2K Sports 2008 Annual Report Download - page 93

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. 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.
We intend to vigorously defend all of the above matters and, with respect to the derivative actions, we have
been advised that the individual defendants will vigorously defend such actions. However, we cannot
predict the outcome of these matters and, if determined adversely to us, such matters, either individually
or in the aggregate, could result in the imposition of significant judgments, fines, penalties and/or
injunctive relief, which could have a material adverse effect on our business, financial condition, results of
operations or cash flows.
Grand Jury Subpoenas. In 2006, we received grand jury subpoenas issued by the District Attorney of the
County of New York requesting production of documents covering various periods beginning on January 1,
1997, including those relating to, among other things: the so-called ‘‘Hot Coffee’’ scenes in Grand Theft
Auto: San Andreas; the work of our Board of Directors, all board committees and the Special Litigation
Committee; certain acquisitions entered into by us; billing and payment records relating to
PricewaterhouseCoopers LLP and the termination of PricewaterhouseCoopers LLP as our auditors;
communications to financial analysts and stockholders about acquisitions and financial results;
compensation and human resources documents of certain of our directors and employees and former
directors and employees; stock-based compensation; the SEC’s July 2006 inquiry; legal services performed
for employees; corporate credit card and expense records of certain individuals; the SEC bar of our former
Chief Executive Officer, Ryan Brant; the resolution to amend our Incentive Stock Plan; and ethics,
securities, and conflict of interest policies and questionnaires. Over time, the District Attorney’s
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