Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
Date
of
Report (Date of earliest event reported): January
17, 2007
TAKE-TWO
INTERACTIVE SOFTWARE, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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0-29230
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51-0350842
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(State
or Other
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(Commission
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(IRS
Employer
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Jurisdiction
of
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File
Number)
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Identification
No.)
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Incorporation)
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622
Broadway, New York, NY
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10012
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(Address
of Principal Executive
Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (646)
536-2842
Not
Applicable
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General
Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-
2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
On
January 18, 2007, Take-Two Interactive Software, Inc. (the "Company") received
a
written Staff Determination letter from The NASDAQ Stock Market, stating that
the Company’s failure to file with the Securities and Exchange Commission (the
“SEC”) its Annual Report on Form 10-K for the fiscal year ended October 31, 2006
as required by Marketplace Rule 4310(c)(14) serves as an additional basis for
delisting the Company’s securities from The NASDAQ Stock Market and requesting
that the Company make a submission addressing this issue to the NASDAQ Listing
Qualifications Panel (the “NASDAQ Panel”) by January 25, 2007. The Company
intends to present the NASDAQ Panel with its plans for regaining compliance
with
this rule by such date.
The
Company has previously announced that it had received a NASDAQ Staff
Determination letter indicating that the Company is not in compliance with
the
filing requirements for continued listing under Marketplace Rule 4310(c)(14)
as
a result of the Company’s inability to file its Quarterly Report on Form 10-Q
for the third quarter of fiscal 2006 by the prescribed due date and an
additional NASDAQ Staff Determination letter indicating that the Company is
not
in compliance with the requirements for continued listing as set forth in
Marketplace Rules 4350(e) and 4350(g), due to its failure to timely solicit
proxies and hold its annual stockholders meeting.
In
response to the original notice of non-compliance, the Company requested a
hearing before the NASDAQ Panel to request that it be afforded time to complete
its filings and any necessary restatements and to thereafter solicit proxies
and
hold its annual meeting. Prior to its receipt of the latest Staff Determination
Letter, the Company received a written notification that the NASDAQ Panel had
granted the Company’s prior request for continued listing on The NASDAQ Stock
Market, subject to the conditions that the Company shall file its Form 10-Q
for
the quarter ended July 31, 2006, and any required restatements, on or before
March 19, 2007, that it hold a combined 2005 and 2006 annual meeting of
stockholders on or before March 27, 2007 and that it provide the NASDAQ Panel
certain information regarding the investigation (described in Item 8.01 below)
into the Company’s past and present policies, practices and actions relating to
its stock option grants.
The
Company plans to file its Quarterly Report on Form 10-Q for the quarter ended
July 31, 2006 and its Annual Report on Form 10-K for the year ended October
31,
2006 with the SEC as soon as practicable. Once these filings are made and the
Company holds its combined 2005 and 2006 annual meeting of stockholders, the
Company believes that it will be in compliance with the NASDAQ Stock Market’s
listing requirements.
Item
8.01 Other Events.
On
January 17 , 2007, certain advisors to the Special Committee (the “Special
Committee”) of the Company’s Board of Directors (the “Board” ) completed the
Report (defined below) with respect to their review and investigation into
the
Company’s past and present policies, practices and actions relating to its stock
option grants.
As
previously reported, on June 23, 2006, the Board, based on the recommendation
of
the Company’s management, initiated a voluntary investigation of the Company's
stock option grants during the period from its April 15, 1997 initial public
offering through June 2006 and assigned the investigation to the Special
Committee, consisting of three independent members of the Board. On July 7,
2006, the Special Committee retained Kasowitz, Benson, Torres & Friedman LLP
("KBT&F") as its counsel in connection with the Special Committee's
investigation, and KBT&F retained BDO Seidman, LLP ("BDO") as independent
accounting advisors.
As
the
Special Committee's counsel, KBT&F reviewed and investigated, among other
things: (i) whether the Company complied with its 1997 and 2002 Stock Option
Plans; (ii) whether the Company engaged in backdating options (i.e., selecting
grant dates, and therefore exercise prices, with the benefit of hindsight);
and
(iii) whether members of the Company's management engaged in conduct that may
raise concerns regarding the reliability of their representations to the
Company's auditors. KBT&F and BDO outlined the findings resulting from the
foregoing investigation and certain recommendations for administering option
grants in a report prepared by them for the Special Committee dated January
17,
2007 (the “Report”).
KBT&F's
investigation for the Special Committee included a broad and extensive document
review, including reviews of (i) the Company's Stock Option Plans; (ii) all
minutes of the meetings of the Board; (iii) all minutes of the meetings of
the
Company's Compensation Committee; and (iv) other documents potentially relating
to stock option grants, including, among others, employment agreements, stock
option agreements, offer letters and other correspondence and materials
contained in personnel files. KBT&F also collected over 3,000,000 Company
e-mails, and based on, among other things, computerized searches for key words
and phrases, reviewed over 400,000 of those e-mails, as well as other electronic
documents and data stored on the Company's computer servers, backup tapes and
hard drives, and conducted interviews of 13 present or former Company officers,
directors and employees who were involved in or appeared to have knowledge
of
the issuance of the option grants. The
Report noted, however, that three of the Company’s former employees who,
according to the Report, appear to have had significant involvement in the
Company’s stock option granting process, declined to appear for interviews with
KBT&F and, as a result, necessarily limited, to some extent, the information
KBT&F was able to collect. These former employees were the
Company’s former Controller, whose employment with the Company was terminated by
the Company in December 2006, and two of its former Chief Financial
Officers, who served in such capacities from late January 1999 to early
April 2000 and from early April 2000 through 2001, respectively.
The
Report further noted that the Company placed no limitations on the investigation
and cooperated fully with the investigation, providing requested documents
and
computer access and data and, where possible, making management and the
Company’s employees available for interviews, all in a conscientious and timely
fashion.
The
conclusions of KBT&F and BDO are summarized in the Report and include the
following:
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The
Company, in granting options, failed in many cases to comply with
the
terms of its Stock Option Plans, did not maintain adequate control
and
compliance procedures for option grants, and did not generate or
maintain
adequate or appropriate documentation of such grants. In addition,
the
Compensation Committee abdicated its option granting responsibilities
and
permitted the Company’s prior Chief Executive Officer, Ryan Brant,1 to
control and dominate the granting
process.
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1
As previously disclosed by the Company, Mr. Brant, who served as
the
Company’s Chief Executive Officer until February 2001 and as Chairman of the
Board until March 2004, resigned his remaining position with the Company in
October 2006.
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Between
April 1997 and August 2003, Mr. Brant engaged in a pattern and practice
of
backdating options, and during such period, a significant number of
option
grants appear to have been backdated. There has been no pattern or
practice of backdating for option grants from August 2003 to the
present. |
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The Company's auditors may not be able to rely upon
representations made by certain of the Company's
past employees and past members of management as a result of conduct
related to
option granting activities. |
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There
is no evidence that the Company's current senior executive management,
including its Chief Executive Officer, Paul Eibeler, and its Chief
Financial Officer, Karl Winters, engaged in any conduct raising concerns
about the reliability of their representations to the Company's auditors.
In addition, the evidence shows that none of them engaged in any
misconduct with respect to the Company’s option granting practices. The
Report noted that KBT&F and BDO did not find that either Oliver Grace
or Robert Flug, formerly members of the Compensation Committee and
current
members of the Board, engaged in willful misconduct or other dishonest
acts. |
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The
Company should recognize additional compensation expense for certain
of
the option grants, identify the tax consequences resulting from any
adjustments to the recorded measurement dates (in connection with their
investigation, KBT&F and BDO established a methodology for determining
the proper measurement dates for all of the Company's option grants
based
on the most reliable contemporaneous documentation), and have all changes
to its financial statements reviewed and approved by its past and current
auditors. |
Among
the
recommendations made by the Report are improvements in the controls and
procedures relating to the Company’s granting of stock options and the
development and implementation of best practices with respect to option grants,
some of which have already been implemented by the Company. The Special
Committee is reviewing the recommendations contained in the Report and intends
to send the Board a remediation plan to address the issues raised by the Report.
The
Company has previously announced on December 11, 2006 that it will need to
restate historical financial statements to record charges for compensation
expense relating to certain past stock option grants and that all consolidated
financial statements, earnings releases and similar communications issued by
the
Company containing financial information for periods beginning 1997 through
April 30, 2006 should no longer be relied upon. The Company’s management is
currently reviewing the findings contained in the Report. At this time, the
Company is unable to estimate a range of the stock-based compensation charges
and the related tax and accounting impact on the Company’s financial statements
for its fiscal years ended October 31, 1997 through October 31,
2006.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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TAKE-TWO
INTERACTIVE SOFTWARE, INC.
(Registrant)
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By: |
/s/ Karl
H.
Winters |
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Name:
Karl H. Winters
Title:
Chief Financial Officer
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Date: January
21, 2007