| Commitments and Contingencies | 12. Commitments and Contingencies
Lease Commitments
We have entered into operating leases for facilities, including
data center space. As of September 30, 2015, future minimum
lease payments related to these leases are as follows
(in thousands):
Year ending December 31:
2015 $ 4,871
2016 23,594
2017 14,233
2018 13,104
2019 13,260
2020 and thereafter 21,918
$ 90,980
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 September 30, 2015, are as follows (in thousands):
Year ending December 31:
2015 $ 4,417
2016 20,464
2017 13,110
2018 1,382
2019 330
2020 and thereafter 300
$ 40,003
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 September 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.
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 parties negotiated and executed a final
stipulation of settlement and on October 2, 2015, lead
plaintiff’s counsel filed an unopposed motion for preliminary
approval of the settlement. In response to issues raised by the
Court at an October 8, 2015 and in an October 9, 2015
order, on October 15, 2015, lead plaintiff’s counsel
revised the papers in support of preliminary approval and filed a
supplemental submission in support of lead plaintiff’s
unopposed motion for preliminary approval of the settlement. On
October 27, 2015, the Court granted preliminary approval of
the class action settlement. The settlement, which is subject to
notice to the class and further court approval at a final fairness
hearing scheduled on January 28, 2016, 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 may 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. Subsequent to various proceedings,
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. Briefing on the motion for class certification is complete
and a hearing has been scheduled for November 20, 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.
Briefing on the motion for relief from the court’s
November 14, 2014 decision is complete. A hearing date
has not been set. On August 19, 2015 the parties agreed to
voluntarily dismiss three individual director defendants from the
case. 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).
On April 4, 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. A hearing on the motion has
been scheduled for November 17, 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, at various times, 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. |
