| Commitments and Contingencies | 11. Commitments and Contingencies
Lease Commitments
We have entered into operating leases for facilities, including
data center space. As of June 30, 2015, future minimum lease
payments related to these leases are as follows
(in thousands):
Year ending December 31:
2015 $ 11,292
2016 23,575
2017 14,290
2018 13,150
2019 13,302
2020 and thereafter 21,919
$ 97,528
Other Purchase Commitments
We have entered into several contracts for hosting of data systems
and licensed intellectual property. Future minimum purchase
commitments that have initial or remaining non-cancelable terms as
of June 30, 2015, are as follows (in thousands):
Year ending December 31:
2015 $ 5,131
2016 5,137
2017 2,850
2018 1,351
2019 270
$ 14,739
Credit Facility
In June 2013, we amended our existing revolving credit agreement
which we originally executed in July 2011, reducing our maximum
available credit from $1.0 billion to $200 million, and extending
the term through June 2018. Per the terms of our amended agreement,
we paid additional up-front fees of $0.3 million to be amortized
over the remaining extended term of the loan. The interest rate for
the amended credit facility is determined based on a formula using
certain market rates, as described in the amended credit agreement.
Additionally, our minimum quarterly commitment fee was reduced from
$0.6 million per quarter to $0.1 million per quarter based on the
portion of the credit facility that is not drawn down. The
agreement requires us to comply with certain covenants, including
maintaining a minimum capitalization ratio, and maintaining a
minimum cash balance. As of June 30, 2015, we had not drawn
down any amounts under the credit facility and were in compliance
with these covenants.
Legal Matters
On July 30, 2012, a purported securities class action
captioned DeStefano v. Zynga Inc. et al., Case
No. 3:12-cv-04007-JSW, was filed in the United States District
Court for the Northern District of California against the Company,
and certain of our current and former directors, officers, and
executives. Additional purported securities class actions
containing similar allegations were filed in the Northern District.
On September 26, 2012, the court consolidated various of the
class actions as In re Zynga Inc. Securities Litigation, Lead Case
No. 12-cv-04007-JSW. On January 23, 2013, the court
entered an order appointing a lead plaintiff and approving lead
plaintiff’s selection of lead counsel. On April 3, 2013,
the lead plaintiff and another named plaintiff filed a consolidated
complaint. On February 25, 2014, the court granted the
defendants’ motion to dismiss the consolidated complaint and
provided plaintiffs leave to file an amended complaint.
The lead plaintiff filed a First Amended Complaint on
March 31, 2014. The First Amended Complaint alleges that the
defendants violated the federal securities laws by issuing false or
misleading statements regarding the Company’s business and
financial projections. The plaintiffs seek to represent a class of
persons who purchased or otherwise acquired the Company’s
securities between February 14, 2012 and July 25, 2012.
The First Amended Complaint asserts claims for unspecified damages,
and an award of costs and expenses to the putative class, including
attorneys’ fees. On March 25, 2015, the Court issued an
order denying the defendants’ motion to dismiss the First
Amended Complaint. On April 28, 2015, the Court denied the
defendants’ motion for leave to seek reconsideration of that
order.
On June 12, 2015, the Court entered a scheduling order setting
certain pretrial deadlines leading up to a hearing on any
dispositive motions scheduled for May 12, 2017. On
June 24, 2015, pursuant to a stipulation among the parties,
the consolidated class actions were reassigned to Magistrate Judge
Jacqueline Scott Corley for all further proceedings. On
June 26, 2015, Magistrate Judge Corley issued an order
scheduling a case management conference for August 20,
2015.
Pursuant to court order, a mediation session was conducted before
the Honorable Edward Infante (Ret.) on August 4, 2015. The
parties reached an agreement in principle to settle In re Zynga
Inc. Securities Litigation as to all defendants for $23.0
million. The settlement, which is subject to negotiation and
execution of a final settlement document, notice to the class and
court approval, would be funded entirely by insurance and lead to
the dismissal of all claims against the defendants. Accordingly
there would be no impact to Zynga’s financial statements if
the final settlement is consistent with the current agreement.
Given its preliminary nature, it remains possible that the
settlement in principle could not result in a final settlement, and
that the assessment of the possibility of loss or adverse effect on
our financial condition, if any, could therefore change in the near
term.
In addition, a purported securities class action captioned Reyes v.
Zynga Inc., et al. was filed on August 1, 2012, in San
Francisco County Superior Court. The action was removed to federal
court, and was later remanded to San Francisco County Superior
Court. The complaint alleged that the defendants violated the
federal securities laws by issuing false or misleading statements
in connection with an April 2012 secondary offering of Class A
common stock. The plaintiff sought to represent a class of persons
who acquired the Company’s common stock pursuant or traceable
to the secondary offering. On June 10, 2013, the defendants
filed a motion to stay the action and a demurrer arguing that the
complaint should be dismissed because the court lacks jurisdiction
over the claims. On August 26, 2013, the court issued orders
overruling the demurrer and granting the motion to stay all
deadlines in the action pending a ruling on the motion to dismiss
in the federal securities class action described above. On
September 29, 2014, the court issued orders denying a motion
to continue the stay of the action and overruling a demurrer
arguing that the complaint failed to state a cause of action. On
October 15, 2014, the defendants filed a petition in the
California Court of Appeal seeking review of the denial of the
motion to stay and of the trial court’s ruling that it had
jurisdiction to hear the claims. On January 29, 2015, the
Court of Appeal denied defendants’ petition. On
February 11, 2015, the court granted plaintiff’s request
for voluntary dismissal of the action with prejudice as to the
named plaintiff’s claims and without prejudice as to the
claims of any other members of the proposed class.
On April 4, 2013, a purported class action captioned Lee v.
Pincus, et al. was filed in the Court of Chancery of the State of
Delaware against the Company, and certain of our current and former
directors, officers, and executives. The complaint alleges that the
defendants breached fiduciary duties in connection with the release
of certain lock-up agreements entered into in connection with the
Company’s initial public offering. The plaintiff seeks to
represent a class of certain of the Company’s shareholders
who were subject to the lock-up agreements and who were not
permitted to sell shares in an April 2012 secondary offering. On
January 17, 2014, the plaintiff filed an amended complaint. On
March 6, 2014, the defendants filed motions to dismiss the
amended complaint and a motion to stay discovery while the motions
to dismiss were pending. On November 14, 2014, the court
denied the motion to dismiss brought by Zynga and the directors and
granted the motion to dismiss brought by the underwriters who had
been named as defendants. The Court endorsed a stipulation setting
a briefing schedule for plaintiff’s motion for class
certification. Plaintiff’s motion was filed on July 13,
2015. Defendants’ opposition is to be filed on or before
September 4, 2015, and plaintiff’s reply is to be filed
on or before October 5, 2015. On June 24, 2015, certain
of the defendants filed a motion for relief from the court’s
November 14, 2014 decision denying the defendants’
motion to dismiss the complaint. An opposition to the motion was
filed on July 24, 2015. A hearing date has not been set.
Although it is reasonably possible that our assessment of the
possibility of loss could change in the near term due to one or
more confirming events, the Company believes it has meritorious
defenses in the Lee v. Pincus class action and will vigorously
defend this action. Furthermore, given that we are in the early
stages of the litigation process, we are unable to estimate the
range of potential loss, if any.
Since August 3, 2012, nine stockholder derivative lawsuits
have been filed in State or Federal courts in California and
Delaware purportedly on behalf of the Company against certain
current and former directors and executive officers of the Company.
The derivative plaintiffs allege that the defendants breached their
fiduciary duties and violated California Corporations Code section
25402 in connection with our initial public offering in December
2011, secondary offering in April 2012, and allegedly made false or
misleading statements regarding the Company’s business and
financial projections.
Beginning on August 3, 2012, three of the actions were filed
in San Francisco County Superior Court. On October 2, 2012,
the court consolidated those three actions as In re Zynga
Shareholder Derivative Litigation, Lead Case CGC-12-522934. On
March 14, 2013, the plaintiffs filed a First Amended Complaint
in that consolidated California state action. On March 21,
2013, the court endorsed a stipulation among the parties staying
the action pending the ruling on the motion to dismiss in the
federal securities class action described above. On March 24,
2014, the court endorsed a stipulation among the parties staying
the action pending a ruling on a motion to dismiss the First
Amended Complaint in the federal securities class action.
April 24, 2015, the court endorsed a stipulation among the
parties staying the action until the Delaware Chancery Court rules
on the defendants’ motion to stay or dismiss (discussed
below).
Beginning on August 16, 2012, four stockholder derivative
actions were filed in the United States District Court for the
Northern District of California. On December 3, 2012, the
court consolidated these four actions as In re Zynga Inc.
Derivative Litigation, Lead Case No. 12-CV-4327-JSW. On
March 11, 2013, the court endorsed a stipulation among the
parties staying the action pending the ruling on the motion to
dismiss in the federal securities class action described above. On
March 21, 2014, the court issued an order continuing the stay
pending a ruling on a motion to dismiss the First Amended Complaint
in the federal securities class action. On April 27, 2015, the
court endorsed a stipulation among the parties staying the action
until the Delaware Chancery Court rules on the defendants’
motion to stay or dismiss (discussed below).
A derivative action was also filed in the United States District
Court for the District of Delaware. The plaintiff in the District
of Delaware action voluntarily dismissed the action on
November 19, 2012.
On April 2, 2014, a derivative action was filed in the Court
of Chancery of the State of Delaware entitled Sandys v. Pincus, et
al. Case No. 9512-CB. On December 9, 2014, the defendants
filed a motion to stay or dismiss the action. Briefing on the
motion to stay or dismiss is complete and a hearing on the motion
is scheduled for August 10, 2015.
The derivative actions include claims for, among other things,
unspecified damages in favor of the Company, certain corporate
actions to purportedly improve the Company’s corporate
governance, and an award of costs and expenses to the derivative
plaintiffs, including attorneys’ fees. We believe that the
plaintiffs in the derivative actions lack standing to pursue
litigation on behalf of Zynga. Because the derivative actions are
in the early stages of the litigation process, we are not in a
position to assess whether any loss or adverse effect on our
financial condition is probable or remote or to estimate the range
of potential loss, if any.
The Company is also party to various other legal proceedings and
claims which arise in the ordinary course of business. In addition,
we may receive notifications alleging infringement of patent or
other intellectual property rights. Adverse results in any such
litigation, legal proceedings or claims may include awards of
substantial monetary damages, costly royalty or licensing
agreements, or orders preventing us from offering certain games,
features, or services, and may also result in changes in our
business practices, which could result in additional costs or a
loss of revenue for us and could otherwise harm our business.
Although the results of such litigation cannot be predicted with
certainty, we believe that the amount or range of reasonably
possible losses related to such pending or threatened litigation
will not have a material adverse effect on our business, operating
results, cash flows, or financial condition should such litigation
be resolved unfavorably. We recognize legal expenses as
incurred. |
