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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GT INTERACTIVE SOFTWARE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 13-3689915
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(212) 726-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THOMAS HEYMANN
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(212) 726-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
DAVID P. LEVIN, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SHARES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value $.01 per
share................................. 1,930,501 $4.625 $8,928,568 $2,483
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, based on the average of
the high and low sales prices for GT common stock as reported on the Nasdaq
National Market on February 22, 1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED MARCH 1, 1999
PROSPECTUS
1,930,501 SHARES
[GT LOGO]
GT INTERACTIVE SOFTWARE CORP.
COMMON STOCK
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This Prospectus covers the offer and sale of an aggregate of 1,719,233
shares of common stock of GT Interactive Software Corp., a Delaware corporation,
issued as consideration in connection with GT's acquisition of One Zero Media,
Inc. in November 1998. This Prospectus also relates to 211,268 shares of GT
common stock issuable upon the exercise of an outstanding common stock purchase
warrant. GT will not receive any of the proceeds from the sale of the shares
sold by the selling stockholders.
No underwriter is being used in connection with this offering of common
stock. The shares of common stock are being offered without underwriting
discounts. GT will pay the expenses of this registration. The selling
stockholders will pay any normal brokerage commissions, discounts and fees.
Consequently, the selling stockholders' net proceeds will be the purchase price
of the shares sold, less their expenses.
GT's common stock is listed on the Nasdaq National Market under the symbol
"GTIS." On February 26, 1999, the closing sales price for GT's common stock, as
reported on the Nasdaq National Market, was $4.938, per share.
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INVESTING IN GT'S COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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The date of this Prospectus is , 1999.
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TABLE OF CONTENTS
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Where You Can Find More Information......................... 2
Summary..................................................... 3
About GT.................................................... 3
Risk Factors................................................ 4
Use of Proceeds............................................. 12
Selling Stockholders........................................ 12
Plan of Distribution........................................ 13
Legal Matters............................................... 14
Experts..................................................... 15
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until the selling stockholders sell all the shares:
The following documents are incorporated by reference into this Prospectus:
- Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1997 (File No. 0-27338);
- Transition Report on Form 10-K, for the transition period ended March 31,
1998 (File No. 0-27338);
- Quarterly Reports on Form 10-Q for the quarters ended June 30, 1998,
September 30, 1998 and December 31, 1998;
- Current Reports on Form 8-K, filed March 4, 1998, July 22, 1998, August
5, 1998, and August 12, 1998, and Form 8-K/A, filed May 7, 1998; and
- The description of GT's capital stock set forth in its Registration
Statement under the Exchange Act of 1934 on Form 8-A filed with the SEC
on November 30, 1995.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations Director
GT Interactive Software Corp.
417 Fifth Avenue
New York, New York 10016
Telephone number: (212) 726-6500
You should rely on the information incorporated by reference or provided in
this Prospectus or any prospectus supplement. We have not authorized anyone else
to provide you with different information. The selling stockholders will not
make an offer of these shares in any state where the offer is not permitted. You
should not assume that the information in this Prospectus or any supplement is
accurate as of any date other than the date on the front of those documents.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK
FACTORS" ON PAGE 4. IN ADDITION, YOU SHOULD ALSO READ THE DOCUMENTS WE HAVE
REFERRED YOU TO IN "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 2 FOR
INFORMATION ON OUR COMPANY AND OUR FINANCIAL STATEMENTS.
SOME OF THE STATEMENTS CONTAINED IN THIS PROSPECTUS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OF RESULTS OF OPERATION OR FINANCIAL CONDITION
OR STATE OTHER "FORWARD-LOOKING" INFORMATION. SUCH STATEMENTS CAN BE IDENTIFIED
BY THE USE OF "FORWARD-LOOKING" TERMINOLOGY, SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "CONTINUE" OR OTHER SIMILAR WORDS. THESE STATEMENTS
ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS THAT
COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THE STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" ON PAGE 4.
ABOUT GT
GT Interactive Software Corp., a Delaware corporation, creates, publishes,
merchandises and distributes interactive entertainment, edutainment and
value-priced consumer software for a variety of platforms on a worldwide basis.
Like major film studios and record companies, we employ a portfolio
approach that enables us to publish a broad base of published products across
most major consumer software categories. Our published products cover a wide
range of gaming genres, including action, adventure, strategy, sportsman, casual
consumer and children's edutainment, and can be used on a variety of personal
computer and console platforms, including Sony PlayStation and Nintendo 64. We
publish both front-line and value-priced titles that are developed either
internally or through independent third-party developers. Recognizing that
third-party developers are attracted to publishers with proven software
distribution capabilities, we have used our strong distribution foundation to
build our current position as a leader in the consumer software publishing
business.
We believe we are the largest distributor of consumer software to mass
merchants in the United States and the largest supplier of consumer software
(including software published by GT and third-parties) to approximately 2,350
Wal-Mart stores, approximately 850 Target stores and approximately 2,160 Kmart
stores. In addition, we have established direct selling relationships for our
own published titles with a variety of other major retailers, including Sam's
Club, Price-Costco, CompUSA and Best Buy.
Our principal executive offices are located at 417 Fifth Avenue, New York,
New York 10016. Our main telephone number is (212) 726-6500. Our World Wide Web
homepage is located at http://www.gtinteractive.com. Information contained on
our website should not be deemed part of this Prospectus.
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RISK FACTORS
BEFORE INVESTING IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS INVOLVED IN SUCH AN INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING
TO INVEST IN OUR COMMON STOCK.
DEPENDENCE ON KEY CUSTOMER
Wal-Mart is one of our key customers. We believe that we are Wal-Mart's
largest supplier of consumer software. We supply consumer software to
approximately 2,350 Wal-Mart stores. Our sales to Wal-Mart include titles that
we publish and titles published by others. On a pro forma basis, after giving
effect to our 1995 acquisition of Slash Corporation, our sales to Wal-Mart
accounted for approximately 48% of net revenues for the year ended December 31,
1995, 45% of net revenues for the year ended December 31, 1996, 36% of net
revenues for the year ended December 31, 1997 and 28% of net revenues for the
year ended December 31, 1998. Our accounts receivable from Wal-Mart were
approximately $70 million at December 31, 1997 and $65 million at December 31,
1998.
We do not have any written agreements or understandings with Wal-Mart.
Consequently, our relationship with Wal-Mart could end at any time. We cannot
assure you that Wal-Mart will continue to use us either as its largest supplier
of consumer software, or at all. During the second half of 1997, Wal-Mart began
purchasing software directly from five publishers whose software was previously
sold to Wal-Mart through GT. Our gross sales of those products to Wal-Mart had
aggregated approximately $37 million for the year ended December 31, 1996 and
$29 million for the six months ended June 30, 1997. During 1998 and 1999,
Wal-Mart has continued, and may continue in the future, to buy software directly
from other publishers, rather than purchasing software through GT. Such direct
purchases could significantly reduce our sales to Wal-Mart.
Our business, operating results and financial condition would be materially
and adversely affected if: (1) we lost Wal-Mart as a customer, (2) we began
shipping significantly fewer products to Wal-Mart, (3) we were unable to collect
receivables from Wal-Mart, or (4) we experienced any other significant adverse
change in our relationship with Wal-Mart.
CREDIT RISK
Typically, we make our sales on credit, with terms and conditions that vary
depending upon the customer and the nature of the product. We do not hold
collateral to secure payment. Our customers, who are primarily retailers and
some distributors, compete in a volatile industry and are subject to the risk of
business failure. Although we maintain a reserve for uncollectible receivables
that we believe to be adequate, we cannot assure you that this reserve is
adequate or that our business, operating results and financial condition would
not be materially and adversely affected by payment defaults on significant
sales.
DEPENDENCE ON NEW PRODUCTS, SEQUELS AND PRODUCT ENHANCEMENTS; PRODUCT DELAYS
Our continued success in the publishing business depends on the timely
introduction of successful new products, sequels or enhancements of existing
products to replace declining revenues from older products. This is an extremely
difficult process that will only become more complex and expensive as new
platforms and technologies emerge. Competitive factors in our industry demand
that we create increasingly sophisticated products. Moreover, it is difficult to
predict consumer preferences for software products, and few consumer software
products achieve significant market acceptance. Although sequels are an
increasingly important part of our product line, we cannot assure you that a
sequel will be as popular as the original title or that a sequel will be
released in time to capitalize on the popularity of the original title. A
significant delay in introducing new products, sequels or enhancements could
materially and adversely affect the ultimate success of our products and, in
turn, our business, operating results and financial condition, particularly in
view of the seasonality of our business. Our business, operating results and
financial condition could also be materially and adversely affected if revenues
from new products, sequels or enhancements fail to replace declining revenues
from existing products.
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RELIANCE ON THIRD-PARTY SOFTWARE DEVELOPERS AND OTHER PUBLISHERS; RECOVERY OF
PREPAID ROYALTIES
Although we substantially increased our internal software capabilities in
1996, 1997 and 1998, we are still dependent, to a meaningful degree, upon
independent software developers. A majority of our published products are still
licensed from, or developed by, independent software developers. Consequently,
our success depends in part on our continued ability to obtain and/or renew
product development agreements with these independent developers. However, we
cannot assure you that we will be able to obtain or renew such product
development agreements on favorable terms, or at all; nor can we assure you that
we will be able to obtain the rights to sequels of successful products which
were originally developed by independent developers for GT.
Our current and future relationships with independent developers are
subject to a variety of risks, including the risks of:
- EARLY TERMINATION. Our agreements with independent developers are
terminable, in some cases without notice, if either party (1) declares
bankruptcy, (2) becomes insolvent, (3) ceases operations, or (4)
materially breaches specified provisions of such agreements and fails to
cure that breach within a designated time frame.
- COMPETITION. Because the demand for independent developers is high, the
competition for access to independent developers and content providers is
extremely intense. Competition for these independent developers is
primarily based on the following factors: (1) breadth of distribution,
(2) quality of marketing support, (3) level of development funding, (4)
quality of reputation and (5) ability to offer favorable royalty rates
and advanced royalties.
We may be unable to secure or maintain relationships with independent
developers and content providers if our competitors can offer them better
shelf access, better marketing support, more funding, higher royalty
rates, greater portfolios of titles, more title rights to popular
platforms, or other selling advantages. We cannot assure you that
independent developers, including those which have developed products for
us in the past, will be available to develop products for us in the
future. In fact, we have in the past worked successfully with independent
developers who subsequently entered into agreements with other publishers
for follow-on or sequel products because of various factors, primarily
the ability of those other publishers to pay higher royalty rates and/or
advances than we could pay.
- SELF-PUBLISHING. Independent developers may publish their own titles
instead of using software publishers like GT to distribute their titles.
For example, in January 1998, a newly formed consortium, in which a
number of independent developers purport to have ownership interests,
announced that it had secured publishing rights with respect to software
titles to be produced by such developers. These developers include Apogee
Software (3D Realms), developer of Duke Nukem and Prey, and Epic
Megagames, developer of Unreal. Although the consortium also announced
that these developers will honor their existing obligations to other
software publishers, including GT, we cannot assure you that the
competitive pressures exerted by the consortium will not have a material
and adverse effect on our ability to establish and maintain relationships
with independent developers in the future.
- BUSINESS FAILURE. Many independent developers have limited financial
resources. Consequently, we are exposed to the risk that these developers
may go out of business or may be distracted by internal business issues
before successfully completing a project for which we have hired them.
- TIMING AND QUALITY. Although we maintain product liaisons with
independent developers, we have less control over the timing and quality
of their work compared to our internal developers. As a result, we cannot
assure you that new products developed by independent developers and
published by GT will be introduced on schedule, or at all, or within
acceptable quality guidelines.
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We also distribute products on behalf of other publishers. We cannot assure
you that we will obtain or renew any rights to distribute such products. Our
failure to obtain or retain such rights could materially and adversely affect
our business, operating results and financial condition.
Primarily because demand for consumer software programs has increased, our
payment of advances and guaranteed royalties to independent developers has
increased and may continue to increase. In connection with our licensing
agreements with independent developers, we had approximately $11.4 million of
royalty advances, associated with multi-year output contracts, on our balance
sheet as of December 31, 1998. We cannot assure you that current or future
royalty advances will be recouped. Our ability to receive revenue to recoup such
advances may be prevented or delayed if: (1) we fail to release the products for
which we have paid royalty advances, (2) we experience a delay in the release of
such products, or (3) sales of such products are less than the advances made.
RISKS ASSOCIATED WITH ACQUISITIONS
Over the last three and a half years, we have acquired a number of consumer
software-related companies and have invested in another, which investment is
convertible into a 50% interest. We undertook these acquisitions and this
investment to expand our publishing and distribution capabilities in order to
increase our ability to take advantage of market opportunities. To realize these
benefits, we need to (1) retain in-house publishing staffs, (2) retain
third-party relationships, and (3) integrate distribution, sales and marketing
capabilities.
Integrating acquired companies into GT has required us, among other things,
to:
- consolidate certain operations, offices and facilities,
- combine administrative, accounting, sales and marketing and distribution
functions,
- open new facilities,
- expand existing facilities,
- close redundant facilities,
- expand accounting systems, controls and procedures,
- increase our warehouse and distribution capabilities and
- eliminate duplicate personnel.
We are still integrating certain of our more recently acquired companies
and we cannot assure you that we will be able to complete such integration
without disrupting our business. The process of integrating these and future
acquired companies into GT may result in unforeseen difficulties. For example,
integration may divert management's attention and GT's financial resources away
from the ongoing development or expansion of our existing operations. Our
inability to achieve integration, either at all or in a timely and coordinated
manner, could materially and adversely affect our business, operating results
and financial condition.
We believe that our future growth depends, in part, on our ability to
continue to identify, acquire and integrate companies which have software
development and publishing capabilities. Acquisitions can be risky, and
attractive companies are often sought by numerous industry competitors. Even if
we identify an acquisition target, we cannot assure you that we will be able to
(1) negotiate a definitive agreement, (2) complete the acquisition upon
negotiation of a definitive agreement, (3) realize the anticipated benefits of
such acquisition upon its completion, or (4) retain, motivate and manage key
employees of the acquired company. Moreover, we might incur additional debt and
contingent liabilities in our future acquisitions, which could materially and
adversely impact our operating results and financial condition.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
We have experienced, and may continue to experience, significant quarterly
fluctuations in our net revenues and operating results due to a variety of
factors, including:
- the timing and success of product introductions by GT and its
competitors,
- delay in shipments,
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- fluctuations in the mix of products we sell,
- varying profit margins of the products we sell,
- the size and timing of acquisitions,
- the size and growth rate of the consumer software market,
- market acceptance of GT's products (including GT's published and
third-party distributed titles) as compared to those of our competitors,
- development and promotional expenses related to our introduction of new
products, sequels or enhancements of existing products,
- projected and actual changes in product platforms,
- product returns,
- changes in our pricing policies and the pricing policies of our
competitors,
- the accuracy of retailers' forecasts of consumer demand,
- the timing of orders from major customers and
- order cancellations.
Delays in our introduction of front-line titles could also result in
material fluctuations of our operating results. Moreover, defective front-line
products may result in higher customer support costs and product returns. In
response to competitive pressures, we may take certain pricing or marketing
actions that could materially and adversely affect our business, operating
results and financial condition. Generally, we ship orders as they are received.
As a result, we operate with little backlog. Because our expense levels are
fixed in many areas and are partly based on our expectations of future sales,
our operating results might be adversely affected if sales decrease or fail to
meet our expectations.
In addition, our business has experienced, and is expected to continue to
experience, significant seasonality. Typically, our net sales are significantly
higher during the fourth calendar quarter because of increased demand for
consumer software during the year-end holiday season. In other quarters, our net
revenues are generally lower and vary significantly.
Due to the foregoing factors, revenues for any period are subject to
significant variation, and we believe that period-to-period comparisons of our
net revenues are not necessarily meaningful. Rather, to accurately assess our
financial performance, you should compare comparable periods in different years.
For example, you should compare our operating results in the fourth quarter of
1997 to our operating results in the fourth quarter of 1996. However, we cannot
assure you that we will be consistently profitable on a quarterly or annual
basis.
CHANGING PRODUCT PLATFORMS
The consumer software industry is characterized by rapidly changing
technology, particularly with respect to product platforms. We must continually
anticipate the emergence of, and adapt our products to, popular platforms for
consumer software. The introduction of new product platforms could render our
previously released products obsolete or unmarketable. Moreover, the development
cycle for products designed to operate on new platforms can be significantly
longer than our current development cycles. When we choose to publish or develop
a product for a new platform, we may need to make a substantial development
investment one or two years in advance of when we actually ship products for
that platform. If we develop products for a platform that is ultimately
unpopular, our expected revenues from that product will suffer and we may not be
able to recoup our investment. Conversely, if we choose not to publish or
co-develop products for a new platform that is ultimately popular, our revenue
growth and competitive position may be adversely affected. While 32 and 64 bit
game platforms, such as Sony PlayStation and Nintendo 64, continue to be popular
and their installed base has reached significant levels in the US and worldwide,
Sega has announced the proposed introduction of its new Dreamcast platform in
September 1999, and there has been industry speculation about new platforms
under development by Nintendo or Sony. If successfully developed, these new
platforms would require us to reassess our commitment to 32 and 64 bit game
platforms and/or any new platforms which are introduced.
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CONTROL OVER, AND EXPENSE OF, GAME CONSOLE PRODUCTS
We pay license fees to develop products for certain game platforms. Our
contracts with hardware licensors, such as Sony and Nintendo, who are among our
competitors, often grant significant control to the licensor over the
manufacturing of GT products. In certain circumstances, this could adversely
affect GT by:
- leaving GT unable to have its products manufactured and shipped to
customers,
- increasing manufacturing lead times and expense to us over the lead times
and costs we could achieve independently,
- delaying the manufacture and, in turn, the shipment of products, and
- requiring GT to take significant risks in prepaying for and holding its
inventory of products.
These factors could materially and adversely affect our business, operating
results and financial condition.
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
Our continued success depends to a significant degree upon the continued
performance and contribution of our senior management team and upon our ability
to attract, motivate and retain highly qualified employees with technical,
management, marketing, sales, product development and other creative skills. In
the computer software industry, competition for highly skilled and creative
employees is intense and costly. We expect such competition to continue for the
foreseeable future, and we may experience increased costs in order to attract
and retain skilled employees.
We cannot assure you that we will be successful in attracting and retaining
such personnel. Although we have entered into employment agreements with members
of our senior management and certain skilled employees, we cannot assure you
that such individuals will not leave or compete against us. Our business,
operating results and financial condition could be materially and adversely
affected if we lost the services of our employees or if we failed to attract
additional qualified employees.
INTERNATIONAL SALES
In the past three years, we have materially increased our international
sales. We expect that international sales will account for a significant portion
of our net revenues in the future. However, our international sales are subject
to the general risks of doing business abroad, including:
- unexpected changes in regulatory requirements, tariffs and other
barriers,
- fluctuating exchange rates,
- potential political instability,
- difficulties installing and managing foreign operations,
- difficulties collecting accounts receivable,
- costs and difficulties of localizing products for use in foreign markets
and
- inability of foreign laws to protect our proprietary rights to the same
extent as U.S. law, particularly in certain international markets such as
South America, the Middle East, the Pacific Rim and the Far East where
software piracy presents a particularly acute problem.
We cannot assure you that these or other factors will not have a material
adverse effect on our future international sales and, consequently, on our
business, operating results and financial condition.
COMPETITION
The market for our products is highly competitive. Few products achieve
significant market acceptance. We think the most important competitive factors
in the market for interactive entertainment software are:
- game appeal,
- price,
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- access to retail shelf space,
- ability to operate on popular platforms,
- availability of titles,
- new product introductions and enhancements to existing products,
- marketing support and
- distribution channels.
Currently, we compete primarily with other publishers of interactive
entertainment software for both personal computers and video game consoles. Our
competitors include Electronic Arts Inc., The Learning Company and the
publishing business recently sold by Cendant Corporation to Havas SA, a French
company. In addition, certain large software companies, media companies and film
studios, such as Hasbro Corporation, Walt Disney Company and Mattel Inc., who
are increasing their focus on the interactive entertainment and edutainment
software market, may become significant competitors of GT. As compared to GT,
many of our current and future competitors are larger and have (1) greater
financial, technical, marketing, sales and customer support resources, (2)
larger and more seasoned internal development teams, (3) greater name
recognition and (4) larger customer bases. As a result, these current and future
competitors may be able to (1) respond more quickly to new or emerging
technologies or changes in customer preferences, (2) carry larger inventories,
(3) undertake more extensive marketing campaigns, (4) adopt more aggressive
pricing policies and (5) make higher offers or guarantees to software developers
and licensors than GT. Moreover, in a number of geographic markets, certain of
the titles we offer, including various hit titles, are offered on a limited
number of platforms and compete with the same titles offered by our competitors
on other platforms.
In addition, several of our competitors have recently sought to expand
their distribution capabilities. New hardware platforms and electronic delivery
systems may be introduced into the software market and potential new competitors
may enter the software development and distribution market, resulting in greater
competition.
We cannot assure you that we will have the resources required for us to
respond effectively to market or technological changes or to compete
successfully with current and future competitors. Increased competition may
result in price reductions, reduced gross margins and loss of market share, any
of which could have a material adverse effect on our business or financial
condition. We cannot assure you that we will be able to successfully compete
against our current or future competitors or that competitive pressures will not
have a material adverse effect on our business, operating results and financial
condition.
In addition, as part of our value added distribution program, we seek to
provide our mass merchant customers with a wide variety of popular titles. To
achieve such a product mix, we must supplement the distribution of our published
products with certain third-party software products, including products
published by our competitors. We cannot assure you that these competitors will
continue to provide us with their products for distribution to our mass merchant
customers. For example, a number of publishers have begun selling their products
directly to Wal-Mart, rather than through GT. Wal-Mart has continued, and may
continue, to buy software directly from other publishers, rather than purchasing
software through GT. Our inability to obtain software titles developed or
published by our competitors, coupled with our inability to obtain these titles
from other distributors, could have a material adverse effect on our
relationships with our mass merchant customers. This, in turn, could have a
material adverse effect on our business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success is heavily dependent upon our confidential and proprietary
intellectual property. We sell a significant portion of our published software
under licenses from independent developers and, in such cases, we do not acquire
the copyrights for the underlying work. We rely primarily on a combination of
confidentiality and non-disclosure agreements, patent, copyright, trademark and
trade secret laws, as well as other proprietary rights laws and legal methods,
to protect our proprietary rights and the rights of our developers. However,
current U.S. and international laws afford us only limited protection. Despite
our
9
<PAGE> 12
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy our products or obtain and use information that we regard as proprietary.
Software piracy is a persistent problem in the computer software industry.
Policing unauthorized use of our products is extremely difficult because
consumer software can be easily duplicated and disseminated. Furthermore, the
laws of some foreign countries may not protect our proprietary rights to as
great an extent as U.S. law. Software piracy is a particularly acute problem in
certain international markets such as South America, the Middle East, the
Pacific Rim and the Far East. Our business, operating results and financial
condition could be materially and adversely affected if a significant amount of
unauthorized copying of our products were to occur. We cannot assure you that
our attempts to protect our proprietary rights will be adequate or that our
competitors will not independently develop similar or competitive products.
As the number of available software products increase, and their
functionality overlaps, software developers and publishers may increasingly
become subject to infringement claims. We are not aware that any of our products
infringe on the proprietary rights of third parties. However, we cannot assure
you that third parties will not assert infringement claims against GT in the
future with respect to current or future products. There has been substantial
litigation in the industry regarding copyright, trademark and other intellectual
property rights. We have also initiated litigation to assert our intellectual
property rights. Whether brought by or against GT, such claims can be
time-consuming, result in costly litigation and divert management's attention
from the day-to-day operations of GT, which can have a material adverse effect
on our business, operating results and financial condition.
INTERNET STRATEGIES
We believe that the Internet has created new opportunities for us,
including opportunities to:
- strengthen our marketing, promotion and direct distribution capabilities,
- reach new customers,
- add value to existing products and
- develop new products and markets.
To take advantage of these opportunities, we have, and will continue to be
required to:
- expand our World Wide Web sites and the development of our Internet
infrastructure and capabilities,
- expand our electronic distribution capabilities,
- incorporate on-line functionality into existing products,
- develop and invest in new Internet-based businesses and products,
including multi-player entertainment products, and
- integrate and expand the business of, or otherwise determine the most
productive business strategy with respect to, One Zero Media, Inc., an
Internet entertainment content company, which we recently acquired.
We have incurred, and expect to incur, significant additional costs in
connection with these efforts. These costs include those associated with the
acquisition and maintenance of hardware and software necessary to permit on-line
commerce and multi-player games, as well as the related maintenance of our
website and personnel. Although we believe these platforms and technologies are
an integral part of our business, we cannot assure you that our Internet
strategy will be successful or that we will be able to recoup the cost of our
investment. In addition, revenues from our third-party distribution business may
be adversely affected as Internet technology is improved to enable consumers to
purchase and download full-version software products directly from publishers
over the Internet.
LEGAL PROCEEDINGS
In January, February, and March 1998, ten substantially similar complaints
were filed against GT, its Chairman and its Chief Executive Officer, and in
certain actions, its Chief Financial Officer, in the United States District
Court for the Southern District of New York. The plaintiffs, in general, purport
to sue on
10
<PAGE> 13
behalf of a class of persons who purchased shares (and as to certain complaints,
purchased call options or sold put options) of GT during the period from August
1, 1996 through December 12, 1997. The plaintiffs allege that the defendants
violated the federal securities laws by making misrepresentations and omissions
of material facts that allegedly had the effect of artificially inflating the
market price of our common stock during the class period. The plaintiffs further
allege that we failed to expense properly certain prepaid royalties for software
products that had been terminated or had failed to achieve technological
feasibility, which misstatements purportedly had the effect of overstating our
net income and net assets. On October 7, 1998, the Court appointed lead
plaintiffs and lead counsel to the plaintiffs in the actions. The plaintiffs'
consolidated and amended complaint was filed and served in early January 1999.
By order dated January 23, 1999, the plaintiffs were granted leave to file a
second consolidated and amended complaint, which added claims under Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against GT's
independent auditor, Arthur Andersen LLP. The defendants have not yet responded
to the second consolidated and amended complaint. We believe that the
plaintiffs' complaints are without merit and we intend to defend ourselves
vigorously against these actions. However, at this stage in the actions, we
cannot assure you how these actions will be ultimately resolved or that an
adverse outcome could not have a material adverse effect on our results of
operations and financial condition.
PRODUCT RETURNS; INVENTORY RISK
We accept product returns or provide price reductions or other credits, on
varying terms, to customers that hold excess inventory of our products. In
addition, software products as complex as those we publish may contain
undetected errors when first introduced or when new versions are released. It is
our practice to accept return of defective or damaged products at any time. To
cover these future product returns and price reductions, we establish a return
reserve at the time we ship our products. We estimate the potential for future
returns based on: (1) historical return rates, (2) seasonality of sales, (3)
retailer inventories of GT products, and (4) other factors. Historically, we
have experienced product returns at a rate of approximately 30% of gross sales.
While we are able to recover the majority of our costs when third-party products
which we distribute are returned, we bear the full financial risk when our own
products are returned. Moreover, the license fees we pay Sony and Nintendo in
connection with our console titles are non-refundable and we cannot recover
these fees when our console products are returned. Although we believe we
maintain adequate reserves with respect to product returns and price reductions,
we cannot assure you that actual returns will not exceed reserves, which could
materially and adversely affect our business, operating results and financial
condition.
YEAR 2000 ISSUES
Many currently installed operating systems and software products are coded
to accept only two digit entries in the date code field. Consequently, they are
unable to distinguish 21st century dates from 20th century dates. These date
code fields need additional digits to distinguish 21st century dates from 20th
century dates. As a result, the computer systems and software used by many
companies may need to be upgraded to comply with Year 2000 requirements.
Failure to correct systems to become "Year 2000 compliant" may result in
systems failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. The Year 2000
issues also may affect our products.
Our review of GT's Year 2000 compliance issues encompasses three principal
areas: (1) critical information systems (including information technology
("IT"), such as financial and order entry systems, and non-information
technology ("Non-IT") systems, such as facilities); (2) third party customers,
vendors and others with whom we do business; and (3) GT's products.
We have conducted a comprehensive review of GT's critical information
systems and are in the process of reviewing GT's products for Year 2000
compliance. We have developed a plan to remedy any deficiencies in the Company's
critical information systems. We expect to resolve our Year 2000
11
<PAGE> 14
compliance issues primarily through normal upgrades of our software or, when
necessary, through replacement of existing software or affected Non-IT systems
with Year 2000 compliant applications or systems. Presently, we are in the
process of testing the enhancements to our critical information systems and we
are developing a plan to identify time sensitive components in our products
currently under development. In addition, we are in the process of asking
vendors and other third parties with whom GT has relevant relationships to
certify that they are Year 2000 compliant or, if they are not yet so compliant,
to provide us with a description of their plans to become so. We expect to
complete our programs for Year 2000 compliance with respect to GT's critical
information systems, vendors and other third parties by March 31, 1999. We
intend to complete such process with respect to GT's products in advance of
January 1, 2000.
We cannot assure you that such upgrades and replacements can be completed
on schedule or within estimated costs or can successfully address the Year 2000
compliance issues. If our present efforts to address the Year 2000 compliance
issues are not successful, or if vendors and other third parties with which GT
conducts business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected. For example, failure to achieve Year 2000 compliance for our internal
critical information systems could delay our ability to manufacture and ship
products, disrupt customer service and technical support facilities, or
interrupt customer access to online products and services. We also rely heavily
on third parties such as vendors, suppliers, service providers and a large
retail distribution channel. If these or other third parties experience Year
2000 failures or malfunctions, our ability to conduct ongoing operations could
be materially and adversely affected. For example, our ability to manufacture
and ship products (both GT's and third parties' for which GT acts as
distributor) into the retail channel, to receive retail sales information
necessary to maintain proper inventory levels or to complete online transactions
dependent upon third party service providers could be affected. Moreover, should
third-party products distributed by GT fail to be Year 2000 compliant, our
retail customers might return such products or seek redress from us, which in
turn would require us to seek redress from the publisher of the product. In
addition, because of the number of products sold by GT currently and in the
past, we could face litigation relating to Year 2000 compliance of products that
we no longer sell and/or support, although we believe that any such exposure
should not be material.
We have budgeted $400,000 for the cost of upgrading, replacing, testing and
implementing our Year 2000 compliance measures, and we have spent approximately
$325,000 to date. Additionally, we have not yet established a contingency plan
and will continue to evaluate whether one is necessary, depending upon our
progress in implementing our Year 2000 compliance measures as set forth above.
The above discussion regarding costs, risks and estimated completion dates
for the Year 2000 is based on our best estimates given information that is
currently available, and is subject to change. Actual results may differ
materially from these estimates.
USE OF PROCEEDS
All net proceeds from the sale of the GT common stock offered hereby will
go to the selling stockholders.
SELLING STOCKHOLDERS
An aggregate of 1,930,501 shares of GT common stock are being offered by
the selling stockholders pursuant to this Prospectus. The following table sets
forth (i) the number of shares of GT common stock owned by each selling
stockholder as of the date of this Prospectus, (ii) the number of shares being
offered by each selling stockholder pursuant to this Prospectus, and (iii) the
number of shares of GT common stock owned by each selling stockholder after the
completion of the offering. All information with respect to share ownership has
been furnished by the selling stockholders. The shares offered pursuant to this
Prospectus may be offered from time to time, in whole or in part, by the selling
stockholders or their
12
<PAGE> 15
transferees. Except as indicated in the footnotes to the following table, none
of the selling stockholders has been an officer, director or employee of GT for
the past three years.
Of the shares being offered pursuant to this Prospectus, an aggregate of
1,719,233 shares were originally issued to the selling stockholders other than
id Software, Inc. as consideration in connection with GT's acquisition of One
Zero Media, Inc., a Massachusetts corporation, on November 4, 1998. In
connection with the acquisition, we agreed to register these shares under the
Securities Act of 1933.
The remaining 211,268 shares being offered pursuant to this Prospectus are
issuable upon exercise of a common stock purchase warrant held by id Software.
The warrant is exercisable at a price of $9.47 per share.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING
-----------------------
NUMBER OF PERCENT OF SHARES TO BE SOLD SHARES BENEFICIALLY OWNED
SELLING STOCKHOLDER SHARES CLASS(1) IN OFFERING AFTER OFFERING(2)
- ------------------- --------- ---------- ----------------- -------------------------
<S> <C> <C> <C> <C>
Alan B. Chebot(3)................. 1,092,619(4) 1.5% 787,709 304,910
Steve Garson(3)................... 99,226(4) * 71,535 27,691
id Software, Inc.................. 211,268(5) * 211,268(5) 0
Jardine Family Limited
Partnership..................... 372,057(4) * 334,851 37,206
Mathew Lindley(3)................. 364,206(4) * 262,569 101,637
Kevin Wells(3).................... 364,206(4) * 262,569 101,637
</TABLE>
- ---------------
* Less than 1%.
(1) Based on 72,775,868 shares of GT common stock outstanding as of February 19,
1999.
(2) Assumes that all of the shares beneficially owned by the selling
stockholders and being offered under this Prospectus are sold and that the
selling stockholders acquire no additional shares of common stock prior to
the completion of this offering. If so, after the offering, each selling
stockholder will beneficially own less than 1% of the total number of shares
of GT common stock outstanding.
(3) Since November 4, 1998, the selling stockholder has been an employee of GT.
(4) Ten percent of these shares are currently being held in escrow and may not
be sold, transferred, pledged or assigned by the selling stockholder until
November 4, 1999.
(5) Assumes exercise of the common stock purchase warrant.
PLAN OF DISTRIBUTION
We are registering the shares of GT common stock offered hereby on behalf
of the selling stockholders. As used herein, "selling stockholders" includes
donees and pledgees selling shares received from the selling stockholders after
the date of this Prospectus. We will pay all expenses of registration of the
shares offered hereby, other than commissions, discounts and concessions of
underwriters, dealers or agents. Brokerage commissions and similar selling
expenses, if any, attributable to the sale of the shares will be borne by the
selling stockholders. We will not receive any of the proceeds from the sale of
the shares by the selling stockholders.
Pursuant to terms and conditions of the registration rights agreement among
GT and the selling stockholders other than id Software, (a) until 90 days
following the date on which the Registration Statement of which this Prospectus
forms a part is first declared effective, the selling stockholders other than id
Software may sell, transfer or dispose of up to an aggregate of 802,309 shares
of GT common stock, (b) until 180 days following the date on which the
Registration Statement is first declared effective, these selling stockholders
may sell, transfer or dispose of up to an aggregate of 1,260,771 shares, and (c)
after 180 days following the date on which the Registration Statement is first
declared effective, these selling stockholders may sell, transfer or dispose of
all of their shares set forth above.
The shares may be sold from time to time by the selling stockholders, or by
their pledgees, donees, distributees, transferees or other successors in
interest. Such sales may be made in one or more types of
13
<PAGE> 16
transactions (which may include block transactions) on one or more exchanges, in
the over-the-counter market, in negotiated transactions, through put or call
options transactions relating to the shares, through short sales of the shares,
or a combination of such methods of sale, at market prices prevailing at the
time of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers.
The selling stockholders may effect such transactions by selling their
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling stockholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection with
the sale of the shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933. Consequently, any commissions
received by such broker-dealers and any profit on the resale of the shares sold
by them while acting as principals might be deemed to be underwriting discounts
or commissions under the Securities Act of 1933. We have agreed to indemnify the
selling stockholders against certain liabilities, including liabilities arising
under the Securities Act of 1933, or to contribute to payments which the selling
stockholders may be required to make in respect hereof. The selling stockholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act of 1933.
Because the selling stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, the selling
stockholders will be subject to the prospectus delivery requirements of the
Securities Act of 1933, which may include delivery through the facilities of the
Nasdaq National Market pursuant to Rule 153 under the Securities Act. We have
informed the selling stockholders that the anti-manipulative provisions of
Regulation M under the Securities Exchange Act of 1934 may apply to their sales
in the market.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that Rule.
Upon being notified by any selling stockholder that he has entered into any
material arrangement with a broker-dealer for the sale of the shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file a supplement to this
Prospectus, if required, pursuant to Rule 424(b) under the Securities Act of
1933, disclosing: (1) the name of the selling stockholder and the participating
broker-dealer(s), (2) the number of shares involved, (3) the price at which such
shares were sold, (4) the commissions paid or discounts or concessions allowed
to such broker-dealer(s), where applicable, (5) that such broker-dealer(s) did
not conduct any investigation to verify the information set out or incorporated
by reference in this Prospectus, and (6) other facts material to the
transaction.
We have agreed with the selling stockholders to keep the Registration
Statement, of which this Prospectus is a part, effective for a period ending on
the earlier of (i) one year after the effectiveness of the Registration
Statement, (ii) the date on which the shares offered hereby can be sold without
registration under the Securities Act of 1933 or any applicable state securities
laws, or (iii) the date on which all shares offered hereby have been sold and
the distribution contemplated hereby has been contemplated, subject to certain
exceptions and limitations.
LEGAL MATTERS
Certain legal matters in connection with the shares of GT common stock
offered hereby have been passed upon for GT by Kramer Levin Naftalis & Frankel
LLP, New York, New York. Certain members of, and persons associated with, such
firm own an aggregate of 23,642 shares of GT common stock.
14
<PAGE> 17
EXPERTS
The audited financial statements and schedules incorporated by reference in
this prospectus and elsewhere in this registration statement, have been audited
by Arthur Andersen LLP, independant public accountants, as set forth in their
reports. In those reports, that firm states that with respect to certain
subsidiaries its opinion is based on the reports of other independent public
accountants, namely Ernst & Young LLP. The financial statements and supporting
schedules referred to above have been incorporated by reference herein in
reliance upon the authority of those firms as experts in giving said reports.
MATERIAL CHANGES
On February 23, 1999, GT issued to certain affiliates of General Atlantic
Partners, LLC. 600,000 shares of its Series A Convertible Preferred Stock, par
value $.01 per share, for an aggregate purchase price of $30 million. Each share
of Series A Convertible Preferred Stock is convertible at any time into ten
shares of GT common stock. GT may redeem the Series A Convertible Preferred
Stock at any time after February 8, 2003.
15
<PAGE> 18
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY GT OR THE SELLING STOCKHOLDERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
1,930,501 SHARES
[GT LOGO]
GT INTERACTIVE SOFTWARE CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1999
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
<TABLE>
<CAPTION>
TOTAL
-------
<S> <C>
SEC registration fee (actual)............................... $ 2,483
Accounting fees and expenses................................ $10,000
Legal fees and expenses..................................... $15,000
Printing and engraving expenses............................. $15,000
Miscellaneous expenses...................................... $ 5,000
-------
Total............................................. $47,483
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Amended and Restated Certificate of Incorporation, as
amended, contains provisions permitted by Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify directors and/or officers in an action or
suit by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the director
or officer is adjudged to be liable to the corporation. Where a director or
officer is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such director or officer actually and reasonably incurred.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended, provides indemnification of directors and officers of the Registrant to
the fullest extent permitted by the DGCL. Pursuant to the respective
registration rights agreements entered into with the Registrant, the selling
stockholders have agreed to indemnify directors and officers of the Registrant
against certain liabilities, including liabilities under the Securities Act.
The Registrant maintains liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Registrant.
II-1
<PAGE> 20
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.1 Specimen form of stock certificate for Common Stock
(incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Registrant's
Registration Statement on Form S-1 filed on October 20,
1995, and all amendments thereto (Registration No.
33-98448))
5.1* Opinion of Kramer Levin Naftalis & Frankel LLP
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Ernst & Young LLP
23.3* Consent of Kramer Levin Naftalis & Frankel LLP (contained in
the opinion filed as Exhibit 5.1 hereto)
24.1* Power of Attorney (contained on the signature page of this
Registration Statement)
</TABLE>
- ---------------
* Filed herewith
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
such clauses is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement;
II-2
<PAGE> 21
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on March 1, 1999.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ THOMAS HEYMANN
--------------------------------------
Name: Thomas Heymann
Title: Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Joseph J. Cayre, Thomas Heymann and Jack
J. Cayre, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH J. CAYRE Chairman Emeritus of the Board March 1, 1999
- --------------------------------------------------- of Directors
Joseph J. Cayre
/s/ ANDREW GREGOR Senior Vice President, Finance March 1, 1999
- --------------------------------------------------- and Administration, and Chief
Andrew Gregor Financial Officer (Principal
Financial and Accounting
Officer)
/s/ THOMAS HEYMANN Chairman of the Board, Chief March 1, 1999
- --------------------------------------------------- Executive Officer and
Thomas Heymann Director
/s/ JACK J. CAYRE Executive Vice President, March 1, 1999
- --------------------------------------------------- Director
Jack J. Cayre
/s/ STANLEY CAYRE Director March 1, 1999
- ---------------------------------------------------
Stanley Cayre
/s/ RONALD W. CHAIMOWITZ Director March 1, 1999
- ---------------------------------------------------
Ronald W. Chaimowitz
</TABLE>
II-4
<PAGE> 23
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN A. DENNING Director March 1, 1999
- ---------------------------------------------------
Steven A. Denning
/s/ WILLIAM E. FORD Director March 1, 1999
- ---------------------------------------------------
William E. Ford
Director March 1, 1999
- ---------------------------------------------------
Jordan A. Levy
/s/ PHILLIP J. RIESE Director March 1, 1999
- ---------------------------------------------------
Phillip J. Riese
/s/ ALVIN N. TELLER Director March 1, 1999
- ---------------------------------------------------
Alvin N. Teller
</TABLE>
II-5
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.1 Specimen form of stock certificate for Common Stock
(incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Registrant's
Registration Statement on Form S-1 filed on October 20,
1995, and all amendments thereto (Registration No.
33-98448))
5.1* Opinion of Kramer Levin Naftalis & Frankel LLP
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Ernst & Young LLP
23.3* Consent of Kramer Levin Naftalis & Frankel LLP (contained in
the opinion filed as Exhibit 5.1 hereto)
24.1* Power of Attorney (contained on the signature page of this
Registration Statement)
</TABLE>
- ---------------
* Filed herewith
II-6
<PAGE> 1
Exhibit 5.1
[KRAMER LEVIN NAFTALIS & FRANKEL LLP LETTERHEAD]
March 1, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: GT Interactive Software Corp.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to GT Interactive Software Corp., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of the above-captioned Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering 1,930,501 shares of common stock, par value $0.01
per share, of the Company to be sold by the selling stockholders named in the
Registration Statement (the "Shares").
As such counsel we have examined such corporate records,
certificates and other documents and such questions of law as we have considered
necessary or appropriate for the purposes of this opinion. In rendering this
opinion, we have (a) assumed (i) the genuineness of all signatures on all
documents examined by us, (ii) the authenticity of all documents submitted to us
as originals, and (iii) the conformity to original documents of all documents
submitted to us as photostatic or conformed copies and the authenticity of the
originals of such copies; and (b) relied on (i) certificates of public officials
and (ii) as to matters of fact, statements and certificates of officers of the
Company.
<PAGE> 2
KRAMER LEVIN NAFTALIS & FRANKEL LLP
Securities and Exchange Commission
March 1, 1999
Page 2
Based upon the foregoing, we are of the opinion that the
Shares (including those shares issuable upon exercise of a warrant, assuming
such shares are so issued upon exercise in accordance with the terms and
conditions set forth in the warrant) have been validly authorized and issued,
and are fully-paid and non-assessable shares of common stock of the Company.
We are attorneys admitted to the Bar of the State of New York,
and we express no opinion as to the laws of any other jurisdiction other than
the laws of the United States of America and the General Corporation Law of the
State of Delaware.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement. In
giving such consent we do not thereby concede that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 of our report dated May
21, 1998, included in GT Interactive Software Corp.'s Transition Report on Form
10-K for the transition period from January 1, 1998 to March 31, 1998 and of our
report dated February 13, 1998, included in GT Interactive Software Corp.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and to
all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
New York, New York
February 22, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in this Registration Statement on Form S-3 of our
report dated May 10, 1996, with respect to the financial statements of
WizardWorks Group, Inc. (not separately presented in such reports), included in
the Transition Report on Form 10-K of GT Interactive Software Corp. for the
transition period from January 1, 1998 to March 31, 1998 and in the Annual
Report on Form 10-K of GT Interactive Software Corp. for the fiscal year ended
December 31, 1997.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
February 22, 1999
