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Let’s say the extra damage is enough to KO a second character. Does the extra damage keep going to
a third character?


No. The extra damage isn’t attack damage. Continuing the previous example, your opponent could
choose a character with 12 health and 11 damage counters and do 2 more damage to it. That character
would be KO’d.
Source: Wizards of the Coast (2018-10-11)    【Link to Ruling】
Tags: Grimlock, Dinobot Leader