SUPERIOR COURT FOR THE STATE OF CALIFORNIA

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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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“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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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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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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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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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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$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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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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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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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


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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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


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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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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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


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


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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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


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


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,




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Defendant Hartong breached his fiduciary duties, faces a substantial likelihood of liability, is not


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


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,




Defendant Nolan breached his fiduciary duties, faces a substantial likelihood of liability, is not


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


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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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



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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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.


THIRD CLAIM

Against Individual Defendants for Abuse of Control



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.


FOURTH CLAIM

Against Individual Defendants for Gross Mismanagement



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.


FIFTH CLAIM

Against Individual Defendants for Waste of Corporate Assets



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.


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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

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SUPERIOR COURT FOR THE STATE OF CALIFORNIA

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