2K Sports 2008 Annual Report Download - page 35

Derivative Action—Option Backdating. In July and August 2006, shareholders Richard Lasky and Raeda
Karadsheh filed purported derivative actions in the U.S. District Court for the Southern District of New
York against us, as nominal defendant, and certain of our directors and certain former officers and
directors. These actions were consolidated in November 2006 and the plaintiffs filed a consolidated
complaint in January 2007, which focused exclusively on our historical stock option granting practices,
alleging violations of federal and state law, including breaches of fiduciary duties, abuse of control, gross
mismanagement, waste of corporate assets, and unjust enrichment. The complaints sought unspecified
damages against all of the individual defendants, reimbursement from certain of the defendants of bonuses
or other incentive or equity-based compensation paid to them, equitable and other relief relating to the
proceeds from certain of the defendants’ alleged improper trading activity in our stock, adoption of certain
corporate governance proposals and recovery of litigation costs. These matters were referred to the Special
Litigation Committee, which moved to dismiss certain parties from the litigation and to have any claims
against the remaining parties be assigned to us for disposition by our management and Board of Directors.
The parties are awaiting a decision by the Court.
Strickland et al. Personal Injury Action. In February 2005, the personal representatives of the Estates of
Arnold Strickland, James Crump and Ace Mealer brought an action in the Circuit Court of Fayette
County, Alabama against us, Sony Computer Entertainment America Inc., Sony Corporation of America,
Wal-Mart, GameStop and Devin Moore, alleging under Alabama’s manufacturers’ liability and wrongful
death statutes, that our video games resulted in ‘‘copycat violence’’ that caused the deaths of
Messrs. Strickland, Crump and Mealer by Mr. Moore. The suit seeks damages (including punitive
damages) against all of the defendants in excess of $600,000,000. In April 2006, the plaintiffs amended the
complaint to add a claim for civil conspiracy. Our motion to dismiss that claim is pending. At our request,
the Court held an evidentiary hearing on October 30, 2008 to consider the exclusion of certain expert
testimony and a second hearing was held on December 18, 2008. There currently is no scheduling order in
effect. We believe that the claims are without merit and that this action is similar to lawsuits brought and
uniformly dismissed by courts in other jurisdictions.
Stockholder Actions. In March 2008, Patrick Solomon, a stockholder, filed a purported class action
complaint in the Court of Chancery of the State of Delaware against us and certain of our officers and
directors. The plaintiff contends that the defendants breached their fiduciary duties by, among other
things, allegedly refusing to explore premium offers by Electronic Arts Inc. to acquire all of the Company’s
outstanding shares of common stock, enacting a bylaw amendment allegedly designed to entrench the
current board by preventing stockholders from nominating and electing alternative directors, agreeing to
an amendment to a management agreement with ZelnickMedia and issuing a proxy statement for the 2008
annual meeting of stockholders that allegedly contained misleading and incomplete information. The
complaint seeks preliminary and permanent injunctive relief, rescissory and other equitable relief and
damages. After certain voluntary actions were taken by the Company, the plaintiff agreed to withdraw his
motion for preliminary injunctive relief, and the annual meeting went forward without difficulty (and
without any stockholders nominating directors or proposing business). Discovery on the remaining claims
is ongoing. We believe the remaining claims lack merit, and intend to defend vigorously against them.
In April 2008, St. Clair Shores General Employees Retirement System, a stockholder, filed a purported
derivative action on behalf of the Company in the Court of Chancery of the State of Delaware against our
directors and ZelnickMedia. The allegations are essentially the same as those in the Solomon stockholder
action, above, with an additional complaint about the ‘‘poison pill’’ adopted by our board in March 2008,
and an additional claim against ZelnickMedia for aiding and abetting the directors’ alleged breach of
fiduciary duty. Because the action was duplicative, the plaintiff agreed to stay all proceedings in the case in
favor of the Solomon case. We believe the claims lack merit, and intend to defend vigorously against them.
Also in April 2008, Michael Maulano, an alleged stockholder, filed a purported class action in New York
state court, New York County, against us and our directors.
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