This case was last updated from Santa Clara County Superior Courts on 08/08/2019 at 00:19:27 (UTC).

Palkon v. Ahmad, et al. (Quantum Corporation) [Consolidated into Lead Case No. 18CV328139]

Case Summary

On 05/22/2018 Palkon filed a Contract - Security lawsuit against Ahmad, Quantum Corporation Consolidated into Lead Case No 18CV328139. This case was filed in Santa Clara County Superior Courts, Downtown Superior Court located in Santa Clara, California. The Judge overseeing this case is Kuhnle, Thomas. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ******8572

  • Filing Date:

    05/22/2018

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Contract - Security

  • Court:

    Santa Clara County Superior Courts

  • Courthouse:

    Downtown Superior Court

  • County, State:

    Santa Clara, California

Judge Details

Judge

Kuhnle, Thomas

 

Party Details

Plaintiff

Palkon, Dennis

Defendants

Rau, Raghavendra

Gacek, Jon W.

Singer, Eric

Press, Clifford

Rothman, Marc E.

Pinchev, Alex

Sanchez, Adalio

Ahmad, Fuad

Not Classified By Court

Superior Court of California

Attorney/Law Firm Details

Plaintiff Attorneys

Johnson, Frank James

Tran, Phong Le

Stern, Chase M

Defendant Attorneys

Feldman, Boris

Cohen, Jonathan Michael

Callahan, Robyn Catherine

Hashemi, Caz

Miller, Nicholas Ryan

Not Classified By Court Attorney

Superior Court of CA, County of Santa Clara

 

Court Documents

Hearing: Pro Hac Vice Counsel

Order Granting Pro Hac Vice Application of John T. Chisholm: Judicial Officer: Kuhnle, Thomas; Hearing Time: 9:00 AM; Result: Heard: Granted; Comment: Pro Hac Vice Application of John T. Chisholm, on behalf of Defendant Jon W. Gacek

Hearing: Pro Hac Vice Counsel

Order Granting Pro Hac Vice Application of Jonathan R. Tuttle: Judicial Officer: Kuhnle, Thomas; Hearing Time: 9:00 AM; Result: Heard: Granted; Comment: Pro Hac Vice Application of Jonathan D. Tuttle, on behalf of Defendant Jon W. Gacek

Stipulation and Order

Stipulation & Order Re Consolidation of Related Cases, Case Schedule and Deadlines: Comment: Stipulation & Order Re Consolidation of Related Cases, Case Schedule and Deadlines - signed/TEK

Application: Pro Hac Vice

Application Pro Hac Vice: Comment: HRG 8/31/18-Verified App for PHV Admission-Chisholm

Application: Pro Hac Vice

Application Pro Hac Vice: Comment: HRG 8-31-18 Verified App PHV Admission-Tuttle

Order: Proposed

Proposed Order Granting PHV - John Chisholm.pdf: Comment: Proposed Order PHV Admission-Chisholm

Order: Proposed

Proposed Order Granting PHV - Jon Tuttle.pdf: Comment: Proposed Order PHV Admission-Tuttle

Notice

Notice: Comment: NOTICE AND ACKNOWLEDGMENT OF RECEIPT

Order: Deeming Case Complex

Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline: Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/TEK

Summons: Issued/Filed

Summons Issued Filed:

Civil Case Cover Sheet

Civil Case Cover Sheet:

Complaint (Unlimited) (Fee Applies)

Complaint (Unlimited) (Fee Applies): Comment: Shareholder Derivative Complaint

 

Docket Entries

  • 09/14/2018
  • Conference: Case Management - Judicial Officer: Kuhnle, Thomas; Hearing Time: 10:00 AM; Cancel Reason: Vacated; Comment: (1st CMC) Shareholder Derivative Complaint * Discovery and responsive pleading deadline stayed, as of 5/23/18, when the case was deemed complex.

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  • 09/04/2018
  • View Court Documents
  • Order - Order Granting Pro Hac Vice Application of Jonathan R. Tuttle: Comment: Order Granting Pro Hac Vice Application of Jonathan R. Tuttle - signed/TEK

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  • 09/04/2018
  • View Court Documents
  • Order - Order Granting Pro Hac Vice Application of John T. Chisholm: Comment: Order Granting Pro Hac Vice Application of John T. Chisholm - signed/TEK

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  • 08/31/2018
  • View Court Documents
  • Hearing: Pro Hac Vice Counsel - Order Granting Pro Hac Vice Application of John T. Chisholm: Judicial Officer: Kuhnle, Thomas; Hearing Time: 9:00 AM; Result: Heard: Granted; Comment: Pro Hac Vice Application of John T. Chisholm, on behalf of Defendant Jon W. Gacek

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  • 08/31/2018
  • View Court Documents
  • Hearing: Pro Hac Vice Counsel - Order Granting Pro Hac Vice Application of Jonathan R. Tuttle: Judicial Officer: Kuhnle, Thomas; Hearing Time: 9:00 AM; Result: Heard: Granted; Comment: Pro Hac Vice Application of Jonathan D. Tuttle, on behalf of Defendant Jon W. Gacek

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  • 08/31/2018
  • Minute Order

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  • 08/31/2018
  • Minute Order

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  • 08/30/2018
  • View Court Documents
  • Stipulation and Order - Stipulation & Order Re Consolidation of Related Cases, Case Schedule and Deadlines: Comment: Stipulation & Order Re Consolidation of Related Cases, Case Schedule and Deadlines - signed/TEK

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  • 08/13/2018
  • View Court Documents
  • Application: Pro Hac Vice - Application Pro Hac Vice: Comment: HRG 8/31/18-Verified App for PHV Admission-Chisholm

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  • 08/13/2018
  • View Court Documents
  • Application: Pro Hac Vice - Application Pro Hac Vice: Comment: HRG 8-31-18 Verified App PHV Admission-Tuttle

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  • 08/13/2018
  • View Court Documents
  • Order: Proposed - Proposed Order Granting PHV - John Chisholm.pdf: Comment: Proposed Order PHV Admission-Chisholm

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  • 08/13/2018
  • View Court Documents
  • Order: Proposed - Proposed Order Granting PHV - Jon Tuttle.pdf: Comment: Proposed Order PHV Admission-Tuttle

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  • 07/11/2018
  • Notice: Change Address/Firm Name

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  • 07/03/2018
  • View Court Documents
  • Notice - Notice: Comment: NOTICE AND ACKNOWLEDGMENT OF RECEIPT

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  • 05/23/2018
  • View Court Documents
  • Order: Deeming Case Complex - Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline: Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/TEK

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  • 05/23/2018
  • View Court Documents
  • Summons: Issued/Filed - Summons Issued Filed:

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  • 05/23/2018
  • View Court Documents
  • Civil Case Cover Sheet - Civil Case Cover Sheet:

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  • 05/22/2018
  • View Court Documents
  • Complaint (Unlimited) (Fee Applies) - Complaint (Unlimited) (Fee Applies): Comment: Shareholder Derivative Complaint

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Complaint Information

E-FILED

5/22/2018 6:31 PM

JOHNSON FISTEL, LLP Clerk of Court

Frank J. Johnson, Esq. (SBN 174882) Superior Court of CA, Frank] @johnsonfistel.com County of Santa Clara Phong L. Tran, Esq. (SBN 204961) 18CV328572

PhongL @johnsonfistel.com

Chase M. Stem, Esq. (SBN 290540) ChaseS@johnsonfistel.com

600 West Broadway, Suite 1540 San Diego, CA 92101

Telephone: (619) 230-0063 Facsimile: (619) 255-1856

RM LAW, P.C.

Richard A. Maniskas, Esq. rmaniskas@ rmclasslaw.com

1055 Westlakes Drive, Suite 3112 Berwyn, PA 19312

Telephone: (484) 324-6800 Facsimile: (484) 631-1305

Reviewed By: R. Walker

A ttormeys for Plaintiff Dennis Palkon

SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SANTA CLARA

DENNIS PALKON, derivatively on behalf | Case No: LECV 328572 of QUANTUM CORPORATION,

SHAREHOLDER DERIVATIVE

Plaintiff COMPLAINT FOR: V. 1. Breach of Fiduciary Duty FUAD AHMAD, JON W. GACEK, 2. Abuse of Control ADALIO SANCHEZ, RAGHAVENDRA 3. Gross Mismanagement RAU, ALEX PINCHEV, CLIFFORD | . PRESS, MARC E. ROTHMAN, and ERIC 4. Unjust Enrichment SINGER, DEMAND FOR JURY TRIAL Defendants, -and- QUANTUM CORPORATION, a Delaware corporation, Nominal Defendant. By and through his undersigned counsel, Plaintiff Dennis Palkon (“Plaintiff”’) brings this shareholder derivative action on behalf of Nominal Defendant Quantum Corporation (“Quantum,” or the “Company”), and against certain current and former officers and directors of the Company for breaches of fiduciary duties, abuse of control, gross mismanagement, and unjust enrichment. Plaintiff makes these allegations upon personal knowledge as to those allegations concerning himself and, as to all other matters, upon the investigation of counsel, which includes without limitation: (a) review and analysis of public filings made by Quantum and other related parties with the United States Securities and Exchange Commission (“SEC”); (b) review and analysis of press releases and other publications disseminated by certain of the Defendants (as defined below) and other related non-parties; (c) review of news articles, shareholder communications, and postings on Quantum’s website concerning the Company’s public statements; (d) pleadings, papers, and any documents filed with, and publicly available from, the related pending securities fraud class action, Lazan v. Quantum Corporation, et al., Case No. 5:18-cv-00923 (N.D. Cal.) (the “Securities Class Action”); and (e) review of other publicly available information concerning Quantum and the Individual Defendants (defined below).

NATURE AND SUMMARY OF THE ACTION

1. This is a shareholder derivative action brought on behalf of and for the benefit of Nominal Defendant Quantum, a technology company specializing in data management and protection. Quantum’s product portfolio includes scale-out tiered storage and other archive and data protection solutions for on-premises, cloud and hybrid environments.

2. This derivative action seeks to remedy wrongdoing by Quantum’s board of directors (the “Board”) and certain of the Company’s senior officers (collectively, the “Individual Defendants”) between at least April 1, 2016 and the present (the “Relevant Period”). During the Relevant Period, the Individual Defendants breached their fiduciary duties owed to Quantum and its shareholders and committed other violations of law by, inter alia, making or

causing the Company to issue materially false and misleading statements and/or omit material

1 information from its public filings and communications with analysts and investors, the disclosure of which would have made such filings and communications not misleading.

3. A's discussed herein, during the Relevant Period, the Individual Defendants made and/or caused Quantum to make materially false and misleading statements regarding the Company’s financial health, business operations, and growth prospects in its public filings and communications with investors and analysts. Specifically, the Individual Defendants made and/or caused Quantum to make false and/or misleading statements, and/or fail to disclose that: (1) the Company was improperly recognizing revenue; (ii) the Company’s disclosure controls and procedures were ineffective; (iii) the Company’s internal controls over financial reporting were ineffective; and (iv) as a result, the Company’s public statements concerning its financial condition, business operations, and growth prospects were materially false and misleading at all relevant times.

4, The truth about Quantum’s false and misleading statements was first revealed on February 8, 2018, when the Company issued a press release in which Quantum disclosed that it had received a subpoena from the SEC in early January 2018, “related to revenue recognition for transactions commencing April 1, 2016.” As a result, the Company announced it would delay the release of its fiscal third quarter 2018 results and corresponding earnings conference call.

d. The February 8, 2018 press release further revealed that “[f]ollowing receipt of the SEC subpoena, the company’s audit committee began an independent investigation with the assistance of independent advisors, which is currently in process,” and that the Company “is cooperating with the SEC and cannot predict the timing of completion or outcome of either the audit committee’s investigation or the SEC’s inquiry at this time.”

0. The market swiftly reacted to these alarming revelations, as there was an immediate sell-off the Company’s common stock. Following the February 8, 2018 disclosures, the price of Quantum stock fell $1.67 per share from its previous day closing price, to close at a

$3.90 per share on February 8, 2018, or a single-day loss of nearly 30%.

2 7. By and through the Individual Defendants’ violations of law, Quantum has sustained, and will continue to sustain, damages, including hundreds of millions of dollars in losses to the Company’s market capitalization, as well as significant harm to its reputation, goodwill, and standing in the business community. Moreover, the Individual Defendants’ wrongdoing has exposed the Company to millions of dollars in potential liability from the Securities Class Action, and the significant costs incurred (and to be incurred) in connection with the litigation and potential resolution of that action.

8. The Board has not, and will not, commence litigation against the Individual Defendants named in this complaint, let alone vigorously prosecute such claims, because they face a substantial likelihood of liability to Quantum for authorizing or failing to correct the false and misleading statements alleged herein, and for failing to correct and/or implement the necessary internal controls to prevent the harm to the Company that has occurred. A ccordingly, a pre-suit demand upon the Board is a useless and futile act. Thus, Plaintiff rightfully brings this action to vindicate the Company’s rights against its wayward fiduciaries and hold them responsible for the damages they have caused to Quantum.

JURISDICTION AND VENUE

9. This Court has jurisdiction over all causes of actions asserted herein under Article VI, § 10 of the California Constitution, because this case is a cause not given by statute to other trial courts, as this derivative action is brought pursuant to § 800 of the California Corporations Code to remedy the Individual Defendants’ violations of law.

10. The amount in controversy, exclusive of interests and costs, exceeds the jurisdictional minimum of this Court. Quantum is a corporation that conducts business and maintains its principal headquarters and operations in California. Jurisdiction over all Defendants is proper because they conduct business in California, including, but not limited to, the misconduct alleged herein, and because they have sufficient minimum contacts with California so as to render the exercise of jurisdiction by California courts permissible under traditional notions of fair play and substantial justice. Most of the Individual Defendants are

directors of Quantum and attended board meetings in this County in that capacity. 3 11. Venueis properin this Court because: (i) a substantial portion of the transactions and wrongs complained of herein, including the Individual Defendants’ primary participation in the wrongful acts detailed herein, occurred and took effect in the County of Santa Clara; (ii) the Company’s headquarters are located at 224 Airport Parkway, Suite 550, San Jose, CA 95110; and (iii) the Individual Defendants have received substantial compensation in this County by doing business here and engaging in numerous activities that had an effect in this County.

12. A true and correct copy of this complaint was delivered to Quantum before its filing with the Court.

THE PARTIES

Plaintiff

13. Plaintiff Dennis Palkon is a Quantum shareholder and has continuously held shares of Quantum common stock since 2009. Plaintiff is a citizen of Pennsylvania. Nominal Defendant

14. Nominal Defendant Quantum is a Delaware corporation with its principal executive offices located at 224 Airport Parkway, Suite 550, San Jose, California 95110. Quantum is traded on the NASDAQ Stock Market under the ticker symbol “QTM.” As of November 3, 2017, Quantum had more than 34.6 million shares of common stock outstanding. Defendants

15. Defendant Fuad A hmad (“Ahmad”) has been Quantum’s Chief Financial Officer (“CFO™) and Senior Vice President since April 2016. Defendant Ahmad is a defendant in the Securities Class Action, where it is alleged he violated §§ 10(b) and 20(a) of the Securities Exchange A ct of 1934 (the “Exchange A ct”). Ahmad received $1,078,508 in total compensation from Quantum in fiscal year 2017.

16. Defendant Jon W. Gacek (“Gacek”) was Quantum’s Chief Executive Officer (“CEO”) and a Director from April 2011 until November 7, 2017. Defendant Gacek is a defendant in the Securities Class A ction, where it is alleged he violated §§ 10(b) and 20(a) of the Exchange Act. Gacek received $1,019,400 in total compensation from Quantum in fiscal

year 2017, and $1,354,819 in total compensation from Quantum in fiscal year 2016. 4 17. Defendant Adalio Sanchez (“Sanchez”) was Quantum’s interim CEO from November 7, 2017 until January 16, 2018 and has been a Director since May 2017. Defendant Sanchez is a defendant in the Securities Class A ction, where it is alleged he violated §§ 10(b) and 20(a) of the Exchange Act. Defendant Sanchez is the Chair of the Leadership and Compensation Committee and a member of the Audit Committee and Strategy Committee.

18. Defendant Raghavendra Rau (“Rau”) is the Executive Chairman of the Board and has been a Director of the Company since March 2017. Defendant Rau is a member of the Audit Committee and Strategy Committee.

19. Defendant Alex Pinchev (“Pinchev”) is a Director of the Company and has been since May 2017. Defendant Pinchev is the Chair of the Strategy Committee and a member of the Leadership and Compensation Committee.

20. Defendant Clifford Press (“Press”) is a Director of the Company and has been since April 2016. Defendant Press is the Chair of the Corporate Governance and Nominating Committee. Press received $157,625 in total compensation from Quantum in fiscal year 2017.

21. Defendant Marc E. Rothman (“Rothman”) is a Director of the Company and has been since May 2017. Defendant Rothman is the Chair of the Audit Committee and a member of the Corporate Governance and Nominating Committee and Leadership and Compensation Committee.

22. Defendant Eric Singer (“Singer”) is a Director of the Company and has been since November 2017. Defendant Singer is a member of the Corporate Governance and Nominating Committee and Leadership and Compensation Committee.

23. Defendants identified in q915-22 are sometimes referred to herein as the “Individual Defendants.”

24. Defendants identified in 916-22 are sometimes referred to herein as the “Director Defendants.”

25. Defendants identified in 9917-18, 21 are sometimes referred to herein as the

“Audit Committee Defendants.”

D Non-Party Directors

20. Patrick Dennis (“Dennis”) is not a defendant in this action. Dennis was appointed CEO and President of Quantum in January 16, 2018. Dennis also joined the Board as a Director around that time.

SUBSTANTIVE ALLEGATIONS

27. Quantum is a data management company that specializes in data storage technology. Quantum designs and manufactures scale-out tiered storage and archive and data protection solutions for capturing, sharing, managing, and preserving digital assets in physical and virtual environments. Quantum also provides storage file systems, backup and de- duplication appliances, tape libraries, and cloud services.

28. On February 5, 2016, the Individual Defendants caused Quantum to file on Form 10-Q the Company’s quarterly results for the period ended December 31, 2015. Among other things, Quantum announced that, effective April 1, 2016, it would be implementing new accounting standards as to certain of its business accounts, as required by the Financial A ccounting Standards Board (“FASB”):

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for

Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05). ASU 2015-05

requires that customers apply the same criteria as vendors to determine whether

a cloud computing arrangement (“CCA”) contains a software license oris solely

a service contract. Under ASU 2015-05, fees paid by a customerin a CCA will

be within the scope of internal-use software guidance if both of the following

criteria are met: 1) the customer has the contractual right to take possession of the

software at any time without significant penalty, and 2) it is feasible for the

customer to run the software on its own hardware (or to contract with another

party to host the software). ASU 2015-05 will be effective for us beginning

April 1, 2016, or fiscal 2017. We do not anticipate adoption will impact our

statements of financial position or results of operations.

29. The Relevant Period began on A pril 1, 2016, when the new accounting standards took effect.’

30. On July 27, 2016, the Individual Defendants caused Quantum to issue a press

release and file a current report on Form 8-K with the SEC, announcing its financial and

I Quantum’s fiscal year ends on March 31.

6 operating results for fiscal first quarter 2017, which ended June 30, 2016 (“Q1 2017”). The July 27, 2016 press release provided in relevant part:

Quantum Corp. (NYSE: QTM) today reported results for the fiscal first quarter 2017 ended June 30, 2016 (all comparisons are relative to the fiscal first

quarter 2016):

° Total revenue was $116.3 million, an increase of $5.4 million.

. Scale-out storage revenue grew to $30.8 million, up from $27.8 million. . Total data protection revenue increased to $76.9 million, consisting of

$21.5 million in disk backup systems revenue (up 24 percent), $42.6 million in tape automation revenue (down 4 percent) and $12.8 million in devices and media revenue (up 17 percent).

. Royalty revenue was $8.6 million, a decline of $1.6 million.

o Quantum reported a GAAP operating loss of $2.1 million and non- GAAP2 operating income of $2.1 million, an improvement of $6.1 million and $6.5 million, respectively.

. The GAAP netloss was $3.8 million, or $0.01 per diluted share, and non- GAAP net income was $360,000, or $0.00 per diluted share. This represented an improvement of $0.03 per diluted share on both a GAAP and non-GA AP basis.

. The company generated $5.2 million in cash from operations, in contrast to using $13.6 million in cash in the comparable quarter a year ago.

“We’re very pleased with our first quarter results, as we delivered year-over-year revenue growth, with strong contributions from both our scale-out storage and data protection product lines,” said Jon Gacek, president and CEO of Quantum. “In scale-out storage, we continued to build on our momentum, securing major wins across our priority vertical markets and use cases and further expanding the addressable markets where our scale-out storage solutions offer unique value. For example, in A pril we announced a large public cloud, scale-out storage win, which we expected to generate $10 million in total revenue for the year. That opportunity has since expanded, and we now expect the resulting revenue contributions — which started in the first quarter — to total at least $20 million for the year.

“On the data protection side of our business, we closed a multi-million dollar DXi™~ deduplication deal and capitalized on a more stable tape backup market, where we are a long-standing leader. We also significantly improved our bottom line performance, as we continued to benefit from the cost reductions and operational changes we implemented over the previous six months, which further strengthened our business model and the leverage it provides.

“In short, we had a strong start to fiscal 2017, and we’re focused on building on our momentum to drive continued growth, profitability and cash flow. Based on our first quarter results, we have increased confidence in our ability to meet the full year guidance we provided on our May earnings call.”

7 31. OnAugust5, 2016, the Individual Defendants caused Quantum to file a quarterly report on Form 10-Q with the SEC for fiscal first quarter 2017 (the “Q1 2017 10-Q”), which confirmed the quarterly financial results in the July 27, 2016 press release. The Q1 2017 10-Q also informed investors that Quantum’s then-recent adoption of the accounting methods and standards, which were announced on February 5, 2016, had no impact on the Company’s financial condition. Specifically, the 10-Q provided:

Recently Adopted Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 requires that customers apply the same criteria as vendors to determine whether a cloud computing arrangement (“CCA”) contains a software license or is solely a service contract. Under ASU 2015-05, fees paid by a customerin a CCA will be within the scope of internal-use software guidance if both of the following criteria are met: 1) the customer has the contractual right to take possession of the software at any time without significant penalty and 2) it is feasible for the customer to run the software on its own hardware (or to contract with another party to host the software). We adopted A SU 2015-05 in the first quarter of fiscal 2017 and adoption did not impact our statements of financial condition, results of operations, cash flows and financial statement disclosures. *

32. The Q1 2017 10-Q also assured investors of the effectiveness of the Company’s internal control over financial reporting, as follows: ITEM 4. CONTROLS AND PROCEDURES

(@) Evaluation of disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by the Quarterly Report on Form 10-Q. This control evaluation was performed under the supervision and with the participation of management, including our CEO and our CFO. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Quarterly Report on Form 10- Q, is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding the required disclosure. Based on the controls evaluation, our CEO and CFO have concluded thatperiod covered by this Quarterly Report on Form 10-Q, our disclosure controls were effective.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the fiscal

2 Unless otherwise noted, any emphasis in the quoted material in this Complaint has been added by Plaintiff. 3 quarter covered by this Quarterly Report on Form 10-Q that has materially

affected, or is reasonably likely to materially affect, our internal control over

financial reporting.

33. Notably, the Q1 2017 10-Q contained certifications pursuant to the Sarbanes- Oxley Act of 2002 (“SOX”), which were signed by both Defendants Ahmad and Gacek, each

certifying that:

I have reviewed this quarterly report on Form 10-Q of Quantum Corporation;

Do

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

c

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

H

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

C) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and proceduresperiod covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarterin the case of an annual report) that has materially affected,

9 or 1s reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

.C)'I

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or

other employees who have a significant role in the registrant’s internal control over financial reporting.

34. OnOctober 26, 2016, the Individual Defendants caused Quantum to issue a press release and file a current report on Form 8-K with the SEC reporting its financial and operating results for fiscal second quarter 2017, which ended September 30, 2016 (“Q2 2017”). The Company’s October 26, 2016 press release provided in relevant part:

Quantum Corp. (NYSE: QTM) todav reported results for the fiscal second

quarter 2017 ended Sept. 30, 2016 (all comparisons are relative to the fiscal second quarter 2016 unless otherwise stated):

. Total revenue was $134.7 million, an increase of $17.7 million.

o Scale-out storaae revenue arew to a record $46.7 million. un from $29.9 million and the 21% consecutive quarter of year-over-year growth.

o Total data fi)rotection revenue was flat at $78.5 million. consistin of $18.7 million in disk backup systems revenue (up 3 percent), $45.

million in tape automation revenue (down 7 percent) and $14.6 million in devices and media revenue (up 26 percent).

. Royalty revenue was $9.5 million, an increase of 9 percent.

@ GAAP aross marain was 41.2 percent. and non-GA A P? aross margin was 41.4 percent, up from 39.6 percent and 39.9 percent, respectively.

® GAAP overating income was $5.3 million. and non-GAAP operatin income was $7.0 million, an improvement of $15.0 million and $13. million, respectively.

o GAAP net income was $3.8 million, or $0.01 per diluted share. and non- GAAP net income was $6.0 million, or $0.02 per diluted share. This represented an improvement of $0.05 per diluted share on both a GAAP and non-GA AP bhasis.

10 “We began this fiscal year with a clear focus on delivering solid growth and profitability, and our results in the first two quarters demonstrate our strong execution and increasing momentum,” said Jon Gacek, president and CEO of Quantum. “For the first half of the fiscal year, we've increased total revenue by $23 million over the same period last year, growing scale-out storage by 34 percent and data protection — where the market remains challenging — by 3 percent. On this $23 million of additional revenue, we've improved net income by more than $20 million, reflecting the significant leverage our financial model provides as we grow.

“As we start the second half of fiscal 2017, we're focused on continuing to drive scale-out storage growth by further extending our media and entertainment leadership and expanding our footprint in video surveillance and in technical workflows with large unstructured data archive needs. For data protection, we're continuing to leverage our technology leadership, extensive customer base, and channel and technology partnerships to generate profit and cash.”

35. On November 4, 2016, the Individual Defendants caused Quantum to file a quarterly report on Form 10-Q with the SEC for fiscal second quarter 2017 (the “Q2 2017 10- Q”), confirming the quarterly financial results in the October 26, 2016 press release. The Q2 2017 10-Q, signed by Defendant A hmad, stated the following with respect to Quantum’s then recent adoption of new accounting methods and standards:

Recently Adopted Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05). ASU 2015-05 requires that customers apply the same criteria as vendors to determine whether a cloud computing arrangement (“CCA”) contains a software license oris solely a service contract. Under ASU 2015-05, fees paid by a customer in a CCA will be within the scope of internal-use software guidance if both of the following criteria are met: 1) the customer has the contractual right to take possession of the software at any time without significant penalty and 2) it is feasible for the customer to run the software on its own hardware (or to contract with another party to host the software). We adopted A SU 2015-05 in the first quarter of fiscal 2017 and adoption did not impact our statements of financial condition, results of operations, cash flows and financial statement disclosures.

36. The Q2 2017 10-Q also assured investors of the effectiveness of the Company’s internal control over financial reporting: ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by the Quarterly Report on Form 10-Q. This control evaluation was performed under the supervision and with the participation

11 of management, including our CEO and our CFO. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Quarterly Report on Form 10- Q, 1is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding the required disclosure. Based on the controls evaluation, our CEO and CFO have concluded thatperiod covered by this Quarterly Report on Form 10-Q, our disclosure controls were effective.

(b) Changes in internal control over financial reporting. There was no change

in our internal control over financial reporting that occurred during the fiscal

quarter covered by this Quarterly Report on Form 10-Q that has materially

affected, or is reasonably likely to materially affect, our internal control over financial reporting.

37. Quantum’s Q2 2017 10-Q contained certifications pursuant to SOX, signed by Defendants Ahmad and Gacek, which were similar to the SOX certifications described in {1 33 herein.

38. On]January 25, 2017, the Individual Defendants caused Quantum to issue a press release and file a current report on Form 8-K with the SEC reporting its financial and operating results for fiscal third quarter 2017, which ended December 31, 2016 (“Q3 20177). The Company’s January 25, 2017 press release provided in relevant part:

Quantum Corp. (NYSE: QTM) today reported results for the fiscal third

quarter 2017 ended Dec. 31, 2016 (all comparisons are relative to the fiscal third quarter 2016 unless otherwise stated):

o Total revenue was $133.5 million. an increase of $5.4 million. For the first three quarters of fiscal 2017 (YTD), total revenue was up 8 percent over the same period in fiscal 2016.

e Branded revenue grew to $115.2 million, up $11.5 million, or 11 percent.

. Scale-out tiered storage revenue increased to $39.8 million, up $4.1 million and contributing to a 26 percent Y TD growth rate.

. Total data protection revenue arew 3 nercent to $83.1 million. consistin of $22.9 million in disk backup svstems revenue (up 17 percent), $44. million in tape automation revenue (down 13 percent overall, with OEM revenue down 42 percent and branded revenue down 3 percent) and $15.4 million in devices and media revenue (up 51 percent).

. Royalty revenue was $10.5 million, a decrease of $750,000.

12 . GAAP overating income was $7.3 million. and non-GAAP overatin income was $8.8 million, an improvement of $5.8 million and $2. million, respectively.

. GAAP net income was $5.0 million, or $0.02 per diluted share. and non- GAAP net income was $6.6 million, or $0.02 per diluted share. This represented an improvement of $5.8 million and $1.8 million, respectively.

“Following up on our revenue growth and improved profitability in the first half of the fiscal year, we again delivered solid results in the December quarter,” said Jon Gacek, president and CEO of Quantum. “On a year-over-year basis, we generated our 22" consecutive quarter of scale-out tiered storage revenue growth and increased total revenue, data protection sales and overall profitability for the third straight quarter. As a result of our strong execution and the leverage our financial model provides, year-to-date GAAP and non-GAAP net income also improved $29 million and $24 million, respectively, on a total revenue increase of $29 million.

“In the fourth quarter, our focus is to continue building on our momentum by providing customers with the optimal combination of high performance, low-cost capacity and ready access to meet their increasing data management demands and achieve their business or mission objectives. W e are well-positioned to capitalize on the opportunities across our target markets, having expanded our product offerings, sales capabilities and ecosystem partnerships over the past nine }norélthgmAs a result, we are raising our revenue and profitability guidance for 1SC 7.

39. On February 3, 2017, the Individual Defendants caused Quantum to file a quarterly report on Form 10-Q with the SEC for fiscal third quarter 2017 (the “Q3 2017 10-Q”), confirming the quarterly financial results in the January 25, 2017 press release. The Q3 2017 10-Q, signed by Defendant A hmad, stated the following with respect to Quantum’s then recent adoption of new accounting methods:

Recently Adopted Accounting Pronouncements

In April 2015, the Financial A ccounting Standards Board (“FASB”) issued A SU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 requires that customers apply the same criteria as vendors to determine whether a cloud computing arrangement (“CCA”) contains a software license or is solely a service contract. Under ASU 2015-05, fees paid by a customer in a CCA will be within the scope of internal-use software guidance if both of the following criteria are met: 1) the customer has the contractual right to take possession of the software at any time without significant penalty and 2) it is feasible for the customer to run the software on its own hardware (or to contract with another party to host the software). ASU 2015-05 may be applied prospectively to all agreements entered into or materially modified after the adoption date or retrospectively. We adopted ASU 2015-05 prospectively in the first quarter of fiscal 2017 and adoption did not impact our statements of financial condition, results of operations, cash flows or financial statement disclosures.

13 40. The Q3 2017 10-Q also assured investors of the effectiveness of the Company’s internal control over financial reporting: ITEM 4. CONTROLS AND PROCEDURES

(@) Evaluation of disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by the Quarterly Report on Form 10-Q. This control evaluation was performed under the supervision and with the participation of management, including our CEO and our CFO. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Quarterly Report on Form 10- Q, is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding the required disclosure. Based on the controls evaluation, our CEO and CFO have concluded thatperiod covered by this Quarterly Report on Form 10-Q, our disclosure controls were effective.

(b) Changes in internal control over financial reporting. There was no change

in our internal control over financial reporting that occurred during the fiscal

quarter covered by this Quarterly Report on Form 10-Q that has materially

affected, or is reasonably likely to materially affect, our internal control over financial reporting.

41. Quantum’s Q3 2017 10-Q contained certifications pursuant to SOX, signed by Defendants Ahmad and Gacek, which were similar to the SOX certifications described in 1 33 herein.

42. OnJune 1, 2017, the Individual Defendants caused Quantum to file a Form 10- K with the SEC, announcing the Company’s financial and operating results for the fourth quarter and fiscal year ended March 31, 2017 (the “2017 10-K”). The 2017 10-K was signed by Defendants Ahmad, Gacek, Press, Rau, Rothman, and Sanchez. For fiscal year 2017, the Company reported total revenues of $505 million, which was a 6% increase from fiscal year 2016, as well as GAAP net income of $4 million. With respect to the effectiveness of the Company’s internal control over financial reporting, the 2017 10-K stated in relevant part:

ITEM 9A. CONTROLS AND PROCEDURES

A ttached as exhibits to this Annual Report on Form 10-K are certifications of our

Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which

are required pursuant to Rule 13a-14 of the Securities Exchange A ct of 1934, as

amended (the “Exchange Act”). This “Controls and Procedures” section of this Annual Report on Form 10-K includes information concerning the controls and

14 controls evaluation referenced in the certifications. This section of the Annual Report on Form 10-K should be read in conjunction with the certifications and the report of PricewaterhouseCoopers LLP as described below for a more complete understanding of the matters presented.

Evaluation of Disclosure C ontrols and Procedures

We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by this A nnual Report on Form 10-K. This control evaluation was performed under the supervision and with the participation of management, including our CEO and CFO. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the SE? and CFO, as appropriate, to allow timely decisions regarding required isclosure.

Based on the controls evaluation, our CEO and CFO have concluded thatperiod covered by this Annual Report on Form 10-K, our disclosure controls were effective.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange A ct Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2017 based on the criteria for effective control over financial reporting described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

43. The 2017 10-K also assured investors regarding the adoption of recently adopted accounting methods: Recently Adopted Accounting Pronouncements

In April 2015, the Financial A ccounting Standards Board (“FASB”) issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 requires that customers apply the same criteria as vendors to determine whether a cloud computing arrangement (“CCA”) contains a software license or is solely a service contract. Under ASU 2015-05, fees paid by a customer in a CCA will be within the scope of internal-use software guidance if both of the following criteria are met: 1) the customer has the contractual right to take possession of the software at any time without significant penalty and 2) itis feasible forthe customer to run the software

15 on its own hardware (or to contract with another party to host the software).

ASU 2015-05 may be applied prospectively to all agreements entered into or

materially modified after the adoption date or retrospectively. We adopted ASU

2015-05 prospectively in the first quarter of fiscal 2017 and adoption did not

impact our statements of financial condition, results of operations, cash flows

or financial statement disclosures.

44, The 2017 10-K contained certifications pursuant to SOX, signed by Defendants Ahmad and Gacek, which were similar to the SOX certifications described in § 33 herein.

45. On August 9, 2017, the Individual Defendants caused Quantum to issue a press release and file a current report on Form 8-K with the SEC reporting its financial and operating results for fiscal first quarter 2018, which ended June 30, 2017 (“Q1 2018”). The Company’s August 9, 2017 press release provided in relevant part:

Quantum Corp. (NYSE: QTM) today reported results for the fiscal first

quarter 2018 ended June 30, 2017 and provided guidance for the fiscal second

quarter and full year:

Fiscal First Quarter 2018 Financial Results

(All comparisons are relative to the fiscal first quarter 2017 unless otherwise

stated.)

e Total revenue increased to $116.9 million, up from $116.3 million.

o Branded revenue was $99.6 million, a 3 percent increase.

. ?rlci?lli%r?.ut tiered storage revenue was $33.7 million, up from $30.8 o Total data orotection revenue was $73.1 million, down from $76.9

million and consisting of:

. $58.4 million in tape automation, devices and media revenue, up 6 percent overall, with branded revenue growing 14 percent and OEM revenue declining 32 percent;

. $14.7 million in disk backup systems revenue, down from $21.5 million in the same quarter a year earlier which included a large, multi-million dollar deal.

. Royalty revenue was $10.0 million, up from $8.6 million.

@ GAAP operating loss was $2.5 million. and non-GAA P overatina income was $2.2 million, compared to a loss of $1.8 million and income of $2.4 million, respectively.

e GAAP net loss was $3.7 million. compared to $3.5 million, a net loss of $0.11 per diluted share in both quarters.

16 . Non-GAAP net income was $1.4 million. or $0.04 per diluted share, up from $0.8 million, or $0.02 per diluted share.

“We continued to build on our momentum over the past vear, growing total revenue vear-over-vear and generating non-GAAP net profit for the fifth consecutive quarter,” said Jon Gacek, president and CEO of Quantum. “A lthough the total revenue increase was slight, branded revenue qrew 3 percent. Other revenue highlights included vear-over-vear gqrowth in scale-out tiered storage of 10 percent and another strong quarter for branded tape automation, devices and media sales.”

46. Also, on August 9, 2017, the Individual Defendants caused Quantum to file a quarterly report on Form 10-Q with the SEC for fiscal first quarter 2018 (the “Q1 2018 10-Q”), confirming the quarterly financial results in the August 9, 2017 press release. The Q1 2018 10- Q also assured investors of the effectiveness of the Company’s internal control over financial reporting. Specifically, the Q1 2018 10-Q stated in relevant part:

ITEM 4. CONTROLS AND PROCEDURES

(@) Evaluation of disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by the Quarterly Report on Form 10-Q. This control evaluation was performed under the supervision and with the participation of management, including our CEO and our CFO. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Quarterly Report on Form 10- Q, 1is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding the required disclosure. Based on the controls evaluation, our CEO and CFO have concluded thatperiod covered by this Quarterly Report on Form 10-Q, our disclosure controls were effective.

(b) Changes in internal control over financial reporting. There was no change

in our internal control over financial reporting that occurred during the fiscal

quarter covered by this Quarterly Report on Form 10-Q that has materially

affected, or is reasonably likely to materially affect, our internal control over financial reporting.

47. Quantum’s Q1 2018 10-Q contained certifications pursuant to SOX, signed by Defendants Ahmad and Gacek, which were similar to the SOX certifications described in 9 33 herein.

48. On November 9, 2017, the Individual Defendants caused Quantum to issue a

press release and file a current report on Form 8-K with the SEC reporting its financial and 17 operating results for fiscal second quarter 2018, which ended September 30, 2017 (“Q2 2018”). The Company’s November 9, 2017 press release provided in relevant part: Fiscal Second Quarter Results

(All comparisons are relative to the fiscal second quarter 2017 unless otherwise stated.)

. Total revenue of $107.1 million. down from $134.7 million in the prior vear period which included approximately $15 million in revenue from a large public cloud deal. The vear-over-vear decline was greater than expected largelv due to timing of closing deals at quarter end, third-party component supply shortages and softness in disk backup systems sales.

® Scale-out tiered storage revenue! of $33.8 million. a decline of $12.9 million, largely attributable to the public cloud deal a year earlier.

o Total data protection revenue of $63.9 million, down from $78.4 million and consisting of:

. $52.2 millionin tape automation, devices and media revenue, compared to $59.7 million, with OEM revenue declining 24 percent and branded revenue declining 14 percent.

. $11.7 millionin disk backup svstems revenue, down from $18.7 millionin the comparable quarter which included several deals exceeding $1 million.

. Royalty revenue of $9.3 million, a decline of $300,000.

o GAAP net loss of $7.9 million, or $0.23 per diluted share, compared to net income of $4.1 million.

o Non-GAAP net loss of $4.9 million, or $0.14 per diluted share, compared to net income of $6.4 million.

“We're dlsaooomted that our results fell short of our expectations, but we're taking agaressive action to improve our cost structure and generate consistent agrowth and profitability,” said Fuad A hmad, senior vice president and CFO of Quantum. “We believe part of the challenge at quarter end involved timing of deals, and we've already shipped more than 50 percent of the revenue from deals that weren't closed, including those delayed by third-party component supply shortages.”

49, The November 9, 2017 press release also disclosed information regarding the transition and the departure of Defendant Gacek as Quantum’s CEOQ, stating in relevant part:

CEO Transition

Quantum has named board member Adalio T. Sanchez interim CEO to

replace Jon Gacek, who has left the company. Sanchez is a 35-year IT industry veteran who spent most of his career at IBM, including 16 years in senior

18 executive and global general management roles. The board also has formed a search committee which will be headed by Chairman Raghu Rau and has retained Korn Ferry International to commence a search for a permanent CEO.

“Adalio brings tremendous domain expertise in systems and storage, along with a proven track record of transforming businesses,” said Rau. “Since joining the board in May, Adalio has been leading our engagement with AlixPartners and will hit the ground running to drive improved execution at the company.”

50. Also, on November9, 2017, the Individual Defendants caused Quantum to file a quarterly report on Form 10-Q with the SEC for fiscal second quarter 2018 (the “Q2 2018 10- Q”), confirming the quarterly financial results in the November 9, 2017 press release. The Q2 2018 10-Q, signed by Defendant A hmad, stated the following with respect to the effectiveness of the Company’s internal control over financial reporting:

ITEM 4. CONTROLS AND PROCEDURES

(@) Evaluation of disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchangeperiod covered by the Quarterly Report on Form 10-Q. This control evaluation was performed under the supervision and with the participation of management, including our principal executive officer (‘PEO”) and our principal financial officer (‘PFO’). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange A ct, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified by the SEC. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including the PEO and PFO, as appropriate, to allow timely decisions regarding the required disclosure. Based on the controls evaluation, our PEO and PFO have concluded thatperiod covered by this Quarterly Report on Form 10-Q, our disclosure controls were effective.

(b) Changes in internal control over financial reporting. There was no change

in our internal control over financial reporting that occurred during the fiscal

quarter covered by this Quarterly Report on Form 10-Q that has materially

affected, or is reasonably likely to materially affect, our internal control over

financial reporting.

51. Quantum’s Q2 2018 10-Q contained certifications pursuant to SOX, signed by both Defendants Ahmad and Sanchez, which were similar to the SOX certifications described in 9 33 herein.

52. The above statements were false and misleading when made because they

misrepresented and/or failed to disclose materially adverse facts concerning Quantum’s 19 financial condition, business operations, and growth prospects, which were known to the Individual Defendants, or recklessly disregarded by them. Specifically, the Individual Defendants made and/or caused Quantum to make false and/or misleading statements and/or omissions of material fact that failed to disclose that: (i) the Company was improperly recognizing revenue; (ii) the Company’s disclosure controls and procedures were ineffective; (iii) the Company’s internal controls over financial reporting were ineffective; and (iv) as a result, the Company’s public statements concerning its financial condition, business operations, and growth prospects were materially false and misleading at all relevant times.

53. As a result of the Individual Defendants’ materially false and misleading statements and/or omissions, Quantum’s shares traded at artificially inflated prices during the Relevant Period. On May 10, 2017, for example, the share price of Quantum’s common stock reached artificially-inflated prices as high as $8.97 per share.

THE TRUTH EMERGES

5. On February 8, 2018, Quantum issued a press release entitled “Quantum Corporation Postpones Earnings Conference Call,” whereby the Company disclosed that it had previously received a subpoena from the SEC “related to revenue recognition for transactions commencing April 1, 2016,” which prompted an ongoing internal investigation. Due to the SEC’s inquiry, the Company announced it would delay the release of its fiscal third quarter 2018 results and the corresponding earnings conference call. The February 8, 2018 press release stated in relevant part:

Quantum Corporation Postpones Earnings C onference Call

SAN JOSE, Calif. - Feb. 8, 2018- Quantum Corp. (NYSE: QTM) today

announced that it is postponing release of its fiscal third quarter 2018 results and

its earnings conference call, which were scheduled for this afternoon. The

company is taking this action so that Quantum’s audit committee, in keeping with

its strong corporate governance practices, can complete an investigation into

accounting matters and related internal controls that were raised in response to a

recent inquiry by the Securities and Exchange Commission (SEC). In the

meantime, the company provided an update on its ongoing business

transformation and cost savings initiative, including the acceleration of certain

cost reduction actions announced last November. Quantum also announced that

the company and its senior lenders have signed a term sheet to provide additional financial flexibility under its credit facility.

20 Postponement of Quarterly Results and Conference Call

On Jan. 11, 2018, Quantum received a subpoena from the SEC regarding its

accounting practices and internal controls related to revenue recognition for

transactions commencing A pril 1, 2016. Following receipt of the SEC subpoena,

the company’s audit committee began an independent investigation with the

assistance of independent advisors, which is currently in process. Because the

audit committee’s investigation 1s ongoing, Quantum decided it was prudent to

postpone its quarterly results release and conference call, pending conclusion of

the investigation. The company is cooperating with the SEC and cannot predict

the timing of completion or outcome of either the audit committee’s investigation

or the SEC’s inquiry at this time.

55. On the shocking news of the SEC inquiry, the price of Quantum stock plummeted $1.67 per share from its previous day closing price, to close at $3.90 per share on February 8, 2018, representing single day loss of nearly 30%.

56. Little more than a week later, on February 16, 2018, Quantum issued a press release and filed a current report on Form 8-K with the SEC disclosing that “the New Y ork Stock Exchange notified the company that it is not in compliance with the NYSE’s continued listing standard because the company has not timely filed Form 10-Q for its fiscal third quarter 2018 ended Dec. 31, 2017.”

REASONS THE STATEMENTS WERE IMPROPER

57. The true facts, which were known or recklessly disregarded by the Individual Defendants, but were concealed form the investing public, were as follows:

(a) Quantum had failed to properly recognize revenue during the Relevant Period;

(b) Quantum had failed to maintain effective disclosure controls and procedures

during the Relevant Period;

(c) Quantum had failed to maintain effective internal controls over financial

reporting during the Relevant Period;

(d) Quantum’s highly optimistic financial and business prospects were materially

false and misleading; and

(e) based on the foregoing, Quantum’s statements concerning its business

operations, financial prospects, and projections were improper at all relevant

DUTIES OF THE INDIVIDUAL DEFENDANTS

Fiduciary Duties

58. By reason of their positions as officers, directors, and/or fiduciaries of Quantum, and because of their ability to control the business and corporate affairs of Quantum, the Individual Defendants owed, and owe, the Company and its shareholders fiduciary obligations of trust, loyalty, good faith, and due care, and were, and are, required to use their utmost ability to control and manage Quantum in a fair, just, honest, and equitable manner. The Individual Defendants were, and are, required to act in furtherance of the best interests of Quantum and its shareholders so as to benefit all shareholders equally and not in furtherance of their personal interest or benefit.

59. Each director and officer of the Company owes to Quantum and its shareholders the fiduciary duty to exercise good faith and diligence in the administration of the affairs of the Companypreservation of its property and assets, and the highest obligations of fair dealing.

60. Inaddition, as officers and/or directors of a publicly held company, the Individual Defendants had a duty to promptly disseminate accurate and truthful information with regard to the Company’s financial and business prospects so that the market price of the Company’s stock would be based on truthful and accurate information.

Audit Committee Duties

6l1. In addition to the foregoing duties, the members of the Audit Committee (Defendants Sanchez, Rau, and Rothman) owed specific duties to Quantum under the Audit Committee’s Charter to review and approve quarterly and annual financial statements and earnings press releases, and to ensure that the Company had appropriate and effective internal controls over financial reporting.

62. According to Quantum’s Audit Committee Charter, the purpose of the Audit Committee is to:

o provide oversight of the Company’s accounting and financial reporting processes and the audit of the Company’s financial statements;

22 63.

assist the Board in the oversight of: (1) the integrity of the Company’s financial statements; (ii) the Company’s compliance with legal and regulatory requirements; (111) the independent auditor’s performance, qualifications and independence; and (iv) the performance of the Company’s internal audit function;

provide oversight of the Company’s policies and processes for risk assessment and management;

repare an Audit Committee report as required by the Securities and xchange Commission (the “SEC”) to be included in the Company’s annual proxy statement; and

provide to the Board such information and materials as it believes useful to make the Board aware of financial matters.

Specifically, according to Quantum’s Audit Committee Charter, the

Committee’s responsibilities include the following:

Review and Reporting Procedures

obtaining and reviewing, at least annually, a report by the independent auditor describing: (i) the independent auditor’s internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five (5) years, respecting one or more independent audits by the independent auditor, and any steps taken to deal with such issues; and (iii) an assessment of the auditor’s independence, and all relationships between the independent auditor and the Company;

reviewing: (i) major issues reg{arding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies; (ii) the reports of management and the independent auditor concemming the design, implementation and maintenance of the Company’s internal controls and procedures for financial reporting, including meeting periodically with the Company’s management and the independent auditor to review their assessment of the adequacy of such controls; and to review before release the disclosure regarding such system of internal controls required under SEC rules to be contained in the Company’s periodic filings and the attestations or reports by the independent auditors relating to such disclosure; (iii) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with preparation of the financial statements, including analyses of the effects of alternative GA AP methods on the financial statements; (iv) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements; (v) any formal risk management reports prepared by management; and (vi) the type and presentation of information to be included in earnings press releases (paying particular attention to any use of “pro forma,” or “adjusted” non-GA A P information), as well as review

23

Audit any financial information and earnings guidance provided to analysts and rating agencies;

reviewing and discussing with management and the independent auditor the Company’s annual audited financial statements and quarterly unaudited financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” prior to filing the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the SEC and recommending to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K;

discussing policies and processes with respect to risk assessment and risk management, including: (i) the guidelines and policies governing the process used by the Company’s CEO and senior management to assess and manage the Company’s exposure to risk; and (ii) the major financial risk exposures and the steps management has taken to monitor and control such exposures;

reporting reqularly to the Board, including reporting any issues brought to the attention of the Audit Committee with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, risk oversight, the performance and independence of the Company’s independent auditor and the performance of the Company’s internal audit function;

reviewing its own charter and processes and providing an annual performance evaluation of the Audit Committee to the Board;

reviewing the independent audit by: (i) reviewing the independent auditor’s proposed audit scope and approach; (ii) discussing with the Company’s independent auditor the financial statements and audit findings, including any significant adjustments, management judgments and accounting estimates, significant new accounting policies and disagreements with management and any other matters described in SA S No. 61; and (iii) reviewing reports submitted to the Audit Committee by the independent auditor;

directing the Company’s independent auditor to review before filing with the SEC the Company’s interim financial statements included in quarterly reports on Form 10-Q, using professional standards and procedures for conducting such reviews;

reviewing and approving any proposed related party transactions;

Independent A uditors

appointing, compensating, retaining and overseeing the work of the independent auditor (including resolving disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing orissuing an audit report or performing other audit, review or attest services for the Company, which independent auditor shall be a registered public accounting firm and shall report directly to the Audit Committee;

24 reviewing and evaluating the qualifications, performance and independence of the lead partner of the independent auditor, including taking into account the opinions of management and the Company’s internal auditors;

considering whether, in addition to assuring the regular rotation of the lead audit partner as required by law, there should be regular rotation of the audit firm itself and presenting its conclusions with respect to the independent auditor to the full Board;

reviewing with the independent auditor any audit problems or difficulties and management’s response, including a regular review of any difficulties the independent auditor encountered in the course of the audit work, including any restrictions on the scope of the independent auditor’s activities or on access to requested information, and any significant disagreements with management as well as the responsibilities, budget and staffing of the Company’s internal audit function;

conducting a_post-audit review of the financial statements and audit findings, including any suggestions for improvements provided to management by the independent auditor, and management’s response to such suggestions;

reviewing the qualifications and independence of the independent auditor, including: (i) obtaining on a periodic basis a formal written statement from the independent auditor regarding relationships and services with the Company that may impact independence, as defined by applicable standards and SEC Rules, receiving written disclosures and a letter from the independent auditor as required by applicable rules regarding the independent auditor’s communications with the audit committee concerning independence and discussing the independent auditor’s independence with the auditor; (ii) presenting this statement to the Board,; and (iii) to the extent there are relationships, working with the Board to take any appropriate action;

setting clear hiring policies for employees or former employees of the independent auditor;

}():re-approving audit and permissible non-audit services provided to the ompany by the independent auditor in the manner contemplated by applicable rules, except where pre-approval of audit and permissible non- audit services is not required under applicable rules;

Regulatory Compliance and Other Matters

providing an Audit Committee report for inclusion in the Company’s annual proxy statement in accordance with SEC Rules;

overseeing compliance with SEC Rules for disclosure of the independent auditor’s services and Audit Committee members, member qualifications and activities;

establishing procedures for receiving, retaining and treating complaints received by the Company regarding accounting, internal accounting controls or auditing matters and procedures for the confidential,

20 anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters;

» determining the appropriate funding for payment of: (i) compensation to the independent auditor engaged to prepare or issue an audit report or perform other audit, review or attest services for the Company; (ii) compensation to any independent legal, accounting or other advisors retained by the Audit Committee; and (iii) ordinary administrative expenses of the Audit Committee necessary or appropriate for the performance of its duties;

o reviewing the Company’s code of ethics for its principal executive and senior financial officers; and

e retaining, as it determines necessary, ind%pende_nt legal, accounting or

other advisors to advise or assist the Audit Committee in the performance of any of the responsibilities and duties set forth above.

64. Upon information and belief, Quantum maintained an Audit Committee Charter during the Relevant Period that imposed the same, or substantially and materially the same or similar, duties on the members of the Audit Committee as those set forth above.

Duties Pursuant to the Company’s Code of Business Conduct and Ethics

65. Additionally, the Individual Defendants, as officers and/or directors of Quantum, are bound by The High Road — Quantum’s Code of Business Conduct and Ethics (the “Code”), which, according to the Code, “explains our long-standing tradition of defining and exceeding ethical business standards and is a foundational element of our ability to act, and win, as a team.” The Code applies to “[a]nyone conducting business on behalf of Quantum or any of its subsidiaries, including all team members, officers, directors, contractors, consultants, and agents.”

66. The Code imposes specific obligations regarding “Public Reporting and Communications,” as follows:

We represent Quantum well. Before speaking publicly on behalf of Quantum

(such as at a conference or trade show or by giving an interview), we should

obtain approval from the corporate communications department, and the

communications and legal teams will need to review and approve all presentation materials. In addition, you must take careful precautions not to seem to represent

Quantum’s corporate opinion and be clear that the views you express are your

own. We should also avoid discussing private, confidential, or inside company

information with people outside of Quantum, even if it is presented as an opinion rather than fact.

26 Those of us involved in Quantum’s public communication processes, or in the preparation or review of securities filings, must ensure that the information promotes full, fair, accurate, timely, and understandable disclosure. Beyond that, special rules govern communications between Quantum and securities market professionals (such as financial analysts and investment advisers) and shareholders. Only Quantum’s chief executive officer, chief financial officer, investor relations personnel, or other authorized spokespeople may conduct such communications.’

67. Upon information and belief, the Company maintained a version of the Code during the Relevant Period that imposed the same, or substantially and materially the same or similar, duties on, among others, the Board as those set forth above.

Duties Pursuant to the Company’s Corporate Governance Principles

68. The members of Quantum’s Board, including the Director D efendants, were also bound by the Company’s Corporate Governance Principles (the “Corporate Governance Principles”). Under the Corporate Governance Principles, the members of the Board have the following roles and responsibilities:

e It is the duty of the Board of Directors (the “Board”) of Quantum Corporation

(the “Company”) to oversee the chief executive officer (“CEO”) and other senior management in the competent and ethical operation of the Company and to exercise its business judgment to act in what it reasonably believes to be the best

interests of the Company and its shareholders. Specific responsibilities of the Board in fulfilling this duty include:

0 The selection and evaluation of the CEO, and overseeing CEO succession planning.

o Advising the CEO and management on the Company’s fundamental strategies.

0 Reviewing and approving the CEO’s objectives, at least annually.

o Approving acquisitions, divestitures and other fundamental corporate actions.

0 Advising the CEO on the performance of senior management, and fundamental organizational changes, including succession planning.

o A pproving the annual operating financial plan.

. Directors shall attend all Board meetings to the extent reasonably possible, and, absent exigent circumstances, shall attend no fewer than 75% of Board meetings. Directors shall review meeting materials in advance.

. The Board may conduct or authorize investigations into or studies of matters within the Board’s scope of responsibilities, and may retain, at the Company’s expense, such independent counsel or other advisers as it deems necessary whether or not in connection with such investigations.

3 Emphasis added. 27 . Directors have complete access to all Company officers and employees. The Company facilitates regular interactions between directors and senior management; in addition, directors are encouraged to visit with senior management of the Company, and to visit the Company’s facilities.

69. Uponinformation and belief, the Company maintained a version of the Corporate Governance Principles during the Relevant Period that imposed the same, or substantially and materially the same or similar, duties on, among others, as those set forth above.

Control, Access, and Authority

70. The Individual Defendants, because of their positions of control and authority as directors and/or officers of Quantum, were able to, and did, directly and/or indirectly, exercise control over the wrongful acts complained of herein, as well as the contents of the various public statements issued by Quantum.

71. Because of their advisory, executive, managerial, and directorial positions with Quantum, each of the Individual Defendants had access to adverse, non-public information about the financial condition, operations, and improper representations of Quantum.

72. At all times relevant hereto, each of the Individual Defendants was the agent of each of the other Individual Defendants and of Quantum, and was at all times acting within the course and scope of such agency.

Reasonable and Prudent Supervision

73. To discharge their duties, the officers and directors of Quantum were required to exercise reasonable and prudent supervision over the management, policies, practices, and controls of the financial affairs of the Company. By virtue of such duties, the officers and directors of Quantum were required to, among other things:

(a) ensure that the Company complied with its legal obligations and requirements, including acting only within the scope of its legal authority, and disseminating truthful and accurate statements to the investing public;

(b) conduct the affairs of the Company in an efficient, business-like manner so as to

make it possible to provide the highest quality performance of its business to

28 avoid wasting the Company’s assets, and to maximize the value of the Company’s stock;

(c) properly and accurately guide shareholders and analysts as to the true financial and business prospects of the Company at any given time, including making accurate statements about the Company’s business and financial prospects and internal controls;

(d) remain informed as to how Quantum conducted its operations, and, upon receipt of notice or information of imprudent or unsound conditions or practices, make reasonable inquiry in connection therewith, and take steps to correct such conditions or practices and make such disclosures as necessary to comply with securities laws; and

(e) ensure that Quantum was operated in a diligent, honest, and prudent manner in compliance with all applicable laws, rules, and regulations.

BREACHES OF DUTIES

74. Each Individual Defendant, by virtue of his or her position as a director and/or officer, owed to Quantum and its shareholders the fiduciary duties of loyalty and good faith, and the exercise of due care and diligence in the management and administration of the affairs of Quantum, as wellpreservation of its property and assets. The conduct of the Individual Defendants complained of herein involves a knowing and culpable violation of their obligations as directors and officers of Quantum, the absence of good faith on their part, and a reckless disregard for their duties to Quantum and its shareholders that the Individual D efendants were aware, or should have been aware, posed a risk of serious injury to Quantum. The conduct of the Individual Defendants who were also officers and/or directors of the Company have been ratified by the remaining Individual Defendants who collectively comprised all of Quantum’s Board.

75. The Individual Defendants each breached their duties of loyalty and good faith

by allowing Defendants to cause, or by themselves causing, the Company to make false and/or

29 misleading statements that misled shareholders into believing that disclosures related to the Company’s financial and business prospects were truthful and accurate when made.

76. In addition, as a result of the Individual Defendants’ unlawful actions and course of conduct, the Company is now the subject of the Securities Class A ction. As aresult, Quantum has expended, and will continue to expend, significant sums of money to defend itself in the lawsuit and rectify the Individual Defendants’ wrongdoing.

CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION

77. In committing the wrongful acts alleged herein, the Individual Defendants have pursued, orjoined in the pursuit of, a common course of conduct, and have acted in concert with and conspired with one another in furtherance of their wrongdoing. The Individual Defendants further aided and abetted and/or assisted each other in breaching their respective duties.

78. During all times relevant hereto, the Individual Defendants collectively and individually initiated a course of conduct that was designed to mislead shareholders into believing that the Company’s business and financial prospects were better than they actually were. In furtherance of this plan, conspiracy, and course of conduct, the Individual Defendants collectively and individually took the actions set forth herein.

79. The purpose and effect of the Individual Defendants’ conspiracy, common enterprise, and/or common course of conduct was, among other things, to: (a) disguise the Individual Defendants’ violations of law, including breaches of fiduciary duties and unjust enrichment; and (b) disguise and misrepresent the Company’s actual business and financial prospects.

80. The Individual Defendants accomplished their conspiracy, common enterprise, and/or common course of conduct by causing the Company to purposefully, recklessly, or negligently release improper statements. Because the actions described herein occurred under the authority of the Board, each of the Individual Defendants was a direct, necessary, and substantial participant in the conspiracy, common enterprise, and/or common course of conduct

complained of herein.

30 81. Each of the Individual Defendants aided and abetted and rendered substantial assistance in the wrongs complained of herein. In taking such actions to substantially assist the commissions of the wrongdoing complained of herein, each Individual Defendant acted with knowledge of the primary wrongdoing, substantially assisted the accomplishment of that wrongdoing, and was aware of his or her overall contribution to and furtherance of the wrongdoing.

DAMAGES TO QUANTUM

82. As a result of the Individual Defendants’ wrongful conduct, Quantum disseminated false and misleading statements, and omitted material information to make such statements not false and misleading when made. The improper statements have devastated Quantum’s credibility. Quantum has been, and will continue to be, severely damaged and injured by the Individual Defendants’ misconduct.

33. As a direct and proximate result of the Individual Defendants’ actions as alleged above, Quantum’s market capitalization has been substantially damaged, having lost hundreds of millions of dollars in value as a result of the conduct described herein.

84. Further, as a direct and proximate result of the Individual Defendants’ conduct, Quantum has expended, and will continue to expend, significant sums of money. Such expenditures include, but are not limited to:

(a) costs incurred in investigating and defending Quantum and certain officers in the pending Securities Class A ction, plus potentially millions of dollars in settlement or to satisfy an adverse judgment;

(b) costs incurred from compensation and benefits paid to the Individual D efendants, which compensation was based at least in part on Quantum’s artificially-inflated stock price; and

(c) costs incurred from the loss of the Company’s customers’ confidence in Quantum’s products and services.

85. Moreover, these actions have irreparably damaged Quantum’s corporate image

and goodwill. For at least the foreseeable future, Quantum will suffer from what is known as 31 the “liar’s discount,” a term applied to the stocks of companies who have been implicated in illegal behavior and have misled the investing public, such that Quantum’s ability to raise equity capital or debt on favorable terms in the future will now be impaired.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

86. Plaintiff brings this action derivatively in the right and for the benefit of Quantum to redress injuries suffered, and to be suffered, by Quantum as a direct result of the Individual Defendants’ breaches of fiduciary duties and unjust enrichment, as well as the aiding and abetting thereof, by the Individual Defendants. Quantum is named as a nominal defendant solely in a derivative capacity.

87. Plaintiff will adequately and fairly represent the interests of Quantum in enforcing and prosecuting its rights.

88. Plaintiff was a shareholder of Quantum common stock at the time of the wrongdoing of which Plaintiff complains, and has been continuously since.

89. Plaintiff did not make a pre-suit demand on the Board to pursue this action because such a demand would have been a futile and wasteful act.

90. At the time this action was commenced, the Board of Quantum was comprised of the following seven (7) directors: Defendants Sanchez, Dennis, Rau, Pinchev, Press, Rothman, and Singer. A majority of these individuals are not disinterested and independent with respect to the acts and omissions alleged herein. Notably, all of these individuals face a substantial likelihood of personal liability for their breaches of the duties of trust, loyalty, good faith, candor, oversight, reasonable inquiry, supervision, and due care described herein. W here a plaintiff alleges that at least half of the members of the current board are not independent or disinterested, demand is excused as futile.

91. Plaintiff has not made any demand on the present Board to institute this action

because such a demand would be a futile, wasteful, and useless act, as set forth below.

32 Demand is Futile as to All Director Defendants Because They Each Face a Substantial Likelihood of Liability

92. The Director Defendants each face a substantial likelihood of liability for their individual misconduct. As members of the Board during the Relevant Period, the Director Defendants had a fiduciary duty to ensure that the Company’s SEC filings, press releases, and other public statements and presentations on behalf of the Company were true and accurate. By authorizing the false financial statements and public statements alleged herein, and by failing to correct other statements which Quantum’s senior management made during the Relevant Period, these Directors were active participants in breaches of duties of good faith, candor, and loyalty, and have subjected the Company to a lawsuit claiming violations of the federal securities laws. A director’s breach of the duty of candoris not entitled to protection under the business judgment rule. As aresult, any demand upon the Director D efendants to bring suit against themselves, or against member of the Company’s senior management would be a useless and futile act.

93. Notably, Defendants Sanchez, Rau, Press, and Rothman breached their fiduciary duty when they signed and certified Quantum’s 2017 10-K, which contained false and misleading statements and/or omitted necessary information to make the statements contained therein not false and misleading, as alleged herein. As a result, those Defendants face a substantial likelihood of liability for making the false and misleading statements therein.

94, The Director Defendants either knew or should have known of the false and misleading statements that were issued on the Company’s behalf, but none of them took any steps in a good faith effort to prevent or remedy that situation.

95. The Director Defendants (or at the very least, a majority of them) cannot exercise independent, objective judgment about whether to bring this action or whether to vigorously prosecute this action. For the reasons that follow, and for reasons detailed elsewhere in this complaint, Plaintiff has not made (and should be excused from making) a pre-filing demand on the Board to initiate this action because making a demand would be a futile and useless act.

96. Each of the Director Defendants approved and/or permitted the wrongs alleged

herein to occur, and participated in efforts to conceal or disguise those wrongs from the 33 Company’s stockholders or, recklessly and/or with gross negligence, disregarded the wrongs complained of herein, and are therefore not disinterested parties.

97. Each of the Director Defendants authorized and/or permitted the false statements to be disseminated directly to the public and made available and distributed to shareholders, authorized and/or permitted the issuance of various false and misleading statements, and are principal beneficiaries of the wrongdoing alleged herein, and thus, could not fairly and fully prosecute such a suit even if they instituted it.

08. Moreover, the Director Defendants as directors (and, in some cases, also as A udit Committee members) owed a duty to, in good faith and with due diligence, exercise reasonable inquiry, oversight, and supervision to ensure that the Company’s internal controls and/or internal auditing and accounting controls over financial reporting were sufficiently robust and effective (and/or were being implemented effectively), and to ensure that the Audit Committee’s duties were being discharged in good faith and with the required diligence and due care. Instead, they knowingly and/or with reckless disregard reviewed, authorized, and/or caused the publication of materially false and misleading statements throughout the Relevant Period that caused the Company’s stock to trade at artificially inflated prices.

99. Because of their participation in the gross dereliction of fiduciary duties and breaches of the duties of due care, good faith, and loyalty, the Director Defendants face a substantial likelihood of liability, making demand upon them futile.

100. The Director Defendants’ making or authorization of false and misleading statements throughout the Relevant Period, failure to timely correct such statements, failure to take necessary and appropriate steps to ensure that the Company’s internal controls or internal auditing and accounting controls were sufficiently robust and effective (and/or were being implemented effectively), failure to take necessary and appropriate steps to ensure that the A udit Committee’s duties were being discharged in good faith and with the required diligence, and/or acts of abuse of control constitute breaches of fiduciary duties, for which the Director Defendants face a substantial likelihood of liability. If the Director Defendants were to bring a

suit on behalf of Quantum to recover damages sustained as a result of this misconduct, they 34 would expose themselves to significant liability. This is something they will not do. For this reason, demand is futile. Demand is Futile as to the Audit Committee Defendants

101. Pursuant to the Audit Committee Charter, A udit Committee Defendants Sanchez, Rau, and Rothman were responsible for, among other things, reviewing and approving quarterly and annual financial statements and earnings press releases, overseeing Quantum’s internal controls over financial reporting, reviewing the Company’s risk management practices, and discharging other duties described herein. Despite these duties, the Audit Committee Defendants knowingly or recklessly reviewed and approved, or failed to exercise due diligence and reasonable care in reviewing and preventing the dissemination of false and/or materially misleading quarterly and annual financial statements, and failed in their specific duties to ensure that the Company’s internal controls over financial reporting were sufficient and that statements made by the Company regarding its business and financial prospects were accurate. Accordingly, the Audit Committee Defendants face a sufficiently substantial likelihood of liability for breach of their fiduciary duties of loyalty and good faith. Any demand upon the Audit Committee Defendants therefore is futile.

Demand is Futile as to Defendant Sanchez

102. In addition to the reasons discussed herein as to why demand is futile as to all Director Defendants, demand is futile as to Defendant Sanchez because he is a named defendant in the Securities Class Action. Thus, if Sanchez were to initiate suit in this action, he would compromise his ability to simultaneously defend himself in the Securities Class Action and would expose himself to liability in this action. Accordingly, Defendant Sanchez cannot disinterestedly consider a demand to bring suit against himself.

103. Demand is also futile as to Defendant Sanchez because, as the Company admits, Sanchez does not meet the standards for director independence. During the period between November 7, 2017 and January 16, 2018, the Company reported that Sanchez, as Quantum’s interim CEO, was an employee of the Company, and therefore does not meet the standards of

director independence. Further, Defendant Sanchez, as an executive officer of the Company, 35 derived substantial income from his employment with Quantum. Demand is therefore futile as to Defendant Sanchez. Demand is Futile as to the Director Defendants for A dditional R easons

104. The current Board of Quantum has already demonstrated that it cannot independently and disinterestedly consider a pre-suit demand to bring the claims set forth herein. Despite the wrongdoing of the Company’s executive officers, including D efendant A hmad, who continues to serve as the Company’s CFO, the Board has taken no action to address the harm this misconduct has caused to the Company.

105. Moreover, each of the Director Defendants receives a significant annual retainer purely for being a Board member, as well as substantial stock awards (in the form of stock grants, option awards, and grants of restricted stock units). The foregoing compensation provides a substantial stipend to these directors, from which each of them personally benefits, depending for his or her livelihood in substantial part on Quantum. Demand on each of the Director Defendants is futile because, through their course of conduct to date, they have demonstrated their unwillingness to undertake any action that would threaten the economic benefits they receive as members of Quantum’s Board.

106. If Quantum’s current officers and directors are protected against personal liability for their breaches of fiduciary duties alleged in this complaint by Directors & Officers Liability Insurance (“D&O Insurance”), they caused the Company to purchase that insurance for their protection with corporate funds, i.e., monies belonging to the shareholders. However, Plaintiff is informed and believes that the D&O Insurance policies covering the Individual Defendants in this case contain provisions that eliminate coverage for any action brought directly by Quantum against the Individual Defendants, known as the “insured versus insured exclusion.”

107. As aresult, if the Director Defendants were to sue themselves or certain of the officers of Quantum, there would be no D&O Insurance protection, and thus, this is a further reason why they will not bring such a suit. On the other hand, if the suit is brought derivatively, as this action is brought, such insurance coverage exists and will provide a basis for the Company

to effectuate recovery. Therefore, the Director D efendants cannot be expected to file the claims 36 asserted in this derivative lawsuit because such claims would not be covered under the Company’s D&O Insurance policy.

108. Under the factual circumstances described herein, the Individual Defendants are more interested in protecting themselves than they are in protecting Quantum by prosecuting this action. Therefore, demand on Quantum and its Board is futile and is excused.

109. Quantum has been, and will continue to be, exposed to significant losses due to the Individual Defendants’ wrongdoing. Yet, the Director Defendants have not filed any lawsuits against themselves or others who were responsible for the wrongful conduct. Thus, the Director Defendants are breaching their fiduciary duties to the Company and face a sufficiently substantial likelihood of liability for their breaches, rendering any demand upon them futile.

110. Plaintiff has not made any demand on shareholders of Quantum to institute this action since such demand would be a futile and useless act for the following reasons:

(a) Quantum is a publicly traded company with thousands of shareholders of record

and hundreds of thousands of beneficial owners;

(b) making demand on such a number of shareholders would be impossible for Plaintiff, who has no means of collecting the names, addresses, or phone numbers of Quantum shareholders; and

(c) making demand on all shareholders would force Plaintiff to incur excessive expenses and obstacles, assuming all shareholders could even be individually identified with any degree of certainty.

COUNT 1

Breaches of Fiduciary Duties A gainst All Individual Defendants

111. Plaintiff incorporates by reference and realleges each and every allegation set forth above, as though fully set forth herein.

112. Each of the Individual Defendants owed, and owes, to Quantum the duty to exercise candor, good faith, and loyalty in the management and administration of the Company’s

business and affairs, particularly with respect to issues regarding its financial viability. 37 113. Each of the Individual Defendants violated and breached his or her fiduciary duties of candor, good faith, loyalty, reasonable inquiry, oversight, and supervision.

114. The Individual Defendants’ conduct was characterized by intentional, reckless, or negligent breaches of the fiduciary duties the Defendants owed to Quantum, as set forth in this complaint. The Individual D efendants intentionally, recklessly, or negligently breached or disregarded their fiduciary duties to protect the rights and interests of Quantum.

115. In breach of their fiduciary duties owed to Quantum, the Individual Defendants willfully participated in misrepresentation of the Company’s financial condition, failed to correct Quantum’s public statements, and failed to properly oversee Quantum’s business, rendering them personally liable to Quantum for breaching their fiduciary duties.

116. The Individual Defendants had actual or constructive knowledge that they had caused Quantum to improperly misrepresent its financial condition, and the Defendants failed to correct Quantum’s public statements. The Individual Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth above, or acted with reckless disregard for the truth, in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Such material misrepresentations and omissions were committed knowingly or recklessly and for the purpose and effect of artificially inflating the price of the common stock of Quantum.

117. These actions were not a good-faith exercise of prudent business judgment to protect and promote the corporate interests of Quantum.

118. As a direct and proximate result of the Individual Defendants’ breaches of their fiduciary obligations, Quantum has sustained, and continues to sustain, significant damages. As a result of the misconduct alleged above, the Individual Defendants are liable to Quantum.

COUNT II

Abuse of Control A gainst All Individual Defendants 119. Plaintiff incorporates by reference and realleges each and every allegation set

forth above, as though fully set forth herein. 38 120. Defendants’ misconduct alleged herein constituted an abuse of their ability to control and influence Quantum, for which they are legally responsible.

121. As adirect and proximate result of Defendants’ abuse of control, Quantum has sustained significant damages. As a direct and proximate result of Defendants’ breaches of their fiduciary obligations of candor, good faith, and loyalty, Quantum has sustained, and continues to sustain, significant damages. As a result of the misconduct alleged herein, Defendants are liable to the Company.

COUNT II1

Gross Mismanagement A gainst All Individual Defendants

122. Plaintiff incorporates by reference and realleges each and every allegation set forth above, as though fully set forth herein.

123. The Individual Defendants each owed, and owes, a duty to Quantum and its shareholders to, in good faith, supervise, manage, and control its operations.

124. The Individual Defendants, by their actions or inactions, either directly or through aiding and abetting, abandoned and abdicated their responsibilities and duties with regard to operating the business and affairs of Quantum.

125. As a direct and proximate result of the Individual Defendants’ gross mismanagement and breaches of duties alleged herein, Quantum has sustained, and continues to sustain, significant damages and injuries.

126. As a result of the misconduct and breaches of duties alleged in this complaint, the Individual D efendants are liable to the Company.

127. Plaintiff on behalf of Quantum has no adequate remedy at law.

COUNT VI

Unjust Enrichment A gainst All Individual Defendants 128. Plaintiff incorporates by reference and realleges each and every allegation

contained above, as though fully set forth herein. 39 129. By their wrongful acts and omissions, the Individual Defendants were unjustly enriched at the expense of and to the detriment of Quantum.

130. The Individual Defendants were unjustly enriched as a result of the compensation they received while breaching their fiduciary duties owed to Quantum.

131. Plaintiff, as a shareholder and representative of Quantum, seeks restitution from the Individual Defendants and seeks an order from this Court disgorging all profits, benefits, and other compensation obtained by the Individual Defendants from their wrongful conduct and fiduciary breaches.

132. Plaintiff, on behalf of Quantum, has no adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment in Quantum’s favor and against all Individual Defendants, as follows:

A. Declaring that Plaintiff may maintain this action on behalf of Quantum and that Plaintiff is an adequate representative of Quantum;

B. Declaring that the Individual Defendants have breached their fiduciary duties and/or aided and abetted the breach of their fiduciary duties to Quantum;

C. Determining and awarding to Quantum damages sustained by it as a result of the violations set forth above from each of the Individual Defendants, jointly and severally, together with interest;

D. Directing the Individual Defendants, on behalf of Quantum, to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures to comply with applicable laws, and to protect Quantum and its shareholders from a repeat of the damaging events described herein, including, but not limited to, putting forward for shareholder vote resolutions for amendments to the Company’s Bylaws or Articles of Incorporation, and taking such other action as may be necessary to place before shareholders for a vote the following corporate governance proposals or policies:

. a proposal to strengthen the Board’s supervision of operations and compliance

with applicable state and federal laws and regulations; 40 E. disgorgement Defendants;

F.

a proposal to strengthen the Company’s internal reporting and financial disclosure controls to ensure material information is adequately and timely disclosedpublic;

a proposal to develop and implement procedures for greater shareholder input into the policies and guidelines of the Board;

a proposal to ensure the accuracy of the qualifications of Quantum’s directors, executives, and other employees;

a proposal to permit the shareholders of Quantum to nominate at least two candidates for election to the Board to replace current directors;

a proposal to strengthen the oversight over Quantum’s accounting and financial departments;

a proposal to strengthen the Company’s procedures for the receipt, retention, and treatment of complaints received by the Company regarding internal controls; and

a provision to appropriately test and strengthen the Company’s internal operational control functions;

Awarding to Quantum restitution from the Individual Defendants, and ordering

of all profits, benefits, and other compensation obtained by the Individual

Extraordinary equitable and/or injunctive relief as permitted by law, equity and

state statutory provisions sued hereunder, including attaching, impounding, imposing a

constructive trust on, or otherwise restricting the Individual Defendants’ assets S0 as to assure

that Plaintiff on behalf of Quantum has an effective remedy;

G.

Awarding to Plaintiff the costs and disbursements of the action, including

reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses; and

H.

Granting such other and further relief as the Court deems just and proper.

JURY DEMAND

Plaintiff demands a trial by jury.

Dated: May 22, 2018

42

By:

Respectfully submitted,

JOHNSON FISTEL, LLP FRANK J. JOHNSON PHONG L. TRAN CHASE M. STERN

/ r /

¢ 7/

AL /j‘%

FRANK J. JOHXSON

600 West Broadway, Suite 1540 San Diego, CA 92101

Tel: (619) 230-0063

Fax: (619) 255-1856 FrankJ(@johnsonfistel.com

RM LAW, P.C.

Richard A. Maniskas, Esq. rmaniskas@rmclasslaw.com

1055 Westlakes Drive, Suite 3112 Berwyn, PA 19312

Telephone: (484) 324-6800 Facsimile: (484) 631-1305