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1 Verified Shareholder Derivative Complaint
Laurence M. Rosen, Esq. (SBN 219683) THE ROSEN LAW FIRM, P.A. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 Email: [email protected] Counsel for Plaintiff
SUPERIOR COURT FOR THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
SIDDHARTH PANCHAL, derivatively on
behalf of ACTIVISION BLIZZARD, INC.,
Plaintiff,
v.
ROBERT A. KOTICK, SPENCER NEUMANN, COLLISTER JOHNSON, REVETA BOWERS, ROBERT CORTI, HENDRIK HARTONG III, BRIAN KELLY, BARRY MEYER, ROBERT MORGADO, PETER NOLAN, CASEY WASSERMAN, and ELAINE WYNN,
Defendants,
and
ACTIVISION BLIZZARD, INC.,
Nominal Defendant.
Case No.:
VERIFIED SHAREHOLDER
DERIVATIVE COMPLAINT FOR:
(1) BREACH OF FIDUCIARY DUTY;
(2) UNJUST ENRICHMENT;
(3) ABUSE OF CONTROL;
(4) GROSS MISMANAGEMENT; AND
(5) WASTE OF CORPORATE ASSETS.
JURY TRIAL DEMANDED
Plaintiff Siddharth Panchal (“Plaintiff”), by his undersigned attorneys, derivatively and on
behalf of Nominal Defendant Activision Blizzard, Inc. (“Activision” or the “Company”), files this
Verified Shareholder Derivative Complaint against Individual Defendants Robert A. Kotick, Spencer
Neumann, Collister Johnson, Reveta Bowers, Robert Corti, Hendrik Hartong III, Brian Kelly, Barry
Meyer, Robert Morgado, Peter Nolan, Casey Wasserman, and Elaine Wynn (collectively, the
Electronically FILED by Superior Court of California, County of Los Angeles on 04/24/2019 02:08 PM Sherri R. Carter, Executive Officer/Clerk of Court, by R. Perez,Deputy Clerk
Assigned for all purposes to: Stanley Mosk Courthouse, Judicial Officer: Elizabeth Feffer
19STCV14214
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2 Verified Shareholder Derivative Complaint
“Individual Defendants” and together with Activision, the “Defendants”) for breaches of their
fiduciary duties as directors and/or officers of Activision, unjust enrichment, abuse of control, gross
mismanagement, and waste of corporate assets. As for Plaintiff’s complaint against the Individual
Defendants, he alleges the following based upon personal knowledge as to himself and his own acts,
and information and belief as to all other matters, based upon, inter alia, the investigation conducted
by and through Plaintiff’s attorneys, which included, among other things, a review of the Defendants’
public documents, conference calls and announcements made by Defendants, United States Securities
and Exchange Commission (“SEC”) filings, wire and press releases published by and regarding
Activision, legal filings, news reports, securities analysts’ reports and advisories about the Company,
and information readily obtainable on the Internet. Plaintiff believes that substantial evidentiary
support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a shareholder derivative action that seeks to remedy wrongdoing committed by
Activision’s directors and officers from August 2, 2018 through the present (the “Relevant Period”).
2. Activision is a global interactive entertainment company that develops and publishes
entertainment content and services for video game consoles, personal computers, and mobile devices.
The Company also creates film and television content based on its iconic and globally-recognized
intellectual properties.
3. Activision’s portfolio includes popular entertainment franchises including World of
Warcraft, Candy Crush, Call of Duty, and until recently, the Destiny franchise. The Company’s
entertainment network serves nearly 500 million monthly users located across numerous countries.
4. The Destiny franchise was the by-product of a 10-year exclusive partnership agreement
entered on April 29, 2010 between Activision and Bungie, Inc. (“Bungie”), an American video game
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3 Verified Shareholder Derivative Complaint
developer of blockbuster game franchises such as Halo.1 Under the agreement, the Company had
exclusive worldwide rights to publish and distribute all future Bungie games based on “new
intellectual property on multiple platforms and devices.” During the time of Destiny’s first launch, the
Company announced that the game was “[o]n Track to Become Activision's Next Billion Dollar
Franchise.”23
5. On January 10, 2019, in a joint statement made by Activision and Bungie, the
companies announced that the partnership had come to an end and that Bungie would assume full
publishing, ownership, and development rights and responsibilities for the Destiny franchise. In a
website post on Bungie’s website, Bungie stated that the transitionary process had already begun. The
same day, in a current report filed by the Company with the SEC on a Form 8-K, Activision confirmed
that going forward, Bungie would own and develop the Destiny franchise and that consequently, the
Company did not expect any material revenue, operating income or operating loss from the franchise
in 2019.4
6. On this news, the price per share of Activision stock dropped $4.81, around 9%, from
its closing price of $51.35 per share on January 10, 2019, closing at $46.38 per share on January 11,
2019.
7. During the Relevant Period, the Individual Defendants, in breach of their fiduciary
duties owed to Activision, willfully or recklessly made and/or caused the Company to make false and
misleading statements. The false and misleading statements failed to disclose, inter alia, that: (1) the
end of Activision’s agreement with Bungie and the Destiny franchise collaboration was forthcoming
1 https://investor.activision.com/news-releases/news-release-details/bungie-and-activision-announce-exclusive-worldwide-partnership. Last visited February 18, 2019. 2 Emphasis in original unless otherwise noted in this Complaint. 3 Id. 4 https://www.sec.gov/Archives/edgar/data/718877/000110465919001477/a19-2310_18k.htm. Last visited
February 18, 2019.
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4 Verified Shareholder Derivative Complaint
and would result in Activision transferring all publishing rights and responsibilities for the Destiny
franchise to Bungie; (2) foreseeably, this would adversely affect the Company’s revenues; and (3)
Activision failed to maintain internal controls. As a result of the foregoing, the Company’s public
statements were materially false and misleading at all relevant times.
8. During the Relevant Period, when the Individual Defendants breached their fiduciary
duties by making and/or causing the Company to make the false and misleading statements discussed
herein, the investing public was under a false impression of the Company’s business, operations, and
financial success.
9. The Individual Defendants failed to correct and/or caused the Company to fail to
correct these false and misleading statements and omissions of material fact, rendering them
personally liable to the Company for breaching their fiduciary duties.
10. Additionally, in breach of their fiduciary duties, the Individual Defendants willfully or
recklessly caused the Company to fail to maintain internal controls.
11. The Individual Defendants’ breaches of fiduciary duty and other misconduct have
subjected the Company, the Company’s Chief Executive Officer (“CEO”), its former Chief Financial
Officer (“CFO”), and its Chief Operating Officer (“COO”), to a federal securities fraud class action
lawsuit pending in the United States District Court for the Central District of California (the “Securities
Class Action”), the need to undertake internal investigations, losses from the waste of corporate assets,
and losses due to the unjust enrichment of Individual Defendants who were improperly over-
compensated by the Company, costing the Company millions of dollars.
12. The Company has been substantially damaged as a result of the Individual Defendants’
knowing or highly reckless breaches of fiduciary duty and other misconduct.
13. In light of the breaches of fiduciary duty engaged in by the Individual Defendants, most
of whom are the Company’s current directors, of the collective engagement in fraud and misconduct
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5 Verified Shareholder Derivative Complaint
by the Company’s directors, of the substantial likelihood of the directors’ liability in this derivative
action, the CEO’s, former CFO’s, and COO’s liability in the Securities Class Action, of their not being
disinterested or independent directors, a majority of Activision’s Board of Directors (the “Board”)
cannot consider a demand to commence litigation against themselves on behalf of the Company with
the requisite level of disinterestedness and independence.
JURISDICTION AND VENUE
14. This Court has jurisdiction over all causes of action asserted herein pursuant to the
California Constitution, Article VI, § 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.
15. The amount in controversy, exclusive of interest and costs, exceeds the jurisdictional
minimum of this Court.
16. Activision is a corporation that conducts business and maintains its principal
headquarters and operations in California.
17. Each individual Defendant has sufficient minimum contacts with California so as to
render the exercise of jurisdiction by the California courts permissible under traditional notions of fair
play and substantial justice. Activision is headquartered in California, and because the allegations
contained herein are brought derivatively on behalf of Activision, Defendants' conduct was
purposefully directed at California.
18. Venue is proper in this Court because one or more of the defendants either resides in
or maintains executive offices 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, 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.
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6 Verified Shareholder Derivative Complaint
PARTIES
Plaintiff
19. Plaintiff is a current shareholder of Activision. Plaintiff has continuously held
Activision common stock since before the beginning of the Relevant Period.
Nominal Defendant Activision
20. Activision is a Delaware corporation with its principal executive offices at 3100 Ocean
Park Boulevard, Santa Monica, CA 90405. Activision’s shares trade on the NASDAQ Global Select
Market (“NASDAQ-GS”) under the ticker symbol “ATVI.”
Defendant Kotick
21. Defendant Robert Kotick (“Kotick”) has served as the Company’s CEO and as a
Company director since 1991. Defendant Kotick additionally served as the Company’s President from
July 2008 to June 2017. According to the Company’s Schedule 14A filed with the SEC on April 30,
2018 (the “2018 Proxy Statement”), as of April 1, 2018, Defendant Kotick beneficially owned
3,485,455 shares of the Company’s common stock.5 Given that the price per share of the Company’s
common stock at the close of trading on March 29, 20186 was $67.46, Defendant Kotick owned over
$235.1 million worth of Activision stock.
22. For the fiscal year ended December 31, 2017, Defendant Kotick received $28,698,375
in compensation from the Company. This included $1,750,000 in salary, $19,553,653 in stock awards,
5These shares included 2,003,156 shares of the Company’s Common Stock held in a certain trust, the 10122B
Trust, which Defendant Kotick was the trustee and the sole beneficiary as of April 30, 2018, one share held by
ASAC II LLC, a limited liability company which Defendants Kelly and Kotick are the managers, but to which
Defendant Kotick disclaimed beneficial ownership except to the extent of his pecuniary interest therein, 508,790 shares held in grantor retained annuity trusts for the benefit of Defendant Kotick’s immediate family, which
Defendant Kotick disclaimed beneficial ownership, and 973,508 shares held in the 1011 Foundation, Inc., a
charitable foundation of which Defendant Kotick served as the president and which he disclaimed beneficial ownership. 6This date represents the closing price of the Company’s stock on the last day of trading prior to April 1, 2018.
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7 Verified Shareholder Derivative Complaint
$4,498,896 in other awards, $2,808,688 in non-equity incentive plan compensation, and $87,138 in all
other compensation.
23. The Company’s 2018 Proxy Statement stated the following about Defendant Kotick:
Mr. Kotick, age 55, has been a director of Activision Blizzard since February 1991,
following his purchase of a significant interest in the Company, which was then on
the verge of insolvency, and serves as our Chief Executive Officer. Mr. Kotick was
our Chairman and Chief Executive Officer from February 1991 until July 2008,
when he became our President and Chief Executive Officer. He served as our
President from July 2008 until June 2017, when Mr. Johnson began serving as our
President and Chief Operating Officer.
24. Upon information and belief, Defendant Kotick is a citizen of California.
Defendant Neumann
25. Defendant Spencer Neumann (“Neumann”) served as the Company’s CFO from May
2017 until he was terminated for cause by the Company on December 31, 2018. According to the 2018
Proxy Statement, as of April 1, 2018, Defendant Neumann beneficially owned 55,908 shares of the
Company’s common stock.7 Given that the price per share of the Company’s common stock at the
close of trading on March 29, 2018 was $67.46, Defendant Neumann owned over $3.7 million worth
of Activision stock.
26. For the fiscal year ended December 31, 2017, Defendant Neumann received $9,465,807
in compensation from the Company. This included $503,461 in salary, a $1,000,000 bonus,
$4,151,199 in stock awards, $2,800,076 in option awards, $1,009,481 in non-equity incentive plan
compensation, and $1,590 in all other compensation.
27. Upon information and belief, Defendant Neumann is a citizen of California.
7 Includes 29,603 shares which Defendant Neumann held pursuant to a right to acquire.
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8 Verified Shareholder Derivative Complaint
Defendant Johnson
28. Defendant Collister Johnson (“Johnson”) has served as the Company’s President and
COO since June 2017.
29. For the fiscal year ended December 31, 2017, Defendant Johnson received $11,199,440
in compensation from the Company. This included $675,00 in salary, $1,000,000 in bonus, $2,984,205
in stock awards, $5,990,128 in option awards, $494,844 in non-equity incentive plan compensation,
and $55,263 in all other compensation.
30. The Company’s website states the following about Defendant Johnson:8
Collister “Coddy” Johnson has served as our President and Chief Operating Officer
since June 2017. Prior to that, he served as the chief operating officer and co-
founder of Altschool, a public benefit, education technology company, from April
2016 until May 2017. Prior to joining Altschool, he held a number of positions of
increasing responsibility at the Company from 2008 to 2016, serving as the chief
financial officer and head of operations of Activision Publishing, one of our
principal operating units, chief operating officer of Activision Studios, and senior
vice president and chief of staff to our Chief Executive Officer. Mr. Johnson holds
a B.A. degree in ethics, politics and economics from Yale University and an M.B.A.
degree from Stanford University.
31. Upon information and belief, Defendant Johnson is a citizen of California.
Defendant Bowers
32. Defendant Reveta Bowers (“Bowers”) has served as a Company director since 2018.
She also serves as a member of the Compensation Committee. According to the 2018 Proxy Statement,
as of April 1, 2018, Defendant Bowers beneficially owned 458 shares of the Company’s common
stock.9 Given that the price per share of the Company’s common stock at the close of trading on March
29, 2018 was $67.46, Defendant Bowers owned approximately $30,896 worth of Activision stock.
8 https://www.activisionblizzard.com/senior-corporate-management/coddy-johnson. Last visited February 14, 2019. 9 Shares are held pursuant to a right to acquire.
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9 Verified Shareholder Derivative Complaint
33. According to the Company’s 2018 Proxy Statement, Defendant Bowers is entitled to
an annual retainer of $95,500, special assignment fees of $5,500 per day, and an annual grant of
restricted stock valued at $250,000.
34. The Company’s 2018 Proxy Statement stated the following about Defendant Bowers:
Ms. Bowers, age 69, has served as an independent governance and organizational
consultant for non-profit organizations since 2016. From 1972 to 2016, she served
as a teacher and administrator at The Center for Early Education, an independent
school for children. From 1993 to 2003, she served on the board of directors of The
Walt Disney Company, a global entertainment company.
35. Upon information and belief, Defendant Bowers is a citizen of California.
Defendant Corti
36. Defendant Robert Corti (“Corti”) has served as a Company director since 2003. He also
serves as Chair of the Audit Committee. According to the 2018 Proxy Statement, as of April 1, 2018,
Defendant Corti beneficially owned 106,518 shares of the Company’s common stock. Given that the
price per share of the Company’s common stock at the close of trading on March 29, 2018 was $67.46,
Defendant Corti owned over $7.1 million worth of Activision stock.
37. For the fiscal year ended December 31, 2017, Defendant Corti received $379,667 in
compensation from the Company. This included $130,000 in fees earned or cash paid and $249,667
in stock awards.
38. The Company’s 2018 Proxy Statement, stated the following about Defendant Corti:
Mr. Corti, age 68, worked at Avon Products, a global manufacturer and marketer
of beauty and related products, for more than 25 years. He joined Avon Products’
tax department as a tax associate in 1976 and held positions of increasing
responsibility in the company’s finance department throughout his tenure there,
including serving as an executive vice president and the chief financial officer of
Avon Products from 1998 until he retired from the chief financial officer role in
November 2005 and as an executive vice president in March 2006.
39. Upon information and belief, Defendant Corti is a citizen of New York.
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10 Verified Shareholder Derivative Complaint
Defendant Hartong
40. Defendant Hendrik Hartong III (“Hartong”) has served as a Company director since
2015. He also serves as a member of the Audit Committee. According to the 2018 Proxy Statement,
as of April 1, 2018, Defendant Hartong beneficially owned 27,174 shares of the Company’s common
stock. Given that the price per share of the Company’s common stock at the close of trading on March
29, 2018 was $67.46, Defendant Hartong owned over $1.8 million worth of Activision stock.
41. For the fiscal year ended December 31, 2017, Defendant Hartong received $350,667 in
compensation from the Company. This included $101,000 in fees earned or cash paid and $249,667
in stock awards.
42. The Company’s 2018 Proxy Statement, stated the following about Defendant Hartong:
Mr. Hartong, age 51, joined Brynwood Partners, a private equity firm specializing
in the consumer products sector, in 2004, as a managing partner. Mr. Hartong was
the president and chief executive officer of Lincoln Snacks Company, a food
products company, from 1998, at which point the company was publicly traded,
until 2004, when Brynwood Partners divested its ownership in Lincoln Snacks.
Prior to joining Lincoln Snacks, Mr. Hartong held various sales and marketing
positions of increasing responsibility with Baskin Robbins USA Co. and Nestlé
USA, Inc., both of which are food products companies, and, from 1996 to 1998,
with Activision, then our principal business unit.
43. Upon information and belief, Defendant Hartong is a citizen of Connecticut.
Defendant Kelly
44. Defendant Brian Kelly (“Kelly”) joined the Company in 1991 and has served in various
capacities throughout the years including as CFO, Secretary, COO, and President. He has served as a
Company director since 1995, and as Chairman of the Board since 2013. According to the 2018 Proxy
Statement, as of April 1, 2018, Defendant Kelly beneficially owned 5,133,732 shares of the
Company’s common stock.10 Given that the price per share of the Company’s common stock at the
10 Including 80,676 held pursuant to a right to acquire.
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11 Verified Shareholder Derivative Complaint
close of trading on March 29, 2018 was $67.46, Defendant Kelly owned over $1.8 million worth of
Activision stock.
45. For the fiscal year ended December 31, 2017, Defendant Kelly received $489,677 in
compensation from the Company. This included $240,000 in fees earned or cash paid and $249,667
in stock awards.
46. The Company’s 2018 Proxy Statement stated the following about Defendant Kelly,
“Mr. Kelly, age 55, has held various positions of responsibility with Activision Blizzard since 1991,
including serving as a director of the Company since July 1995, the co-chairman of our Board of
Directors from October 1998 until 2013 and as chairman of our Board of Directors since 2013.”
47. Upon information and belief, Defendant Kelly is a citizen of New York.
Defendant Meyer
48. Defendant Barry Meyer (“Meyer”) has served a Company director since 2014. He also
serves as a member of the Nominating and Corporate Governance Committee. According to the 2018
Proxy Statement, as of April 1, 2018, Defendant Meyer beneficially owned 36,554 shares of the
Company’s common stock. Given that the price per share of the Company’s common stock at the close
of trading on March 29, 2018 was $67.46, Defendant Meyer owned over $2.4 million worth of
Activision stock.
49. For the fiscal year ended December 31, 2017, Defendant Meyer received $345,167 in
compensation from the Company. This included $95,500 in fees earned or cash paid and $249,667 in
stock awards.
50. The Company’s 2018 Proxy Statement stated the following about Defendant Meyer:
Mr. Meyer, age 74, retired as the chairman of Warner Bros. Entertainment Inc., an
American producer of film, television, and music, at the end of 2013. He joined
Warner Bros. as a director of business affairs in 1971 and held positions of
increasing responsibility throughout his tenure there, eventually serving as Warner
Bros.’ chief executive officer and chairman from October 1999 until March 2013
and as chairman through December 2013. Mr. Meyer founded the consulting firm
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12 Verified Shareholder Derivative Complaint
North Ten Mile Associates following his retirement from Warner Bros., and
currently serves as the manager and co-chief executive officer of that firm.
51. Upon information and belief, Defendant Meyer is a citizen of California.
Defendant Morgado
52. Defendant Robert Morgado (“Morgado”) has served as a Company director since 1997.
He also serves as the “Lead Independent Director” and as Chair of the Compensation Committee,
Chair of the Nominating and Corporate Governance Committee, and a member of the Audit
Committee. According to the 2018 Proxy Statement, as of April 1, 2018, Defendant Morgado
beneficially owned 193,83211 shares of the Company’s common stock. Given that the price per share
of the Company’s common stock at the close of trading on March 29, 2018 was $67.46, Defendant
Morgado owned over $13 million worth of Activision stock.
53. For the fiscal year ended December 31, 2017, Defendant Morgado received $920,001
in compensation from the Company. This included $171,000 in fees earned or cash paid and $749,001
in stock awards.
54. The Company’s 2018 Proxy Statement stated the following about Defendant Morgado:
Mr. Morgado, age 75, is chairman of Maroley Media Group, a media entertainment
investment company he established in 1995. He previously served as the chairman
and the chief executive officer of Warner Music Group, a music content company
comprised of recorded music and music publishing businesses, from 1985 to 1995.
55. Upon information and belief, Defendant Morgado is a citizen of Connecticut.
Defendant Nolan
56. Defendant Peter Nolan (“Nolan”) has served as a Company director since 2013. He
also serves as a member of the Nominating and Corporate Governance Committee. According to the
2018 Proxy Statement, as of April 1, 2018, Defendant Nolan beneficially owned 59,565 shares of the
11 Including 108,000 shares held pursuant to a right to acquire.
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Company’s common stock. Given that the price per share of the Company’s common stock at the close
of trading on March 29, 2018 was $67.46, Defendant Nolan owned over $4 million worth of Activision
stock.
57. For the fiscal year ended December 31, 2017, Defendant Nolan received $345,167 in
compensation from the Company. This included $95,500 in fees earned or cash paid and $249,667 in
stock awards.
58. The Company’s 2018 Proxy Statement, stated the following about Defendant Nolan:
Mr. Nolan, age 59, is the chairman of Nolan Capital, a private investment company,
and is also a senior advisor to Leonard Green & Partners, L.P., a private equity firm,
and was previously the managing partner of Leonard Green & Partners. Prior to
becoming a partner at Leonard Green & Partners in 1997, Mr. Nolan served as a
managing director and the co-head of Donaldson, Lufkin and Jenrette’s Los
Angeles Investment Banking Division from 1990 to 1997, as a first vice president
in corporate finance at Drexel Burnham Lambert from 1986 to 1990, and as a vice
president at Prudential Securities, Inc. from 1982 to 1986. Prior to 1982, Mr. Nolan
was an associate at Manufacturers Hanover Trust Company. Mr. Nolan served on
the Company’s Board from December 2003 until July 2008, when he resigned in
connection with the 2008 business combination of Activision, Inc. and Vivendi
Games, Inc. (the “Vivendi Games Combination”).
59. Upon information and belief, Defendant Nolan is a citizen of California.
Defendant Wasserman
60. Defendant Casey Wasserman (“Wasserman”) has served a Company director since
2015. He also serves as a member of the Compensation Committee. According to the 2018 Proxy
Statement, as of April 1, 2018, Defendant Wasserman beneficially owned 18,563 shares of the
Company’s common stock. Given that the price per share of the Company’s common stock at the close
of trading on March 29, 2018 was $67.46, Defendant Wasserman owned over $1.2 million worth of
Activision stock.
61. For the fiscal year ended December 31, 2017, Defendant Wasserman received
$345,167 in compensation from the Company. This included $95,500 in fees earned or cash paid and
$249,667 in stock awards.
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14 Verified Shareholder Derivative Complaint
62. The Company’s 2018 Proxy Statement stated the following about Defendant
Wasserman: “Mr. Wasserman, age 43, is the chairman and chief executive officer of Wasserman, a
sports, entertainment, and lifestyle marketing and management agency that he founded in 2002. Mr.
Wasserman also serves as the president and chief executive officer of the Wasserman Foundation.”
63. Upon information and belief, Defendant Wasserman is a citizen of California.
Defendant Wynn
64. Defendant Elaine Wynn (“Wynn”) has served as a Company director since 2013. She
also serves as a member of the Compensation Committee. According to the 2018 Proxy Statement, as
of April 1, 2018, Defendant Wynn beneficially owned 23,265 shares of the Company’s common stock.
Given that the price per share of the Company’s common stock at the close of trading on March 29,
2018 was $67.46, Defendant Wynn owned over $1.5 million worth of Activision stock.
65. For the fiscal year ended December 31, 2017, Defendant Wynn received $345,167 in
compensation from the Company. This included $95,500 in fees earned or cash paid and $249,667 in
stock awards.
66. The Company’s 2018 Proxy Statement stated the following about Defendant Wynn:
“Ms. Wynn, age 76, is a co-founder of Wynn Resorts, a developer and operator of high-end hotels and
casinos, and served as a director of Wynn Resorts from its inception in 2002 to May 2015. Prior to
that, Ms. Wynn served as a director of Mirage Resorts from 1976 to 2000.”
67. Upon information and belief, Defendant Wynn is a citizen of Nevada.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
68. By reason of their positions as officers and/or directors of Activision and because of
their ability to control the business and corporate affairs of Activision, the Individual Defendants owed
Activision and its shareholders fiduciary obligations of trust, loyalty, good faith, and due care, and
were and are required to use their utmost ability to control and manage Activision in a fair, just, honest,
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and equitable manner. The Individual Defendants were and are required to act in furtherance of the
best interests of Activision and its shareholders so as to benefit all shareholders equally.
69. Each director, officer, and controller of the Company owes to Activision and its
shareholders the fiduciary duty to exercise good faith and diligence in the administration of the
Company and in the use and preservation of its property and assets and the highest obligations of fair
dealing.
70. The Individual Defendants, because of their positions of control and authority as
directors and/or officers of Activision, were able to and did, directly or indirectly, exercise control
over the wrongful acts complained of herein.
71. To discharge their duties, the officers, directors, and controllers of Activision were
required to exercise reasonable and prudent supervision over the management, policies, controls, and
operations of the Company.
72. Each Individual Defendant, by virtue of his position as a director and/or officer, owed
to the Company and to its shareholders the highest fiduciary duties of loyalty, good faith, and the
exercise of due care and diligence in the management and administration of the affairs of the Company,
as well as in the use and preservation of its property and assets. The conduct of the Individual
Defendants complained of herein involves a knowing and culpable violation of their obligations as
directors and officers of Activision, the absence of good faith on their part, or a reckless disregard for
their duties to the Company and its shareholders that the Individual Defendants were aware or should
have been aware posed a risk of serious injury to the Company. The conduct of the Individual
Defendants who were also officers and/or directors of the Company has been ratified by the remaining
Individual Defendants who collectively comprised Activision’s Board at all relevant times.
73. As senior executive officers and directors of a publicly-traded company whose
common stock was registered with the SEC pursuant to the Exchange Act and traded on the NASDAQ-
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GS, the Individual Defendants had a duty to prevent and not to effect the dissemination of inaccurate
and untruthful information with respect to the Company’s financial condition, performance, growth,
operations, financial statements, business, products, management, earnings, internal controls, and
present and future business prospects, including the dissemination of false information regarding the
Company’s business, prospects, and operations, and had a duty to cause the Company to disclose in
its regulatory filings with the SEC all those facts described in this Complaint that it failed to disclose,
so that the market price of the Company’s common stock would be based upon truthful and accurate
information.
74. To discharge their duties, the officers and directors of Activision were required to
exercise reasonable and prudent supervision over the management, policies, practices, and internal
controls of the Company. By virtue of such duties, the officers and directors of Activision were
required to, among other things:
(a) ensure that the Company was operated in a diligent, honest, and prudent manner
in accordance with the laws and regulations of Delaware, California, and the United States, and
pursuant to Activision’s own Code of Conduct;
(b) conduct the affairs of the Company in an efficient, business-like manner 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;
(c) remain informed as to how Activision conducted its operations, and, upon
receipt of notice or information of imprudent or unsound conditions or practices, to make reasonable
inquiry in connection therewith, and to take steps to correct such conditions or practices;
(d) establish and maintain systematic and accurate records and reports of the
business and internal affairs of Activision and procedures for the reporting of the business and internal
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affairs to the Board and to periodically investigate, or cause independent investigation to be made of,
said reports and records;
(e) maintain and implement an adequate and functioning system of internal legal,
financial, and management controls, such that Activision’s operations would comply with all
applicable laws and Activision’s financial statements and regulatory filings filed with the SEC and
disseminated to the public and the Company’s shareholders would be accurate;
(f) exercise reasonable control and supervision over the public statements made by
the Company’s officers and employees and any other reports or information that the Company was
required by law to disseminate; and
(g) examine and evaluate any reports of examinations, audits, or other financial
information concerning the financial affairs of the Company and to make full and accurate disclosure
of all material facts concerning, inter alia, each of the subjects and duties set forth above.
75. Each of the Individual Defendants further owed to Activision and the shareholders the
duty of loyalty requiring that each favor Activision’s interest and that of its shareholders over their
own while conducting the affairs of the Company and refrain from using their position, influence or
knowledge of the affairs of the Company to gain personal advantage.
76. At all times relevant hereto, the Individual Defendants were the agents of each other
and of Activision and were at all times acting within the course and scope of such agency.
77. Because of their advisory, executive, managerial, directorial, and controlling positions
with Activision, each of the Individual Defendants had access to adverse, non-public information
about the Company.
78. The Individual Defendants, because of their positions of control and authority, were
able to and did, directly or indirectly, exercise control over the wrongful acts complained of herein, as
well as the contents of the various public statements issued by Activision.
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CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION
79. 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 wrongdoing. The Individual Defendants caused the
Company to conceal the true facts as alleged herein. The Individual Defendants further aided and
abetted and assisted each other in breaching their respective duties.
80. The purpose and effect of the conspiracy, common enterprise, and common course of
conduct was, among other things, to facilitate and disguise the Individual Defendants’ violations of
law, including breaches of fiduciary duty, unjust enrichment, waste of corporate assets, gross
mismanagement, and abuse of control.
81. The Individual Defendants accomplished their conspiracy, common enterprise, and
common course of conduct by causing the Company purposefully or recklessly to conceal material
facts, fail to correct such misrepresentations, and violate applicable laws. In furtherance of this plan,
conspiracy, and course of conduct, the Individual Defendants collectively and individually took the
actions set forth herein. Because the actions described herein occurred under the authority of the
Board, each of the Individual Defendants who is a director of Activision was a direct, necessary, and
substantial participant in the conspiracy, common enterprise, and common course of conduct
complained of herein.
82. 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 of the Individual Defendants acted with actual or
constructive knowledge of the primary wrongdoing, either took direct part in, or substantially assisted
in the accomplishment of that wrongdoing, and was or should have been aware of his or her overall
contribution to and furtherance of the wrongdoing.
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83. At all times relevant hereto, each of the Individual Defendants was the agent of each of
the other Individual Defendants and of Activision, and was at all times acting within the course and
scope of such agency.
ACTIVISION’S CODE OF CONDUCT
84. The Company’s Code of Conduct provides that “[i]t doesn’t matter if you are a studio
head or an art intern on your first day – the rules described in this Code apply to all employees. We
all work together, and we’re all expected to follow our Code – doing the right thing and even
admitting when we’re wrong.”
85. The Code of Conduct contains a chapter entitled “Protecting Our Company,” which
states that, “[w]e create great entertainment for millions of people. To continue creating products for
our fans and customers – and ourselves – we need to keep doing business the right way.”
86. In a chapter entitled “Maintaining Our Shareholders’ Trust,” the Code of Conduct states
in relevant part:
Just as we build our co-workers’ trust by living up to high standards for how we
treat each other, we earn our shareholders’ trust by holding ourselves to, and
meeting, extremely high standards in the areas explained in this chapter. Although
some of the concepts below may sound unfamiliar, it is important that we get to
understand what they really mean and uphold them every day.
87. The chapter continues, providing that the Company’s records must be accurate and
transparent:
We need to make sure that all our company records and reports are full, fair,
accurate, timely and understandable. We should never misstate facts, omit critical
information or modify records or reports in any way to mislead others, and never
assist others in doing so.
If you believe information our company has provided is somehow incomplete,
inaccurate or otherwise misleading, you should report it to the Legal Department
immediately.
88. The Code of Conduct states that the Company makes “every effort to make sure that
what [it] advertises about [its] own products—or say[s] about [its] competitors’—is clear and true.”
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89. Under a chapter entitled “How We Act,” the Code of Conduct maintains that living by
the Company’s Code of Conduct is “not only about being reactive when something’s wrong, it’s just
as much about being proactive to keep things right.”
90. In violation of the Code of Conduct, the Individual Defendants conducted little, if any,
oversight of the Company’s engagement in the Individual Defendants’ scheme to issue materially false
and misleading statements to the public and to facilitate and disguise the Individual Defendants’
violations of law, including breaches of fiduciary duty, gross mismanagement, abuse of control, waste
of corporate assets, and unjust enrichment. In violation of the Code of Conduct, the Individual
Defendants failed to maintain the accuracy of Company records and reports, comply with laws and
regulations, conduct business in an honest and ethical manner, and properly report violations of the
Code of Conduct.
INDIVIDUAL DEFENDANTS’ MISCONDUCT
Background
91. Activision is an interactive entertainment company that functions through five
operating units to develop, distribute, and publish video games and other entertainment content across
the globe. The Company’s portfolio includes a number of well-known franchises including World of
Warcraft, Candy Crush, Call of Duty, and up until recently, Destiny, a first-person shooter online
science fiction game set in a mythic world where players act as guardians tasked with protecting and
saving the earth from aliens.
92. The Destiny franchise resulted from a joint venture agreement entered into between
Activision and Bungie on April 29, 2010. The agreement was set to be an exclusive 10-year partnership
between the companies whereby Activision would have “exclusive, worldwide rights to publish and
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distribute all future Bungie games based on the new intellectual property on multiple platforms and
devices.”12 The partnership was entered into after Bungie’s split from Microsoft in 2007.
93. The first Destiny game was released September 2014 and became the most successful
new video game franchise launch during its time, selling more than $500 million orders on day one.13
Indeed, soon after the launch, the Company announced that the franchise sold over $325 million
worldwide in the first five days.14 Over the next few years, the Company released several expansions
to the franchise and a full sequel, Destiny 2, which launched in September 2017. Destiny 2 broke pre-
order records and record day-one performance on PlayStation Store, establishing “engagement at the
highest ever week-one concurrency for the franchise.”15 The most recent expansion of Destiny 2,
Forsaken, was released on September 4, 2018.
False and Misleading Statements
August 2, 2018 Press Release, Form 10-Q, and Conference Call
94. On August 2, 2018, the Company filed a current report on a Form 8-K with the SEC
announcing its results of operations and financial condition for its second fiscal quarter ended June
30, 2018. Attached to the Form 8-K was a press release flaunting user rates growth for the Destiny
franchise. The press release stated “[d]uring the quarter, Destiny 2 released its second
expansion, Warmind, with higher attach rates than Destiny 1’s second expansion, and Destiny
2 [Monthly Active Users] grew quarter-over-quarter.”
12 https://investor.activision.com/news-releases/news-release-details/bungie-and-activision-announce-
exclusive-worldwide-partnership. Last visited February 18, 2019. 13 https://investor.activision.com/news-releases/news-release-details/activision-sells-more-500-million-destiny-worldwide-day-one. Last visited February 18, 2019. 14 https://investor.activision.com/news-releases/news-release-details/destiny-grosses-more-325-million-
worldwide-first-five-days. Last visited February 18, 2019. 15 https://investor.activision.com/news-releases/news-release-details/destiny-2-delivers-biggest-console-
video-game-launch-week-year/. Last visited February 18, 2019.
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95. The same day, the Company filed its quarterly report with the SEC on a Form 10-Q
for the quarter ended June 30, 2018, which was signed by Defendant Neumann. The 10-Q noted that
Activision had “established a long-term alliance with Bungie to publish its game universe, Destiny…”
which the Company listed as one of its “key product franchises[.]”
96. Attached to the 10-Q were certifications pursuant to Rule 13a-14(a) and 15d-14(a)
under the Exchange Act and the Sarbanes-Oxley Act of 2002 (“SOX”) signed by Defendants Kotick
and Neumann attesting to the accuracy of the Form 10-Q.
97. The Company additionally held a conference call on August 2, 2018 to discuss the
Company’s second quarter earnings. During the call, Defendant Johnson stated, “[t]urning to Destiny,
Bungie and Activision continue to make updates in engaging content for Destiny’s fans. Destiny 2’s
second expansion, Warmind, was released in Q2 with a higher attach rate than Destiny 1’s second
expansion, and Destiny 2 monthly active users grew quarter-over-quarter.” Defendant Johnson
continued to discuss the Destiny franchise, stating in relevant part that “the next big step in the
franchise is Forsaken, the major expansion coming out in September. We think this release will drive
strong community engagement, particularly around the innovation in Gambit, a new competitive co-
op mode which we think could be transformative for the way people play in first-person action
games.”
98. When prompted by an analyst to provide updates on the Destiny franchise and
expectations for the upcoming expansion in the fall, Defendant Johnson stated the following:
As you’ll remember, we’ve talked a lot about listening to the Destiny community
to provide a deeper ongoing experience, more engaging moment to moment
gameplay and a series of updates with better rewards in the ongoing live game. And
the team at Bungie and the team here at Activision have made a lot of strides in
doing that, particularly the last two quarters, with the ongoing improvements to the
end game and the overall gameplay experience.
99. Defendant Johnson continued, highlighting the positive strides the Destiny franchise
had made and suggesting more success was to come:
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But in particular, with the Warmind expansion in May, that really showed us the
ability to evolve the game and regrow engagement and regrow users. And now, that
community, that’s the most positive place since Destiny 2 launched last September.
And so, now we have this big step with the launch of Forsaken which happens next
month.
The encouraging part is players have had a great response so far with engagement
online around the content announcement, hands-on gameplay of E3, which honestly
led to the highest social sentiment we’ve seen in three years of E3; and a lot of
excitement around Gambit, which brings this whole new way to play that’s both
cooperative and competitive between teams. And we really do think it could be
transformative.
So we feel good about the content to come and the engagement we’ve seen in the
community overall, and we feel really good about what Forsaken would do to build
on that momentum. So we’re excited for it, and we’re in that countdown period
now to put it in the hands of our fans.
September 4, 2018 Press Release
100. On September 4, 2018, Activision issued a press release announcing the worldwide
launch of the third Destiny 2 expansion, Forsaken. The press release described new features players
would have to look forward to in the newest expansion of the game and also noted that there were
“plenty of surprises in store in the weeks and months ahead, and we have been working all year with
our community to make sure Forsaken will meet their expectations.”
November 8, 2018 Press Release, Form 10-Q, and Conference Call
101. On November 8, 2018, the Company filed a current report on a Form 8-K with the
SEC announcing its results of operations and financial condition for its third fiscal quarter ended
September 30, 2018. Attached to the Form 8-K was a press release touting continued user growth for
the Company’s Destiny franchise. The press release specifically stating that “Destiny [Monthly
Active Users] grew quarter-over-quarter and year-over-year, driven by the launch of Forsaken and
reach initiatives for the base game.”
102. The same day, the Company filed its quarterly report with the SEC on a Form 10-Q
for the quarter ended September 30, 2018, which was signed by Defendant Neumann and contained
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SOX certifications signed by Defendants Kotick and Neumann attesting to the accuracy of the Form
10-Q.
103. The 10-Q again listed Destiny as one of the Company’s “key product franchises” and
stated that Activision had “established a long-term alliance with Bungie to publish its game universe,
Destiny.”
104. The Company additionally held a conference call on November 8, 2018 to discuss the
Company’s third quarter earnings. On the call, Defendant Johnson emphasized Activision’s
increasing user growth rates, pointing out that the growth was “driven by Destiny's expansion,
Forsaken, and by new reach initiatives, which grew Destiny monthly active users quarter on quarter
and year over year.” Defendant Johnson also established that even with increased user growth,
Forsaken had not met the Company’s expectations, stating in relevant part that, “while Forsaken is a
high-quality expansion with strong engagement and new modes of play, it did not achieve our
commercial expectations, and there's still work to do to fully reengage the core Destiny fan base.”
105. During the call, Defendant Johnson was asked to further comment on the “health of
the Destiny franchise” and user engagement following the launch of Forsaken. Defendant Johnson
responded by describing some of the joint steps the Company and Bungie took with Forsaken to
address certain concerns received from players after the release of Destiny 2:
Collister Johnson - Activision Blizzard, Inc.
…I guess I'd start by reiterating that Forsaken is a high-quality expansion of content
into the universe. Honestly, it's the highest-quality content we've seen in the
franchise to date. It really came out of Activision and Bungie working together to
address community concerns post-Destiny 2 holistically. Talking to players, we
knew it came from users really doing a fundamental review of how to offer a deeper
end-game, greater powers and greater rewards, and engage players who seemed to
be really enjoying the content. In particular, it was very well received both by
reviewers and by the community, and has ongoing deepening engagement by those
that are playing it.
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106. Defendant Johnson continued on the call to describe efforts taken by the Company to
reengage players with the Destiny franchise:
At BlizzCon, we announced that Destiny, the base game is free for two weeks,
meaning download it by November 18, and you get to keep the base game forever.
We did that because we want the whole community loaded up and able to play it,
but also because it's a live game. And once you're in it, with the ongoing features
and services and content, there's really deep engagement that takes place. And part
of it was also because we have not yet seen the full core reengage in Destiny, which
has led to the underperformance against our expectations to date. Some players we
think are still in wait-and-see mode. So when you're in, you're deeply engaged. If
you're not, we're hoping now is the time to work and to bring players back in and
to win them back.
107. On January 4, 2019, the Company filed a current report on a Form 8-K with the SEC
announcing that it had terminated Defendant Neumann’s employment effective December 31, 2018
“for cause after he violated his legal obligations to the Company . . . unrelated to the Company’s
financial reporting or disclosure controls and procedures.”
108. The statements in ¶¶ 94-106 were materially false and misleading, and they failed to
disclose material facts necessary to make the statements made not false and misleading. Specifically,
the Individual Defendants improperly failed to disclose, inter alia, that: (1) the end of Activision’s
agreement with Bungie and the Destiny franchise collaboration was forthcoming and would result in
Activision transferring all publishing rights and responsibilities for the Destiny franchise to Bungie;
(2) foreseeably, this would adversely affect the Company’s revenues; and (3) Activision failed to
maintain internal controls. As a result of the foregoing, the Company’s public statements were
materially false and misleading at all relevant times.
The Truth Emerges
109. On January 10, 2019, Activision and Bungie issued a joint statement announcing that
they were terminating their partnership. The statement was released through Activision’s twitter page
with the caption: “Thank you Guardians. It’s been an honor and privilege to help bring the world of
Destiny to life for you.” The joint statement announced the companies’ plans for Bungie to assume
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full publishing rights and responsibilities for the Destiny franchise and stated in relevant part: “[g]oing
forward, Bungie will own and develop the franchise, and Activision will increase its focus on owned
IP and other projects. Activision and Bungie are committed to a seamless transition for the Destiny
franchise and will continue to work closely together during the transition on behalf of the community
of Destiny players around the world.”
110. In a post published on Bungie’s website the same day entitled “Our Destiny,” Bungie
stated in relevant part:
We have enjoyed a successful eight-year run and would like to thank Activision for
their partnership on Destiny. Looking ahead, we’re excited to announce plans for
Activision to transfer publishing rights for Destiny to Bungie. With our remarkable
Destiny community, we are ready to publish on our own, while Activision will
increase their focus on owned IP projects.
The planned transition process is already underway in its early stages, with Bungie
and Activision both committed to making sure the handoff is as seamless as
possible.
111. The Company also filed a current report with the SEC on a Form 8-K on January 10,
2019, confirming plans for Bungie to “assume full publishing rights and responsibilities for the
Destiny franchise. Going forward, Bungie will own and develop the franchise in 2019.” The
Company further announced that due to the change in ownership and terminated agreement, it did not
expect any “material revenue, operating income or operating loss from the Destiny franchise in 2019.”
112. When news of the announcements reached the public, the Company’s price per share
dropped $4.81 from a closing price of $51.35 on January 10, 2019 to a closing price of $46.38 on
January 11, 2019, a decline of over 9%.
113. In the weeks following the announcement, the Company laid off approximately 800
employees, cutting their staff by 8% as part of a “restructuring plan. . .[to] enable our teams to
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accelerate the delivery of high-quality content to our communities.”16 The Company also announced
during in a conference call discussing its fourth quarter and year ended December 31, 2018 that
“[e]xcluding Destiny in both years, our outlook is roughly flat for net bookings for the rest of the
Activision segment in 2019.”17 Interestingly, the Company’s executive compensation packages
remained intact and, according to some analysts, far larger than it should be for the Company’s size.18
DAMAGES TO ACTIVISION
114. As a direct and proximate result of the Individual Defendants’ conduct, Activision has
lost and will continue to lose and expend many millions of dollars.
115. Such expenditures include, but are not limited to, legal fees and payments associated
with the Securities Class Action filed against the Company, its CEO, former CFO, and COO, and any
internal investigations, and amounts paid to outside lawyers, accountants, and investigators in
connection thereto.
116. Additionally, these expenditures include, but are not limited to, handsome
compensation and benefits paid to the Individual Defendants who breached their fiduciary duties to
the Company.
117. As a direct and proximate result of the Individual Defendants’ conduct, Activision has
also suffered and will continue to suffer a loss of reputation and goodwill, and a “liar’s discount” that
will plague the Company’s stock in the future due to the Company’s and their misrepresentations and
the Individual Defendants’ breaches of fiduciary duties and unjust enrichment.
16 https://seekingalpha.com/article/4240392-activision-blizzard-inc-atvi-ceo-bobby-kotick-q4-2018-results-
earnings-call-transcript?part=single. Last visited February 19, 2019. 17 Id. 18 https://seekingalpha.com/article/4241965-activision-blizzard-laying-hundreds-meant-good. Last visited
February 19, 2019.
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DERIVATIVE ALLEGATIONS
118. Plaintiff brings this action derivatively and for the benefit of Activision to redress
injuries suffered, and to be suffered, as a result of the Individual Defendants’ breaches of their
fiduciary duties as directors and officers of Activision, gross mismanagement, abuse of control, waste
of corporate assets, and unjust enrichment, as well as the aiding and abetting thereof.
119. Activision is named solely as a nominal party in this action. This is not a collusive
action to confer jurisdiction on this Court that it would not otherwise have.
120. Plaintiff is, and has been since before the beginning of the Relevant Period, a
shareholder of Activision. Plaintiff will adequately and fairly represent the interests of Activision in
enforcing and prosecuting its rights, and, to that end, has retained competent counsel, experienced in
derivative litigation, to enforce and prosecute this action.
DEMAND FUTILITY ALLEGATIONS
121. Plaintiff incorporates by reference and re-alleges each and every allegation stated above
as if fully set forth herein.
122. A pre-suit demand on the Board of Activision is futile and, therefore, excused. At the
time of filing of this action, the Board consists of the following ten individuals: Defendants Kotick,
Bowers, Corti, Hartong, Kelly, Meyer, Morgado, Nolan, Wasserman, and Wynn (collectively, the
“Directors”). Plaintiff needs only to allege demand futility as to five of the ten Directors who are on
the Board at the time this action is commenced.
123. Demand is excused as to all of the Directors because each one of them faces,
individually and collectively, a substantial likelihood of liability as a result of the scheme they engaged
in knowingly or recklessly to make and/or cause the Company to make false and misleading statements
and omissions of material facts, which renders them unable to impartially investigate the charges and
decide whether to pursue action against themselves and the other perpetrators of the scheme.
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124. In complete abdication of their fiduciary duties, the Directors either knowingly or
recklessly participated in making and/or causing the Company to make the materially false and
misleading statements alleged herein. The fraudulent scheme was intended to make the Company
appear more profitable and attractive to investors. As a result of the foregoing, the Directors breached
their fiduciary duties, face a substantial likelihood of liability, are not disinterested, and demand upon
them is futile, and thus excused.
125. Additional reasons that demand on Defendant Kotick is futile follow. Defendant Kotick
has served as the Company’s CEO since 1991. He served as the Company’s President from July 2008
to June 2017. Defendant Kotick has also served as a member of the Board since 1991. Thus, as the
Company admits, he is a non-independent director. The Company provides Defendant Kotick with his
principal occupation, and he receives handsome compensation, including $28,698,375 during the
fiscal year ended December 31, 2017. Defendant Kotick was ultimately responsible for all of the false
and misleading statements and omissions that were made during the Relevant Period, including those
contained in the Form 10-Qs filed on August 2, 2018 and November 8, 2018, which he signed SOX
certifications for. As the Company’s highest officer and as a long-time trusted Company director, he
conducted little, if any, oversight of the Company’s engagement in the scheme to make false and
misleading statements, consciously disregarded his duties to monitor such controls over reporting and
engagement in the scheme, and consciously disregarded his duties to protect corporate assets.
Moreover, Defendant Kotick is a defendant in the Securities Class Action. For these reasons, too,
Defendant Kotick breached his fiduciary duties, faces a substantial likelihood of liability, is not
independent or disinterested, and thus demand upon him is futile and, therefore, excused.
126. Additional reasons that demand on Defendant Bowers is futile follow. Defendant
Bowers has served as a Company director since 2018 and is a member of the Compensation
Committee. She is entitled to handsome compensation, including $345,500 annually, comprised of a
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$90,000 annual retainer, $5,500 for serving as a member of the Compensation Committee, and an
annual grant of restricted stock valued at $250,000, as well as special assignment fees of $5,500 per
day. As a trusted Company director, she conducted little, if any, oversight of the Company’s
engagement in the scheme to make false and misleading statements, consciously disregarded her duties
to monitor such controls over reporting and engagement in the scheme, and consciously disregarded
her duties to protect corporate assets. For these reasons, too, Defendant Bowers breached her fiduciary
duties, faces a substantial likelihood of liability, is not independent or disinterested, and thus demand
upon her is futile and, therefore, excused.
127. Additional reasons that demand on Defendant Corti is futile follow. Defendant Corti
has served as a Company director since 2003 and is Chair of the Audit Committee. He receives
handsome compensation, including $379,667 during the fiscal year ended December 31, 2017. As a
long-time trusted Company director and Chair of the Audit Committee, he conducted little, if any,
oversight of the Company’s engagement in the scheme to make false and misleading statements,
consciously disregarded his duties to monitor such controls over reporting and engagement in the
scheme, and consciously disregarded his duties to protect corporate assets. For these reasons, too,
Defendant Corti breached his fiduciary duties, faces a substantial likelihood of liability, is not
independent or disinterested, and thus demand upon him is futile and, therefore, excused.
128. Additional reasons that demand on Defendant Hartong is futile follow. Defendant
Hartong has served as a Company director since 2015 and is a member of the Audit Committee. He
receives handsome compensation, including $350,667 during the fiscal year ended December 31,
2017. As a trusted Company director and member of the Audit Committee, he conducted little, if any,
oversight of the Company’s engagement in the scheme to make false and misleading statements,
consciously disregarded his duties to monitor such controls over reporting and engagement in the
scheme, and consciously disregarded his duties to protect corporate assets. For these reasons, too,
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Defendant Hartong breached his fiduciary duties, faces a substantial likelihood of liability, is not
independent or disinterested, and thus demand upon him is futile and, therefore, excused.
129. Additional reasons that demand on Defendant Kelly is futile follow. Defendant Kelly
has served the Company in a variety of positions since 1991, including as a Company director since
1995. Defendant Kelly has also served as Chairman of the Board since 2013. He receives handsome
compensation, including $489,677 during the fiscal year ended December 31, 2017. As a long-time
trusted Company director, he conducted little, if any, oversight of the Company’s engagement in the
scheme to make false and misleading statements, consciously disregarded his duties to monitor such
controls over reporting and engagement in the scheme, and consciously disregarded his duties to
protect corporate assets. For these reasons, too, Defendant Kelly breached his fiduciary duties, faces
a substantial likelihood of liability, is not independent or disinterested, and thus demand upon him is
futile and, therefore, excused.
130. Additional reasons that demand on Defendant Meyer is futile follow. Defendant Meyer
has been a Company director since 2014 and serves as a member of the Nominating and Corporate
Governance Committee. He receives handsome compensation, including $345,167 during the fiscal
year ended December 31, 2017. As a trusted Company director, he conducted little, if any, oversight
of the Company’s engagement in the scheme to make false and misleading statements, consciously
disregarded his duties to monitor such controls over reporting and engagement in the scheme, and
consciously disregarded his duties to protect corporate assets. For these reasons, too, Defendant Meyer
breached his fiduciary duties, faces a substantial likelihood of liability, is not independent or
disinterested, and thus demand upon him is futile and, therefore, excused.
131. Additional reasons that demand on Defendant Morgado is futile follow. Defendant
Morgado has served as a Company director since 1997. He also serves as the Lead Independent
Director, Chair of the Compensation Committee, Chair of the Nominating and Corporate Governance
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Committee, and as a member of the Audit Committee. He receives handsome compensation, including
$920,001 during the fiscal year ended December 31, 2017. As a long-time trusted Company director
and member of the Audit Committee, he conducted little, if any, oversight of the Company’s
engagement in the scheme to make false and misleading statements, consciously disregarded his duties
to monitor such controls over reporting and engagement in the scheme, and consciously disregarded
his duties to protect corporate assets. For these reasons, too, Defendant Morgado breached his
fiduciary duties, faces a substantial likelihood of liability, is not independent or disinterested, and thus
demand upon him is futile and, therefore, excused.
132. Additional reasons that demand on Defendant Nolan is futile follow. Defendant Nolan
has been a Company director since 2013 and serves as a member of the Nominating and Corporate
Governance Committee. He receives handsome compensation, including $345,167 during the fiscal
year ended December 31, 2017. As a long-time trusted Company director, he conducted little, if any,
oversight of the Company’s engagement in the scheme to make false and misleading statements,
consciously disregarded his duties to monitor such controls over reporting and engagement in the
scheme, and consciously disregarded his duties to protect corporate assets. For these reasons, too,
Defendant Nolan breached his fiduciary duties, faces a substantial likelihood of liability, is not
independent or disinterested, and thus demand upon him is futile and, therefore, excused.
133. Additional reasons that demand on Defendant Wasserman is futile follow. Defendant
Wasserman has been a Company director since 2015 and is a member of the Compensation
Committee. He receives handsome compensation, including $345,167 during the fiscal year ended
December 31, 2017. As a trusted Company director, he conducted little, if any, oversight of the
Company’s engagement in the scheme to make false and misleading statements, consciously
disregarded his duties to monitor such controls over reporting and engagement in the scheme, and
consciously disregarded his duties to protect corporate assets. For these reasons, too, Defendant
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Wasserman breached his fiduciary duties, faces a substantial likelihood of liability, is not independent
or disinterested, and thus demand upon him is futile and, therefore, excused.
134. Additional reasons that demand on Defendant Wynn is futile follow. Defendant Wynn
has been a Company director since 2013 and is a member of the Compensation Committee. She
receives handsome compensation, including $345,167 during the fiscal year ended December 31,
2017. As a trusted Company director, she conducted little, if any, oversight of the Company’s
engagement in the scheme to make false and misleading statements, consciously disregarded her duties
to monitor such controls over reporting and engagement in the scheme, and consciously disregarded
her duties to protect corporate assets. For these reasons, too, Defendant Wynn breached her fiduciary
duties, faces a substantial likelihood of liability, is not independent or disinterested, and thus demand
upon her is futile and, therefore, excused.
135. Additional reasons that demand on the Board is futile follow.
136. The Directors have longstanding business and personal relationships with each other
and the Individual Defendants that preclude them from acting independently and in the best interests
of the Company and the shareholders. For example, Defendants Kotick and Kelly became acquainted
with the Company as partners and have remained heavily involved in the Company since 1991,
including as former controlling shareholders of more than a quarter of the voting interest in the
Company.19 Defendants Kotick and Kelly also co-founded the Call of Duty Endowment, an
organization supported by the Company aimed at assisting veterans with job placement. Defendants
Kotick and Kelly are unlikely to accept a demand against the Individual Defendants and risk the
Company retaliating against them by withdrawing its financial commitment to the Call of Duty
Endowment. Furthermore, the Directors are unlikely to accept a demand against Defendants Kotick
19 https://www.reuters.com/article/us-activision-ceo/activision-ceo-co-chairman-control-25-percent-of-votes-
idUSBRE99L01H20131022. Last visited February 19, 2019.
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and Kelly due to their history and entrenchment with the Company. Defendant Kotick and other
executives and directors also use an aircraft which is indirectly owned by Defendant Kotick. Indeed,
during the fiscal year ended December 31, 2017, the Company paid out $1,269,867 for using
Defendant Kotick’s aircraft. These conflicts of interest precluded the Directors from adequately
monitoring the Company’s operations and internal controls and calling into question the Individual
Defendants’ conduct. Thus, demand upon the Directors would be futile.
137. Defendants Corti, Hartong, and Morgado (the “Audit Committee Defendants”) served
as members of the Audit Committee during the Relevant Period. Pursuant to the Audit Committee
Charter, the Audit Committee Defendants bear responsibility for the effectiveness of the Company’s
internal controls, the integrity of its financial statements, and its compliance with laws and regulations.
The Audit Committee Defendants failed to ensure the integrity of the Company’s internal controls, as
they are charged to do under the Audit Committee Charter, allowing the Company to issue false and
misleading press releases and file false and misleading financial statements with the SEC. Thus, the
Audit Committee Defendants breached their fiduciary duties, are not disinterested, and demand is
excused as to them.
138. In violation of the Code of Conduct, the Directors conducted little, if any, oversight of
the Company’s engagement in the Individual Defendants’ scheme to issue materially false and
misleading statements to the public and to facilitate and disguise the Individual Defendants’ violations
of law, including breaches of fiduciary duty, gross mismanagement, abuse of control, waste of
corporate assets, and unjust enrichment. In further violation of the Code of Conduct, the Directors
failed to comply with laws and regulations, maintain the accuracy of Company records and reports,
conduct business in an honest and ethical manner, and properly report violations of the Code of
Conduct. Thus, the Directors face a substantial likelihood of liability and demand is futile as to them.
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139. Activision has been and will continue to be exposed to significant losses due to the
wrongdoing complained of herein, yet the Directors have not filed any lawsuits against themselves or
others who were responsible for that wrongful conduct to attempt to recover for Activision any part of
the damages Activision suffered and will continue to suffer thereby. Thus, any demand upon the
Directors would be futile.
140. The Individual Defendants’ conduct described herein and summarized above could not
have been the product of legitimate business judgment as it was based on bad faith and intentional,
reckless, or disloyal misconduct. Thus, none of the Directors can claim exculpation from their
violations of duty pursuant to the Company’s charter (to the extent such a provision exists). As a
majority of the Directors face a substantial likelihood of liability, they are self-interested in the
transactions challenged herein and cannot be presumed to be capable of exercising independent and
disinterested judgment about whether to pursue this action on behalf of the shareholders of the
Company. Accordingly, demand is excused as being futile.
141. The acts complained of herein constitute violations of fiduciary duties owed by
Activision’s officers and directors, and these acts are incapable of ratification.
142. The Directors may also be protected against personal liability for their acts of
mismanagement and breaches of fiduciary duty alleged herein by directors’ and officers’ liability
insurance if they caused the Company to purchase it for their protection with corporate funds, i.e.,
monies belonging to the stockholders of Activision. If there is a directors’ and officers’ liability
insurance policy covering the Directors, it may contain provisions that eliminate coverage for any
action brought directly by the Company against the Directors, known as, inter alia, the “insured-
versus-insured exclusion.” As a result, if the Directors were to sue themselves or certain of the officers
of Activision, there would be no directors’ and officers’ insurance protection. Accordingly, the
Directors cannot be expected to bring such a suit. On the other hand, if the suit is brought derivatively,
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as this action is brought, such insurance coverage, if such an insurance policy exists, will provide a
basis for the Company to effectuate a recovery. Thus, demand on the Directors is futile and, therefore,
excused.
143. If there is no directors’ and officers’ liability insurance, then the Directors will not
cause Activision to sue the Individual Defendants named herein, since, if they did, they would face a
large uninsured individual liability. Accordingly, demand is futile in that event, as well.
144. Thus, for all of the reasons set forth above, all of the Directors, and, if not all of them,
at least five of the Directors, cannot consider a demand with disinterestedness and independence.
Consequently, a demand upon the Board is excused as futile.
FIRST CLAIM
Against the Individual Defendants for Breach of Fiduciary Duties
145. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
146. Each Individual Defendant owed to the Company the duty to exercise candor, good
faith, and loyalty in the management and administration of Activision’s business and affairs.
147. The Audit Committee Defendants further owed fiduciary duties as set forth in
Company’s Audit Committee Charter that, if discharged in accordance with their obligations, would
have prevented the internal control failures and resulting harm to Activision as alleged herein.
148. Each of the Individual Defendants violated and breached his or her fiduciary duties of
candor, good faith, loyalty, reasonable inquiry, oversight, and supervision.
149. The Individual Defendants’ conduct set forth herein was due to their intentional or
reckless breach of the fiduciary duties they owed to the Company, as alleged herein. The Individual
Defendants intentionally or recklessly breached or disregarded their fiduciary duties to protect the
rights and interests of Activision.
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150. In breach of their fiduciary duties owed to Activision, the Individual Defendants
willfully or recklessly made and/or caused the Company to make false and misleading statements and
omissions of material fact that failed to disclose that: (1) the end of Activision’s agreement with
Bungie and the Destiny franchise collaboration was forthcoming and would result in Activision
transferring all publishing rights and responsibilities for the Destiny franchise to Bungie; (2)
foreseeably, this would adversely affect the Company’s revenues; and (3) Activision failed to maintain
internal controls. As a result, the Company’s public statements were materially false and misleading
at all relevant times.
151. The Individual Defendants also failed to correct and/or caused the Company to fail to
correct the false and misleading statements and omissions of material fact referenced herein, rendering
them personally liable to the Company for breaching their fiduciary duties.
152. Also in breach of their fiduciary duties, the Individual Defendants failed to maintain
internal controls.
153. The Individual Defendants had actual or constructive knowledge that the Company
issued materially false and misleading statements, and they failed to correct the Company’s public
statements and representations. The Individual Defendants had actual knowledge of the
misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard
for the truth, in that they failed to ascertain and to disclose such facts, even though such facts were
available to them. Such material misrepresentations and omissions were committed knowingly or
recklessly and for the purpose and effect of artificially inflating the price of Activision’s securities.
154. The Individual Defendants had actual or constructive knowledge that they had caused
the Company to improperly engage in the fraudulent schemes set forth herein and to fail to maintain
internal controls. The Individual Defendants had actual knowledge that the Company was engaging in
the fraudulent schemes set forth herein, and that internal controls were not adequately maintained, or
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38 Verified Shareholder Derivative Complaint
acted with reckless disregard for the truth, in that they caused the Company to improperly engage in
the fraudulent schemes and to fail to maintain adequate internal controls, even though such facts were
available to them. Such improper conduct was committed knowingly or recklessly and for the purpose
and effect of artificially inflating the price of Activision’s securities. The Individual Defendants, in
good faith, should have taken appropriate action to correct the schemes alleged herein and to prevent
them from continuing to occur.
155. These actions were not a good-faith exercise of prudent business judgment to protect
and promote the Company’s corporate interests.
156. As a direct and proximate result of the Individual Defendants’ breaches of their
fiduciary obligations, Activision has sustained and continues to sustain significant damages. As a
result of the misconduct alleged herein, the Individual Defendants are liable to the Company.
157. Plaintiff on behalf of Activision has no adequate remedy at law.
SECOND CLAIM
Against Individual Defendants for Unjust Enrichment
158. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
159. By their wrongful acts, violations of law, and false and misleading statements and
omissions of material fact that they made and/or caused to be made, the Individual Defendants were
unjustly enriched at the expense of, and to the detriment of, Activision.
160. The Individual Defendants either benefitted financially from the improper conduct or
received unjustly lucrative bonuses, stock options, or similar compensation from Activision that was
tied to the performance or artificially inflated valuation of Activision, or received compensation that
was unjust in light of the Individual Defendants’ bad faith conduct.
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39 Verified Shareholder Derivative Complaint
161. Plaintiff, as a shareholder and a representative of Activision, seeks restitution from the
Individual Defendants and seeks an order from this Court disgorging all profits, the redemption of
preferred stock, benefits, and other compensation, including any performance-based or valuation-
based compensation, obtained by the Individual Defendants and due to their wrongful conduct and
breach of their fiduciary and contractual duties.
162. Plaintiff on behalf of Activision has no adequate remedy at law.
THIRD CLAIM
Against Individual Defendants for Abuse of Control
163. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
164. The Individual Defendants’ misconduct alleged herein constituted an abuse of their
ability to control and influence Activision, for which they are legally responsible.
165. As a direct and proximate result of the Individual Defendants’ abuse of control,
Activision has sustained significant damages. As a direct and proximate result of the Individual
Defendants’ breaches of their fiduciary obligations of candor, good faith, and loyalty, Activision has
sustained and continues to sustain significant damages. As a result of the misconduct alleged herein,
the Individual Defendants are liable to the Company.
166. Plaintiff on behalf of Activision has no adequate remedy at law.
FOURTH CLAIM
Against Individual Defendants for Gross Mismanagement
167. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
168. By their actions alleged herein, the Individual Defendants, either directly or through
aiding and abetting, abandoned and abdicated their responsibilities and fiduciary duties with regard to
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prudently managing the assets and business of Activision in a manner consistent with the operations
of a publicly-held corporation.
169. As a direct and proximate result of the Individual Defendants’ gross mismanagement
and breaches of duty alleged herein, Activision has sustained and will continue to sustain significant
damages.
170. As a result of the misconduct and breaches of duty alleged herein, the Individual
Defendants are liable to the Company.
171. Plaintiff on behalf of Activision has no adequate remedy at law.
FIFTH CLAIM
Against Individual Defendants for Waste of Corporate Assets
172. Plaintiff incorporates by reference and re-alleges each and every allegation set forth
above, as though fully set forth herein.
173. The Individual Defendants caused the Company to pay themselves excessive salaries,
bonuses, fees, and stock grants to the detriment of the shareholders and the Company.
174. As a result of the foregoing, and by failing to properly consider the interests of the
Company and its public shareholders, the Individual Defendants have caused Activision to waste
valuable corporate assets, to incur many millions of dollars of legal liability and costs to defend
unlawful actions, to engage in internal investigations, and to lose financing from investors and
business from future customers who no longer trust the Company and its products.
175. As a result of the waste of corporate assets, the Individual Defendants are each liable
to the Company.
176. Plaintiff on behalf of Activision has no adequate remedy at law.
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PRAYER FOR RELIEF
FOR THESE REASONS, Plaintiff demands judgment in the Company’s favor against all
Individual Defendants as follows:
(a) Declaring that Plaintiff may maintain this action on behalf of Activision, and
that Plaintiff is an adequate representative of the Company;
(b) Declaring that the Individual Defendants have breached or aided and abetted
the breach of their fiduciary duties to Activision;
(c) Determining and awarding to Activision the damages sustained by it as a result
of the violations set forth above from each of the Individual Defendants, jointly and severally, together
with pre-judgment and post-judgment interest thereon;
(d) Directing Activision and the Individual Defendants to take all necessary actions
to reform and improve its corporate governance and internal procedures to comply with applicable
laws and to protect Activision and its shareholders from a repeat of the damaging events described
herein, including, but not limited to, putting forward for shareholder vote the following resolutions for
amendments to the Company’s Bylaws or Certificate of Incorporation and the following actions as
may be necessary to ensure proper corporate governance policies:
1. a proposal to strengthen the Board’s supervision of operations and develop and
implement procedures for greater shareholder input into the policies and guidelines of the
board;
2. a provision to permit the shareholders of Activision to nominate at least five
candidates for election to the Board; and
3. a proposal to ensure the establishment of effective oversight of compliance with
applicable laws, rules, and regulations.
(e) Awarding Activision restitution from Individual Defendants, and each of them;
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(f) Awarding Plaintiff the costs and disbursements of this action, including
reasonable attorneys’ and experts’ fees, costs, and expenses; and
(g) Granting such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: April 24, 2019 Respectfully submitted,
THE ROSEN LAW FIRM, P.A. By:_/s/Laurence M. Rosen Laurence M. Rosen, Esq. (SBN 219683) 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 Telephone: (213) 785-2610 Facsimile: (213) 226-4684 Email: [email protected]
Counsel for Plaintiff
Dated:
VERIFICATION
I, Siddharth Panchal , am a plaintiff in the within action. I have reviewed the allegations made in this shareholder derivative complaint, know the contents thereof, and authorize its filing. To those allegations of which I have personal knowledge, I believe those allegations to be true. As to those allegations of which I do not have personal knowledge, I rely upon my counsel and their investigation and believe them to be true.
I declare under penalty of perjury that the foregoing is true and correct. Executed this _th day of February, 2019.
______________________ Siddharth Panchal
DocuSign Envelope ID: 394F3BD7-538F-4BFB-8C41-C91E1E8397E3
4/19/2019