Dreamworks Animation SKG, Inc. Securities Litigation 05-CV-3966

Home , DreamWorks Animation

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Christopher Kim (Bar No. 082080) 3 Lisa J, Yang (Bar No. 208971) LIM, RUGEk & ISM, LLP 4 1055 West Seventh Street, Suite 2800 S Los Angeles, CA 90017 Phone: (213) 955-9500 6 Fax: (213) 955-9511 rx^ 4 c email: ckirn ,lrklawyg s.com 'll 7 r.. [email protected] S Liaison Counsel

9 Michael K. Yamoff (admitted pro hac vice) 10 Eric Lechtzin (admitted pro hat vice) 11 Todd M. Masser (admitted pro hac vice) SCHIFFRIN & BA1 ROWAY, LLP 12 280 King of Prussia Road 13 Radnor, Pennsylvania 19087 Telephone: (610) 667-7706 14 Facsimile: (610) 667-7056 15 Lead Counsel 16 17 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA 18

19 In re DREAMWORKS Master File No.: CV 05-03966 MRP (VBKx) 20 ANIMATION SKG, INC., SECURITIES LITIGATION 21 CONSOLIDATED AMENDED 22 This Document Relates To: CLASS ACTION COMPLAINT All Actions 23 24 JURY TRIAL DEMANDED 25 26 DOCKETED ON CM 27 oEC 2 t 20M 28

ConsoEd ed nna ^^ Ammided Comp uit (12- z2-zoos) i CONSOLIDATED AMENDED CLASS ACTION COMPLArNT

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k . -1 -Lead' Plaintiff, Ne etra "Invest? lent 'Man ;gement S.G:R: S.p.A. " ("Nextra"), 2 and additional plaintiffs Slim T. Moy and Charles C. Moy (collectively, 3 "Plaintiffs"), on behalf of themselves and all other persons or entities that 4 purchased and/or acquired the common stock of DreamWorks Animation SKG, 5 Inc. ("DreamWorks" or the "Company") between October 28, 2004 and July 11, 6 2005, inclusive (tbe "Class Period"), allege the following based upon information 7 and belief, except as to those allegations concerning Plaintiffs, which are based 8 upon personal knowledge. Plaintiffs' information and belief allegations are based 9 upon, among other things: (a) the investi.gatiui.. conducted by and through their 10 attorneys; (b) review and analysis of filings made by DreamWorks with the 11 United States Securities and Exchange Commission ("SEC"); (c) review and 12 Eu alysis of press releases, public statements, news articles, securities analysts' 13 reports and other publications disseminated by or concerning DrearaWorks; and 14 (d) other publicly available information about the Company. Most of the facts 15 supporting the allegations contained herein are known only to the Defendants or 16 are within their control, Plaintiffs believe that substantial additional evidentiary 17 support will exist for the allegations set forth in this Consolidated Amended Class 18 Action Complaint ("Complaint") after a reasonable,opportunity for discovery. 19 NATURE OF THE ACTION 20 1. Plaintiffs bring this action pursuant to §§ 11, 12(a)(2), and 15 of the 21 Securities Act of 1933 ("Securities Act"), 15 U, S.C. §§ 77k, 771(a)(2), and 77o, on 22 their own behalf and on behalf of all other persons or entities who purchased or I 23 I otherwise acquired Drea .Works common stock pursuant or traceable to the 24 Company's Registration Statement filed with the United States Securities and 25 Exchange Commission ("SEC") on July 21, 2004 (as amended on September 3, 26 2004, September 27, 2004, October 12, 2004, October 25, 2004, and October 27, 27 2004), and Prospectus filed with the SEC on October 28, 2004, for the Company's 28 initial public offering ("ZPO") of 29 million shares of Class A common stock, at ConsoJi cal Ai er ded Comp} aint (12- 22-2005) 2 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 $28.00 per share;" plus an additional 4.35, million shres to cover underwriters' 2 over allotments. The IPO commenced on October 27, 2004 and closed on 3 November 2, 2004. The Registration Statement and Prospectus are collectively 4 referred to herein as the "Offering Documents," The Offering Documents were 5 signed by Defendants Katzenberg, Leslie, and Kendrick (defined below). 6 2. - In addition, Plaintiffs bring this action pursuant to § § 10(b) and 20(a) 7 of the Securities Exchange Act of 1934 (the "Exchange. Act"), 15 U.S.C. §§ 78j(b) 8 and 78t(a), and Rule 1Ob-5 promulgated thereunder (17 C.F.R. § 240.1Ob-5), on 9 their own behalf and on behalf of all other persons or entities who purchased or 10 otherwise acquired DreamWorks common stock between October 27, 2004 11 through July 11, 2005, inclusive (the "Class Period"). 12 3. Plaintiffs' Securities Act claims are pled separate' and apart from the 13 D Exchange Act claims. The Securities Act claims do not incorporate by reference, 14 or otherwise rely on, any allegations pled in support of the Exchange Act claims. 15 Pursuant to the Ninth Circuit's decision in Vess v. Ciba-Geigy Corp. USA, 317 16 F.3d 1097, 1103-05 (9th Cir. 2003), and recent decisions from this District, 17 Plaintiffs' non-fraud allegations in support of the Securities Act claims are pled 18 under notice pleading standards of Fed, R. Civ. P, 8(a), 19 4. DreamWorks primarily develops and produces computer generated 20 ("C&') animated feature length films (rather than conventional hand-drawn or 21 stop-motion anirnation), directed at a broad movie-going audience. At the time of 22 the IPO, DreamWorks had theatrically released a total of nine animated feature 23 I Films, including A.nta, Shrek, SJ2 ek 2 and. Shark Tale. 24 5. According to the Offering Documents, the Company' s business 25 strategy, based upon its "existing scale of operations," is to release only two CG 26 I feature films per year. The Offering Documents state that after the initial 27 development stage, it typically takes DrewvWorks "three to four years to produce 28 a high quality animated film, while a live-action film is typically produced within Consaiduca Arncnded Coanplaint (12- 22-2005) 3 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 a period of 1-2 to 1.8 xxaonths." Accordingly, each CG film represents an'enormbus 2 investment and is core to DreamWorks' business and its results of operations, 3 6. Prior to its IPO, DrearnWorks operated as a majority owned 4 subsidiary of DreamWorks L.L.G. ("DreamWorks Studios"). The IPO involved 5 various transactions in which DreamWorks was spun off from DreamWorks 6 Studios, leaving DreamWorks as an independent publicly-traded holding company 7 with two principal operating subsidiaries.1 Under a distribution agreement, S however, DreamWorks Studios continues to distribute all DreaanWorks' films. 9 DreamWorks Studios has engaged Vivendi Universal Entertainment LLLP" 10 ("Universal") as DreamWorks' "worldwide principal fulfillment services 11 provider" for its home videos. Because home video sales are so important to 12 DreamWorks' financial success, the Company's in-house video division oversees 13 the marketing, strategy and tracking. 14 7. The Offering Documents state that DreamWorlcs derives 15 "substantially all" of its revenue from its feature films. Specifically, the

P 16 Company's principal sources of revenues are domestic and international theatrical 17 exhibition, home video distribution, and pay and free broadcast television, 18 8. "Home video distribution," as defined in the Offering Documents, is 19 "the marketing, promotion and sale and/or lease of videocassettes and DVDs to 20 wholesalers, local, regional and national home video retailers , .. which then sell 21 or rent the videocassettes and DVDs to consumers for private viewing." Revenue 22 ^ generated from home video sales of animated feature films accounted for an 23 average of 60 percent of DreamWorks' total revenues during 2001 and 2002, 24 according to the Offering Documents. Home video sales were expected to 25 continue to be the Company's largest source of revenue following the ZPO. 26

28 The term "Dreamworks," as used herein, means the Company and its two principal operating subsidiaries. Consolidated Ammided comp]aim (]2- 4 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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9. The Offering Documents repeatedly-to-at Shrek 2's box office success 2 as the third highest grossing movie of all time, at $436.7 million, the highest 3 grossing animated film of all time, al]d the highest single-day box office gross of 4 $44.8 million. The importance of Shrek 2 to the success of the IPO and 5 DreamWorks' 2004-2005 financial results is underscored by the fact that the page 6 immediately preceding the table of contents of the prospectus is a color close-up 7 of the bright green ShrJek character. Moreover, the Offering Doctuments state: S We expect to theatrically release a limited number of 9 animated feature films per year for the foreseeable future. The 10 commercial failure of just one of these films can have a 11 significant adverse impact on our results of operations in both 12 the year of release and in the future. For example, for the 13 remainder of 2004 and. into 2005, we will be dependent on 14 the continuing success of Shrek 2 and the success of Shark 15 Tale. 16 (Emphasis added.) 17 10. The Offering Documents contain numerous statements strongly 18 suggesting to investors that Shrek 2s box office success would be repeated in the 19 home video market, For example, the Offering Doctuneats state: 20 Historically, there has been a close correlation between 21 domestic box office success and international box office, 22 home video and television success., such that feature films 23 that are successful in the domestic theatrical market are 24 genL-rally also successful in the international theatrical, home 25 video and, television markets. Because of this close 26 correlation, we believe that Shrek 2, which has been very 27 successful in the domestic and international theatrical 28 markets, will also strongly perform in the home video and Consolidated An ended Carpi pmt (12- . 5 22-240 ) CONSOLIDAThD AMENDED CLASS ACTION COMPLAINT

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- .Celevisioyi markets , .'although 'thexe is no way to guarantee 2 such results. 3 (Emphasis added.) 4 11. Contrary to Defendants' rosy outlook, the Offering Documents 5 misrepresented and failed to disclose material facts regarding the trend that home 6 video sales had begun to mirror the sales trends of first run theatrical releases 7 where movies make most of their m oney in the first few days. Indeed, by the 8 inception of the IPO, DVD releases typically generated between 50 and 70 percent 9 of their total sales in the lutist week. After the first few weeks, however, sales 10 rapidly decrease and retailers, who are granted generous return rights by movie 11 studios, ship the unsold discs back to their distributors to clear shelf space for 12 newer releases. 13 12. Despite the significance of home video sales to DreamWorks' overall 14 financial results and, in particular, sales of Shrek 7, the Offering Documents failed 15 to disclose the existence of this recent sales trend in the home video market. 16 Nonetheless, Defendants attempted to counter this trend by flooding the market 17 with excess inventory of Shrelz 2 DVDs and video cassettes to maximize initial 1s sales : Indeed, a December 31, 2004 report from Adams Media Research states 19 DreamWorks had shipped a whopping 25.3 million Shrek -2 home video units - 20 the highest number for any release in 2004 and far exceeding the runner-up Lord 21 of the Rings: Reurn of the King, which shipped 19.7 million home video units in 22 2004.

23 13. Not only did Defendants fail to disclose that they were engaging in 24 this flood-the-market strategy, but Defendants failed to alert the investing public 25 to the fact that this strategy dramatically increased the risk of massive returns 26 from retailers (whom DreamWorks granted the right to return as much as 100 % 27 of the unsold units). 28 Coiisalidated Amended Complaint (12- 5 222.2005) CONSOLIDATED AMENDE1J CLASS ACTION COMPLAIN T

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• 1 14, As a result of the changes in the home video market, Defendants' 2 strategy of flooding the market with excess home video units, and the generous 3 I I return rights granted to retailers, Dream Work, was unable to accurately estimate 4 I I or otherwise account for returns when it reported sales and revenue figures to the 5 public. Additionally, these factors caused Defendants to misrepresent the 6 Company's revenue recognition policy, particularly with respect to reserves for 7 returns and estimates for returns. Further, Defendants failed to disclose to the S investing public that DreamWorks lacked adequate procedures for tracking home 9 video sales and to account for and make adjustments based on actual returns. 10 15, The risks created by Defendants' material misrepresentations and 11 omissions began to materialize with DreamWorks' home video release of Shrek 2 12 on November 5, 2004 - only a few days after the close of IPO. On. November 11, 13 2004, the DAU.,Y NEws (New York) ran an article stating that DreamWorks had 14 reported that Shrek 2 had picked up about $185 million over the weekend from 15 sales of a record 11 million DY1Ds and 1.1 nail lion video cassettes. On December 16 8, 2004, DreamWorks issued a press release in which an ebullient Katzenberg 17 boasted: is We are also thrilled with the results of our films in the-fourth 19 quarter... initial Slir°ek 2 video sales have set an all-time 20 record, selling over 30 million units worldwide in just over 21 four weeks, 22 16. On January 3, 2005, the Company announced that it had sold 37 23 million Shrek 2 home video units and projected that it would sell 40 million units 24 by the end of the first quarter of 2005, and 50 to 55 million units over its lifetime. 25 lowever, Defendants' food-the-market strategy of shipping more units to 26 distributors than the anticipated customer demand had already begun to backfire 27 as a material number of videos were being returned by retailers. Indeed, on March 28 28, 2005, when DreamWorks filed its 2004 annual report on Form 10-K, the ConsoGdmed Amended Cnmplatnt (12- 7 22.2005) coNSOLUDATT'n AMIiN= CLA ACTION CU LANT

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1 Company revealed that as of December 31, 2004 it had oiily sold 33:7 milli©n 2 Shrek 2 home video units - far less than the 37 million units Defendants reported 31 on January 3, 2005. However, Defendants still had not revealed the truth about 41 their flood-the-market strategy or the massive returns of unsold videos. 5 17. The truth about DreamWorks began to be revealed to the investing 6 public after the markets closed, on May 10, 2005, when the Company issued a 7 press release regarding its results for the quarter ended March 31, 2005. 8 Specifically, Defendants announced that Shrek 2 did not meet the Company's 9 I retail sales expectations for the first quarter of 2005. In addition, DreamWorks 10 reported first quarter 2005 profits of $46 million, or 44 cents a share lower than 11 Wall Street expectations of a profit of 58 cents a share. The Company forecast 12 ear a.ings of $1 to $ 1.25 a share for 2005 - significantly below analyst expectations 1.3 of $1.88 a share. 14 18. The next trading day, May 11, 2005, DreamWorks shares fell $4.45 15 per share, or 12.2 percent, to close at $32.05 per share, after hitting a low of 16 $30.80 per share, on unusually heavy trading Volume of 9,173,200 shares. 17 19. The May 10, 2005 announcement did not disclose the full extent of 18 Defendants ' previous false and misleading statements and omissions. On July 11, 1.9 2005, DreamWorks issued a press release aimouncing that it failed to meet its 20 recently revised guidance for the second quarter of 2005 and that it expected to 21 "show a loss in. the range of seven to nine cents per share for the quarter." 22 DreamWorks also "updated its previous fall year guidance of $1.00$1.25 per 23 share and [stated that it] now expects to earn approximately $0.80 to $0.90 per 24 share for the full year. 2005. This adjustment was primarily driven by an 25 increase in return reserves for Its 2004 titles," (Emphasis added.) The 26 Company stated that its updated guidance reflected "higher than expected 27 returns [of Shrek 2 videos] as well as revisions to. our video forecasts." 28 (Emphasis added.) The Company also announced that it had abandoned its I ConsolidaLec Amended Complaint ( 1_- a 22.2005) CONSOLIDATED AMEND D CLASS ACTION COMPLAINT

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-1 proposed ' $500 m llioh secondary Offering -lay"principal shareholders Paul' Mien 2 and David Geffetn. Finally, the Company disclosed that the SEC had launched an 3 investigation of insider sales shortly before the May 10, 2005 announcement. 4 20. The July 11, 2005 announcement shocked the market and caused S DreamWorks shares to plunge 13.2 percent from its previous close of $26.81 per 6 share, to a low of $22.80 per share, before closing at $23.27 per share, on 7 extraordinarily high volume of 12,343,500 shares traded. Thus, when the market S learned the truth about the trend in home video sales; that DreamWorks' response 9 to this trend was to flood the market with excess videos; and that this practice 10 created a material risk of high returns, which caused the Company's revenue 11 recognition policies and procedures to be materially deficient - all of which were 12 misrepresented and/or omitted from the Offering Documents - the price of 13 1)reamWorks stock fell substantially below the $28.00 per share IPO price, 14 causing real economic harm to Plaintiffs and other member of the Class. The 15 price of DreamWorks stock closed at $23.00 per share on July 21, 2005, the date 16 the first complaint alleging claims under the Securities Act was filed. 17 JT1RISDMCTJONAND VENUE 1s 21. This Court has jurisdiction over the subject matter of this action

191 pursuant to § 22 of the Securities Act, 15 U.S.C. § 77v, and § 27 of the Exchange '1 0 Act, 15 U.S. C. § 78aa. The claims alleged herein arise under §§ 11, 12(a)(2), and 21 15 of the Securities Act, 15 U.S.C. §§ 77k, 771(a)(2), and 77o, and §§ 10(b) and 22 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5, 17 23 C.F.R. § 240. 1Ob-5, promulgated thereunder, 24 22. Venue is proper in this Judicial District pursuant to § 22 of the 25 Securities Act, 15 U.S.C. § 77v, § 27 of the Exchange Act, 15 U.S.C. § 78aa and 26 28 U.S.C. § 1391(b). Many of the acts and transactions giving rise to the 27 violations of law alleged herein, including the preparation and dissemination of 2 8 materially false and misleading information, occurred in this Judicial Distzi.ct. C-W80Jidatcd AmendF4 Complain: (T2- 9 17-2005) CONSOLIDATED AMENDED CLAS e. ACTION COMPLAINT

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Additionally, DrearnWorks maintains its principal executive office in this Judicial 2 District at 1000 Flower Street, Glendale, California 91201-3007, where the day- 3 to-day operations of the Company are directed and managed. 4 23. In col ection with the acts, conduct and other wrongs alleged in the 5 Complaint, Defendants, directly or indirectly, used the means and 6 instrumentalities of interstate commerce, including, but not limited to, the United 7 States mails, interstate telephone communications and the facilities of the national securities exchange. THE PARTIES 7.Q 24. Lead Plaintiff, Nextra, purchased the publicly traded common stock 17. of DreamWorks at artificially inflated prices during the Class Period, as 12 demonstrated by Lead Plaintiff's certification previously filed with the Court and 13 has suffered damages as a result of the disclosure of the wrongful acts of 14 Defendants as alleged herein. By order dated November 7, 2005, the Court 15 appointed Nextra as the Lead Plaintiff in this case pursuant to 15 U.S.C, § 78u-4. 16 25. Additional plaintiffs Elim T. Moy and Charles C. May, as set forth in 17 the accompanying certifications (attached as Exhibit "A"), incorporated by 18 reference herein, purchased DreamWorks securities at artificially inflated prices 19 during the Class Period and have been damaged thereby. 20 26. Defendant DreamWorks is a Delaware corporation that maintains its 21 principal place of business at 1000 Flower Street, Glendale, CA 91201. 22 27. Defendant Jeffrey Katzenberg ("Katzenberg") was, at all relevant 23 times, the Company's Chief Executive Officer ("CEO") and a Director. 24 Katzenberg co-founded and has been principal member of DrearWorks Studios 25 since its founding in October 1994. Prior to founding DreamWorks, Katzenberg 26 served as head of Walt Disney's Studio unit Thom 1984 to 1994. In that capacity, 27 he was responsible for the worldwide production, marketing and distribution of all 28 Disney filmed entertainment, including motion pictures, television, cable, I couso1 Iated AMen4ed complaint (12- 10 32-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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syndication, home -video 'and interactive entertainment. Prior to joining Disney, 2 j Katzenberg was president of Par= ount Studios. According to the Offering 3 Documents, Katzenberg controls 93% of the total.voting power of the Company's 4 I' outstanding coimnon stock through Holdco (a company owned and controlled by 5 I I Katzenberg and David Geffen). Katzenberg owns approximately 45.5 % of the 6 common equity in the Company. Katzenberg was unable to sell any of his 7 personally held DreamWorks stock during the Class Period due to a lockup 8 agreement that was in place for 365 days following the TO. Katzenberg signed 9 certain of the Company' s false and misleading SEC filings during the Class 10 Period. 11 28. Defendant Roger Enrico ("Enrico") was, at all relevant times, the 12 Company' s Chairman of the Board. Enrico signed certain of the Company' s false 13 and misleading SEC filings during the Class Period, 14 29. Defendant Katherine Kendrick ("Kendrick") was, at all relevant 15 times, the Company's Vice President and General Counsel, Kendrick signed 16 certain of the Company's false and misleading SEC filings during the Class 5 17 Period. 18 30. Defendant Kristina M. Leslie ("Leslie") was, at all relevant times, the 19 Company's Chief Financial Officer ("CFO"), Chief Accounting Officer ("CAO"), 20 and a Director. Leslie signed certain of the Company's false and misleading SEC 21 filings during the Class Period. 22 31. Defendant Paul Allen ("Allen") was, at all relevant times, a member 23 of the Company's Board of Directors. Allen co-founded and has been the primary 24 .financial investor in. DreamWorks Studios since its founding in October 1994. At 25 I all times relevant to this litigation, Allen controlled DreamWorks through his 26 direct and indirect ownership of 64.4 % of the Company's Class A common stock 27 prior to the ZPO and 37.4 % of the Company`'s Class A common stock following 28 the TO, In addition, an entity controlled by Allen holds one share of Consolidated Amended Complaint (12. 11 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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.1 DreamWo'rks' Class C common stock, which -give's him the right to elect ohe' 2 director voting separately as a class. Allen sold 4,901,858 shares of DreamWorks 3 common stock in the IPO (representing approximately 39 percent of his holdings), 4 for proceeds of $137,252,024. Allen signed the Company's false and misleading 5 2004 Annual Report on Form 10-K. 6 32. Defendants Katzenberg, Kendrick, Leslie, Enrico, and Allen are 7 collectively referred to hereinafter as the "Individual Defendants." 8 FALSE AND M[SLEM MNG STATEMENTS IN 9 T lE OFFERING DOCUMENTS 10 33. The Offering Documents highlighted the importance of Shrek 2 to the 1]. success of the IPO and DreamWorks' 2004-2005 financial. results by featuring a 12 full-page color close-up of the bright green Shrek character on the page 13 immediately preceding the table of contents of the prospectus. Moreover, the 14 Offering Documents expressly state that the success of Shrek2's home video 15 release, which was scheduled just days after the IPO, would be material to the 16 Company's -results: 17 We expect to theatrically release a limited number of 1s animated feature films per year for the foreseeable future. The 19 commercial failure of just one of these films cm have a 20 significant adverse impact on our results of operations in both 21 the year of release and in the future. For example, for the 22 remainder of 2004 and into 2005, we will be dependent on 23 the conlanu.ing success of Shrek 2 and the success of Shark 24 Tale. 25 (Emphasis added.) 26 34. The importance of Shrek 2 to the IPO was evident to industry 27 insiders. In a column dated August 5, 2004, Scott Hetrick, editor-in-chief of the 28 Conaoliaaua Amended Complaint (12- ]2 22-2005) CONSOLIDATE]] AMENDED CLASS ACTION COMPLAINT

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1 trade publication, VIDEO' BU ss, "made the following observations' about the' 2 Offering Documents: 3 If all of this isn't evidence enough of how DVDs are 4 propping up movie studios, take a look at the recent 5 information provided to federal regulators by DreamWorks as 6 it prepares to take its animation unit public. 7 8 It's interesting enough that the whole filing seems to be 9 hinged on the astounding success of the two-picture Shrek 10 franchise. 11 (Emphasis added.) 12 35. The Offering documents also repeatedly touted the domestic 13 theatrical success of Shrek 2. See ¶ 9. 14 36. The Offering Documents contaiu numerous statements strongly 15 suggesting to investors that Shrek 2s box office success would be repeated in the 16 home video market. For example, the Offering; Documents state: 17 1listorically, there has been a close correlation between 18 domestic box office success and international box office, 19 home video and television success, such that feature films 20 that are successful in the domestic theatrical market are 21 generally also successful in the international theatrical, home 22 video and television markets. Because of this close 23 correlation, we believe that Shrel+i 2, which has been very 24 successful in the domestic and international theatrical 25 markets, will also strongly perform in the home video and 26 television markets , although there is no way to guarantee 27 such results. 28 (Emphasis added.) Consolidated Add Complaint (12- 13 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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I 37, The Offen-jig Documents tout as one of the Company's"d6mpetitive 2 strengths," its "Established distribution and promotion infrastructure," including 3 lareamWorks Studios' "international distributors and fulfillment services partners 4 [which] creates proven distribution channels and marketing networks for 5 [DreamWorks'] films," as well as DreamWorks Studios' relationships with 6 "prominent retailers." 7 38, The Of'erin.g Documents also tout DreamWorks' strong relationship 8 with some of the world's largest retailers; 9 [W]e and DreamWorks Studios enjoy a strong relationship 10 with some of the world's largest retailers. We work with 11 these key retailers to develop custom marketing programs to 12 support the launch of our home video titles. Our relationship 13 with these stores have resulted in broad promotion of our 14 home videos and ancillary consumer products in stores 15 throughout the world.

P4 16 39. The Offering Documents represented that the Company's CG films 5 17 are priced to encourage sell-through to consumers, rather than to stores that rent is videos, and that its CG films generate sustained home video sales for longer 19 periods of time than comparable live-action films: 20 Animated titles are generally priced for sale to encourage 21 direct purchase by consumers, referred to as "sell-through," 22 (as compared to purchases by hor.ue video chains that then 23 rent the home video to customers) and, historically, animated 24 films have generally had more success than live-action 25 films in the sell-through market. After the initial borne 26 video release period, home video units continue to be sold at 27 reduced sell-through pricing. 28

C©nsolidaitd A'wnded Compla in; C12- 14 22-2W5) CONSOLIAAT1';D AMENDED CLASS ACTION COMPLAINT

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(Emphasis added) Cori n.enting on th6 above-quoted text, in `a July 26, 2004 2 article in Vimo BuSnss, Paul Sweeting noted, "What the registration statement 3 does offer is a business model that rests heavily on certain characteristics of the 4 home video market." 5 40. In addition, the Offering Documents tout the growth in the DV'D 6 market during the period leading up to the TO, thus creating the impression that 7 such growth would continue unabated: S Overall growth in the domestic home video market has 9 accelerated with the introduction of the DVD format.. , 10 According to the MPAA, sales of DVDs to U.S. dealers in the 11 rental and sell-through markets have increased over 3,000% 12 since 1 998 - from approximately 34 million units sold in i3 1998 to approximately 1.1 billion - in 2003 . Likewise, 14 according to the MPAA, the number of DVD capable ]5 households in the United States in 2003 was approximately 16 46.7 million compared to approximately 1.2 million in 1998. 17 Although international DVD penetration levels lag behind 1s those in the United States, the demand for DVDs is growing 19 oveRSeas. 20 41. The Offering Documents assert that animated fihns are more 21 successful in the home video market than live-action films: 22 [H]istorically, animated films generally have been more 23 successful in the borne video market than live-action films, as 24 they tend to sell more home video units per box-office dollar 25 and tend to have more durable sales past the first cycle. 26 According to industry reports, since 2000, animated. titles 27 have sold approximately one million home video units per 29 $13.6 million in domestic box office as compared to one CflnsoUdaiW Amended Camplaini (12- 15 22.2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 million home video units sold per $19.8 million in domestic box office for PG-crated and G-rated live-action films. Over 3 this same time period, our animated titles have sold 4 approximately one million home video units per $12.6 5 million in domestic box office. 6 42. With respect to competition in the home video market, however, the 7 Offering Documents stated only that; 8 Me compete with other films released into the intet-national 9 theatrical market and the worldwide home video and 10 television markets.

11 This statement was misleading because it failed to alert investors to the intense 12 competition for shelfspace and the rapid turnover of titles in the home video 13 market at the time of the IPO (and continuing to the present). 14 43. For instance, on July 12, 2004, VWEO BUSINESS ran an article titled 15 "Year-End Shelves Will be Craaraped," stating; 16 With high-profile DVD releases set for nearly every Tuesday 17 between Aug. 31 and Dec. 28, this could be one of the most 18 competitive fourth quarters yet in retail. 19

'20 Studio executive say the crowded schedule means there 21 will be a bigger push to sell-off more units of new release 22 titles during the first week before they get,pushed to the 23 back by the next hot title. 24 (Emphasis added.) 25 44. Another trade publication, VIDEO STORE, published an article in its 26 September 12-18, 2004 issue, "The. Shelf-Space Crunch," expressing similar 27 sentiments:

28 con9o1idned .,beaded COMPUlint (12- 16 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMTLAI T

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1 With the' Fourth quarter fast approaching, the' home 2 entertainment industry is bracing itself for a major shelfspace 3 crunch at retail that promises to have a dramatic effect on

4 business. 5 6 Among other changes, retailers are; becoming increasingly 7 picky about what they bring in - and how long they keep 9 titles out... 9 10 "Because of the sheer volume of product and the emergence 11 of new categories with DVD, like TV DVD, the pressure on 12 shelf space is more intense this year than it has been in the 13 past," said Matthew Smith, SVP and general manager for 14 Blockbuster... 15

rx 16 "We've all been talking about it," said Kelly Avery, 17 worldwide bead of home ea tertainment for DreamWorks 18 SKG. "For awhile, retailers wanted to do 50 percent or 60

19 percent in the first week; now some want to do that after the 20 first weekend. And the challenge we're facing is that it's 21 easier for retailers to go to the next: release rather than keep 22 the display space up for a smaller title and work it for three or 23 four weeks. Somebody always has something new to offer." 24 25 "That's why you're seeing shorter and shorter windows," 26 [Jeff Fink, Senior EV'P of Mirain;x Home Entertainment] 27 said. Studios want to ride the crest of all the theatrical

Causal cd Airirgdcd Complaint (12- II 17 a2•2005) fl CONSOLIDATED AMENOBD CLASS ACTION COMPLAINT

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1 awareness and advertising, so the movie is still fresh in the 2 minds of consumers when it comes out, on DVD." 3 Thus, while industry insiders knew that there would be intense competition for 4 11 retail shelfspace and a rapid turnover of titles at the time of the I'O, Defendants 5 failed to disclose this material information in the Offering Documents. 6 The Offering Documents Fail To Disclose The 7 Dramatic Transformation In The Rome Video Market S 45. The Offering Documents failed. to disclose material facts regarding 9 the trend that home video sales had begun to mirror the sales trends of first run 10 theatrical releases where movies make most of their money in the first few days. 11 Indeed, by the inception of the TO, DVD releases typically generated between 50 12 and 70 percent of their total sales in the first week. After the first few week, 13 however, sales rapidly decrease and retailers, who are granted generous return 1 14 rights by movie studios, ship the unsold discs, back to their distributors to clear 15 shelf space for newer releases. 16 46. A prime example of the changing home video market is Pixar's CO 17 animated feature, Finding Nemo, which was released on November 4, 2003 and 1s garnered 57 percent of its total home video sales in its first week. In his

19 November 15 , 2004 coluam in VIDEO Busi ss, Scott Hetrick wrote: 20 Finding Nemo, which grossed a then-record $340 million in 21 theaters, has generated $475 million in video spending. And 22 though the Shrek 2 DVD amassed $185 million in just the 23 first weekend, even at that velocity, the title may be 24 challenged to reach the level of Nrno, let alone exceed its 25 box office by anywhere near the same margin as Nm,o. 26

27 About 57% or 16 million of the 28 million copies of Nenao 28 purchased to date were bought in the first week last year. COUSO&Aeci Am d ci Cnmpluirn (12- 18 2:1-2QQ5) CONSOLIDATED AM E•D CI M ACTION COMPLAINT

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]. (Emphasis added,) 2 47. Indeed, as far back as 2002, the shelflife for top performing home 3 video titles had begun steadily declining in the first weeks after the initial release, 4 Each week since 2002, home media retailing magazine has published a ranking of 5 the top 25 selling DVD titles, based on Nielsen Entertainment's Videoscan data. 6 This data demonstrates the clear trend of rapidly declining demmid for titles after 7 their initial release into the home video market since 2002. s 48.' For purposes of analyses, the top.-selling title each week is assigned 9 an index value of 100. Every other title's sales volume is indexed to the week's 1o top selling title. For example, if the top selling title sold I million units in a 11 particular week it is assigned an index value of 100, and the number two title sold

12 550,000 units that same week, the latter title would be assigned an index value of 13 55. When one analyzes the average number of weeks a DVD remains on the top br 14 25 Home Media Retailing list, the results show a striking decline from 2002 to ^S 2004: 16 Titles in Avg. Weeks Index Year Stady On Top 25 Average 17 2002 25 9,0 17.5 18 2003 24 9.2 12.9 19 2004 35 6.9 12.7 20 49. Thus, in 2002, the titles that debuted at #1 remained in the top 25 for 21 an average of 9.0 weeks and maintained an, average index value of 17.5 during 22 that time. In 2003, top performing titles only remained in the top 25 for 8.2 23 weeks, and their average index value decreased to 12.9. By the time of 24 DreamWorks' TPO in late 2004, a title that debuted only stayed in the top 25 for 25 6,9 weeks, as compared to 9 weeks in 2002. 26 50. The home video rental market also reflects this undisclosed trend of 27 shortened shelflives for home video release... Data from Rentrak Corporation, 28 which reflects national gross consumer spending and activity estimates projected Consolidaied Amended Complaint (12- 19 2-1-2005) CONSOLIDATED AMENDED CLASS, ACTION COMPLAINT

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I I i

from over 3,000 private and publicly-owned independent, mid-level, a.nd large 2 brick-and-mortar and online US, retail chains, shows the precipitous drop-off in 3 rentals of Shrek 2 in the first weeks following its home video release, As shown 4 in the chart below, during the initial twelve weeks after its home video release, 5 rental turns dropped from more than 2.2 million in week one, to only 192,473 in 6 week twelve, and total rental revenue dropped from more than $8.3 million to 7 only $673,699. Moreover, the week-to-week activity dropped more than 43% ia. 8 week three, 11 % in week four, and 52% in week five - a trend that closely mirrors 9 the sell-through market: 10 DVD/VHS Week-to-Week D'VD/VHS Week-to-Week 11 Rental Turns Activi Rental Revenue Activi 12 1 2,249,891 - $9,320,933.72 - 13 2 2,692,360 19.67% $9,878,319.12 18.72% I 14 3 1,527,404 -43.27% $5,620,352.07 -43.10% 15 4 1,538,478 0.73% $4,972,799.00 -11.52% 16 5 647,419 -57.92% $2,346,536.22 -52.81% 9 17 6 489,878 -24.33% $1,761,830.63 -24.92% 1s 7 392,948 -19.79% $1,274,789.60 -27.64% 8 427,371 8.76% $1.,535,696.49 20.47% 1920 9 418,255 -2.13% $1,496,257.08 -2.57% 21 10 229,704 -45.08% $802,363.27 -46.38% 22 11 209,329 -8.87% $738,061.22 -8.01% 23 12 192,473 -8.05% $673,699,93 -8.72% 24 51. Despite the significance of home video sales to DreamWorks' overall 25 financial results and, in particular, sales of Shrek 2, the Offering Documents failed 26 to disclose the existence of this recent sale;, trend in the home video market, 27 Unbeknownst to Plaintiffs and the investing public, Defendants attempted to 28 counter this trend by flooding the market with excess inventory of Shriek 2 DVDs Consolidated A tenddd Complain (12- 20 27-2045) CONSOLIDATED AMENDED CLASS ACTION CO PLAINT

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1 and video cassettes to maximize initial sales. For instance, the November 15,

2004 edition ofVIDEo BUSINESS reported: Although DreamWorks would not comment on shipments, 4 industry sources estimate that the studio shipped roughly 30 5 million units in anticipation of the [Shrek 2] release. But 6 even though Shrek 2 has so far sold less than half of that, 7 replenishment has already begun. 8 (Emphasis added.) Thus, DreamWorks shipped 30 million home video units prior 9 to the release and had begun replenishing inventories only a week after the initial 10 home video release. 11 52. By comparison, DreanlWorks' shipments of Shrek 2 exceeded 12 historical shipments for all other animated features, including Finding Nemo -the 13 most successful home video release of all-time. Specifically, during the initial 90- 14 day home video sales cycle, the nine comparable animated features between 2000 18 15 and 2004 generated total revenues from gross shipments, as follows: 16 TitlelRelease Date Initial 94-Day Sales Total Gross Units 4 17 Chicken Run (11/21/2000) $107.8 million 7,100,000 18 Toy Story 2 (10/17/2000) $297.4 million 17,000,000 19 Tarzan (2/1/2000) $243.2 million 14,300,000 20 Dinosaur (1/30/2001) $169.8 million 10,800,000 21 Shrek (11/2/2001) $354.3 million 23,800,000 22 Monsters, Inc. (9/17/2002) $377.2 million 23,400,000 23 Ice Age (11/26/2002) $257.2 million 16,000,000 24 Lilo & Stitch (12/3/2002) $219.5 million 13,600,000 25 Finding Nemo (11/4/2003) $536.7 million 31,350,000 26 53, Not only did Defendants fail to disclose that they were engaging in 27 this flood-the-market strategy, but Defendants failed to alert the investing public ?8 ito the fact that this stratey dramatically increased the risk of massive returns ConsolIc1 ted Amended Complavn (12- 21 22-2005) CONSOLIDATED AMENDED CLASS; ACTION COMPLAINT

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1 from retailers,"to whom DreamWorks granted Toe right to return as much as 100 % 2 ofthe unsold units. 3 54. As a result of the changes in the home video market, Defendants' 4 strategy offlooding the market with excess home video units, and the generous 5 return rights granted to retailers, DreamWork-s was unable to accurately estimate 6 or otherwise account for returns when it reported sales and revenue figures to the 7 public. Additionally, these factors caused Defendants to misrepresent the 8 Company's revenue recognition policy, particularly with respect to reserves for 9 returns and estimates for returns. Further, Defendants failed to disclose to the 10 investing public that Dr'eamWorks lacked adequate procedures for tracking home 11 video sales and to account for and make adjustments based on actual returns. 12 Violations ofSEC Regulation S- 13 55. By failing to disclose the truth regarding the trend in home video 14 sales mirroring the patter of first run theatrical releases where movies make most 15 of their money in the first few days, Defendants violated SEC Regulation S-K 16 {"Reg. S-K°'), 17 C.F.R. §229.303(a)(3)(ii), and the instructions accompanying 17 Reg. S-K. Under Reg. S-K, Defendants had an affirmative obligation to disclose 18 in the management' s discussion and analysis section of the Offering Documents 19 I any known trends or uncertainties that have or is reasonably expected to have a I 20 material impact on future sales, revenues or income, as follows; 21 Describe any known trends or uncertainties that have had or 22 that the registrant reasonably expects will have a material 23 favorable or unfavorable impact or' net sales or revenues or 24 income from continuing operations. If the registrant knows of 25 events that will, cause a material change in the relationship 26 between costs and revenues (such as known future increases 27 in costs of labor or materials or price increases or inventory 28 Consolidated Amended Camptaini (12- 22 22.2OO. ) CONSOLIDATED AMENDED CLASS ACTION coMPLAmrr

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1 adjustments), the change in the relationship 'shall' be 2 disclosed. 3 56. In ' addition, the instructions accompanying 17 C.F.R. 4 §229.303(a)(3)(ii) provide further clarification of the nature and extent of the 5 disclosures required by Reg. S-K: 6 The discussion and analysis shall focus specifically on 7 material events and uncertainties known to management that 8 would cause reported financial information. not to be 9 necessarily indicative of future operating results or of future 10 financial condition. This would include descriptions and 11 amounts of (A) matters that would have an ins pact on future 12 operations and have not had an impact in the past, and (B) 13 matters that have had an impact on reported operations and a 14 are not expected to have an impact upon future operations. 15 57. The Offering Documents failed to adequately disclose material 16 events and uncertainties that, in the exercise of reasonable diligence, Defendants 9 17 (who are all highly sophisticated veterans of the motion picture industry) should 18 have known would cause the Company's past financial performance, including the 19 results of the original Shrek home video release, not to be indicative of future 20 operating results or of future financial condition, in violation of Reg. S-K,' 21 including: (i) providing descriptions and amounts of matters that would have an 22 impact on future operations that have not bad an impact in the past (including the 23 shortened shelflife of home videos and the channel stuffing strategies used to 24 combat this trend); and (ii) matters that have had an impact on reported operations 25 in the past that are not expected to have an impact on reported operations in the 26 future (including sustained home video sales after the initial home video release); 27 and (iii) that as a consequence of the foregoing, Defendants lacked a reasonable 28 CoasaUdatec1 Amended Complaint (12- 23 12.2005) CONSOLIDATED AMENDED CLASS ACTION CONtl'LAINJ

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1 'basis for their positive statements about the prospects for Shiek 2 home video 2 sales, 3 GAAP Violations 4 58. With respect to revenue recognition, the Offering Documents 5 represented that the Company recognizes revenue in accordance with generally 6 accepted accounting principles ("GAAP"), including American Institute of 7 Certified Public Accountants Statement of Position 00-2 ("SOP 00-2"): S ]e have recognized and will recognize revenue from the 9 distribution of our animated feature films when earned, as 10 reasonably determinable in accordance with the Accounting 11 Standards Executive Committee of the American Institute of 12 Certified Public Accountants Statement of Position 00-2, 13 "Accounting by Producers or Distributors of Films" (the 14 "SOP"). The following are the conditions that must be met in 15 order to recognize revenue in accordance with the SOP: (i) 16 persuasive evidence of a sale or licensing arrangement with a customer exists; (ii) the film is complete and has been 1.7 18 delivered or is available for immediate and unconditional 19 delivery; (iii) the license period of the arrangement has begun 20 and the customer can begin its exploitation, exhibition or sale; 21 (iv) the arrangement fee is fixed or determinable and (v) 22 collection ofthe arrangement fee is reasonably assured.

23 24 Revenue from the sale of home video units is recognized at 25 the later of (i) when product is made available for retail sale 26 or (ii) when video sales to customers are reported to us by 27 third parties, such as fulfillment service providers or 28 distributors. Conaoii dazed Amended Canplaint (12- 24 22-2045) CONSOLIDATED AMENDED CLASS ,a.CTION COMPLAINT 04/05/2006 12:42 FAX 214 340 9914 LDSSW.COM Q026 05-APR-2006 08;02 FROM-Symplax Digital 2132539414 T-486 P. 026/050 F-04T k

1 59. With respect to establishing reserves for returns, the Offering 2 Documents state that the Company grants its customers rights to return, as much as 3 100% of the DVDs shipped by DreamWorks. The Offering Documents, however, 4 represented that such return rights were not critical in establishing estimates for 5 returns and, thus, the Company does not set its reserves based on these rights of 6 f I return: 7 We follow the practice of providing for future returns of 8 home video product at the time the products are sold. We 9 calculate an estimate of future returns of product by analyzing 10 a combination of historical returns, current economic trends, 11 projections of consumer demand for our product and point-of- 12 sale data available from certain retailers. Based on this 13 information, a percentage of each sale is reserved provided 14 that the customer has the right of return. Customers are 15' currently given varying rights of return, from. 15% up to 16 ^ 100%. However, although we allow various rights of 17 return for our customers , we do not believe that these 18 rights are critical in establishing return estimates , as other 19 factors, such as our historical experience with similar types of 20 sales , information we receive from retailers, and our 21 assessment of the products appeal based on domestic box 22 office success and other research, are more important in 23 estimating returns. Generally, payment terms are within 90 24 days from the end of the month in which the product was 25 shipped. Actual returns are charged. against the reserve. 26 (Emphasis added.) 27 60. The statements in the paragraphs above concerning Defendants' 28 methodology for establishing return estimates and setting reserves for returns were Garaoll44 ccl .A naed Complaint (12- 25 32-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT 04/05/2006 12:42 FAX 214 340 9914 LDSSW.COM Q027 05-APR- 2006 08:03 FROM- Symplex Digital 2132535414 T-466 P.027/050 F-047

1 materially false and misleading when made. As' n©ted below, an article appearing 2 in TIDE WALL STREET JOURNAL, on May 31, 20050 the home video market had 3 I undergone a dramatic structural change over the past five years. In 2000, a new 4 home -video release would typically bring in approximately 33 percent of its total 5 sales during the first week of release, and then sales would steadily increase in the 6 following weeks and. months. In this model, home videos were dlstrtbutect as 7 needed by retailers,- and therefore, returns were not a significant factor in 8 calculating revenue. 9 61, By the time Defendants filed the. Offering Documents, the revenue 10 model for home video sales had changed due to the various factors including an I1 increase in the number of titles being released on a regular basis and the 12 consequent competition for limited retail shelf space as newer release push older 13 releases out of stores. Since the majority of ,a film's home video sales (50 to 70 14 percent) occur in the first week following the release and then fall off sharply, the C;d 15 risk of massive returns to DreamWorks of unsold videos by retailers and 16 distributors greatly increased and customers' return rights became critical factors 17 in establishing return estimates, setting reserves for returns and accurately 18 recording and reporting revenue. These factors rendered the Defendants' 1.9 statements concerning revenue recognition in the Offering Documents false and 20 misleading. 21 62. In addition, the Offering Documents created the misleading 22 impression that DreamWorks' stated policies for recognizing revenue from home 23 video sales and its stated methodology for calculating estimates of future returns 24 complied with GAP, including the requirements of SOP 00-2. They did not. 25 63. GAAP are those principles recognized by the accounting profession 26 as the conventions, rules, and procedures necessary to define accepted 'accounting 27 practice. Those principles are the official standards adopted by the American 28 Institute of Certified Public Accountants (the "MCPA"), a private professional Coi.solldared A i cled Complain; (12- 26 22-2005) CONSOLIDATED AMENDED CLASS ACTTON COMPLAINT 04/05/2006 12:43 FAX 214 340 9914 LDSSW.COM IM 028 05-APR-2006 08:03 FROM- Sympiax Digital 2132539414 T-486 P . 028/050 F-047

1 association, fln ough tluee successor . groups it established : the Committee on 2 Accounting Procedure, the Accounting Principles Board (the "APB"), and the 3 Financial Accounting Standards Board. (the "FASB"). GAAP includes the 4 following authoritative literature and pronouncements: Statements of Financial 5 Accounting Standards ("SFAS'), APB Opinions, FASB Interpretations ("FIN"), 6 AICPA Accounting Research Bulletins ("ARB3"), AICPA Statements of Position 7 ("SOP"), FASB Technical Bulletins (`FTB"), Consensus Positions of the FASB 8 Emerging Issues Task Force ("EITF'°), Statements of Financial Accounting 9 Concepts ("CON") and Staff Accounting Bulletins ("SAB"). 10 64. SEC Regulation S-X (17 C.F.R. § 210.4-01(a)(1)), ("Reg. S-?") : 11 states that financial statements filed with the SEC which are not prepared in 12 compliance with GAP are presumed to be misleading and inaccurate. Reg. S-X 13 requires that interim financial statements must also comply with GAAP, with the 14 exception that interim financial statements need not include disclosures that would 15 be duplicative of disclosures accompanying annual financial statements. 16 65. SOP 00-2 states that a company may recognize revenue from a sale 17 or licensing arrangement of a film only when all of the following conditions are 18 I met: 19 a. Persuasive evidence of a sale or licensing arrangement with a I 20 customer exists; 21 b. The film is complete and, in accordance with the terms of the 22 arrangement, has been delivered or is available for 'immediate and 23 unconditional delivery; 24 c. The license period of the arrangement has begun and the 25 customer can begin its exploitation, exhibition, or sale; 26 d. The arrangement fee is fixed or determinable; and 27 e. Collection of the arrangement fee is reasonably assured. 28

CoilSoli I 4 Amcode4 ComplainT (12- 27 2z 2005) CONSOLIDATED AMENDED CLASS ACTION COMI'L.AI T

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1 If an entity does not meet any one' of the preceding conditions, it must defer 2 recognizing revenue until all of the conditions are met. 3 66. Where an arrangement includes a right-ofreturn provision or a 4 company's past practices allow for returns, SOP 00-2 states that the company 5 must meet all of the conditions in SFAS No. 48, "Revenue Recognition When 6 Right of Return Exists," before it can recognize revenue. Those conditions include 7 the requirement that the company be capable of making reasonable estimates for the amount of future returns. 9 67. According to SFAS No. 48, ¶ 6, if a company sells a product, but 10 grants the purchaser the right to return the product, revenue from the transaction 11 shall be recognized at time of sale only if all of the following conditions are met: 12 a. The seller's price to the buyer' is substantially fixed or 13 deternilnable at the date of sale; 14 b, The buyer has paid the seller, or the buyer is obligated to pay 15 the seller and the obligation is not contingent on resale of the product; 16 c. The buyer's obligation to the seller would not be changed in 17 the event of theft or physical, destruction or damage of the product; 18 d. The buyer acquiring the product for resale has economic 19 substance apart from that provided by the seller; 20 C, The seller does not have significant obligations for future 21 performance to directly bring about resale of the product by the buyer; and 22 f. The amount of future returns can be reasonably estimated. 23 68. SFAS No. 48, ¶ 7, states that if sales revenue is recognized because 24 the conditions of ¶ 6 are met, any costs or losses that may be expected is 25 connection with any returns shall be accrued in accordance with SFAS No. 5, 26 "Accounting for Contingencies." According to SFAS No. 48, ¶ 8, sales revenue 27 and cost of sales reported in the income statement shall be reduced to reflect 28 cstimated returns. Cpvisolldatcd Amended Complaint (12- 7s 21-20a5) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 69. DreamWorks' stated revenue recognition policies violated the GAAP 2 provisions in the preceding paragraphs because, as alleged.herein, the Company 3 was unable to make reasonable estimates as to the amounts of future returns of 4 1i home video units. Moreover, the Company failed to disclose this material fact in 5 ((the Offering Documents. Indeed, the Offering Documents falsely assured 6 Plaintiffs and the investing public that DreamWorks was capable of making 7 reasonable estimates of future returns "by analyzing a combination of historical 8 returns, current economic trends, projections of consumer demand for our product 9 and point-of-sale data available from certain retailers." Moreover, the Offering 10 Documents stated that "we do not believe that these [return] rights are critical in 11 establishing return estimnates," however, as demonstrated herein, customer return 12 rights was a key factor in the failure of Shrek 2 As home video release. 13 70. Furthermore, the financial statements in the Offering Documents 14 disclose that DreamWorks had been steadily lowering its reserves for returns since 15 2001. Thus, Defendants failed to review their accounting policies for estimating 16 future returns of their products on a regular or timely basis. Specifically, the 17 Offering Documents, Notes to Combined Financial Statements, Note 11, 18 "'Valuation and Qualifying Accounts and Reserves," states that the Company's 19 reserve for returns decreased from $95,738,001? to $40,785,000 to $30,074,000 for 20 I the years ended, December 31, 2001, 2002 and 2003 respectively. During those 21. same periods, however, actual customer returns remained reasonably consistent in 22 the amounts of $45,894,000, $40,356,000 and $41,024,000 for the years ended 23 December 31, 2001, 2002 and 2003, respectively. Thus, actual customer returns 24 as a percentage of reserves rose steadily from 6.94% for the year ended December 25 131, 2001, to 9.29% in 2002, and 13.63% in 2003. 26 71. As stated above, pursuant to SFAS No. 48, ¶ 6, revenue from sales 27 transactions shall be recognized at the time of sale only if the amount of future 28 I returns can be reasonably estimated. DreamWorks was not estimating its reserve I cdlisolicl=4 Amended Complaint (12- 29 22-2005) CONSOLIDATED WENDED CLASS ACTION COMPLAINT 04/05/2006 12:44 FAX 214 340 9914 LDSSW.COM U031 05-APR-2006 08:03 FROM-Symplex Digital 2132539414 T-486 P. 031/050 F-047

1 for future returns in a reasah.able manner, especially considering the dramatic 2 transformation in the home video market by the inception of the TO. With 3 retailers and distributors returning home video units in far greater numbers than 4 "historical returns," the reserve methodology for future returns that was used in 5 the past had become antiquated and unreliable when disclosing revenue from sales 6 in the home video market by the inception of the IPO. Thus, the statements in the 7 Offering Documents regarding the Company's methodology for setting reserve for S returns and the Company's actual revenue recognition policies were false and 9 misleading, 10 Dream Works LackedAdequate Internal Controls 11 72. The Offering Documents also stated that Defendants maintained 12 adequate controls and systems to monitor and assure the accuracy of its sales 13 information and allow DreamWorks to make adjustments to its business model 14 and to its reserves when necessary: 15 Because DreamWorks Studios will be the principal 16 distributor of our films, in accordance with the SOP, the 17 amount of revenue that we will recognize from our films in 18 any given period following the effective date of the 19 Distribution Agreement will, depend on the timing, accuracy 20 and sufficiency of the information we receive from 21 DreamWorks Studios. Although DreamWorks Studios has 22 agreed to provide us with the most current information 23 available to it to enable us to recognize our share of revenue, 24 we may make adjustments to that information based on our 25 estimates and judgments. For example, we may make 26 adjustments to our revenue derived from home video units for 77 estimates on return reserves, rebates and other incentives that 28 may differ from those that DreamWorks Studios Consolidnwnd Amended Camp1ninI. (12- 30 22-2005) CONSOLIDATED AMEND5P CLASS ACTION COMPLAINT

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1 .recommends. The estimates on reserves may be" adjusted 2 periodically based on actual rates of returns, inventory levels 3 in the distribution channel, as well as other business and 4 industry information. We will also review expense estimates 5 and may make adjustments to these estimates in order to 6 ensure that our revenue and gross margin are accurately 7 reflected in our financial statements. 8 73. The statements in the paragraph above concerning the Company's 9 controls and systems to track home video sales and returns failed to disclose, that 10 DreamWorks could not make the necessary and proper adjustments based on 11 actual sales and returns. On the contrary, DreamWorks lacked adequate 12 procedures to track home video sales and to account for and make adjustments 13 based on actual returns. Moreover, Defendants failed to disclose that their 4 14 strategy to maximize sales by flooding the market with Shrek 2 videos greatly 48 15 increased the risk that distributors and retailers would exercise their rights to 16 I return unsold videos to DreamWorks. 74. In substantial part, as a result of Defendants ' material 17 18 misrepresentations and omissions in the Offering Documents, the price of 19 DreamWorks shares shot up more than 38 percent on its first day of trading, from 20 the IPO price of $28.00 per share, to close at $38.73 per share. In an October 28, 21 2004 Associated Press article, the rapid increase in the price of DreamWorks 22 shares was attributed to "anticipated Slhrek-sized profits." The financial press 23 gnashed. that DreamWorks "enjoyed a. fairytale beginning on Wall Street as its 24 shares price leapt nearly .40 percent." See AGENCE FRANcE PkEssE - ENGLISH, 75 October 28, 2004. By December 6, 2004, DreamWorks stock hit an all-time high 26 price of $42.60 per share. 27 75. In addition to the reasons stated above, Defendants' representations 28 in the Offering Documents quoted in 111 35-42, 55-56, and 68 were materially Consolidated Am=ded Complaint (12- 31 22•2005) CONSOL1DNtED AM1 NTDEO CLASS ACTION COMPLAINT

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1 false and misleading when made for the following reasons: (i) Defendants failed, 2 to disclose that they had, flooded the market with millions of Shrek 2 home video 3 units, that far exceeded the actual or projected consumer demand, in an effort to 4 I maximize sales during the critical first weeks following its home video release; 5 (ii) the mTent trend in home video sales mandated that sales of Shrek 2 home 6 video units would rapidly decrease only a few weeks after its November 5, 2004 7 release ; (iii) as a direct result of Defendants' undisclosed flood-the-market 8 strategy, the Company was exposed to the undisclosed material risk that massive 9 members of unsold home video units would be returned by retailers; (iv) that as a 10 result of the foregoing, Defendants' statements in the Offering Documents 11 regarding the Company's revenue recognition policies, return estimates and 12 reserves for returns were materially false and misleading; and (v) DreamWorks 13 lacked adequate internal controls over its financial reporting to prevent the 9 14 dissemination ofmaterially false and misleading financial information in its public 15 statements. 16 The Truth Begins to Emerge 17 76. On May 10, 2005, after the market closed, DreamWorks issued a 18 press release in which it announced disappointing financial results for the quarter 19 ended March 31, 2005. More specifically, the Company stated: 20 For the first qualter 2005, revenue totaled $167 million,.costs 21 of revenue were $90 million, and net income totaled $46 22 million or $0.44 per share on a fully diluted basis. This 23 compares to revenue of $41 million, and a net loss of $25 24 million, or $0.33 net loss per diluted share for the same 25 period in 2004. 26

27 The company also generated in the period cash from 28 operations of $377 million, primarily driven by the success of ConsofIth ted Amencla4 CoMpbn%t (12- 32 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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I its 2004 releases, and ended the period with $445 million in 2 cash and cash equivalents. 3

4 The year over year improvement in both profit and revenue 5 was driven primarily by Shark Tale. The film generated 6 approximately $142 million of revenue in the quarter from its 7 success in international. theatrical and worldwide home video 9 markets. To date, the film has reached over $204 million in 9 international box office bringing its worldwide theatrical to 10 over $365 million, ahead of the company's previous estimate 11 of $350 million. 12

13 Shrek 2, despite being on track to become one of the 14 biggest selling home video releases of all time, did not 9 15 meet the company's retail sales expectations for the first 5 16 quarter. This sales shortfall resulted in a higher level of 17 returns than expected. As a result, DWA recorded no is revenue from Sbarek 2 in the quarter other than from 19 licensing and merchandising. 20 21 "While we firmly believe that the Sh ek franchise continues 22 to be very strong, it is clear in retrospect that the unique 23 blockbuster characteristics of Shrek 2 caused us to 24 overestimate first quarter retail sales," said Jeffrey 25 Katzenberg, DreamWorks Animation's CEO. "I think it is 26 also clear that when we deliver successful films, our business 27 model, which is based. on producing two CO animated movies 28 per year, will generate significant returns for the company Concolidatcd Amended Complaint (12- 33 22.2005) CONSOLIDATED AMENDED CLASS ACTION COM?LAINT

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1 and its shareholders as &videnced by the profitability we have 2 achieved with our 2004 releases." 3

4 Commenting on the full year earnings outlook, the company 5 now expects to achieve full year EPS of between $1.00 and 6 1.25. Substantially all of this total, less the ED'S recognized 7 ixa the first quarter, will come in the fourth quarter of 2005. 8 (Emphasis added.)

77. News of this press release shocked the market, On. May 11, 2005, 10 shares of DreamWorks fell $4.45 per share, or 12.19 percent, to close at $32.05 31 per share on unusually heavy trading volume. 12 78. On May 31, 2005, TEE WALL STREET JOURNAL published an article 13 with the headline, "How DreamWorks Misjudged DVD Sales of Its Monster Hit." 14 The article, in pertinent part, stated: 15 Last November, DrearnWorks Animation. Chief Executive 16 Jeffrey K.atzenberg power-talked his way through the flashy 17 Beverly Hills eatery Spago at an event to promote the DVD 1$ release of his company's hit "Shrek 2." Flanked by the 19 animated film's superstar voices, Mike Myers and Eddie 20 Murphy, Mr. Katzenberg was on a mission to make "Shrek 2" 21 as big a smash on DVD as it had beFsn in theaters. 22

23 It worked .-- for a while. The "Shrek 2" DVD made a killing 24 over the holiday season, and DreamWorks put out a statement 25 about the records it had broken in the important DVD market, 26 now the most profitable piece of the movie business. 27

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1 But Mr. Katzenberg's enthusiasm ran ahead of itself Earlier 2 this year, DreamWorks got a shock as retailers started 3 returning millions of unsold copies of the DVD. The 4 Glendale, Calif.-based animation studio dropped a bombshell 5 on May 10 when it disclosed the news. In just its second 6 quarter since becoming a public company, DrealnWorks fell 7 short of earnings forecasts by 25% and its stock tumbled as 8 Wall Street wondered why the mistake wasn't disclosed

9 sooner. 10 11 The miscalculation by DreaniWorks, a company founded by 12 some of the biggest names in Hollywood, highlights how the 13 fast-changing DVD market has become increasingly difficult 14 for studios to navigate. P4 15

16 After an aggressive campaign to promote and ship "Shrek 2" 17 discs -- emblematic of Mr. Katzenberg's drive to expand the 18 DVD market -- DreamWorks failed to adjust for a sea change 19 that farads new titles burning out much faster than they did at 20 the start of the decade. It stuck to generous forecasts for how 21 the title would perform after its initial release, and assumed 22 that "Shrek 2" would continue selling strongly. 23 c

24 The reason for the change: intense competition for shelf 25 space, as both movie studios and 'TV producers unleash a 26 .ood of new discs every week, DVD sales are now 27 mimicking the big-bang nature of the theatrical business, 28 Canealidated Amer W Couuplainr (12- 35 22.240$) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 where movies make most of their money in the first few days 2 before being knocked out by a slew of newcomers. 3 44 When a DVD title stops selling, major retailers are quicker 5 these days to send unsold copies back to make way for new 6 titles. So while DreamWorlo shipped tens of wimllions of 7 "Shrek 2" discs, retailers started returning them once the title showed signs of running out of gas. "Shrek 2" sold $I 9 33.7 million DVD and VHS copies world-wide in its first 10 eight weeks -- but only 1.3 million in the first quarter of 11 2005.

13 In January, DreamWorks said it had sold 37 million units 14 world-wide, but that number later turned out to be too high. 15 16 Studios usually book DVD revenues when they send the discs 17 out to retailers. But retailers don't actually pay for the DVDs 18 until 60 or 90 days later. Retailers can usually send back what 19 they don't sell. Studios make a provision for returns, but if 20 returns are higher than expected, studios can come up short. 21

22 Studios bear the cost of shipping unsold units back to the 23 warehouse -- which means that retailers can often be 24 persuaded to take more, rather than less, stock. 25

26 For Mr. Katzenberg, the "Slarek 2" miscalculation is a bard 27 lesson in running a public company. For a decade, he 28 operated DreamWorks as a private, concern with partners Co, olidated Amended Complaim (12- 36 22-2005) CONSOLIDATED AMEND'IO CLASS ACTION COMPLAINT

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1 Steven Spielberg and David Geffen. The fallout from 2 previous foul-ups -- like the studio's 2003 bomb "Sinbad: 3 Legend of the Seven Seas" -- was largely hidden from view 4 because DrealnWorks was closely held. The businesses Mr. 5 Katzenberg headed earlier in his career at Walt Disney Co. 6 and Paramount Pictures were within the operations of much 7 larger companies. s 9 The original "Shrek" was important to DreamWorks, erasing 10 doubts about the studio's sometimes shaky track record in 11 animation. In preparing for the transition to the public arena 12 last year, Mr. Katzenberg recruited a big-name chairman -- 13 former PepsiCo chief Roger Enrico - to bolster the 14 company's standing in the financial cozununity. He filled the 15 board with other high-profile names such as eBay Inc. Chief 16 Executive Meg %itman and Starbucks Corp. Chairman i7 Howard Schultz. 18 19 The public offering in October was timed to hit the market on 20 the heels of the studio's "Shark Tale" animated movie. At the 21 Venice Film Festival in September, DreamWorks took over 22 St. Marlc's Square, filling it with thousands of people who 23 carne to see the stars who provided voices for the movie 24 (Angelina Jolie, Robert De Niro and Will Smith) and watch it 25 on a huge inflatable screen with personal headsets. A. few 26 weeks later, Mr. Katzenberg hosled another star-studded 27 event with more than 1,800 guests in New York's Central 28 Park, C0113011{I&c11 Amcnde d Complaint (12- 37 22-2005) CONSOUDATf'D AMENDED CLASS ACTION CO'MP'LATh T

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2 The launch of the "Shrek 2" DVL) in November was the 3 studio's first major event since going public. Mr. Katzenberg

4 continued to pay close attention to Wal-Mart, which often 5 sells more than 30% of any DVD domestically. 6 7 Just as he had with "Shrek," Mr. Katzenberg used a simple 8 release strategy: Flood the market with DVDs to improve 9 the odds of consumers picking it up. "The theory is to take 10 advantage of your moment in the sun," said Bill Mechanic, 11 the fornner head of home video for Disney. 12 13 Three days after its Nov. .5 release, the studio put out a 14 statement saying "Shrek 2" had given "retailers a fairytale 15 beginning to the holiday sales season," by racking up $185 16 million in retail sales, or 12.1 million units. 17 P 18 Early sales estimates are usually based on consumer sales 19 data fxorn tracking services that provide a sample of retail 20 sales, plus an estimate of unsold inventory remaining at 21 retailers. Tracking services don't include Wal-Mart, but many 22 studios also receive access to daily sales tallies from Wal- 23 Mart through the retailer's Retail Link system. 24

25 On ran. 3, DreamWorks said in a press release it had sold 26 more than 37 million "Shrek 2" DVD and VHS units 27 world-wide. 2S c^lt^o1idascd

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1 However, in March filings with the Securities and 2 Exchange Commission, the studio said it had sold 33.7 3 million "Shrek 2" units. The company hasn't commented 4 on the reason for the difference. One possible explanation 5 is that it underestimated the amount of unsold inventory 6 that would be returned. 7

8 Also in March, DrearWorks chief operating officer Ann 9 Daly talked about sales of "Shrek-2.°"She told analysts in 10 a conference call: "Coming off its record-setting sales 11 pace in the fourth quarter, video sales continue to be 12 strong." 13

14 At that time, Ms. Daly predicted "Shrek 2" would sell 40 15 million units by the end of the first quarter. 16

17 But when DreamWorks reported first-quarter results on May 18 10, the company said it had sold a total of 35 million units, 19 not 40 trullion. 20

21 In an interview on May 10, Mr. Katzeuberg said, "We 22 expected the rate of sales to maintain its blistering pace into 23 the first quarter and it didn't." M.T. Katzenberg also said that 24 returns of "Shrek 2" were higher th= expected and that the 25 studio found it difficult to "get our arms around" the DVD 26 release. 27

28 Couoiidnra Amended COinplbint (12- 39 22-2005) CONS01MATED AMENDED CLASS ,4 CTJQN COMPLAINT

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1 'Even with the title' s sales in decline early this year, 2 DreamWorks told analysts it didn't recognize until late 3 April the magnitude of the problem. One problem, says a 4 person close to the company, is that DreamWorks Animation 5 is effectively one step removed from the home-video market: 6 NBC Universal's 'Uuiversal Studios distributes its DVDs and 7 videocassettes in the CT,S. and manages the day-to-day 8 relationships with retailers. 9 10 The episode has raised questions about why the sales dropoff 11 wasn't noted earlier. "While we take management at their 12 word, we have a tough time understanding how the company 13 did not have a sense of the weaker Shrek 2 sales when they 14 reported year-end 2004 earnings on March 17, filed a 15 secondary offering with the SEC on March 28, or held an 16 analyst meeting on April 5/6," Fulcrum Global Partners 17 analyst Richard Greenfield said iU a recent research note.

18 (Emphasis added.) 19 79. The May 10, 2005 announcements did not disclose the full extent of 20 Defendants' false and misleading statements. On July 11, 2005, Defendants 21 announced that they were again lowering the Company's guidance for the second 2 quarter and full year 2005. In addition, the Company disclosed that it was under 23 investigation by the SEC for insider trading and that the Company and its 24 principal shareholders, Allen and Geffen., had scrapped plans for its previously 25 announced $500 million secondary offering. 26 80, Specifically, the July 11, 2005 press release stated: 27 [T]he company updated its guidance of "no profit" for the 28 second quarter of 2005 and now anticipates that results will Cbusali'dzird Amend COmpluinL t 12- 40 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 show a loss in the range of seven to nine cents per share for 2 the quarter. Based on an extensive review of current sales and 3 retail inventory data received from its distributors, the 4 company has also updated its previous full year guidance of 5 $1.00-$1.25 per share and now expects to earn, approximately 6 $0.80 to $0.90 per share for the full year 2005. This 7 adjustment was primarily driven by, an increase in return 8 reserves for its 2004 titles. 9 10 In addition, DrearnWorks Animation has received a request 11 from the staff of the Securities and Exchange Commission 12 and is voluntarily complying with an informal inquiry 1.3 concerning trading in its securities and the disclosure of its 1.4 financial results on May 10, 2005. 15 (Emphasis added.) 16 81. In an article, "MALAISE IN M:OVIELAND; DreamWorks' DVD 17 Sales Could Be Wake-Up Call," Los .ANGELES Tms, July 12, 2005, Richard 18 Verrier reported that: 19 DreamWorks Animation SKG Inc.'s troubles continued

20 Monday as the studio warned that it would lose money in the 21 second qua er [2005] because of softer-than.-expected DVD 22 sales, the second time in two months it has projected a 23 shortfall in its bone video business. 24 25 DreamWorks also disclosed that the Securities and Exchange 26 Commission had launched an informal probe into stock 27 trading around the time the company surprised Wall Street in 2S

Coil OIiclutcsl Am nded Complaint (12- 41 23-3405) CONSOLIDATED AND'-D CLASS ACTION coloras T

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T May 12005] with earnings that fell short of expectations. 2 Dre nWorks said it was cooperating with the inquiry. 3

4 The disclosure that sales of "Shrek 2" and "Shark Tale" were 5 off sent the Glendale computer animator's stock plunging 6 13%, or $3.54, to $23.27 a share. 7

8 It also raised fresh questions about whether D eanWorks and 9 other studios were simply being overly optimistic about DVD

10 sales, or failing to adapt to long-term changes in the home ]1 video market. 12

13 Although "Shrek 2" sold briskly when it was released on 14 DVD late last year, purchases slowed quickly. Retailers are a^ 15 increasingly sweeping older titles from their shelves and

X 16 returning them to make room for the freshest DVDs available. 17

18 "Shrek 2" is one of the top-selling, DVDs ever, with more 19 than 35 million copies sold. But DreamWorks and its 20 investors expected solid sales well into this year, mirroring 21 the way the original "Shrek" continued to sell on home video. 22

23 DreamWorks executives said in ' a conference call with 24 analysts that an eight-week survey of domestic and 25 international markets with distribution, partner Universal 26 pictures International found "lower inventory levels and 27 higher-than-expected returns" for "Shrek 2" and "Shark 28 Tale." Cawsalidatec! Am nded Con plain (12- 42 22-3005) CONSQLLDATED'AMENDED CLASS ACTION COMPLAINT

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2 As a result, the studio opted to increase its reserves -- money 3 it reimburses retailers for unsold DND titles -- from its 2004 4 releases. 5 6 Wall. Street has been 'unforgiving since Dream Works first 7 disclosed the shortfalls in May. Its stock is off nearly 45% 8 from its peak of $41.98 in December, 9 10 With its stock sagging, the company confirmed that it had 11 scrapped for now a $500-million secondary stock offering by 12 billionaire investor Paul Allen, Katzenberg and company 13 principal David Geffen. The offering has been considered a 14 long shot since the company's stock began its slide. 15

1611 DreamWorks is projecting a quarterly loss of 7 cents to 9 17 cents a share, down from a previous forecast of break-even, 18 and lowered its full-year projection to a profit of 80 cents to 19 90 cents a share, down. from $1 to $1.25. 20

?1 "One time is understandable," Anthony Valencia, an analyst 22 at TCW Croup Inc. in Los Angeles, said of the earnings 23 revisions. "The fact that they're doing it again is something 24. that investors just don't like. It goes to the issue of 25 credibility." 26 82. Thus, the July 11, 2005 disclosures caused DreamWorks shares to 27 1 plunge 13.2 percent from its previous close of $26.81 per share, to a low of 28 C.'ngsalidatod complain[ (12- 43 22-20053 CONSOLTDATED AMENDED CLASS ACTION coMPLAINT

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X22.80; before closing at $23.27 per share, $4,27 below the IPO offering piece, on 2 extraordinarily high volume. 3 83. On August 12, 2005, DreamWorks filed with the SEC its quarterly 4 report on Form lO-Q for the second quarter of 2005. Under heading, "We are 5 required to evaluate our internal control over financial reporting under Section 6 404 of the Sarbanes Oxley Act of 2002, and any adverse results from such 7 evaluation could result in a loss of investor con1denee in our financial reports and 8 have an adverse effect on our stock Rice," Defendants revealed that there were 9 material deficiencies in the Company's internal controls: to We have discovered areas of our internal controls that I X need improvement and we may discover additional areas in 12 the future. For example, management has identified a need to 13 increase the depth and. capabilities of our internal accounting 14 staff and improve the coordination and. communication across S business functions regarding contractual arrangements. In 16 addition, management identified a need to improve the 17 timeliness and accuracy of financial data and other 18 information received from one of our third party service 19 providers. 20

21 Management believes that these Issues are "significant 22 deficiencies," which means that there is more than a 13 remote possibility that these deficiencies will result in a 24 misstatement in our annual or interim reports that is 25 more than inconsequential . In 2004 and year-to-date in 26 2005, we devoted significant resources to remediate and 27 improve our internal controls, Management has 'discussed 28 with our Audit Committee and independent auditors the areas Consolidatzd Amended Con%pk{i l (12- 22-2005) 44 CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 identified for improvexment and the remediation efforts'that 2 we are undertaking. Although we believe that these efforts 3 have strengthened our internal controls, we are continuing to 4 work to improve our internal controls. 5 6 We cannot be certain as to the timing of completion of our 7 evaluation, testing and any required remediation. If we are 8 not able to complete our assessment under Section 404 in a 9 timely manner, we and our independent auditors would be 10 unable to conclude that our internal control over financial 11 reporting is effective as of December 31, 2005. 12 (Emphasis added). Thus, by DreamWorks oven admission, the Company lacked 13 internal controls , and as such, the Offering Documents were false and misleading n tr 14 to the extent they assured. investors otherwise. 15 CLASS ACTION ALLEGATIONS

x 16 84. Plaintiffs bring this action as a class action pursuant to Federal Rule 17 of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those 18 who purchased the common stock of DreamWorks during the Class Period and 19 who were damaged thereby. Excluded from the Class are Defendants, the officers 20 and directors of the Company, at all relevant times, members of their immediate 21 f families and their Iegal representatives, heirs, successors or assigns and any entity 22 in which Defendants have or had a controlling interest. 23 85. The members of the Class are so numerous that joinder of all 24 I members is impracticable. Throughout the Class Period, DrearnWorks' common 25 stock was actively traded on the New York Stock Exchange ("NYSE"). While the 26 exact number of Class members is unknown to Plaintiffs at this time and can only 27 be ascertained through appropriate discovery, Plaintiffs believe that there are 28 hundreds or thousands of members in the proposed Class. Record owners and Congogdat d Amendzd Complaint (12- 45 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 d other members of the Class may be identified from records maintained by 2 DreamWorks or its transfer agent and may be, notified of the pendency of this 3 action by mail, using the form of notice similar to that customarily used in 4 securities class actions. 5 86. Plaintiffs' claims are typical of the claims of the members of the 6 Class as all members of the Class are similarly affected by Defendants' wrongful 7 conduct in violation of federal law that is complained of herein. 8 87. Plaintiffs will fairly and adequately protect the interests of the 9 members of the Class and have retained. counsel competent and experienced in 10 class and securities litigation. 11 88. Common questions of law and fact exist as to all members of the

12 Class and predominate over any questions solely affecting individual members of 13 the Class. Among the questions of law and fact common to the Class are: 14 (a) Whether the federal securities laws were violated by Defendants' acts 15 as alleged herein; 16 (b) Whetber statements made by Defendants to the investing public during 17 the Class Period misrepresented material facts about the business, operations and 18I management of DreamWorks; and 19 (c) To what extent the members of the Class have sustained damages and 20 the proper measure of damages. 21 89. A class action is superior to all other available methods for the fair 22 and efficient adjudication of this controversy since joinder of all members is 23 impracticable. Furthermore, as the damages suffered by individual Class 24 members may be relatively small, the expense and burden of individual litigation 25 make it impossible for members of the Class to individually redress the wrongs 26 done to them. There will be no difficulty in the management of this action as a 27 class action. 28

Conso]idaiod Amended Camplaim (12- 46 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT 04/05 / 2006 12:52 FAX 214 340 9914 LDSSW.COM U048 05-APR- 2006 08:06 FROM-Symplax Digital 2132539414 T- 486 P . 048/050 F-047

1 SEC TIES ACT COUNTS 2 COUNT I 3 Against DreamWorks, Katzenberg, Leslie, and Kendrick

4 For Violations Of § 11 Of The Securities Act

5 In Connection With The 1PO 6 90. Plaintiffs repeat and reallege each and every allegation contained 7 above as if fully set forth herein. s 91. This Count is brought pursuant to § 11 of the Securities Act, 15 9 U.S.C. § 77k, on behalf of all persons or entities who purchased or otherwise i0 acquired. DreamWorks common stock pursuant or traceable to the Offering Documents for the Secondary Offering. In this Count, Plaintiffs do not assert that 12 the Defendants are liable for fraudulent or intentional conduct. 13 92. The Offering Documents, as set forth above, were inaccurate and 14 misleading, contained untrue statements of material facts, and omitted to state 15 other facts necessary to make the statements contained therein not misleading, 16 and/or concealed and failed to adequately disclose material facts as described 17 above. In particular, as set forth above, the Offering Documents were untrue and 18 misleading in that they failed to accurately disclose known trends or uncertainties 19 I that had or that Defendants reasonably expected would have a material favorable 20 or unfavorable impact on net sales or revenues or income from continuing 21 operations, including home video sales of Shrek 2, misstated and overstated the 22 Company's sales, revenues and overall financial performance, and failed to 23 disclose that the Company lacked adequate internal controls and procedures to 24 I establish reasonable -return estimates and, as a result, the Company failed to 25 establish adequate return reserves. These misstatements rendered the statements 26 made in the Offering Documents materially false and misleading. 27 93. DreamWorks, as the issuer of the Offering Documents, is strictly 2s liable .for the false and misleading statements therein. Conno]iduTed Amended Compi+uni (12- <4.7 22-2005) CON5OL.IDAT -D AMENDED CLASS ACTION COMPLAINT 04/05/2006 12:53 FAX 214 340 9914 LDSSW.COM U049 05-APR-2006 08:06 FROM-Symplex Digital 2132539414 T-480 P.049/050 F-047

1 94. - Katzenbexg, Leslie, and Kendrick signed the Offering Documents for 2 the TO. Therefore, Katzenberg, Leslie, and Kendrick are each liable to Plaintiffs 3 and the other members of the Class who purchased or otherwise acquired 4 I DreamWorks common stock pursuant to or traceable to the Offering Documents 5 for the TO for the various misstatements and omissions contained therein under § 6 111 of the Securities Act. 7 95. Plaintiffs and the other members of the Class purchased or otherwise 8 acquired DreamWorks common stock pursuant to or traceable to the Offering 9 Documents for the IPO. At the time they purchased or acquired DreamWorks 10 common stock, Plaintiffs and other members of the Class were without knowledge 1'1 of the facts concerning the inaccurate and misleading statements and omissions 12 alleged herein. 13 96. Less than one year has elapsed from discovery of the violations and 414 facts upon which this Complaint is based to the time of filing of this action. Less 15 than three years has elapsed from the time that DreamWorks' common stock was 16 offered bona fide to the public to the time of filing of the action. 17 97. By reason of the conduct alleged herein, each Defendant named in 18 this Count violated § 11 of the Securities Act. As a direct and proximate result of 19 Defendants' conduct, Plaintiffs and the other members of the Class have sustained 20 substantial damage in connection with their purchase and/or acquiring of the 21 common stock pursuant to or traceable to the Offering Documents for the IPO. . 22 COUNT 11 23 Against DreamWorks And Allen

24 For Violations Of § 12(a)(2) Of The Securities Act 25 In Connection With 'The IPO 26 98. Plaintiffs repeat and reallege each and every allegation contained 27 above as if fully set forth herein. 29

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99. This Count is brought pursuant to' § 12(a)(2) of the Securities Act, oxi 2 behalf of all persons or entities who purchased or otherwise acquired 3 DreamWorks common stock pursuant to the prospectus contained in the Offering 4 Documents for the TO. In this Count, Plaintiffs do not assert that the Defendants 5 are liable for fraudulent or intentional conduct. 6 100. Each of the Defendants named in this Count was a seller or offeror of 7 a security. Specifically, DreamWorks offered its common stock in the IPPO to 8 Plaintiffs and other m eimbers of the Class. The Company's actions of solicitation 9 consisted primarily of the preparation and dissemination of the Offering 1Q Documeuts. 101. The DreamWorks common stock offered in the TPO by Defendants 1? named in this Count were sold through the use of interstate communications, the 13 use of interstate commerce, and the use of the mails, 14 102, The DreamWorks common stock offered in the IPO through the use 15 of the prospectus contained in the Offering Do=- ents, as set forth above, w 16 contained untrue statements of material fact or omitted to state material facts 4 17 necessary in order to make the statements made not misleading. 18 103. By reason of the conduct alleged herein, each Defendant named in 19 this Count violated § 12(a)(2) of the Securities Act. As a direct and proximate 20 result of Defendants' conduct, Plaintiffs and thi: other members of the Class have 21 sustained substantial damage in connection with their purchase and/or acquiring of 22 the common stock pursuant to or traceable to the Offering Documents for the IPO. 23 104. Less than one year. has elapsed from discovery of the violations and 24 facts upon which this Complaint is based to the time of filing of this action. Less 25 than three years has elapsed from the time that DreamWorks's common stock was ^6 I offered bona fide to the public to the time of filing of the action. 27 // 28 !ll CGn alid ted AIfl fldcd Complaint (12- 49 22-200i) CONSOLIDATED AMENDED CLASS ACTION COMPLATNT 1L. LDSSW.COM U051 05-APR-2006 08 ; 11 FROM-Symplax Digital 2132539414 T-487 P .002 F-048

1 COUNT M

2 Against The Individual Defendants

3 For Violations Of § 15 Of The Securities Act

4 In Connection With The IPO

5 105. Plaintiffs repeat and reallege each and every allegation contained 6 above as if fully set forth herein. 7 106. This Count is brought pursuant to § 15 of the Securities Act, on 8 behalf of all persons or entities who purchased or otherwise acquired 9 DreamWorks common stock pursuant to or traceable to the Offering Documents 10 for the IPO. In this Count, Plaintiffs do not assert that the Defendants are liable 11 for fraudulent or intentional conduct. 12 107. Each of the Individual Defendants named in this Count was a control 13 person of DreamWorks by virrue of his/her executive and/or directorial positions 14 at the Company. The Individual Defendants named in this Count had the power, 1.5 and exercised the same, to cause DreamWorks to engage in the violations of law 16 complained of herein and were able to and did control the contents of the Offering 17 Documents for the L.PO. 18 10,8. By reason of their senior executive positions at DreatnWorks and 19 their, actual control over the Company's day-to-day operations, financial 20 statements, public filings and their intimate involvement and control over the 21 Offering Documents for the IPO, each of the Individual Defendants named in this 22 Count is jointly and severally liable to Plaintiffs and the other members of the 23 Class as a result of the wrongful conduct alleged herein. 24 ADDITIONAL ALLEGATIONS IN SUPPORT OF 25 . EXCHANGE ACT COUNTS ONLY 26 109. Plaintiffs repeat and reallege each of the allegations set forth in ¶¶ 1- 27 104 as if fully set forth herein. The allegations below are alleged only as to 2s Counts rV and V and brought against DreamWorks, Katzenberg, Leslie, IKendrick,1 Ccrosolidaied Amended Complauit (12- 50 2?-2005) CONSOLDATEO AMENDED CLASS ACTION COMPLAINT

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1 Enrico, and Allet; for violations of § 10(b) and § 20(a) of the Exchange Act and J1 2 are not incorporated in any way into the Securities Act claims alleged above. 3 SUMMARY OF TEE I XCHANGE ACT CLAIMS 4 110. Defendants' representations concerning Shrek 2 home video. sales 5 were made with reckless disregard for the truth. 6 111. Information obtained from. former employees of Blockbuster, Inc., 7 one of the Company's largest customers, as well as limited circulation trade 8 publications said industry reports that are unavailable to the public at-large, 9 demonstrate that Defendants misled the public about Shrek 2 sales figures and 10 sales expectations. 11 112. Indeed, after failing to disclose 'the dramatic transfonnation in the 12 home video market in the Offering Documents, as alleged above, in early January 13 2005 the Company issued sales figures and projections for Shrek 2 that lacked any 14 reasonable basis. a3 15 113. Indeed, Defendants conditioned the market to expect that 16 DreamWorks would sell 37 million Shrek 2 home video units by the end of 2004; 17 40 million units by the end of the first quarter of 2005; and 55 million lifetime 18 units. Defendants then set about misleading the public into thinking that these 19 milestones were actually being i et. In early January 2005, the Company claimed 20 to have sold 37 million Shrek 2 home video units. Unbeknownst to plaintiffs and 21 the investing public, however, retailers had already begun returning the home ^ 22 videos to Dr°eaniWorks en masse and, as a result, Defendants were forced to offer 23 steep price reductions just so retailers would keep Shrek 2 on their shelves rather 24 than return the remaining unsold units. 25 114. Rater than truthfully disclosing this development to the public, 26 Defendants chose to report that millions of videos that were merely shipped to 27 retailers, and thus subject to return, had been "sold." All the while, Defendants 2s Consolidated Amended Cott1p1aint' (12- 51 22.2005) CONSOLIDATED AMENDED CLASS ACTION CQMPLAINT

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1 I continued to lead investors down the primrose path, insisting that Shrek 2 was on 2 1 I track to set bom.e video sales records. 3 115. That Defendants ' misrepresentations were made with reckless 4 disregard for the truth is supported by the fact that Defendants Allen, Enrico, and 5 Katzenberg had a compelling motive to boost the Company's share price as high 6 as possible. Allen, a key source of capital for the Company from its inception, 7 was ready to cash in on his investment. On March 28, 2005, DreamWorks filed a 8 registration statement to initiate a secondary stock offering, in which Allen 9 planned to sell over 9 million shares of his personally held DreamWorks stock, 10 worth more than $325 million. 11 116. Likewise, IKatzenberg ' s and Enrleo's compensation was tied solely 12 to the value of their DreamWorks stock options, as Katzenberg and Enrico were 13 each paid an annual salary of merely $1 per year. With their personal wealth 14 6ding on the value of DreamWorks stock, Katzeuberg, Allen, and Enrico were 15 highly motivated to ensure that DreamWorks' stock price continued to climb. 16 117. In the end, however, Defendants' reckless disregard for the truth 17 about Shrek 2 home video sales caught up with them. Before Allen could cash in, 1s the Company was forced to begin revealing the truth to the public about Shrek 2 19 sales. In May 2005 the Company reported that it had only sold 35 million Shre/c 2 20 home video units, contrary to previous report,, of having sold 37 million units. In 21 July 2005, the Comparty was forced to acknowledge that massive returns from 22 retailers would preclude DreamWorks from realizing any revenue fromn. Shrek 2 23 for the remainder of the year. Contrary to Defendants' earlier claim that it had 24 already sold-through 37 million Shrek 2 home video units and that the number 25 would rise to 40 million units within the following two weeks, by August 2005, 26 Defendants were forced to admit that the Company had still only sold 35 million 27 Shrek 2 home video units. When this news reached the public, DreamWorks' 29 stoek plummeted, causing investors to suffer devastating financial losses. Consolidaicd Amended Complaint (12. ^22-2005) 52 CONSO.LtATED ,AMENDED CLA.c.s ACTION CO,v LATNT

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SUBSTANTIVE ALLEGATIONS IN SUPPORT OF

2 EXCI GE ACT :L S 3 Undisclosed Adverse Information 4 118. Information gleaned from confidential witnesses as well as from 5 movie industry trade publications that are not generally available to the public, 6 demonstrate that Defendants recklessly disregarded, among otter things, then- 7 existing market trends, up-to-the-minute sales return information from major 8 retailers, and reported the actual number of ",,ales" of Shrek 2 home video units 9 throughout the Class Period and issued wholly unrealistic projections of future 10 sales, with reckless disregard for the truth. 11 The Confidential Witnesses 12 119. Confidential Witness Number One ("M")") worked at one of 13 DreamWorks' largest customers, Blockbuster Inc., from 1998 to 2005. CW1 was 14 the Finance Director, Distribution Center Finance & Returns Accounting in 15 Blockbuster's Dallas, Texas headquarters. In this capacity, CW1 managed returns 16 during the last 3 years of his employment and was responsible for all of the 17 accounting related to Blockbuster's North American returns. 1s 120. CW1 leaves no doubt that DrearnWorks' business model was 19 particularly sensitive to high levels of video retu,rn.s. According to CWI, it was 20 widely understood that Blockbuster, Wal-Mart (DreamWorks' largest customer) 21 and other major retailers "always" ordered more home videos than they needed. 22 Blockbuster "always" overstocked its shelves "in the hope that somebody would 23 buy them. But if nobody buys them we send them back." 24 121. CW1 explains that large retailers such as Wal-Mart, and in particular 25 Blockbuster, were free to operate in this manner because the movie studios, 26 including DreamWorks bore all the risk. Specifically, CW1 explains 27 DreamWorks had no choice but to accept retailers' returned videos because if it 28 did not, the retailers would threaten to do less business with DreamWorks on Consul dared

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1 future releases. According to C '1,, "If you are, a big player, you can stroug-arm 2 the vendor into taking returns. Blockbuster and Wal-Mart can return anything 3 they want." 4 122. CW1 specifically remembers that Blockbuster took advantage of this 5 strategic high ground and returned "millions and millions of copies of Shrek 2" 6 once sales slowed. According to CWl, by February 2005, Blockbuster had 7 already shipped the majority of its unsold Shrek 2 inventory back to DreamWorks. 8 123. CW2 has worked as a Buyer of Retail Film at Blockbuster since 9 2003, and has specific insights into the process by which DreamWorks was 10 apprised of Shrek 2 sales performance. CW2 communicated directly with a 11 representative from Universal (DreamWorks ' borne video distributor) on a daily 12 basis. "In my case, I'll get a phone call that morning or an mail. If it's a major 13 title I will have tallced to them before hand and they ask me for sales figures 14 through email or voice mail. Anything major usually I will get a phone call and 15 I'm pretty sure I did with Shrek2." 16 124. CW2 states that his/her immediate supervisor was in direct contact 17 with a representative from DreamWorks Studios, and provided sales figures to 18 DreamWorks Studios on a daily basis. 19 125. According to CW2, everybody (Blockbuster, Wal-Mart, Target, etc.) 20 is able to obtain sales figures either in real tin-te or by the next morning and that 21 these figures are communicated to the studios daily by the vendors. 22 126. Based on his own interactions with studio representatives and from 23 tracking sales of Shrek 2, CW2 insists that DreaxnWerks sales projections of 55 24 million units was unrealistic because titles do not have that kind of staying power 25 in the home video market. 26 l/ 27 11 2s

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11 -Defendants' Slash Shrek 2 Prices 10 2 Stem the Tide ofEarly Returns 3 127. The fact that DrearnWorks began offering rebates to retailers and 4 distributors only 30 days after the release of Shrek 2, corroborates CW2's 5 statement and is indicative of Defendants' reckless disregard for the truth when 6 Defendants reported Shrek 2 home video sales figures and issued statements about 7 ,Shred. 2's future sales prospects. 8 128. Specifically, the limited circulation trade publication, VIDEO 9 BtnsNcss, published an article on June 6, 2005, entitled "Price Cuts Come 10 Earlier," disclosing that Shrek 2 videos got rebates only 30 days after its home r t video release. The reason for such early price cuts is simple. Defendants were 12 cognizant of the cutthroat competition for retail shelfspace and knew that -unsold 13 Shrek 2 home video units would soon be returned if they could not offer 14 incentives to retailers to keep the movie stocked longer. The VIDEO BvxsNEss 15 article stated: 16

-17 To discourage retailer returns and shore up sagging disc sales, 18 studios are becoming speedier at reducing prices on new 19 releases. 20

21 Until last year, studios commonly began offering retailers 22 price breaks between 60 and 90 days after titles initially 23 streeted, That represented accelerated re-pricing from even 24 earlier times when studios waited up to six months before 25 helping retailers shave price points. 26 27 Now, retailers are being wooed with deals as soon as 30 days 28 after launch. And the price reductions come in various forms. Consolidama Ani ndt,1 Complaint (12- 55 22-2005) CONSOLIDATED AMENDED CLASS ACTION CONCG'LAINT

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2 Primarily, studios are offering rebates to extend title shelf 3 life or curb product returns.

4 5 Titles winning recent 30-day rebate treatment are said to 6 include DreamWorks Home Entertainment' s Shrek 2 and 7 Shark Tale.. .

S 9 Ted Engen, president of the Video Buyers Group, 10 applauded the trend as a way of reducing returns. 11

12 "So Car.', the studios have been easing into this," Engen said. 13 "It makes sense . I hate shipping [returns] back and forth.. 14 There is all the paperwork." 15

rz 16 Still, [Todd] Zaganiacz [owner of Massachusetts' Video Zone 17 and president of the National Entertainment Buying Group] 1s thinks the studios are smart in their current pricing tactics. 19 He suspects that after 30 days, stores are working hard to 20 return 90% to 95% of what they haven't sold. 21

22 The majority of a DVD title's sales happen in the first 14 23 days of its release," he added. "How do you get those people 24 who didn't buy [during that time)? It can't be priced too 25 high-" 26 (Emphasis added.) 17hus, by early December 2004, DreamWorks was already 27 slashing the price of Shrek 2 videos in order to stein the tide of expected returns. 28 fr costHdt compteinc (I3- 56 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 MATERIALLY FALSE AND MISUADING STATEMENTS' 2 DURINGTIDE CLASS PERIOD 3 The December 8, 2004 Press Release and Conference Call 4 129. On December 8, 2004, DreamWorks issued a press release in which 5 Defendants claimed that: 6 "Our results for the third quarter reflect the strong domestic 7 and international theatrical performance of Shrek 2, as well as s continuing revenue generated by our growing library of 9 films," said DreaanWorks Animation CEO Jeffrey 10 Katzenberg. "We are also thrilled with the results of our films 11 in the fourth quarter, including the recent box office success 12 of Shark Tale, which has earned over $300 million on a 13 worldwide basis and is still being released in several 14 international territories. In addition, initial Shrek 2 video 15 sales have set an all-time' record, selling ,over 30 million w 16 units worldwide in just over four weeks. We are well 17 positioned in the CG animation market with a distinctive and 18 powerful brand, a world-class, highly experienced creative 19 team, and the scale and resources necessary to produce two 2{0 high-quality CG films per year." 21 (Emphasis added). 22 130. That same day, DreamWorks held a conference call with securities 23 analysts to review the Company's third quarter 2004 earnings results, During the 24 call, Defendants went to great lengths to emphasize the purported record-breaking 25 achievements of the Shrek 2 home video release. Defendant Enrico proclaimed: 26 Now on the home entertainment font, we are absolutely 27 dkilled with the record-breaking launch of Shrek 2, where it 2$ has hit an all-time record, selling over 30 million units in just Coneolidatcd Amcndod Co1»plnint (12- 57 22-2005) CONSOLIDATED AMENDED CLASS ACTION COWLA1NT

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1 over four weeks". Now, this result on the video surpasses even our highest expectations, given that some major

3 territories have yet to release it, In North America, it will be

4 the biggest fourth-quarter release of all time, and based on the 5 blockbuster performance it has shown to date, we believe it's 6 on track to be the biggest video release in history, 7 surpassing even the initial release of The Lion King, which, as 8 you know, held the record for the past decade. On a 9 worldwide basis, we believe Shrek,? will become the second 10 biggest video release ever, behind Lion King. 11 (Emphasis added). 12 131. Defendant Leslie echoed Enr.co's bravado, and set a benchmark for 13 expected Shrek 2 home video sales: 14 We expect that fourth-quarter results will be driven by the 15 continued success of Shark Tale in the worldwide theatrical rx 16 market and the record-breaking results of the November 5 17 release ofShrek 2 on video and DVD. 18 19 Based on performance to date,.. we believe the S.lirek 2 home 20 video is on track to sell in excess of 37 million units by 21 year-end, and ultimately in excess of 55 million units, both 22 on a worldwide basis. 23 (Emphasis Added), 24 132. During the question and answer session, Defendants clarified that 25 their projections were for "sell-through" figures, or in other words, the sales were 26 made to retail customers, rather than rental stores. Defendants also underscored 27 the message that there was little risk of home video units being returned by the 28 Cons4lidatiod Animnded Complaint (12- 58 22-2005) CONSOL1DATivD AMENDED CLAS$ ACTION COMPLAINT ^.. LDSSW.COM CM 060 05-APR- 2006 08 : 12 FROM- Symplax Digital 2132539414 T-487 P. 011/042 F-048

1 retailers, and therefore, the company purportedly did not need to, take reserves 2 against its reported sales: 3 Kathy Styponias- First Prudential Equity Group, Analyst: 4 "First question for you, Iris. When you say recognized 37 5 million units-i'm sorry, you say you'd sell in excess of 37 6 million units by year-end. Is that what you expect to 7 recognize, as well, or is that the sell through n> bers? In 8 other words, are you going to take a reserve against that 37 9 million units?

11 Defendant Leslie: And then in terms of the Shrek 2 video

12 question, we will according to the accounting policies,

13 obviously, be taking returns consistent with our historical

14 practice for both the Shrek 2 video release and any other

15 video revenue that we recorded during the quarter.

9 17 Kathy Styponias- First Prudential Equity Group, Analyst: 18 So in other words, the 37 million is just sell-through, actual

19 sell through?

21 Defendant Leslie: Yes, that is correct.

22 133. Highlighting the materiality of Defendants' misstatements, analysts

23 covering Drea-mWorks were ecstatic about the Company's reported sales for Shrek

24 2 and guidance going forward. Writing fir JPMorgau US Equity Research,

25 analyst Spencer Wang raised the firm's's earnings estimates for the Company in an

26 article titled "Shrek 2 DVD on Fire," Similarly, SG Cowen & Co. analyst Lowell

27 Singer increased estimates for Shrek 2 home video sales to reach 37 million units

28 Cosn1idat&1 Ameadod Gamp]nini (12- 59 ?2-2005) CONSOLIDATED AMENDED CLA$$S ACTION COMPLAINT

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by the end of the fourth quarter of 2004 (up from the f='s previous projection of 2 22.5 million) and 55 million lifetime sales (up from 50 million). 3 The January 3, 2005 Press Release 4 134, In a press release dated January 3, 2005, Defendants announced: 5 DreamWorks Aniination's Shrek franchise has generated 6 over $1,6 billion of consumer home entertainment spending 7 since its .inaugural launch in 2001 with the record-shattering s VTIS/DVD release of Shrek. DreamWorks Animation's 9 current video hit, Shrek 2, has sold more than 37 million 10 units worldwide since its November release -- making it the 11, third highest grossing feature film in U.S. history and the 12 world's #1 home video release of the year. 13

14 In North America, Shrek 2 earned the crown of #1 home M 15 video and DVD release of the year selling over 24 million. 16 combined units, of which 21.6 milhon were DVDs. The title 17 has also conquered records abroad and is on track to become 18 the biggest home video release of all time in Australia, New 19 Zealand and Mexico; the best-selling DVD of all time in 20 Brazil; the best-selling DV'D of all time and the #1 animated 21 home video release of all time in the J.K. Shrek 2 is expected 22 to become the top animated release of all time in South 23 Korea, and the biggest animated DVD release ever in Spain 24 and Germany. 25

26 Domestically, Shrek 2 brought in $458 million in home video 27 retail revenue, with consumer sales accounting for $414 28 million of the total, The DVD category continues to be one of Consolidated ,ruata Complaint (12. 60 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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retail's top holiday sales leaders, and Shrek 2 pulled to the 2 front of the pack by ringing up more sales this fourth quarter 3 than any other DVD in the history of the home entertainment 4 industry.

5 6 The record sales performance of Shrek 2 around the world, 7 demonstrates the continued strength of the Shrek property, 8 which in only 3 years has generated over $1 billion in 9 consumer spending in North America alone. In the 10 international marketplace, the Shrek franchise has delivered 11 $600 million to date, with Shrek 2 yet to release on 12 V IS/DVD in additional major territories. 13 (Emphasis added). 14 The March 17, 2005 Press Release and Conference Call 15 135. Ina press release dated March 17,, 2005, Defendants announced: 16 Our first quarter as a public company was a great success by 17 any measure," said CEO Jeffrey Katzenberg. With the 18 tremendous performance of the Shark Tale theatrical release 19 and the blockbuster introduction of Shrek 2 into the 20 worldwide home video markets, we had a strong quarter, 21 established excellent momentum, and reinforced our brand." 22 23 Katzenberg noted that ,Shrek 2 generated over $360 million in 4 revenue for the fourth quarter and totaled over $900 million 25 iD worldwide box office in 2004. 26 136. That same day, DreamWorlcs held a conference call with securities 27 analysts to review the Company's fourth quarter 2004 and year-end earnings 28 Consolidated Mn ded Coil la! 111(12• 61 -2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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I results. During the call, Defendants continued to hype the purported success of 2 the Shrek 2 home video release. Specifically, Defendant Leslie stated: 3 Beginning with the GAAP results, ]'m happy to report that 4 revenue for the fourth quarter was 495.7 million. Shrek 2 5 generated approximately 360 rmllion of that revenue in the 6 quarter, driven by the extraordinary success of its November 7 release into the worldwide home video market. The film 8 remains on track to sell over 55 million video units 9 worldwide on an ultimate basis. At that level, we expect 10 Shrek 2 will be the third-highest selling video release of all 11 time off behind the Lion King and Titanic. 12 137. Ann Daly, the Company's Chief Operating Officer, added: 13 In addition to the exceptional box office performance, we are 14 also extremely pleased with the success of both films in the 15 home video market. As most of you know, the home video 16 release of Shrek 2 in the fourth quarter was the world's 9 17 number one release of 2004. Coming off its record-setting 18 sales pace in the fourth quarter, video sales continue to be 19 strong and we expect that they will reach approximately 40 20 million units by the end of the first quarter. 21 138. During the question and answer session, analysts sought reassurance 22 that Shrek 2 was indeed selling as well as Defendants had claimed: 23 Kathy Styponias- First Prudential Equity Group, Analyst : I 24 was wondering if you could give us a sense, Kris, of how 25 many units were actually recognized in the quarter for Shrek 26 2? 27

28 Omsoudmd Ammer Camplaint (12- 62 22.2005) CCN$oLIDAT.E AUL-NDEI] CLASS ACTION COMPLAINT

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I Defendant Leslie: Kathy, I will take your first 'question in 2 terms of the units in the fourth quarter. As you probably 3 remember, on our last call we said we expected to sell 4 through 37 million units in the quarter, which we did in 5 fact achieve. In the financial reporting we have recognized 6 about 34 million of those in the fourth quarter. The remaining 7 units came through in the royalty reporting in the early part of S 2005, They are a little bit lagged from a financial reporting 9 standpoint. So those we would expect to be recognizing in the 10 first quarter. 11 12 Michael Savner - Bank ofAmerica Securities, Analyst: Can 13 you give a little more color -- and I apologize if maybe you 14 gave it and I missed it. But in the' ultimates for the home 15 video Shrek 2 and Shark Tale, can you give us a breakdown 16 between domestic and international expectations? 17

18 Defendant Leslie: We're not providing detail on the breakout 19 between domestic and international, but on a worldwide basis 20 for Shrek 2 we expect over 55 million units and. over 20 21 million units for Shark Tale. 77 139, Defendants' claims that they had "sold-through" 37 million Shrek Z 23 home video units were materially false and misleading when made because, in 24 fact, 37 million units had not cleared the retail channel. On the contrary, 25 Defendants were reporting millions of units that DreamWorks had merely shipped 26 to retailers, which were subject to the retailers' rights to return 15% to 100% of 27 the product, as "sold-through." 28 ConaolidEed Minded ComplainT (12- 63 22-2OU ) CONSOLIDAThD AMENDED CLASS ACTION COMPLAINT

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1 140. - Ann Daly's statement that DreamWorks expected to sell "40 million 2 I I units" of Shrek 2 by the end of the ,th st quarter of 2005, was materially false and 3 I I misleading when made because Defendants had no reasonable basis to believe that 4 the Company would sell an additional 3 million units in two weeks, given that: (i) 5 retailers had already begun to return millions of unsold Shrek 2 home video units; 6 and, (ii) to compensate for this, in early December 2004, DreamWorks had begun 7 offering deep discounts to retailers to entice them to keep the video stocked on 8 their shelves longer, 9 141. Nevertheless, without access to the truth, the public hung on 10 Defendants' every word about Shrek 2. Believing that Shrek 2 was selling - 11 through at record levels, and that it would continue to perform according to 12 Defendants' reported results, analysts maintained their glowing coverage. In a 13 March 18, 2005 report titled, "Strong Shred: 2 Sales Has Us Seeing Green," 14 analyst Kathy Styponias of First Prudential Equity Group noted that, "Relative to 15 our expectations, Shrek 2 out-delivered." Bear Stems analyst Michael Kelman 16 noted that the firm had increased its revenue estimates for DreamWorks by 2%, 17 "As a result of better than expected fourth quarter and increased home video 18 assumptions for Shrek 2 and Shark Tale." 19 The 2004 Annual Report 20 142. On March 28, 2005, DreamWorks filed with the SEC its 2004 21 annual report on Font 10-K. The Company's 2004 10-K was signed Defendants 22 Katzenberg, Leslie, Enrico, Allen, and Kendrick. Therein, DrearnWorks stated the 23 following with respect to how revenue 'from home video units is recognized: 24 Revenue from the sale of home video units is recognized at 25 the later of (i) when product is made available for retail 26 sale or (ii) when video sales to customers are reported to 27 us by third parties, such as fulfillment service providers 25 or distributors. We follow the 'practice of providing for Consolidated A Tided Complaint (12- 64 22-2005) CONSOLIDATED AM1NAED CLASS ACTION COMPLAINT

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1 fixture returns of home video product at the-time the products 2 are sold. We calculate an estimate of future retmms of product 3 by analyzing a combination of historical returns, current 4 economic trends, projections of consumer demand for our 5 product and point-of-sale data available from certain retailers. 6 Based on this information, a percentage of each sale is 7 reserved, provided that the customer has the right of return. 8 Customers are currently given varying rights of return, from 9 15% up to 100%. However, although we allow various 10 rights of return for our customers, we do not believe that 11 these rights are critical in establisldng return estimates, as 12 other factors, such as our historical experience with 13 similar types of sales, information we receive from 14 retailers, assessment of the products appeal based A and our cd 15 on domestic box office success' and other research, are 16 more important in estimating returns. Generally, 17 payment terms are within 90 days from the end of the 18 month in which the product was shipped. 19 (EEmmphasis added.) 20 143. The statements in the paragraphs above concerning Defendants' 21 methodology for establishing return estimates and setting reserves for returns were 22 materially false and misleading when made. As noted above, by the time 23 Defendants filed the Offering Documents, the revenue model for home video sales 24 had changed due to various factors, including an increase in the number of titles 25 being released on a regular basis and the consequent competition for limited retail 26 shelf space as newer releases pushed older releases out of stores. Since the 27 majority of a film's home video sales (50 to 70 percent) occur in the first week 28 following its release and then, fall off sharply, the risk of massive returns to Coll-lidneed Aoileaged Coinplthnt (1n. 65 2 -?005) CONSOLIDATED AMENDED CLASS ACTION COMPLAIN'T'

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I Dream.Works of-unsold videos by retailers and distributors greatly increased, and 2 I, customers' return rights had become a critical factor in establishing return 3 estimates, setting reserves for returns and accurately recording and reporting 4 I E revenue. These factors rendered the Defendants' statements concerning revenue 5 recognition in the 2004 10-K materially false and misleading. 6 144. In addition, these statements in the 2004 10-K. created the misleading 7 impression that DreamWorks' stated policies for recognizing revenue from home 8 video sales and its stated methodology for calculating estimates of future returns 9 complied with GAAP, including the requirements of SOP 00-2. They did not. 10 DreamWorks' stated revenue recogri.ition, policies violated the GAAP provisions, 11 as explained above, because the Company was unable to wake reasonable 12 estimates as to the amounts of future returns of home video units. Moreover, the 33 Company failed to disclose this material fact in the 2004 10-K. Indeed, the 2004 14 10-K falsely assured Plaintiffs and the investing public that DreamWorks was 15 capable of making reasonable estimates of future returns "by analyzing a 16 combination of historical. returns, current economic trends, projections of 17 consumer demand for our product and point-of-sale data available from certain is retailers." Moreover, the 2004 10-K stated that "we do not believe that these 19 jretum] rights are critical in establishing return estimates," however, as 20 demonstrated herein, customer return rights were a key factor in the financial 21 I failure ofShrek 2s home video release. 22 145. Contrary to previous reports, in the 2004 10-K filed on March 28,1 23 2005, the Company revealed that it had only sold 33.7 million Shrek 2 home video I 24 units: 25 As of December 31, 2004, Shrek 2 sold a total of 33.7 million 26 home video units worldwide (totaling approximately $554.8 27 million in revenue). 28

Cansoiidawd Amended Coxaplaint (P- 66 22-2005) CONSOLIDATrnD AMENDED CLASS ACTION COMPLAINT

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1 Thus, by DreamWorks ' own admission, the Company' s January 3, 2005 press 2 release was materially false and misleading When made because lDreamWoxks had 3 not sold 37 million Shrek 2 home video units by December 31, 2004 . In fact, the 4 Company had sold less than 33.7 million ua its. 5 146. The IO-K also contained the following certifications signed by 6 Defendants Katzenberg and Leslie that: 7 1. I have reviewed this Annual Report on Form 10-K of S DreamWorks Animation SKGY, Inc.; 9 10 2. Based on my knowledge, this report does not contain any .11 untrue statement of a material fact or omit to state a material 12 fact necessary to make the statements made , in light of the 13 circumstances under which such statements were made, not 14 misleading with respect to the period covered by this report; I5 16 3. Based on my knowledge, the ft cial statements, and 17 other financial information included in this report, fairly 18 present in all material respects the financial condition, results 19 of operations and cash flows of the registrant as of, and for, 20. the periods presented in this report; 21

22 4. The registrant ' s other certifying officer and I are 23 responsible for establishing and, maintaining disclosure 24 controls and procedures . (as defined in Exchange Act Rules 25 1.3a-15(e) and 15d-i5(e)) for the registrant and have: 26 27 a) Designed such disclosure controls and procedures, or 28 caused such disclosure controls and procedures to be Con ohdited Ameaded Co uiPt (12- 67 22-2045) CONsoLMAThD AMENDED CLAS S ACTION COMPLAINT

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-designed under our supervision, to ensure that material 2 information relating to the registrant, including its 3 consolidated subsidiaries, is made known to us by others 4 within those entities, particularly during the period in 5 which this report is being prepared 6 b) Evaluated the effectiveness of the registrant's disclosure 7 controls and procedures and presented in this report out 8 conclusions about the effectiveness of the disclosure 9 controls and procedures, as of the end of the period 10 covered by this report based on such evaluation; and 11 12 c) Evaluated the effectiveness of the registrant's disclosure 13 controls and procedures and presented in this report: our 14 conclusions about the effectiveness of the disclosure

15 controls and procedures, as of the end of the period co 16 covered by this report based on such evaluation; and 17 d) Disclosed in this report any change in the registrant's 18 internal control over financial reporting that occurred ;19 during the registrant's most recent fiscal quarter (the 20 registrant's fourth fiscal quarter in the case of an annual 21 report) that has materially affected, or is reasonably likely

22 to materially affect, the registrant's internal. control over 23' financial reporting; and

25 S. The registrant's other certifyi,ug officer and I have 26 disclosed, based on our most recent evaluation of internal 27 control over financial reporting, to the registrant's auditors 28 Consolidated PJI'smided Con that (12- 6$ 22-2005) CONSOLIDATED Al ENt))D CLASS ACTION COMPLAINT 04/05/2006 13:03 FAX 214 340 9914 LDSSW.COM U070 05-APR-2006 08:14 FROM- Symplex Digital 2132539414 T-487 P. 021/042 F-048

1 and the audit committee of the registrant's board of directors 2 (or persons performing the equivalent functions): 3 4 a) All significant deficiencies and material weaknesses in the S design or operation of internal control over financial reporting 6 which are reasonably likely to adversely affect the registrant's 7 ability to record, process, summarize and report financial 8 information; and 9 b) Any fraud, whether or not material, that involves 10 management or other employees who have a significant role 11 in the registrant's internal control over financial reporting. 12 147. The statements in ¶¶ 124-127, 129-133, 137, and 140-141 were 13 materially false and misleading when made because (i) Defendants had flooded 14 the market with millions of Shrek 2 home video units, that far exceeded the actual 15 or projected consumer demand, in an effort to maximize sales during the critical 16 first weeks following its home video release; (ii) that Defendants' flood-the- 17 market strategy caused reported sales of Shrek 2 home video units to be artificially 18 inflated in the weeks immediately following its November 5, 2004 release; (iii) as 19 a direct result of Defendants' undisclosed flood-the-market strategy, the Company 20 was exposed to the undisclosed material risk that large numbers of unsold home 21 video units would be returned by retailers; (iv) that Defendants' sales and reven> .e 22 projections lacked any reasonable basis when made; (v) DreamWorks lacked 23 adequate internal controls over its financial reporting to prevent the dissemination 24 of materially false and misleading statements; and (iv) as a result of the foregoing, 25 Defendants' opinions and statements concerning the Company's current and 26 futxre earnings were lacking in any reasonable basis. 27 28

Co,isolid ac d Amepc id Camp1M11x (12- 69 22-2005) CONSOLIDATED AMENDED CLASS ACTION COWLAINT

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1 The Tritth Begs to Emer 2 148. The true condition of DrealuWorks began to be revealed on May 10, 3 2005, when the Company announced a severe earnings miss based on extremely 4 disappointing sales of Shrek 2; and again at the end of the Class Period on July 11, 5 2005, when DreamWorks admitted to the passive returns of Shrek 2 home videos 6 and the Company cut its earnings forecast. 7 149. Moreover, as of August 11, 2005, when DreamWorks held a S conference call with analysts to report second quarter earnings, the Company 9 reported that it had sold only "approximately 35 million units" of Shrek 2, a far 10 cry from Defendants ' Class Period representations. 11 150. During the August 11, 2005 conference call with securities analysts, 12 Defendants finally acknowledged the truth about the trend in home video sales 13 that they had previously failed to disclose. Specifically, Defendant Leslie stated: 14 However, based. on our early observations, it appears the titles 15 are being managed differently at retail, which could be due to 16 a number of factors, including the increase in the number of 17 titles released into the home video market and the impact this 18 is having on shelf space. We believe this dynamic may be 19 affecting the way new release hot titles are performing, and in. 20 particular, how quickly these titles are moving into catalogue. 21 We think that this could be contributing to the slower sell- 22 through rates, higher rates of return, and lower inventory 23 levels that we have observed on our products. 24 42, As noted above, on August 12, 2005, DreamWorks filed its second 25 quarter 2005 10-Q, in which it admitted that the Company lacked adequate 26 internal controls. 27

2s Consatidaied Amended Complaint m- 70 22-2005) CONSOLTDAT D P.iWLI~ND D CLAS S ACTON COMPLAINT

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.. Additional Scieenter l lle2atiOns 2 Defendants Recklessly Disregarded the Truth 3 About Shrek 2 Home Video Sales 4 151. Defendants were exposed to a wealth of information that should have 5 1 caused them to refrain from making the false and misleading statements identified

6 11 above. In addition to the market trend in home video sales that Defendants' were

7 no doubt aware of, as detailed. below, Defendants were also aware of the risk

8 created by their strategy of flooding the market with excess product. Moreover,

9 DreamWorks received constant updates on the status of Shrek 2 home video sales,

10 and based.on the movie's downward sales performance following the first few

11 weeks after release, was forced to offer drastic rebates to entice retailers into

12 forestalling their rights of return. As such, the false and misleading statements

13 Defendants made during the Class Period can only have been issued by virtue of a 14 Defendants' deliberately reckless disregard for the truth. 15 Defendants ' Recklessly Disregarded a Known Market Trend

16 152. As detailed above, Katzenberg was a longtime industry insider who

17 had substantial knowledge concerning the home video industry. Because of this

18 knowledge and experience, he was aware of the market trend, described herein,

19 that was affecting the home video industry at the inception of the IPO and prior to

20 the Shrek 2 home video release. Thus, Katzeaberg was, at a minimum, 21 deliberately reckless in causing DreamWorks to falsely report Shrek 2 home video 22 sales and representing to the public that Shrek 2 would perform contrary to then-

23 existing market trends. 24 153. As detailed herein, by the inception of the IPO, home video releases

25 typically generated between 50 and 70 percent oftheir total sales in the first week.

26 After the first few weeks, however, sales rapidly decreased and retailers, who are

27 1 I granted generous return rights by movie sundios, ship the unsold discs back to I 28 1 their distributors to clear shelf space for newer releases. ConsaLdated Amended Cumphiur (12- 71 22.20D5) CONSOLIDATED AMENDED CLASS ACTIONCOMPLAINT 04/05/2006 13:04 FAX 214 340 9914 LDSSW.COM X073 05-APR-2006 08:15 FRAM- Symplex Digital 2132539414 T-487 P 024/042 F-048

1. 154 In, order to cou .ter this known , trend.; Defendants stuffed 2 DreamWorlcs' distribution channels in an attempt to maximize sales during the 3 critical first weeks of the release. However, Defendants failed to warn. Plaintiffs 4 and the investing public that their strategy for dealing with this undisclosed 5 market trend had created a material risk of massive returns. 6 155. In fact, DreamWorks had already encountered the pitfalls of this 7 practice once before. Prior to the Company's IFO, DreamWorks was forced to 8 reduce its reported revenue for the home video it released immediately prior to 9 Shrek 2. In a footnote in the Company's Form 10-Q filed with the SEC for the 10 third quarter of 2004 (the quarter that immediately preceded the IPO), 11 DreamWorks revealed that: 12 During the three month period ended September 30, 2004, the 13 Company had a change in estimate which reduced Sinbad. 14 Legend of the Seven Seas domestic and international home 48 15 video revenues after receiving updated information from 15 Universal that reflected higher domestic and international 17 home video return percentages than had been originally 18 anticipated. This change in estimate reduced film revenues by 19 $1.6 million. 20 156. - Thus, well before Shrek 2 was released in the home video market, 21 Defendants (including industry savy veterans such as Katzenberg) had been 22 exposed to: (i) the market trend in which a title generates the vast majority of its 23 revenue in the first few weeks after its release, as detailed above; and, (ii) the risks 24 associated with flooding the market with excess product to counter that trend. 25 157. Having thus already been exposed to these developments at least 26 once before, Defendants could only have issued the false and misleading 27 statements alleged herein by recklessly disregarding the truth about Shrek 2's 28 home video unit sales and prospects. Consa idand Amended Complaint (12- 72 22-2005) CONSOLIDATED AML-NDED CLASS ACTION COMPLAINT l. LDSSW.COM 1M 074 05-APR- 2006 08:15 FROM-Symplex Digital 2132538414 T-487 P .025/042 F-048

1 158. Moreover, given the - Company's prior experience with under- 2 reserving for returns of home-videos, Defendants' certifications that: (i) 3 DreamWorks properly accounted for home video sales revenue and calculated its 4 reserves for borne videos in compliance with GAAP; (ii) that retail customers 5 rights of returns were irrelevant; and, (iii) that DreamWorks maintained adequate 6 internal controls to account for home video sales, were made with a reckless 7 ( disregard for the truth. 8 Defendants Recklessly Disregarded Actual Sales Resultsfor Shrek2 9 Home Video Units 10 159. In addition. to ignoring DreaxnWorks' own experience with the 11 I market trend as detailed above, Defendants' (:lass Period statements were made 12 with a reckless disregard for the Company's actual experience with the sales for 13 Shrek 2. As explained by CW2, DreamWorks received constant updates on Shrek Rr -.14 2's sales performance. CW2 communicated directly with a representative from

x 15 Universal on a daily basis: "In my case, I'll get a phone call that morning or an 16 emnail. If it's a major title I will have talked to them before hand and they ask me 17 for sales figures through email or voice mail. Anything major usually I will get a 18 phone call and I'm pretty sure I did with Shn?k2," CW2's immediate supeMsor 19 was in direct contact with a representative from DreamWorks Studios, and 20 provided sales figures to Dream,Works Studios on a daily basis. 21 160. Indeed, Defendants themselves confirmed that the Company received 22 consistent feedback from retailers and distributors about the performance of their 23 home video sales. During the August 11, 2005 earnings conference call with 24 analysts, Richard Greenfield, an analyst with Fulcrum Global, asked Defendants 25 how often they received home video sales data from Universal. Ann Daly 26 responded that: 27 Specifically as it relates to the information on video sales, it

28 varies depmding on thi; type and he retailer. But there are Conpoliaatcd A7nenclcu Cohn ainL (12- 73 22-2005) CONSOLLATED AMENDED CLASS ACTION COMPLAINT

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1 accounts where we receive daily information; there's a 2 pattern of weekly information; and it covers a portion of 3 every sales territory. And that portion varies depending oil, 4 quite frankly, the sophistication of the retail base in the 5 individual territory. 6 Defendant Leslie also explained that: 7 I just wanted to add one thing to Aim's comments about the 8 information-this is Kris-about the information coming 9 from Universal, while I suppose this, is obvious. But from a 10 financial reporting standpoint, we. get information from 11 Universal on a monthly basis. 12 161. Given the foregoing, Defendants had access to Shrek 2 sales data 13 throughout the Class Period. Indeed, as detailed above, DrearnWorks was forced 14 to offer steep price cuts and rebates in order to entice retailers to keep Shrek 2 on 15 their shelves by early December 2004. The reason for such early price cuts is 16 simple: Defendants were cognizant of the cutthroat competition for retail shelf 17 space and knew that unsold Shrek 2 home video units would soon be returned if 1s they could not offer incentives to retailers to keep the movie stocked longer. 19 Thus, at least one month before Defendants reported that 37 million Shrek 2 home 20 video units had been sold and that it would ultimately sell 55 million units, 21 Defendants recklessly disregarded. the fact that demand for Shrek 2 had all but I 22 disappeared. 23 162. Indeed, Girl clarifies that by February 2005, Blockbuster had 24 already shipped the majority of its unsold Shrek 2 inventory back to DreamWorks. 25 163. Given the constant communication between retailers, Universal, and 26 the Company; the steep rebates the Company was forced to offer to retailers to 27 slow the influx of returns of Shrek 2 videos; and that Blockbuster had already 28 shipped "millions" of units back to ]DreamWorks by February 2005, Defendants cansolfaared

Complaint (12- 74 22-2005) CONSOLIDATED AM NDED CLASS ACTION COMPLAINT

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1 claims in January 2005 and mid-March 2005 that the Company had sold 37 2 million units and would sell 40 million units by the end of the first quarter of 2005 3 were made with, at a minimum, reckless disregard for the truth. 4 164. Indeed, even industry analysts were surprised at I<.atzenberg's 5 apparent willful ignorance. As noted by Paul, Sweeting, reported in a column 6 titled "Bad Dreams" in the June 6, 2005 edition of Vrbro Busm-ss: 7 The days when a supplier could just stack `em high and watch S `em fly at retail are long gone, For the most part, retailers put 9 an. end to the practice, as they sought to maximize profit from 10 every cubic inch of space in the store and enforced ever 11 tighter discipline over their supply chain. 12

13 Among home video suppliers, Disney adapted more quickly

14 and readily than its competitors to the emerging new

P4 15 paradigm, thanks to its long dominance of the VHS sell- 16 through business. 17 With a team of experienced consumer products marketers, 18 Disney worked closely with Wal-Mart and other major 19 retailers; to develop systems and procedures for getting

20 inventory where it needed to be, replenishing quickly and 21 minimizing returns.

23 Other studios then followed Disney's lead, often hiring 24 former Disney personnel at the time- notably studio

25 chairman Jeffrey Katzenberg and home video President

26 Ann Daly- are now 'running DrearnWorks Animation. So

27 . it was surprising, to say the least, to see DreamWorks

28 stumble so badly with the OVD release of Shrek 2.

C011.9AZ7date d Amtmdad G171U9]Riati (12- 75 22-20a5) CONSOLIDATED AA4BNDED CLASS AMON COMPLAI J . LDSSW.COM L 077 05-APR-2006 08 : 15 FROM-Symplex Digital 2132539414 T-487 P .028/042 F-048

2 Given the depth of home video marketing experience in its 3 senior ranks, DreamWork{s really shouldn't be getting the

4 DVD market so wrong. It especially shouldn't be getting 5 it wrong when the Company's business model rests so

6 heavily on getting it right.

7 (Emphasis added).

8 .Defendants Were Motivated to Falsely Report Shrek 2 Sales

9 165. Defendants Katzenberg, Enrico, and Allen issued the materially false

10 and misleading statements during the Class Period with reckless disregard for the 11 truth because, inter alga, they were motivated by their own fmancial interests.

12 These motives contributed to Katzenberg's, Enrico's and Allen's willful ignorance

13 of the true status of Shrek 2 's sales and prospects. 14 166. Defendant Allen co-founded and had been the primary financier in 48 15 DreamWorks Studios since its founding in October 1994. After the IPO, Allen 16 controlled 37.4 % of the Company's Class A common stock, and retained the right s 17 to appoint one director pursuant to his ownership of one share of the Company's i8 Class C common stock. Having invested hundreds of millions of dollars into tile 19 Company, Allen's primary motivation was to cash in on his investment. As such, 20 Defendant Allen sold nearly 5 : a.illion shares of his common stock in the IPO and 21 received $137,252,024 in proceeds. Defendant Allen, anjong other principal 22 shareholders, was restricted from selling his shares of DreamWorks stock for 180 23 days after the IPO. 24 167. With the lock-up period set to expire in less than a month, Allen 25 signed the Company' s 2004 10-K with reckless disregard for the truth conceiving 26 DreamWorks internal controls, revenue recognition policies, and the Company's ^ 27 methodology for calculating reserves for .onle video returns. After the Company 28 had issued over four months-worth of materially false and misleading statements Ccrosolidawd P invaded Complaint (12- 76 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 about the success of Shreh 2 (including Allen's own statements) causing DWA 2 shares to skyrocket to over $39 per share, Allen once again sought to cash in on 3 I I his investment in the Company. 4 168. On March 28, 2005, one month before the lock-up provision expired, 5 the Company filed with the SEC a preliminary registration statement on Form S-1 6 11 for the intended sale of $500 million of DWA stock. According to the Form S-1, 7 the selling shareholders were Defendant Allen, Universal Studios, and Lee 8 Entertainment L,L.C .These shareholders preliminarily registered 12,700,025 9 11 shares of Class A common stock at an artificially inflated price to the public of 10 $39.37 per share. For his part, Allen personally planned to sell over 9 million 11 shares, for expected proceeds of over $325 million. The Company would not 12 receive any of the proceeds from the secondary offering. 13 169. As noted by analyst Katherine Styponias of Prudential Equity Group, 14 I LLC, in an article on March 28, 2005, (the sa ie day the Company filed the Form. 15 S- t): 16 One of the reasons for taking DreamWorks public was so that 17 certain investors, and especially Paul Allen, could recoup 18 some of their initial investments. The timing makes sense 19 given the expiration of the 180-day 'Lockup period. 20 170, Defendant Katzenberg, like Allen, was also motivated to artificially, 21 inflate the price of DreamWorks stock, which caused him to issue false statements 22 in reckless disregard for the truth about sales of Shrek 2 during the Class Period. ^ 23 Although Katzenberg owned approximately 45.5 % of the co ou equity in the 24 Company, he was unable to sell any of his personally held DreamWorks stock 25 during the Class Period due to a lockup agreement that was in place for 365 days 26 following the TO. According to the Offering Documents, Katzenberg's base 27 salary in consideration for his services to the Company was $1 annually; however, 28 he received $17.7 million worth of DreamWorks options and restricted stock Consoiidhucd

Complaint (12- 77 22.2005? CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 pursuant to the IPO, which provided him with a strong motive to recklessly 2 disregard the truth when he made statements about Shrek 2 sales during the Class 3 Period. Specifically, the Offering Documents state the following with respect to 4 Katzenberg ' s compensation: 5 Subject to the approval of the compensation committee, 6 Mr. Katzenberg will receive equity awards from us upon the 7 consummation of this offering in the, form of options (having 8 a grant-date value of $4,740,000) and restricted stock (having 9 a grant date value of $12,990,000), both awards vesting over 10 a period of up to four years contingent on the achievement of 11 certain target performance goals as established by the 12 compensation committee. In addition, beginning in 2005, 13 subject to annual approval by the compensation committee, 14 that Mr. Katzeaberg will be eligible; to receive, in lieu of an Id 15 annual cash bonus, annual equity incentive awards of options 16 and restricted stock (or such other form of equity-based 17 compensation as the compensation comu)aittee may 18 determine) that have an annual aggregate grant-date value, 19 depending on otu'.:per'forru .nce, ranging between $1,000,000 20 and $3,000,000 and that vest over a period of up to four years 21 contingent on the achievement of certain performance goals 22 as established by the compensation committee. 23 Mr. Katzenberg will also be eligible, beginning in 2006, 24 subject to annual approval by the compensation committee, to 25 receive annual equity incentive awards of options and 26 restricted stock (or such other form of equity-based 27 compensation as the compensation committee may 28 determine) that have are annual aggregate grant-date value Concol{dated Amwded Complu (12- 78 22-2005) CONSOLIDATED AN NDEA CLASS ACTION COMI.'LATNT

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1 targeted at $5,000',000 and that vest over a period of up to 2 four years contingent on the achievement of certain target 3 performance goals as established by the compensation 4 committee . In addition, if the compensation committee 5 determines that target performance goals have been exceeded 6 during any performance period, the compensation comp ittee 7 may, but is not obligated to, make additional grants of equity 8 or non-equity based compensation to Mr. Katzenberg. 9 171. Thus, Katzenberg's entire compensation structure was centered on 10 his receipt of Dreat Works stock options. As such, Katzenberg was highly 11 motivated to artificially inflate the price of DreamWorks stock in order to 12 maximize his own personal financial gain. 13 172. Defendant Enrico, like Katzenberg, was also paid a base salary of $1 14 per year. Pursuant to the IPO, Enrico was awarded 232,143 options of

a 15 DreamWorks stock, worth $4 million at the time these options were granted. As x 16 stated in the Offering Documet-nts: 17 We will compensate Mr. Enrico ;for these additional services 18 with an equity grant of stock options and restricted stock (or, 19 in lieu of options and restricted stock, such other form of 20 equity-based compensation as the compensation committee 21 may determine) at the time of the offering having a grant date 22 fair value of $4.0 million (of which $1,000,000 will be 23 attributable to options and $3,000,000 will be attributable to 24 restricted stock). Mr_ Enrico's grant of options and restricted 25 stock will vest over a period of up to four years contingent on 26 the achievement of certain target performance goals as 27 established by the compensation committee. In addition, 28 beginning on the first anniversary of the ronsuu=ation of Consolidamd Arerdctl Complaint (12- 79 22-1Q05) CONSOLmATEt AMENDED CLASS ACTION COMPLAINT

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1 this offering, we expect that Mr. Enrico will become entitled 2 to receive up to ;dour annual equity incentive awards of 3 options and restricted stock (or such other fora of equity- 4 based compensation as the compeasation committee may 5 determine) that have an annual grant-date value of$2,000,000 6 and that vest over a period of up to four years contingent on 7 the achievement of certain target ,performance goals. The compensation committee may elect to substitute a cash 9 payment of $2,000,000 for any annual equity incentive award 10 described in the preceding sentence. In addition, if the 11 compensation committee determines that target performance 12 goals have been exceeded during any performance period, the 13 compensation committee may, but is not obligated to, make

14 additional grants of equity or non-equity based compensation 15 to N1.r. En ico. 16 173, Thus, like Katzenberg, Enrico possessed the -motive to inflate 17 DreamWorks share value in order to enhance his personal wealth. This motive 18 caused Enrico to recklessly disregard the truth when he issued materially false and 19 misleading statements about the success of Shrek 2 during the Class Period. 20 LOSS CAUSATI01NUEC PNOM1C LOSS 21 174. During the Class Period, as detidled herein, Defendants misled the 22 market and artificially inflated DreamWorks' stock price by recklessly 23 misrepresenting the Company's sales and prospects for future sales of Shrek 2 24 home video units. 25 175. By misrepresenting Shrek 2 sales, Defendants presented a misleading 26 picture of DreamWorks' business condition and prospects. Instead of truthfully 27 disclosing during the Class Period that Dreari1Works' sales of Shrek 2 were not as 28 Con soldaiel Amended Crnnpleim (12- 80 ^2-2005) CONSOLIDATED AM NDE-D CLASS ACTION COMPLAINT --. LDSSW.COM Ca 082 05-APR- 2006 08.16 FROM- Symplex Digital 2132539414 T-487 P.083/042 F-048

1 healthy as represented, Defendants caused DreamWorks to falsely-report results that did not accuiately reflect the true condition of DreamWorks. 3 176. Defendants also issued m .aterially misleading statements about the 4 Company's revenue recognition policies; its methodology for estimating reserves 5 for home video returns; and that it possessed adequate internal controls to ensure 6 the integrity of the operating results that Defendants reported to the public. The 7 material false and misleading statements caused and maintained the artificial 8 inflation in DrwnWorks" stock price t roughout the Class Period. until the truth 9 began to be revealed to the market. 10 177. Defendants' false and misleading statements caused DreamWorks 11 I stock to trade at artificially inflated levels, reaching as high as $41.10 per share on 12 April 5, 2005. After the close of trading on May 10, 2005, the Company issued a 13 press release regarding its results for the quarter ended March 31, 2005. 14 Specifically, Defendants announced that Shrek 2 did not meet the Company's 15 retail sales expectations for the first quarter of 2005. In addition, DreamWorks 16 reported first quarter 2005 profits of $46 million, or 44 cents a share lower than 17 Wall Street expectations of a profit of 58 cents a share. The Company forecast 18 earnings of $1 to $1.25 a share for 2005 - significantly below analyst expectations 19 of $1.89 a share. The next trading day, May 11, 2005, DreamWorks shares fell I 20 $4.45 per share, or 12.2 percent, to close at $32.05 per share, after hitting a low of 21 $30.80 per share, on unusually heavy trading volume of 9,173,200 shares. 22 178. On July 11 a 2005, DreamWorks issued a press release announcing 23 that it failed to meet its recently revised guidance for the second quarter of 20051 .24 and that it expected to "show a loss in the range of seven to nine cents per share 25 for the quarter." DreamWorks also "updated its previous full year guidance of 26 1.00-$1.25 per share and [stated that it] now expects to earn approximately $0.80 27 to $0.90 per share for the fill year 2005. This adjustment was primarily driven 28 by an increase in return reserves , for its 2004 titles." (Emphasis added.) The Camlidaied A111cided Complaint (12- 81 '17-2005) QQNSQLIDATED AMENDED CLASS ACTION C01-vPLAINT

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1 Company stated that its updated guidance reflected "higher than expected 2 returns {of Shreic 2 videos] as well as revisions to our video forecasts." 3 (Emphasis added.) The Company also announced that it bad abandoned its 4 proposed $500 million secondary offering by principal shareholder Paul Allen and 5 others. Finally, the Company disclosed that the SEC had launched as 6 investigation of insider sales shortly before the May 10, 2005 announcement. 7 179. The July 11, 2005 announcement shocked the market and caused S DreamWorks shares to plunge 13 .2 percent frog its previous close of $26.81 per 9 share, to a low of $22. 80 per share, before closing at $23 .27 per share, on z0 4 extraordinarily high volume of 12,343,500 shares traded. 11 180. As the truth about Defendants' materially Use and misleading 12 statements and DreamWorks' business perfor=ce was revealed, the Company's 13 stock price plummeted, the artificial inflation came out of the stock and Plaintiffs 14 and other members of the Class were damaged, suffering economic losses. 15 181. The 12.2 percent decline in DrearnWorks' stock price on May I 1 was 16 a direct result of the Defendants' materially false and misleading statements being A 17 revealed to investors and the market. The timLng and magnitude of DreamWorks' 18 stock price declines negate any inference that the loss suffered by Plaintiffs and 19 other Class members was caused by changed market conditions, macroeconomic 20 or industry factors or Company-specific facts unrelated to the Defendants' false 21 and misleading statements. 22 182. While the price of DreamWorks stock fell from $36.50 to $32.05 per 23 share on May 11, 2005, representing a 12.2 percent drop, the S&P 500 Index went 24 up by a fraction of a percent. Further, while the price of DreamWorks stock fell 25 from $26.81 per share to $23.27, or 13.2% after the company's July 11, 2005 26 revelation, the S&P 500 Index again rose. 27 183. The economic loss, i.e., damages, suffered by Plaintiffs and other 28 members of the Class was a direct result of Defendants' materially false and cosicuied Amanded Complaint (12- S2 2z-2005) QONSOLIDATED AM DED CL,A:3S ACTION COMPLAINT

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1 misleading statements which artificially inflated DreamWorks' stock price, and 2 the subsequent significant decline in the value of DreamWorks' stock when 3 Defendants' prior misrepresentations were revealed. 4 Applicability of Presumption of Reliance: 5 Fraud-On-The-Market Doctrine 6 184. At all relevant times, the market for DreamWorks common stock was 7 an efficient market for the following reasons, among others: 8 a) DreamWorks couum.on stock met the requirements for listing, and 9 was listed and actively traded on the New York Stock Exchange ("NYSE"), a 10 highly efficient and technologically advanced equities market; 11 b) As a regulated issuer, DreamWorks filed periodic public reports with 12 the SEC and the NYSE; 13 c) As of. March 1, 2005, there were approximately 52.2 million shares 14 of Dr=Works' common stock outstanding and approximately 2,723 15 stockholders of record; 16 d) DreamWorks regularly communicated with public investors via 17 established market communication mechanisms, including through regular 1s disseminations of press releases on the national circuits of major uewswire 19 services and through other wide-ranging public disclosures, such as 20 communications with the financial press and other similar reporting services; 21 e) During the Class Period, DrearmWorks common stock had a high 22 average weekly trading volume of. 4,784, 3 shares; 23 f) During the Class Period, DreamWorks was followed by numerous 24 securities analysts employed by major brokerage and securities research firms, 25 including, but not limited to, Fulcrum Global Partners LLC, Prudential Equity 26 Group, LLC, JPMorgan Securities Inc., S.G, Cowen & Co., Bear, Stearns & Co. 27 Inc., and Sanders Morris Harris, Datamonitor plc., who regularly wrote reports 28 that were distributed to certain customers of their respective brokerage and Cou b&Vi A] cI1ded Complain[ (12• 83 22 2005) CONSOLIDATED AMENDED CLASS ACTION CONI LAtNT Lnssw. COX 042 F- 9914 T_487 P .036/ FAX 214 340 04/05/2006 13:11 2132539414 FROMrSYtplex NOW 05-APR-2006 08 : 1T

z research firms. Each of these reports was publicly available and entered the, 2 public marketplace; 3 g) According to Bloomberg®, DreamWorks stock had approximately 4 273 market makers during the Class Period; and 5 h) As demonstrated herein, fliere are "empirical facts" showing 6 causation between corporate events or releases and an immediate response in the 7 price of DreamWorks stock. S 185. As a result of the foregoing, the market for DreatnWorks' common 9 stock promptly digested current information regarding DreamWorks from all 10 publicly available sources and reflected such information in DreauiWorks's stock II price, 12 186. Plaintiffs and all other members of the Class purchased shares of 13 DroaniWorks' common stock at prices set by the market and did so in reliance on 14 the integrity of those prices. Under these circumstances, all purchasers of 15 DreamWorks' common stock during the Class Period suffered similar injury 16 through their purchase of DreamWorks' con mion stock at artificially inflated 1 17 prices, and a presumption of reliance applies. 18 NO STATUTORY SAFE FOR 19 187. The statutory safe harbor provided for forward-looking statements 20 1 under certain circumstances does not apply to any of the allegedly false statements 2t pleaded in this complaint. Many of the specific statements pleaded herein were 22 not identified as "forward-looking statements" when made. To the extent there 23 were any forward-looking statements, there wore no meaning) l cautionary 24 statements identifying important factors that could cause actual results to differ 25 materially from those in the purportedly forward-looking statements. 26 Alternatively, to the extent that the statutory safe harbor does apply to any 27 forward-looking statements pleaded herein, Defendants are liable for those false ;1 cad-looldng statements because at the time each of those forward-looking

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- 1 statements,-was' made,' the -particular, speaker knew that the particular 'forward- 2 looking statement was false, and/or the forward•looki.ng statement was authorized 3 and/or approved by an executive officer of DreamWorks who knew that those 4 statements were false when made. 5 EXCTJANGE ACT COUNTS 6 COUNT TV 7 Against All Defendants 8 For Violations Of Section 10(b) Of The Exchange Act 9 and Rule lob-S Promulgated Thereunder 1.0 188. Plaintiffs repeat and realiege each and every allegation contained 11 above as if dully set forth herein. 12 189. During the Class Period, Defendants issued a number of materially 13 false and misleading statements that: (i) misled the investing public, including 14 Plaintiffs and other Class members, as alleged herein; and (ii) caused Plaintiffs 15 and other members of the Class to purchase DreamWorks common stock at 16 artificially iaflated prices. 17 I90. Defendants (a) made untrue statements of material fact and/or is omitted to state material facts necessary to make the statements not misleading 111 19 an effort to maintain artificially high market: prices for DreamWorks common 20 stock in violation of Section 10(b) of the Exchange Act and Rule lOb-5. Al 21 Defendants are sued either as primary participants in the wrongful and illegal 22 conduct charged herein or as controlling persons as alleged below. 23 191. Defendants, individually and in concert, directly and indirectly, by 24 the use, means or instrumentalities of interstate commerce and/or of the mails, 25 engaged and participated in a continuous course of conduct to conceal adverse 26 material information about the business, operations and future prospects of 27 DreamWorks as specified herein. 28

Consolidated AlTlelldeU Complaint (12- 85 22-2005) CONSOLIDATLU AMENDED CLASS ACTION COMPLAINT

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1 192. - Defendants employed, devices, while in possession of material 2 adverse non-public information and engaged in acts as alleged herein in an effort 3 to assure investors of DreamWorks value and performance and continued 44 substantial growth, which included the making of, or the participation in the 5 making of, untrue statements of material facts and omitting to state material facts 6 11 necessary in order to make the statements made about DreamWorks and its 7 business operations' and future prospects in the light of the circumstances under 8 which they were made, not misleading, as set forth more particularly herein during 9 the Class Period. 10 193. Each of the Individual Defendants' primary liability, and controlling 11 person liability, arises from the following facts: (i) the Individual Defendants were 12 high-level executives and/or directors at the Company during the Class Period and 13 members of the Company's management team or had control thereof; (ii) each of 14 these Defendants, by virtue of his responsibililies and activities as a senior officer 15 and/or director of the Company was privy to and participated in the creation, 16 development and reporting of the Company's internal budgets, plans, projections 17 and/or reports; (iii) each of these Defendants enjoyed significant personal contact 18 and familiarity with the other Defendants and was advised of and had access to 19 E other members of the Company's management team, ;internal reports and other 20 data and information about the Company' s finances, operations, and sales at all 21 I relevant times; and (iv) each of these Defendants was aware of the Company's 22 dissemination of information to the investing public which they knew or 23 recklessly disregarded was materially false and misleading. 24 194. Defendants acted with reckless disregard for the truth in that they 25 failed to ascertain and to disclose such facts, even though such facts were 26 available to them. Such material misrepresentations and/or omissions were done 27 recklessly and for the purpose and effect of concealing DreamWorks's operating 28 condition and fature business prospects from the investing public and supporting aaubolia te(L Amended CamplAuri (12- 86 22-2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1 'f the ai-tificially inflated price of- its common stock, As - demi nstrated -by 2 1 f Defendants' overstatements and misstatements of the Company's business, 3 I I operations and earnings throughout the Class Period, Defendants, if they did not 4 have actual knowledge of the misrepresentations and omissions alleged, were 5 reckless in failing to obtain such knowledge by deliberately refraining from taking 6 those steps necessary to discover whether those statements were false or 7 j misleading. S 195. 'As a result of the dissemination of the materially false and misleading 9 information and failure to disclose material facts, as set forth above, the market 10 price of DreamWorks common stock was artificially inflated during the Class 11 Period. In ignorance of the fact that maker prices of DreamWorks publicly 12 traded common stock was artificially inflated, and relying directly or indirectly on 13 the false and misleading statements made by Defendants, or upon the integrity of 14 the market in which the common stock trades, and/or on the absence of material ` 15 adverse information. that was known to or recklessly disregarded by Defendants 16 but not disclosed in public statements by Defendants during the Class Period, 17 Plaintiffs and the other members of the Class acquired Drea.nWorks common is stock during the Class Period at artificially high prices and were damaged hereby. 19 196. At the time of said misrepresentations and omissions, Plaintiffs and 20 other members of the Class were ignorant of their falsity, and believed them to be 21 true. Had. Plaintiffs and the other members of the Class and the marketplace 22 known the truth regarding the problems that DreamWorks was experiencing, 23 which were not disclosed by Defendants, Plaintiffs and other members of the 24 Class would not have purchased or other ise acquired their DreamWorks 25 common stock, or, if they had acquired such common stock during the Class 26 I Period, they would not have done so at the artificially inflated prices which they 27 paid. 28

Caasoll ated Mlc ded Complain[ (12- 87 22.2005) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT

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1- _ ... 197.-- By virtue- of the foregoing; Defendants have violated-Section 1-0(b)-of 2 the Exchange Act, and Rule I Ob-5 promulgated thereunder. 3 198. As a. direct and proximate result of Defendants' wrongful conduct, 4 Plaintiffs and the other members of the Class suffered damages in connection with 5 their respective purchases and sales of the Company's common stock during the 6 Class Period. 7 COUNT V s Against the Individual Defendants 9 For Violations of Section 20(a) Of The Exchange Act . o 199. Plaintiffs repeat and reallege each and every allegation contained 11 above as if fully set forth herein.. 12 200. The Individual Defendants acted as controlling persons of 13 DreamWorks within the meaning of Section 20(a) of the Exchange Act as alleged 14 herein. By virtue of their high-level positions, and their ownership and 18 15 contractual rights, participation in and/or awareness of the Company's operations 16 and/or intimate knowledge of the false financial statements filed by the Company 17 with the SEC and disseminated to the investing public, the Individual Defendants I8 had the power to ia±luenee and control and did influence and control, directly or 19 indirectly, the decision-making of the Company, including the content and 20 dissemination of the various statements which Plaintiffs contend are false and 21 misleading. The Individual Defendants were provided with or had unlimited 22 access to copies of the Company's reports, press releases, public filings and other 23 statements alleged by Plaintiffs to be misleading prior to and/or shortly after these 24 statements were issued and had the ability to prevent the issuance of the 25 statements or cause the statements to be corrected. 26 201. In particular, each of these Defendants had direct and supervisory, 27 involvement in the day-to-day operations of the Company and, therefore, is I 28 Cowlidtued Amended Camplti[ (12- 98 22-2005) CONSOLJAThD AMENDED CLASS ACTION COWL AINT

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1 presmned to have had the power to control or influence the particu] ar transactions 2 giving rise to the securities violations as alleged herein, and exercised the same. 3 202. As set forth above, DreamWorks and the Individual Defendants each 4 violated Section 10(b) and Rule lOb-5 by their acts and omissions as alleged in 5 this Complaint. By virtue of their positions as controlling persons, the Individual 6 Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct 7 and proximate result of Defendants' wrongful conduct, Plaintiffs and other 8 members of the Class suffered damages in connection with their purchases of the 9 Company's common stock during the Class Peiiod.. 10 VME FORE, Plaintiffs pray for relief =d judgment, as follows: 11 a) Determining that this action is a proper class action and certifying 12 Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil 13 Procedure; 14 b) Awarding compensatory damages in favor of Plaintiffs and the other 15 Class members against all Defendants, jointly and severally, for all damages 16 sustained as a result of Defendants' wrongdoing, in an amount to be proven at 17 trial, including interest thereon; 18 c) Awarding Plaintiffs and the Class their reasonable costs and expenses 19 incurred in this action, including counsel fees and expert fees; and 20 d) Such other and further -relief as the Court may deem just and proper. 21

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Amended Complaint (12- 89 22-2605) CONSOLIDATED AMCNDED CLASS ACTION COMPL rN1"

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ff ^ ,

JURYMAL &.NDED 2 Plaintiffs hereby demand a trial by jury.

3 Dated: December 22, 2005 4 Respectfully submitted, LINT, RUGER & KLMa I.LP

6 By: c' `- 7 (- S Christopher Kim No. 2080) Lisa ). Yang (Bar No. 208971) 9 1055 West Seventh Street, Suite 2800 Los Angeles, California 90017 10 Telephone; (213) 955-9500 11 Facsimile: (213) 955-9511 Liaison Counsel 12

13 Michael K. Yarnoff (admitted pro hac vice) ,Eric Lec,htzin (admitted pro hac vice) 14 Todd M.. Masser (admitted pro hac vice) SC}XIFMIN & BARROWAY, LLP 280 Kiiig of Prussia Road 16 Radnor, PA 19087 17 Phone; (610) 667-7706 Fax: (610) 667-7056 18 Lead Counsel 19

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Can301iaalcd Ameuded Com,]8111; (12- 90 22-2005) CONSOLIDATED AM1 DED CT-A..8 s ACTION COMPLAINT