuits, one concerning a claim that Snap improperly used the plaintiff?s image and the second concerning a personal injury. By disclosing these two lawsuits, but not the Pompliano lawsuit, the Offering Documents misleadingly implied that these were the only pieces of litigation pending against the Company. THE TRUTH EMERGES WHILE DEFENDANTS CONTINUE TO MISLEAD THE PUBLIC 75. The truth behind the Company's business prospects and Individual Defendants' wrongdoing began to emerge when media started to report on Pompliano moving to unseal his complaint. On April 4, 2017, Insider reported that "[c]urrently redacted portions of -20- STOCKHOLDER DERIVATIVE COMPLAINT #23 15124 ?25 26 27 28 Pompliano's lawsuit contain user metrics that he claims are different from what Snap told investors and the press ahead of its February The article explained that in opposing to the motion to seal, Pompliano will argue that: "Snap?s outsized valuation is built on a house of cards" that has been ?systematically built through a coordinated effort from Snap's executives to personally reward themselves with billions of dollars by maliciously manipulating metrics, suppressing metrics that put the company in a negative light, and even, at times, blatantly misleading professional investors, employees, advertisers, and now, retail investors." 76. On this news, Snap's market capitalization plunged 65%, or $1.44 per share, on April 15, 2017, to close at $20.70 per share, erasing $953 million in market capitalization in a single day. 77. Losing the public relations (and likely legal) battle, on April 10, 2017, the Company filed an unsealed version of Pompliano's complaint. With the complaint unsealed, the public was now able to review Pompliano's allegations. What they found was that Pompliano's analysis about the DAUs being overstated was correct. For instance, Fortune magazine wrote on April 13, 2017, stated: Snap vociferously denies misrepresenting its user [W]hat Snap does not dispute is that the discrepancy underlying Pompliano's argument actually existed. For investors, though, whether or not Snap exaggerated the user number matters less at this point than the fact that Pompliano's lower number turned out to be right. 78. On May 10, 2017, Snap announced its ?nancial results for the ?rst quarter of 2017. The Company disappointingly announced a DAU growth of only 5% quarter-over?quarter, from 158 million to 166 million. This number meant that the Company had thirty-four million fewer users than Instagram Stories. On this news, the Company's market capitalization plunged 21%, or $4.93 per share, to close at $18.05 per share on May 11, 2017, erasing more than $3.3 billion in market capitalization in a single day. 79. However, defendant Spiegel attempted to explain away these disappointing DAU growth numbers, and, in the process, made additional improper statements. In particular, defendant Spiegel claimed that the Company was suddenly more focused on the quality of user engagement instead of growth of DAUs. However, even this was improper, as Instagram Stories was rapidly stealing Snap's market share and holding user engagement. In particular, defendant Spiegel stated: -21- STOCKHOLDER DERIVATIVE COMPLAINT 5-23 i [24 "'25 26 27 28 I think the way that we try to help people understand how we think about daily active user growth is really through the lens of creativity and creation, because we built our entire business on creation. . .. I think the most important thing to understand is that really we think of this daily active user growth as a function or a derivative of the growth in creation. And so we're really excited about the momentum there. 80. Defendant Spiegal also attempted to de?ect from Instagram's rapid rise by discussing the origination of the Company's DAU growth, notably that the Company did not engage in "growth hacking." In particular, defendant Spiegel stated: I'd love to speak a little bit to the DAU question, because it's a question that we get all the time. And I think one of the reasons why it?s such a popular question is because there?s a lot of this thing in our industry called growth hacking, where you send a lot of push noti?cations to users, or you try to get them to do things that might be unnatural or something like that. And I think while that's the easy way to grow daily actives quickly, we don't think that those sorts of techniques are very sustainable over the long term. And I think that can ultimately impact our relationship with the customer. So, ultimately, I think the way that we try to help people understand how we think about daily active user growth is really through the lens of creativity and creation, because we built our entire business on creation. 81. On May 24, 2017, at the J.P. Morgan Technology, Media, and Telecom Conference, defendant Khan repeated many of these talking points. In particular, defendant Kahn touted the amount of time users spent on Snap's platform and, regarding growth hacking, stated, think the other thing is we don't do anything to do growth hacking. We don?t spam you all the time to add you as a net user. So our growth is driven by word?of?mouth and new product launches." 82. On August 10, 2017, the Company announced the results from its second quarter of the 2017 fiscal year. Snap reported a disappointing 4% quarter-over-quarter growth in DAUs. In addition, during the earnings conference call with defendant Spiegel admitted that the Company engaged in "growth hacking," despite his comments from just the previous quarter. In particular, the following exchange took place: -22- STOCKHOLDER DERIVATIVE COMPLAINT 1-24 ?25 26 27 28 [Analyst:] So maybe just be clear. What exactly is the growth hacking that others do? If you sending push communications is not growth hacking, what are others doing that you consider to be growth hacking and not real DAU growth? [Defendant Spiegelz] Yes. I think there are plenty of examples online, if you want to go for a Google. But I think the most important thing for us is that when we're telling you about content on this service that is really highly relevant to you and from your very close friends. And I think people, as they become more reliant on push noti?cations, have sort of relaxed the standards there, and I think it?s important for our business. 83. On this news, the Company's market capitalization fell another or $1.94 per share, to close at $11.83 per share on August 11, 2017, erasing more than $1.5 billion in market capitalization in a single day. 84. Demonstrating that the slow DAU growth was a unique issue to Snap, in an aiticle dated September 25, 2017, echCrimch reported that Instagram had reached 500 million DAUs. echCrimclz explained that "Despite the social network's huge user population, its growth isn't slowing down." 85. Defendant Spiegel admitted that he poorly communicated with the investing public. During Vanity Fair's New Establishment Summit on October 3, 2017, defendant Spiegel stated: Going public was really the right thing for the company, and certainly the right thing at the One of the things I did underestimate was how much more important communication When you go public you need to explain to a huge new investor base how your business works. 86. Further, the Company has now revealed that both the and SEC are investigating whether Snap violated the law with the statements made in connection with the IPO. 87. Investors in the Company also ?led numerous class actions in both state and federal court against the Company, its undeiwriters, and certain of its current and former of?cers and directors. On June 7, 2018, the US. District Court in In re Snap Inc. Securities Litigation, No. AGR (CD. Cal), denied the defendants' motion to dismiss under the exacting standards of the Private Securities Litigation Reform Act. The court held that the plaintiffs in that case adequately plead that the defendants, with scienter, made misleading statements by failing to disclose the Pompliano lawsuit, by claiming to not engage in ?growth hacking," only to change positions three months later, and failing to disclose that Instagram Stories was directly competitive to Snapchat and signi?cantly harming the Company's DAU growth. -23- STOCKHOLDER DERIVATIVE COMPLAINT REASONS THE STATEMENTS WERE IMPROPER 88, The statements referenced above were each improper when made because they failed to disclose and misrepresented the following material, adverse facts, which the Individual Defendants knew, consciously disregarded, or were reckless in not knowing: that the Company was experiencing known but undisclosed trends in slowing DAU growth due to competitors, in particular Instagram; the Company was losing market share as a result of Instragram Stories? rapid adoption; (0) the DAU numbers reported by the Company in its Offering Documents were unreliable and likely in?ated; the Pompliano lawsuit contained credible allegations against the Company and represented a material risk; and Snap engaged in "growth hacking." THE INDIVIDUAL DEF ENDANTS KNEW THEIR STATEMENTS WERE IMPROPER 89. Pompliano's lawsuit and the internal documents provided in response to plaintiffs? inspection demands demonstrate that the Individual Defendants knew that the Company's DAU metrics were unreliable, growth was slowing, and that Snap did engage in ?growth hacking.? 90. Pompliano's complaint revealed that in his short three week employment at Snap, he found rampant mismanagement. When he brought this information to senior executives' attention, including defendant Spiegel, he was terminated for his actions. 91. Pompliano was a former Sergeant in the United States Army. In February 2014, Pompliano joined Facebook, where he led the Growth Engagement initiatives at that company. In late 2015, a Snap hired Pompliano away from Facebook. Once there, he began evaluating Snap's internal reporting and user metrics. Pompliano found signi?cant control de?ciencies over Snap's reporting of user metrics, including untrustworthy and vastly overstated DAU metrics. For instance, Pompliano explained that Snap failed to employ user growth and engagement teams to test key user engagement metrics. In addition, Snap relied on DAUs measured from unreliable third-party sources and programs known as "Flurry" and "Blizzard," that relied on inaccurate data sets. Notably, both of these programs _24_ STOCKHOLDER DERIVATIVE COMPLAINT .322 1923 24 "125 26 27 28 showed that DAUs were below the 100 million that Snap was presenting to the public. In short, Pompliano found that the Company's user engagement metrics related to DAUs, active user growth rate, user retention rate, and user registration completion rate were all incorrect. As a result, Snap's representations to advertisers and others about its user metrics were false. 92. Pompliano initially informed Jill Hazelbaker, Snapchat's Vice President of Communications that the Company needed to stop falsely representing its DAU numbers. Ms. Hazelbaker stated that she informed defendant Spiegel already that the user metrics were incorrect, but that he ignored her. 93. After speaking to additional executives, Pompliano received a meeting with defendant Spiegel to present his ?ndings. Pompliano prepared a PowerPoint presentation for the meeting highlighting the shortcomings at the Company regarding its user metrics. One slide, shown below, explained that the Company's data is unreliable and inaccurate, many basic tools for testing data were missing, and that key positions for ensuring data accuracy remained un?lled: Room for Improvement Data is unreliable and inaccurate -- Different pipelines report different numbers Few people have con?dence in the data Many basic tools are missing Dashboards, testing frameworks, tergeti ng tools, etc Key positions are un?lled - Very few experienced growth engineers - No current Growth Marketers Understa?ed data team 94. Pompliano presented his ?ndings to defendant Spiegel on September 11, 2015. Pompliano claims that defendant Spiegel essentially brushed aside Pompliano's concerns at that meeting and instead was angry at him for presenting this information. -25- STOCKHOLDER DERIVATIVE COMPLAINT around September 17, 2015, Pompliano sent defendant Spiegel a ?nal draft of the PowerPoint further discussing the issues he raised regarding Snap's faulty user data. The next day, the Company terminated Pompliano. According to Pompliano, the executives at the meeting told him that the termination was directed by defendant Spiegel. 96. On January 4, 2017, Pompliano ?led a lawsuit under seal against the Company. The lawsuit detailed the above allegations regarding his wrongful termination and the false growth metrics. 97. The members of the Board were aware of Pompliano's lawsuit. On January 27, 2017, over a month before the Company's IPO, the Board met in Venice, California. Every member of the Board was present, including defendants Spiegel, Murphy, Coles, La?ey, Lasky, Lynton, Meresman, Miller, Young, Khan, and Vollero. See At that meeting, the Board 98. The Audit Committee also met on January 25, 2017. Defendants Merseinan, Miller, Young, and Vollaro attended the meeting, among others. At the meeting. the Audit Committee 99. On January 27, 2017, the Audit Committee met again. During that meeting, 100. The Board was also aware that the Company's own actions supported Pompliano's allegationS- 3 All references to are from documents produced by Snap in response to plaintiffs' inspection demands. ~26- STOCKHOLDER DERIVATIVE COMPLAINT '22 7.24 125 26 27 28 101. 102. The Board also knew that Instagram was a signi?cant concern for the Company and markets in general. 103. The Board knew that the Company's growth was signi?cantly slowing. 104. The Board was also provided the following slide, which showed the quarterly slowdown in growth throughout the world, including in the Vital North American and European markets -27- STOCKHOLDER DERIVATIVE COMPLAINT "322 ?Daily Active Users - Quarterly Average (in melons 0/0 dewd mew as an?; 3130'?? :m i you? you? s. a M, as}, ~19" {a r! 5' 105. 106. On February 11, 2017, the Pricing Committee met. Attending this meeting was defendants Spiegel, La?ey, Lasky, Lynton, Meresman, Khan, and Vollero. 107. Accordingly, the above information demonstrates that Individual Defendants knew the true facts about the Company and its business, yet made and permitted the improper statements detailed herein. INSIDER SALES BY DEFENDANTS SPIEGEL, MURPHY, LYNTON, AND LASKY 108. Rather than providing the market with correct information, the Insider Selling Defendants used their knowledge of Snap's material, nonpublic information to sell their personal holdings while the Company's stock was artificially in?ated. As of?cers and directors of Snap, defendants Spiegel, Murphy, Lynton, and Lasky were 1W1 vy to material, nonpublic information about the Company's true -28- STOCKHOLDER DERIVATIVE COMPLAINT 524 ?'25 26 27 28 business health. 109. While in possession of this knowledge, these defendants sold over $885 million worth of their personally held Snap stock, as detailed by the table below: Defendant Trarlleaatztlon Shares Price Proceeds SPIEGEL 3/7/2017 16,000,000 $17.00 $272,000,000.00 . Total: 16,000,000 $272 000 000 00 EIMURPHY 3/7/2017 16,000,000 $17.00 $272,000,00000 Total: 16,000,000 $272 000 000 00 3/7/2017 102,670 "$17.00 $1,745,390.00 Total: 102,670 $1,745 390.00 3/7/2017 20,000,000 I $17.00: $340,000,00000 2 Total: 20,000,000 $340,000,000.00 Grand Total: 52,102,670 $885,745,390.00 DAMAGES T0 SNAP 110. As a result of the Individual Defendants? improprieties, Snap disseminated improper, public statements. These improper statements have devastated Snap's credibility as re?ected by the Company's almost $5.6 billion, or 35%, market capitalization loss. Snap's performance issues also damaged its reputation within the business community and in the capital markets. In addition to price, Snap's current and potential customers consider a company's ability to accurately provide its user metrics. Businesses are less likely to advertise with companies that cannot accurately tell them how many people would view the advertisements. Also, Snap's ability to raise equity capital or debt on favorable terms in the ?iture is now impaired. In addition, the Company stands to incur higher marginal costs of capital and debt because the improper statements and misleading projections disseminated by the Individual Defendants have materially increased the perceived risks of investing in and lending money to the Company. 112. Further, as a direct and proximate result of the Individual Defendants' actions, Snap has expended, and will continue to expend, signi?cant sums of money. Such expenditures include, but are not limited to: -29- STOCKHOLDER DERIVATIVE COMPLAINT costs incurred from defending and paying any settlement or judgement in the class actions for violations of federal securities laws; costs incurred from defending and paying any settlement or judgment in the Pompliano lawsuit; costs incurred from and responding to the DOJ and SEC investigations; and costs incurred from compensation and bene?ts paid to the defendants who have breached their duties to Snap. 113. In addition, since the Insider Selling Defendants utilized the Company's nonpublic information to sell their stock, they must disgorge any pro?ts from these sales back to Snap. DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS 1 14. Plaintiffs bring this action derivatively in the right and for the bene?t of Snap to redress injuries suffered, and to be suffered, by Snap as a direct result of breaches of ?duciary duty, waste of corporate assets, and unjust enrichment, as well as the aiding and abetting thereof, by the Individual Defendants. Snap is named as a nominal defendant solely in a derivative capacity. This is not a collusive action to confer jurisdiction on this Court that it would not otherwise have. 115. Plaintiffs will adequately and fairly represent the interests of Snap in enforcing and prosecuting its rights. 116. Plaintiffs were stockholders of Snap at the time of the wrongdoing complained of, have continuously been stockholders since that time, and are current Snap stockholders. 1 17. The current Board of Snap consists of the following nine individuals: defendants Spiegel, Murphy, Lynton, Coles, La?ey, Meresmen, Miller, Young, and non-defendant Poppy Thorpe. Plaintiffs have not made any demand on the present Board to institute this action because such a demand would be a futile, wasteful, and useless act, as set forth below. Demand Is Excused Because Defendants Spiegel, Murphy, Lynton, Coles, La?ey, Meresman, Miller, and Young Face a Substantial Likelihood of Liability for Their Misconduct 1 18. As alleged above, defendants Spiegel, Murphy, Lynton, Coles, La?ey, Meresmen, Miller, Young, breached their fiduciary duties of loyalty by knowingly making improper statements in the Company?s SEC ?lings. -30- STOCKHOLDER DERIVATIVE COMPLAINT .522 7923 [224 .25 26 27 28 119. Defendants Meresman, Miller, and Young, as members of the Audit Committee, reviewed and approved the improper statements. The Audit Committee's Charter provides that it is responsible for compliance with accounting, legal, and regulatory requirements. The books and records produced in response to plaintiffs' inspection demands demonstrate that the directors knew about the Pompliano lawsuit, the allegations contained therein, and the Company's slowing DAUs. Despite their knowledge or reckless disregard, the Audit Committee Defendants caused these improper statements. Accordingly, the Audit Committee Defendants breached their ?duciary duty of loyalty and good faith because they participated in the wrongdoing described herein. Thus, the Audit Committee Defendants face a substantial likelihood of liability for their breach of ?duciary duties so any demand upon them is futile. 120. Defendants Spiegel, Murphy, and Lynton sold Snap stock under highly suspicious circumstances. As shown by the books and records provided in response to plaintiffs' inspection demands, the Insider Selling Defendants knew about the Pompliano lawsuit and its allegations. They also knew about the slowing DAU growth and the harm caused by Instagram Stories. Moreover, they knew that investors would deeply care about this information and would drive down the Company's stock price. 121. Any suit by the current directors of Snap to remedy these wrongs would expose defendants Spiegel, Murphy, Lynton, Coles, La?ey, Meresmen, Miller, and Young, and Snap to liability for violations of the federal securities laws in the pending consolidated securities class action, and would result in civil actions being filed against one or more of the other Individual Defendants. If the Board elects for the Company to press forward with its right of action against defendants Spiegel, Murphy, Lynton, Coles, La?ey, Meresmen, Miller, and Young in this action, then Snap's efforts would compromise its defense of the federal consolidated securities class action. Accordingly, demand on the Board is excused. 122. Similarly, defendants Spiegel, Lynton, La?ey, and Meresmen, as members of the Pricing Committee, were told about the Pompliano lawsuit, the concern over DAU reliability, DAU slowing growth, and the harm from the release of Instagram Stories. Nevertheless, these defendants made or approved the wrongful statements detailed above. Accordingly, a demand on defendants Spiegel, 31 STOCKHOLDER DERIVATIVE COMPLAW .322 i 8,23 24 ??25 26 27 28 Lynton, La?ey, and Merseman is excused. 123. The entire Board is breaching its fiduciary duty by failing to investigate the Individual Defendants' actions. The Company's Code of Conduct explicitly states that it will "form a special committee represented by independent legal counsel to investigate alleged violations of this Code" by other fiduciaries. As stated above, the Code of Conduct also explicitly requires compliance with securities laws. Despite having credible basis to believe directors and officers violated these laws, including claims that survived a motion to dismiss in the federal consolidated securities class action, the Board has failed to convene the special committee, as it is required under the Code of Conduct. The Board's failure to act despite this obligation under the Code of Conduct demonstrates that a demand upon it is futile. 124. A majority of the Board also cannot consider a demand because it lacks independence from defendant Spiegel. Defendant Spiegel faces a substantial likelihood of liability for his improper statements and insider sales detailed herein. Defendant Spiegel controls 50.8% of the voting power of Snap's stock.4 Thus, he has the ability to appoint or terminate directors as he sees 125. Defendant Murphy also faces a substantial likelihood of liability, as described herein. Moreover, he cofounded the Company with defendant Spiegel and remains an of?cer of Snap. Defendant Murphy will not vote to initiate litigation against his fellow cofounder, defendant Spiegel. Further, defendant Spiegel has terminated cofounders in the past. Defendant Spiegel forced out fellow cofounder Reggie Brown in 2013. Mr. Brown then had to sue Snap and defendants Spiegel and Murphy. The litigation settled with Snap paying Mr. Brown $157.5 million in 2014 as a result of defendant Spiegel's aCtions in forcing out Mr. Brown. Defendant Murphy will similarly not risk defendant Spiegel's wrath by voting to initiate litigation against him. 126. Defendant Coles cannot impartially consider a demand to initiative litigation against defendant Spiegel. Defendant Coles is Chief Content Adviser for Hearst Magazines. Hearst is an 4 Snap has three classes of stock. Class A common stock, which is the publicly traded stock, has no voting rights. Class shares are entitled to one vote per share. Class shares are entitled to ten votes per share. Defendants Spiegel and Murphy own "all the outstanding Class shares. -32- STOCKHOLDER DERIVATIVE COMPLAINT 3:22 - [-23 .1124 25 26 27 28 editorial partner of Snap with the Company's "Discover Platform.? According to media reports, defendant Coles "played a central role in building Hearst's relationship with Snapchat." In addition, defendant Coles had to receive special permission from Hearst to join Snap's Board in light of the potential con?icts of interest. Media has also noted that Coles was an early champion of Snap when other companies were hesitant. Defendant Coles "developed a strong rapport" with defendant Spiegel as a result. Further, defendant Coles has signi?cantly increased her own pro?le as a result. Defendant Coles would not vote to initiate litigation against defendant Spiegel after so publicly aligning with him. Defendant Coles is also an advisor to We Are Sweet, a joint venture with Snap, that is a youth-serving lifestyle and culture publication. See Voting to initiate litigation against defendant Spiegel runs the risk of her losing this position. Accordingly, demand upon defendant Coles is excused. 127. Defendant Lynton is an investor in defendant Lasky?s fund, Benchmark Capital. Thus, defendant Lynton bene?ted from Benchmark Capital's sale of $340 million worth of Snap's stock at in?ated prices. Accordingly, he cannot impartially consider a demand to initiate litigation against defendant Lasky due to his ?nancial interests. 128. A true and correct copy of this Complaint was delivered to Snap prior to being ?led with this Court. FIRST CAUSE OF ACTION Against the Individual Defendants and Does 1-25 for Breach of Fiduciary Duty 129. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein. 130. The Individual Defendants and Does 1-25 owed and owe Snap ?duciary obligations. By reason of their ?duciary relationships, the Individual Defendants and Does 1-25, owed and owe Snap the highest obligation of good faith, fair dealing, loyalty, and due care. 131. The Individual Defendants and Does 1-25 and each of them, violated and breached their ?duciary duties of candor, good faith, and loyalty. More speci?cally, the Individual Defendants and Does 1-25 violated their duty of good faith by creating a culture of lawlessness within Snap, and/or consciously failing to prevent the Company from engaging in the unlawful acts complained of herein. _33_ STOCKHOLDER DERIVATIVE COMPLAINT 4522 523 ?324 ??25 26 27 28 132. As a direct and proximate result of the Individual Defendants? and Does 1-25'5 breaches of their ?duciary obligations, Snap has sustained signi?cant damages, as alleged herein. As a result of the misconduct alleged herein, these defendants are liable to the Company. 133. Plaintiffs, on behalf of Snap, have no adequate remedy at law. SECOND CAUSE OF ACTION Against the Individual Defendants and Does 1?25 for Waste of Corporate Assets 134. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein. 135. As a result of the wrongdoing detailed herein to the Company by failing to conduct proper supervision, the Individual Defendants and Does 1-25 have caused Snap to waste its assets by paying improper compensation and bonuses to certain of its executive of?cers and directors that breached their ?duciary duty. 136. As a result of the waste of corporate assets, the Individual Defendants and Does 1-25 are liable to the Company. 137. Plaintiffs, on behalf of Snap, have no adequate remedy at law. THIRD CAUSE OF ACTION Against the Individual Defendants and Does 1?25 for Unjust Enrichment 138. Plaintiffs incorporate by reference and reallege each and every allegation contained above, as though fully set forth herein. 139. By their wrongful acts and omissions, the Individual Defendants and Does 1-25 were unjustly em'iched at the expense of and to the detriment of Snap. The Individual Defendants and Does 1-25 were unjustly enriched as a result of the compensation and director remuneration they received while breaching ?duciary duties owed to Snap. 140. The Insider Selling Defendants sold Snap stock while in possession of material, nonpublic information that arti?cially in?ated the price of Snap stock. As a result, these defendants pro?ted from their misconduct and were unjustly enriched through their exploitation of material and adverse inside information. -34- STOCKHOLDER DERIVATIVE COMPLAINT 141. Plaintiffs, as stockholders and representatives of Snap, seek restitution from these defendants, and each of them, and seek an order of this Court disgorging all pro?ts, bene?ts, and other compensation obtained by these defendants, and each of them, from their wrongful conduct and ?duciary breaches. 142. Plaintiffs, on behalf of Snap, have no adequate remedy at law. PRAYER FOR RELIEF WHEREFORE, plaintiffs, on behalf of Snap, demand judgment as follows: A. Against all of the defendants and in favor of the Company for the amount of damages sustained by the Company as a result of the defendants' breaches of ?duciary duties, waste of corporate assets, and unjust enrichment; B. Directing Snap to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Snap and its stockholders from a repeat of the damaging events described herein, including, but not limited to, putting forward for stockholder vote, resolutions for amendments to the Company's Bylaws or Articles of Incorporation and taking such other action as may be necessary to place before stockholders for a vote of the following corporate governance policies: 1. a proposal to strengthen the Company's controls over ?nancial reporting; 2. a provision to permit the stockholders of Snap to nominate at least three candidates for election to the Board; 3. a provision to control insider selling; 4. a proposal to strengthen the Board's supervision of operations and develop and implement procedures for greater stockholder input into the policies and guidelines of the Board; and 5. a proposal to strengthen Snap's oversight of its disclosure procedures; C. Extraordinary equitable and/0r injunctive relief as permitted by law, equity, and state statutory provisions sued hereunder, including attaching, impounding, imposing a constructive trust on, or otherwise restricting the proceeds of defendants' trading activities or their other assets so as to assure that plaintiffs on behalf of Snap have an effective remedy; -35- STOCKHOLDER DERIVATIVE COMPLAINT OONJONUI-SADJN Awarding to Snap restitution from defendants, and each of them, and ordering disgorgement of all pro?ts, bene?ts, and other compensation obtained by the defendants, including all ill-gotten gains from insider selling by defendants; E. Awarding to plaintiffs the costs and disbursements of the action, including reasonable attomeys' fees, accountants' and experts' fees, costs, and expenses; and F. Granting such other and further relief as the Court deems just and proper. JURY DEMAND Plaintiffs demand a trial byjury. Dated: March [291919 ROBBINS ARROYO LLP BRIAN J. ROBBINS FELIPE J. ARR 5040 Shoreham Place San Diego, CA 92122 Telephone: (619) 525-3990 Facsimile: (619) 525-3991 E?mail: brobbins@robbinsarroyo.eom farroyo@robbinsarroyo.com csmith@robbinsarroyo.com ssanders@robbinsarroyo.com Attorneys for Plaintiffs 1338947 ?36- STOCKHOLDER EXHIBIT 2 AGREEMENT GOVERNING THE INSPECTION OF CONFIDENTIAL MATERIAL IT IS HEREBY AGREED, by and between the undersigned parties (the ?Parties?), as follows: 1. This Agreement Governing the Inspection of Confidential Material (the ?Agreement?) governs the handling of Con?dential Material, as defined in paragraph 2 herein (hereinafter collectively referred to as ?Confidential Material?), produced by Snap Inc. (the ?Company?) for inSpection in response to the demands from Zalman Uvaydov and David Shabbouei (the ?Demanding Parties") for the inspection of certain books and records of the Company pursuant to 8 Del. C. 220 (the ?Demand?). 2. For purposes of this Agreement, the Company may designate documents or materials as Con?dential Material that include, without limitation, information relating to: trade secrets; business plans or strategies; marketing plans or strategies; ?nancial information, reports, projections or analyses; product design or development, technical or clinical information; tax data; proposed strategic transactions, strategic alternatives, or business combinations; information that the Company is under a legal obligation to maintain as con?dential, including, without limitation, information obtained from a third party pursuant to a Nondisclosure Agreement; medical information; personal ?nancial information; personnel information or similar Operational or competitive matters; or other personally or commercially sensitive or proprietary information; and information derived therefrom. Confidential Material shall not include information which: is or becomes generally available to the public other than as a result of disclosure by the Demanding Parties or their representatives, including their counsel, consultants, advisors, or other agents (?Representatives?); the Demanding Parties or their Representatives can show was available to the Demanding Parties or their Representatives on a non-con?dential basis prior to its disclosure by the Company; or becomes available to the Demanding Parties or their Representatives on a non-con?dential basis from another person, which is de?ned to include, without limitation, any real person or legal or business entity who properly obtained the Con?dential Material and has the authority to provide it to the Demanding Parties. 3. The designation of documents or other materials by the Company as Con?dential Material for purposes of this Agreement shall be made by af?xing the legend ?Con?dential? to each page containing any Con?dential Material except that, in the case of multipage documents bound together by staple or other permanent binding, the appropriate legend need only be stamped on the ?rst page of the document in order for the entire document to be treated as Con?dential; provided that the failure to designate a document as ?Con?dential? does not constitute a waiver of the Company?s right to designate such information as Con?dential Material, and the Company may so designate a document after such document has been produced by notifying the receiving party of such designation in writing, with the effect that such document is subject to the protections of this Agreement from the date of such written designation. 4. Con?dential Material or its contents shall not be revealed, disclosed or otherwise made known to persons, directly or indirectly, other than the following: The Demanding Parties; Robbins Arroyo LLP, solely in its capacity as counsel for the Demanding Parties; (0) Experts, advisors, and consultants retained by the Demanding Parties solely for the purposes of conducting the inspection, or providing advice or assistance to the Demanding Parties relating to the Demand, or exercising or enforcing legal rights as a stockholder of the Company, provided that each such expert, advisor, or consultant shall sign a con?dentiality statement in the form attached as Exhibit A, which statements shall be retained by the Demanding Parties? counsel and provided to Company?s counsel at their request, and so long as such expert, advisor, or consultant shall not be working in any capacity with any party adverse to the Company in any pending action, including but not limited to, plaintiffs in the pending lawsuits captioned: In re Snap Inc. Securities Litigation, No. 2: (CD. Cal); Hsieh v. Snap Inc, et al., No. BC669394 (Cal. Super Iuso v. Snap Inc, et a1. No. 17CIV03710 (Cal. Super Ghosh v. Snap Inc, et al., No. (CD. Cal); Wolfson v. Evan Spiegel et al., No. BC720152 (Cal. Super Tseng v. Evan Spiegel et al., No. 2018-0778-SG (Del. Ch); Pokorney v. Evan Spiegel et al., No. 18STCV09365 (Cal. Super Ct); or any action ?led by a party other than the Demanding Parties subsequent to the execution of this agreement, unless the Parties agree otherwise or a court so orders; court and court personnel, provided the Demanding Parties comply with paragraphs 8 and l. 5. If the Demanding Parties or their Representatives learn that, by inadvertence or otherwise, they have disclosed Con?dential Material to any person or in any circumstance not authorized under this Agreement, the Demanding Parties and their Representatives must: notify the Company in writing of the unauthorized disclosure(s) within three (3) days of the Demanding Parties becoming aware of the disclosure; (ii) use their best efforts to retrieve all copies of the Con?dential Material; inform the person or persons to whom unauthorized disclosures were made of all the terms of this Agreement; and (iv) request that such person or persons execute a con?dentiality statement in the form attached hereto as Exhibit A. Compliance with the foregoing shall not prevent the Company from seeking further relief. 6. Con?dential Material must be stored and maintained by the Demanding Parties and their Representatives at a location and in a secure manner that ensures that access is limited to the persons authorized to have access under this Agreement. Any person receiving Con?dential Material pursuant to this Agreement must use reasonable precautions to prevent unauthorized persons from accessing or otherwise viewing Con?dential Material. 7. Con?dential Material shall not be copied or otherwise reproduced except to the extent such copying or reproduction is reasonably necessary for permitted uses, and all such copies or reproductions shall be subject to the terms of this Agreement. 8. If the Demanding Parties object to the designation of any document as Confidential Material under the terms of this Agreement, the Demanding Parties shall give written notice of their objection to the Company. If the Demanding Parties and the Company are unable to resolve, in good faith, any such disagreement, they agree to submit such dispute to the Court of Chancery for resolution. Until such court enters an order ruling on the con?dentiality of the document or other material, it shall be treated as ?Con?dential Material? pursuant to this Agreement and handled in accordance with the relevant provisions of this Agreement. The parties and their counsel further agree that any dispute or controversy between or among the parties to this Agreement involving or in connection with: the Demand; this Agreement; the documents produced pursuant to this Agreement and in response to the Demand (collectively, ?Litigation?), shall be heard and determined exclusively in the Court of Chancery. Each party consents to the exercise of personal jurisdiction over it by the Court of Chancery for purposes of resolving any such Litigation. The Demanding Parties and Robbins Arroyo LLP further agree that all Con?dential Material produced in response to the Demand shall be incorporated by reference into any plenary complaint, including any shareholder derivative complaint, or other pleading ?led by the Demanding Parties that relies upon Con?dential Material. In addition, the Demanding Parties and Robbins Arroyo LLP further agree that any plenary complaint, including any shareholder derivative complaint, or other pleading ?led by the Demanding Parties that relies upon Con?dential Material shall be ?led in the Superior Court of the State of California, Los Angeles County, or in the Court of Chancery. 9. Each person listed in paragraph 4 hereof and given access to Con?dential Material shall be advised that the material or information is being disclosed pursuant to and subject to the terms of this Agreement. 10. Entering into, agreeing to and/or producing or receiving materials or otherwise complying with the terms of this Agreement shall not: prejudice in any way the rights of the Company to object to the purpose, scope, or form of the Demand or to the inSpection or production of documents requested by the Demand, or operate as an admission by the Company that the Demand complies with 8 Del. C. 220, or that the Company is required by reason of 8 Del. C. 220 or other applicable law to produce or make available for inspection any information requested by the Demand (including, without limitation, any information voluntarily provided by the Company); or prejudice in any way the rights of the Company to petition any court or administrative body for a protective order relating to any purportedly con?dential information; or otherwise affect the respective rights of any party to this Agreement concerning discovery and applicable privileges in any action. 11. The Demanding Parties or their Representatives shall make use of any Confidential Material only in exercising or enforcing its legal rights to investigate and/or bring a shareholder derivative action on behalf of the Company in the courts listed in Paragraph 8. Any document containing Con?dential Material ?led by or referred to in or on behalf of the Demanding Parties in a court proceeding shall be initially ?led under seal subject to a con?dentiality order consistent with the terms of this Agreement restricting access to such document and the information therein to the court in which such action is ?led, court personnel and the persons listed in paragraph 4 hereof. 12. Upon the later of one year from the date of this Agreement or the conclusion of any shareholder derivative litigation ?led by the Demanding Parties related to the Con?dential Material, the Demanding Parties shall return to the Company the original and all copies of Con?dential Material, or certify in writing that such Con?dential Material has been destroyed. 13. If the Demanding Parties or their Representatives receive a subpoena or other compulsory process from a non-party to this Agreement seeking production or other disclosure of Con?dential Material, the Demanding Parties and/or Robbins Arroyo LLP shall give written notice to the Company in the manner provided in paragraph 15 of this Agreement within three (3) business days after receipt of the subpoena or other compulsory process, unless such subpoena or other compulsory process requires production or other disclosure of Con?dential Material or the contents thereof sooner than six (6) calendar days after receipt, in which case such written notice shall be given to the Company in the manner provided in paragraph 15 as as practicable in order to allow counsel for the Company to seek a protective order or other appropriate remedy. Such written notice shall identify the Con?dential Material (or contents thereof) sought and enclose or attach a copy of the subpoena or other compulsory process. The purpose of imposing these duties is to afford the Company an opportunity to try to protect its con?dentiality interests in the court from which the subpoena or compulsory process issued. The Company shall bear its own burdens and the expenses of seeking protection of its con?dential material. In the event that the Demanding Parties or their Representatives are compelled to disclose Con?dential Material in response to a subpoena or other compulsory process, they shall exercise reasonable efforts to obtain con?dential treatment of any Con?dential Material that is so disclosed. 14. This Agreement has no effect upon, and shall not apply to, the Company?s use or dissemination of its own Con?dential Material. 15. Any notice required to be given pursuant to this Agreement shall be as follows: If to the Company, to: Ignacio E. Salceda, Esq. Wilson Sonsini Goodrich Rosati, PC. 650 Page Mill Road Palo Alto, California 94304?1050 If to the Demanding Parties, to: Gregory E. Del Gaizo, Esq. Robbins Arroyo LLP 5040 Shoreham Place San Diego, CA 92122 16. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its principles or rules regarding con?icts of laws. 17. This Agreement sets forth the entire agreement of the Parties regarding the treatment of Con?dential Material, supersedes any and all other prior agreements between the parties concerning such treatment, and may not be modi?ed, altered, changed, or terminated except upon the express prior written consent of the Parties. 18. This Agreement may be signed by the parties in counterparts. ZALMAN UVAYDOV DAVID SHABBOUEI By: LA .0172"? 2?fegory E. Del Gaizo, Esq., as attorney-in-fact Date: SNAP INC. By: Ignacio E. Salceda, Esq., as attomey-in-fact Date: JM 24?, 7.0/9 EXHIBIT A I hereby certify my understanding that Con?dential Material is being provided to me pursuant to the terms and restrictions of the Agreement Governing the Inspection of Con?dential Material between Snap Inc. and Zalman Uvaydov and David Shabbouei (the ?Agreement?), and (ii) that have read the Agreement. I understand the terms of the Agreement, I agree to be fully bound by the Agreement, and I hereby submit to the jurisdiction of the courts of the State of Delaware for purposes of enforcement of the Agreement. Date: Signature: Printed Name: