2K Sports 2008 Annual Report Download - page 85

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In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (‘‘FSP
FAS 142-3’’). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under SFAS
No. 142, Goodwill and Other Intangible Assets. This guidance for determining the useful life of a recognized
intangible asset applies prospectively to intangible assets acquired individually or with a group of other
assets in either an asset acquisition or business combination. FSP FAS 142-3 is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2008 (November 1, 2009 for the
Company), and early adoption is prohibited. We do not expect that the adoption of FSP FAS 142-3 will
have a material effect on our consolidated financial position, cash flows or results of operations.
In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (‘‘FSP EITF 03-6-1’’), which is effective for
financial statements issued for fiscal years beginning after December 15, 2008. FSP EITF 03-6-1 clarifies
that share-based payment awards that entitle holders to receive nonforfeitable dividends before they vest
will be considered participating securities and included in the basic earnings per share calculation. The
Company is assessing the impact of adoption of FSP EITF 03-6-1 on its results of operations.
2. RECENT DEVELOPMENTS
During the year ended October 31, 2008, Electronic Arts Inc. (‘‘EA’’) extended a tender offer to our
stockholders (the ‘‘Offer’’) to acquire all outstanding shares of our Common Stock. Our Board of
Directors, upon the advice of its financial and legal advisors, unanimously determined that the Offer was
inadequate and recommended that stockholders not accept it. The Offer was extended several times
through August 2008, at which time the Offer expired. Our management and Board commenced a formal
process to review strategic alternatives beginning in April 2008 that included discussions with potential
interested parties. In October 2008, we announced the conclusion of our strategic review process. We
incurred $11,070 of costs in 2008 related to the EA Offer and our strategic review process which are
recorded in general and administrative expenses.
3. MANAGEMENT AGREEMENT
In March 2007, we began operating under a management services agreement with ZelnickMedia (the
‘‘Management Agreement’’), whereby ZelnickMedia provides us with certain management, consulting and
executive level services. Strauss Zelnick, the President of ZelnickMedia, serves as our Executive Chairman.
In addition, we have entered into employment agreements with Ben Feder and Karl Slatoff to serve as our
Chief Executive Officer and Executive Vice President, respectively. Both Mr. Feder and Mr. Slatoff are
partners of ZelnickMedia. The Management Agreement expires in October 2012 and provides for an
annual management fee of $2,500 ($750 prior to the amendment that was effective as of April 1, 2008) and
a maximum bonus of $2,500 per fiscal year ($750 prior to the amendment that was effective as of April 1,
2008) based on the Company achieving certain performance thresholds. In consideration for
ZelnickMedia’s services under the Management Agreement, we recorded consulting expense (a
component of general and administrative expenses) of $3,674 and $649 for the years ended October 31,
2008 and 2007, respectively.
Pursuant to the Management Agreement, we also issued stock-based compensation to ZelnickMedia. See
Note 15 for a discussion of the such awards.
4. BUSINESS REORGANIZATION AND RELATED CHARGES
We initiated a management and business reorganization plan in the second quarter of 2007, which included
costs to replace our former executive management team and certain members of our Board of Directors,
and utilize the services of ZelnickMedia. In addition, we undertook a restructuring plan that centralized
and eliminated certain of our business operations. As a result, we incurred employee termination costs,
relocation expenses, facility related costs (including fixed assets and lease termination costs) and
professional fees.
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