-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KEwWXt6+sGkx16hbFBZ2DWo3AljYqLwWcW+9nwOal+if2CG2F1n7RDxQkkiiLQYp Sobu5+VckY6g0lm7slEr0w== /in/edgar/work/20000629/0000950123-00-006196/0000950123-00-006196.txt : 20000920 0000950123-00-006196.hdr.sgml : 20000920 ACCESSION NUMBER: 0000950123-00-006196 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOGRAMES INC CENTRAL INDEX KEY: 0001002607 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 953825313 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27338 FILM NUMBER: 665385 BUSINESS ADDRESS: STREET 1: 417 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2127266500 MAIL ADDRESS: STREET 1: 417 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: GT INTERACTIVE SOFTWARE CORP DATE OF NAME CHANGE: 19951023 10-K 1 e10-k.txt INFOGRAMES, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2000 COMMISSION FILE NO. 0-27338 ------------------------ INFOGRAMES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3689915 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
417 FIFTH AVENUE, NEW YORK, NY 10016 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ------------------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 726-6500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] ------------------------ The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant based on the closing sale price of the Common Stock on June 22, 2000 as reported on the Nasdaq National Market, was approximately $62,978,816. As of June 22, 2000, there were 103,426,615 shares of the registrant's Common Stock outstanding (not adjusted to reflect the one-for-five reverse stock split effected on June 26, 2000). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFOGRAMES, INC. MARCH 31, 2000 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE ---- FORWARD LOOKING INFORMATION................................. ii PART I...................................................... 1 ITEM 1. Business....................................... 1 ITEM 2. Properties..................................... 14 ITEM 3. Legal Proceedings.............................. 15 ITEM 4. Submission of Matters to Vote of Security Holders........................................ 17 PART II..................................................... 17 ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 17 ITEM 6. Selected Financial Data........................ 19 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 21 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk..................................... 32 ITEM 8. Index to the Financial Statements and Supplementary Data............................. 33 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 33 PART III.................................................... 34 ITEM 10. Directors and Executive Officers................ 34 ITEM 11. Executive Compensation.......................... 34 ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................. 34 ITEM 13. Certain Relationships and Related Transactions.................................... 34 PART IV..................................................... 34 ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 34 SIGNATURES.................................................. 40 CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
3 DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the Proxy Statement for the Annual Meeting of Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware corporation, scheduled to be held on July 25, 2000 is incorporated by reference into Part III hereof. FORWARD-LOOKING INFORMATION When used in this Annual Report on Form 10-K, the words "intends," "expects," "plans," "estimates," "projects," "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Except for historical information contained herein, the matters discussed and the statements made herein concerning the Company's future prospects are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. There can be no assurance that future results will be achieved, and actual results could differ materially from the forecast and estimates. Important factors that could cause actual results to differ materially include, but are not limited to, worldwide business and industry conditions (including consumer buying and retailer ordering patterns), adoption of new hardware systems, product delays, changes in research and development spending, software development requirements and their impact on product launches, Company customer relations (in particular, levels of sales to Wal-Mart and other mass merchants), retail acceptance of the Company's published and third-party titles, competitive conditions and other risk factors, including, but not limited to, those discussed in "Risk Factors" below at pages 9 to 14. ii 4 PART I ITEM 1. BUSINESS OVERVIEW Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware corporation (the "Company"), is a leading worldwide developer, publisher and distributor of interactive entertainment software for use on PCs, the Sony PlayStation and Nintendo 64 platforms. The Company also is currently developing software for new platforms such as Sega Dreamcast, Nintendo Gameboy Advance and Sony PlayStation 2. During calendar year 1999, the Company had the fifth highest U.S. market share in number of units sold in the PC software game category. The Company is also a leader in certain sub-segments of the "edutainment" software market, including the fast growing children's education and leisure entertainment segments. According to PC Data, in 1999, the Company's Humongous studio ranked as the number three publisher in the U.S. market for PC education software on the basis of units sold. In May 2000, in connection with the acquisition by Infogrames Entertainment SA ("Infogrames SA") of a majority stake in the Company, the Company changed its name from GT Interactive Software Corp. to Infogrames, Inc. and announced that all of its products will be marketed under the Infogrames brand. The Company believes that the Infogrames brand is well respected in the interactive entertainment software industry and that this new branding strategy will strengthen the Company's image with customers and the industry as a whole. On June 26, 2000, the Company effected a one-for-five reverse stock split of the Company's Common stock, par value $.01 per share (the "Common Stock") to meet certain requirements of the Nasdaq National Market. See "Risk Factors -- Our Common Stock Does Not Currently Meet the Nasdaq National Market's Minimum Share Price Requirement and May Be Subject to Delisting." Except as otherwise noted, references to share prices and the number of shares of Common Stock in this Annual Report do not reflect the reverse stock split. The Company has two reportable segments: publishing and distribution. Publishing relates to the development (both internally and externally) and sale of interactive entertainment software for the children's education, leisure entertainment and gaming enthusiast's markets. Distribution relates to the sale by the Company of its own and third-party published software to various mass merchants and other retailers. For additional information with respect to the Company's business segment reporting, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 19 to the Consolidated Financial Statements. The Company's publishing business consists of three divisions: Children's, Leisure and Frontline. The Company's Children's Division develops and publishes children's educational and entertainment software for the personal computer. The Company's Leisure Division develops and publishes lower-priced PC entertainment, reference and productivity titles for mass market consumption. The Company's Frontline Division develops, internally and through third-party developers, and publishes cutting edge new release entertainment software for the gaming enthusiast for use on multiple hardware platforms. The Company distributes both its own and third-party published software through an established distribution network. The Company believes that it is one of the few software publishers that sells its products directly to substantially all of the major retailers of computer software in the U.S. The Company's distribution division also compiles, repackages and markets older titles to retailers, extending the economic life of those products. The Company believes it is the largest distributor of consumer software to mass merchants in the U.S. The Company supplies consumer software (including its own and third-party published software) to approximately 2,470 Wal-Mart stores, approximately 2,096 Kmart stores and approximately 921 Target stores. The Company also distributes consumer software to other major retailers including Office Depot, Best Buy, CompUSA, AAFES, Sam's Club and Babbage's. During the fiscal year ended March 31, 2000, the Company made a significant effort to reorganize and refocus its distribution and value/leisure lines. In July 1999, the Company began outsourcing its warehouse 5 operations in the U.S. to Arnold Logistics ("Arnold Logistics"). The warehouse operations include the receipt and storage of inventory as well as the distribution of inventory to mass market and other retailing customers. This allows the Company to reduce distribution costs and to streamline operations to focus on producing more hit titles. Through this refocus, the Company decided to reduce its involvement in distribution of third-party product and the value and leisure lines of business. This has led to charges of approximately $58.0 million during the fiscal year ended March 31, 2000. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." In connection with its restructuring and reorganization, the Company has decided to concentrate its efforts in North America. Effective December 31, 1999, the Company began the process of closing its European operations. Because of Infogrames SA's strong European presence, the Company has entered into an agreement with Infogrames SA to provide distribution of the Company's products in Europe. The Company believes that full-time operations in Europe are no longer necessary or efficient and that it will be able to access European markets through the strong distribution channels of Infogrames while concentrating its resources in other strategic areas. As of March 31, 2000, the Company has expensed approximately $37.0 million in charges related to this strategic plan. PUBLISHING The Company's publishing business consists of three divisions: Children's, Leisure and Frontline. The Company's Frontline and Children's Divisions publish premium-priced, higher production value titles for use on multiple platforms that are developed internally or through third-party developers and marketed both domestically and internationally. The Company's Leisure segment publishes value-priced PC titles for mass market consumption. CHILDREN'S PUBLISHING Humongous Entertainment, Inc. ("Humongous") is a leading developer and publisher of interactive children's edutainment software. Humongous was acquired by the Company in July 1996 and has been the primary vehicle through which the Company has penetrated the children's edutainment market. Through internally generated hit titles such as Freddi Fish, Putt Putt and Pajama Sam, and through licensed products like Nickelodeon's Blue's Clues, Humongous has risen to become the third-largest participant in the educational software market category, capturing 7.2% of total dollar market sales in the U.S. for 1999. According to PC Data, Humongous published the best-selling (Blue's Clues ABC Time Activities), third best-selling (Blue's Clues Birthday Adventure) and sixth best-selling (Blue's 123 Time Activities) entertainment titles of 1999. Other titles released by Humongous include Putt Putt(R) Enters the Race(TM), Putt Putt(R) Travels through Time(TM), Backyard Soccer(TM), Backyard Baseball(TM), Freddi Fish 4: The Case of the Hogfish Rustlers of Briny Gulch(TM) and Pajama Sam 2: Thunder and Lightning Aren't So Frightening(TM). LEISURE PUBLISHING The Leisure Division was established in June 1996 with the acquisition of WizardWorks Group, Inc. ("WizardWorks"). Since that time, the Company has become a leading publisher of value-priced leisure and recreational software. The Company's Leisure Division publishes and distributes titles through three labels: WizardWorks. In the fall of 1997, the Leisure Division virtually created a brand new market when it introduced Deer Hunter for PC, under the WizardWorks label. In approximately four months, this interactive hunting simulation game rose to the top of the PC Data charts to become the best-selling PC game in the U.S. for the first six months of 1998. The Company believes that the success of Deer Hunter reflected a growing consumer trend in which the interest of those who typically do not play computer games is sparked by a combination of compelling software themes, the availability of PCs for under $1,000 and value software's sub-$20 retail price. WizardWorks has since expanded the interactive outdoor sporting market with a number of titles, including Deer Hunter II, Deer Hunter II Extended Season, Deer Hunter's Extended Season, Deer 2 6 Hunter Companion, Sporting Clays, Rocky Mountain Trophy Hunter, Rocky Mountain Trophy Hunter II, Pro Bass Fishing, Deep Sea Trophy Fishing, Bird Hunter Waterfowl Edition, Grand Slam Turkey Hunt, Alaskan Expedition, Bird Hunter Upland Edition and African Safari Trophy Hunter 3D. The Company's hunting software games for PC, published under the WizardWorks brand, comprise more than 38% of the market share in units and dollars for all hunting software games. Additionally, of the top 10 1999 hunting PC games in units, 44% came from this label. The Company has shipped approximately one million units of its hit title Deer Hunter and approximately 800,000 units of the sequel, Deer Hunter II. In fiscal year 1999, the Company also published other titles under the WizardWorks brand such as Montezuma's Return, Real Pool, Rudolf the Red-Nosed Reindeer's Magical Sleigh Ride, Baseball Mogul and Carnivores, along with a number of other titles targeted for the casual computer user. CompuWorks. Under the CompuWorks brand the Company offers productivity and small office/home office software products. The Company has published such recent CompuWorks titles as Joy of Cooking, America's Greatest Chili Cookbook, National Golf Course Directory, Feng Shui, Holiday Card Creator '98, Yes 2K and Learn Office 2000. MacSoft. The Company believes its MacSoft label is the leading Macintosh games software publisher in the U.S. MacSoft publishes frontline PC Games for the Macintosh market, including Company-developed games, as well as third-party games under license to the Company. Recent successful titles published by MacSoft include Unreal, Civilization II: Gold Edition, Falcon 4.0, America's Greatest Solitaire Games, Deer Hunter, Real Pool, Civilization II and Quake. Other recent titles published by MacSoft include Lode Runner 2, Rocky Mountain Trophy Hunter, Dark Vengeance, Klingon Honor Guard and America's Greatest Arcade Hits 3D. MacSoft also publishes productivity titles including MacPublisher and Desktop Labels Pro. FRONTLINE PUBLISHING The Company's Frontline Division is responsible for the development and publishing of cutting-edge, new release entertainment for the gaming enthusiast. This division has been the source of some of the industry's most successful titles including Duke Nukem, Oddworld and Total Annihilation. Frontline releases are largely responsible for the Company's fifth-place market share position in PC Data's 1999 rankings for the PC games category. The Company has successfully exploited Frontline's strengths in cutting edge PC entertainment software to gain entry into the high growth videogame console platform market. In fiscal year 2000, approximately 61% of the division's revenues were generated from sales of PlayStation, Nintendo and other console software. The Frontline Division publishes entertainment software developed by a variety of internal and third-party studios. Approximately 54% of Frontline's revenues for the fiscal year ended March 31, 2000 were generated from products developed by the Company's internally owned studios. The Company has initiated efforts to reduce the number of new releases published annually by the Frontline Division. This more selective approach to new releases is expected to result in lower research and development costs, increased efficiency, greater focus and more control over production schedules. In support of this effort, the Company has closed three internal studios and is currently reducing the size of another. A summary description of each of Frontline's continuing internal studios is set forth below. Internal Development Studios SingleTrac. In October 1997, the Company acquired SingleTrac Entertainment Technologies, Inc. ("SingleTrac"), the developer of hit PlayStation titles including JetMoto I and II, Twisted Metal I and II and WarHawk. Since it was acquired by the Company, SingleTrac has produced Rogue Trip and Streak. Reflections. The Company acquired Newcastle, England-based Reflections Interactive Limited ("Reflections") in December 1998. Reflections was the developer of PlayStation hits Destruction Derby and 3 7 Destruction Derby II. In fiscal year 2000, the Company shipped approximately 2.9 million units of Driver, Reflections' newest title. Additionally, the Company has announced sequels of Driver, scheduled to be released in fiscal year 2001. Oddworld Inhabitants. In November 1996, the Company invested in convertible preferred stock of Oddworld Inhabitants, Inc. ("Oddworld"), which is convertible into 50% of the common equity of Oddworld. The Company also entered into an exclusive worldwide publishing agreement with Oddworld. Since that time, Oddworld has developed and shipped the first two successful installments of its Oddworld series: Abe's Oddysee and Abe's Exoddus. Each title has sold more than one million units worldwide. Legend Entertainment. The Company acquired Legend Entertainment Company ("Legend") in December 1998. Legend is currently developing a number of titles for the Company, including Unreal 2, Unreal Mission Pack I and Wheel of Time. During fiscal year 2000, the Company released Unreal Tournament, which sold approximately 600,000 units. External Product Development Since its inception, the Company has established publishing and distribution relationships with various independent developers. For the fiscal year ended March 31, 2000, approximately 46% of the Company's Frontline publishing revenues were derived from products developed by independent, third-party developers. For example, the Duke Nukem franchise created by 3D Realms has generated for the Company gross unit sales, including add-ons and sequels, to date in excess of three million units worldwide. From May 1998 through March 2000, the Company shipped more than 800,000 units of Unreal, an action title created by Epic Games, another third-party developer. Acquired titles are marketed under the Company's name as well as the name of the original developer. The agreements with third-party developers provide the Company with exclusive publishing and distribution rights for a specific period of time for specified platforms and territories. Those agreements may grant to the Company the right to publish sequels, enhancements and add-ons to the product originally being developed and produced by the developer. In consideration for its services, the developer receives a royalty based on sales of the product that it has developed. A portion of this royalty may be prepaid, with payments tied to the completion of detailed performance milestones. The Company manages the production of external development projects by appointing a producer to oversee the product's development and to work with the third-party developer to design, develop and test the software. This producer also helps ensure that performance milestones are met in a timely manner. The Company generally has the right to cease making payments to an independent developer if such developer fails to complete its performance milestones in a timely fashion. 4 8 DISTRIBUTION The Company's strength in distribution in North America, as well as its distribution presence in Europe through Infogrames SA, ensures access to valuable shelf space for its published products. The Company believes that it is one of the few software publishers that sells directly to substantially all of the major retailers of computer software in the U.S. and that it is the largest distributor of computer software to mass merchants in the U.S. The Company supplies consumer software (including its own and third-party published software) to approximately 2,470 Wal-Mart stores, approximately 2,096 Kmart stores and approximately 921 Target stores. The Company also distributes consumer software (including its own and third-party published software) to other major retailers including Office Depot, Best Buy, CompUSA, AAFES, Sam's Club and Babbage's. The Company values its distribution relationships with these major retailers because they also allow the Company to more readily sell its own, higher margin software to them. Technology. Utilizing its point-of-sale replenishment systems and electronic data interchange links with its largest mass merchant accounts, the Company is able to handle high sales volumes to those customers efficiently, manage and replenish inventory on a store-by-store basis and assemble for its customers regional and store-by-store data based on product sell-through. The Company utilizes proprietary technology systems for order processing, inventory management, purchasing and tracking of shipments, thereby increasing the efficiency and accuracy of order processing and payments and shortening order turnaround time. These systems automatically track software orders from order processing to point-of-sale, thereby enhancing customer satisfaction through prompt delivery of the desired software titles. Fulfillment. Historically, the Company's warehouse operations provided fulfillment services within North America to the Company and third-party developers. Such services included physical receipt and storage of inventory and its distribution to the mass market and other retailers. After evaluating the costs associated with the fulfillment function, including, among other things, the costs of projected future investments in plants and technology, the Company decided to outsource its warehouse operations to Arnold Logistics in July 1999. Distribution of Third-Party Products. Based on the strength of its current consumer software distribution operation, the Company has successfully attracted other publishers to utilize its mass merchant distribution capabilities for their products. Such products are generally acquired by the Company and distributed under the name of the publisher who is, in turn, responsible for the publishing, packaging, marketing and customer support of such products. The Company's agreements with other publishers typically provide for certain retail distribution rights in designated territories for a specific period of time, after which those rights are subject to negotiated renewal. Value/Close-out. In June 1995, the Company acquired Slash Corporation, a leading publisher, merchandiser and distributor of value-priced software. The value/close-out business purchases older titles from other publishers and sells them as "value" titles to retailers. This helps the publisher extend the life cycle of its products. The products are intended for retail price points of $4.98 to $19.99 and may include boxed products as well as products in jewel cases. The value/close-out business may purchase finished goods or may license the rights to produce finished goods from the publisher. The Company sells value programs to some retailers in which the Company is responsible for stocking a four-foot or eight-foot section in the retailers' stores. GEOGRAPHY In connection with its restructuring and reorganization, the Company has decided to concentrate its efforts in North America. Effective December 1, 1999, the Company began the process of closing its European operations. Because of Infogrames SA's strong European presence, the Company has entered into an agreement with Infogrames SA to provide distribution of the Company's products in Europe pursuant to which the Company is entitled to receive 30% of the gross profit on such products. The Company believes that Infogrames SA's strong presence in Europe will provide effective distribution in Europe of the Company's 5 9 titles while allowing the Company to focus its efforts in North America. The Company continues to maintain an office in Australia, the results of operations of which are consolidated in the results of operations of the Company. For additional information regarding the Company's international business, see Note 19 to the Consolidated Financial Statements. SALES AND MARKETING The Company utilizes a wide range of sales and marketing techniques to promote sales of its products including (i) in-store promotions utilizing display towers and endcaps, (ii) advertising in computer and general consumer publications, (iii) on-line marketing, (iv) direct mailings and (v) television advertising. The Company monitors and measures the effectiveness of its marketing strategies throughout the product life cycle. Historically, the Company has devoted a substantial amount of its marketing resources to its Frontline published products and intends to do so in the future. The Company believes that such marketing is essential for cultivating product successes and brand-name loyalty. The Company's marketing programs have expanded along with the Company's publishing business, with an emphasis both on launching products and on raising the public's awareness of new brands and franchises. The Company may begin to develop an integrated marketing program for a product more than a year in advance of its release. This integrated marketing approach may include extensive press contacts, development of point-of-purchase displays, print and television advertising, Internet promotion, press events and a global synchronized launch. The Internet is an integral element of the Company's marketing efforts used, in part, to generate awareness for titles months prior to their market debut. The Company incorporates the Internet into its marketing programs through the creation of product-dedicated mini-sites and on-line promotions. In addition, the Company provides editorial material to on-line publications that reach the core gaming audience. To capitalize on the innovative nature of its products, the Company has developed a public relations program that has resulted in coverage for the Company by trade journals and also by well-recognized publications such as The New York Times, Entertainment Weekly, Newsweek and USA Today. Among the marketing strategies the Company utilizes is the creation of special press events to coincide with the launch of a new product. The Company also uses independent field sales representative organizations to assist in servicing its mass merchant accounts. In fiscal year 1999, the Company consolidated its three North American sales organizations into a single sales organization in order to improve the efficiency of its sales effort. Currently, the Company has 14 customer sales representatives who serve as the primary contacts with the Company's largest 25 customers. In addition, the Company has five divisional sales representatives who work with the Company's customer sales representatives and their customers to help provide leadership and direction to the Company's selling efforts. In connection with the Company's restructuring and reorganization, effective as of December 16, 1999, the Company was granted the non-exclusive right in the U.S. and Canada to act as the sales agent for Infogrames North America, Inc. ("INA"), a wholly owned subsidiary of Infogrames SA, for INA's products, pursuant to which the Company will receive a fixed percentage of net receipts for such products. The parties intend in the near future to formalize the arrangement in a written agreement. HARDWARE LICENSES The Company currently develops software for use with the Sony PlayStation and Nintendo 64 video game systems pursuant to licensing agreements with Sony and Nintendo, respectively. Each license allows the Company to create one or more products for the applicable system, subject to certain approval rights as to quality which are reserved by each licensor. Each license also requires that the Company pay the licensor a per-unit license fee from product sales. The Company currently is not required to obtain any license for the development and distribution of PC CD-ROMs. Accordingly, the Company's per-unit manufacturing cost for PC-CD products is less than the per-unit manufacturing cost for console products. 6 10 OPERATIONS In July 1999, the Company began outsourcing its warehouse operations in the U.S. to Arnold Logistics. The warehouse operations include the receipt and storage of inventory as well as the distribution of inventory to mass market and other retailing customers. In connection with the outsourcing agreement, the Company discontinued the use of its Edison, New Jersey facilities for warehouse operations and terminated the employment of approximately 525 employees who performed related services for the Company. The Company incurred approximately $2.0 million in expenses in fiscal year 2000 relating to the consolidation of its warehouse operations. The Company's CD-ROM disk duplication and the printing of user manuals and packaging materials are performed to the Company's specifications by outside sources. Disks, user manuals and sales brochures are, for the most part, assembled for sale by the Company. To date, the Company has not experienced any material difficulties or delays in the manufacture and assembly of its products, or material returns due to product defects. No concentration for the supply of the Company's publishing needs currently exists and a number of vendors are available. Sony and Nintendo manufacture the Company's products that are compatible with their respective video game consoles, as well as the manuals and packaging for such products, and ship finished products to the Company for distribution. Sony PlayStation products consist of proprietary format CD-ROMs and are typically delivered to the Company by Sony within a relatively short lead time. Manufacturers of Nintendo and other video game cartridges typically deliver software to the Company within 45 to 60 days after receipt of a purchase order. To date, the Company has not experienced any material difficulties or delays in the manufacture and assembly of its products. However, a shortage of components or other factors beyond the Company's control could impair the ability of the Company to bring its products to market in a timely manner and, accordingly, could have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors -- Because Some Licensors Have Significant Control Over the Company's Products, There May Be Material Delays or Increases in the Cost of Manufacturing Those Products." EMPLOYEES As of March 31, 2000, the Company had 866 employees worldwide. Domestically, there were a total of 774 employees with 155 in administration and finance, 67 in operations, 90 in sales and marketing, 353 in product development and 109 in manufacturing and distribution. Included in the 109 employees involved in manufacturing and distribution are 86 employees who are members of Local 734 of the Laborers International Union of North America of the AFL-CIO. As of June 30, 2000, the Company will no longer have any affiliation with this union, as the Company's manufacturing and distribution operations have been outsourced. This process was done in an amicable manner. Internationally, as of March 31, 2000, the Company had 92 employees with 35 in administration, 9 in operations, 40 in sales and marketing and 8 in product development. Most of the Company's international employees will no longer be employed by the Company after June 30, 2000 as a result of the Company's decision to shut down its European operations, although some employees may be transferred to Infogrames SA. In connection with the Company's restructuring and reorganization, as of December 16, 1999, Infogrames SA has been providing certain management and support services to the Company, including financial, legal and administrative personnel and services, on a cost plus expenses basis. The parties intend to enter into a written agreement in the near future to formalize the arrangement. COMPETITION The interactive entertainment software publishing industry is intensely competitive, and relatively few products achieve market acceptance. The availability of significant financial resources has become a major 7 11 competitive factor in the industry primarily as a result of the increasing development, acquisition, production and marketing budgets required to publish quality titles. The Company competes with other publishers of interactive entertainment software, including Electronic Arts Inc., Mattel Inc., Hasbro Corporation, Havas SA and Activision, Inc. In addition, some large software companies (including Microsoft Corporation), media companies, and film studios are increasing their focus on the interactive entertainment software market and may become significant competitors of the Company. See "Factors Affecting Future Performance -- Significant Competition In Our Industry Could Adversely Affect Our Business." Infogrames SA has granted the Company a non-exclusive, royalty-free license to use the name Infogrames, which license may not be canceled on less than one-year's notice unless the Company breaches its obligations under the license. Pursuant to this license, all of the Company's products will be marketed under the Infogrames brand. The Company believes that the Infogrames brand is well respected in the interactive entertainment software industry and that this new branding strategy will strengthen the Company's image with customers and the industry as a whole. In addition, management believes that a number of factors provide the Company with competitive opportunities in the industry, including its extensive catalog of multi-platform products, strength in the mass market, and strong sales forces in North America and, through Inogrames SA, in Europe. The Company believes that solid franchises such as Driver and attractive licenses with Harley Davidson, Mission Impossible and Looney Tunes, as well as its base of productive publishing assets, provide the Company with a competitive angle to market its products. 8 12 RISK FACTORS This Risk Factors section is written to be responsive to the Securities and Exchange Commission's "Plain English" guidelines. In this section, the words "we," "our," "ours" and "us" refer only to Infogrames, Inc. and its subsidiaries and not any other person. Set forth below and elsewhere in this Form 10-K and in other documents we file with the Securities and Exchange Commission are important risks and uncertainties that could cause our actual results of operations, business and financial condition to differ materially from the results contemplated by the forward-looking statements contained in this Form 10-K. See "Forward-Looking Information." INFOGRAMES SA CONTROLS THE COMPANY AND COULD PREVENT AN ACQUISITION FAVORABLE TO OUR OTHER STOCKHOLDERS. Infogrames SA beneficially owns approximately 60% of our common stock, which gives it sufficient voting power to prevent any unsolicited acquisition of the Company, including an acquisition favorable to our other stockholders. Infogrames SA and its affiliates have sufficient voting power to control any merger, consolidation or sale of all or substantially all of our assets and to elect members of the Board of Directors. Three of the six members of the Board are employees of Infogrames SA or its affiliates, not including the Company. OUR SUCCESS DEPENDS ON INFOGRAMES SA's SUCCESS AND WILLINGNESS TO CONTINUE TO SUPPORT THE COMPANY. The Company depends upon Infogrames SA for its senior executives, certain management and support services, financial funding and distribution of its products in Europe. The success of the Company is dependent upon Infogrames SA's success and its willingness to continue to support the Company. Management believes that the Company's ability to operate on a stand- alone basis may be limited. Although the Company is exploring various strategic alternatives, there can be no assurance that any such transactions will be consummated, or that if consummated any such transactions will improve the Company's business, operating results or financial condition. WE WILL NEED ADDITIONAL FINANCING. Since its acquisition of a majority stake in the Company, Infogrames SA has to date provided financing to the Company, although there can be no assurance that it will continue to do so. Management believes that existing cash, cash equivalents and short-term investments, together with cash expected to be generated from operations, cash available under the Credit Agreement and continued financial support from Infogrames SA, will be sufficient to fund the Company's operations and cash flows into the second quarter of fiscal year 2001. While management believes that replacement funding will be available from Infogrames SA or other sources, there can be no assurance that future financing will be available on favorable terms, if at all. OUR COMMON STOCK CURRENTLY DOES NOT MEET THE NASDAQ NATIONAL MARKET'S MINIMUM SHARE PRICE REQUIREMENT AND MAY BE SUBJECT TO DELISTING. As a condition to continued listing on the Nasdaq Stock Market's National Market, Nasdaq rules require that the minimum bid price for our common stock be at least $5 per share for ten consecutive days. We have been notified by the Nasdaq Stock Market ("Nasdaq") that our common stock does not meet this requirement and that proceedings will be instituted to delist our common stock from the Nasdaq National Market. On June 2, 2000, we filed a notice of appeal with the Nasdaq Listing Qualifications Hearing Department. This notice had the effect of automatically staying the delisting proceedings until a Nasdaq Listing Qualification Panel could be convened to consider our appeal. We have been informed by the staff of the Nasdaq that a panel will be convened on July 6th for our appeal to be heard by the Nasdaq Listing Qualification Panel. On June 26, 2000, we effected a one-for-five reverse stock split in order to bring our Common Stock in compliance with Nasdaq's listing requirements. On June 27th, the first day of trading following the reverse stock split, our common stock met the minimum bid requirement. Although we cannot predict whether our common stock will continue to meet the minimum bid requirement or whether our appeal will be successful, we believe that at the time our appeal is heard by the Nasdaq Listing Qualification Panel, we will be in full 9 13 compliance with Nasdaq requirements. In the event our appeal is not successful, we believe that our common stock would be eligible for listing on the Nasdaq Small Cap Market. THE LOSS OF EITHER WAL-MART OR TARGET AS KEY CUSTOMERS COULD NEGATIVELY AFFECT OUR BUSINESS. Our sales to Wal-Mart and Target accounted for approximately 24% and 11%, respectively of net revenues for the fiscal year ended March 31, 2000 and our gross accounts receivable from Wal-Mart and Target were approximately $13.4 million and $15.5 million, respectively, at March 31, 2000. Our business, operating results and financial condition would be adversely affected if: - we lost Wal-Mart or Target as a customer, - we began shipping fewer products to Wal-Mart or Target, - we were unable to collect receivables from Wal-Mart or Target, or - we experienced any other adverse change in our relationship with Wal-Mart or Target. We do not have any written agreements or understandings with either Wal-Mart or Target. Consequently, our relationship with either Wal-Mart or Target could end at any time. We cannot assure you that Wal-Mart and Target will continue to use us as a major 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 the Company. During 1999 and 2000, Wal-Mart has continued, and can be expected to continue, to buy software directly from other publishers, rather than purchasing software through the Company. These direct purchases could significantly reduce our sales to Wal-Mart. OUR REVENUES WILL DECLINE AND OUR COMPETITIVE POSITION WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS ON A TIMELY BASIS. 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. 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. For example, the introduction of five major titles was delayed from the fourth quarter of fiscal year 1999 to the first half of fiscal year 2000, significantly contributing to operating losses during the fourth quarter of fiscal year 1999. The process of introducing new products, sequels or product enhancements is extremely difficult and will only become more difficult as new platforms and technologies emerge. Competitive factors in our industry demand that we create increasingly sophisticated products, which in turn makes it difficult to produce and release these products on a predictable schedule. WE MAY BE UNABLE TO DEVELOP, MARKET AND PUBLISH NEW PRODUCTS IF WE ARE UNABLE TO SECURE OR MAINTAIN RELATIONSHIPS WITH INDEPENDENT SOFTWARE DEVELOPERS. Although we have substantially increased our internal software capabilities over the last five years, we are still dependent, to a meaningful degree, upon independent software developers. For the fiscal year ended March 31, 2000, approximately 46% of our Frontline publishing revenues were derived from products developed by independent developers. Consequently, our success depends in part on our continued ability to obtain or renew product development agreements with independent developers. However, we cannot assure you that we will be able to obtain or renew these 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 the Company. In addition, many of our competitors have greater access to capital than we do, which puts us at a competitive disadvantage when bidding to attract independent developers to enter into publishing agreements with us. Our agreements with independent software developers are easily terminable, often without notice, if either party declares bankruptcy, becomes insolvent, ceases operations or materially breaches its agreement and fails to cure that breach within a designated time frame. In addition, many independent software developers have limited financial resources. Many are small companies with a few key individuals without whom a project may be difficult or impossible to complete. Consequently, we are exposed to the risk that these 10 14 developers will go out of business before completing a project, or simply cease work on a project, for which we have hired them. COMPETITION FOR INDEPENDENT SOFTWARE DEVELOPERS IS INTENSE AND MAY PREVENT US FROM SECURING OR MAINTAINING RELATIONSHIPS WITH INDEPENDENT SOFTWARE DEVELOPERS. We may be unable to secure or maintain relationships with independent developers if our competitors can offer them better shelf access, better marketing support, more development funding, higher royalty rates, or other selling advantages. Even if these independent developers have developed products for us in the past, we cannot assure you that they will continue to develop products for us in the future. In fact, we have in the past worked with independent developers who later entered into agreements with our competitors because of our competitors' ability or willingness to pay higher royalty rates or advances. INDEPENDENT DEVELOPERS MAY PUBLISH THEIR OWN PRODUCTS INSTEAD OF USING THE COMPANY TO PUBLISH AND DISTRIBUTE THEIR PRODUCTS, OR MAY SIGN PUBLICATION AGREEMENTS WITH OUR COMPETITORS, EITHER OF WHICH MAY ADVERSELY AFFECT OUR ABILITY TO DEVELOP, MARKET AND PUBLISH NEW PRODUCTS. For example, in January 1998, a consortium in which certain independent developers purport to have ownership interests, announced that it secured publishing rights with respect to software titles to be produced by these developers, which include Apogee Software (3D Realms), developer of Duke Nukem and Prey, and Epic Games, developer of Unreal. Although the consortium also announced that these developers will honor their existing obligations to other software publishers, we do not know if the competitive pressures exerted by the consortium will inhibit us from establishing and maintaining relationships with independent software developers in the future. FLUCTUATIONS IN OUR QUARTERLY NET REVENUES AND OPERATING RESULTS MAY RESULT IN REDUCED PROFITABILITY AND LEAD TO REDUCED PRICES FOR OUR STOCK. Our quarterly net revenues and operating results have varied in the past and can be expected to vary in the future. As a result, we cannot assure you that we will be consistently profitable on a quarterly or annual basis. If our operating results in any future quarter fall below the expectations of market analysts or investors, the price of our common stock will likely decrease. 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 consumer demand during the year-end holiday season. In other calendar quarters, our net revenues may be lower and vary significantly. OUR REVENUE GROWTH AND COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO ANTICIPATE AND ADAPT TO RAPIDLY CHANGING TECHNOLOGY. The consumer software industry is characterized by rapidly changing technology. The introduction of new technologies, including new technologies that support multi-player games and new media formats such as on-line delivery and digital video disks (DVDs), could render our previously released products obsolete or unmarketable. We must continually anticipate the emergence of, and adapt our products to, new technologies and systems. In addition, the development cycle for products designed to operate on new systems can be significantly longer than our current development cycles. When we choose to publish or develop a product for a new system, we may need to make a substantial development investment one or two years in advance of when we actually ship products for that system. If we develop products for a new system that is ultimately unpopular, our revenues from that product may be less than expected and we may not be able to recoup our investment. Conversely, if we choose not to publish products for a new system that is ultimately popular, our revenue growth and competitive position may be adversely affected. While 32- and 64-bit game systems, such as Sony PlayStation and Nintendo 64, continue to be popular and their installed base has reached significant levels in the U.S. and worldwide, new systems such as Microsoft's Xbox are being developed. For example, Sony introduced the PlayStation 2, a 128-bit system that incorporates DVD technology, in Japan in March 2000 and plans to introduce it to overseas markets by fall 2000. If successfully developed, these new systems would require us to reassess our commitment to 32- and 64-bit game systems or any new systems which are introduced. 11 15 BECAUSE SOME LICENSORS HAVE SIGNIFICANT CONTROL OVER THE COMPANY'S PRODUCTS, THERE MAY BE MATERIAL DELAYS OR INCREASES IN THE COST OF MANUFACTURING THOSE PRODUCTS. We are required to obtain a license to develop and distribute software for each of the video game systems for which we develop products. We currently have licenses from Sony to develop products for the Sony PlayStation, and Nintendo to develop products for Nintendo 64. Our contracts with Sony and Nintendo often grant them significant control over the manufacturing of the Company products. For example, we are obligated to submit new games to Sony or Nintendo for approval prior to development and/or manufacture. In some circumstances, this could adversely affect the Company by: - leaving the Company 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 the Company 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. THE LOSS OF OUR SENIOR MANAGEMENT AND SKILLED PERSONNEL COULD NEGATIVELY AFFECT OUR BUSINESS. In late 1999 and early 2000, we replaced several of our most senior executive officers. Our success will depend to a significant degree upon the 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 this 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 skilled personnel. Our business, operating results and financial condition could be materially and adversely affected if we lost the services of senior employees or if we failed to replace other employees who leave or to attract additional qualified employees. SIGNIFICANT COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS. The market for our products is highly competitive and relatively few products achieve significant market acceptance. 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., Mattel Inc., Hasbro Corporation, Havas SA, and Activision. In addition, some large software companies (including Microsoft), media companies and film studios, such as Walt Disney Company, are increasing their focus on the interactive entertainment and edutainment software market and may become significant competitors of the Company. As compared to the Company, many of our current and future competitors may have significantly greater financial, technical and marketing resources than we do. As a result, these current and future competitors may be able to: - respond more quickly to new or emerging technologies or changes in customer preferences, - carry larger inventories, - undertake more extensive marketing campaigns, - adopt more aggressive pricing policies, and - make higher offers or guarantees to software developers and licensors than the Company. We may not 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, operating results or financial condition. We cannot assure you that we will be able to 12 16 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. REVENUES FROM OUR DISTRIBUTION BUSINESS MAY DECLINE AS COMPETITION INCREASES AND INTERNET TECHNOLOGY IMPROVES. During the fiscal year ended March 31, 2000, revenues from our distribution business were approximately 33% of net revenues. Recently, several of our customers have begun to purchase directly from software publishers rather than purchasing software through the Company. New video game systems 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. In addition, revenues from our distribution business may be adversely affected as Internet technology is improved to enable consumers to purchase and download full-version software products or order products directly from publishers or from unauthorized or illegal sources over the Internet. REVENUES FROM OUR DISTRIBUTION BUSINESS MAY DECLINE IF THE THIRD-PARTY PRODUCTS WHICH WE DISTRIBUTE FOR OTHER COMPANIES BECOME UNAVAILABLE TO US. As part of our distribution program, we provide our mass merchant customers with a wide variety of titles. To achieve this product mix, we must supplement the distribution of our own published products with 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. 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 and our ability to obtain shelf space for our own products. This, in turn, could have a material adverse effect on our business, operating results and financial condition. WE MAY FACE INCREASED COMPETITION AND DOWNWARD PRICE PRESSURE IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY 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 these 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 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 some 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. WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WHICH WOULD BE COSTLY TO RESOLVE. As the number of available software products increases, 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 the Company 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 the Company, these claims can be time consuming, result in costly litigation and divert management's attention from the day-to-day operations of the Company, which can have a material adverse effect on our business, operating results and financial condition. 13 17 WE MAY BE AT A COMPETITIVE DISADVANTAGE IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR INTERNET STRATEGY. To take advantage of Internet opportunities, we have, and will continue 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, and - develop and invest in new Internet-based businesses and products, including multi-player entertainment products. Implementing our Internet strategy has been costly. 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. WE ARE CURRENTLY IN LITIGATION WHICH COULD BE COSTLY IF WE LOSE. As described under Item 3, "Legal Proceedings," the Company is currently a defendant, or subject to counterclaims, in a number of lawsuits. In all of these lawsuits, we believe that the plaintiffs' complaints are without merit. Although we intend to defend ourselves vigorously against these actions, doing so is costly and time consuming and may divert management's attention from our day-to-day operations. In addition, we cannot assure you that these actions will be ultimately resolved in our favor or that an adverse outcome will not have a material adverse effect on our business, operating results and financial condition. IF ACTUAL RETURNS EXCEED OUR RETURN RESERVE, OUR BUSINESS MAY BE NEGATIVELY AFFECTED. To cover returns, we establish a return reserve at the time we ship our products. We estimate the potential for future returns based on historical return rates, seasonality of sales, retailer inventories of our products, and other factors. While we are able to recover the majority of our costs when third-party products are returned, we bear the full financial risk when our own products are returned. In addition, the license fees we pay Sony and Nintendo 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, we cannot assure you that actual returns will not exceed reserves, which could adversely affect our business, operating results and financial condition. ITEM 2. PROPERTIES The Company's principal administrative, sales, marketing and development facilities are located in approximately 90,000 square feet of space at 417 Fifth Avenue in New York City under a lease expiring in 2007, which commenced in December 1996. The Company subleased 30,000 square feet of this space beginning on April 1, 2000. Certain product development and marketing divisions are located in approximately 7,600-square-feet of office space in San Francisco, California, under a lease that expires in July 2000. The Leisure Division has a lease for 23,400 square feet of office space in Plymouth, Minnesota that expires in February 2003. In Scottsdale, Arizona, the Company leases a 25,000-square-foot office space under a lease expiring in March 2006 that has been sublet for the remaining term. It also leased a 2,900-square-foot office space under a lease that expired in May 2000. The Company has leased approximately 83,000 square feet of office space under two separate leases to house its Humongous subsidiary in Bothell, Washington, under leases expiring in May 2008 and June 2004. 14 18 The Company has assumed leases in connection with certain of its acquisitions and entered into leases for certain of its internal development studios, totaling approximately 76,000 square feet with lease expiration dates from June 2000 through September 2010. These properties are located in Utah, England, the Netherlands, Germany and France. The Company maintains two facilities in London, England totaling approximately 19,200 square feet, from which it conducted a substantial portion of its European operations, under leases that expire in December 2000 and March 2012. The Company is in the process of shutting down its European operations and is seeking to assign the lease expiring in March 2012 to Infogrames SA. The Company also maintains approximately 6,200 square feet of office space in Australia under leases that expire in September 2000 and November 2000. ITEM 3. LEGAL PROCEEDINGS On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software developer, filed a lawsuit against the Company in Supreme Court, New York County, claiming that the Company breached a software development contract between the parties dated November 28, 1995. Scavenger alleges that the Company, after paying $2.5 million in advances and accepting delivery of gold master disks for two computer games, refused to pay any more advances, including advances relating to the development of two additional games under the agreement. Scavenger is suing for the remaining advances ($4.3 million) and for future royalties ($5 million), and also seeks consequential damages for allegedly being forced out of business ($100 million) and losing contracts with unspecified third parties ($4 million) as a result of the Company's alleged breach. The Company filed an answer and counterclaim, in which it denies any liability to Scavenger and alleges, among other things, that the contract was lawfully terminated when Scavenger failed to deliver the two remaining games after receiving from the Company written notice to cure its material breaches. By its counterclaim, the Company seeks damages and restitution for at least $5 million on grounds of breach of contract and unjust enrichment. By order entered March 3, 2000, the Court granted Scavenger's motion for partial summary judgment on its claim for $1.9 million allegedly due on the two delivered games and judgment was entered on March 14, 2000 in the amount of $2,411,114 (reflecting pre-judgment interest on the claim). The Company posted a bond in the amount of the judgment and immediately appealed from this order and judgment to the Appellate Division, First Department. On June 8, 2000, the Appellate Division, First Department affirmed the order and judgment entered by the Supreme Court. The Company has moved for leave to appeal to the Court of Appeals. In its order of March 3, 2000, the Court denied Scavenger's motion for partial summary judgment seeking $2.4 million on the two games never delivered. In addition, the Court denied Scavenger's motion for leave to amend the complaint to add claims for fraud and seeking damages of $100 million. The Company moved for partial summary judgment seeking dismissal of the claim for consequential damages ($75-125 million) and additional royalties ($5 million). By order entered June 21, 2000, the Court denied the Company's motion and granted Scavenger leave to conduct an audit of royalties allegedly due to Scavenger. In January, February and March 1998, ten substantially similar complaints were filed against the Company, its former Chairman and its former Chief Executive Officer, and in certain actions, its former Chief Financial Officer, in the U.S. District Court for the Southern District of New York. The plaintiffs, in general, purport to sue on behalf of a class of persons who purchased shares (and as to certain complaints, purchased call options or sold put options) of the Company during the period from August 1, 1996 through December 12, 1997. The plaintiffs allege that the Company violated the federal securities laws by making misrepresentations and omissions of material facts that allegedly artificially inflated the market price of the Company's Common Stock during the class period. The plaintiffs further allege that the Company failed to expense properly certain prepaid royalties for software products that had been terminated or had failed to achieve technological feasibility, or had insufficient sales to recoup the paid advances, which misstatements purportedly had the 15 19 effect of overstating the Company's net income and net assets. Motions were made by certain groups of plaintiffs for their appointment as lead plaintiffs in the actions. 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, as amended (the "Exchange Act"), and Rule 10b-5 under the Exchange Act against the Company's independent auditors, Arthur Andersen LLP. The Company and Arthur Andersen LLP each filed motions to dismiss the second consolidated and amended complaint. By order and opinion dated November 29, 1999, the Court granted the motion to dismiss. Plaintiffs have appealed from the dismissal of the action, and oral argument on the appeal was held on June 8, 2000. The Company believes that these complaints are without merit and intends to defend itself vigorously against these actions. On April 12, 1999, an action was commenced by the administrators for three children who were murdered on December 1, 1997 by Michael Carneal at Heath High School in McCracken County, Kentucky. The action was brought against 25 defendants, including the Company and other corporations in the video game business, companies that produced or distributed the movie "The Basketball Diaries," and companies that allegedly provide obscene internet content. The complaint alleges, with respect to the Company and other video game corporations, that Carneal was influenced by the allegedly violent content of certain video games and that the video game manufacturers are liable for Carneal's conduct. The complaint seeks $10 million in compensatory damages and $100 million in punitive damages. The Company and approximately ten other videogame corporations have entered into a joint defense agreement and have retained counsel. By order entered April 6, 2000, the Court granted a motion to dismiss the complaint. Plaintiffs have filed a motion to vacate the dismissal of the action, and this motion is currently being briefed. On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer, filed a lawsuit in New York Supreme Court claiming that the Company failed to adequately pursue bundling opportunities for the software game "Rebel Moon Rising MMX" and unlawfully rejected the ninth milestone deliverable for the software game "Rebel Moon Revolution" under a development contract between the parties dated June 26, 1996. The complaint asserts five claims of breach and intentional interference, which seek $100,000 for the nonpayment and rejection of milestone nine, $400,000 for the balance of payments under the contract, $775,000 for alleged lost bundling opportunities, $775,000 for alleged intentional interference with bundling arrangements and $500,000 for alleged interference with contractual relations. In an October 20, 1999 opinion and order, the court granted the Company's motion to dismiss three of the five claims so that only the milestone nine contract and bundling claims remain. Fenris has filed a notice of appeal from the dismissal of the $400,000 claim for the balance of payments under the contract; and the Company has filed a counterclaim for breach seeking to recover not less than the $800,000 in milestone payments advanced for the development of "Rebel Moon Revolution." Fenris has moved for summary judgment on its first cause of action ($100,000), and the Company has moved for summary judgment dismissing the bundling claim. The Company intends to vigorously defend this action and pursue its counterclaim. On February 7, 2000, Hasbro Interactive Inc., its subsidiary Atari Interactive, Inc. and Zao Elorg d/b/a Elorg Corporation filed a lawsuit against the Company and five other companies in Massachusetts federal court. The complaint asserts claims against the Company for copyright infringement and unfair competition based on the sale of the computer videogames entitled "HemiRoids," "Patriot Command," "Bricklayer," "3D TetriMadness," "3D Munch Man," "3D Munch Man II" and "Mac-Man," as well as claims for trademark infringement and dilution for use of the name "3D TetriMadness." The complaint seeks injunctive relief, actual profits, statutory damages, attorneys' fees and costs pursuant to federal copyright and trademark laws, as well as common law damages. By settlement agreement dated March 29, 2000, the Company settled this action and agreed to stop manufacturing and/or distributing the allegedly infringing games. Additionally, the Company is involved in various claims and legal actions arising in the ordinary course of business, the ultimate resolution of which management believes will not be material to the Company's results of operations or financial condition. 16 20 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS On April 6, 2000, the Board of Directors approved an amendment to the Company's Amended and Restated Certificate of Incorporation to effectuate a one-for-five reverse stock split of the issued and outstanding shares of Common Stock. The amendment was approved by the written consent of California U.S. Holdings, Inc., a California corporation and wholly owned subsidiary of Infogrames SA ("CUSH"), as the holder of a majority of the outstanding Common Stock, on April 6, 2000. On May 12, 2000 and June 5, 2000, the Company filed Information Statements on Schedule 14C (the "Information Statements") pursuant to the requirements of Rule 14c-2 under Section 14 of the Exchange Act to inform holders of Common Stock entitled to vote or give an authorization or consent in regard to the action authorized by written consent of CUSH of the action so taken. The Information Statements are filed as an exhibit to this Annual Report on Form 10-K and the contents of the Information Statements are incorporated by reference into this Annual Report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on the Nasdaq National Market. The high and low sale prices for the Common Stock as reported by the Nasdaq National Market for the three-month transition period ended March 31, 1998 and the fiscal years ended March 31, 1999 and 2000 are summarized below. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions.
HIGH LOW --------- ------- 1998 Three-Month Transition Period............................. $ 8 9/16 $5 5/16 Fiscal 1999 First Quarter............................................. $11 1/8 $7 Second Quarter............................................ $ 9 $4 1/2 Third Quarter............................................. $ 7 7/16 $3 3/4 Fourth Quarter............................................ $ 5 13/16 $3 7/8 Fiscal 2000 First Quarter............................................. $ 4 1/2 $2 3/4 Second Quarter............................................ $ 3 11/16 $2 9/16 Third Quarter............................................. $ 3 3/16 $1 21/32 Fourth Quarter............................................ $ 4 1/4 $1 7/8
On June 22, 2000, the last reported sale price of the Common Stock on the Nasdaq National Market was $1 7/8. As of June 22, 2000, there were approximately 201 registered holders of record of the Common Stock. On June 26, 2000, the Company effected a one-for-five reverse stock split of the Common Stock to meet certain requirements of the Nasdaq National Market. See "Risk Factors -- Our Common Stock Does Not Currently Meet the Nasdaq National Market's Minimum Share Price Requirement and May Be Subject to Delisting." Except as otherwise noted, references to share prices and the number of shares of Common Stock in this Annual Report do not reflect the reverse stock split. The Company currently anticipates that it will retain all of its future earnings for use in the expansion and operation of its business and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. In addition, the payment of cash dividends may be limited by financing agreements entered into by the Company in the future. 17 21 RECENT SALES OF UNREGISTERED SECURITIES Infogrames SA, the majority stockholder of the Company (through its wholly-owned subsidiary, CUSH), entered into an agreement, dated as of February 15, 2000, with First Union National Bank, as agent for a syndicate of banks (together, the "Banks"), pursuant to which Infogrames SA assumed the Banks' interest in the Company's credit agreement (the "Credit Agreement"). In connection with the assumption by Infogrames SA of the Credit Agreement, certain warrants exercisable by the Banks on February 28, 2000 if the Credit Agreement was not repaid prior to such date were canceled and warrants to acquire 225,000 shares of the Company's Common Stock, at an exercise price of $0.01 per share were issued to Infogrames SA. 18 22 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected consolidated financial information of the Company which, for each of the years in the three year period ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000, is derived from the audited consolidated financial statements of the Company. Consolidated financial information for the three months ended March 31, 1997 and the twelve months ended March 31, 1998 is unaudited. These tables should be read in conjunction with the Company's Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report on Form 10-K. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEARS ENDED THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, MARCH 31, ------------------- ---------------------- ---------------------------------- 1996 1997 1997 1998 1998 1999 2000 -------- -------- ----------- -------- ----------- -------- --------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues.............................. $365,490 $530,677 $93,381 $105,767 $543,063 $572,342 $ 375,569 Cost of Goods Sold........................ 214,580 315,134 57,883 57,092 314,343 329,957 296,301 -------- -------- ------- -------- -------- -------- --------- Gross Profit............................ 150,910 215,543 35,498 48,675 228,720 242,383 79,268 Selling and distribution expenses......... 76,235 98,689 16,538 24,467 106,618 147,499 147,814 General and administrative expenses....... 31,157 46,611 8,623 10,655 48,643 66,616 87,113 Research and development.................. 5,633 13,824 2,397 10,866 22,293 76,870 66,574 Royalty advance write-off................. -- 73,821 -- -- 73,821 -- -- Restructuring and other charges........... -- -- -- -- -- 17,479 37,948 Purchased research and development........ -- 11,008 -- -- 11,008 5,000 -- SingleTrac retention bonus................ -- 2,400 -- -- 2,400 1,680 -- Amortization of goodwill.................. 1,092 1,295 347 636 1,584 3,349 3,110 -------- -------- ------- -------- -------- -------- --------- Operating income (loss)................... 36,793 (32,105) 7,593 2,051 (37,647) (76,110) (263,291) Interest Expense.......................... -- (1,010) -- (557) (1,567) (5,108) (17,167) Other Income (loss)....................... 3,974 (1,065) 247 (832) (2,144) (207) (793) -------- -------- ------- -------- -------- -------- --------- Income (loss) before provision for (benefit from) income taxes............. 40,767 (34,180) 7,840 662 (41,358) (81,425) (281,251) Total provision for (benefit from) income taxes............. 15,628 (9,157) 3,386 304 (12,239) (29,628) 40,882 -------- -------- ------- -------- -------- -------- --------- Net income (loss) from continuing operations.............................. 25,139 (25,023) 4,454 358 (29,119) (51,797) (322,133) Discontinued operations: Loss from operations of OZM............. -- -- -- -- -- (3,531) -- Loss on disposal of OZM................. -- -- -- -- -- (15,510) (477) -------- -------- ------- -------- -------- -------- --------- Loss from discontinued operations....... -- -- -- -- -- (19,041) (477) -------- -------- ------- -------- -------- -------- --------- Net income (loss) before extraordinary item.................................... 25,139 (25,023) 4,454 358 (29,119) (70,838) (322,610) Extraordinary item: Gain on early extinguishment of debt (net of tax of $1,312)................ -- -- -- -- -- -- 1,888 -------- -------- ------- -------- -------- -------- --------- Net income (loss) before dividends on preferred stock......................... 25,139 (25,023) 4,454 358 (29,119) (70,838) (320,722) Less dividends on preferred stock....... -- -- -- -- -- 226 -- -------- -------- ------- -------- -------- -------- --------- Net income (loss) attributable to common stockholders............................ $ 25,139 $(25,023) $ 4,454 $ 358 $(29,119) $(71,064) $(320,722) ======== ======== ======= ======== ======== ======== =========
19 23
YEARS ENDED THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, MARCH 31, ------------------- ---------------------- ---------------------------------- 1996 1997 1997 1998 1998 1999 2000 -------- -------- ----------- -------- ----------- -------- --------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Basic income (loss) per share from continuing operations................... $ 1.89 $ (1.87) $ 0.33 $ 0.03 $ (2.16) $ (3.72) $ (19.58) Basic loss per share from discontinued operations.............................. -- -- -- -- -- $ (1.37) $ (.03) Basic income per share from extraordinary item.................................... -- -- -- -- -- -- 0.11 -------- -------- ------- -------- -------- -------- --------- Basic income (loss) per share............. $ 1.89 $ (1.87) $ 0.34 $ 0.03 $ (2.16) $ (5.10) $ (19.50) Weighted average shares outstanding(1)........................ 13,278 13,396 13,279 13,588 13,473 13,931 16,451 ======== ======== ======= ======== ======== ======== ========= Diluted income (loss) per share from continuing operations................... $ 1.84 $ (1.87) $ 0.33 $ 0.03 $ (2.16) $ (3.72) $ (19.58) Diluted income (loss) per share from discontinued operations................. -- -- -- -- -- $ (1.37) $ (0.03) Diluted income per share from extraordinary item...................... -- -- -- -- -- -- 0.11 -------- -------- ------- -------- -------- -------- --------- Diluted income (loss) per share........... $ 1.84 $ (1.87) $ 0.33 $ 0.03 $ (2.16) $ (5.10) $ (19.50) Weighted average shares outstanding(1)........................ 13,663 13,396 13,472 13,677 13,473 13,931 16,451 ======== ======== ======= ======== ======== ======== =========
DECEMBER 31, MARCH 31, -------------------- --------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- --------- BALANCE SHEET DATA: Cash and cash equivalents and short-term investments.... $ 76,584 $ 39,713 $ 17,329 $ 13,512 $ 19,587 Working capital (deficit)............................... 113,652 77,965 69,994 131,770 (104,834) Total assets............................................ 308,794 370,165 295,862 438,911 159,207 Total debt.............................................. 1,415 54,619 28,017 98,750 169,526 Stockholders' equity (deficit).......................... 152,138 134,241 138,889 127,133 (154,219)
- --------------- (1) Reflects the one-for-five reverse stock split effected on June 26, 2000. All periods have been restated to reflect the reverse stock split. 20 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, publishes, and distributes interactive entertainment for the children's education ("edutainment"), leisure entertainment, and gaming enthusiast's markets for a variety of platforms. The Company employs a portfolio approach to achieve a broad base of published products across most major consumer software categories. Since it commenced operations in February 1993, the Company has experienced rapid growth and its product and customer mix has changed substantially. Publishing and distribution are the two major activities of the Company. Publishing is divided into Frontline, Leisure and Children's publishing. Because each of these product categories has different associated costs, the Company's margins have depended and will depend, in part, on the percentage of net revenues attributable to each category. In addition, a particular product's margin may depend on whether it has been internally or externally developed and on what platforms it is published. Further, the Company's margins may vary significantly from quarter to quarter depending on the timing of its new published product releases. To the extent that mass merchants require greater proportions of third-party software products, some of which may yield lower margins, the Company's operating results may be impacted accordingly. The worldwide interactive entertainment software market is comprised primarily of software for two distinct platforms: PCs and dedicated game consoles. The market has grown dramatically in recent years with its growth driven by the increasing installed base of multimedia PCs and current generation game console systems. In addition, the development of enabling multimedia technologies, the proliferation of software titles, the development of new and expanding distribution channels and the emergence of a strong international market for interactive entertainment software have spurred the rapid expansion of the interactive entertainment market. There has been an increased rate of change and complexity in the technological innovations affecting the Company's products, coupled with increased competitiveness for shelf space and buyer selectivity. The market for Frontline titles has become increasingly hit-driven, which has led to higher production budgets, more complex development processes, longer development cycles and generally shorter product life cycles. The importance of the timely release of hit titles, as well as the increased scope and complexity of the product development and production process, have increased the need for disciplined product development processes that limit cost and schedule overruns. This in turn has increased the importance of leveraging the technologies, characters or storylines of such hit titles into additional interactive entertainment software products in order to spread development costs among multiple products. In this environment, the Company is determined to achieve a balance between development done by its own internal development studios and that done by third-party developers. Along with its industry competitors, the Company had historically capitalized royalties advanced to third-party developers as a prepayment in current assets and evaluated the realization of these royalty advances on a quarterly basis. The market changes noted above have made it extremely difficult to determine the likelihood of individual product acceptance and success. As a result, in the quarter ended December 31, 1997, the Company expensed royalty advances of $73.8 million on products that were in development or on sale. In connection with this change in the dynamics of the marketplace, the Company changed its accounting, beginning on January 1, 1998, for future royalty advances, treating such costs as research and development expenses, which are expensed as incurred. Multi-year output advances will continue to be capitalized as royalty advances and expensed over the development periods, in accordance with generally accepted accounting principles. The distribution channels for interactive software have changed significantly in recent years. Traditionally, consumer software was sold through specialty stores. Today, consumer software is increasingly sold through mass merchants such as Wal-Mart, Kmart and Target, as well as major retailers, including Office Depot, Best Buy, CompUSA, AAFES, Sam's Club and Babbage's. The Internet and on-line networks also present a new channel through which publishers and distributors can distribute their products to end-users. 21 25 Sales are recorded net of expected future returns. Higher than anticipated returns were experienced in the last fiscal year, and management has taken a substantial provision for price protection as stated below. Management continually assesses and re-evaluates the rate of returns and price protection based on business conditions and market factors. In 1998, the Company acquired One Zero Media, Inc. ("OZM"), Reflections Interactive Limited ("Reflections"), Legend and Home Software Benelux B.V. ("Homesoft"). Financial results of these companies have been included in the Company's Consolidated Financial Statements for the period since the acquisitions, which were accounted for as purchases. At March 31, 1999, OZM is accounted for as a discontinued operation, as it was the Company's intention to sell OZM. OZM was sold on July 28, 1999 for $5.2 million in cash. This resulted in an additional loss for the three months ended September 30, 1999 from discontinued operations of $0.5 million. The initial loss recorded in the prior fiscal year of $19.0 million included a provision of $5.0 million for operating losses during the phase-out period. Effective January 1, 1998, the Company changed its fiscal year from December 31 to March 31. Accordingly, the discussion of financial results set forth below compares the twelve months ended March 31, 2000 to the twelve months ended March 31, 1999, the twelve months ended March 31, 1999 to the twelve months ended March 31, 1998, the three months ended March 31, 1998 to the comparable 1997 period, and the twelve months ended December 31, 1997 to the comparable 1996 period. 22 26 RESULTS OF OPERATIONS The following table sets forth certain consolidated statements of operations data as a percentage of net revenues for each of the years in the two years ended December 31, 1997, the three months ended March 31, 1998 and the twelve months ended March 31, 1999 and 2000, which is derived from the audited consolidated financial statements of the Company. The consolidated financial information for the three months ended March 31, 1997 and the twelve months ended March 31, 1998 is derived from the unaudited financial statements of the Company.
THREE MONTHS YEARS ENDED ENDED YEARS ENDED DECEMBER 31, MARCH 31, MARCH 31, -------------- -------------- ----------------------- 1996 1997 1997 1998 1998 1999 2000 ----- ----- ----- ----- ----- ----- ----- Net revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.......................... 58.7 59.4 62.0 54.0 57.9 57.7 78.9 ----- ----- ----- ----- ----- ----- ----- Gross Profit.............................. 41.3 40.6 38.0 46.0 42.1 42.3 21.1 Selling and distribution expenses........... 19.9 18.6 17.7 23.1 19.6 25.8 39.4 General and administrative expenses......... 9.5 8.8 9.2 10.1 9.0 11.6 23.2 Research and development.................... 1.5 2.6 2.6 10.3 4.1 13.4 17.7 Royalty advance write-off................... -- 13.9 -- -- 13.6 -- -- Restructuring and other charges............. -- -- -- -- -- 3.1 10.1 Purchased research and development.......... -- 2.1 -- -- 2.0 0.9 -- SingleTrac retention bonus.................. -- 0.4 -- -- 0.4 0.3 -- Amortization of goodwill.................... 0.3 0.2 0.4 0.6 0.3 0.6 0.8 ----- ----- ----- ----- ----- ----- ----- Operating income (loss)..................... 10.1 (6.0) 8.1 1.9 (6.9) (13.3) (70.1) Interest Expense............................ -- (0.2) -- (0.5) (0.3) (0.8) (4.6) Other income (loss)......................... 1.1 (0.2) (0.3) (0.8) (0.4) (0.1) (0.2) ----- ----- ----- ----- ----- ----- ----- Income (loss) before provision for (benefit from) Income taxes........................ 11.2 (6.4) 8.4 0.6 (7.6) (14.2) (74.9) Provision for (benefit from) income taxes... 4.3 (1.7) 3.6 0.3 (2.3) (5.2) 10.9 ----- ----- ----- ----- ----- ----- ----- Net income (loss) from continuing operations................................ 6.9 (4.7) 4.8 0.3 (5.4) (9.1) (85.8) Discontinued operations: Loss from operations of OZM............... -- -- -- -- -- (0.6) -- Loss on disposal of OZM................... -- -- -- -- -- (2.7) (0.1) ----- ----- ----- ----- ----- ----- ----- Loss from discontinued operations......... -- -- -- -- -- (3.3) (0.1) ----- ----- ----- ----- ----- ----- ----- Net income (loss) before extraordinary item.................................... 6.9 (4.7) 4.8 0.3 (5.4) (12.4) (85.9) Extraordinary item: Gain on early extinguishment of debt, net of tax.................................. -- -- -- -- -- -- 0.5 ----- ----- ----- ----- ----- ----- ----- Net income (loss) before dividends on preferred stock........................... 6.9 (4.7) 4.8 0.3 (5.4) (12.4) (85.4) Less dividends on preferred stock......... -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- Net income (loss) attributable to common stockholders.............................. 6.9% (4.7)% 4.8% 0.3% (5.4)% (12.4)% (85.4)% ===== ===== ===== ===== ===== ===== =====
TWELVE MONTHS ENDED MARCH 31, 2000 COMPARED TO TWELVE MONTHS ENDED MARCH 31, 1999 Net revenues for fiscal 2000 decreased approximately $196.8 million, or 34.4%, to $375.6 million from $572.3 million in fiscal 1999. This decrease is attributable to the restructuring of the Company's publishing business, the acquisition by Infogrames SA of a controlling interest in the Company and the Company's decision to downsize its distribution business, whereby substantially less product was shipped in the last four months of the fiscal year. Additionally, some of the Company's larger retail customers continue to purchase consumer software directly from several large publishers whose software was previously sold through the Company. 23 27 Total publishing revenue decreased 15.8% to $252.0 million in fiscal 2000 from $299.4 million in fiscal 1999. Approximately 55% of such revenues related to PC product revenues and 45% of such revenues related to console game revenues in fiscal 2000, as compared to 58% and 42%, respectively, in fiscal 1999. While the consumer software business is typically seasonal, the granting of price protection and returns of products in fiscal 2000 exceeded expectations. As consumer pricing has become more competitive, the Company is finding more frequently that it is necessary to offer mark-downs for products which have not yet sold through to the consumer, or to accept a higher level of returns of product that are not selling at retail, or both. A large portion of aging customer chargebacks relating to price protection, co-op advertising and uncollectible accounts were reserved for in the current fiscal quarter. A significant portion of the Company's revenues in any quarter are generally derived from software first released in that quarter or in the immediately preceding quarter. See "Risk Factors -- Our Revenues Will Decline and Our Competitive Position Will Be Adversely Affected If We Are Unable to Introduce New Products on a Timely Basis." Cost of goods sold for fiscal 2000 decreased approximately $33.7 million, or 10.2%, to $296.3 million from $330.0 million in fiscal 1999. Cost of goods sold as a percentage of net revenues increased to 78.9% in fiscal 2000 as compared to 57.7% in fiscal 1999. The increase, as a percentage of net revenues, was due to lower overall sales volume, coupled with substantial reserves for unsellable product, particularly third-party product, which bears a higher cost than published product, both domestically and internationally. Gross profit decreased from $242.4 million (42.3% of net revenues) for the year ended March 31, 1999 to $79.3 million (21.1% of net revenues) for the year ended March 31, 2000. This decrease primarily is due to reduced sales volume and higher cost of goods sold as described above. Gross profit is primarily impacted by the percentage of sales of CD software as compared to the percentage of sales of cartridge software. Gross profit may also be impacted from time to time by the percentage of foreign sales, and the level of returns and price protection and concessions to retailers and distributors. The Company's margins on sales of CD software (currently, PlayStation, PCs and Dreamcast) are higher than those on cartridge software (currently, Nintendo 64 and Game Boy Color) as a result of significantly lower CD software product costs. Selling and distribution expenses primarily include shipping expenses, sales and distribution labor expenses, advertising and promotion expenses and distribution facilities costs. During fiscal 2000, these expenses increased approximately $0.3 million, or 0.2%, to $147.8 million from $147.5 million in fiscal 1999. Selling and distribution expenses as a percentage of net revenues for fiscal 2000 increased to 39.4% as compared to 25.8% in fiscal 1999. The increase, as a percentage of net revenues, was due to lower overall sales volume, and the increase in co-op advertising costs due to the write-down of receivables. This was partially offset by the reduction of freight costs due to decreased sales volume. General and administrative expenses primarily include personnel expenses, facilities costs, professional expenses and other overhead charges. These expenses in fiscal 2000 increased approximately $20.5 million, or 30.8%, to $87.1 million from $66.6 million in fiscal 1999. General and administrative expenses as a percentage of net revenues increased to 23.2% in fiscal 2000 from 11.6% in fiscal 1999. This increase was due primarily to an increase in salary expense relating to the severance packages of several senior officers during the fiscal year, the write-off of uncollectible account receivables, and additional costs incurred associated with management's reorganization of operations as a result of the acquisition of a controlling interest in the Company by Infogrames SA. Research and development expenses primarily includes payment of royalty advances to third-party developers on products that are currently in development and direct costs of internally developing and producing a title such as salaries and other related costs. These expenses in fiscal 2000 decreased approximately $10.3 million, or 13.4%, to $66.6 million from $76.9 million in fiscal 1999. Research and development, as a percentage of net revenues, increased to 17.7% in fiscal 2000 from 13.4% in fiscal 1999. The decrease in research and development expenses is primarily due to the Company entering into fewer new contracts with external developers, partially offset by a $7.8 million earned-out royalty payment to Reflections for the title Driver during the three months ended September 30, 1999, which was paid in cash and Common 24 28 Stock. Research and development expenses of the Company's internal development studios, which primarily include Humongous, Legend and Reflections, increased to $45.7 million in fiscal 2000 from $34.9 million in fiscal 1999. Restructuring and other charges of approximately $37.9 million, recorded in the third and fourth quarters of fiscal 2000, relate to a reorganization of the Company's Frontline publishing business, the shutdown of a substantial portion of European publishing operations and outsourcing and down-sizing of the Company's distribution and assembly functions. Approximately $17.6 million relates to the write-off of goodwill as a result of the consolidation of the value distribution division with the Company's publishing division, $12.1 million relates to the shutdown of European operations, including the write-off of all goodwill other than that relating to the Reflections studio, $6.1 million relates to impaired assets and $2.1 million relates to the planned severance of 221 employees, primarily administrative functions. The remaining employees to be terminated received notification prior to year end and will be leaving the Company over the next three months. Management expects to complete the Company's reorganization by June 30, 2000. As of March 31, 2000, 88 employees were terminated under the restructuring plan. Amortization of goodwill for fiscal 2000 decreased approximately $0.2 million, or 7.1%, to $3.1 million from $3.3 million in fiscal 1999. This decrease is attributable to the lower amortization expense as a result of the write-off of all goodwill, other than the Legend and Reflections studios, in connection with the Company's reorganization plans. Interest expense increased approximately $12.1 million during fiscal 2000 to $17.2 million from $5.1 million in fiscal 1999. The increase was partially attributable to the increase in interest costs associated with increased borrowings under the Old Credit Agreement and the Credit Agreement (each as defined below). The amortization of deferred financing costs relating to the Credit Agreement and the subordinated notes held by General Atlantic Partners, LLC (together with its affiliates, "GAP") and members of the Cayre family also contributed to the increase in interest and other income (expense), net. The Company's effective tax rate for fiscal 2000 was 15% compared to 36% in fiscal 1999. The valuation allowance increased by $134,591 in fiscal 2000, consisting of a valuation allowance of $48,806 for the beginning deferred tax asset balance and a valuation allowance of $85,785 for the net change in the deferred tax asset during the year. Such valuation allowance was necessary due to the current year operating results and the terminated plans to sell certain of the Company's businesses which would have resulted in the utilization of the deferred tax asset. A full valuation allowance has been recorded against the net deferred tax asset since it is more likely than not that such assets will be realized in the foreseeable future. Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations -- Reporting Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"), as of March 31, 2000, the Consolidated Financial Statements of the Company reflect the planned disposal of OZM as a discontinued operation. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of this business have been excluded from the respective captions in the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows, and have been reported through its planned date of disposition as "Loss from discontinued operations." As of March 31, 1999, OZM was accounted for as a discontinued operation and was sold in July 1999. This resulted in a loss from discontinued operations of $19.5 million, 0.5 million of which is recognized in the fiscal year 2000. The gain on early extinguishment of debt of $3.2 million ($1.3 million net of tax) relates to the net gain recognized on the issuance of subordinated convertible notes in exchange for shares of Series A Convertible Preferred Stock ("Preferred Stock") and subordinated notes of the Company held by GAP and the write-off of deferred financing costs associated with warrants issued in connection with the assumption of the Old Credit Agreement, and, warrants issued to GAP and subsequently acquired by Infogrames SA concurrent with the Infogrames SA transaction on December 16, 1999. 25 29 TWELVE MONTHS ENDED MARCH 31, 1999 COMPARED TO TWELVE MONTHS ENDED MARCH 31, 1998 Net revenues for fiscal 1999 increased approximately $29.3 million, or 5.4%, to $572.3 million from $543.1 million in fiscal 1998. This growth in net revenues was attributable to increases in net revenues of Children's publishing, Leisure publishing and Distribution of $23.2 million, or 108%, $12.5 million, or 39%, and $12.3 million, or 5%, respectively. The increase in Children's net revenue is attributable to the release of Blue's Clues related titles during fiscal 1999. The increase in Leisure's net revenue is attributable to the increased and continuing success of Deer Hunter, Deer Hunter II and Rocky Mountain Trophy Hunter. The increase in Distribution net revenues for fiscal 1999 is primarily due to an increase in the number of stores supplied and serviced by the Company. These increases are offset by a reduction in Frontline net revenue of $18.7 million, or 8%. The decrease is largely attributable to a $13.5 million, or 71% decrease in royalty income. Cost of goods sold for fiscal 1999 increased approximately $15.6 million, or 5.0%, to $330.0 million from $314.3 million in fiscal 1998. Cost of goods sold as a percentage of net revenues decreased to 57.7% in fiscal 1999 as compared to 57.9% in fiscal 1998. Excluding increased charges for obsolete inventory between the periods, the cost of goods percentage would have been 55.4% of net revenue in fiscal 1999. This decrease is primarily a result of increased sales in the Children's and Leisure categories of publishing. Selling and distribution expenses primarily include shipping expenses, sales and distribution labor expenses, advertising and promotion expenses and distribution facilities costs. During fiscal 1999, these expenses increased approximately $40.9 million, or 38.3%, to $147.5 million from $106.7 million in fiscal 1998. Selling and distribution expenses as a percentage of net revenues for fiscal 1999 increased to 25.8% as compared to 19.6% in fiscal 1998. The increase, as a percentage of net revenues, was primarily attributable to the increase of print advertising worldwide to support the new and existing releases of the Company's published product and increased cooperative advertising, and increased premium freight costs due to higher unit volume and the expense of consolidating inventory of the Company's Plymouth, MN distribution center into its Edison, NJ distribution center, as compared to fiscal 1998. The overall increase was also attributable to increased sales volume. General and administrative expenses primarily include personnel expenses, facilities costs, professional expenses and other overhead charges. These expenses in fiscal 1999 increased approximately $19.0 million, or 40%, to $66.6 million from $47.6 million in fiscal 1998. General and administrative expenses as a percentage of net revenues increased to 11.6% in fiscal 1999 from 8.8% in fiscal 1998. This increase was due primarily to increased depreciation associated with the expansion of the Company's worldwide facilities and the implementation of enterprise software to enhance the Company's management information systems worldwide, the increase in bad debt expenses, additional legal and accounting fees incurred as part of the discontinued private placement of senior subordinated debt and the write-off of an equity investment. Research and development primarily includes payment for royalty advances to third-party developers on products that are currently in development and direct costs of internally developing and producing a title such as salaries and other related costs. These expenses in fiscal 1999 increased approximately $54.6 million, or 244.8%, to $76.9 million from $22.3 million in fiscal 1998. Research and development, as a percentage of net revenues, increased to 13.4% in fiscal 1999 from 4.1% in fiscal 1998. This increase is primarily due to the change in accounting effective January 1, 1998, whereby royalty advances on products that are currently in development are expensed as incurred, and the additional headcount attributable to increased in-house development capacity. Research and development of the Company's internal development studios, which, during the relevant periods, primarily included SingleTrac, Cavedog, Humongous, Legend, Reflections and Bootprint increased to $34.9 in fiscal 1999 from $17.6 million in fiscal 1998. Excluding the impact of the change in accounting, research and development expenses would have increased $28.2 million from $48.7 million to $76.9 million, or 58%. Restructuring charges of approximately $17.5 million, recorded in the fourth quarter of fiscal 1999, relate to a reorganization of the Company's Frontline publishing business, a contemplated relocation of corporate headquarters to California and outsourcing of the Company's distribution function. Approximately $9.8 26 30 million relates to the planned severance of 135 employees, $7.1 million relates to impaired assets and $0.6 million relates to rent for the transition period. This reorganization was announced on March 19, 1999, and management expects to complete the reorganization by March 19, 2000. The charge for royalty advance write-off of $73.8 million during fiscal 1998 represents a change in estimate and accounting whereby royalty advances on products that were currently in development or on sale were expensed. In connection with this change, the Company prospectively expensed royalty advances in a manner comparable with internal software development costs, which are expensed to research and development as incurred. In connection with the acquisitions of SingleTrac in October 1997 and Reflections in December 1998, the Company incurred charges of $11.0 million and $5.0 million, respectively, for purchased research and development. In addition, the Company incurred a charge of $2.4 million and $1.7 million in fiscal 1998 and fiscal 1999, respectively, for a retention bonus for the SingleTrac employees, which was based on the achievement of certain performance goals. Merger costs consist of legal, accounting and other professional fees incurred by the Company for the canceled acquisition of MicroProse, Inc., during fiscal 1998. Amortization of goodwill increased approximately $1.8 million, or 111.4% in fiscal 1999, to $3.3 million from $1.6 million in fiscal 1998. This increase is attributable to the purchases of Reflections, Homesoft, Prism and Legend in fiscal 1999. Interest and other expenses increased approximately $1.6 million during fiscal 1999 to $5.3 million from $3.7 million in fiscal 1998. This increase was primarily attributable to the increase in interest costs associated with borrowings under the Company's then existing Revolving Credit Agreement. The Company's effective tax rate for fiscal 1999 was 36% compared to 30% in fiscal 1998. The increased rate is attributable to the lower proportion of non-deductible expenses, primarily purchased research and development and goodwill, in 1999. In February 1999, certain partnerships affiliated with GAP purchased from the Company 0.6 million shares of the Preferred Stock for an aggregate purchase price of $30.0 million. These shares of Preferred Stock accumulated dividends at 8.0% and were convertible into 6.0 million shares of Common Stock at a conversion price of $5 per share. The Preferred Stock was exchanged for convertible notes in connection with the Infogrames SA transaction in December 1999. See Note 2 in the Consolidated Financial Statements included herein. Pursuant to APB 30, the Consolidated Financial Statements of the Company reflect the planned disposal of OZM as a discontinued operation. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of this business have been excluded from the respective captions in the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows, and have been reported through its planned date of disposition as "Loss from discontinued operations." As of March 31, 1999, OZM is accounted for as a discontinued operation and it is the Company's present intention to sell OZM, resulting in an anticipated loss from discontinued operations of $19.0 million. The loss from operations of OZM represents net expenses of $4.6 million on net revenues of $1.1 million. The loss on disposal of OZM includes a provision of $5.0 million for operating losses during the phase-out period, and is primarily attributable to the write-off of goodwill of approximately $18.3 million. There is no tax benefit recorded on the loss from discontinued operations, as OZM has historically generated net losses. 27 31 THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Net revenues for 1998 increased approximately $12.4 million, or 13.3%, to $105.8 million from $93.4 million in the comparable 1997 period. This growth in net revenues was primarily attributable to a 49% increase in publishing revenue which includes Frontline, Children's and Leisure. Frontline net revenue increased $9.4 million, or 36%, from $26.4 million to $35.9 million, as a result of the sales of Duke Nukem titles for the PlayStation, Nintendo 64 and the PC, Hexen for Nintendo 64, OddWorld: Abe's Oddysee for the PlayStation, Total Annihilation for the PC, East Meets West, and Quake for Nintendo 64, internationally. Leisure publishing's net revenue increased $4.1 million, or 103% as a result of continued strong sales of Deer Hunter and Wild Turkey Hunt for the PC. Children's net revenue increased $2.6 million or 120% as a result of newly released titles such as Freddi Fish 3: The Case of the Stolen Conch Shell. The overall increase in net revenues was partially offset by the decrease in distribution net revenues to $57.1 million, or 54% of net revenues, in 1998 from $60.8 million, or 65% of net revenues, in the comparable 1997 period, as a result of Wal-Mart purchasing software directly from several publishers whose software was previously sold to Wal-Mart by the Company. Cost of goods sold primarily includes costs of purchased products. Cost of goods sold for 1998 decreased approximately $0.8 million, or 1.4%, to $57.1 million from $57.9 million in the comparable 1997 period. Cost of goods sold as a percentage of net revenues decreased to 54.0% in 1998 as compared to 62.0% in the comparable 1997 period. The decrease, as a percentage of net revenues, was primarily due to the Company's change in accounting with respect to royalty advances, resulting in the expensing of such advances to research and development as incurred, rather than recouping such advances based on sales. Additionally, the Company's overall sales mix of its published product, which generally have higher margins, increased to 46% of net revenues in 1998 compared to 35% in the comparable 1997 period. The decrease in cost of goods sold was partially offset by the higher sales of console titles, which generally have higher costs than PC titles. Console titles accounted for 45% of published product revenue in 1998 compared to 17% during the comparable 1997 period. Selling and distribution expenses primarily include shipping expenses, sales and distribution labor expenses, advertising and promotion expenses and distribution facilities costs. During 1998 these expenses increased approximately $7.9 million, or 47.9%, to $24.5 million from $16.5 million in the comparable 1997 period. Selling and distribution expenses as a percentage of net revenues for 1998 increased to 23.1% as compared to 17.7% in the comparable 1997 period. The increase, as a percentage of net revenues, was primarily attributable to the increase of print advertising worldwide to support the new and existing releases of the Company's published product and increased cooperative advertising associated with higher published Frontline revenues as compared to the comparable 1997 period. The overall increase was also attributable to increased sales volume. General and administrative expenses primarily include personnel expenses, facilities costs, professional expenses and other overhead charges. These expenses in 1998 increased approximately $2.0 million, or 23.6%, to $10.7 million from $8.6 million in the comparable 1997 period. General and administrative expenses as a percentage of net revenues increased to 10.1% in 1998 from 9.2% in the comparable 1997 period. This increase was due primarily to additional personnel required to support the expansion of the Company's publishing operations and the related amortization associated with the expansion of the Company's worldwide facilities and the implementation of enterprise software to enhance the Company's management information systems worldwide. Research and development expenses primarily include payment for royalty advances to third party developers on products that are currently in development and direct costs of internally developing and producing a title such as salaries and other related costs. These expenses in 1998 increased approximately $8.5 million, or 353.3%, to $10.9 million from $2.4 million in the comparable 1997 period. Research and development expenses as a percentage of net revenues increased to 10.3% in 1998 from 2.6% in the comparable 1997 period. This increase is primarily due to the change in accounting effective for the three months ended March 31, 1998, whereby royalty advances on products that are currently in development or on 28 32 sale are expensed as incurred, and the additional headcount attributable to increased in-house development capacity primarily the result of the SingleTrac acquisition. Interest and other income (expense), net, decreased approximately $1.6 million during 1998 to an expense of $1.4 million from income of $0.2 million in the comparable 1997 period. This decrease was primarily attributable to the decrease in short-term investments and the increase in interest costs associated with borrowings under the Company's credit agreement. The Company's effective tax rate for 1998 was 46% compared to 43% in the comparable 1997 period. The increase is attributable to the higher proportion of nondeductible expenses, primarily goodwill, in the current period. TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1996 Net revenues increased approximately $165.2 million, or 45.2%, to $530.7 million in 1997 from $365.5 million in 1996. Publishing's net revenues increased by $113.3 million from $152.4 million to $265.7 million or 74%. This growth in net revenues was primarily attributable to an increase in Frontline net revenue of $100.9 from $120.5 million to $221.4 million or 84%. The release of newly published titles, both domestically and internationally, which included OddWorld: Abe's Oddysee for the PlayStation, Duke Nukem 3D for Nintendo 64 and the PlayStation, Hexen for Nintendo 64 and the PlayStation and Total Annihilation for the PC. The international release of Doom II, Mortal Kombat Trilogy, San Francisco Rush, NBA Hangtime and Mace for Nintendo 64, the domestic release of Shadow Warrior for the PC, Critical Depth for the PlayStation, Blood for the PC and Courier Crisis for the PlayStation, as well as the continuing strong sales of Duke Nukem 3D and Quake and an increase in royalty income (from licensing of certain of the Company's products in selected international markets) also contributed to the growth in net revenues. Children's net revenue increased $5.6 million from $11.1 million to $16.7 million or 50% primarily as a result of the release of Putt Putt(R) Travels Through Time(TM). Leisure's net revenue increased $6.8 million, from $20.8 million to $27.6 million, or 33%, as a result of increased sales of Deer Hunter, Sportsmen's Paradise and Duke 3D shareware. Distribution's net revenue increased $53.0 million from $213 million to $265 million, or 25%, as a result of increases in sales from its existing mass merchant shelf space and an increase in the number of mass merchant stores supplied and serviced by the Company. This increase was partially offset by the reduction in revenues resulting from Wal-Mart's decision in the second half of 1997 to purchase products directly from five publishers whose products had been previously distributed by the Company. Cost of goods sold primarily includes costs of purchased products and royalties paid to software developers. Cost of goods sold increased approximately $100.6 million, or 46.9%, to $315.1 million in 1997 from $214.6 million in 1996. Cost of goods sold as a percentage of net revenues increased to 59.4% in 1997 as compared to 58.7% in 1996. The increase of 0.7% was primarily due to the decline in the average wholesale price of the Company's value priced products and an increase in the sales of Nintendo 64 titles, which have lower margins. This increase was mostly offset by a shift in the Company's overall sales mix toward its published products which increased to an aggregate of approximately 50% of net revenue in 1997 compared to approximately 42% during 1996 and a change in product mix within the products distributed for third parties to higher margin products. Selling and distribution expenses primarily include shipping expenses, sales and distribution labor expenses, advertising and promotion expenses and distribution facilities costs. These expenses increased approximately $26.2 million, or 36.1%, to $98.7 million in 1997 from $72.5 million in 1996. The increase is attributable to the overall increase in sales volume. Selling and distribution expenses as a percentage of net revenues for 1997 decreased to 18.6% as compared to 19.9% for 1996. This decrease was primarily attributable to the reduction of freight as a percentage of net revenues and the Company realizing greater economies of scale. General and administrative expenses primarily include personnel expenses, facilities costs, professional expenses and other overhead charges. These expenses in 1997 increased approximately $14.4 million, or 46.2%, to $45.6 million in 1997 from $31.2 million in 1996. General and administrative expenses as a percentage of net revenues increased to 8.6% in 1997 from 8.5% in 1996. This increase was due primarily to 29 33 additional personnel required to support the expansion of the Company's research, development and publishing operations, an increase in the reserve for bad debts and an increase in depreciation expense due to the write-off of the leasehold improvements at the Company's former headquarters. Research and development expenses primarily include direct costs of developing and producing a title such as salaries and other related costs. These expenses in 1997 increased approximately $8.2 million, or 145.4%, to $13.8 million from $5.6 million in 1996. Research and development expenses as a percentage of net revenues increased to 2.6% in 1997 from 1.5% in 1996. This increase is primarily due to the in-house development of Humongous titles. The charge for royalty advance write-off of $73.8 million during 1997 represents a change in estimate and accounting whereby royalty advances on products that are currently in development or on sale were expensed. In connection with this change, the Company will prospectively expense royalty advances in a manner comparable with internal software development costs, which are expensed as incurred. In connection with the acquisition of SingleTrac, the Company incurred a charge of $11.0 million for purchased research and development. In addition, the Company incurred a charge of $2.4 million for a retention bonus for the SingleTrac employees, which was based on the achievement of certain performance goals. Pursuant to the SingleTrac purchase agreement, the Company structured a retention oriented bonus pool of up to approximately $10.0 million in cash and Common Stock, which was distributed to SingleTrac employees based on the achievement of certain performance goals of SingleTrac during calendar year 1998. Merger costs consist of legal, accounting and other professional fees incurred by the Company for the canceled acquisition of MicroProse, Inc., during 1997 and to complete other acquisitions and for the Company's canceled secondary stock offering during 1996. Interest and other income (expense), net, decreased approximately $6.0 million during 1997. This decrease was primarily attributable to the decrease in short-term investments and cash balances and the interest costs associated with borrowings under the Company credit agreement. The Company's effective tax rate, as a percentage of pre-tax income (loss), decreased in 1997 to 27% compared to 38% in 1996 due to the non-deductible one-time charge related to the acquisition of in-process research and development during the year. For 1997, the net loss was $25.0 million, or $0.37 per share, compared to net income of $25.1 million, or $0.38 per share for 1996, with earnings per share for both 1997 and 1996 calculated based on the basic method. Excluding one-time charges resulting from the charge for the royalty advance expense, purchased research and development, the retention bonus for the SingleTrac employees and the merger costs, the Company would have recognized net income of $33.9 million or $0.51 per share. Exclusive of the one-time charge for merger costs, net income for 1996 would have been $27.3 million or $0.40 per share. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000, the Company's working capital was ($104.8) million compared to $131.8 million at March 31, 1999. Cash and cash equivalents were $19.6 million at March 31, 2000 compared to $13.4 million at March 31, 1999. During the twelve months ended March 31, 2000, $71.8 million was provided by financing activities. The Company repaid $27.1 million of its revolving line of credit and entered into various commitments with Infogrames SA and GAP, as further described below, for aggregate borrowing proceeds of $80.0 million. The cash flow from financing activities primarily was used to fund $57.5 million for net cash used in operating activities which resulted from operating losses, and a reduction in the accounts payable balance (for past due accounts). This was offset by a decline in receivables due to a reduction in volume of revenues and the write-off of aging customer chargebacks relating to price protection, co-op advertising and uncollectible accounts. Approximately $8.9 million in cash was used in investing activities to purchase property and equipment, primarily additional computer hardware and software for the development of internal systems. 30 34 The Company does not currently have any material commitments with respect to any capital expenditures. On January 21, 1997, the Company entered into a revolving credit agreement (as amended, the "Old Credit Agreement") with certain banks expiring on December 31, 1998. On September 11, 1998, the borrowings under the Old Credit Agreement were repaid and the Old Credit Agreement was terminated. Simultaneously, on September 11, 1998, the Company entered into the Credit Agreement with First Union National Bank, as agent for a syndicate of Banks as subsequently amended, expiring on March 31, 2000. Under the Credit Agreement, the Company borrowed approximately $71 million for ongoing working capital requirements, letters of credit and other general corporate purposes, secured by domestic accounts receivable and inventory and other assets of the Company. To induce the banks to amend the Credit Agreement, the Company issued the Banks warrants to purchase, at an exercise price of $0.01 per share, an aggregate of 750,000 shares of the Company's Common Stock. Of these, warrants to purchase 275,000 shares of Common Stock were immediately exercisable, warrants to purchase 250,000 shares of Common Stock became exercisable on October 31, 1999 and warrants to purchase the remaining 225,000 shares of Common Stock (the "Bank Warrants") became exercisable on February 28, 2000 if the Credit Agreement was not repaid prior to that date. As of February 15, 2000, Infogrames SA entered into an agreement with the Banks, pursuant to which Infogrames SA assumed the Banks' interest in the Credit Agreement. In connection with the assumption by Infogrames SA of the Credit Agreement, (i) the maturity date was extended from March 31, 2000 to June 30, 2000, (ii) the interest rate, which was the Prime Rate plus 1.0% or LIBOR plus 2.5% at the option of the Company, was set at LIBOR plus 2.5%, (iii) a $250,000 amendment fee, which would have been payable to the Banks on March 31, 2000 unless the Credit Agreement was refinanced by February 16, 2000, was reduced to $125,000 and paid to Infogrames SA, (iv) certain mandatory prepayment restrictions and operational covenants were revised to be less restrictive and (v) revisions were made to provide alternative letter of credit facilities to the Company. In addition, in connection with the assumption of the Credit Agreement by Infogrames SA, the Bank Warrants were surrendered and canceled and warrants to acquire 225,000 shares of Common Stock, at an exercise price of $0.01 per share, were issued to Infogrames SA. At March 31, 2000, the Company had outstanding debt of approximately $71.7 million, representing borrowings under the Credit Agreement, and letters of credit amounting to approximately $1.6 million. On June 29, 2000, Infogrames SA and the Company amended the Credit Agreement to increase the aggregate commitment available under the facility to $125 million and to extend the maturity date to September 30, 2000. Additionally, the Company is involved in various claims and legal actions arising in the ordinary course of business, the ultimate resolution of which management believes will not be material to the Company's results of operations or financial condition. The Company expects continued volatility in the use of cash due to varying seasonal, receivable payment cycles and quarterly working capital needs to finance its publishing businesses and corporate plan of reorganization. The Company believes that existing cash, cash equivalents and short-term investments, together with cash expected to be generated from operations, cash available under the Credit Agreement and continued financial support from Infogrames SA will be sufficient to fund the Company's operations and cash flows into the second quarter of fiscal 2001. The Company is also party to various litigations arising in the course of its business, the resolution of none of which, the Company believes, will have a material adverse effect on the Company's liquidity, financial condition and results of operations. 31 35 RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt SFAS No. 133 in fiscal 2001, in accordance with the deferral provision in SFAS No. 137. The adoption of SFAS No. 133 will not have a material effect on the Company's financial statements. EURO CONVERSION As part of the European Economic and Monetary Union (EMU), a single currency (the "Euro") will replace the national currencies of most of the European countries in which the Company conducts business. The conversion rates between the Euro and the participating nations' currencies have been fixed irrevocably as of January 1, 1999, with the participating national currencies being removed from circulation between January 1, and June 30, 2002 and replaced by Euro notes and coinage. During the "transition period" from January 1, 1999 through December 31, 2001, public and private entities as well as individuals may pay for goods and services using either checks, drafts, or wire transfers denominated in Euro or the participating country's national currency. Under the regulations governing the transition to a single currency, there is a "no compulsion, no prohibition" rule which states that no one is obliged to utilize the Euro until the notes and coinge have been introduced on January 1, 2002. In keeping with this rule, the Company is Euro "compliant" (able to receive Euro denominated payments and able to invoice in Euro as requested by vendors and suppliers, respectively) as of January 1, 1999 in the affected countries. Full conversion of all affected country operations to Euro is expected to be completed by the time national currencies are removed from circulation. Phased conversion to the Euro is currently underway and the effects on revenues costs and various business strategies are being assessed. The cost of software and business process conversion is not expected to be material. YEAR 2000 COMPLIANCE To date, no significant problems related to Year 2000 have been identified in the Company's internal systems or with its vendors, suppliers, service providers or customers that would materially impact the Company's business. Also, no Year 2000 issues have been identified with the internally developed or third-party products that the Company distributes. Although the Company does not expect any significant future Year 2000 related failures or malfunctions, the Company will continue to monitor its internal systems and work closely with its suppliers, service providers and customers to seek to avoid any material interruptions in its business. The Company has spent $0.8 million for the cost of upgrading, replacing, testing and implementing its Year 2000 compliance plan. No further expenditures are currently expected. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Due to the global nature of the Company's operations, the Company is subject to the exposures that arise from foreign exchange rate fluctuations. The Company's objective in managing its exposure to foreign currency fluctuations is to minimize net earnings volatility associated with foreign exchange rate changes. The Company may enter into foreign currency forward exchange contracts to hedge foreign currency transactions which are primarily related to certain receivables denominated in foreign currencies. The Company's hedging activities do not subject it to exchange rate risk because gains and losses on these contracts offset losses and gains on the assets, liabilities and transactions being hedged. The Company is not exposed to material future earnings or cash flow exposures from changes in interest rates on long-term obligations since the majority of the Company's long-term obligations are at fixed rates. 32 36 ITEM 8. INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, and notes thereto, and the Financial Statement Schedule of the Company, are presented on pages F-1 through F-32 hereof as set forth below:
PAGE ---- INFOGRAMES, INC. AND SUBSIDIARIES Independent Auditors' Report.............................. F-1 Consolidated Balance Sheets as of March 31, 1999 and 2000................................................... F-3 Consolidated Statements of Operations for the Year Ended December 31, 1997, the Three Months Ended March 31, 1998 and the Years Ended March 31, 1999 and 2000....... F-4 Consolidated Statements of Comprehensive (Loss) Income for the Year Ended December 31, 1997, the Three Months Ended March 31, 1998 and the Years Ended March 31, 1999 and 2000............................................... F-5 Consolidated Statements of Cash Flows for the Year Ended December 31, 1997, the Three Months Ended March 31, 1998 and the Years Ended March 31, 1999 and 2000....... F-6 Consolidated Statements of Stockholders' Equity (Deficit) for the Year Ended December 31, 1997, the Three Months Ended March 31, 1998 and the Years Ended March 31, 1999 and 2000............................................... F-8 Notes to the Consolidated Financial Statements............ F-9 to F-31 FINANCIAL STATEMENT SCHEDULE For the Year Ended December 31, 1997, the Three Months Ended March 31, 1998 and the Years Ended March 31, 1999 and 2000 Schedule II -- Valuation and Qualifying Accounts.......... F-32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 20, 2000, the Company's Board of Directors appointed Deloitte & Touche LLP as its independent accountants, replacing Arthur Andersen LLP (the "Former Accountants"). During the Company's two most recent fiscal years, there were no disagreements with the Former Accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the Former Accountants, would have caused them to make reference to the subject matter of the disagreement in their report. None of the Former Accountants' reports on the Company's financial statements for either of the past two years contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no reportable events in accordance with Item 304(a)(1)(v)(A)-(D) of Regulation S-K. A letter from the Former Accountants addressed to the Securities and Exchange Commission in accordance with Item 304(a)(3) of Regulation S-K, stating that they agree with the Registrant's response to Item 4 of the Registrant's Current Report on Form 8-K, dated March 20, 2000, is filed as an exhibit hereto. 33 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS See the information set forth under the caption "Election of Directors" and "Executive Officers of the Company" contained in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders (the "Proxy Statement"), which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the information set forth under the caption "Executive Compensation" (up to but not including the subcaption "Report of the Board of Directors on Executive Compensation") contained in the Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" contained in the Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information set forth under the subcaptions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" contained in the Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2) Financial Statements and Financial Statement Schedules See Item 8 hereof. (a)(3) Exhibits 2.1 Agreement and Plan of Reorganization by and among the Company, GT Acquisition Sub, Inc., WizardWorks Group, Inc. and the Stockholders of WizardWorks Group, Inc., dated June 24, 1996 is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 9, 1996. 2.2 Escrow Agreement by and among the Company, Paul D. Rinde, as the Stockholder Representative of WizardWorks Group, Inc., and Republic National Bank of New York, as Escrow Agent, dated June 24, 1996 is incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on July 9, 1996. 3.1 Amended and Restated Certificate of Incorporation. 3.2 Amended and Restated By-laws are incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. 4.1 Specimen form of stock certificate for Common Stock. 4.2 Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.1 to Company's Current Report on Form 8-K filed on March 2, 1999. 4.3 Stockholders' Agreement by and among Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, Jack J. Cayre, the Trusts listed on Schedule I attached thereto and the Company is incorporated herein by reference to an exhibit filed as a part of the Company's Registration Statement on Form S-1 filed October 20, 1995.
34 38 4.3a Amendment to Stockholders Agreement, dated as of December 18, 1995, by and among Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, Jack J. Cayre, the Trusts parties thereto and the Company is incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 4.4 Registration Rights Agreement by and among Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, Jack J. Cayre, the Trusts listed on Schedule I attached thereto and the Company is incorporated herein by reference to an exhibit filed as a part of the Company's Registration Statement on Form S-1 filed October 20, 1995. 4.5 Amended and Restated Registration Rights Agreement, dated as of February 15, 2000, between California U.S. Holdings, Inc. and the Company. 10.1 The 1995 Stock Incentive Plan (as amended on October 31, 1996) is incorporated herein by reference to Exhibit 10.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1, filed December 6, 1996.* 10.2 The 1997 Stock Incentive Plan is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.* 10.3 The 1997 Stock Incentive Plan (as amended on June 17, 1998) is incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.* 10.4 The 2000 Stock Incentive Plain is incorporated herein by reference to Appendix B to the Company's proxy statement dated June 29, 2000.* 10.5 The 1998 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.* 10.6 Non-Competition Agreement, dated June 22, 1995, between the Company and Charles F. Bond is incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 filed October 20, 1995.* 10.7 Employment Agreement, dated April 19, 1996, between the Company and Andrew Gregor is incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.* 10.7a Letter Agreement, dated March 12, 1999, between the Company and Andrew Gregor is incorporated herein by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.* 10.8 Employment Agreement, dated April 28, 1998, between the Company and David I. Chemerow is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.* 10.8a Amendment, dated May 5, 1999, to the Employment Agreement, dated May 15, 1997, as previously amended on April 28, 1999, between the Company and David Chemerow is incorporated herein by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.* 10.9 Employment Agreement, dated April 28, 1998, between the Company and Ronald Chaimowitz is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.* 10.9a Agreement, dated February 19, 1999, between the Company and Ronald Chaimowitz is incorporated herein by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.* 10.10 Employment Agreement, dated April 28, 1998, between the Company and Harry M. Rubin is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.* 10.10a Agreement and Release, dated April 7, 2000, by and between Harry M. Rubin and the Company.*
35 39 10.10b Letter Agreement, dated June 15, 2000, by and between Harry M. Rubin and the Company.* 10.11 Employment Agreement, dated July 1, 1998, between the Company and Charles F. Bond is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.* 10.12 Employment Agreement, dated August 18, 1998, between the Company and Jack J. Cayre is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.* 10.12a Agreement and Release, dated March 7, 2000, by and between Jack J. Cayre and the Company.* 10.13 Employment Agreement between the Company and Thomas A. Heymann is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on 8-K filed on March 2, 1999.* 10.13a Separation Agreement, dated as of February 15, 2000, between the Company and Thomas A. Heymann.* 10.14 Employment Agreement, dated April 2, 1999, between the Company and John T. Baker IV is incorporated herein by reference to Exhibit 10.53 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.* 10.14a Separation Agreement, dated as of February 18, 2000, between the Company and John T. Baker IV.* 10.15 Letter Agreement, dated April 20, 2000, by and between David Fremed and the Company.* 10.16 Lease Agreements between the Company and 16 East 40th Associates is incorporated herein by reference to Exhibit 10.15 to Company's Registration Statement on Form S-1 filed October 20, 1995. 10.17 Lease Agreement between the Company and Plymouth 2200, LLP, dated September 6, 1996 is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.18 Agreement of Lease, dated as of December 12, 1996, by and between the Company and F.S. Realty Corp is incorporated herein by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.19 Services Agreement between the Company and GoodTimes Home Video Corp., dated as of January 1, 1995, is incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 filed October 20, 1995. 10.20 GTIS Master Option and License Agreement between the Company and the Williams Entertainment Group, dated December 28, 1994, and the Amendment to such agreement, dated March 31, 1995, are incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 filed October 20, 1995. 10.21 GTIS Master Option and License Agreement (Home Video Games) between the Company and the Williams Entertainment Group, dated March 31, 1995 is incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 filed October 20, 1995. 10.22 Agreement by and between the Company and REPS is incorporated herein by reference to an exhibit filed as a part of the Company's Registration Statement on Form S-1 filed October 20, 1995. 10.23 Warehouse Services Contract, dated March 2, 1999, by and between the Company and Arnold Transportation Services, Inc. t/d/b/a Arnold Logistics is incorporated herein by reference to Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. 10.24 Distribution Agreement between Infogrames Entertainment SA and the Company, dated as of December 16, 1999, is incorporated herein by reference to Exhibit 7 to the Schedule 13D filed by Infogrames Entertainment SA and California U.S. Holdings, Inc. on January 10, 2000.
36 40 10.25 Trademark Agreement, dated as of May 10, 2000, by and between Infogrames Entertainment SA and the Company. 10.26 Credit Agreement, dated as of September 11, 1998, by and among the Company, the Lenders thereto, NationsBanc Montgomery Securities, LLC, as Syndication Agent, Fleet Bank, N.A., as Documentation Agent, and First Union National Bank, as Administrative Agent, is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. 10.26a Second Amendment, Waiver and Agreement, dated as of June 29, 1999, by and among the Company, the Lenders thereto and First Union National Bank, as Administrative Agent, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on 8-K filed on August 5, 1999. 10.26b Third Amendment, Consent, Waiver and Agreement, dated as of November 15, 1999, by and among the Company, the Lenders thereto and First Union National Bank, as Administrative Agent is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on November 19, 1999. 10.26c Right of First Refusal Offer Agreement, dated November 15, 1999, by and among California U.S. Holdings, Inc. and the Lenders named therein is incorporated herein by reference to Exhibit 13 to the Schedule 13D filed by Infogrames Entertainment SA and California U.S. Holdings, Inc. on December 14, 1999. 10.26d Amended and Restated Unconditional Subsidiary Guaranty Agreement, dated as of November 15, 1999, among certain subsidiaries of the Company, California U.S. Holdings, Inc. and First Union National Bank, as administrative agent, for the benefit of the Lenders is incorporated herein by reference to Exhibit 15 to the Schedule 13D filed by Infogrames Entertainment SA and California U.S. Holdings, Inc. on December 14, 1999. 10.26e Second Amended and Restated Security Agreement, dated as of November 15, 1999, by and among the Registrant, certain of its subsidiaries, First Union National Bank, as Administrative Agent, and California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on November 19, 1999. 10.26f Second Amended and Restated Pledge Agreement, dated as of November 15, 1999, by the Company and certain of its subsidiaries in favor of First Union National Bank, as Administrative Agent, and California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed on November 19, 1999. 10.26g Master Assignment and Acceptance, dated as of February 15, 2000, by and among the Company, the Assignors and Infogrames Entertainment SA. 10.26h Warrant Agreement, dated as of February 15, 2000, by and among the Company and Infogrames Entertainment SA. 10.26i Warrant Certificate, dated as of February 15, 2000 issued to California U.S. Holdings, Inc. 10.26j Fourth Amendment to the Credit Agreement, dated as of February 15, 2000, by and between the Company and Infogrames Entertainment S.A. 10.26k Reimbursement and Cash Collateral Agreement, dated as of February 15, 2000, by and between the Company and First Union National Bank. 10.26l Collateral Assignment Agreement, dated as of February 15, 2000, by and among First Union National Bank, Infogrames S.A., the Company and the Guarantors. 10.26m Fifth Amendment to the Credit Agreement, dated as of March 31, 2000, by and between the Company and Infogrames Entertainment S.A. 10.26n Sixth Amendment to the Credit Agreement, dated as of June 29, 2000, by and between the Company and Infogrames Entertainment SA
37 41
.27 10 Stock Purchase Agreement, dated February 8, 1999, among the Company, General Atlantic Partners 54, L.P. and GAP Coinvestment Partners II, L.P. is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on 8-K filed on March 2, 1999. 10.28 Warrant Agreement, dated as of June 29, 1999, among the Company, GAP 54, GAPCO II and the other parties named therein is incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999. 10.29 Letter Agreement, dated June 29, 1999, among GAP 54, GAPCO II, Joseph J. Cayre, Kenneth Cayre and Stanley Cayre is incorporated herein by reference to Exhibit 2 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999. 10.30 Form of Option Agreement, dated as of July 30, 1999, among GAP 54, GAPCO II and the other parties named therein is incorporated herein by reference to Exhibit 3 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on August 10, 1999. 10.31 Securities Purchase Agreement, dated as of November 15, 1999, by and among Infogrames Entertainment S.A., California U.S. Holdings, Inc. and the Company is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on 8-K filed on November 19, 1999. 10.32 Securities Exchange Agreement, dated as of November 15, 1999, by and among the Company, General Atlantic Partners 54, L.P., and GAP Coinvestment Partners II, L.P. is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on 8-K filed on November 19, 1999. 10.33 Promissory Note of the Company in the aggregate principal amount of $25,000,000 payable to California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 10.6 to the Company's Current Report on 8-K filed on November 19, 1999. 10.34 Warrant to Purchase 50,000 shares of Common Stock, issued to California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 5 to the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on December 14, 1999. 10.35 Form of GAP Warrant is incorporated herein by reference to Exhibit 9 to the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on December 14, 1999. 10.36 Note Purchase Agreement, dated as of November 15, 1999, between certain members of the Cayre Group and California U.S. Holdings, Inc. is incorporated herein by reference to Exhibit 11B to the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on December 14, 1999. 10.37 Equity Purchase and Voting Agreement, dated as of November 15, 1999, among Infogrames Entertainment S.A., California U.S. Holdings, Inc., GAP 16, GAP 19, GAP II, GAP 54, GAPCO and GAPCO II is incorporated herein by reference to Exhibit 3 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on December 23, 1999. 10.38 Form of GAP 54 Note is incorporated herein by reference to Exhibit 4 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on December 23, 1999. 10.39 Form of GAPCO II Note is incorporated herein by reference to Exhibit 5 to the Schedule 13D filed by General Atlantic Partners, LLC and certain of its affiliates on December 23, 1999. 10.40 5% Subordinated Convertible Note of the Company is incorporated herein by reference to Exhibit 6 to the Schedule 13D filed by Infogrames Entertainment S.A. and California U.S. Holdings, Inc. on January 10, 2000. 16.1 Letter from Arthur Andersen LLP, dated March 20, 2000, addressed to the Securities and Exchange Commission in accordance with Item 304(a)(3) is incorporated herein by reference to Exhibit 16.1 to the Company's Current Report on Form 8-K dated March 20, 2000. 21.1 The Company's Subsidiaries is incorporated herein by reference to Exhibit 16.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
38 42
.1 22 Information Statement on Schedule 14C filed on January 25, 2000 is incorporated herein by reference. 22.2 Information Statement on Schedule 14C filed on May 12, 2000 is incorporated herein by reference. 22.3 Information Statement on Schedule 14C filed on June 5, 2000 is incorporated herein by reference. 23.1 Consent of Arthur Andersen LLP. 24.1 Power of Attorney 27.1 Financial Data Schedule for the year ended March 31, 2000. 99.1 Amended and Restated Audit Committee Charter is incorporated herein by reference to Appendix A to the Company's proxy statement dated June 29, 2000.
Exhibits indicated with an * symbol are an executive contract or compensatory plan or arrangement filed pursuant to Item 14 of Form 10-K. A copy of any of the exhibits included in this Annual Report on Form 10-K may be obtained by written request to the Company, upon payment of a fee of $.10 per page to cover costs. Requests should be sent to the Company at the address set forth on the front cover, attention Director, Investor Relations. (c) Reports on Form 8-K The Company filed the following Current Reports on Form 8-K during the quarterly period ended March 31, 2000:
DATE OF REPORT ITEMS REPORTED FINANCIAL STATEMENTS FILED - -------------- -------------- -------------------------- March 15, 2000........ 5 None March 20, 2000........ 4, 7 None
39 43 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) 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. INFOGRAMES, INC. By: /s/ DAVID J. FREMED ------------------------------------ Name: David J. Fremed Title: Chief Financial Officer Date: June 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE --------- -------- ---- * Chairman of the Board of Directors and June 29, 2000 - ------------------------------------------ Chief Executive Officer (principal Bruno Bonnell executive officer) and Director * Director June 29, 2000 - ------------------------------------------ Steven A. Denning * Director and President, Chief Operating June 29, 2000 - ------------------------------------------ Officer and Secretary Denis Guyennot * Director June 29, 2000 - ------------------------------------------ Thomas A. Heymann * Director June 29, 2000 - ------------------------------------------ Ann E. Kronen * Director June 29, 2000 - ------------------------------------------ Thomas Schmider /s/ DAVID J. FREMED Chief Financial Officer (principal June 29, 2000 - ------------------------------------------ financial officer and principal David J. Fremed accounting officer) * By: /s/ DAVID J. FREMED June 29, 2000 - ------------------------------------------ (David J. Fremed, Attorney-in-Fact)
40 44 INFOGRAMES, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Infogrames, Inc. New York, New York We have audited the accompanying consolidated balance sheet of Infogrames, Inc. and its subsidiaries (the "Company") as of March 31, 2000 and the related consolidated statement of operations, comprehensive (loss) income, stockholders' equity (deficit) and cash flows for the year ended March 31, 2000. Our audit also included the financial statement schedule listed in the index at Item 14. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and the financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Infogrames, Inc. and its subsidiaries as of March 31, 2000 and the consolidated results of their operations and their cash flows for the year ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method of accounting for future royalty advances effective January 1, 1998, treating such costs as research and development expenses. /s/ DELOITTE & TOUCHE LLP New York, New York June 27, 2000 F-1 45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of GT Interactive Software Corp. and subsidiaries: We have audited the accompanying consolidated balance sheets of GT Interactive Software Corp. (a Delaware corporation) and subsidiaries as of March 31, 1998 and 1999 and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1997, for the three months ended March 31, 1998 and for the year ended March 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GT Interactive Software Corp. and subsidiaries as of March 31, 1998 and 1999 and the results of their operations and cash flows for each of the two years in the period ended December 31, 1997, for the three months ended March 31, 1998 and for the year ending March 31, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements and supplementary data is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP NEW YORK, NEW YORK JUNE 29, 1999 F-2 46 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
MARCH 31, --------------------- 1999 2000 -------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 13,407 $ 19,587 Short-term investments.................................... 105 -- Receivables, net.......................................... 110,019 37,001 Inventories, net.......................................... 158,208 38,179 Royalty advances.......................................... 9,195 -- Deferred income taxes..................................... 36,142 -- Income taxes receivable................................... 1,973 2,550 Prepaid expenses and other current assets................. 12,947 10,096 -------- --------- Total current assets................................... 321,996 107,413 Property and equipment, net................................. 341,996 25,761 Investments................................................. 7,412 9,293 Goodwill, net of accumulated amortization of $5,078 and $2,564, respectively...................................... 34,194 8,047 Deferred income taxes....................................... 12,664 -- Other assets................................................ 5,837 8,693 -------- --------- Total assets........................................... $438,911 $ 159,207 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $152,556 $ 87,926 Accrued liabilities....................................... 35,505 37,123 Revolving credit facility................................. -- 71,698 Royalties payable......................................... 18,515 14,487 Deferred income........................................... 173 -- Income taxes payable...................................... 2,569 55 Due to related party...................................... 908 958 -------- --------- Total current liabilities.............................. 210,226 212,247 Long-term debt.............................................. 98,750 97,828 Other long-term liabilities................................. 2,802 3,351 -------- --------- Total liabilities...................................... 311,778 313,426 -------- --------- Commitments and contingencies Stockholders' equity (deficit): Series A convertible preferred stock, $0.01 par, 5,000,000 shares authorized, 120,000 shares issued and outstanding, stated at liquidation preference of $250 per share as of March 31, 1999, 0 shares issued and outstanding as of March 31, 2000(1).................... 30,000 -- Common stock, $0.01 par, 150,000,000 shares authorized, 14,555,174 and 20,675,028 share issued and outstanding, respectively(1)........................................ 145 207 Additional paid-in capital.................................. 161,655 227,378 Accumulated deficit......................................... (62,876) (383,598) Accumulated other comprehensive (loss) income............... (1,791) 1,794 -------- --------- Total stockholders' (deficit) equity................... 127,133 (154,219) -------- --------- Total liabilities and stockholders' equity............. $438,911 $ 159,207 ======== =========
- --------------- (1) Reflects the one-for-five reverse stock split approved by the Company's Board of Directors which was effected on June 26, 2000. All periods have been restated to reflect the reverse stock split. The accompanying notes are an integral part of these consolidated financial statements F-3 47 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS YEARS ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, -------------------- 1997 1998 1999 2000 ------------ ------------ -------- --------- Net revenues............................................. $530,677 $105,767 $572,342 $ 375,569 Cost of goods sold....................................... 315,134 57,092 329,959 296,301 -------- -------- -------- --------- Gross profit........................................... 215,543 48,675 242,383 79,268 Selling and distribution expenses........................ 98,689 24,467 147,499 147,814 General and administrative expenses...................... 46,611 10,655 66,616 87,113 Research and development................................. 13,824 10,866 76,870 66,574 Royalty advance write-off................................ 73,821 -- -- -- Restructuring and other charges.......................... -- -- 17,479 37,948 Purchased research and development....................... 11,008 -- 5,000 -- SingleTrac retention bonus............................... 2,400 -- 1,680 -- Amortization of goodwill................................. 1,295 636 3,349 3,110 -------- -------- -------- --------- Operating (loss) income................................ (32,105) 2,051 (76,110) (263,291) Interest expense......................................... (1,010) (557) (5,108) (17,167) Other expense............................................ (1,065) (832) (207) (793) -------- -------- -------- --------- (Loss) income before provision for (benefit from) income taxes......................................... (34,180) 662 (81,425) (281,251) Provision for (benefit from) income taxes................ (9,157) 304 (29,628) 40,882 -------- -------- -------- --------- Net (loss) income from continuing operations........... (25,023) 358 (51,797) (322,133) Discontinued operations: Loss from operations of OZM............................ -- -- (3,531) -- Loss on disposal of OZM................................ -- -- (15,510) (477) -------- -------- -------- --------- Loss from discontinued operations...................... -- -- (19,041) (477) -------- -------- -------- --------- Net (loss) income before extraordinary item............ (25,023) 358 (70,838) (322,610) Extraordinary item: Gain on early extinguishment of debt, net of tax of $1,312............................................... -- -- -- 1,888 -------- -------- -------- --------- Net (loss) income before dividends on preferred stock.............................................. (25,023) 358 (70,838) (320,722) -------- -------- -------- --------- Less dividends on preferred stock........................ -- -- 226 -- -------- -------- -------- --------- Net (loss) income attributable to common stockholders....................................... $(25,023) $ 358 $(71,064) $(320,722) ======== ======== ======== ========= Basic and diluted (loss) income per share from continuing operations............................................. $ (1.87) $ 0.03 $ (3.72) $ (19.58) Basic and diluted (loss) income per share from discontinued operations................................ -- -- (1.37) (0.03) Basic and diluted income per share from extraordinary item................................................... -- -- -- 0.11 -------- -------- -------- --------- Basic and diluted (loss) income per share................ $ (1.87) $ 0.03 $ (5.10) $ (19.50) ======== ======== ======== ========= Weighted average shares outstanding(1)................... 13,396 13,588 13,931 16,451 ======== ======== ======== =========
- --------------- (1) Reflects the one-for-five reverse stock split approved by the Company's Board of Directors which was effected on June 26, 2000. All periods have been restated to reflect the reverse stock split. The accompanying notes are an integral part of these consolidated financial statements. F-4 48 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (IN THOUSANDS)
THREE MONTHS YEARS ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, --------------------- 1997 1998 1999 2000 ------------ ------------ -------- --------- Net (loss) income before dividends on preferred stock.......................... $(25,023) $ 358 $(70,838) $(320,722) Other comprehensive (loss) income: Foreign currency translation adjustments........................... (2,732) 1,169 (667) 1,817 Unrealized holding (loss) gain on securities............................ (199) -- 11 1,768 -------- ------ -------- --------- Comprehensive (loss) income........... $(27,954) $1,527 $(71,494) $(317,137) ======== ====== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 49 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED YEAR ENDED THREE MONTHS MARCH 31, DECEMBER 31, ENDED -------------------- 1997 MARCH 31, 1998 1999 2000 ------------ -------------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income before dividends on preferred stock........................................ $(25,023) $ 358 $(70,838) $(320,722) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization................ 7,434 2,511 14,606 16,081 Write-off of investment...................... -- -- 2,676 -- Purchased research and development........... 11,008 -- 5,000 -- Royalty advance write-off.................... 73,821 -- -- -- Deferred income taxes........................ (1,010) 1,010 (32,666) 48,806 Deferred income.............................. (1,690) 187 21 (118) Write-off of assets in connection with restructuring charges..................... -- -- 7,362 30,391 Loss from discontinued operations............ -- -- 19,041 477 Extraordinary gain on GAP 0% subordinated convertible note.......................... -- -- -- 15,649 Amortization of discount on long-term debt... -- -- -- 718 Accrued interest............................. -- -- -- 1,461 Write-off of deferred financing costs in connection with the GAP securities exchange.................................. -- -- -- 8,985 Write-off of deferred financing costs in connection with the early extinguishment of Credit Agreement....................... -- -- -- 3,188 Issuance of common stock in lieu of partial royalty payment........................... -- -- -- 4,208 Issuance of common stock pursuant to employee stock purchase plan....................... -- -- -- 581 Changes in operating assets and liabilities: Receivables, net.......................... (83,683) 60,175 (57,490) 73,576 Inventories, net.......................... (54,102) 6,896 (10,498) 100,448 Royalty advances.......................... (20,505) 5,870 814 9,195 Due to related party, net................. (349) 581 (17) 50 Prepaid expenses and other current assets.................................. 2,206 (3,409) (5,884) 1,499 Accounts payable.......................... 38,607 (46,942) 47,956 (44,330) Accrued liabilities....................... (3,699) (7,168) 14,169 1,754 Royalties payable......................... 14,054 (7,037) (21,907) (4,036) Income taxes payable...................... (3,804) (2,423) (1,133) (2,746) Income taxes receivable................... (15,171) 4,487 8,711 (577) Long-term liabilities..................... (8,186) (666) 1,220 552 Other..................................... 522 (2,043) (2,226) (2,549) -------- -------- -------- --------- Net cash (used in) provided by operating activities............... (69,570) 12,387 (81,083) (57,459) -------- -------- -------- ---------
F-6 50 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEARS ENDED YEAR ENDED THREE MONTHS MARCH 31, DECEMBER 31, ENDED -------------------- 1997 MARCH 31, 1998 1999 2000 ------------ -------------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments....................... (259) -- -- -- Purchases of property and equipment............ (18,269) (7,641) (22,607) (8,864) Sales of short-term investments, net........... 4,613 -- -- -- Acquisitions, net of cash acquired of approximately $135, $0, $1,678 and $0, respectively................................. (5,833) -- (2,701) -- -------- -------- -------- --------- Net cash used in investing activities......................... (19,748) (7,641) (25,308) (8,864) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) under revolving credit facility, net................................ 54,600 (26,600) 70,750 (27,052) Issuance of Infogrames 5% subordinated convertible note............................. 50,000 Issuance of General Atlantic Partners, LLC subordinated note ("GAP").................... -- -- -- 20,000 Issuance of subordinated Cayre Notes........... -- -- -- 10,000 Issuance of common stock to Infogrames, net.... -- -- -- 48,677 Proceeds from exercise of warrants............. 2,102 -- -- -- Proceeds from exercise of stock options........ 786 114 376 146 Issuance (redemption) of preferred stock....... -- -- 30,000 (30,000) -------- -------- -------- --------- Net cash provided by (used in) financing activities.............................. 57,488 (26,486) 101,126 71,771 Effect of exchange rates on cash and cash equivalents.................................. (429) (644) 1,448 732 -------- -------- -------- --------- Net (decrease) increase in cash and cash equivalents.................................. (32,259) (22,384) (3,817) 6,180 Cash and cash equivalents -- beginning of fiscal year.................................. 71,867 39,608 17,224 13,407 -------- -------- -------- --------- Cash and cash equivalents -- end of fiscal year......................................... $ 39,608 $ 17,224 $ 13,407 $ 19,587 ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-7 51 INFOGRAMES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
SERIES A SERIES A ACCUMULATED CONVERTIBLE CONVERTIBLE COMMON ADDITIONAL RETAINED OTHER PREFERRED PREFERRED STOCK COMMON PAID-IN EARNINGS COMPREHENSIVE STOCK SHARES STOCK SHARES(1) STOCK CAPITAL (DEFICIT) INCOME(LOSS) TOTAL ------------ ----------- --------- ------ ---------- --------- ------------- --------- Balance, December 31, 1996..................... -- $ -- 13,280 $132 $118,753 $ 32,625 $ 627 $ 152,138 Issuance of stock in connection with the acquisition of SingleTrac............... -- -- 140 1 7,168 -- -- 7,169 Exercise of warrants....... -- -- 100 1 2,101 -- -- 2,102 Exercise of stock options.................. -- -- 60 1 -- -- -- 785 Net loss................... -- -- -- -- (25,023) -- (25,023) Currency translation adjustment............... -- -- -- -- -- (2,732) (2,732) Unrealized loss on securities............... -- -- -- -- -- (199) (199) -------- -------- ------- ---- -------- --------- ------- --------- Balance, December 31, 1997..................... -- -- 13,580 135 128,806 7,602 (2,304) 134,241 Issuance of stock options in connection with the acquisition of SingleTrac............... -- -- -- -- 3,007 -- -- 3,007 Exercise of stock options.................. -- -- 20 1 113 -- -- 114 Net income................. -- -- -- -- -- 358 -- 358 Currency translation adjustment............... -- -- -- -- -- -- 1,169 1,169 -------- -------- ------- ---- -------- --------- ------- --------- Balance, March 31, 1998.... -- -- 13,600 136 131,926 7,962 (1,135) 138,889 Issuance of preferred stock.................... 120,000 30,000 -- -- -- -- -- 30,000 Issuance of stock options in connection with acquisitions............. -- -- -- -- 1,356 -- -- 1,356 Issuance of stock in connection with acquisitions............. -- -- 920 8 27,999 -- -- 28,007 Exercise of stock options.................. -- -- 20 1 374 -- -- 375 Net loss................... -- -- -- -- -- (70,838) -- (70,838) Currency translation adjustment............... -- -- -- -- -- -- (667) (667) Unrealized gain on securities............... -- -- -- -- -- -- 11 11 -------- -------- ------- ---- -------- --------- ------- --------- Balance, March 31, 1999.... 120,000 30,000 14,540 145 161,655 (62,876) (1,791) 127,133 Exchange of preferred stock for long-term debt....... (120,000) (30,000) -- -- -- -- -- (30,000) Issuance of warrants to Infogrames............... -- -- -- -- 8,983 -- -- 8,983 Issuance of warrants in connection with revolving credit facility.......... -- -- -- -- 3,188 -- -- 3,188 Issuance of common stock in lieu of partial royalty payment.................. -- -- 300 3 4,205 -- -- 4,208 Issuance of common stock pursuant to employee stock purchase plan...... -- -- 40 1 582 -- -- 583 Issuance of common stock to Infogrames, net.......... -- -- 5,740 57 48,620 -- -- 48,677 Exercise of stock options.................. -- -- 60 1 145 -- -- 146 Net loss................... -- -- -- -- (320,722) -- (320,722) Currency translation adjustment............... -- -- -- -- -- 1,817 1,817 Unrealized gain on securities............... -- -- -- -- -- 1,768 1,768 -------- -------- ------- ---- -------- --------- ------- --------- Balance, March 31, 2000.... -- $ -- 20,680 $207 $227,378 $(383,598) $ 1,794 $(154,219) ======== ======== ======= ==== ======== ========= ======= =========
- --------------- (1) Reflects the one-for-five reverse stock split approved by the Company's Board of Directors which is effective on June 26, 2000. All periods have been restated to reflect the reverse stock split. The accompanying notes are an integral part of these consolidated financial statements. F-8 52 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ($'S IN THOUSANDS, EXCEPT SHARE DATA) NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Infogrames, Inc., formerly GT Interactive Software Corp., a Delaware corporation (the "Company"), is a leading worldwide developer, publisher and distributor of interactive entertainment software for use on various platforms, including PCs, Sony PlayStation and Nintendo 64. The Company derives its revenues primarily from the sale of its created, published, licensed and purchased products to mass merchants, specialty software stores, computer superstores and distributors located throughout North America and also in various international locations. The Company was incorporated in September 1992 and commenced operations in February 1993. The Company has relied on support from its parent, Infogrames Entertainment SA ("Infogrames SA") in the recent past. The Company believes that it is Infogrames SA's present intention to continue such support as Infogrames SA deems necessary to fund operations and cash flows for the next twelve months. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. Revenue Recognition Revenue is recognized upon shipment of merchandise to customers. At the time the revenue is recognized, a reserve is provided for expected future returns net of the related cost of such items. The Company is generally not contractually obligated to accept returns, except for defective product. However, the Company may permit its customers to return or exchange product and may provide pricing allowance for estimated returns, price concessions and other allowances. Such allowance is reflected as a reduction to accounts receivable when the Company expects to grant credits for such items. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and highly liquid, short-term investments with original maturities of three months or less at the date acquired. Inventories Inventories are stated at the lower of cost (based upon the first-in, first-out method) or market. Allowances are established (and reassessed quarterly) to reduce the recorded cost of obsolete inventory and slow moving inventory to its net realizable value. Royalty Advances During the fourth quarter of 1997, the convergence of marketplace forces led the Company to reconsider its royalty advance evaluation process. Rapid technological innovation, shelf-space competition, shorter product life cycles and buyer selectivity have made it extremely difficult to determine the likelihood of individual product acceptance and success. As a result, the Company expensed royalty advances of $73,821 on products that were in development or on sale as of December 31, 1997. The Company has, effective January 1, 1998, changed its accounting for future royalty advances, treating such costs as research and development expenses, which are expensed as incurred. These changes created symmetry in accounting for both internally and externally developed products. Multi-year output advances are expensed over the development periods, in accordance with generally accepted accounting principles. F-9 53 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) Goodwill Goodwill is currently amortized using the straight-line method over periods not exceeding 5 years. Management reassesses quarterly the appropriateness of both the carrying value and remaining life of goodwill, principally based on forecasts of future undiscounted cash flows of businesses acquired. See Note 21 for information concerning the restructuring reserve, and related impairment write offs of goodwill. Property and Equipment Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Fair Values of Financial Instruments Statement of Financial Accounting Standards No. 107 "Disclosure About Fair Value of Financial instruments" requires certain disclosures regarding the fair value of financial instruments. Cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, royalties payable, revolving credit facility and amounts due to and from related parties are reflected in the consolidated financial statements at fair value because of the short-term maturity of these instruments. The fair value of long-term debt closely approximates its carrying value. The Company uses quoted market prices to calculate these fair values, when available. Investments Management classifies equity securities as available-for-sale securities under the provisions defined in the Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments at the time of purchase and reevaluates such determination at each balance sheet date. Available-for-sale securities are carried at market value with the unrealized gains and losses reported as a component of accumulated comprehensive income. The cost of investments sold is determined on the first-in, first-out method. The Company also maintains equity investments under 20 percent on a cost basis. The Company evaluates these investments for impairment on a quarterly basis (See Note 6): Impairment of Long-Lived Assets The Company reviews long-lived assets, such as fixed assets and certain indentifiable intangibles to be held and used or disposed of, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value, as defined in Statement of Financial F-10 54 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Research and Development Costs Research and development costs related to the design, development and testing of new software products are charged to expense as incurred. Effective January 1, 1998, research and development costs also include payments for royalty advances to third-party developers on products that are currently in development. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000 amounted to $32,034, $7,889, $49,107 and $64,044, respectively. Foreign Currency Assets and liabilities of foreign subsidiaries have been translated at year-end exchange rates, while revenues and expenses have been translated at average exchange rates in effect during the year. Resulting cumulative translation adjustments have been recorded as accumulated comprehensive (loss) income. New Accounting Pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt SFAS No. 133 in the first quarter of fiscal 2001, in accordance with the deferral provision in SFAS No. 137. The adoption of SFAS No. 133 will not have a material effect on the Company's financial statements. Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform to classifications used in the current period. Net Income (Loss) Per Share Basic earnings per share ("EPS") is computed as net earnings after preferred dividends divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, restricted stock awards, warrants and other convertible securities using the treasury stock method. The convertible debt, warrants and all shares issuable under stock based compensation plans would be anti-dilutive and therefore have not been considered in the diluted EPS calculation in fiscal 2000. Discontinued Operations Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations -- Reporting Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"), the consolidated financial statements of the Company reflect the disposal of OZM as a discontinued operation. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of this business have been excluded from the respective captions in the F-11 55 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows, and have been reported through its date of disposition as "Loss from discontinued operations." The net assets of OZM of $1.0 million are included in prepaid expenses and other current assets. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year Effective January 1, 1998, the Company changed its fiscal year end from December 31 to March 31. Accordingly, the fiscal year ended March 31, 1998 represents three months of operations (See Note 23) NOTE 2 -- PURCHASE OF MAJORITY INTEREST BY INFOGRAMES SA As of December 31, 1999, Infogrames SA and subsidiaries purchased approximately 60 percent of the voting stock of the Company through the following transactions: - On November 15, 1999, Infogrames SA purchased from the Company a $25 million principal amount Short-Term Senior Secured Note ("Short-Term Note"). In connection with this transaction, the Company issued to Infogrames SA warrants to purchase 10,000 shares of common stock at an exercise price of $.05 per share. - On December 16, 1999, the Company consummated a the following of transactions with Infogrames SA and certain partnerships affiliated with General Atlantic Partners, LLC ("GAP"). Infogrames SA, the founding Cayre family, and GAP entered into further transactions as well. - Infogrames SA purchased 6,711,706 shares of common stock from the founding Cayre family for $25.0 million and also purchased from the Cayre family $10 million of subordinated notes ("Cayre Notes") of the Company. - Infogrames SA purchased 5,714,286 shares of Common Stock from the Company for $50 million ($8.75 per share) and $60.6 million principal amount of a new 5% subordinated convertible note of the Company in exchange for $25 million in cash, the Cayre Notes, the Short-Term Note and $0.6 million accrued interest. The new 5% subordinated convertible note is convertible into common stock at $9.25 per share. - The Company issued to GAP $50 million principal amount of non-interest bearing subordinated convertible notes in exchange for 600,000 shares of Series A Preferred Stock and $20 million of subordinated notes of the Company, and accrued interest thereon, held by GAP. These notes are convertible into common stock at $20.00 per share. - Infogrames SA acquired from GAP warrants to purchase 900,000 shares of common stock at of the Company an exercise price of $.05 per share, for nominal consideration. As a result of these transactions, as of December 31, 1999, Infogrames SA owns approximately 12 million shares of the Company's common stock. F-12 56 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) The Company has relied on support from its parent, Infogrames SA, in the recent past. The Company believes that it is Infogrames SA's present intention to continue such support as Infogrames SA deems necessary to fund operations and cash flows for the next twelve months. NOTE 3 -- ACQUISITIONS In January 1997, the Company acquired all of the outstanding capital stock of Premier Promotion Limited, the parent company of One Stop Direct Limited, for approximately $0.4 million in cash. This transaction was accounted for as a purchase. In October 1997, the Company acquired SingleTrac Entertainment Technologies, Inc. ("SingleTrac"), a software developer, for cash and stock. Total consideration, including acquisition costs, was approximately $14.7 million, of which $5.4 million was cash and the balance of the purchase price was the issuance of .1 million newly issued shares of the Company's common stock and the assumption of approximately .1 million stock options. The acquisition was accounted for as a purchase. The purchase price was allocated to net assets acquired, purchased in-process research and development ("R&D"), and goodwill and other intangibles. Purchased in-process R&D includes the value of products in the development stage and not considered to have reached technological feasibility and was, therefore, expensed. Accordingly, $11,008 of acquisition cost was expensed in the fourth quarter of 1997. In connection with the acquisition of SingleTrac on October 15, 1997, the Company issued approximately 146 shares of its common stock and assumed approximately 61 stock options. In November 1998, the Company acquired One Zero Media, Inc. ("OZM"), an Internet entertainment content company, in exchange for approximately .5 million newly issued shares of the Company's common stock and approximately .1 million stock options to purchase the Company's common stock. Total consideration, including acquisition costs, was approximately $17.2 million, which was allocated to net assets acquired and goodwill. The acquisition was accounted for as a purchase, because it was the Company's intention to sell an ownership interest in OZM. At March 31, 1999, the Company decided to sell OZM within the next six months and therefore OZM is accounted for as a discontinued operation. OZM was sold in July 1999. This resulted in a loss from discontinued operations of $19.5 million, $.5 million of which is recognized in the current fiscal year. In connection with the acquisition of OZM on November 4, 1998, the Company issued approximately 458 shares of its common stock and assumed approximately 117 stock options. In December 1998, the Company acquired Reflections Interactive Limited ("Reflections"), a developer of interactive entertainment software for computer games, in exchange for approximately .46 million newly issued shares of the Company's common stock. Total consideration, including acquisition costs, was approximately $13.5 million. The acquisition was accounted for as a purchase. The purchase price was allocated to net assets acquired, purchased in-process R&D and goodwill. Accordingly, $5.0 million of acquisition cost was expensed in the quarter ended December 31, 1998. Additionally, the Company acquired Prism Leisure Tontragervertriebs GmbH ("Prism"), a distributor of value-priced software based in Germany, for nominal consideration. The acquisition was accounted for as a purchase. The purchase price was allocated to net assets acquired and goodwill. In connection with the acquisition of Reflections on December 23, 1998, the Company issued approximately 457 shares of its common stock. In December 1998, the Company formed GT Interactive European Holdings B.V., a European holding company, which acquired all of the outstanding capital stock of Home Software Benelux B.V. ("Homesoft"), a distributor of entertainment software, for approximately $1.0 million in cash. The acquisition was accounted for as a purchase. In December 1998, the Company purchased the assets of Legend Entertainment Company ("Legend"), a developer of entertainment software. Total consideration, including acquisition costs, was approximately $2.0 F-13 57 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) million. The purchase price was allocated to goodwill. In connection with the asset purchase of Legend on December 22, 1998, the Company issued approximately 9 shares of its common stock. These shares are restricted from being sold until no later than December 22, 2002. NOTE 4 -- RECEIVABLES, NET Receivables consist of the following:
MARCH 31, -------------------- 1999 2000 -------- -------- Trade accounts receivable................................... $179,823 $109,146 Royalties receivable........................................ 17 178 -------- -------- 179,840 109,324 Less: Allowance for doubtful accounts...................... 10,713 23,337 Sales return reserve................................. 59,108 48,986 -------- -------- $110,019 $ 37,001 ======== ========
NOTE 5 -- INVENTORIES, NET Inventories consist of the following:
MARCH 31, ------------------- 1999 2000 -------- ------- Finished goods.............................................. $146,312 $77,677 Return inventory............................................ 26,319 7,351 Raw materials............................................... 4,194 1,238 -------- ------- 176,825 86,266 Less: Obsolescence Reserve................................. 18,617 48,087 -------- ------- $158,208 $38,179 ======== =======
Included in the obsolescence reserve at March 31, 2000 is an aggregate charge of approximately $56.0 million recorded in the current year relating to management's decision to focus on certain product lines and exit others. This charge is recorded in cost of sales and is part of the restructuring and reorganization of the Company. See Note 21 for additional information relating to the restructuring of the Company's operations. NOTE 6 -- INVESTMENTS In 1995, the Company invested $62,500 in Zomax Incorporated ("Zomax"), an outsource provider of process management services to software publishers, computer manufacturers and other producers of multimedia products. As of March 31, 2000 the Company held approximately 31,000 shares of Zomax at a market price of $60.25 per share. In 1996, the Company purchased for approximately $2,676 in cash a 9.9% investment in, and entered into a multi-titled publishing agreement with Mirage, a U.K. developer of entertainment software. Since the total of the expected future cash flows is less than the carrying amount of the investment, the Company recognized a loss of $2,676 on its investment during fiscal 1999. F-14 58 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) In 1996, the Company invested approximately $7,122 in convertible preferred stock of OddWorld Entertainment, Inc., a developer of entertainment software, which is convertible into 50% of the common equity. In 1997, the Company purchased for $225 in cash a 9.9% investment in GameWizards, Inc., a developer of electronic and print-based strategy guides on behalf of developers and publishers of software products. NOTE 7 -- PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following:
MARCH 31, ------------------ 1999 2000 ------- ------- Computer equipment.......................................... $17,172 $17,527 Machinery and equipment..................................... 6,622 4,952 Capitalized computer software............................... 17,918 20,139 Furniture and fixtures...................................... 7,059 5,513 Leasehold improvements...................................... 7,733 4,041 ------- ------- 56,504 52,172 Less: accumulated depreciation............................. 19,696 26,411 ------- ------- $36,808 $25,761 ======= =======
Depreciation expense for the year ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000 amounted to approximately $6,139, $1,929, $11,256 and $12,952 respectively. NOTE 8 -- ACCRUED LIABILITIES Accrued liabilities consist of the following:
MARCH 31, ------------------ 1999 2000 ------- ------- Restructuring reserve....................................... 8,992 10,209 Accrued Advertising......................................... 2,414 1,389 Accrued Professional Fees................................... 1,251 983 Accrued Salary and Related Costs............................ 4,602 5,007 Litigation Reserve.......................................... -- 2,400 Accrued Freight and Distributions........................... 5,890 2,611 Other....................................................... 12,356 14,524 ------- ------- $35,505 $37,123 ======= =======
See Note 21 for information on the details of the restructuring charge recorded by the Company. F-15 59 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) NOTE 9 -- INCOME TAXES The components of the (benefit from) provision for income taxes are as follows:
THREE MONTHS YEARS ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, -------------------- 1997 1998 1999 2000 ------------ ------------ -------- -------- Federal: Current........................... $(10,308) $(407) $ -- $ (6,612) Deferred.......................... (1,265) 836 (23,563) 38,499 -------- ----- -------- -------- (11,573) 429 (23,563) 31,887 -------- ----- -------- -------- State and local: Current........................... 185 36 -- -- Deferred.......................... (1,726) 33 (4,202) 4,424 -------- ----- -------- -------- (1,541) 69 (4,202) 4,424 -------- ----- -------- -------- Foreign: Current........................... 3,957 (194) 1,186 33 Deferred.......................... -- -- (3,049) 4,538 -------- ----- -------- -------- 3,957 (194) (1,863) 4,571 -------- ----- -------- -------- Provision for (benefit from) income taxes............................. $ (9,157) $ 304 $(29,628) $(40,882) ======== ===== ======== ========
The reconciliation of the income tax provision (benefit) computed at the Federal statutory rate to the reported provision for (benefit from) income taxes is as follows:
THREE MONTHS YEAR ENDED YEARS ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, -------------------- 1997 1998 1999 2000 ------------ ------------ -------- -------- (Benefit from) provision for income taxes computed at Federal statutory rate.................... $(11,963) $232 $(28,499) $(98,438) Increase (decrease) in (benefit from) provision for income taxes resulting from: State and local taxes, net of Federal tax benefit............... (1,541) 36 (3,324) (10,969) Foreign taxes in excess of Federal statutory rate.................... 9 (175) (512) 17,598 Purchased research and development....................... 4,293 -- -- -- Other, net.......................... 45 211 2,707 (1,900) Increase to deferred tax asset valuation allowance............... -- -- -- 134,591 -------- ---- -------- -------- Provision for (benefit from) income taxes............................. $ (9,157) $304 $ 29,628 $ 40,882 ======== ==== ======== ======== Effective income tax rate........... 27% 46% 36% 15% ======== ==== ======== ========
F-16 60 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities are as follows:
YEAR ENDED MARCH 31, -------------------- 1999 2000 ------- --------- DEFERRED TAX ASSETS: Inventory valuation......................................... $ 7,825 $ 20,454 Deferred income............................................. 118 77 Sales return reserve........................................ (302) 1,702 Tax loss carryforwards...................................... 26,729 92,781 Restructuring reserve....................................... 5,822 4,814 Other....................................................... 7,928 12,820 ------- --------- 48,120 132,648 ------- --------- DEFERRED TAX LIABILITIES: Depreciation................................................ 686 1,943 ------- --------- Net deferred tax asset...................................... 686 1,943 ------- --------- 48,806 134,591 Less valuation allowance.................................... -- (134,591) ------- --------- Net deferred tax asset...................................... $48,806 $ 0 ======= =========
As of March 31, 2000, the Company has combined net operating loss carryforwards of $238,503 for tax purposes. These loss carryforwards are available to offset future taxable income and will expire beginning in the years 2011 through 2019. Under Section 382 of the Internal Revenue Code, when there is an ownership change, the pre-ownership-change loss carryforwards are subject to an annual limitation which could reduce or defer the utilization of these losses. The valuation allowance increased by $134,591 in fiscal 2000, consisting of a valuation allowance of $48,806 for the beginning deferred tax asset balance and a valuation allowance of $85,785 for the net change in the deferred tax asset during the year. Such valuation allowance was necessary due to the current year operating results and the terminated plans to sell certain of the Company's businesses which would have resulted in the utilization of the deferred tax asset. A full valuation allowance has been recorder against the net deferred tax asset because it is more likely than not that such asset will not be realized in the foreseeable future. The Company has not recognized a deferred tax liability of approximately $2.0 million for the undistributed earnings of its 100 percent-owned foreign subsidiaries that arose in fiscal 2000 and prior years as the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner. As of March 31, 2000, the undistributed earnings of these subsidiaries were approximately $4.9 million. NOTE 10 -- STOCKHOLDERS' EQUITY On November 12, 1999, the Company's Board of Directors approved an amendment to the Company's Amended and Restated Certificate of Incorporation (the "Charter Amendment"), which increases the total number of shares of authorized capital stock of the Company from 155 million shares to 305,000 shares. The F-17 61 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) Charter Amendment became effective on February 14, 2000. There is currently authorized 300,000 shares of the Company's common stock and 5,000 shares of the Company's Series A Convertible Preferred Stock. Refer to Note 2 for stockholders' equity transactions relating to the purchase by Infogrames SA of a majority interest in the Company. As of March 31, 2000 and 1999, the Company had warrants outstanding to purchase an aggregate of approximately 1.2 million shares of Common Stock to content-providers at exercise prices (ranging from $6.50 to $14.00) not less than the fair market value at the date of issue. Refer to Note 2 for stockholders' equity transactions relating to the purchase by Infogrames SA of a majority interest in the Company. NOTE 11 -- STOCK OPTIONS The Company has two stock option plans which began in 1995 and in 1997, (the "Plans"). The Company accounts for these Plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Generally, under the Plans, options are granted to employees to purchase shares of the Company's common stock at no less than the fair market value at the date of the grant, vest over a period of four or five years and are exercisable for a period of ten years from the grant date. A summary of the status of the Company's Plans at December 31, 1997, March 31, 1998, 1999 and 2000 and changes during the year ended December 31, 1997, the three months ended March 31, 1998 and the fiscal years ended March 31, 1999 and 2000 are as follows:
DECEMBER 31, 1997 ------------------------------------------ PRICE PER WEIGHTED AVERAGE SHARES SHARE EXERCISE PRICE ------ ------------ ---------------- Outstanding at beginning of year.............. 1,152 $0.20-117.50 $53.95 Granted....................................... 881 1.80-70.00 43.15 Exercised..................................... (54) 0.20-46.90 14.45 Forfeited..................................... (268) 1.75-117.50 76.80 Expired....................................... (54) 39.70-88.75 56.30 ----- ------------ ------ Outstanding at end of year.................... 1,657 $ 0.20-72.50 $45.65 ===== ============ ======
MARCH 31, 1998 ------------------------------------------ PRICE PER WEIGHTED AVERAGE SHARES SHARE EXERCISE PRICE ------ ------------ ---------------- Outstanding at beginning of fiscal year....... 1,657 $ 0.20-72.50 $45.65 Granted....................................... 309 31.55-39.70 34.15 Exercised..................................... (7) 0.90-10.40 5.50 Forfeited..................................... 0 0.01-0.00 0.00 Expired....................................... (1) 1.75-70.00 35.00 ----- ------------ ------ Outstanding at end of fiscal year............. 1,958 $ 0.20-72.50 $43.95 ===== ============ ======
F-18 62 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 1999 ------------------------------------------ PRICE PER WEIGHTED AVERAGE SHARES SHARE EXERCISE PRICE ------ ------------ ---------------- Outstanding at beginning of fiscal year....... 1,958 $ 0.20-72.50 $43.95 Granted....................................... 1,139 0.01-100.00 32.85 Exercised..................................... (40) 0.01-39.70 7.40 Forfeited..................................... (99) 0.90-70.00 46.20 Expired....................................... (47) 1.75-70.00 46.05 ----- ------------ ------ Outstanding at end of fiscal year............. 2,911 $0.01-100.00 $40.10 ===== ============ ======
MARCH 31, 2000 ------------------------------------------- PRICE PER WEIGHTED AVERAGE SHARES SHARE EXERCISE PRICE ------ ------------- ---------------- Outstanding at beginning of year............ 2,911 $ 0.01-100.00 $40.10 Granted..................................... 415 9.40- 19.70 14.75 Exercised................................... (61) 0.01- 10.40 2.35 Forfeited................................... (1,048) 1.75-100.00 33.25 Expired..................................... (321) 0.90-100.00 52.95 ------ ------------- ------ Outstanding at end of year.................. 1,895 $ 0.01- 72.50 $37.60 ====== ============= ======
As of March 31, 2000, there were 1,895 options outstanding at prices ranging from $0.01 to $72.50, of which 1,402 options were exercisable at prices ranging from $0.22 to $72.50. If compensation cost for these plans were determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," the Company's net income (loss) before dividends on preferred stock and earnings per share would have been reduced to the following pro forma amounts:
THREE MONTHS YEARS ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, --------------------- 1997 1998 1999 2000 ------------ -------------- -------- --------- Net (loss) income before dividends on preferred stock As reported.................... $(25,023) $ 358 $(70,838) $(320,722) Pro forma...................... (32,141) 217 (77,566) (320,937) Basic net (loss) income per share As reported.................... $ (1.87) $0.03 $ (5.08) $ (19.50) Pro forma...................... $ (2.40) $0.02 $ (5.57) $ (19.51) Diluted net (loss) income per share As reported.................... $ (1.87) $0.03 $ (5.08) $ (19.50) Pro forma...................... $ (2.40) $0.02 $ (5.59) $ (19.51)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the year ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000: no dividends will be paid for the entire term of the option, expected volatility of 67.5% for 1997, the three months ended March 31, 1998 and the year ended March 31, 1999, and 81.0% for the year ended March 31, 2000, risk-free interest rates averaging 6.22% for 1997, 5.45% for the three months ended March 31, 1998, F-19 63 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) 4.74% for the year ended March 31, 1999 and 5.82% for the year ended March 31, 2000 and expected lives of four years in 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000. The weighted average fair value of options granted was $9.30 in 2000, $14.30 in 1999, $19.15 in 1998 and $19.45 in 1997. NOTE 12 -- RELATED PARTY TRANSACTIONS Purchase of majority interest by Infogrames SA On November 15, 1999, Infogrames SA and/or its subsidiaries purchased from the Company the Short-Term Note. In connection with this transaction, the Company issued to Infogrames SA warrants to purchase 50,000 shares of common stock of the Company at an exercise price of $0.01 per share. On December 16, 1999, the Company consummated a number of transactions with Infogrames SA and certain members of the founding Cayre family. Infogrames purchased 33,558,531 shares of common stock from the founding Cayre family for $25.0 million in cash and also purchased from the Cayre family $10.0 million of subordinated notes (the "Cayre Notes") of the Company. Infogrames SA purchased 28,571,429 shares of common stock from the Company for $50 million in cash ($1.75 per share) and $60.6 million principal amount of a new 5% subordinated convertible note of the Company (the "5% Note") in exchange for $25 million in cash, the Cayre Notes, the Short-Term Notes and $0.6 million accrued interest. Interest of $0.9 million accrued on the 5% Note through March 31, 2000. The 5% Note is convertible into common stock at $1.85 per share. As a result of these transactions, as of December 31, 1999, Infogrames SA owned approximately 62.1 million shares of the Company's common stock, or 60% of the voting securities of the Company. Pursuant to the Securities Purchase Agreement dated November 15, 1999 between the Company and Infogrames SA, the Company was required to pay not more than $2.0 million of Infogrames SA's attorney's and accountant's fees. As of March 31, 2000, $0.6 million remained payable to Infogrames SA for these fees. In connection with the assumption by Infogrames SA of the Company's credit agreement as of February 15, 2000, the Company issued to Infogrames SA warrants to purchase 225,000 shares of common stock at an exercise price of $0.01 per share. Purchases of product from Infogrames SA During the fiscal year ended March 31, 2000, the Company purchased $1.2 million of product from Infogrames SA, of which $1.1 million remains outstanding, representing approximately 1% of total products purchased by the Company for such period. The following transactions occurred between the Company and the former directors through their date of resignation, and accordingly, the information presented is from April 1, 1999 through December 16, 1999, the date that Infogrames SA purchased a majority interest in the Company. Leases In May 1995, G.T. Interactive Software (Europe) Limited, the Company's European subsidiary, entered into a lease with respect to its then principal executive offices with Marylebone 248 Realty LLC ("Marylebone 248"), an entity controlled by Joseph J. Cayre, former Chairman Emeritus of the Board of Directors and Jack J. Cayre, former Executive Vice president and a director of the Company. This lease was F-20 64 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) terminated in August 1999. From April 1, 1999 through August 15, 1999, the Company paid approximately $119,000 in rent to Marylebone 248. Transactions with GoodTimes Home Video Corp. ("GTHV") GTHV, a majority of whose stock was formerly owned by Joseph J. Cayre, Stanley Cayre and Kenneth Cayre, performed certain assembly and packaging services for the Company. The Company enters into arms length manufacturing transactions with GTHV on an as needed basis. The total amount charged to operations for manufacturing services for the years ended December 31, 1996 and 1997 amounted to $7,516 and $2,498, respectively. The Company made cash payments totaling $330 and $1,148 to GTHV during the three months ended March 31, 1998 and the year ended March 31, 1999, respectively. During 1996, the Company sold approximately $3,488 of software to GTHV at fair market value. GTHV also performed certain assembly and packaging services for the Company. From April 1, 1999 through December 16, 1999, the Company paid approximately $260,000 in fees for such services. Additionally, as of March 31, 2000, the Company had liabilities to GTHV of approximately $2.1 million, which are expected to be extinguished in fiscal 2001. REPS Agreement In servicing its mass merchant accounts, the Company uses field representatives supplied by REPS, a company owned by Joseph J. Cayre, Stanley Cayre and Kenneth Cayre. REPS provides such services to the Company as well as to third parties not affiliated with the Cayre family. The Company had an agreement with REPS pursuant to which REPS supplied such services through May 1, 2000. The Company is currently operating on a month to month basis under the terms of the expired agreement. The total amount charged to operations for these services amounted to approximately $3,025, $4,817, $1,434 and $4,089 for the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and the year ended March 31, 1999. Prior to entering into the REPS agreement with GTHV, from April 1, 1999 through December 16, 1999, the Company paid approximately $2,686,000 in fees to REPS. Travel Services The Company occasionally hired Excel Aire Service, Inc. ("Excel") to provide business travel services for its officers and employees. Excel leases its planes from JT Aviation Corp. ("JTAC"), a company owned by Joseph J. Cayre. Excel is not owned in whole or in part by any member of the Cayre family. Excel provided air travel to the Company at an hourly rate and on an as needed as available basis. During the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and the year ended March 31, 1999, the Company's aggregate air travel fees paid to JTAC were approximately $445, $370, $40 and $217, respectively. During the year ended March 31, 1999, the Company paid approximately $311 to Excel. From April 1, 1999 through December 16, 1999, the Company paid approximately $69,000 to Excel. The Company occasionally hired JC Aviation Corp ("JCAC"), a company owned by Jack J. Cayre, Executive Vice President and Director of the Company, to provide business transportation services for its officers. During the year ended December 31, 1997, the Company paid approximately $26 to JCAC. There were no payments made during the three months ended March 31, 1998 or the year ended March 31, 1999 to JCAC. ClientLogic Corporation Transactions with ClientLogic Corporation ("ClientLogic"). The Company has entered into agreements with ClientLogic (formerly doing business as SOFTBANK Services Group) pursuant to which ClientLogic (i) provides toll-free customer support for some of the Company's published products and (ii) takes direct customer orders and provides fulfillment services for the Company, in each case on a per service basis. Both F-21 65 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) agreements provide for automatic renewal on a month to month basis upon expiration unless terminated by either party. During the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and the year ended March 31, 1999, the Company had charged to operations approximately $164, $230, $41 and $251, respectively, in fees to ClientLogic. Jordan A. Levy, a former director of the Company, is Vice-Chairman of ClientLogic. RCS Computer Experience From time to time, the Company purchases computer equipment from and sells computer software to RCS Computer Experience, LLC ("RCS"). In June 1998, Rockwell Computer Services, LLC, a company controlled by Joseph J. Cayre, purchased approximately a 70% interest in RCS. During the year ended March 31, 1999, the Company paid approximately $24 to RCS and generated approximately $54 in net revenues from RCS. The Company has entered into agreements with an unaffiliated leasing company for computer equipment. This leasing company purchases computer equipment from various vendors including RCS. During the year ended March 31, 1999, the leasing company paid approximately $231 to RCS for equipment leased by the Company. The Company believes that the terms of the foregoing transactions are no less favorable to the Company than could be obtained by the Company from unrelated parties on an arm's-length basis. Transactions between Infogrames UK Limited and GT Interactive Software Europe (Limited) GT Interactive Software Europe (Limited) ("GT UK") entered into a number of transactions with Infogrames UK Limited ("Infogrames UK") relating to the consolidation of its operations with Infogrames UK. Fixed assets having a net book value of $722,000 were transferred to Infogrames UK for $626,000. The resulting loss is included in restructuring charges. Inventory having a cost of $270,000 was transferred at original cost. Infogrames UK agreed to assume the ongoing costs of running GT UK's office from March 1, 2000 including the salary costs of a number of employees who transferred to Infogrames UK. Such salary charges totaled $265,000 and such charges that relate to ongoing operations other than salaries totaled $94,000 for the month of March 2000. The lease on the UK office was formally assigned to Infogrames UK in June 2000, although the rent for this office has been borne by Infogrames UK from March 1, 2000. $38,000 of such rent was re-charged to Infogrames UK for the month of March 2000. A deferred rent liability of $203,000 arising from an initial rent free period on the office was transferred to Infogrames UK. Loans Gregor Loan. On August 31, 1996, the Company extended a loan to Andrew Gregor, a former Chief Financial Officer of the Company, in the principal amount of $250. The loan, including interest, amounted to $290 and was forgiven as part of Mr. Gregor's severance package and charged to restructuring charges in the fourth quarter of fiscal 1999. See Note 21 for information concerning other restructuring charges. FormGen Loans. The Company has extended loans to the former stockholders of FormGen in the aggregate amount of $1,098. $181 of such loans have been repaid as of March 31, 2000. SingleTrac Loans. The Company has extended non-interest bearing loans to three former employees of the Company who were former stockholders of SingleTrac. The principal amount of each such loan is $100,000. Such loans become due and payable at the earliest of the sale of their stock of the Company, in November 1999 or six months following termination of the borrowers' respective employment with the Company. Each of the borrowers has pledged 20,000 shares of the Company's common stock, as collateral security for the loans. One loan was forgiven on July 9, 1999 pursuant to an amended employment agreement, F-22 66 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) which provided for the loan forgiveness pursuant to termination of employment. $20,000 of another loan has been partially earned by the former employee, and the $80,000 balance repaid to the Company in May 2000. The Company intends to pursue collection of the third loan, which is still outstanding. Humongous Loan. The Company extended a demand promissory note to the former President of Humongous, a wholly-owned subsidiary. The note bears interest at a rate of 8.75% per annum and is secured by a residential first mortgage and security interest in all shares of common stock of the Company owned beneficially by such individual. The balance outstanding, including interest, at March 31, 2000 is approximately $2.5 million. The Company is currently negotiating a repayment schedule for this outstanding loan. OZM Loan. The Company extended a loan to an employee of OZM in the principal amount of $150. Such loan bears interest at 7 1/2% per annum and is due in three equal annual installments commencing December 7, 1998. NOTE 13 -- LEASES The Company accounts for its leases as operating leases, with expiration dates ranging from 2000 through 2012. Future minimum annual rental payments under the leases are as follows for the fiscal years then ended: 2001............................................... $ 6,054 2002............................................... 4,970 2003............................................... 4,408 2004............................................... 3,967 2005............................................... 3,522 Thereafter......................................... 7,326 ------- $30,247 =======
Total rent expense charged to operations for the years ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000 amounted to approximately $4,894, $1,233, $7,344 and $9,065, respectively. NOTE 14 -- COMMITMENTS AND CONTINGENCIES On January 21, 1997, the Company entered into a revolving credit agreement (as amended, the "Old Credit Agreement") with certain banks expiring on December 31, 1998. On September 11, 1998, the borrowings under the Old Credit Agreement were repaid and the Old Credit Agreement was terminated. Simultaneously, on September 11, 1998, the Company entered with First Union National Bank, as agent for a syndicate of banks (the "Banks"), into a new revolving credit agreement (the "Credit Agreement") as subsequently amended, expiring on March 31, 2000. Under the Credit Agreement, the Company borrowed approximately $71 million for ongoing working capital requirements, letters of credit and other general corporate purposes, secured by domestic accounts receivable and inventory and other assets of the Company. To induce the Banks to amend the Credit Agreement, the Company issued the Banks warrants to purchase, at an exercise price of $0.01 per share, an aggregate of 750,000 shares of the Company's Common Stock. Of these, warrants to purchase 275,000 shares of Common Stock were immediately exercisable, warrants to purchase 250,000 shares of Common Stock became exercisable on October 31, 1999 and warrants to purchase the remaining 225,000 shares of Common Stock (the "Bank Warrants") became exercisable on February 28, 2000 if the Credit Agreement was not repaid prior to that date. F-23 67 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) As of February 15, 2000, Infogrames SA entered into an agreement with the Banks, pursuant to which Infogrames SA assumed the Banks' interest in the Credit Agreement. In connection with the assumption by Infogrames SA of the Credit Agreement, (i) the maturity date was extended from March 31, 2000 to June 30, 2000, (ii) the interest rate, which was the Prime Rate plus 1.0% or LIBOR plus 2.5% at the option of the Company, was set at LIBOR plus 2.5%, (iii) a $250,000 amendment fee, which would have been payable to the Banks on March 31, 2000 unless the Credit Agreement was refinanced by February 16, 2000, was reduced to $125 and paid to Infogrames SA, (iv) certain mandatory prepayment restrictions and operational covenants were revised to be less restrictive and (v) revisions were made to provide alternative letter of credit facilities to the Company. In addition, the Bank Warrants were surrendered and cancelled and warrants to purchase 225,000 shares of Common Stock, at an exercise price of $0.01 per share, were issued to Infogrames SA. At March 31, 2000, the Company had outstanding borrowings under the Credit Agreement of approximately $71.7 million, and letters of credit amounting to approximately $1.6 million. Long term debt consists of the following: 5% subordinated convertible note............................ $61,462 GAP 0% subordinated convertible notes....................... 36,367 ------- $97,828 =======
The above indebtedness matures in full on December 16, 2004. Refer to Note 2 for additional obligations of the Company incurred concurrent with the Infogrames transaction. NOTE 15 -- LEGAL PROCEEDINGS On September 18, 1997, Scavenger, Inc. ("Scavenger"), a software developer, filed a lawsuit against the Company in Supreme Court, New York County, claiming that the Company breached a software development contract between the parties dated November 28, 1995. Scavenger alleges that the Company, after paying $2.5 million in advances and accepting delivery of gold master disks for two computer games, refused to pay any more advances, including advances relating to the development of two additional games under the agreement. Scavenger is suing for the remaining advances ($4.3 million) and for future royalties ($5 million), and also seeks consequential damages for allegedly being forced out of business ($100 million) and losing contracts with unspecified third parties ($4 million) as a result of the Company's alleged breach. The Company filed an answer and counterclaim, in which it denies any liability to Scavenger and alleges, among other things, that the contract was lawfully terminated when Scavenger failed to deliver the two remaining games after receiving from the Company written notice to cure its material breaches. By its counterclaim, the Company seeks damages and restitution for at least $5 million on grounds of breach of contract and unjust enrichment. By order entered March 3, 2000, the Court granted Scavenger's motion for partial summary judgment on its claim for $1.9 million allegedly due on the two delivered games and judgment was entered on March 14, 2000 in the amount of $2,411,114 (reflecting pre-judgment interest on the claim). The Company posted a bond in the amount of the judgment and immediately appealed from this order and judgment to the Appellate Division, First Department. On June 8, 2000, the Appellate Division, First Department affirmed the order and judgment entered by the Supreme Court. The Company has moved for leave to appeal to the Court of Appeals. As of March 31, 2000 the Company accrued approximately $2.4 million related to this judgement. F-24 68 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) In its order of March 3, 2000, the Court denied Scavenger's motion for partial summary judgment seeking $2.4 million on the two games never delivered. In addition, the Court denied Scavenger's motion for leave to amend the complaint to add claims for fraud and seeking damages of $100 million. The Company moved for partial summary judgment seeking dismissal of the claim for consequential damages ($75-125 million) and additional royalties ($5 million). By order entered June 21, 2000, the Court denied the Company's motion and granted Scavenger leave to conduct an audit of royalties allegedly due to Scavenger. In January, February and March 1998, ten substantially similar complaints were filed against the Company, its former Chairman and its former Chief Executive Officer, and in certain actions, its former Chief Financial Officer, in the U.S. District Court for the Southern District of New York. The plaintiffs, in general, purport to sue on behalf of a class of persons who purchased shares (and as to certain complaints, purchased call options or sold put options) of the Company during the period from August 1, 1996 through December 12, 1997. The plaintiffs allege that the Company violated the federal securities laws by making misrepresentations and omissions of material facts that allegedly artificially inflated the market price of the Company's common stock during the class period. The plaintiffs further allege that the Company failed to expense properly certain prepaid royalties for software products that had been terminated or had failed to achieve technological feasibility, or had insufficient sales to recoup the paid advances, which misstatements purportedly had the effect of overstating the Company's net income and net assets. Motions were made by certain groups of plaintiffs for their appointment as lead plaintiffs in the actions. 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, as amended (the "Exchange Act"), and Rule 10b-5 under the Exchange Act against the Company's former independent auditors, Arthur Andersen LLP. The Company and Arthur Andersen LLP each filed motions to dismiss the second consolidated and amended complaint. By order and opinion dated November 29, 1999 the Court granted the motion to dismiss. Plaintiffs have appealed from the dismissal of the action, and oral argument on the appeal was held on June 8, 2000. The Company believes that these complaints are without merit and intends to defend itself vigorously against these actions. On April 12, 1999, an action was commenced by the administrators for three children who were murdered on December 1, 1997 by Michael Carneal at the Heath High School in McCracken County, Kentucky. The action was brought against 25 defendants, including the Company and other corporations in the videogame business, companies that produced or distributed the movie "The Basketball Diaries", and companies that provide allegedly obscene internet content. The complaint alleges, with respect to the Company and other videogame corporations, that Carneal was influenced by the allegedly violent content of certain videogames and that the videogame manufacturers are liable for Carneal's conduct. The complaint seeks $10 million in compensatory damages and $100 million in punitive damages. The Company and approximately 10 other videogame corporations have entered into a joint defense agreement and have retained counsel. By order entered April 6, 2000, the Court granted a motion to dismiss the complaint. Plaintiffs have filed a motion to vacate the dismissal of the action, and this motion is currently being briefed. On March 12, 1999, Fenris Wolf Ltd. ("Fenris"), a software developer, filed a lawsuit in New York Supreme Court claiming that the Company failed to adequately pursue bundling opportunities for the software game "Rebel Moon Rising MMX" and unlawfully rejected the ninth milestone deliverable for the software game "Rebel Moon Revolution" under a development contract between the parties dated June 26, 1996. The complaint asserts five claims of breach and intentional interference, which seek $100,000 for the nonpayment and rejection of milestone nine, $400,000 for the balance of payments under the contract, $775,000 for alleged lost bundling opportunities, $775,000 for alleged intentional interference with bundling arrangements and F-25 69 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) $500,000 for alleged interference with contractual relations. In an October 20, 1999 opinion and order, the court granted the Company's motion to dismiss three of the five claims so that only the milestone nine contract and bundling claims remain. Fenris has filed a notice of appeal from the dismissal of the $400,000 claim for the balance of payments under the contract; and the Company has filed a counterclaim for breach seeking to recover not less than the $800,000 in milestone payments advanced for the development of "Rebel Moon Revolution." Fenris has moved for summary judgment on its first cause of action ($100,000), and the Company has moved for summary judgment dismissing the bundling claim. The Company intends to vigorously defend this action and pursue its counterclaim. On February 7, 2000, Hasbro Interactive Inc., its subsidiary Atari Interactive, Inc. and Zao Elorg d/b/a Elorg Corporation filed a lawsuit against the Company and five other companies in Massachusetts federal court. The complaint asserts claims against the Company for copyright infringement and unfair competition based on the sale of the computer videogames entitled "HemiRoids," "Patriot Command," "Bricklayer," "3D TetriMadness," "3D Munch Man," "3D Munch Man II" and "Mac-Man," as well as claims for trademark infringement and dilution for use of the name "3D TetriMadness." The complaint seeks injunctive relief, actual profits, statutory damages, attorneys' fees and costs pursuant to federal copyright and trademark laws, as well as common law damages. By settlement agreement dated March 29, 2000, the Company settled this action and agreed to stop manufacturing and/or distributing the allegedly infringing games. Additionally, the Company is involved in various claims and legal actions arising in the ordinary course of business, the ultimate resolution of which management believes will not be material to the Company's results of operations or financial condition. NOTE 16 -- EMPLOYEE SAVINGS PLAN The Company maintains an Employee Savings Plan which qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. The plan is available to all U.S. employees who meet the eligibility requirements. Under the plan, participating employees may elect to defer a portion of their pretax earnings, up to the maximum allowed by the Internal Revenue Service (up to the lesser of 15% of compensation or $10 for calendar year 1999), with matching of 50% of the employee's contribution up to 6 percent provided by the Company. Generally, the plan assets in a participant's account will be distributed to a participant or his or her beneficiaries upon termination of employment, retirement, disability or death. All plan administrative fees are paid by the Company. Generally, the Company does not provide its employees any other post retirement or post employment benefits, except discretionary severance payments upon termination of employment. Plan expense approximated $467, $187, $739 and $530 for the year ended December 31, 1997, the three months ended March 31, 1998 and the year ended March 31, 1999 and 2000, respectively. NOTE 17 -- ROYALTY ADVANCES The Company has committed to pay advance royalty payments under certain royalty agreements. These obligations are not guaranteed and are dependent, in part, on the delivery of the contracted services by the licensor. Future advance royalty payments due under these royalty agreements are as follows for the fiscal years then ended: 2001............................................... $14,286 2002............................................... 850 2003............................................... 100 Thereafter......................................... -- ------- $15,236 =======
F-26 70 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) NOTE 18 -- CONCENTRATION OF CREDIT RISK The Company extends credit to various companies in the retail and mass merchandising industry for the purchase of its merchandise which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other industry conditions and may, accordingly, impact the Company's overall credit risk. Although the Company generally does not require collateral, the Company performs ongoing credit evaluations of its customers and reserves for potential losses are maintained. The Company had sales constituting 46%, 47%, 40% and 35% of net revenue to two customers in the years ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. Sales to one customer constituted 38%, 39%, 30% and 24% of net revenue during the year ended December 31, 1997, the three months ended March 31, 1998 and the years ended March 31, 1999 and 2000, respectively, while sales to a second customer constituted 8%, 8%, 10%, and 11% of the net revenue for the same periods, respectively. Accounts receivable due from three significant customers aggregated 48% and 43% of accounts receivable at March 31, 1999 and 2000, respectively. NOTE 19 -- OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS The Company has two reportable segments: publishing and distribution. Publishing is comprised of frontline, leisure and children's publishing. Distribution constitutes the sale of the Company's and other publishers' titles to various mass merchants and other retailers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income of these segments. The Company's reportable segments are strategic business units with different associated costs and profit margins. They are managed separately because each business unit requires different planning, merchandising and marketing strategies. The following unaudited summary represents the consolidated net revenues and operating income (loss) by reportable segment for the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and the year ended March 31, 1999:
PUBLISHING DISTRIBUTION CORPORATE TOTAL ---------- ------------ --------- -------- 1997: Net revenues................................. 265,700 264,977 -- 530,677 Operating income (loss)...................... 55,629 50,295 (48,455) 57,469 Three months ended March 31, 1998: Net revenues................................. 48,700 57,067 -- 105,767 Operating income (loss)...................... 7,884 9,151 (14,348) 2,687 Year ended March 31, 1999: Net revenues................................. 299,400 272,942 -- 572,342 Operating income (loss)...................... 24,447 30,520 (103,569) (48,602) Year ended March 31, 2000: Net revenues................................. 252,301 123,268 -- 375,569 Operating income (loss)...................... 19,156 11,526 (250,915) (222,233)
F-27 71 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) The following represents the reconciliation of operating income (loss) as reported for reportable segments to consolidated totals for the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and the year ended March 31, 1999:
THREE MONTHS YEAR ENDED YEARS ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, --------------------- 1997 1998 1999 2000 ------------ --------------- -------- --------- Operating income (loss) as reported for reportable segments...................... $ 57,469 $2,687 $(48,602) $(222,233) Amortization of goodwill........ (1,295) (636) (3,349) (3,110) Restructuring and other charges....................... (88,279) 0 (24,159) (37,948) -------- ------ -------- --------- Operating (loss) income......... $(32,105) $2,051 $(76,110) $(263,291) ======== ====== ======== =========
Information about the Company's operations in the U.S. and other geographic locations for the years ended December 31, 1996 and 1997, the three months ended March 31, 1998 and year ended March 31, 1999 are presented below.
OTHER UNITED UNITED GEOGRAPHIC STATES KINGDOM LOCATIONS TOTAL -------- -------- ---------- -------- 1997: Net revenues................................. $423,197 $ 94,322 $ 13,158 $530,677 Operating (loss) income...................... (44,332) 10,204 2,023 (32,105) Capital expenditures......................... 2,257 15,889 123 18,269 Total assets................................. 55,453 349,019 11,516 415,988 Three months ended March 31, 1998: Net revenues................................. $ 87,538 $ 14,132 $ 4,097 $105,767 Operating income............................. 1,270 (295) 1,076 2,051 Capital expenditures......................... 144 7,462 35 7,641 Total assets................................. 281,422 39,904 11,411 332,737 Year ended March 31, 1999: Net revenues................................. $469,670 $ 76,132 $ 26,540 $572,342 Operating loss............................... (68,947) (13,666) 6,503 (76,110) Capital expenditures......................... 2,196 20,121 290 22,607 Total assets................................. 374,084 49,296 15,531 438,911 Year ended March 31, 2000: Net revenues................................. $287,173 $ 70,748 $ 17,648 $375,569 Operating loss............................... (222,121) (37,793) (3,376) (263,291) Capital expenditures......................... 937 6,115 1,812 8,864 Total assets................................. 138,783 10,749 9,675 159,207
F-28 72 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) NOTE 20 -- SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS YEARS ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, MARCH 31, ---------------- 1997 1998 1999 2000 ------------ ------------ ------- ------ Issuance of common stock in connection with the acquisition of SingleTrac...................... $7,169 $ -- $ -- $ -- Issuance of stock options in connection with the acquisition of SingleTrac...................... -- 3,007 -- -- Issuance of common stock in connection with the acquisition of OZM............................. -- -- 15,473 -- Issuance of stock options in connection with the acquisition of OZM............................. -- -- 1,347 -- Issuance of common stock in connection with the acquisition of Reflections..................... -- -- 12,279 -- Issuance of common stock in connection with the acquisition of Legend.......................... -- -- 255 -- Issuance of stock options in connection with the acquisition of Legend.......................... -- -- 9 -- Accrual for purchase price adjustment for One Stop........................................... -- 3,095 -- -- Warrants issued in connection with New Credit Agreement...................................... -- -- -- 3,188 Warrants issued to GAP and acquired by Infogrames SA............................................. -- -- -- 8,835 Warrants issued in connection with Short-Term Note........................................... -- -- -- 150 Discount on GAP 0% Subordinated Convertible Note........................................... 14,351 Deferred financing costs in connection with Long-Term debt................................. 2,776 Common stock issued in lieu of partial royalty payment........................................ -- -- -- 4,208 Cash paid for income taxes....................... 10,243 2 11,118 2,713 Cash paid for interest........................... 1,802 727 5,826 7,536
NOTE 21 -- RESTRUCTURING AND OTHER CHARGES During December 1999, the Company's management approved and adopted a formal plan (the "Restructuring Plan") relating to a reorganization of the Company's Frontline publishing business, the shutdown of a substantial portion of European publishing operations and outsourcing and downsizing of the Company's distribution and assembly function. As a result of the implementation of the Restructuring Plan, the Company has incurred restructuring and other charges of approximately $37.9 million in fiscal 2000, mostly recorded in the three months ended December 31, 1999. As a result of the implementation of the Restructuring Plan, the Company has incurred approximately $17.6 million relating to the write-off of goodwill due to the consolidation of the value distribution division with the Company's publishing division, $12.1 million relates the shutdown of European operations, including the write-off of all goodwill other than the Reflections studio, $6.1 million relates to impaired assets and $2.1 million relates to the planned severance of certain employees. The liability at March 31, 1999 relates to the planned severance of 135 employees. As of March 31, 2000, the Company terminated 88 employees from the administration and finance, manufacturing and distribution and product development departments. Management expects to complete the Company reorganization by June 30, 2000. The restructuring reserve at March 31, 2000 represents severance due of F-29 73 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) $7,933 related to severance to be paid to 221 employees, transition rent of $384, and anticipated expenses to shut down European operations of $1,892. Total restructuring charges of $17,479 in fiscal 1999 includes $7,041 of asset impairment charges, $635 of additional rent for the transition period, and $9,803 of severance for 135 employees, including executive officers, to be paid out over periods not to exceed fifteen months. The restructuring reserve as of March 31, 1999 of $8,992 represented severance due of $8,357 and transition rent due of $635. In connection with the reorganization of the Company's Frontline business, the Company wrote off approximately $3,278 of Singletrac's goodwill. The remaining balance of $600 related to future use of Singletrac's label. The majority of the remaining asset impairment charges of $3,763 related to the write-off of assets located at the Company's distribution center. The following table sets forth adjustments to the restructuring reserve:
ADDITIONAL BALANCE, RESTRUCTURING BALANCE, MARCH 31, AND OTHER CASH MARCH 31, 1999 CHARGES WRITE-OFFS PAYMENTS 2000 -------------- ------------- ---------- -------- -------------- Severance............ $8,357 $ 4,720 $ -- $(5,144) $ 7,933 Shutdown of European operations......... -- 3,128 -- (1,236) 1,892 Impairment charges... -- 29,783 (29,783) -- -- Transition rent...... 635 317 -- (568) 384 ------ ------- -------- ------- ------- $8,992 $37,948 $(29,783) $(6,948) $10,209 ====== ======= ======== ======= =======
F-30 74 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) NOTE 22 -- QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the fiscal year ended March 31, 1999 are as follows:
THREE MONTHS ENDED ------------------------------------------------------ JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, -------- ------------- ------------ --------- Net revenues....................... $116,391 $116,151 $246,303 $ 93,497 Gross profit....................... 60,495 60,193 126,691 (4,990) Operating income (loss)............ 4,112 3,034 33,706 (116,962) Net income (loss) from continuing operations....................... 1,803 1,369 17,332 (72,301) Loss from discontinued operations....................... -- -- (560) (18,481) Net income (loss) before dividends on preferred stock............... 1,803 1,369 16,772 (90,782) Basic net income (loss) per share from continuing operations....... $ 0.13 $ 0.10 $ 1.24 $ (4.97) Basic net (loss) per share from discontinued operations.......... $ -- $ -- $ (0.04) $ (1.27) Basic net income (loss) per share............................ $ 0.13 $ 0.10 $ 1.20 $ (6.24) Weighted average shares outstanding...................... 13,612 13,616 13,949 14,555 Diluted net income (loss) per share from continuing operations....... $ 0.13 $ 0.10 $ 1.24 $ (4.97) Diluted net (loss) per share from discontinued operations.......... $ -- $ -- $ (0.04) $ (1.27) Diluted net income (loss) per share............................ $ 0.13 $ 0.10 $ 1.22 $ (6.24) Weighted average shares outstanding...................... 13,798 13,713 14,019 14,555
Summarized quarterly financial data for the fiscal year ended March 31, 2000 are as follows:
THREE MONTHS ENDED ------------------------------------------------------ JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, -------- ------------- ------------ --------- Net revenues....................... $121,325 $91,426 $101,727 $ 61,091 Gross profit....................... 59,182 26,806 12,307 (24,027) Operating loss..................... (3,709) (52,112) (94,943) (112,527) Net loss from continuing operations....................... (3,852) (56,060) (121,594) (140,627) Loss from discontinued operations....................... -- (477) -- -- Net loss before extraordinary items............................ (3,852) (56,537) (119,706) (140,627) Gain from extraordinary item, net of tax of $1,312................. -- -- 1,888 -- Net loss before dividends on preferred stock.................. (3,852) (56,537) (119,706) (140,627) Basic and diluted net loss per share from continuing operations....................... $ (0.26) $ (3.80) $ (7.69) $ (9.66) Basic and diluted net loss per share from discontinued operations....................... $ -- $ (0.03) $ -- $ -- Basic and diluted net income per share from extraordinary items... $ -- $ -- $ 0.12 $ -- Basic and diluted net loss per share............................ $ (0.26) $ (3.83) $ (7.57) $ (9.66) Weighted average shares outstanding...................... 14,574 14,772 15,816 14,555
F-31 75 INFOGRAMES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ($'S IN THOUSANDS, EXCEPT SHARE DATA) The quarterly earnings per share information is computed separately for such period. Therefore, the sum of such quarters per share amounts may differ from the total for the year. NOTE 23 -- SUBSEQUENT EVENTS (UNAUDITED) On April 6, 2000, the Company's Board of Directors approved a one-for-five reverse stock split of the issued and outstanding shares of the Company's common stock, which became effective June 26, 2000. Effective May 10, 2000, the Company changed its name from "GT Interactive Software Corp." to "Infogrames, Inc." The Company continues to be listed on the Nasdaq National Market under the trading symbol "GTIS". The Company's name change is reflective of the new corporate branding strategy being implemented by the Company and Infogrames SA, its indirect majority shareholder. Pursuant to this branding strategy, the Company will adopt the Infogrames brand across the Company and its products. On June 26, 2000, the Company repurchased approximately 1.6 million shares of its common stock in connection with severance agreements with certain of its employees. The repurchased shares of common stock will be held as treasury stock. On June 27, 2000, the Board of Directors approved a change in the Company's fiscal year from March 31 to June 30, to conform to Infogrames SA's fiscal year end. On June 29, 2000, Infogrames SA and the Company amended the Credit Agreement to increase the aggregate commitment available under the facility to $125,000 and to extend the maturity date to September 30, 2000. F-32 EX-3.1 2 ex3-1.txt AMENDED AND RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF INFOGRAMES,INC. Pursuant to Section 245 of the General Corporation Law of the State of Delaware Infogrames, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. That the name of the Corporation is Infogrames, Inc. and the name under which the Corporation originally was incorporated is GT Interactive Software Corp. 2. That the Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of the State of Delaware on the 1st day of September, 1992 under the name of GT Software Corporation; that Certificates of Amendment to the Certificate of Incorporation were filed in the Office of the Secretary of State of the State of Delaware on the 1st day of April, 1993, on the 29th day of November, 1993, on the 19th day of December, 1994, a restated certificate of incorporation was filed on the 22nd day of February, 1995, and an amended and restated certificate of incorporation was filed on the 31st day of July, 1995. Certificates of Amendment of the Amended and Restated Certificate of Incorporation were filed on July 23, 1998, February 14, 2000, May 10, 2000, May 12, 2000 and June 2, 2000. 3. That this Amended and Restated Certificate of Incorporation restates and amends the restated Certificate of Incorporation of this Corporation. 4. That the text of the Certificate of Incorporation is hereby restated and amended to read in its entirety as follows: FIRST: The name of the Corporation is Infogrames, Inc. SECOND: The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of 2 New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation, is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware ("GCL"). FOURTH: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 305,000,000 shares, of which 300,000,000 shares, par value $0.01 per share, shall be designated Common Stock, and 5,000,000 shares, par value $0.01 per share, shall be designated Preferred Stock. Effective as of the close of business on June 26, 2000, each share of Common Stock, par value $0.01 per share ("Old Common Stock"), issued and outstanding at such time shall be and hereby is automatically reclassified and changed into one-fifth of one share of Common Stock, par value $0.01 per share, without any action by the holder thereof, provided that fractional shares shall be rounded to the nearest whole share. Effective as of the close of business on June 26, 2000, each certificate outstanding and previously representing shares of Old Common Stock shall, until surrendered and exchanged, be deemed, for all corporate purposes, to constitute and represent the number of whole shares of Common Stock of the Corporation into which the outstanding shares of Old Common Stock previously represented by such certificate were converted by virtue of the reverse stock split. FIFTH: The Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation in the manner now or hereafter prescribed by statute. SIXTH: (a) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law. (b) Election of Directors need not be by written ballot unless the by-laws of the Corporation shall so provide. (c) The number of Directors of the Corporation shall not be less than four nor more than fifteen (plus such number of Directors, if any, who may be elected by the holders of any series of preferred stock), and subject to such limits shall be fixed by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of preferred stock, shall be classified, with respect to the term for which they severally hold office, into three classes, as nearly equal in number as possible. One class of Directors shall be initially elected for a term expiring at the annual meeting of stockholders to be held in 1996, another class shall be initially elected for a term expiring at the annual meeting of stockholders to be 2 3 held in 1997, and another class shall be initially elected for a term expiring at the annual meeting of stockholders to be held in 1998. Members of each class shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of Directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The persons serving as Directors in classes whose terms expire in 1996, 1997 and 1998 shall be determined by resolution of the Board of Directors. Notwithstanding the foregoing, whenever pursuant to the provisions of Article Fourth of this Amended and Restated Certificate of Incorporation, the holders of any one or more series of preferred stock shall have the right, voting separately as a series or together with holders of other such series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Amended and Restated Certificate of Incorporation and any certificate of designations applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Sixth unless so provided by such terms. During any period when the holders of any series of preferred stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of Article Fourth hereof, then upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of Directors of the Corporation shall automatically be increased by such specified number of Directors, and the holders of such preferred stock shall be entitled to elect the additional Directors so provided for or fixed pursuant to said provisions, and (ii) each such additional Director shall serve until such Director's successor shall have been duly elected and qualified, or until such Director's right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to such Director's earlier death, disqualification, resignation or removal. Except as otherwise provided by the Board in the resolution or resolutions establishing such series, whenever the holders of any series of preferred stock having such right to elect additional Directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional Directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional Directors, shall forthwith terminate and the total and authorized number of Directors of the Corporation shall be reduced accordingly. (d) Subject to the rights, if any, of the holders of any series of preferred stock to elect Directors and to remove any Director whom such holders have the 3 4 right to elect, and notwithstanding the provisions of this Article Sixth providing for the classification of the Board of Directors, any Director or the entire Board of Directors (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of Directors. SEVENTH: (a) The corporation shall to the fullest extent permitted by Delaware law, as in effect from time to time (but, in the case of any amendment of the GCL, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), indemnify each person who is or was a director or officer of the Corporation or of any of its wholly-owned subsidiaries who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, or was or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or of any of its subsidiaries, or is or was at any time serving, at the request of the Corporation, any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against all expense, liability and loss (including, but not limited to, attorneys' fees, judgments, fines, excise taxes or penalties with respect to any employee benefit plan or otherwise, and amounts paid or to be paid in settlement) incurred or suffered by such director or officer in connection with such proceeding; provided, however, that, except as provided in Paragraph (e) of this Article Seventh, the Corporation shall not be obligated to indemnify any person under this Article Seventh in connection with a proceeding (or part thereof) if such proceeding (or part thereof) was not authorized by the Board of Directors of the Corporation and was initiated by such person against (i) the Corporation or any of its subsidiaries, (ii) any person who is or was a director, officer, employee or agent of the Corporation or any of its subsidiaries and/or (iii) any person or entity which is or was controlled, controlled by, or under common control with the Corporation or has or had business relations with the Corporation or any of its subsidiaries. (b) The right to indemnification conferred in this Article Seventh shall be a contract right, shall continue as to a person who has ceased to be a director or officer of the Corporation or of any of its wholly-owned subsidiaries and shall inure to the benefit of his or her heirs, executors and administrators, and shall include the right to be paid by the Corporation the expenses incurred in connection with the defense or investigation of any such proceeding in advance of its final disposition; provided, however, that if and to the extent that Delaware law so requires, the payment of such expense in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer 4 5 or former director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer or former director or officer is not entitled to be indemnified by the Corporation. (c) The Corporation's obligation to indemnify and to pay expenses in advance of the final disposition of a proceeding under this Article Seventh shall arise, and all rights and protections granted to directors and officers under this Article Seventh shall vest, at the time of the occurrence of the transaction or event to which any proceeding relates, or at the time that the action or conduct to which any proceeding relates was first taken or engaged in (or omitted to be taken or engaged in), regardless of when any proceeding is first threatened, commenced or completed. (d) Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or the by-laws of the Corporation, no action by the Corporation, either by amendment to or repeal of this Article Seventh or the by-laws of the Corporation or otherwise shall diminish or adversely affect any right or protection granted under this Article Seventh to any director or officer or former director or officer of the Corporation or of any of its wholly-owned subsidiaries which shall have become vested as aforesaid prior to the date that any such amendment, repeal or other corporate action is taken. (e) If a claim for indemnification and/or for payment of expenses in advance of the final disposition of a proceeding arising under this Article Seventh is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. (f) The right to indemnification and the payment of expenses incurred in connection with the defense or investigation of a proceeding in advance of its final disposition conferred in this Article Seventh shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Amended and Restated Certificate of Incorporation, by-laws of the Corporation, insurance policy, agreement, vote of stockholders or disinterested directors or otherwise. (g) In addition to the persons specified in subsection (a) of this Article Seventh, the Corporation may also indemnify all other persons to the fullest extent permitted by Delaware law. EIGHTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a 5 6 director, except for liability (i) for any breach of the director's 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) under Section 174 of the GCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the GCL is amended after the date hereof to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware GCL, as so amended. No amendment to or repeal of this Article Eighth shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. 5. This Amended and Restated Certificate of Incorporation was declared advisable by the Board of Directors of the Corporation and was duly adopted by the Board of Directors in accordance with the provisions of Section 245 of the GCL and it was duly adopted by a majority of the stockholders entitled to vote thereon in accordance with the provisions of Section 228 of the GCL and written notice was given to the stockholders in accordance with the provisions of subsection (d) of such section of the GCL. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its President on this 19th day of December, 1995. GT INTERACTIVE SOFTWARE CORP. By: /s/ Ronald Chaimowitz ------------------------------- Name: Ronald Chaimowitz Title: President and Chief Executive Officer 6 EX-4.1 3 ex4-1.txt SPECIMEN FORM OF STOCK CERTIFICATE 1 Exhibit 4.1 [CERTIFICATE GRAPHIC] [INFOGRAMES LOGO] INFOGRAMES, INC. [NUMBER SEAL] [SHARES SEAL] INCORPORATED UNDER THE LAWS CUSIP 45665T 10 7 OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS This is to Certify that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF $.01 EACH OF INFOGRAMES, INC. (hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation of the Corporation and all amendments thereto, to all of which the holder of this certificate assents by his or her acceptance hereof. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: [INFOGRAMES, INC. SEAL 1992] /s/ David Fremed SENIOR VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER /s/ Denis Guyennot PRESIDENT AND CHIEF OPERATING OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) BY TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE 2 INFOGRAMES, INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF OTHER SERIES. ANY SUCH REQUEST MAY BE MADE TO THE CORPORATION OR TO ITS TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -as tenants in common UNIF GIFT MIN ACT- Custodian TEN ENT -as tenants by the entireties ------ ------- JT TEN -as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts to Minors tenants in common Act ----------------- (State) Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign and transfer unto ---------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- / / / / - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Shares of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint --------------------------------------------- - ------------------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, ---------------------- --------------------------------------------- Signature Guaranteed: ------------------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE. NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-4.5 4 ex4-5.txt AMENDED & RESTATED REGISTRATION RIGHTS AGREEMENT 1 Exhibit 4.5 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of February 15, 2000, by and among INFOGRAMES, INC. (formerly GT Interactive Software Corp.), a Delaware corporation (the "Company"), and CALIFORNIA U.S. HOLDINGS, INC., a Delaware corporation (the "Securityholder"). WHEREAS, pursuant to the terms and conditions of a Securities Purchase Agreement, dated as of November 15, 1999 (the "Company Purchase Agreement"), by and among the Company, Infogrames Entertainment S.A., a French societe anonyme ("Parent") and the Securityholder, the Company, among other things, issued to the Securityholder an aggregate of 28,571,429 shares of common stock of the Company, par value $0.01 per share ("Common Stock"), and a 5% Subordinated Convertible Note in the aggregate principal amount of approximately $60,600,000 (the "Note"), with a conversion price of $1.85 per share; WHEREAS, concurrent with the execution and delivery of the Company Purchase Agreement, the Company issued to the Securityholder warrants to purchase 50,000 shares of Common Stock, having an exercise price of $0.01 per share (the "Short-Term Note Warrants"); WHEREAS, concurrently therewith, the Securityholder acquired from certain principal stockholders of the Company an aggregate of 33,558,531 shares of Common Stock (the "Cayre Shares") and warrants to acquire an aggregate of 4,500,000 shares of Common Stock at an exercise price of $0.01 per share (the "GAP Warrants"); WHEREAS, concurrently therewith, the Company and the Securityholder entered into a Registration Right Agreement dated as of November 15, 1999 (the "Registration Right Agreement"), pursuant to which the Securityholder received certain registration rights in respect of the shares of Common Stock acquired by the Securityholder pursuant to the Company Purchase Agreement, the Cayre Shares, and any shares of Common Stock issuable upon conversion of the Original Note or upon exercise of the Short-Term Note Warrants and the GAP Warrants. WHEREAS, pursuant to the terms of the Master Assignment and Acceptance dated as of February 15, 2000 (the "Assignment and Acceptance"), by and among (i) the Company, as borrower, (ii) First Union National Bank, Bank of America, N.A., European American Bank, Fleet Bank, N.A., National Bank of Canada, The Bank of Nova Scotia (collectively the "Previous Lenders"), and (iii) Parent, as assignee, the Previous Lenders assigned to Parent all the rights and obligations of the Previous Lenders under the Credit Agreement dated as of September 11, 1998 (as amended, restated, supplemented or otherwise modified, the "Credit Agreement"), by and among the Company and the Previous Lenders; 2 WHEREAS, in connection with the Assignment and Acceptance, Parent has requested the Company and the Company has agreed to enter into a warrant agreement dated as of February 15, 2000 with Parent and the Securityholder, and to issue and deliver to the Securityholder warrants to purchase 225,000 shares of Common Stock (the "Credit Warrants"); WHEREAS, in connection with the issuance of the Credit Warrants to the Securityholder, the Company has agreed to provide certain registration rights in respect of the shares of Common Stock issuable upon exercise of the Credit Warrants and to amend the Registration Right Agreement to include the shares of Common Stock issuable upon exercise of the Credit Warrants; WHEREAS, the Company and the Securityholder deem it to be in their respective best interests to amend and restate in its entirety the Registration Rights Agreement to set forth the rights of the Securityholder in connection with public offerings and sales of the Registrable Securities (as defined below). NOW, THEREFORE, in consideration of the premises and mutual covenants and obligations hereinafter set forth, and for other good and valuable consideration, the sufficiency and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree to amend and restate in its entirety the Registration Rights Agreement as set forth herein and to agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Business Day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City are authorized by law, regulation or executive order to close. "Common Stock" shall mean the common stock, par value $0.01 per share, of the Company. "Delay Notice" shall have the meaning set forth in Section 6(b) hereof. "Demand Participation Notice" shall have the meaning set forth in Section 3(a) hereof. "Demand Registration" shall have the meaning set forth in Section 3(a) hereof. "Demand Registration Notice" shall have the meaning set forth in Section 3(a) hereof. "Holder" shall mean the Securityholder and any of its transferees that owns Registrable Securities. For purposes of this Agreement, the Company may deem the registered holder of a Registrable Security as the Holder thereof. 2 3 "Material Development Condition" shall have the meaning set forth in Section 6(b) hereof. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Prospectus" shall mean the prospectus included in any Registration Statement, as amended or supplemented by a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all materials incorporated by reference in such prospectus. "Registrable Securities" shall mean (i) the shares of Common Stock acquired by the Securityholder pursuant to the Company Purchase Agreement and the Cayre Shares, (ii) any shares of Common Stock issuable upon conversion of the Note, (iii) any shares of Common Stock issuable upon exercise of the Short-Term Note Warrants and the GAP Warrants, (iv) any shares of Common Stock issuable upon exercise of the Credit Warrants and (v) any other securities issued or issuable as a result of or in connection with any stock dividend, stock split or reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange or distribution in respect of such Common Stock. "Registration Expenses" shall have the definition set forth in Section 7 hereof. "Registration Period" shall have the definition set forth in Section 3(b) hereof. "Registration Statement" shall mean any registration statement which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included therein, all amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such registration statement. "Requesting Securityholder" shall have the meaning set forth in Section 4 hereof. "Restricted Securities" shall have the meaning set forth in Section 2 hereof. "Rule 144" shall mean Rule 144 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the SEC. "Rule 415" shall mean Rule 415 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the SEC. "Rule 903" shall mean Rule 903 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the SEC. 3 4 "Rule 904" shall mean Rule 904 promulgated under the Securities Act, as amended from time to time, or any similar successor rule thereto that may be promulgated by the SEC. "SEC" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended (or any similar successor federal statute), and the rules and regulations thereunder, as the same are in effect from time to time. "Underwritten Offering" shall mean a registered offering in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the benefits of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Restricted Security. A Registrable Security that has ceased to be a Registrable Security cannot thereafter become a Registrable Security. As used herein, a "Restricted Security" is a Registrable Security which has not been effectively registered under the Securities Act and distributed in accordance with an effective Registration Statement and which has not been sold by a Holder pursuant to Rule 144 (except pursuant to a transfer to any affiliate of such Holder), Rule 903 or Rule 904, unless, in the case of a Registrable Security distributed pursuant to Rule 903 or 904, any applicable restricted period has not expired or the SEC or its staff has taken the position in a published release, ruling or no-action letter that securities distributed under Rule 903 or 904 are ineligible for resale in the United States under Section 4(1) of the Securities Act notwithstanding expiration of the applicable restricted period. SECTION 3. DEMAND REGISTRATION. (a) Demand. At any time during the term of this Agreement, a Holder or Holders may request the Company, in writing (a "Demand Registration Notice"), to effect the registration of all or such portion of the Registrable Securities as such Holder or Holders shall specify; provided, that only one demand may be made pursuant to this Section 3(a) during any six month period; provided, further, that an aggregate of only three demands may be made pursuant to this Section 3(a), unless the Company is eligible to use Form S-3 (or any successor form) in which case the foregoing limitation shall not apply. Upon receipt of any such Demand Registration Notice, the Company shall promptly give written notice of such proposed registration to all other Holders. Such Holders shall have the right, by giving written notice (the "Demand Participation Notice") to the Company within fifteen (15) days after the Company provides its notice, to elect to have included in such registration such number of their Registrable Securities as such Holders may request in such Demand Participation Notice. A Holder or Holders may, at any time up to five (5) Business Days before the filing date of the applicable Registration Statement relating to the Demand Registration, request that his or its Registrable Securities not be included therein by providing a written notice to that effect to the Company. 4 5 Upon receipt of a Demand Registration Notice, the Company shall use its commercially reasonable efforts to file, as expeditiously as possible, but in any event no later than forty-five (45) days after such Demand Registration Notice, a Registration Statement on Form S-3 (or any successor form), or any other form available to the Company under the Securities Act, covering all Registrable Securities which the Company has been so requested to register (the "Demand Registration"). (b) Effectiveness of Registration Statement. Subject to the provisions of Sections 6(b) and (c) hereof, the Company agrees to use its commercially reasonable efforts to (i) cause the Registration Statement(s) relating to the Demand Registration described in Section 3(a) to become effective as promptly as practicable (such date of effectiveness, the "Effective Time"), and (ii) thereafter keep each such Registration Statement effective continuously for the period (the "Registration Period") ending, subject to the second sentence of Section 5(b) hereof and clause (3) of the last sentence of Section 6(b) hereof, on the earlier of (A) one year following the Effective Time, and (B) the date on which all Registrable Securities covered by each such Registration Statement have been sold and the distribution contemplated thereby has been completed. (c) Inclusion of Other Securities. Any other holder of the Company's securities who has registration rights may include its securities in the Demand Registration effected pursuant to this Section 3. SECTION 4. PIGGYBACK REGISTRATION. If, during the term of this Agreement, the Company at any time proposes to file a registration statement with respect to any class of equity securities, whether (i) for its own account (other than in connection with the Registration Statement contemplated by Section 3 or a registration statement on Form S-4 or S-8 (or any successor or substantially similar form), and other than in connection with (A) an employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or (B) a dividend reinvestment plan) or (ii) for the account of a holder of securities of the Company pursuant to demand registration rights granted by the Company (a "Requesting Securityholder"), then the Company shall in each case give written notice of such proposed filing to all Holders of Registrable Securities at least fifteen (15) days before the anticipated filing date of any such registration statement by the Company, and such notice shall offer to all Holders the opportunity to have any or all of the Registrable Securities held by such Holders included in such registration statement. Each Holder of Registrable Securities desiring to have its Registrable Securities registered under this Section 4 shall so advise the Company in writing within ten (10) days after the date of receipt of such notice (which request shall set forth the amount of Registrable Securities for which registration is requested), and the Company shall use its commercially reasonable efforts to include in such registration statement all such Registrable Securities so requested to be included therein. Notwithstanding the foregoing, if the managing underwriter or underwriters of any such proposed public offering advises the Company that the total amount of securities which the Holders of Registrable Securities, the Company and any other Persons intended to be included in such proposed public offering is sufficiently large to adversely affect the success of such proposed public offering, then the amount of securities to be offered for the accounts of Holders 5 6 of Registrable Securities shall be reduced pro rata, based upon the aggregate number of securities to be offered for the accounts of all of the Holders of Registrable Securities and all other holders (except the Company and the Requesting Securityholder) of securities intended to be included in such offering and the number of securities to be offered for the account of each such Holder, to the extent necessary to reduce the total amount of securities to be included in such proposed public offering to the amount recommended by such managing underwriter or underwriters before the securities offered by the Company or any Requesting Securityholder are so reduced. Anything to the contrary in this Agreement notwithstanding, the Company may withdraw or postpone a registration statement referred to in this Section 4 at any time before it becomes effective or withdraw, postpone or terminate the offering after it becomes effective without obligation to the Holder or Holders of the Registrable Securities; provided that the Company's obligations pursuant to Section 5(a)(ii), 7 and 8 shall remain effective. SECTION 5. REGISTRATION PROCEDURES. (a) General. In connection with the Company's registration obligations pursuant to Section 3 and, to the extent applicable, Section 4 hereof, the Company will: (i) prepare and file with the SEC a new Registration Statement or such amendments and post-effective amendments to an existing Registration Statement as may be necessary to keep such Registration Statement effective for the time periods set forth in Section 3(b), provided that no Registration Statement shall be required to remain in effect after all Registrable Securities covered by such Registration Statement have been sold and distributed as contemplated by such Registration Statement, and, provided, further, that as soon as practicable, but in no event later than five (5) Business Days before filing such Registration Statement, any related Prospectus or any amendment or supplement thereto, other than any amendment or supplement made solely as a result of incorporation by reference of documents filed with the SEC subsequent to the filing of such Registration Statement, the Company shall furnish to the Holders of the Registrable Securities covered by such Registration Statement and the underwriters, if any, copies of all such documents proposed to be filed, which documents shall be subject to the review of such Holders and underwriters; (ii) notify the selling Holders of Registrable Securities and the managing underwriters, if any, promptly (1) when a new Registration Statement, Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any new Registration Statement or post-effective amendment, when it has become effective, (2) of any request by the SEC for amendments or supplements to any Registration Statement or Prospectus or for additional information, (3) of the issuance by the SEC of any comments with respect to any filing, (4) of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose, (5) of any suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (6) if there is a misstatement or omission of a material fact in any Registration Statement, Prospectus or 6 7 any document incorporated therein by reference or if any event occurs which requires the making of any changes in any Registration Statement, Prospectus or any document incorporated therein by reference in order to make the statements therein (in the case of any Prospectus, in the light of the circumstances under which they were made) not misleading; (iii) if reasonably requested by the managing underwriter or underwriters or a Holder of Registrable Securities being sold in connection with an Underwritten Offering, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Holders of a majority of the Registrable Securities being sold in such Underwritten Offering agree should be included therein relating to the sale of the Registrable Securities, including, without limitation, information with respect to the aggregate number of shares of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the Underwritten Offering of the Registrable Securities to be sold in such offering; and promptly make all required filings of such Prospectus supplement or post-effective amendment; (iv) furnish to each selling Holder of Registrable Securities and each managing underwriter, if any, without charge, as many conformed copies as may reasonably be requested of the then effective Registration Statement and any post-effective amendments thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (v) deliver to each selling Holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the then effective Prospectus (including each prospectus subject to completion) and any amendments or supplements thereto as such Persons may reasonably request; (vi) use commercially reasonable efforts to register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or "blue sky" laws of such jurisdictions as any selling Holder of Registrable Securities or underwriter reasonably requests in writing; provided, however, that the Company will not be required to (1) qualify to do business in any jurisdiction where it would not otherwise be required to qualify, but for this paragraph (vi), (2) subject itself to general taxation in any such jurisdiction or (3) file a general consent to service of process in any such jurisdiction; (vii) cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two (2) Business Days prior to any sale of Registrable Securities to the underwriters; (viii) cause all Registrable Securities covered by the Registration Statement to be listed on each securities exchange (or quotation system operated by a national securities 7 8 association) on which identical securities issued by the Company are then listed if requested by the Holders of a majority of the Registrable Securities covered by such Registration Statement or the managing underwriters, if any, and enter into customary agreements including, if necessary, a listing application and indemnification agreement in customary form, and provide a transfer agent for such Registrable Securities no later than the effective date of such Registration Statement; (ix) otherwise use its commercially reasonable efforts to comply in all material respects with all applicable rules and regulations of the SEC relating to such registration and the distribution of the securities being offered and make generally available to its securities holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act; (x) cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc.; and (xi) subject to the proviso in paragraph (vi) above, cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities (other than as may be required by the governmental agencies or authorities of any foreign jurisdiction and other than as may be required by a law applicable to a selling Holder by reason of its own activities or business other than the sale of Registrable Securities). As a condition precedent to the participation in any registration hereunder, the Company may require each seller of Registrable Securities as to which any such registration is being effected to furnish to the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request to comply with the applicable provisions of the Securities Act. (b) Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(a)(ii)(4), (5) or (6) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the then current Prospectus until (1) such Holder is advised in writing by the Company that a new Registration Statement covering the offer of Registrable Securities has become effective under the Securities Act or (2) such Holder receives copies of any required supplemented or amended Prospectus, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed. If the Company shall have given any such notice during a period when a Demand Registration is in effect, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during which any such disposition of Registrable Securities is discontinued pursuant to this Section 5(b). If so directed by the Company, on the happening of such event, the Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's 8 9 possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. SECTION 6. HOLDBACK AGREEMENTS. (a) Hold-Back Election. In the case of the registration of any underwritten primary offering initiated by the Company (other than any registration by the Company on Form S-4 or Form S-8 (or any successor or substantially similar form), and other than in connection with (A) an employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan, or (B) a dividend reinvestment plan) or any underwritten secondary offering initiated at the request of a holder of securities of the Company pursuant to registration rights granted by the Company, each Holder agrees that if he or it is (x) then a 5% or greater stockholder, a director or an officer of the Company and (y) reasonably requested to do so by the managing underwriter or the underwriters, then such Holder shall not effect any public sale or distribution of securities of the Company, except as part of such underwritten registration, during the period beginning twenty-five (25) days prior to the closing date of such underwritten offering and ending ninety (90) days after such closing date (or such longer period as may be reasonably requested by the managing underwriter or underwriters). (b) Material Development Condition. With respect to any Registration Statement filed or to be filed pursuant to Section 3, if the Company determines that, in its good faith judgment, (i) it would (because of the existence of, or in reasonable anticipation of, any acquisition or corporate reorganization or other transaction, financing activity, stock repurchase or other development involving the Company or any subsidiary, or the unavailability for reasons substantially beyond the Company's control of any required financial statements, or any other event or condition of similar significance to the Company or any subsidiary for purposes of disclosure to the stockholders or potential investors of the Company) be materially disadvantageous (a "Material Development Condition") to the Company or any subsidiary or its stockholders for such a Material Development Condition to be publicly disclosed, and (ii) the Company reasonably believes it would be required under the Securities Act to disclose such Material Development Condition in such Registration Statement, then the Company shall, notwithstanding any other provisions of this Agreement, be entitled, upon the giving of a written notice that a Material Development Condition has occurred (a "Delay Notice") from an officer of the Company to any Holder of Registrable Securities included or to be included in such Registration Statement, (i) to cause sales of Registrable Securities by such Holder pursuant to such Registration Statement to cease, (ii) to cause such Registration Statement to be withdrawn and the effectiveness of such Registration Statement terminated, or (iii) in the event no such Registration Statement has yet been filed or declared effective, to delay filing or effectiveness of any such Registration Statement until, in the good faith judgment of the Company, such Material Development Condition shall be disclosed or no longer exists (notice of which the Company shall promptly deliver to any Holder of Registrable Securities with respect to which any such Registration Statement has been filed). Notwithstanding the foregoing provisions of this Section 6(b): (1) in no event may such cessation or delay (i) be, for each such Registration Statement, for a period of more than ninety (90) consecutive days from the giving of its Delay Notice to a Holder or Holders with respect to such Material Development Condition, as above provided, or (ii) for each such Registration Statement, exceed in the aggregate one hundred twenty (120) days 9 10 in any consecutive three hundred sixty-five (365) day period; (2) in the event a Registration Statement is filed and subsequently withdrawn by reason of any existing or anticipated Material Development Condition as hereinbefore provided, the Company shall cause a new Registration Statement covering the Registrable Securities to be filed with the SEC as soon as practicable after such Material Development Condition expires or, if sooner, as soon as practicable after the expiration of the earlier of such ninety (90) day or one hundred twenty (120) day period, and the Registration Period for such new Registration Statement shall be the greater of thirty (30) days or the number of days that remained in such Registration Period with respect to the withdrawn Registration Statement at the time it was withdrawn; and (3) in the event the Company elects not to withdraw or terminate the effectiveness of any such Registration Statement but to cause a Holder or Holders to refrain from selling Registrable Securities for any period during the Registration Period, the Registration Period with respect to such Holders shall be extended by the number of days during the Registration Period that such Holders are required to refrain from selling Registrable Securities. (c) Limitation on Demand and Piggyback Registration Rights. Anything to the contrary contained in this Agreement notwithstanding, when (i) in the opinion of counsel for the Company (which counsel shall be experienced in securities law matters), registration of the Registrable Securities is not required by the Securities Act and other applicable securities laws in connection with a proposed sale of such Registrable Securities and (ii) the amount of Registrable Securities held by such Holders does not exceed five percent of the outstanding shares of Common Stock, on a fully diluted basis, the Holders shall have no rights pursuant to Sections 3 and 4 hereof to request a Demand Registration or a piggyback registration in connection with such proposed sale and the Company shall promptly provide to the transfer agent and the Holders' broker in connection with any sale transaction an opinion to the effect set forth above, reasonably sufficient in form and substance to permit the transfer agent to issue stock certificates for such Registrable Securities without any legend restricting transfer thereof. SECTION 7. REGISTRATION EXPENSES. All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees (including, without limitation, any fees payable to the NASD or the relevant securities exchange if the Company's shares are listed on such exchange), fees and expenses of compliance with securities or "blue sky" laws (including reasonable fees and disbursements of counsel in connection with "blue sky" qualifications or registrations (or the obtaining of exemptions therefrom) of the Registrable Securities), printing expenses (including expenses of printing Prospectuses), messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), fees and disbursements of its counsel and its independent certified public accountants, securities acts liability insurance (if the Company elects to obtain such insurance), fees and expenses of any special experts retained by the Company in connection with any registration hereunder and fees and expenses of other Persons retained by the Company (all such expenses being referred to as "Registration Expenses"), shall be borne by the Company; provided, that Registration Expenses shall not include any fees and expenses of counsel for the Holders, out-of-pocket expenses incurred by the 10 11 Holders and underwriting discounts, commissions or fees attributable to the sale of the Registrable Securities. SECTION 8. INDEMNIFICATION. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, but without duplication, each Holder of Registrable Securities, and each Person who controls such Holder (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and reasonable legal fees and expenses) resulting from any untrue statement of a material fact in, or any omission of a material fact required to be stated in, any Registration Statement or Prospectus or necessary to make the statements therein (in the case of a Prospectus in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by any Holder or any underwriters expressly for use therein. The Company will also indemnify underwriters participating in the distribution, their officers, directors, employees, partners and agents, and each Person who controls such underwriters (within the meaning of the Securities Act), to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities, if so requested. (b) Indemnification by Holders of Registrable Securities. In connection with any Registration Statement in which a Holder of Registrable Securities is participating, each such Holder will furnish to the Company in writing such information and affidavits relating to such Holder as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and agrees to indemnify and hold harmless, to the full extent permitted by law, but without duplication, the Company, its officers, directors, stockholders, employees, advisors and agents, and each Person who controls the Company (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and reasonable legal fees and expenses) resulting from any untrue statement of material fact in, or any omission of a material fact required to be stated in, the Registration Statement or Prospectus or necessary to make the statements therein (in the case of a Prospectus in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit relating to such Holder so furnished in writing by such Holder to the Company specifically for inclusion therein. The Company and the other Persons described above shall be entitled to receive indemnities from underwriters participating in the distribution, to the same extent as provided above with respect to information so furnished in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement. In no event shall any participating Holder have an obligation to indemnify any Person pursuant to this Section 8(b) for any amount in excess of the net proceeds received by such Holder from the Registrable Securities offered and sold by such Holder pursuant to such Registration Statement. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel of such indemnifying party's choice and reasonably 11 12 satisfactory to the indemnified party; provided, however, that the failure to notify the indemnifying party shall not relieve the indemnifying party of any liability that it may have to the indemnified party hereunder, except to the extent that the indemnifying party forfeits substantive rights or defenses by reason of such failure; provided, further, that any Person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in (but not control) the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such indemnified Person unless (A) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to the indemnified party in a timely manner or (B) in the reasonable judgment of any such Person, based upon a written opinion of its counsel, a conflict of interest may exist between such Person and the indemnifying party with respect to such claims (in either of which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). The indemnifying party will not be subject to any liability for any settlement made without its consent. No indemnified party will be required to consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of the claim will not be obligated to pay the fees and expenses of more than one counsel (except one (1) local counsel if required in a specific instance) for all parties indemnified by such indemnifying party with respect to such claim. (d) Contribution. If for any reason the indemnification provided for in Section 8(a) or Section 8(b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by Section 8(a) and Section 8(b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party and the indemnified party, but also the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the indemnifying party or parties on the one hand, or the indemnified party or parties on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentations. In no event shall any participating Holder be required to contribute any amount in excess of the net proceeds received by such Holder from the Registrable Securities offered and sold by such Holder pursuant to such Registration Statement. SECTION 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any Underwritten Offering hereunder unless such Person (i) agrees to sell such Person's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, 12 13 underwriting agreements and other documents required under the terms of such underwriting arrangements. Nothing in this Section 9 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein. SECTION 10. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this Section 10, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the Registrable Securities then outstanding. Whenever the consent or approval of Holders of a specified number of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its controlled affiliates (other than Holders of Registrable Securities if such Holders are deemed to be affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required number. SECTION 11. TERM OF AGREEMENT. This Agreement may be terminated at any time by a written instrument signed by Holders of all of the Registrable Securities then outstanding. Unless sooner terminated in accordance with the preceding sentence, this Agreement shall terminate in its entirety on such date as there shall be no Registrable Securities outstanding; provided that any shares of Common Stock previously subject to this Agreement shall not be Registrable Securities following the sale of such shares in an offering registered pursuant to this Agreement. SECTION 12. NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telecopier, or air-courier guaranteeing overnight delivery: (a) If to a Holder of Registrable Securities, at the most current address given by such Holder to the Company, in accordance with the provisions of this Section 12, which address initially is, with respect to each Holder, listed on Schedule 1 attached hereto. (b) If to the Company, initially at 417 Fifth Avenue New York, New York 10016 Attention: Director of Legal Services Telecopier no. (212) 679-3424 Confirm no. (212) 726-6500 13 14 with a copy to Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Dennis J. Friedman, Esq. Telecopier no. (212) 541-5369 Confirm no. (212) 408-5100 and thereafter at such other address as may be designated from time to time by notice given in accordance with the provisions of this Section 12. (c) All such notices and other communications shall be deemed to have been delivered and received (i) in the case of personal delivery, telecopier or telegram, on the date of such delivery, (ii) in the case of air courier, on the Business Day after the date when sent and (iii) in the case of mailing, on the third Business Day following such mailing. SECTION 13. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 14. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. SECTION 15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF THE CONFLICT OF LAWS THEREOF. SECTION 16. JURISDICTION; FORUM; SERVICE OF PROCESS. Any action or proceeding arising under or relating to this letter or any of the transactions contemplated hereby may only be brought in the United States District Court for the Southern District of New York or the courts of the State of New York located in the County of New York. Each party hereto submits to personal jurisdiction of each such court with respect to any action or proceeding arising under or relating to this Agreement or any of the transactions contemplated hereby and waives any objection to the laying of venue in such courts and any claim that any such action or proceeding has been brought in an inconvenient forum. To the extent permitted by law, any judgment in respect of a dispute arising under or relating to this Agreement may be enforced in any other jurisdiction within or outside the United States by suit 14 15 on the judgment, a certified copy of such judgment being conclusive evidence of the fact and amount of such judgment. The Securityholder hereby irrevocably appoints the person listed on the signature page hereof as its agent for service of process in connection with any action or proceeding arising under or relating to this Agreement and any of the transactions contemplated hereby. Each party hereto agrees that personal service of process may be effected by any of the means specified in Section 12 hereof, addressed to such party. The foregoing shall not limit the rights of any party to serve process in any other manner permitted by law. SECTION 17. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. SECTION 18. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including without limitation and without the need for an express assignment to, any subsequent Holder of the Registrable Securities. SECTION 19. ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 15 16 IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Registration Rights Agreement as of the date first written above. INFOGRAMES, INC. By: Name: Title: CALIFORNIA U.S. HOLDINGS, INC. By: Name: Title: 16 17 SCHEDULE 1 California U.S. Holdings, Inc. c/o Infogrames Entertainment S.A. 84, rue du 1er Mars 1943 Villeurbanne, 69100 France Attention: Thomas Schmider Telecopy: (011 33) 472 655116 Confirm: (011 33) 472 655000 and Attention: Frederic Monnereau Telecopy: (011 33) 472 655062 Confirm: (011 33) 472 655000 EX-10.10A 5 ex10-10a.txt AGREEMENT AND RELEASE - HARRY M. RUBIN 1 EXHIBIT 10.10a 4/7/00 AGREEMENT AND RELEASE This Agreement and Release is made and entered into this 7th day of April, 2000, by and between Harry M. Rubin and GT Interactive Software Corp. DEFINITIONS As used throughout this Agreement and Release. "Rubin" refers to Harry M. Rubin, his heirs, executors, administrators, agents, successors, assigns, and dependents. "Company" refers to GT Interactive Software Corp., together with its past, present, and future parents, subsidiaries, and affiliates, and its respective past, present, and future officers, directors, agents, employees, successors, and assigns. RECITALS WHEREAS, Rubin had been employed by the Company pursuant to an Employment Agreement dated as of April 28, 1998 (the "Employment Agreement"); and WHEREAS, the Company and Rubin each desires to be released from certain obligations under the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and intending to be and being legally bound hereby, the parties agree as follows: AGREEMENT 1. The Employment Agreement is terminated effective as of June 30, 2000 (the "Termination Date"), except as to Sections 4, 6, 7(a), 7(b), 8(d), 8(m) and 8(o) of the Employment Agreement which shall survive and be deemed to be incorporated herein. Rubin represents that he does not have any claim, action, or proceeding pending against the Company. 2 2. Except as necessary to enforce the terms of this Agreement and Release, and in exchange for and in consideration of the promises, covenants, and agreements set forth herein, Rubin hereby releases the Company to the maximum extent permitted by law from any and all manner of claims, demands, causes of action, obligations, damages, or liabilities whatsoever of every kind and nature, at law or in equity, known or unknown, and whether or not discoverable, which he has or may have for any period prior to the date of the execution of this Agreement and Release, including but not limited to all claims arising out of or related to the termination of his employment with the Company or any rights he may have under the Employment Agreement, all claims for additional compensation or remuneration, all claims for reimbursement of relocation or business expenses, and all claims to any stock or stock options that might otherwise be available under the Employment Agreement, as well as any claims of discrimination arising under any federal, state, or local law, including but not limited to claims arising under the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Fair Labor Standards Act of 1938, as amended, and the New York Human Rights Law, or any equivalent law, and any claim for attorneys' fees or costs incurred in pursuing any legal claim against the Company. 3. In full and complete consideration for Rubin's promises, covenants, and agreements set forth herein, the Company will tender to Rubin, and Rubin will accept, the following payments: (a) Within thirty days of the Termination Date, the Company will tender to Rubin the Base Salary (as such term is defined in Section 3(a) of the Employment Agreement) and car allowance (as provided in Section 3(b)(ii) of the Employment Agreement) due and payable to Rubin through such Termination Date; (b) Severance pay equal to the Base Salary (including a 5% increase in such Base Salary on each of January 1, 2001 and January 1, 2002) that Rubin would have otherwise received if the terms of the Employment Agreement were in effect for the period from and after the Termination Date and ending on June 30, 2002 (the "Severance Period"), commencing on the Termination Date and payable at the times and in the amounts such Base Salary would have been so paid and pro-rated as applicable through the last date of the Severance Period; (c) The automobile allowance of $2,000 per calendar month, as set forth in Section 3(b)(ii) of the Employment Agreement, that Rubin would have received if the terms of the Employment Agreement were in effect during the Severance Period, commencing on the Termination Date and payable at the times and in the amounts such automobile allowance would have been so paid; 3 (d) In lieu of bonus, with respect to the Company's fiscal year ending (i) on June 30, 2000, $101,250 on each of July 1, 2000 and January 1, 2001, (ii) on June 30, 2001, $107,625 on each of July 1, 2001 and January 1, 2002, and (iii) on June 30, 2002, $113,006 on each of July 1, 2002 and January 1, 2003, which payments are in the aggregate equal to the aggregate amount that would have otherwise been paid to Rubin as a bonus (50% of Base Salary) during the Severance Period had Rubin's employment not been terminated; and (e) Reimbursement for all taxes payable by Rubin (net of any taxes payable by him as a result of such reimbursement), if any and to the extent not previously reimbursed by the Company, as a result of life insurance premium payments made by the Company, pursuant to Section 3(d) of the Employment Agreement, prior to the Termination Date. The Company shall pay such reimbursement as promptly as reasonably practicable following its receipt from Rubin of documentation reasonably satisfactory to the Company to support such reimbursement of taxes. 4. Rubin shall also continue, during the Severance Period, to participate in the Company's medical plans, to the same extent as if Rubin's employment had not been terminated, on the same basis and at the same cost to Executive as was in effect as of December 31, 1997 in accordance with Section 3(b)(iii) of the Employment Agreement. 5. The Company hereby acknowledges and agrees that all options previously granted by the Company to Rubin to purchase, in the aggregate, 577,728 shares of the Company's Common Stock vested and became exercisable by Rubin in full (to the extent such options had not previously fully vested) on December 16, 1999, as a result of the consummation of the transaction with Infogrames Entertainment S.A. Such options shall be exercisable as set forth on Exhibit A attached hereto. 6. Payment of all compensation and benefits to Rubin hereunder shall be subject to all applicable withholding taxes. 7. It is a material condition of this Agreement and Release that (a) Rubin shall not make or publish any statement (orally or in writing), or instigate, assist or participate in the making or publication of any statement, which would or could adversely affect, libel, slander or disparage (whether or not such disparagement legally constitutes libel or slander) or expose to hatred, contempt or ridicule (i) the Company, (ii) any of its products, services, affairs, or operations; or (iii) the reputations of any of its past or present directors, officers, employees or agents; and 4 (b) the Company shall not make or publish any statement (orally or in writing), or instigate, assist or participate in the making or publication of any statement, which would or could adversely affect, libel, slander or disparage Rubin (whether or not such disparagement legally constitutes libel or slander) or expose Rubin to hatred, contempt or ridicule. 8. If Rubin breaches his promises and participates in a legal proceeding based on claims he has released or breaches Paragraph 7 of this Agreement and Release, or if Mr. Rubin personally breaches Sections 4 or 6 of the Employment Agreement, then he agrees (a) to pay for all costs incurred by the Company, including reasonable attorneys' fees, in defending against his claim; (b) that the Company may bring an action for any damages suffered as a result of Rubin's breach of the provisions contained in Paragraph 7 of this Agreement and Release or Sections 4 or 6 of the Employment Agreement; and (c) to pay all other damages awarded by a court of competent jurisdiction. 9. Rubin has been afforded an opportunity to take at least twenty-one (21) days to consider this Agreement and Release and has been advised to consult with the attorneys of his choice prior to executing this Agreement and Release. The parties understand and acknowledge that Rubin will have a period of seven (7) calendar days following his execution of this Agreement and Release in which to revoke his consent, and that this Agreement and Release will not become effective or enforceable until the revocation period has expired. A revocation will become effective only if Rubin furnishes the Company with a written notice to the Senior Vice President of Human Resources at GT Interactive Software Corp., 417 Fifth Avenue, New York, New York 10016 within such seven (7) day period. The Company will have no obligation to make the payments set forth herein unless and until this Agreement and Release becomes effective. 10. In executing this Agreement and Release, the Company does not admit any liability or wrongdoing, and the considerations exchanged herein do not constitute an admission of any liability, error, contract violation, or violation of any federal, state, or local law or regulation. 11. This Agreement and Release shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12. The unenforceability or invalidity of any provision or provisions of this Agreement and Release shall not render any other provision or provisions hereof unenforceable or invalid. 5 13. This Agreement and Release constitutes the entire agreement between the parties and cannot be altered except in a writing signed by the parties. The parties acknowledge that they entered into this Agreement and Release voluntarily, that they fully understand all of its provisions, and that no representations were made to induce execution of this Agreement and Release which are not expressly contained herein. 14. The parties agree that any disputes concerning the interpretation or application of this Agreement and Release shall be governed by New York law and submitted to a court in New York, without regard to principles of conflict of law or where the parties are located at the time a dispute arises. 6 IN WITNESS WHEREOF, the parties have executed this Agreement and Release on the dates indicated below.
GT INTERACTIVE SOFTWARE CORP. /s/ Harry M. Rubin By: /s/ Harry Glantz - ------------------ ----------------- Harry M. Rubin Sworn to before me this Sworn to before me this _7th__ day of __April, 2000 _7th__ day of __April, 2000 /s/ James Joseph Conner /s/ James Joseph Conner - ---------------------- ------------------------ Notary Public Notary Public Notary Public, State of New York Notary Public, State of New York No. 01CO6030225 No. 01CO6030225 Qualified in Westchester County Qualified in Westchester County Commission Expires September 7, 2001 Commission Expires September 7, 2001
EX-10.10B 6 ex10-10b.txt LETTER AGREEMENT 1 Exhibit 10.10b June 15, 2000 Mr. Harry Rubin 784 Park Avenue New York, NY 10021 Dear Harry: This amended and restated letter agreement, which amends and restates that certain letter agreement dated as of April 1, 2000 (and executed by you on April 7, 2000) by and between the parties hereto, together with the executed Agreement and Release, dated as of April 7, 2000, attached hereto as Exhibit A (as amended herein, the "Agreement and Release"), sets forth our understanding with respect to the termination of your employment with Infogrames, Inc., formerly known as GT Interactive Software Corp., (the "Company"). Each of the undersigned acknowledge that it is the present intention of the parties hereto that you will remain employed by the Company until September 30, 2000. During such time, your status as an employee will be as set forth in the Employment Agreement, dated as of April 28, 1998 (the "Employment Agreement"), between you and the Company for purposes of all compensation, stock option and employee benefit plans of the Company, and the Company will continue to honor the compensation and benefits obligations under Section 3 of the Employment Agreement. Provided that you deliver written notice to the office of the President of the Company in New York City on or before September 30, 2000 of your decision to be bound, effective September 30, 2000, by the Agreement and Release and not by the Employment Agreement, you and the Company shall be bound by the terms and provisions of the Agreement and Release from and after such date; provided, however, that if either you or the Company choose to terminate your employment for any reason prior to September 30, 2000, then the Agreement and Release shall be amended such that (1) the Termination Date (as such term is defined therein) shall be deemed to be the actual termination date of your employment and (2) the starting and ending dates of all periods set forth in the Agreement and Release shall be adjusted to reflect the revised Termination Date (in accordance with the spirit and intent of Section 5(d)(iii) of the Employment Agreement). In all other respects, the terms of the Agreement and Release shall remain unchanged. This letter agreement may be amended only by a writing which makes express reference to this letter agreement as the subject of such amendment and which is signed by you and, on behalf of the Company, by its duly authorized officer. Notwithstanding the foregoing, in the event that your employment is terminated prior to September 30, 2000, the parties hereto hereby agree to execute the amendment to the Agreement and Release described in the preceding paragraph. Notwithstanding anything 2 to the contrary contained herein or therein, the Agreement and Release is hereby amended such that (1) the Termination Date set forth in Paragraph 1 therein shall be September 30, 2000, (2) the Severance Period set forth in Paragraph 3(b) shall commence on the Termination Date and end on September 30, 2002, and (3) the first payment in lieu of bonus set forth in Paragraph 3(d) shall be paid on October 1, 2000 (the day immediately following the Termination Date) and all other dates and amounts set forth in such Paragraph 3(d) shall remain unchanged. This letter agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. If this reflects your understanding of our agreement, please sign below and return a copy of this letter agreement to the undersigned. INFOGRAMES, INC. By /s/ Denis Guyennot ----------------------- Name: Denis Guyennot Title: President and COO /s/ Harry L. Glantz 6/15/00 Agreed to and Accepted by: /s/ Harry Rubin - -------------------------------- Harry Rubin As of this 15th day of June, 2000 EX-10.12A 7 ex10-12a.txt AGREEMENT AND RELEASE - JACK J. CAYRE 1 Exhibit 10.12a AGREEMENT AND RELEASE This Agreement and Release is made and entered into this 7 day of March, 2000, by and between Jack J. Cayre and GT Interactive Software Corp. DEFINITIONS As used through this Agreement and Release: "Cayre" refers to Jack J. Cayre, his heirs, executors, administrators, agents, successors, assigns, and dependents. "Company" refers to GT Interactive Software Corp., together with its past, present, and future parents, subsidiaries, and affiliates, and its respective past, present, and future officers, directors, agents, employees, successors, and assigns. RECITALS WHEREAS, Cayre had been employed by the Company pursuant to an Employment Agreement dated as of August 18, 1998 (the "Employment Agreement"); and WHEREAS, the Company and Cayre each desires to be released from certain obligations under the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and intending to be and being legally bound hereby, the parties agree as follows: AGREEMENT 1. The Employment Agreement is terminated effective as of February 18, 2000 (the "Termination Date"), except as to Sections 4 and 6 of the Employment Agreement which shall survive and be deemed to be incorporated herein. Cayre represents that he does not have any claim, action, or proceeding pending against the Company. 2. Except as necessary to enforce the terms of this Agreement and Release, and in exchange for and in consideration of the promises, covenants, and agreements set forth herein, Cayre hereby releases the Company to the maximum extent permitted by law from any and all manner of claims, demands, causes of action, 2 obligations, damages, or liabilities whatsoever of every kind and nature, at law or in equity, known or unknown, and whether or not discoverable, which he has or may have for any period prior to the date of the execution of this Agreement and Release, including but not limited to all claims arising out of or related to the termination of his employment with the Company or any rights he may have under the Employment Agreement, all claims for additional compensation or remuneration, all claims for reimbursement of relocation or business expenses (except as set forth in Paragraph 9 hereof), and all claims to any stock or stock options that might otherwise be available under the Employment Agreement, as well as any claims of discrimination arising under Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Fair Labor Standards Act of 1938, as amended, and the New York Human Rights Law, and any claim for attorneys' fees or costs incurred in pursuing any legal claim against the Company. 3. In full and complete consideration for Cayre's promises, covenants, and agreements set forth herein, the Company will tender to Cayre, and Cayre will accept, the following payments: (a) Within thirty days of the Termination Date, the Company will tender to Cayre the Base Salary (as such term is defined in Section 3(a) of the Employment Agreement) and car allowance (as provided in Section 3(b)(ii) of the Employment Agreement) due and payable to Cayre through such Termination Date; (b) Severance pay equal to the Base Salary that Cayre would have otherwise received if the terms of the Employment Agreement were in effect for the period from and after the Termination Date and ending on February 18, 2002 (the "Severance Period") (which Base Salary, for purposes of further clarification, shall be (i) $156,288.40 for the period from the Termination Date and ending on August 17, 2000; (ii) $332,022.02 for the period from August 18, 2000 and ending on August 17, 2001; and (iii) $174,979.45 for the period from August 18, 2001 and ending on February 18, 2002, commencing on the Termination Date and payable at the times and in the amounts such Base Salary would have been so paid and pro-rated as applicable through the last date of the Severance Period; (c) The automobile allowance of $2,000 per calendar month, as set forth in Section 3(b)(ii) of the Employment Agreement, that Cayre would have received if the terms of the Employment Agreement were in effect during the Severance Period, commencing on the Termination Date and payable at the times and in the amounts such automobile allowance would have been so paid and pro-rated as applicable through the last date of the Severance Period; and 2 3 (d) In lieu of bonus, with respect to the Company's fiscal year ending (i) on March 31, 2000, $62,344.09 on each of July 1, 2000 and January 1, 2001, (ii) on March 31, 2001, $65,210.92 on each of July 1, 2001 and January 1, 2002, and (iii) on March 31, 2002 (pro-rated through the last date of the Severance Period), $60,183.77 on each of July 31, 2002 and January 1, 2003, which payments are in the aggregate equal to the aggregate amount that would have otherwise been paid to Cayre as a bonus during the Severance Period had Cayre's employment not been terminated. 4. Cayre shall also continue, during the Severance Period, to participate in the Company's medical plans to the same extent as if Cayre's employment had not been terminated. 5. The Company hereby acknowledges and agrees that all options previously granted by the Company to Cayre to purchase, in the aggregate, 568 shares of the Company's Common Stock vested and became exercisable by Cayre in full on December 16, 1999, as a result of the consummation of the transaction with Infogrames Entertainment S.A. Such options shall continue to be exercisable until May 18, 2000, on which date they shall expire and cease to be exercisable. 6. Payment of all compensation and benefits to Cayre hereunder shall be subject to all applicable withholding taxes. 7. It is a material condition of this Agreement and Release that Cayre shall not make or publish any statement (orally or in writing), or instigate, assist or participate in the making or publication of any statement, which would adversely affect, libel, slander or disparage (whether or not such disparagement legally constitutes libel or slander) or expose to hatred, contempt or ridicule (a) the Company; (b) any of its products, services, affairs, or operations; or (c) the reputations of any of its past or present directors, officers, employees or agents. 8. If Cayre breaches his promises and participates in a legal proceeding based on claims he has released, or breaches Paragraph 7 of this Agreement and Release or Sections 4 or 6 of the Employment Agreement, then he agrees (a) to pay for all costs incurred by the Company, including reasonable attorneys' fees, in defending against his claim; (b) that the Company may bring an action for any damages suffered as a result of Cayre's breach of the provisions contained in Paragraph 7 of this Agreement and Release or Sections 4 or 6 of the Employment Agreement; and (c) to pay all other damages awarded by a court of competent jurisdiction. 9. Cayre acknowledges that the Company is in a period of transition and, accordingly, agrees that he shall, without additional compensation, provide up to ten 3 4 hours per month of consulting service to the Company as may be reasonably required by the Company for the period beginning on the Termination Date and ending on the date six months thereafter (the "Consulting Period"). Upon submission of itemized expense statements in the manner specified by the Company, Cayre shall be entitled to reimbursement for reasonable travel and other reasonable business expenses duly incurred during the Consulting Period by Cayre on behalf and at the request of the Company and in accordance with the policies and procedures established by the Company. 10. In executing this Agreement and Release, the Company does not admit any liability or wrongdoing, and the considerations exchanged herein do not constitute an admission of any liability, error, contract violation, or violation of any federal, state, or local law or regulation. 11. This Agreement and Release shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12. The unenforceability or invalidity of any provision or provisions of this Agreement and Release shall not render any other provision or provisions hereof unenforceable or invalid. 13. This Agreement and Release constitutes the entire agreement between the parties and cannot be altered except in a writing signed by the parties. The parties acknowledge that they entered into this Agreement and Release voluntarily, that they fully understand all of its provisions, and that no representations were made to induce execution of this Agreement and Release which are not expressly contained herein. 14. The parties agree that any disputes concerning the interpretation or application of this Agreement and Release shall be governed by New York law and submitted to a court in New York, without regard to principles of conflict of law or where the parties are located at the time a dispute arises. 4 5 IN WITNESS WHEREOF, the parties have executed this Agreement and Release on the date indicated below. GT INTERACTIVE SOFTWARE CORP. /s/ Jack J. Cayre By: /s/ Harry Glantz ------------------- ---------------------- Jack J. Cayre Sworn to before me this Sworn to before me this 9th day of March, 2000 9th day of March, 2000 - ----- ------ ----- ------ /s/ Sarah C. Miley Dolan /s/ Sarah C. Miley Dolan - ----------------------------- ---------------------------- Notary Public Notary Public Sarah C. Miley Sarah C. Miley Notary Public, State of New York Notary Public, State of New York No. 01MI5028041 No. 01MI5028041 Qualified in Nassau County Qualified in Nassau County Commission Expires April 11, 2002 Commission Expires April 11, 2002 5 EX-10.13A 8 ex10-13a.txt SEPARATION AGREEMENT - THOMAS A. HEYMANN 1 Exhibit 10.13a SEPARATION AGREEMENT This separation agreement, dated as of February 15, 2000 (the "Separation Agreement"), is made by and between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation having its executive offices and principal place of business in New York, New York (the "Company"), and THOMAS HEYMANN (the "Executive"). In consideration of the mutual covenants and agreements hereinafter set forth, the Company and the Executive agree as follows: 1. Effective Date. Upon the execution of this Separation Agreement and the consulting services agreement attached hereto as Exhibit A (the "Consulting Agreement"), the Company shall submit this Separation Agreement and the Consulting Agreement to the Board of Directors of Infogrames Entertainment ("Infogrames") for its approval. This Separation Agreement will become effective upon the latest of the following dates (the "Effective Date"): (1) the date on which the Separation Agreement has been executed by both the Company and the Executive; (2) the date on which the Separation Agreement is approved by the Board of Directors of Infogrames; or (3) the date on which the Executive's general release attached hereto as Exhibit B becomes effective. 2. Termination of Employment Agreement and Stock Option Agreements. The Employment Agreement dated as of February 8, 1999 between the Company and the Executive, and the Amendment thereto dated as of October 19, 1999, and any exhibits and attachments thereto (collectively the "Employment Agreement") and, except as otherwise provided in Paragraph 6, the Stock Option Agreement between the Company and the Executive dated as of February 8, 1999 under the Company's 1997 Stock Incentive Plan (the "Stock Option Agreement"), are hereby terminated as of the Effective Date. 3. Titles. The Executive agrees that upon the Effective Date, he will resign from his positions as Chairman of the Board of Directors of the Company and Chief Executive Officer of the Company. Subject to the Executive's right to resign and the Company's and stockholders' right of removal, the Executive shall continue to serve on the Board of Directors of the Company. 4. Consulting Agreement. The Company and the Executive agree to enter into the Consulting Agreement attached hereto as Exhibit A. The terms and conditions of the Consulting Agreement shall not become effective until the Effective Date of this Separation Agreement. 2 5. Separation Payments. The Company agrees to pay the Executive the sum of $2,000,000, of which the first installment of $1,000,000 will be payable within five (5) business days after the Effective Date and the second installment of $1,000,000 will be payable within five (5) business days after January 1, 2001. Notwithstanding the foregoing, in the event of a Change of Control (as defined in the next paragraph), the Company (or its successor) shall pay to the Executive any unpaid separation payment within thirty (30) days of the date of such Change of Control. For purposes of this Separation Agreement, "Change of Control" means any of the following occurrences: (a) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange Act") or "group" as contemplated by, or required to comply with the provisions of Rule 13d-1(b)(1)(ii)(H) promulgated under the Exchange Act (other than the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company together or individually, a "Current Owner"), or any entity more than 50% of whose voting and equity interests are owned beneficially by a Current Owner), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities (other than as a result of a merger or consolidation covered by clause (c)(i) below in connection with a merger involving the Company which would result in voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or the surviving entity (or its parent) outstanding immediately after such merger or- consolidation); (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (b) or (d) of this definition) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than (i) a merger or 2 3 consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity (or its parent) outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" or "group" (as hereinabove defined) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. The Executive agrees that the separation payments and stock option rights described in this Separation Agreement and the consulting fees and continued benefits and perquisites described in the Consulting Agreement are in exchange for any and all rights or claims of the Executive under any and all prior agreements, including without limitation, the Employment Agreement, to severance payments, bonus payments, or any other additional benefits. In the event that the Executive dies or becomes totally and permanently disabled (as defined in the Company's long term disability insurance policy under which the Executive is covered) either before or during the Agreement Term, then (i) the Company shall pay any unpaid separation payments at the time or times specified in Paragraph 5 to the Executive's estate (in the event of his death) or to the Executive or his legal guardian (in the event he is totally and permanently disabled), and (ii) either the Executive, his estate or his legal guardian, as applicable, shall be permitted to exercise the Severance Stock Options for the two-year period following the Effective Date. 6. Stock Options. On the Effective Date, the Executive will be fully vested in the option to purchase 25% of the 2,250,000 shares of common stock of the Company, $.01 par value per share, at a price of $5.00 per share, granted pursuant to the Stock Option Agreement. Such option to purchase 562,500 shares at $5.00 per share is referred to as the "Severance Stock Option". The Executive may exercise the Severance Stock Option no later than the last day of the two-year period immediately following the Effective Date. On the Effective Date, the Executive will forfeit any and all other options to purchase shares of stock of the Company, including any other option under the Stock Option Agreement. The Stock Option Agreement will be deemed to have terminated, 3 4 except with respect to the Executive's rights to exercise the Severance Stock Option in accordance with the terms and conditions set forth under the Stock Option Agreement. 7. Non-Disparagement. The Executive agrees that, without the prior written consent of the Company, neither he, nor anyone acting on his behalf, will: (a) make derogatory, disparaging, or critical statements about the Company, Infogrames or any of their related affiliates, or any of their past and present employees, officers, directors, representatives, or agents; or (b) for a two year period commencing with the Effective Date, communicate, directly or indirectly, with the press or other media concerning the past or present employees or businesses of the Company, Infograme or any of their related affiliates. The Company agrees that, without the prior written consent of the Executive, it will not make derogatory, disparaging, or critical statements about the Executive. 8. Forfeiture. If the Board of Directors of the Company determines that the Executive has engaged in a "Prohibited Action" (as defined in the next paragraph), then: (a) the Company and the Executive agree to submit the issue of whether the Executive has engaged in a Prohibited Action and the amount of damages, if any, resulting to the Company from such Prohibited Action to arbitration in accordance with Paragraph 12 hereof; and (b) no further separation payments will be payable under Paragraph 5 while these issues are in arbitration. If the arbitrator determines (or if the Company and the Executive otherwise agree) that the Executive has engaged in a Prohibited Action and that the Company should be awarded a specified amount to compensate it for damages resulting from such Prohibited Action (the "Damage Amount"), then the Company shall offset any unpaid amounts otherwise payable under this Separation Agreement ("Unpaid Severance Amount") by the Damage Amount. If the Damage Amount exceeds the Unpaid Severance Amount, then the Executive shall pay to the Company in a lump sum the amount by which the Damage Amount exceeds the Unpaid Severance Amount within thirty (30) days after the date on which the arbitrator renders its decision (or the date on which the Company and the Executive otherwise agree). For purposes of this Separation Agreement, a "Prohibited Action" means: (i) the Executive's breach of the provisions of this Separation Agreement, including without limitation the non-disparagement provisions of Paragraph 7; or (ii) the Executive's commission of fraud, embezzlement, any other crime involving moral turpitude or any felony, and, in the case of either (i) or (ii), which has caused or is reasonably likely to cause a material adverse effect on the Company's business or its reputation. 9. General Releases. As a condition to the receipt of any separation payments under Paragraph 5, the Executive agrees to execute a general release, in the form attached hereto as Exhibit B. The Company agrees to execute a general release, 4 5 immediately subsequent to the execution of a general release by the Executive, in the form attached hereto as Exhibit C. 10. Press Release. The Company and the Executive mutually agree upon all press releases and such other statements that may be made regarding the Executive's employment with the Company, the termination of such employment, and the continued services provided to the Company under the Consulting Agreement. 11. Withholding. Any payments made under this Separation Agreement shall be subject to any applicable federal, state, and local tax withholdings. 12. Arbitration. Any dispute or controversy between the Company and the Executive, including, without limitation, any and all matters relating to this Separation Agreement, the Executive's employment with the Company and the cessation thereof, and all matters arising under any federal, state or local statute, rule or regulation or principle of contract law or common law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sections 2000e et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sections 621 et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. Sections 12101 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Sections 1001 et seq., the New York State Human Rights Law, as amended, N.Y. Exec. Law Sections 290 et seq., the New York City Human Rights Law, as amended, N.Y.C. Admin. Code Sections 8-101 et seq., and any other equivalent state or local statutes, will be settled by arbitration administered by the American Arbitration Association ("AAA") in New York, New York pursuant to the AAA's National Rules for the Resolution of Employment Disputes (or their equivalent). Notwithstanding the foregoing, to the extent there is no adequate remedy at law and injunctive relief only is sought, the parties select state court in New York County as the exclusive forum to resolve their disputes. Each party will be responsible to pay its own fees and costs incurred under this Paragraph 12. 13. Severability. In the event that any of the provisions of this Separation Agreement or the application of any such provisions to the Company or the Executive with respect to obligations hereunder will be held to be unlawful or unenforceable by any court or arbitrator, the remaining portions of this Separation Agreement will remain in full force and effect and will not be invalidated or impaired in any manner. 14. Governing Law. This Separation Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws. 5 6 15. Entire Agreement. This Separation Agreement contains the entire agreement between the Company and the Executive with respect to the subject matter of this Separation Agreement and supersedes all prior agreements and understandings, including without limitation, the Employment Agreement and the Stock Option Agreement, whether oral or written, between the Company and the Executive with respect to the subject matter of this Separation Agreement. This Separation Agreement may be amended only by an agreement in writing signed by both the Company and the Executive. 16. Counterparts. This Separation Agreement may be executed in any number of counterparts, each of which so executed will be deemed to be an original, and such counterparts will together constitute but one agreement. IN WITNESS WHEREOF, the Company has caused this Separation Agreement to be duly executed on its behalf by an officer duly authorized, and the Executive has duly executed this Separation Agreement, all as of the date and year first written above.
GT INTERACTIVE SOFTWARE CORP. EXECUTIVE By: /s/ Bruno Bonnell /s/ Thomas Heymann -------------------------- -------------------- Name: Bruno Bonnell Thomas Heymann Title: Chairman and CEO
6 7 Exhibit A CONSULTING AGREEMENT This consulting services agreement, dated as of February 15, 2000 (the "Consulting Agreement") is made by and between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation having its executive offices and principal place of business in New York, New York (the "Company") and THOMAS HEYMANN (the "Consultant"). In consideration of the mutual covenants and agreements hereinafter set forth, the Company and the Consultant agree as follows: 1. Engagement; Agreement Term. The Company hereby engages the Consultant, and the Consultant hereby accepts such engagement and agrees to serve as a consultant to the Company, upon the terms and conditions hereinafter set forth, for a term of two years commencing on February 15, 2000 and expiring on February 14, 2002 (such term being hereinafter referred to as the "Agreement Term"). This Consulting Agreement will be effective as of the effective date of the separation agreement between the Company and the Consultant (the "Separation Agreement"). 2. Duties; Conduct. (a) During the Agreement Term, the Consultant shall render consulting services from time to time as hereinafter provided on such project or projects relating to the business, affairs and management of the Company as may be reasonably delegated to him by the Board of Directors of the Company. (b) Notwithstanding any other provision of this Consulting Agreement to the contrary, to the extent practicable, the services to be provided by the Consultant shall be performed at such times and in a manner and from a location as is reasonably convenient to him. The Company acknowledges that the Consultant may have other activities, obligations and engagements which may command his time and attention and the Company will exercise its best efforts, in calling upon the Consultant's services hereunder, to respect such other commitments. (c) During the Agreement Term, subject to Section 2(b), the Consultant agrees to make himself available during regular business hours to perform the consulting services referred above in accordance with the provisions hereof, and to apply such efforts as are reasonably appropriate to perform such services faithfully and diligently, and to the best of his ability; and not take any action or conduct himself in any manner which would tend to harm the reputation or goodwill of the Company. Notwithstanding anything to the contrary contained herein, the Company agrees and understands that none of the Consultant's duties hereunder will limit or interfere with any other personal or professional pursuits (including full-time employment subject to the 8 limitations set forth in Section 4(a) hereof), except as set forth in Section 4 hereof. Moreover, no conflict between the Consultant's duties hereunder and his other personal or professional pursuits shall operate to prevent the payment by the Company to the Consultant of amounts due under this Consulting Agreement, except as set forth in Section 4 hereof. 3. Compensation, Benefits and Expenses. (a) As full compensation for all services to be provided by the Consultant during the Agreement Term, the Company will pay the Consultant and the Consultant shall accept a consulting fee (the "Consulting Fee") of $1,200,000, of which $600,000 will be payable within five (5) days after the effective date of this Consulting Agreement and $600,000 will be payable within five (5) days after January 1, 2001. (b) In the event of a Change of Control, as defined in the Separation Agreement, the Company (or its successor) shall pay to the Consultant any unpaid portion of the Consulting Fee within thirty (30) days following such Change of Control. (c) The Company shall continue to pay the full cost of coverage for the Consultant and his covered family members under the Company's medical, dental and vision plans for a period of eighteen (18) months following the effective date of this Consulting Agreement. Such continued health insurance coverage will run concurrently with and be credited toward the period in which the Consultant and his covered family members may elect coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or applicable state law. For the period beginning on the first day of the nineteenth (19th) month of the Agreement Term through the end of the Agreement Term, the Company shall provide health insurance coverage for the Consultant and his covered family members, on terms and conditions that are similar to those provided to active employees of the Company. For a period of twenty-four (24) months following the effective date of this Consulting Agreement, the Company shall continue to pay (i) disability insurance for the Consultant at an annual premium not to exceed $6,685.20, and (ii) life insurance for the Consultant at an annual premium not to exceed $2,330. The Company shall reimburse the Consultant for all taxes payable by him, if any, as a result of such life insurance premium payments. Notwithstanding the foregoing, in the event that the Consultant shall breach Sections 4 or 5 hereof, in addition to any other remedies the Company may have in the event the Consultant breaches Sections 4 or 5 hereof, the Company's obligation pursuant to this Consulting Agreement to pay the Consulting Fee and to continue such benefits and perquisites shall cease and the Consultant's rights thereto shall terminate and shall be forfeited, it being understood by the parties that such Consulting Fee, benefits and perquisites would not be agreed to by the Company in the absence of the Consultant's compliance, for whatever reason, with the provisions of Sections 4 and 5 hereof. During the Agreement Term, the Consultant shall be entitled to 2 9 reimbursement of any unpaid business related expenses, subject to and in accordance with the Company's policies. (d) The Company acknowledges that the Consultant is an independent contractor; however, the Company reserves the right to withhold applicable taxes and other amounts from payments made to the Consultant under this Consulting Agreement, if required by applicable law. In the event that the Consultant dies or becomes totally and permanently disabled (as defined in the Company's long term disability insurance policy under which the Consultant is covered) before or during the Agreement Term, the Company shall pay the Consulting Fee at the time or times specified in Section 3(a) hereof (or 3(b) if applicable) (i) to the Consultant's estate in the event of his death and (ii) to the Consultant or his legal guardian in the event the Consultant is totally and permanently disabled. 4. Exclusive Services; Noncompetition. (a) No Competition. During the Agreement Term, the Consultant shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including as an officer, director, employee, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business. For purposes of this Section 4(a), the term "Competing Business" shall mean (A) any business or venture which develops, manufactures, publishes, licenses, sells, distributes or supplies entertainment, educational or "edutainment" computer software or video games for commercial use, whether for retail distribution, by direct marketing, electronically, by license to others or otherwise; or (B) any other business which is substantially similar to the whole or any significant part of the business conducted by the Company (any such activities described in the foregoing clauses (A) or (B) shall for purposes of this section be hereinafter referred to as "Prohibited Activities"); provided that ownership of 2% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on The NASDAQ Stock Market, shall not constitute a breach of this Section 4, so long as the Consultant does not in fact have the power to control, or direct the management of, or is not otherwise associated with, such corporation. Notwithstanding anything to the contrary contained herein, the Consultant may be employed by a business or venture which engages in Prohibited Activities only so long as (x) the Consultant does not engage directly or indirectly in any Prohibited Activities, (y) such business or venture derives only immaterial revenues and profits from Prohibited Activities in relation to its overall business and (z) the Consultant's ownership of such business or venture is less than 2% of the stock or other securities thereof and the Consultant does not have the power to control or direct the management thereof. 3 10 (b) Company Customers. The Consultant shall not, during the Agreement Term, directly or indirectly, contact, solicit or do business with (i) Wal-Mart Corporation, Target Stores, Comp U.S.A., Best Buy, Office Depot, Kmart or any of their respective affiliated operations, for the purpose of selling entertainment, educational or "edutainment" computer software, video games or any other product (which is an integral product in a material product line of the Company) then sold by the Company to such customers at the time of termination of the Consultant's Employment Agreement hereunder; (ii) any "customers" (as defined below) of the Company for the purpose of selling computer software, video games or any other product then sold by the Company to such customers at the time of termination of the Consultant's Employment Agreement hereunder; or (iii) any supplier, licensor or licensee of the Company with respect to licensing computer software, video games or other intellectual property (which is related to computer software, video games or any other material product line of the Company), from such person. For the purposes of the provisions of this Section 4(b), "customer" shall include any entity that purchased computer software, video games or any other product from the Company within eight (8) months of the termination of the Consultant's Employment Agreement hereunder, without regard to the reason for such termination. The term "customer" also includes any former customer or potential customer of the Company which the Company has solicited within eight (8) months of such termination, for the purpose of selling computer software or any other product then sold by the Company. (c) Election to Terminate Consulting Relationship. The Consultant may, at any time during the Agreement Term, elect by written notice to the Company to terminate his consulting relationship with the Company. In the event of such an election, then the Company shall pay to the Consultant, within fifteen (15) days of such termination, Consulting Fees through such date of termination. Thereafter, (i) the Consultant's obligations to the Company arising under Sections 4(a) and 4(b) hereof shall terminate and (ii) the Company's obligation pursuant to this Consulting Agreement to pay the Consulting Fee and to provide benefits and perquisites described in Section 3(c) shall cease and the Consultant's rights thereto shall terminate and shall be forfeited. Nothing contained herein shall be deemed, during the Agreement Term, to discharge the Consultant of his obligations arising under Section 5 hereof, whether or not an election is made pursuant to this Section 4(c). 5. Confidential Information. (a) Existence of Confidential Information. The Company owns and has developed and compiled, and will develop and compile, certain proprietary 4 11 techniques and confidential information which have great value to its business (referred to in this Consulting Agreement, collectively, as "Confidential Information"). Confidential Information includes not only information disclosed by the Company to the Consultant, but also information developed or learned by the Consultant during the course of or as a result of consulting services or prior employment services provided to the Company, which information shall be the property of the Company. Confidential Information includes all information that has or could have commercial value or other utility in the business in which the Company is engaged or contemplates engaging, and all information of which the unauthorized disclosure could be detrimental to the interests of the Company, whether or not such information is specifically labeled as Confidential Information by the Company. By way of example and without limitation, Confidential Information includes any and all information developed, obtained, licensed by or to or owned by the Company concerning trade secrets, techniques, know-how (including designs, plans, procedures, merchandising, marketing, distribution and warehousing know-how, processes, and research records), software, computer programs, and any other intellectual property created, used or sold (through a license or otherwise) by the Company, Electronic Data Information know-how and processes, innovations, discoveries, improvements, research, development, test results, reports, specifications, data, formats, marketing data and plans, business plans, strategies, forecasts, unpublished financial information, orders, agreements and other forms of documents, price and cost information, merchandising opportunities, expansion plans, store plans, budgets, projections, customer, supplier, licensee, licensor and subcontractor identities, characteristics, agreements and operating procedures, and salary, staffing and employment information. (b) Protection of Confidential Information. The Consultant acknowledges and agrees that in the performance of duties hereunder the Company discloses to and entrusts the Consultant with Confidential Information which is the exclusive property of the Company and which the Consultant may possess or use only in the performance of duties for the Company. The Consultant also acknowledges that the Consultant is aware that the unauthorized disclosure of Confidential Information, among other things, may be prejudicial to the Company's interests, an invasion of privacy and an improper disclosure of trade secrets. The Consultant shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any corporation, partnership, individual or other third party, other than in the course of the Consultant's assigned duties and for the benefit of the Company, any Confidential Information, either during the Agreement Term or thereafter. Notwithstanding the foregoing, Confidential Information shall not include that information which (i) is or comes into the public domain, unless such information comes into the public domain as a result of a breach of this Consulting Agreement or violation of a confidentiality obligation to the Company, or (ii) is required to be disclosed pursuant to law or under a court order. 5 12 (c) Delivery of Records, Etc. In the event the Consultant's consulting relationship with the Company ceases for any reason, the Consultant will not remove from the Company's premises without its prior written consent any records, files, drawings, documents, equipment, materials and writings received from, created for or belonging to the Company, including those which relate to or contain Confidential Information, or any copies thereof, except that the Consultant shall be permitted to remove his personal files, records and belongings (including copies of his correspondence, which may include Confidential Information). Upon request or when the consulting relationship with the Company terminates, the Consultant will immediately deliver the same to the Company. 6. Forfeiture. If the Board of Directors of the Company determines that the Consultant has engaged in a "Prohibited Action" (as defined in the next paragraph), then: (a) the Company and the Consultant agree to submit the issue of whether the Consultant has engaged in a Prohibited Action and the amount of damages, if any, resulting to the Company from such Prohibited Action to arbitration in accordance with Paragraph 12 of the Separation Agreement; and (b) no further consulting payments will be payable under Section 3(a) while these issues are in arbitration. If the arbitrator determines (or if the Company and the Consultant otherwise agree) that the Consultant has engaged in a Prohibited Action and that the Company should be awarded a specified amount to compensate it for damages resulting from such Prohibited Action (the "Damage Amount"), then the Company shall offset any unpaid amounts otherwise payable under this Consulting Agreement ("Unpaid Consulting Amount") by the Damage Amount. If the Damage Amount exceeds the Unpaid Consulting Amount, then the Consultant shall pay to the Company in a lump sum the amount by which the Damage Amount exceeds the Unpaid Consulting Amount within thirty (30) days after the date on which the arbitrator renders its decision (or the date on which the Company and the Consultant otherwise agree). For purposes of this Consulting Agreement, a "Prohibited Action" means: (i) the Consultant's breach of the provisions of this Consulting Agreement, including without limitation the non-competition provisions of Section 4 or 5; or (ii) the Executive's commission of fraud, embezzlement, any other crime involving moral turpitude or any felony, and, in the case of either (i) or (ii), which has caused or is reasonably likely to cause a material adverse effect on the Company's business or its reputation. 7. Assignment and Transfer. (a) Company. This Consulting Agreement shall inure to the benefit of and be enforceable by, and may be assigned by the Company to, any purchaser of all or substantially all of the Company's business or assets, any successor to the Company or any assignee thereof (whether direct or indirect, by purchase, merger, consolidation or 6 13 otherwise). The Company will require any such purchaser, successor or assignee to expressly assume and agree to perform this Consulting Agreement in the same manner and to the same extent that the Company would be required to perform it if no such purchase, succession or assignment had taken place. (b) Consultant. The Consultant's rights and obligations under this Consulting Agreement shall not be transferable by the Consultant by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void; provided, however, that if the Consultant shall die, all amounts then payable to the Consultant hereunder shall be paid in accordance with the terms of this Consulting Agreement to the Consultant's devisee, legatee or other designee or, if there be no such designee, to the Consultant's estate. 8. Miscellaneous. (a) Insurance and Indemnification. The Consultant shall continue to be indemnified for acts occurring prior to his termination of employment, to the extent the Company's policy or benefits cover former employees. During any period of the Agreement Term in which the Consultant serves as a director of the Company, the Consultant shall be covered under any director and officer insurance policy obtained by the Company, if any, and shall be entitled to benefit from any officer or director indemnification arrangements to the fullest extent permitted under applicable law and in accordance with the Company's existing Certificate of Incorporation (including the right to such coverage or benefit following the Consultant's employment to the extent such policy or benefit covers former employees). (b) Nondisclosure; Prior Employers. The Consultant will not disclose to the Company, or use, or induce the Company to use, any proprietary information, trade secrets or confidential business information of others. The Consultant represents and warrants that the Consultant has returned all property, proprietary information, trade secrets and confidential business information belonging to prior employers. (c) Protection of Reputation. During the Agreement Term and thereafter, the Consultant agrees that he will take no action which is intended, or would reasonably be expected, to harm the Company or its reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company. (d) Governing Law. This Consulting Agreement, including the validity, interpretation, construction and performance of this Consulting Agreement, shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in such state without regard to such state's conflicts of law principles. All actions and proceedings relating directly or 7 14 indirectly to this Consulting Agreement shall be litigated in any state court or federal court located in New York, New York. The parties hereto expressly consent to the jurisdiction of any such court and to venue therein. (e) Amendment. This Consulting Agreement may be amended only by a writing which makes express reference to this Consulting Agreement as the subject of such amendment and which is signed by the Consultant and, on behalf of the Company, by its duly authorized officer. (f) Severability. If any term, provision, covenant or condition of this Consulting Agreement or part thereof, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Consulting Agreement and such term, provision, covenant or condition shall remain in full force and effect, and any such invalid, unenforceable or void term, provision, covenant or condition shall be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same and the remainder of this Consulting Agreement valid, enforceable and lawful. In this regard, the Consultant acknowledges that the provisions of Sections 4 and 5 are reasonable and necessary for the protection of the Company. (g) Construction. The headings and captions of this Consulting Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Consulting Agreement. The language in all parts of this Consulting Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or the Consultant. The use herein of the word "including," when following any general provision, sentence, clause, statement, term or matter, shall be deemed to mean "including, without limitation". As used herein, "Company" shall mean the Company and its subsidiaries and any purchaser of, successor to or assignee (whether direct or indirect, by purchase, merger, consolidation or otherwise) of all or substantially all of the Company's business or assets which is obligated to perform this Consulting Agreement by operation of law, agreement pursuant to Section 6 hereof or otherwise. As used herein, the words "day" or "days" shall mean a calendar day or days. (h) Nonwaiver. Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by its duly authorized officer. 8 15 (i) Remedies for Breach. The parties hereto agree that the Consultant is obligated under this Consulting Agreement to render personal services during the Agreement Term of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Consulting Agreement peculiar value, and, in the event of a breach or threatened breach of any covenant of the Consultant herein, the injury or imminent injury to the value and the goodwill of the Company's business could not be reasonably or adequately compensated in damages in an action at law. Accordingly, the Consultant expressly acknowledges that the Company shall be entitled to specific performance, injunctive relief or any other equitable remedy against the Consultant, without the posting of a bond, in the event of any breach or threatened breach of Sections 4 and 5 hereof. Without limiting the generality of the foregoing, if the Consultant breaches Sections 4 or 5 hereof, such breach will entitle the Company to enjoin the Consultant from disclosing any Confidential Information to any Competing Business, to enjoin such Competing Business from receiving from the Consultant or using any such Confidential Information and/or to enjoin the Consultant from rendering personal services to or in connection with such Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Consulting Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (j) Notices. Any notice, request, consent or approval required or permitted to be given under this Consulting Agreement or pursuant to law shall be sufficient if in writing, and if and when sent by certified or registered mail, return receipt requested, with postage prepaid, or by hand delivery or by reputable overnight delivery service (such as Federal Express) to the Consultant's residence (as reflected in the Company's records or as otherwise designated by the Consultant on thirty (30) days' prior written notice to the Company) with a copy to Jeffrey D. Zukerman, Esq., Zukerman, Gore & Brandeis, LLP, 900 Third Avenue, New York, New York, 10022, or to the Company's principal executive office, attention: General Counsel with a copy to Dennis J. Friedman, Esq., Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, as the case may be. All such notices, requests, consents and approvals shall be effective upon receipt. However, the time period in which a response thereto must be given shall commence to run from the date of receipt on the return receipt of the notice, request, consent or approval by the addressee thereof. Rejection or other refusal to accept, or the inability to deliver because of changed address of which no notice was given as provided herein, shall be deemed to be receipt of the notice, request, consent or approval sent. 9 16 \ (k) Payment without Regard to Other Sums. Payments under this Consulting Agreement shall be made to the Consultant without regard to sums earned by the Consultant from any other source, except as provided in Section 3(b) hereof. (l) Affect on Separation Agreement. Nothing in this Consulting Agreement shall in any event limit the enforceability of any of the terms of any separation agreement by and between the Company and the Consultant. IN WITNESS WHEREOF, the Company has caused this Consulting Agreement to be duly executed on its behalf by an officer duly authorized, and the Consultant has duly executed this Consulting Agreement, all as of the date and year first written above.
GT INTERACTIVE SOFTWARE CORP. CONSULTANT By: /s/ Bruno Bonnell /s/ Thomas Heymann ------------------------- ------------------ Name: Bruno Bonnell Thomas Heymann Title: Chairman and CEO
10 17 EXHIBIT B GENERAL RELEASE BY THOMAS HEYMANN FOR AND IN CONSIDERATION OF the terms and conditions of the separation agreement dated as of February 15, 2000 by and between THOMAS HEYMANN (the "Executive") and GT INTERACTIVE SOFTWARE CORP. (the "Company") (the "Separation Agreement") and the consulting agreement dated as of February 15, 2000 by and between the Executive and the Company (the "Consulting Agreement"), the Executive agrees, on behalf of himself, his heirs, executors, administrators and assigns, to release and discharge the Company, Infogrames Entertainment, and their respective current and former officers, directors, employees, agents, owners, subsidiaries, divisions, affiliates, parents, successors and assigns ("Released Parties") from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever ("Losses") which the Executive, his heirs, executors, administrators and assigns have, or may hereafter have against the Released Parties or any of them arising out of or by reason of any cause, matter or thing whatsoever from the beginning of the world to the date hereof, including without limitation any and all matters relating to his Employment Agreement with the Company, his employment by the Company and the cessation thereof, and all matters arising under any federal, state or local statute, rule or regulation or principle of contract law or common law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sections 2000e et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sections 621 et seq., the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. Sections 12101 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Sections 1001 et seq., the New York State Human Rights Law, as amended, N.Y. Exec. Law Sections 290 et seq., the New York City Human Rights Law, as amended, N.Y.C. Admin. Code Sections 8-101 et seq., and any other equivalent state or local statute; provided, however, that the Executive does not release and discharge the Released Parties from any Losses arising out of or in connection with his Separation Agreement and Consulting Agreement. It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to the Executive, any such wrongdoing being expressly denied. The Executive represents and warrants that he fully understands the terms of this General Release, that he has had the benefit of advice of counsel, and that he knowingly and voluntarily, of his own free will without any duress, being fully informed and after due deliberation, accepts its terms and signs the same as his own free act. The Executive understands that as a result of executing this General Release, he will not have the right to assert that the Company unlawfully terminated his employment or violated any of his rights in connection with his employment. The Executive affirms that he has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim, or proceeding against the 18 Released Parties before any federal, state, or local agency, court or other body relating to his employment and the cessation thereof, and agrees not to voluntarily participate in such a proceeding. The Executive waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any such proceeding. The Executive, having had the advice of counsel, knowingly waives the remainder of the 21-day period he had from February 15, 2000, to consider whether to execute this General Release. Upon the Executive's execution of this General Release, he will have seven (7) days after execution to revoke it. In the event of revocation, the Executive must present written notice of revocation to Mr. Harry Glantz of the Company. If seven (7) days pass without such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day (the "Release Effective Date"). This General Release shall be governed by the laws of the State of New York without giving effect to the principles of conflicts of law.
/s/ Thomas Heymann 2/10/00 - ------------------ --------- THOMAS HEYMANN DATE Sworn to before me this 11 day of February, 2000 - -- /s/ James Joseph Conner - ----------------------- Notary Public
2 19 EXHIBIT C GENERAL RELEASE BY GT INTERACTIVE SOFTWARE CORP. FOR AND IN CONSIDERATION OF the terms and conditions of the separation agreement dated as of February 15, 2000 by and between GT INTERACTIVE SOFTWARE CORP. (the "Company") and THOMAS HEYMANN (the "Executive") (the "Separation Agreement") and the consulting agreement dated as of February 15, 2000 by and between the Company and the Executive (the "Consulting Agreement"), the Company agrees, on behalf of itself and its current and former officers, directors, managers, agents, divisions, parents, subsidiaries, affiliates, successors and assigns, to release and discharge the Executive and his heirs, executors, administrators and assigns ("Released Parties") from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever ("Losses") which the Company, its current and former officers, directors, managers, agents, divisions, parents, subsidiaries, affiliates, successors and assigns have, or may hereafter have against the Released Parties or any of them arising out of any act or omission undertaken by the Executive in the ordinary course and scope of his duties with the Company from February 8, 1999 to the date hereof; provided, however, that the Company does not release and discharge the Released Parties from: (a) any Losses arising out of or in connection with the Executive's Separation Agreement and Consulting Agreement, and (b) any acts of the Executive involving fraud, dishonesty, intentional acts, or willful malfeasance in connection with this employment for the Company. It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to the Company, any such wrongdoing being expressly denied. This General Release will become effective on the Release Effective Date as defined in the General Release of Thomas Heymann made by the Executive in favor of the Company. [This space intentionally left blank] 20 This General Release shall be governed by the laws of the State of New York without giving effect to the principles of conflicts of law.
GT INTERACTIVE SOFTWARE CORP. By: /s/ Bruno Bonnell 2/11/00 ---------------------- ------- Name: Bruno Bonnell DATE Title: Chairman & CEO Sworn to before me this 11 day of February, 2000 - -- /s/ James Joseph Conner - ----------------------- Notary Public
2 EX-10.14A 9 ex10-14a.txt SEPARATION AGREEMENT - JOHN T. BAKER IV 1 Exhibit 10.14a SEPARATION AGREEMENT This separation agreement, dated as of February 18, 2000 (the "Separation Agreement"), is made by and between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation having its executive offices and principal place of business in New York, New York (the "Company"), and JOHN T. BAKER IV (the "Executive"). In consideration of the mutual covenants and agreements hereinafter set forth, the Company and the Executive agree as follows: 1. Effective Date. Upon the execution of this Separation Agreement and the consulting services agreement attached hereto as Exhibit A (the "Consulting Agreement"), the Company shall submit this Separation Agreement and the Consulting Agreement to the Board of Directors of the Company for its approval. This Separation Agreement will become effective upon the latest of the following dates (the "Effective Date"): (1) the date on which the Separation Agreement has been executed by both the Company and the Executive; (2) the date on which the Separation Agreement is approved by the Board of Directors of the Company; or (3) the date on which the Executive's general release attached hereto as Exhibit B becomes effective. 2. Termination of Employment Agreement and Stock Option Agreements. The Employment Agreement dated as of April 2, 1999 between the Company and the Executive, and the Amended and Restated Employment Agreement between the Company and the Executive dated as of October 18, 1999, and any exhibits and attachments thereto (collectively the "Employment Agreement") and the Stock Option Agreement between the Company and the Executive dated as of April 28, 1999 under the Company's 1997 Stock Incentive Plan (the "Stock Option Agreement"), are hereby terminated as of the Effective Date. 3. Titles. The Executive agrees that upon the Effective Date, he will resign from his positions as President and Chief Operating Officer of the Company. 4. Consulting Agreement. The Company and the Executive agree to enter into the Consulting Agreement attached hereto as Exhibit A. The terms and conditions of the Consulting Agreement shall not become effective until the Effective Date of this Separation Agreement. 5. Separation Payments. The Company agrees to pay the Executive the sum of $1,150,000, of which the first installment of $575,000 will be payable within five (5) business days after the Effective Date and the second installment of $575,000 will be 2 payable within five (5) business days after January 1, 2001. Notwithstanding the foregoing, in the event of a Change of Control (as defined in the next paragraph), the Company (or its successor) shall pay to the Executive any unpaid separation payment within thirty (30) days of the date of such Change of Control. For purposes of this Separation Agreement, "Change of Control" means any of the following occurrences: (a) any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange Act") or "group" as contemplated by, or required to comply with the provisions of Rule 13d-1(b)(1)(ii)(H) promulgated under the Exchange Act (other than the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company together or individually, a "Current Owner"), or any entity more than 50% of whose voting and equity interests are owned beneficially by a Current Owner), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities (other than as a result of a merger or consolidation covered by clause (c)(i) below in connection with a merger involving the Company which would result in voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or the surviving entity (or its parent) outstanding immediately after such merger or- consolidation); (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (b) or (d) of this definition) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the 2 3 Company or such surviving entity (or its parent) outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" or "group" (as hereinabove defined) acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. The Executive agrees that the separation payments described in this Separation Agreement and the consulting fees and continued benefits and perquisites described in the Consulting Agreement are in exchange for any and all rights or claims of the Executive under any and all prior agreements, including without limitation, the Employment Agreement and the Stock Option Agreement, to severance payments, bonus payments, or any other additional benefits. In the event that the Executive dies or becomes totally and permanently disabled (as defined in the Company's long term disability insurance policy under which the Executive is covered at the time his employment with the Company is terminated) either before or during the Agreement Term, then the Company shall pay any unpaid separation payments at the time or times specified in Paragraph 5 to the Executive's estate (in the event of his death) or to the Executive or his legal guardian (in the event he is totally and permanently disabled). 6. Stock Options. On the Effective Date, the Executive will forfeit any and all options to purchase shares of stock of the Company, including any option under the Stock Option Agreement. The Stock Option Agreement will be deemed to have terminated. 7. Non-Disparagement. The Executive agrees that, without the prior written consent of the Company, neither he, nor anyone acting on his behalf, will: (a) make derogatory, disparaging, or critical statements about the Company, Infogrames or any of their related affiliates, or any of their past and present employees, officers, directors, representatives, or agents; or (b) for a two year period commencing with the Effective Date, communicate, directly or indirectly, with the press or other media concerning the past or present employees or businesses of the Company, Infogrames or any of their related affiliates. The Company agrees that, without the prior written consent of the Executive, it will not make derogatory, disparaging, or critical statements about the Executive. 3 4 8. General Releases. As a condition to the receipt of any separation payments under Paragraph 5, the Executive agrees to execute a general release, in the form attached hereto as Exhibit B. The Company agrees to execute a general release, immediately subsequent to the execution of a general release by the Executive, in the form attached hereto as Exhibit C. 9. Press Release. The Company and the Executive mutually agree upon all press releases and such other statements that may be made regarding the Executive's employment with the Company, the termination of such employment, and the continued services provided to the Company under the Consulting Agreement. 10. Withholding. Any payments made under this Separation Agreement shall be subject to any applicable federal, state, and local tax withholdings. 11. Severability. In the event that any of the provisions of this Separation Agreement or the application of any such provisions to the Company or the Executive with respect to obligations hereunder will be held to be unlawful or unenforceable by any court or arbitrator, the remaining portions of this Separation Agreement will remain in full force and effect and will not be invalidated or impaired in any manner. 12. Governing Law. This Separation Agreement will be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles of conflicts of laws. All actions or proceedings relating directly or indirectly to this Separation Agreement shall be litigated in any state court or federal court located in Los Angeles, California. The Executive and the Company hereto expressly consent to the jurisdiction of any such court and to venue therein. 13. Entire Agreement. This Separation Agreement contains the entire agreement between the Company and the Executive with respect to the subject matter of this Separation Agreement and supersedes all prior agreements and understandings, including without limitation, the Employment Agreement and the Stock Option Agreement, whether oral or written, between the Company and the Executive with respect to the subject matter of this Separation Agreement. This Separation Agreement may be amended only by an agreement in writing signed by both the Company and the Executive. 14. Counterparts. This Separation Agreement may be executed in any number of counterparts, each of which so executed will be deemed to be an original, and such counterparts will together constitute but one agreement. 4 5 IN WITNESS WHEREOF, the Company has caused this Separation Agreement to be duly executed on its behalf by an officer duly authorized, and the Executive has duly executed this Separation Agreement, all as of the date and year first written above.
GT INTERACTIVE SOFTWARE CORP. EXECUTIVE By: /s/ Harry L. Glantz /s/ John Baker -------------------- -------------- Name: Harry L. Glantz John T. Baker IV Title: Vice President, Human Resources
5 6 EXHIBIT A CONSULTING AGREEMENT This consulting services agreement, dated as of February 18, 2000 (the "Consulting Agreement") is made by and between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation having its executive offices and principal place of business in New York, New York (the "Company") and JOHN T. BAKER IV (the "Consultant"). In consideration of the mutual covenants and agreements hereinafter set forth, the Company and the Consultant agree as follows: 1. Engagement; Agreement Term. The Company hereby engages the Consultant, and the Consultant hereby accepts such engagement and agrees to serve as a consultant to the Company, upon the terms and conditions hereinafter set forth, for a term of two years commencing on February 21, 2000 and expiring on February 20, 2002 (such term being hereinafter referred to as the "Agreement Term"). This Consulting Agreement will be effective as of the effective date of the separation agreement between the Company and the Consultant (the "Separation Agreement"). 2. Duties; Conduct. (a) During the Agreement Term, the Consultant shall render consulting services from time to time as hereinafter provided on such project or projects relating to the business, affairs and management of the Company as may be reasonably delegated to him by the Board of Directors of the Company. (b) Notwithstanding any other provision of this Consulting Agreement to the contrary, to the extent practicable, the services to be provided by the Consultant shall be performed at such times and in a manner and from a location as is reasonably convenient to him. The Company acknowledges that the Consultant may have other activities, obligations and engagements which may command his time and attention and the Company will exercise its best efforts, in calling upon the Consultant's services hereunder, to respect such other commitments. (c) During the Agreement Term, subject to Section 2(b), the Consultant agrees to make himself available during regular business hours to perform the consulting services referred above in accordance with the provisions hereof, and to apply such efforts as are reasonably appropriate to perform such services faithfully and diligently, and to the best of his ability; and not take any action or conduct himself in any manner which would tend to harm the reputation or goodwill of the Company. Notwithstanding anything to the contrary contained herein, the Company agrees and understands that none of the Consultant's duties hereunder will limit or interfere with any other personal or professional pursuits (including full-time employment subject to the 7 limitations set forth in Section 4(a) hereof), except as set forth in Section 4 hereof. Moreover, no conflict between the Consultant's duties hereunder and his other personal or professional pursuits shall operate to prevent the payment by the Company to the Consultant of amounts due under this Consulting Agreement, except as set forth in Section 4 hereof. 3. Compensation, Benefits and Expenses. (a) As full compensation for all services to be provided by the Consultant during the Agreement Term, the Company will pay the Consultant and the Consultant shall accept a consulting fee (the "Consulting Fee") of $1,150,000, of which $575,000 will be payable within five (5) days after the effective date of this Consulting Agreement and $575,000 will be payable within five (5) days after January 1, 2001. (b) In the event of a Change of Control, as defined in the Separation Agreement, the Company (or its successor) shall pay to the Consultant any unpaid portion of the Consulting Fee within thirty (30) days following such Change of Control. (c) The Company shall continue to pay the full cost of coverage for the Consultant and his covered family members under the Company's medical, dental and vision plans for a period of eighteen (18) months following the effective date of this Consulting Agreement. Such continued health insurance coverage will run concurrently with and be credited toward the period in which the Consultant and his covered family members may elect coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or applicable state law. For the period beginning on the first day of the nineteenth (19th) month of the Agreement Term through the end of the Agreement Term, the Company shall provide health insurance coverage for the Consultant and his covered family members, on terms and conditions that are similar to those provided to active employees of the Company. Notwithstanding the foregoing, in the event that the Consultant shall breach Sections 4 or 5 hereof, in addition to any other remedies the Company may have in the event the Consultant breaches Sections 4 or 5 hereof, the Company's obligation pursuant to this Consulting Agreement to pay the Consulting Fee and to continue such benefits and perquisites shall cease and the Consultant's rights thereto shall terminate and shall be forfeited, it being understood by the parties that such Consulting Fee, benefits and perquisites would not be agreed to by the Company in the absence of the Consultant's compliance, for whatever reason, with the provisions of Sections 4 and 5 hereof. During the Agreement Term, the Consultant shall be entitled to reimbursement of any unpaid business related expenses, subject to and in accordance with the Company's policies. (d) The Company acknowledges that the Consultant is an independent contractor; however, the Company reserves the right to withhold applicable taxes and 2 8 other amounts from payments made to the Consultant under this Consulting Agreement, if required by applicable law. In the event that the Consultant dies or becomes totally and permanently disabled (as defined in the Company's long term disability insurance policy under which the Consultant is covered at the time his employment with the Company is terminated) before or during the Agreement Term, the Company shall pay the Consulting Fee at the time or times specified in Section 3(a) hereof (or 3(b) if applicable) (i) to the Consultant's estate in the event of his death and (ii) to the Consultant or his legal guardian in the event the Consultant is totally and permanently disabled. 4. Exclusive Services; Noncompetition. (a) No Competition. During the Agreement Term, the Consultant shall not, directly or indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be connected or associated with, in any manner, including as an officer, director, employee, partner, consultant, advisor, agent, proprietor, trustee or investor, any Competing Business. For purposes of this Section 4(a), the term "Competing Business" shall mean (A) any business or venture which develops, manufactures, publishes, licenses, sells, distributes or supplies entertainment, educational or "edutainment" computer software or video games for commercial use, whether for retail distribution, by direct marketing, electronically, by license to others or otherwise; or (B) any other business which is substantially similar to the whole or any significant part of the business conducted by the Company (any such activities described in the foregoing clauses (A) or (B) shall for purposes of this section be hereinafter referred to as "Prohibited Activities"); provided that ownership of 2% or less of the stock or other securities of a corporation, the stock of which is listed on a national securities exchange or is quoted on The NASDAQ Stock Market, shall not constitute a breach of this Section 4, so long as the Consultant does not in fact have the power to control, or direct the management of, or is not otherwise associated with, such corporation. Notwithstanding anything to the contrary contained herein, the Consultant may be employed by a business or venture which engages in Prohibited Activities only so long as (x) the Consultant does not engage directly or indirectly in any Prohibited Activities, (y) such business or venture derives only immaterial revenues and profits from Prohibited Activities in relation to its overall business and (z) the Consultant's ownership of such business or venture is less than 2% of the stock or other securities thereof and the Consultant does not have the power to control or direct the management thereof. (b) Company Customers. The Consultant shall not, during the Agreement Term, directly or indirectly, contact, solicit or do business with (i) Wal-Mart Corporation, Target Stores, Comp U.S.A., Best Buy, Office Depot, Kmart or any of their respective affiliated operations, for the purpose of selling entertainment, educational or 3 9 "edutainment" computer software, video games or any other product (which is an integral product in a material product line of the Company) then sold by the Company to such customers at the time of termination of the Consultant's Employment Agreement hereunder; (ii) any "customers" (as defined below) of the Company for the purpose of selling computer software, video games or any other product then sold by the Company to such customers at the time of termination of the Consultant's Employment Agreement hereunder; or (iii) any supplier, licensor or licensee of the Company with respect to licensing computer software, video games or other intellectual property (which is related to computer software, video games or any other material product line of the Company), from such person. For the purposes of the provisions of this Section 4(b), "customer" shall include any entity that purchased computer software, video games or any other product from the Company within eight (8) months of the termination of the Consultant's Employment Agreement hereunder, without regard to the reason for such termination. The term "customer" also includes any former customer or potential customer of the Company which the Company has solicited within eight (8) months of such termination, for the purpose of selling computer software or any other product then sold by the Company. (c) Election to Terminate Consulting Relationship. The Consultant may, at any time during the Agreement Term, elect by written notice to the Company to terminate his consulting relationship with the Company. In the event of such an election, then the Company shall pay to the Consultant, within fifteen (15) days of such termination, Consulting Fees through such date of termination. Thereafter, (i) the Consultant's obligations to the Company arising under Sections 4(a) and 4(b) hereof shall terminate and (ii) the Company's obligation pursuant to this Consulting Agreement to pay the Consulting Fee and to provide benefits and perquisites described in Section 3(c) shall cease and the Consultant's rights thereto shall terminate and shall be forfeited. Nothing contained herein shall be deemed, during the Agreement Term, to discharge the Consultant of his obligations arising under Section 5 hereof, whether or not an election is made pursuant to this Section 4(c). 5. Confidential Information. (a) Existence of Confidential Information. The Company owns and has developed and compiled, and will develop and compile, certain proprietary techniques and confidential information which have great value to its business (referred to in this Consulting Agreement, collectively, as "Confidential Information"). Confidential Information includes not only information disclosed by the Company to the Consultant, but also information developed or learned by the Consultant during the course of or as a result of consulting services or prior employment services provided to 4 10 the Company, which information shall be the property of the Company. Confidential information includes all information that has or could have commercial value or other utility in the business in which the Company is engaged or contemplates engaging, and all information of which the unauthorized disclosure could be detrimental to the interests of the Company, whether or not such information is specifically labeled as Confidential Information by the Company. By way of example and without limitation, Confidential Information includes any and all information developed, obtained, licensed by or to or owned by the Company concerning trade secrets, techniques, know-how (including designs; plans, procedures, merchandising, marketing, distribution and warehousing know-how, processes, and research records), software, computer programs, and any other intellectual property created, used or sold (through a license or otherwise) by the Company, Electronic Data Information know-how and processes, innovations, discoveries, improvements, research, development, test results, reports, specifications, data, formats, marketing data and plans, business plans, strategies, forecasts, unpublished financial information, orders, agreements and other forms of documents, price and cost information, merchandising opportunities, expansion plans, store plans, budgets, projections, customer, supplier, licensee, licensor and subcontractor identities, characteristics, agreements and operating procedures, and salary, staffing and employment information. (b) Protection of Confidential Information. The Consultant acknowledges and agrees that in the performance of duties hereunder the Company discloses to and entrusts the Consultant with Confidential Information which is the exclusive property of the Company and which the Consultant may possess or use only in the performance of duties for the Company. The Consultant also acknowledges that the Consultant is aware that the unauthorized disclosure of Confidential Information, among other things, may be prejudicial to the Company's interests, an invasion of privacy and an improper disclosure of trade secrets. The Consultant shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any corporation, partnership, individual or other third party, other than in the course of the Consultant's assigned duties and for the benefit of the Company, any Confidential Information, either during the Agreement Term or thereafter. Notwithstanding the foregoing, Confidential Information shall not include that information which (i) is or comes into the public domain, unless such information comes into the public domain as a result of a breach of this Consulting Agreement or violation of a confidentiality obligation to the Company, or (ii) is required to be disclosed pursuant to law or under a court order. (c) Delivery of Records, Etc. In the event the Consultant's consulting relationship with the Company ceases for any reason, the Consultant will not remove from the Company's premises without its prior written consent any records, files, drawings, documents, equipment, materials and writings received from, created for or belonging to the Company, including those which relate to or contain Confidential 5 11 Information, or any copies thereof, except that the Consultant shall be permitted to remove his personal files, records and belongings (including copies of his correspondence, which may include Confidential Information). Upon request or when the consulting relationship with the Company terminates, the Consultant will immediately deliver the same to the Company. 6. Assignment and Transfer. (a) Company. This Consulting Agreement shall inure to the benefit of and be enforceable by, and may be assigned by the Company to, any purchaser of all or substantially all of the Company's business or assets, any successor to the Company or any assignee thereof (whether direct or indirect, by purchase, merger, consolidation or otherwise). The Company will require any such purchaser, successor or assignee to expressly assume and agree to perform this Consulting Agreement in the same manner and to the same extent that the Company would be required to perform it if no such purchase, succession or assignment had taken place. (b) Consultant. The Consultant's rights and obligations under this Consulting Agreement shall not be transferable by the Consultant by assignment or otherwise, and any purported assignment, transfer or delegation thereof shall be void; provided, however, that if the Consultant shall die, all amounts then payable to the Consultant hereunder shall be paid in accordance with the terms of this Consulting Agreement to the Consultant's devisee, legatee or other designee or, if there be no such designee, to the Consultant's estate. 7. Miscellaneous. (a) Insurance and Indemnification. The Consultant shall continue to be indemnified for acts occurring prior to his termination of employment, to the extent the Company's policy or benefits cover former employees. During any period of the Agreement Term in which the Consultant serves as a director of the Company, the Consultant shall be covered under any director and officer insurance policy obtained by the Company, if any, and shall be entitled to benefit from any officer or director indemnification arrangements to the fullest extent permitted under applicable law and in accordance with the Company's existing Certificate of Incorporation (including the right to such coverage or benefit following the Consultant's employment to the extent such policy or benefit covers former employees). (b) Nondisclosure; Prior Employers. The Consultant will not disclose to the Company, or use, or induce the Company to use, any proprietary information, trade secrets or confidential business information of others. The Consultant represents and 6 12 warrants that the Consultant has returned all property, proprietary information, trade secrets and confidential business information belonging to prior employers. (c) Protection of Reputation. During the Agreement Term and thereafter, the Consultant agrees that he will take no action which is intended, or would reasonably be expected, to harm the Company or its reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company. (d) Governing Law. This Consulting Agreement, including the validity, interpretation, construction and performance of this Consulting Agreement, shall be governed by and construed in accordance with the laws of the State of California applicable to agreements made and to be performed in such state without regard to such state's conflicts of law principles. All actions and proceedings relating directly or indirectly to this Consulting Agreement shall be litigated in any state court or federal court located in Los Angeles, California. The parties hereto expressly consent to the jurisdiction of any such court and to venue therein. (e) Amendment. This Consulting Agreement may be amended only by a writing which makes express reference to this Consulting Agreement as the subject of such amendment and which is signed by the Consultant and, on behalf of the Company, by its duly authorized officer. (f) Severability. If any term, provision, covenant or condition of this Consulting Agreement or part thereof, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable or void, the remainder of this Consulting Agreement and such term, provision convenant or condition shall remain in full force and effect, and any such invalid, unenforceable or void term, provision, convenant or condition shall be deemed, without further action on the part of the parties hereto, modified, amended and limited to the extent necessary to render the same and the remainder of this Consulting Agreement valid, enforceable and lawful. In this regard, the Consultant acknowledges that the provisions of Section 4 and 5 are reasonable and necessary for the protection of the Company. (g) Construction. The headings and captions of this Consulting Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Consulting Agreement. The language in all parts of this Consulting Agreement shall be in all cases construed according to its fair meaning and not strictly for or against the Company or the Consultant. The use herein of the word "including," when following any general provision, sentence, clause, statement, term or matter, shall be deemed to mean "including, without limitation". As used herein, "Company" shall mean the Company and its subsidiaries and any purchaser of, successor to or assignee (whether direct or indirect, by purchase, merger, consolidation or 7 13 otherwise) of all or substantially all of the Company's business or assets which is obligated to perform this Consulting Agreement by operation of law, agreement pursuant to Section 6 hereof or otherwise. As used herein, the words "day" or "days" shall mean a calendar day or days. (h) Nonwaiver. Neither any course of dealing nor any failure or neglect of either party hereto in any instance to exercise any right, power or privilege hereunder or under law shall constitute a waiver of any other right, power or privilege or of the same right, power or privilege in any other instance. All waivers by either party hereto must be contained in a written instrument signed by the party to be charged and, in the case of the Company, by its duly authorized officer. (i) Remedies for Breach. The parties hereto agree that the Consultant is obligated under this Consulting Agreement to render personal services during the Agreement Term of a special, unique, unusual, extraordinary and intellectual character, thereby giving this Consulting Agreement peculiar value, and, in the event of a breach or threatened breach of any covenant of the Consultant herein, the injury or imminent injury to the value and the goodwill of the Company's business could not be reasonably or adequately compensated in damages in an action at law. Accordingly, the Consultant expressly acknowledges that the Company shall be entitled to specific performance, injunctive relief or any other equitable remedy against the Consultant, without the posting of a bond, in the event of any breach or threatened breach of Sections 4 and 5 hereof. Without limiting the generality of the foregoing, if the Consultant breaches Sections 4 or 5 hereof, such breach will entitle the Company to enjoin the Consultant from disclosing any Confidential Information to any Competing Business, to enjoin such Competing Business from receiving from the Consultant or using any such Confidential Information and/or to enjoin the Consultant from rendering personal services to or in connection with such Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be exclusive, and each such party shall be entitled to pursue all legal and equitable rights and remedies and to secure performance of the obligations and duties of the other under this Consulting Agreement, and the enforcement of one or more of such rights and remedies by a party shall in no way preclude such party from pursuing, at the same time or subsequently, any and all other rights and remedies available to it. (j) Notices. Any notice, request, consent or approval required or permitted to be given under this Consulting Agreement or pursuant to law shall be sufficient if in writing, and if and when sent by certified or registered mail, return receipt requested, with postage prepaid, or by hand delivery or by reputable overnight delivery service (such as Federal Express) to the Consultant's residence (as reflected in the Company's records or as otherwise designated by the Consultant on thirty (30) days' prior written notice to the Company) with a copy to Michael K. Lindsey, Esq., Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, 23rd Floor, Los Angeles, California 8 14 90071, or to the Company's principal executive office, attention: General Counsel with a copy to Dennis J. Friedman, Esq., Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, as the case may be. All such notices, requests, consents and approvals shall be effective upon receipt. However, the time period in which a response thereto must be given shall commence to run from the date of receipt on the return receipt of the notice, request, consent or approval by the addressee thereof. Rejection or other refusal to accept, or the inability to deliver because of changed address of which no notice was given as provided herein, shall be deemed to be receipt of the notice, request, consent or approval sent. (k) Payment without Regard to Other Sums. Payments under this Consulting Agreement shall be made to the Consultant without regard to sums earned by the Consultant from any other source, except as provided in Section 3(b) hereof. (l) Affect on Separation Agreement. Nothing in this Consulting Agreement shall in any event limit the enforceability of any of the terms of any separation agreement by and between the Company and the Consultant. IN WITNESS WHEREOF, the Company has caused this Consulting Agreement to be duly executed on its behalf by an officer duly authorized, and the Consultant has duly executed this Consulting Agreement, all as of the date and year first written above. GT INTERACTIVE SOFTWARE CORP. CONSULTANT By: /s/ HARRY L. GLANTZ /s/ JOHN BAKER ----------------------- -------------------- Name: Harry L. Glantz John T. Baker IV Title: Vice President, Human Resources 9 15 EXHIBIT B GENERAL RELEASE BY JOHN T. BAKER IV FOR AND IN CONSIDERATION OF the terms and conditions of the separation agreement dated as of February 18, 2000 by and between JOHN T. BAKER IV (the "Executive") and GT INTERACTIVE SOFTWARE CORP. (the "Company") (the "Separation Agreement") and the consulting agreement dated as of February 18, 2000 by and between the Executive and the Company (the "Consulting Agreement"), the Executive agrees, on behalf of himself, his heirs, executors, administrators and assigns, to release and discharge the Company, and their respective current and former officers, directors, employees, agents, owners, subsidiaries, divisions, affiliates, parents, successors and assigns ("Released Parties") from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever ("Losses") which the Executive, his heirs, executors, administrators and assigns have, or may hereafter have against the Released Parties or any of them arising out of or by reason of any cause, matter or thing whatsoever from the beginning of the world to the date hereof, including without limitation any and all matters relating to his Employment Agreement with the Company, his employment by the Company and the cessation thereof, and all matters arising under any federal, state or local statute, rule or regulation or principle of contract law or common law, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Sections 2000e et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sections 621 et seq., the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. Sections 12101 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Sections 1001 et seq., the California Fair Employment and Housing Act, as amended, Cal. Gov't Code Sections 12900 et seq., and any other equivalent state or local statute; provided, however, that the Executive does not release and discharge the Released Parties from any Losses arising out of or in connection with his Separation Agreement and Consulting Agreement. It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to the Executive, any such wrongdoing being expressly denied. The Executive represents and warrants that he fully understands the term of this General Release, that he has had the benefit of advice of counsel, and that he knowingly and voluntarily, of his own free will without any duress, being fully informed and after due deliberation, accepts its terms and signs the same as his own free act. The Executive understands that as a result of executing this General Release, he will not have the right to assert that the Company unlawfully terminated his employment or violated any of his rights in connection with his employment. The Executive acknowledges that he is familiar with Section 1542 of the Civil Code of the State of California, which provides as follows: 16 A general release does not extend to claims which the creditor does not know of or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The Executive hereby waives and relinquishes any rights and benefits which he has or may have under Section 1542 of the Civil Code of the State of California, to the full extent permitted by law. The Executive affirms that he has not filed, and agrees not to initiate or cause to be initiated on his behalf, any complaint, charge, claim, or proceeding against the Released Parties before any federal, state, or local agency, court or other body relating to his employment and the cessation thereof, and agrees not to voluntarily participate in such a proceeding. The Executive waives any right he may have to benefit in any manner from any relief (whether monetary or otherwise) arising out of any such proceeding. The Executive, having had the advice of counsel, knowingly waives the remainder of the 21-day period he had from February [ ] 2000, to consider whether to execute this General Release. Upon the Executive's execution of this General Release, he will have seven (7) days after execution to revoke it. In the event of revocation, the Executive must present written notice of revocation to Mr. Harry Glantz of the Company. If seven (7) days pass without such notice of revocation, this General Release shall become binding and effective on the eighth (8th) day (the "Release Effective Date"). This General Release shall be governed by the laws of the State of California without giving effect to the principles of conflicts of law. /s/ John Baker 2/19/00 - ------------------ ---------- JOHN T. BAKER IV DATE Sworn to before me this 19 day of February, 2000 /s/ Wendy G. Jacobo - ----------------------------- Notary Public 17 EXHIBIT C GENERAL RELEASE BY GT INTERACTIVE SOFTWARE CORP. FOR AND IN CONSIDERATION OF the terms and conditions of separation agreement as of February 18, 2000 by and between GT INTERACTIVE SOFTWARE CORP. (the "Company") and JOHN T. BAKER IV (the "EXECUTIVE") (the "Separation Agreement") and the consulting agreement dated as of February 18, 2000 by and between the Company and the Executive (the "Consulting Agreement"), the Company agrees, on behalf of itself and its current and former officers, directors, managers, agents, divisions, parents, subsidiaries, affiliates, successors and assigns, to release and discharge the Executive and his heirs, executors, administrators and assigns ("Released Parties") from any and all manner of actions and causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, and demands whatsoever ("Losses") which the Company, its current and former officers, directors, managers, agents, divisions, parents, subsidiaries, affiliates, successors and assigns have, or may hereafter have against the Released Parties or any of them arising out of any act or omission undertaken by the Executive in the ordinary course and scope of his duties with the Company from April 2, 1999 to the date hereof; provided, however, that the Company does not release and discharge the Released Parties from: (a) any Losses arising out of or in connection with the Executive's Separation Agreement and Consulting Agreement, and (b) any acts of the Executive involving fraud, dishonesty, intentional acts, or willful malfeasance in connection with his employment for the Company. It is understood that nothing in this General Release is to be construed as an admission on behalf of the Released Parties of any wrongdoing with respect to the Company, any such wrongdoing being expressly denied. The Company acknowledges that it is familiar with Section 1542 of the Civil Code of the State of California, which provides as follows: A general release does not extend to claims which the creditor does not know of or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The Company hereby waives and relinquishes any rights and benefits which it has or may have under Section 1542 of the Civil Code of the State of California, to full extent permitted by law. This General Release will become effective on the Release Effective Date as defined in the General Release of John T. Baker IV made by the Executive in favor of the Company. 18 This General Release shall be governed by the laws of the State of California without giving effect to the principles of conflicts of law.
GT INTERACTIVE SOFTWARE CORP. By: /s/ Harry L. Glantz 2/22/00 ------------------- ----------- Name: Harry L. Glantz DATE Title: Vice President, Human Resources Sworn to before me this 22 day of February, 2000 /s/ James Joseph Conner ----------------------- Notary Public
19 STOCK PERFORMANCE GRAPH [LINE GRAPH]
December 14, December 31, March 31, June 30, September 30, December 31, 1995 1995 1996 1996 1996 1996 ------------------------------------------------------------------------------------ Interactive Software Corp. 100.00 100.00 76.79 119.64 162.50 50.89 Group 100.00 105.28 91.51 93.28 92.82 75.58 Nasdaq National Market Index 100.00 102.10 106.88 115.00 119.06 125.28 March 31, June 30, 1997 1997 ----------------------- Interactive Software Corp. 50.89 84.82 Group 65.26 77.91 Nasdaq National Market Index 116.56 139.94
September 30, December 31, March 31, June 30, September 30, December 31, March 31, 1997 1997 1998 1998 1998 1998 1999 ----------------------------------------------------------------------------------------------- Interactive Software Corp. 83.93 45.54 50.89 53.79 32.14 35.71 33.04 Group 90.25 92.66 102.36 115.53 98.23 133.58 133.06 Nasdaq National Market Index 163.58 152.39 178.14 183.87 164.37 212.78 238.86 June 30, September 30, December 30, March 31, 1999 1999 1999 2000 ------------------------------------------------------- Interactive Software Corp. 25.00 20.76 11.83 22.32 Group 135.27 168.55 213.61 185.46 Nasdaq National Market Index 260.67 266.49 394.89 449.76
EX-10.15 10 ex10-15.txt LETTER AGREEMENT 1 Exhibit 10.15 GT INTERACTIVE SOFTWARE LETTERHEAD April 20, 2000 Mr. David Fremed 849 Longview Avenue North Woodmere, NY 11581 Dear David: I am very pleased to offer you the position of Senior Vice President, Finance and Chief Financial Officer with GT Interactive Software Corp ("GT"), reporting directly to the President and Chief Operating Officer. The purpose of this letter is to confirm the terms and conditions of our employment offer to you: - - Your annual salary will be $275,000.00 paid to you in equal installments. Currently our practice is to pay on a semi-monthly basis. - - You will receive a one-time sign-on bonus of $20,000.00, less all applicable local, state, and federal taxes. This will be paid to you after 30 days of continuous employment. Should you voluntarily terminate your employment at GT within one year of your date of hire, you must repay the entire sign-on bonus. - - You will be eligible to participate in the company's Corporate Incentive Program beginning in FY 2001 (commencing July 1, 2000) at a target amount equal to 40% of earned base salary through the end of the fiscal year; criteria is based upon company and individual performance. - - You will receive a stock option of 150,000 GT Interactive Software option shares. These stock option shares will be granted on your date of hire and priced at Fair Market Value (FMV) on that day. These options will vest 25% per year, over a 4 year period. 2 - - You will be eligible to participate in all of the company's standard benefit programs. - - Should your employment be involuntarily terminated for reasons other than cause within the first two (2) years of your employment, you will receive a severance benefit of six (6) months base salary, paid as salary continuation. To receive this severance benefit, you will be required to sign a release statement. All severance benefits are subject to local, state, and federal taxes. By signing this letter you confirm that you are not subject to any agreement (with a prior employer or otherwise) which would be violated by or inconsistent with your employment at GT. During your employment with GT, you agree that you will not improperly use any confidential or proprietary information you may have concerning any third party, including any prior employer. Please indicate your acceptance of this offer by signing this letter where indicated and returning it to me. David, we look forward to having you join GT as part of our senior management team. If you have any questions regarding the details of this letter, please do not hesitate to contact me. Sincerely, /s/ Denis Guyennot Accepted and agreed to: By: /s/ David Fremed 4/21/00 ------------------------ -------------- David Fremed Date cc: H. Glantz, B. Bonnell, Personnel File 2 EX-10.25 11 ex10-25.txt TRADEMARK AGREEMENT 1 Exhibit 10.25 INFOGRAMES TRADEMARK LICENSE AGREEMENT THIS TRADEMARK LICENSE AGREEMENT (the "Agreement"), effective as of May 10, 2000, is between Infogrames Entertainment S.A., a societe anonyme organized under the laws of France, having its principal place of business at 84, rue du ler Mars 1943, Villeurbanne, 69100 France ("Infogrames"), and GT Interactive Software Corp., a Delaware corporation, having its principal place of business at 417 5th Avenue, New York, N.Y. 10016 ("Licensee"). For purposes of this Agreement, the rights and obligations of Licensee hereunder shall be deemed to include each of Licensee's subsidiaries and affiliates "controlled" by it, but only for so long as each remains a subsidiary or affiliate, as the case may be, controlled by Licensee. "Control" shall mean the possession, whether direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or otherwise. W I T N E S S E T H: WHEREAS, Infogrames is the owner of the Trademarks listed or described on Schedule A hereto (collectively the "Trademarks") used in connection with its business. WHEREAS, Infogrames has the power and authority to grant to Licensee the right and license to use the Trademarks pursuant to this Agreement; WHEREAS, Infogrames is a majority shareholder of Licensee and is in the business of, among other things, developing, publishing and distributing software and providing products and services related to software; WHEREAS, Licensee is also in the business of developing, publishing and distributing software and providing products and services related to software (the "Business"); and WHEREAS, Licensee desires to obtain from Infogrames a license to use the Trademarks for the Business, including but not limited to entertainment and edutainment software for p.c. and video game consoles (collectively, "Products"). NOW, THEREFORE, in consideration of the promises and mutual covenants, agreements and obligations set forth herein, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GRANT OF LICENSE. 2 Subject to the terms and conditions herein, Infogrames hereby grants to Licensee, during the Term (as defined below), the royalty-free, non-exclusive right and license to use the Trademarks in connection with the Business in the Territory (as defined below), including, without limitation, in Licensee's own name on all corporate materials and on all Products' packaging, marketing, advertising and promotional materials and for identification purposes for individuals who are associated with the Products and/or the Business. The term "Territory" shall mean worldwide. Licensee shall have no right to sublicense any of its rights under this Agreement without the prior written consent of Infogrames, which consent may be withheld in Infogrames's sole but reasonable discretion. To the extent Licensee sublicenses any of its rights under this Agreement, it shall do so only pursuant to a written sublicense agreement approved in advance in writing by Infogrames. Licensee shall be responsible for any failure of its sublicensees to comply with the requirements of the applicable sublicense agreement. 2. ACKNOWLEDGMENT OF OWNERSHIP. 2.1 Licensee recognizes and acknowledges the validity of Infogrames's rights in the Trademarks and that Infogrames is the owner thereof as so represented by Infogrames herein. Licensee agrees not to challenge the validity of or Infogrames' title to the Trademarks, and not to oppose or petition to cancel any applications filed or registrations received in respect of such rights. Licensee's use of the Trademarks shall inure to the benefit of Infogrames. 2.2 All rights and good will created by or arising from use of the Trademarks by Licensee shall be and remain the sole and exclusive property of Infogrames, and Licensee does hereby waive and renounce any and all claims to such Trademarks. Licensee further agrees not to perform any act or omission materially adverse to the Trademarks. 2.3 Licensee shall not attempt to register or claim rights in the Trademarks, alone or as part of its own trademark, in the Territory or in jurisdictions foreign thereto. Licensee acknowledges that Infogrames, as the owner of the Trademarks, shall have the exclusive right to apply for, and to extend, all registrations for the Trademarks throughout the Territory. Licensee agrees to cooperate with Infogrames with respect to the preparation of any application for or extensions of any such registrations, and shall execute any other documents Infogrames may reasonably require to maintain the registrations in effect. All expenses in connection with the registrations shall be paid by Infogrames. 2 3 3. TERM. Subject to the parties' right to terminate the license as detailed in Section 4 below, the term of the license granted hereunder (the "Term") shall be perpetual. 4. TERMINATION OF THE TERM. 4.1 Either party hereto shall have the right to terminate this Agreement by the delivery to the other party of one (1) year advance written notice of termination or such shorter period as may be agreed to by the parties, or, in the case of a breach of Section 6 below, Infogrames may terminate with thirty (30) days advance written notice. If termination is for breach of Section 6 below, such notice shall be of no force or effect and the Agreement shall not thereby be terminated if such breach shall have been cured prior to the expiration of such 30-day period. If such breach shall not have been cured within such 30 day period, Licensee shall take all steps necessary as soon as possible thereafter to cease all use of the Trademarks; provided, however, that Licensee shall not be required to recall any Products in connection with the termination of its or any of its affiliates rights to use the Trademarks hereunder. 4.2 If either party hereto shall file a voluntary petition under any bankruptcy or insolvency law, or if any involuntary petition is filed against either party hereto under any bankruptcy or insolvency law and such petition is not dismissed within sixty (60) days of such filing, or if either party hereto shall make any assignment for the benefit of its creditors or shall make any arrangement pursuant to any bankruptcy or insolvency law, then the other party hereto shall have the right to terminate the Term by the delivery to such first party hereto of written notice of termination. This notice shall state the basis for such claim of a right to terminate the Term and shall be effective immediately upon its delivery. 4.3 In the event that Infogrames' ownership interest, whether direct or indirect, in Licensee shall at any time be less than fifty percent (50%) or in the event that Infogrames no longer controls the management and policies of Licensee, Infogrames and Licensee shall enter into good faith negotiations to provide for appropriate terms on which Licensee will discontinue all use of the Trademarks hereunder, and Infogrames will cooperate with Licensee in connection with any corporate action necessary as a result of any termination under this Section 4.3. 5. EFFECT OF TERMINATION OR EXPIRATION OF THE TERM. Subject to the provisions of Section 4 above, upon termination of this 3 4 Agreement, Licensee agrees to immediately cease use of the Trademarks. 6. QUALITY CONTROL. 6.1 Licensee shall use the Trademarks in connection with the Business, including but not limited to the Products and any marketing, advertising, promotional and corporate materials, only in the manner set forth in guidelines provided to Licensee in writing by Infogrames, as the same may be modified or amended from time to time (the "Guidelines"), or as otherwise specified in writing by Infogrames, and in compliance with all applicable laws, rules, regulations, policies, requirements and the like of federal, state, local and other governmental, administrative or judicial authorities. Licensee acknowledges that if the Products are of inferior quality, the substantial goodwill which Infogrames possesses in the Trademarks may be impaired. Licensee must obtain Infogrames's prior written approval for any other use of the Trademarks. Infogrames may withhold its approval in its sole discretion. 6.2 Licensee shall, at its sole cost and expense, upon reasonable request by Infogrames, supply to Infogrames samples of the use of the Trademarks, including samples of Products bearing the Trademarks and promotional and written materials, for purposes of inspection to determine if the Products and other materials meet the standards of quality acceptable to Infogrames. Such right of inspection to determine compliance with this Agreement and the quality controls set forth herein shall only be undertaken during business hours and without creating any unreasonable disturbance to inspect the premises of Licensee. 6.3 Licensee shall not use the Trademarks in any advertising or promotional material or in connection with the Products or conduct any activities with respect to the Business in a manner which is reasonably likely to adversely affect or detract from the Trademarks or Infogrames; provided, however, that Licensee shall not be in breach of this Section 6.3 if Infogrames has approved such use pursuant to Section 6.2. 6.4 Licensee agrees that whenever it uses any of the Trademarks which are registered, it shall do so in connection with the registration symbol "(R)". Licensee also agrees that whenever it uses any of the Trademarks which are not registered, it shall apply any marking that Infogrames reasonably requests (for example, "TM"). 6.5 Should Licensee fail to comply with any one or more of the provisions of this Section 6, or fail, to the reasonable satisfaction of Infogrames, to meet the standard of quality with respect to the Products and other 4 5 materials established by Infogrames, Infogrames shall have the right to terminate this Agreement in accordance with the provisions of Section 4.1. 7. REPRESENTATIONS AND WARRANTIES. 7.1 Each party represents and warrants that it is in possession of the full right, power and authority to enter into this Agreement. 7.2 Licensee represents and warrants that all activities conducted in connection with the Business by Licensee and its employees, officers, directors, and sublicensees, if any, shall be in material compliance with and shall not violate in any material respect any laws, rules, regulations, policies, requirements and the like of federal, state, local and other governmental, administrative or judicial authorities. 8. INDEMNIFICATION AND HOLD HARMLESS. 8.1 Infogrames shall have no obligation to indemnify or hold Licensee harmless from and against, and shall not be responsible or liable for, any claims, liabilities, damages, losses, costs, attorneys fees, etc., with respect to any action, inaction or activities by Licensee, its sublicensees, and/or one or more third parties concerning, either directly or indirectly, the subject matter of this Agreement. Notwithstanding the foregoing, Infogrames shall indemnify, defend and hold harmless Licensee from and against any claim, demand, proceeding or action for infringement, by use of the Trademarks, of third party intellectual property rights, provided that the Trademarks are used in accordance with the provision of this Agreement, and further provided that the Licensee gives Infogrames prompt written notice of any such claim, demand, proceeding or action. 8.2 Licensee shall be solely responsible and liable for, with no liability or responsibility on the part of Infogrames or any third party engaged by Infogrames, and shall indemnify and hold Infogrames harmless from and against any and all claims, demands, liabilities, damages, losses, costs, expenses, reasonable counsel fees and settlements, which Infogrames or its officers, directors, employees, agents, attorneys, affiliates, etc. may sustain: (a) Arising from any and all unauthorized action, inaction, activities, products or services, including, but not limited to, the Products provided by Licensee, its sublicensees or third parties; (b) Resulting from any breach or default in the performance or observance of any of the covenants or obligations of Licensee hereunder or of Licensee's sublicensees under the applicable 5 6 sublicense agreements; (c) Arising from any of Licensee's or its sublicensees' obligations or liabilities; or (d) Arising from any product liabilities relating to the Products. 9. ENFORCEMENT AND PROTECTION. 9.1 Infogrames shall endeavor to investigate unauthorized uses or misuses by third parties of the Trademarks, or variations thereof, brought to its attention by Licensee. However, Infogrames shall not be required to bring suit or take action with respect to such unauthorized use or misuse by third parties. 9.2 Licensee shall immediately notify Infogrames of any unauthorized use or misuse of the Trademarks or variations thereof as comes to Licensee's attention, with Infogrames having the sole right and discretion to take action in respect to the unauthorized use or misuse of the Trademarks; provided, however, that to the extent Infogrames declines to take action with respect to any unauthorized use or misuse of the Trademarks and such unauthorized use or misuse materially adversely affects Licensee's Business or any Product published or developed by Licensee, Licensee shall have the right to take action with respect to such unauthorized use or misuse. 10. NOTICES AND OTHER COMMUNICATIONS. Any notice or other communication required, contemplated or permitted by this Agreement by any party, shall be in writing and shall be either personally delivered or sent by Federal Express or other reputable overnight courier for next business day delivery with charges billed to or prepaid by shipper, or sent by certified mail, return receipt requested, postage prepaid, at the addresses set forth in the preamble of this Agreement. Any notice personally served shall be deemed delivered on the date of such service. Any notice sent by overnight courier as provided above shall be deemed delivered on the first business day after the date such notice was delivered to such overnight courier. Any notice sent by certified mail as provided above shall be deemed delivered on the third business day next following the postmark date the notice bears. 11. INJUNCTIVE RELIEF. Licensee acknowledges that Infogrames may be irreparably harmed by any breach of this Agreement and that any monetary relief may be inadequate to compensate Infogrames for any breach by Licensee. Therefore, in addition to any monetary relief available to Infogrames, Infogrames shall be entitled, 6 7 without the necessity of proving irreparable harm or posting any bond, to injunctive relief against Licensee upon making an adequate showing of a material breach of this Agreement by Licensee. 12. ASSIGNMENT AND BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective assigns and successors in interest, provided, however, that Licensee shall not assign or otherwise transfer any of such rights, duties, obligations or undertakings or any portion thereof, to any third party without the prior written consent of Infogrames. Any attempted assignment or transfer in violation of these provisions shall be invalid. 13. SEVERABILITY. The invalidity, illegality or unenforceability of any provision hereof shall not in any way affect, impair, invalidate or render unenforceable this Agreement or any provision thereof. 14. FURTHER ASSURANCE. Licensee agrees that it will, after the date hereof, from time to time and without further consideration thereof, execute and deliver such further instruments and take such further actions as may be required to implement the transactions contemplated hereby. Infogrames agrees that it will, after the date hereof, from time to time and without further consideration therefor, execute and deliver such further instruments and take such further actions as may be required to implement the transactions contemplated hereby. 15. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed wholly within such jurisdiction, without regard to the conflicts of law principles thereof. All disputes under this Agreement shall be resolved by the courts of the State of New York, including the state and federal courts, and the parties all consent to the jurisdiction of such courts, agree to accept service of process by mail, and hereby waive any jurisdictional or venue defenses otherwise available to it. 16. RELATIONSHIP OF THE PARTIES. This Agreement shall not create a relationship of agent, employee, or partner of or joint venturer with the other party. The relationship between the parties with respect to the subject matter covered hereby is one of licensor and licensee. 17. PARAGRAPH HEADINGS. 7 8 Paragraph and Section headings of this Agreement are for reference and convenience only and shall have no bearing on the interpretation of this Agreement. 18. ENTIRE AGREEMENT. This Agreement (including schedules attached hereto) constitutes the entire agreement between the parties regarding the subject matter hereof. All prior agreements or arrangements, written or oral, between the parties relating to the subject matter hereof are hereby canceled and superseded. * * * * * 8 9 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first written above. INFOGRAMES ENTERTAINMENT S.A. By: /s/ Bruno Bonnell Name: Bruno Bonnell Title: President and Director General GT INTERACTIVE SOFTWARE CORP. By: /s/ Denis Guyennot Name: Denis Guyennot Title: President and Chief Operating Officer 9 EX-10.26G 12 ex10-26g.txt MASTER ASSIGNMENT AND ACCEPTANCE 1 Exhibit 10.26g MASTER ASSIGNMENT AND ACCEPTANCE MASTER ASSIGNMENT AND ACCEPTANCE (this "Assignment and Acceptance"), dated as of February 15, 2000, by and among the parties listed on the signature pages hereof. STATEMENT OF PURPOSE: The Assignors referred to below are also party to that certain Credit Agreement, dated as of September 11, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), by and among GT Interactive Software Corp. (the "Borrower"), the banks, financial institutions and other entities party thereto as lenders (the "Existing Lenders"), NationsBanc Montgomery Securities, LLC, as syndication agent, Fleet Bank, N.A., as documentation agent, and First Union National Bank ("First Union"), as administrative agent for the Existing Lenders (in such capacity, the "Existing Agent"). Infogrames Entertainment SA (the "Assignee") has informed the Existing Agent and the Existing Lenders that it wishes to acquire from the Existing Lenders all of their rights and obligations in respect of their Commitments (including their Extensions of Credit) under the Credit Agreement pursuant to this Assignment and Acceptance. In connection with the acquisition by the Assignee of the Commitments under the Credit Agreement pursuant to this Assignment and Acceptance, the Existing Agent, concurrently with the effectiveness of this Assignment and Acceptance, will resign as Administrative Agent under the Credit Agreement and the other Loan Documents and, in connection with such resignation, the Existing Agent will assign all of its rights in the Collateral (as defined in the Security Documents) to the Assignee, as successor Administrative Agent under the Credit Agreement and the other Loan Documents, pursuant to the Collateral Assignment Agreement dated as of the date hereof. The Existing Agent and the Assignors (as defined below) are willing to enter into this Assignment and Acceptance. NOW THEREFORE, each of the parties hereto hereby agrees as follows: 1. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. 2. Subject to the terms and conditions hereof, effective as of the Assignment Effective Date (as defined below), each Existing Lender (each, an "Assignor" and, collectively, the "Assignors") hereby irrevocably sells and assigns to the Assignee, without recourse to such Assignor, and the Assignee hereby irrevocably purchases and assumes from 2 such Assignor, without recourse to such Assignor, all of such Assignor's interest, rights and obligations under the Credit Agreement with respect to its Commitments, including without limitation, its Extensions of Credit (as to each such Assignor, its "Assigned Interest") under the Credit Agreement as set forth on Schedule A. This Assignment and Acceptance is entered into pursuant to, and authorized by, Section 13.10 of the Credit Agreement. 3. Each Assignor represents and warrants that it is the legal and beneficial owner of the Assigned Interest being assigned by it hereunder and that such Assigned Interest is free and clear of any adverse claim. Effective as of the Assignment Effective Date, each Assignor which is the holder of one or more Notes issued in its favor under the Credit Agreement severally agrees to return the originals of such Notes to the Borrower as soon as practicable following the Assignment Effective Date or, in the event any such Notes have been lost or destroyed, to confirm to the Borrower in writing that such Notes have been lost or destroyed. 4. The Borrower and the Existing Agent hereby agree that the Assignee is an Eligible Assignee under the Credit Agreement. 5. Neither any Assignor nor the Existing Agent (a) makes any representation or warranty or assumes any responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document, any other instrument or document furnished pursuant thereto or any Collateral (as defined in the Security Agreement and the Pledge Agreement) or the legality, validity, perfection or priority of any Lien granted or purported to be granted pursuant to any Security Document, or (b) makes any representation or warranty or assumes any responsibility with respect to the financial condition of the Borrower, any of its Subsidiaries or any other obligor or the performance or observance by the Borrower, any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto. 6. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance, (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements furnished or delivered pursuant to Section 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance, (c) agrees that it will, independently and without reliance upon any Assignor or the Existing Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant thereto, (d) acknowledges that effective as of the Assignment Effective Date, First Union is resigning as the Existing Agent under the Credit Agreement and (e) agrees that it will be bound by the provisions of the Credit Agreement and the other Loan Documents and will perform in accordance with their terms all the obligations which by the terms of the 2 3 Credit Agreement and the other Loan Documents are required to be performed by it as a Lender. 7. This Assignment and Acceptance shall become effective upon the satisfaction of the following conditions (the date upon which such conditions are first satisfied is referred to as the "Assignment Effective Date"): (a) the execution and delivery of this Assignment and Acceptance by each of the parties hereto; (b) the receipt by the Existing Agent from the Assignee by wire transfer of freely and immediately available funds to the account specified on Schedule B, (i) for the account of the Existing Lenders, in an amount equal to the aggregate principal amount of all Loans outstanding under the Credit Agreement as set forth on Schedule B, (ii) for the account of the Existing Lenders, in an amount equal to the amount payable in respect of all accrued and unpaid interest and all fees and any other amounts payable under the Credit Agreement as of February 15, 2000, including without limitation, amounts payable under Sections 3.3, 4.3 and 13.2 of the Credit Agreement, and (iii) for its own account, in an amount payable under Section l3.10(b)(v) of the Credit Agreement with respect to each assignment by an Assignor under this Assignment and Acceptance; and (c) the receipt by the Issuing Lender of cash collateral in the manner set forth in Section 2.5(c) of the Credit Agreement pursuant to documentation in form and substance reasonably satisfactory to the Issuing Lender in an amount, as set forth on Schedule B, equal to 105% of the aggregate outstanding undrawn face amount of all Letters of Credit issued by the Issuing Lender under the Credit Agreement. If the Assignment Effective Date does not occur on February 15, 2000, the amounts payable under clause (b)(i) and (ii) above shall be updated pursuant to a new Schedule B to be prepared by the Existing Agent. 8. From and after the Assignment Effective Date, (a) each Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents, (b) the Issuing Lender hereby releases each of the Assignors from its obligations to the Issuing Lender as an L/C Participant in respect of Letters of Credit issued by the Issuing Lender under the Credit Agreement which are outstanding on the Assignment Effective Date, (c) the Existing Agent, the Issuing Lender and each Existing Lender shall continue to be entitled to the benefit of each of the provisions of the Credit Agreement which are stated to survive the termination of the Credit Agreement and the payment of all amounts owing thereunder, including without limitation, Sections 4.11, 12.7 and 13.2 of the Credit Agreement, and any amounts owing thereunder shall constitute "Obligations" under the Pledge Agreement and the Security Agreement and "Borrower Obligations" under the Guaranty Agreement and (d) the Issuing Lender shall cease to have any obligation to issue any Letters of Credit under the Credit Agreement. Notwithstanding the foregoing, each of the Existing Lenders, in their capacities as Holders under, and as defined in, each of the Warrant Agreement and the Registration Rights Agreement shall retain their rights and interests in effect as of the Assignment Effective Date under each of the Warrant Agreement and the Registration Rights Agreement, which in each case shall remain in full force and effect. 9. The Borrower, on behalf of the Borrower and the Guarantors, for themselves and on behalf of their respective officers, directors, employees, and their respective successors and assigns, do hereby forever (a) release, discharge and acquit each of the Existing 3 4 Agent and the Existing Lenders and their respective parents, subsidiaries and affiliate corporations, officers, directors, shareholders, employees, attorneys, agents and servants, and their respective predecessors, successors and assigns (collectively, the "Released Parties"), of and from any and all claims, demands, obligations, liabilities, indebtedness, responsibilities, disputes, breaches of contract, breaches of duty or any relationship, acts, omissions, cause or causes of action (whether at law or in equity), debts, sums of money, accounts, compensations, contracts, controversies, promises, damages, costs, rights of offset, losses and expenses, of every type, kind, nature, description or character, whensoever arising out of any actions or omissions of the Released Parties occurring at any time through the date hereof, and irrespective of how, why, or by reason of what facts, whether heretofore or now existing, held or alleged, or which could, might or may be claimed to exist, of whatever kind or nature, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, matured or unmatured, fixed or contingent (collectively, the "Claims"), against the Released Parties, or any of them, each as though fully set forth herein at length which in any way arise out of, are connected with or relate to the Credit Agreement or the other Loan Documents or to the loans and other financial accommodations made pursuant to and evidenced by the Credit Agreement or to the Obligations, any and all guaranties of the Borrower Obligations (as defined in the Guaranty Agreement) and/or any and all collateral security for the Obligations (as defined in the Security Documents), as well as any action or inaction of any Released Party with respect to the Credit Agreement or any other Loan Document or to the loans and other financial accommodations made pursuant to and evidenced by the Credit Agreement, or to the Obligations, any and all guaranties of the Borrower Obligations (as defined in the Guaranty Agreement) and/or any and all collateral security for the Obligations (as defined in the Security Documents), but excluding any Claim arising as a result of a breach of this Assignment and Acceptance by the Released Parties, and (b) agree not to bring any action in any judicial, administrative or other proceeding against the Released Parties, or any of them, alleging any such Claim, except in the case of any Claim arising as a result of a breach of this Assignment and Acceptance. 10. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. EACH OF THE ASSIGNORS AND THE ASSIGNEE HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS ASSIGNMENT AND ACCEPTANCE. 11. This Assignment and Acceptance may be executed in one or more counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. This Assignment and Acceptance is being executed and delivered pursuant to Section 13.10(b) of the Credit Agreement and is hereby deemed to be recorded in the Register pursuant to Section 13.10(d) of the Credit Agreement. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers. BORROWER: GT INTERACTIVE SOFTWARE CORP. By: ----------------------------------- Name: Title: ASSIGNORS: FIRST UNION NATIONAL BANK, as Existing Agent, as Issuing Lender and as an Existing Lender By: ----------------------------------- Name: Title: BANK OF AMERICA., N.A. By: ----------------------------------- Name: Title: EUROPEAN AMERICAN BANK By: ----------------------------------- Name: Title: 5 6 FLEET BANK, N.A. By: ----------------------------------- Name: Title: NATIONAL BANK OF CANADA By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: THE BANK OF NOVA SCOTIA By: ----------------------------------- Name: Title: 6 7 ASSIGNEE: INFOGRAMES ENTERTAINMENT, S.A. By: ----------------------------------- Name: Title: 7 EX-10.26H 13 ex10-26h.txt WARRANT AGREEMENT 1 Exhibit 10.26h WARRANT AGREEMENT Dated as of February 15, 2000 among INFOGRAMES, INC. (formerly GT Interactive Software Corp.), INFOGRAMES ENTERTAINMENT S.A. and CALIFORNIA U.S. HOLDINGS, INC. 2 WARRANT AGREEMENT, dated as of February 15, 2000 (as amended, restated, supplemented or otherwise modified from time to time, this "Agreement"), by and among INFOGRAMES, INC. (formerly GT Interactive Software Corp.), a Delaware corporation (the "Company"), INFOGRAMES ENTERTAINMENT S.A. a French societe anonyme ("Infogrames") and CALIFORNIA U.S. HOLDINGS, INC. ("CUSH"), a California corporation and wholly-owned subsidiary of Infogrames. W I T N E S S E T H : WHEREAS, pursuant to the terms of the Master Assignment and Acceptance dated as of February 15, 2000 (the "Assignment and Acceptance"), by and among (i) the Company, as borrower, (ii) First Union National Bank, Bank of America, N.A., European American Bank, Fleet Bank, N.A., National Bank of Canada, The Bank of Nova Scotia (collectively the "Previous Lenders"), and (iii) Infogrames, as assignee, the Previous Lenders assigned to Infogrames all the rights and obligations of the Previous Lenders under the Credit Agreement dated as of September 11, 1998 (as amended, restated, supplemented or otherwise modified, the "Credit Agreement"), by and among the Company and the Previous Lenders; WHEREAS, pursuant to the terms of the Collateral Assignment Agreement dated as of February 15, 2000 (the "Collateral Assignment Agreement"), by and among (i) the Company, (ii) First Union National Bank, (as administrative agent under the Credit Agreement, the "Agent"), and (iii) Infogrames (as successor agent, the "Successor Agent"), the Agent assigned to the Successor Agent all of its rights, titles and interests in, to and under (a) a certain Second Amended and Restated Pledge Agreement, (b) a certain Second Amended and Restated Security Agreement and (c) a certain Guaranty Agreement, all entered into in connection with the Credit Agreement; WHEREAS, in consideration of, among other things, the Previous Lenders' agreement to execute the Second Amendment, Waiver and Agreement dated June 29, 1999 (the "Second Amendment") under the Credit Agreement to, among other things, amend certain provision of the Credit Agreement, the Company entered into a Warrant Agreement dated as of June 29, 1999 (the "Bank Warrant Agreement") with the Previous Lenders; WHEREAS, pursuant to the Bank Warrant Agreement, the Company issued and delivered to the Previous Lenders, (i) warrants to purchase 375,000 shares of Common Stock, exercisable on and after June 29, 1999, (the "First Set of Warrants"), (ii) warrants to purchase 250,000 shares of Common Stock, exercisable on and after October 31, 1999 (the "Second Set of Warrants") and (iii) warrants to purchase 225,000 shares of Common Stock, that would have been exercisable on or after February 28, 2000 if certain conditions had been met (the "Third Set of Warrants"); 1 3 WHEREAS, in connection with the Assignment and Acceptance, the Previous Lenders agreed to return to the Company for cancellation the Third Set of Warrants, and the Company agreed to enter into this Agreement with Infogrames and CUSH and to issue and deliver new warrants to CUSH to purchase 225,000 shares of Common Stock upon the terms and conditions set forth herein (collectively, the "Credit Warrants"); and WHEREAS, in connection with the issuance of the Credit Warrants pursuant to this Agreement, the Company has agreed to provide certain registration rights to CUSH in respect of the shares of Common Stock issuable upon exercise of the Credit Warrants pursuant to an Amended and Restated Registration Rights Agreement (as amended, restated, supplemented or otherwise modified, the "Amended and Restated Registration Rights Agreement"), by and among the Company and CUSH. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: ARTICLE 1. Defined Terms SECTION 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person or any of its Subsidiaries. The term "control" means (a) the power to vote ten percent (10%) or more of the securities or other equity interests of a Person having ordinary voting power, or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Agent" has the meaning set forth in the Recitals. "Agreement" has the meaning set forth in the Preamble. "Amended and Restated Registration Rights Agreement" has the meaning set forth in the Recitals. "Assignment and Acceptance" has the meaning set forth in the Recitals. "Bank Warrant Agreement" has the meaning set forth in the Recitals. 2 4 "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" shall mean any Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in New York City are authorized by law, regulation or executive order to close. "Cashless Exercise" has the meaning set forth in Section 3.4. "Cashless Exercise Ratio" means a fraction, the numerator of which is the excess of the Current Market Value per share of Common Stock on the date of exercise over the Exercise Price per share and the denominator of which is the Current Market Value per share of the Common Stock on the date of exercise. "Certificate Register" has the meaning set forth in Section 2.3. "Collateral Assignment Agreement" has the meaning set forth in the Recitals. "Combination" means an event or series of events in which the Company consolidates with, merges with or into, or sells all or substantially all its property and assets to, another Person or Persons. "Common Stock" means the common stock, $0.01 par value, of the Company together with any other equity securities that may be issued by the Company in substitution therefor. "Company" has the meaning set forth in the Preamble. "Credit Agreement" has the meaning set forth in the Recitals. "Credit Warrants" has the meaning set forth in the Recitals. "Current Market Value" has the meaning set forth in Section 4.8. "CUSH" has the meaning set forth in the Preamble. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" has the meaning set forth in Section 3.1. "Expiration Date" means February 15, 2005. "Fair Value" has the meaning set forth in Section 4.2. "First Set of Warrants" has the meaning set forth in the Recitals. 3 5 "Governmental Authority" means any nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Holder" means CUSH or any person to whom CUSH transfers a Credit Warrant pursuant to the terms and conditions hereof. "Officer" means any of the following: the chief executive officer, chief operating officer, chief financial officer or vice president of the Company. "Person" means an individual, corporation, limited liability company, partnership, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof. "Previous Lenders" has the meaning set forth in the Recitals. "Required Holders" has the meaning set forth in Section 5.5. "Rule 144" means Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation hereinafter adopted by the SEC. "SEC" means the Securities and Exchange Commission (or any successor thereto). "Second Amendment" has the meaning set forth in the Recitals. "Second Set of Warrants" has the meaning set forth in the Recitals. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership, limited liability company or other entity is at the time, directly or indirectly, owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency). 4 6 "Successor Agent" has the meaning set forth in the Recitals. "Third Set of Warrants" has the meaning set forth in the Recitals. "Transfer Agent" has the meaning set forth in Section 3.5. "Transfer Restricted Securities" means the Credit Warrants and the Warrant Shares issued to Holder upon exercise of the Credit Warrants, whether or not such exercise has been effected. Each such security shall cease to be a Transfer Restricted Security when the legend set forth in Section 2.5 is, or may be, removed pursuant to Section 2.4(b)(v). "Voting Stock" of a corporation means all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Warrant Certificate" means the certificate evidencing the Credit Warrants to be delivered pursuant to this Agreement, substantially in the form of Exhibit A hereto. "Warrant Shares" means the shares of Common Stock to be issued and received, or issued and received, as the case may be, upon exercise of the Credit Warrants. SECTION 1.2 Rules of Construction. Unless the text otherwise requires. (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with U.S. generally accepted accounting principles as in effect from time to time; (c) "or" is not exclusive; (d) "including" means including, without limitation; and (e) words in the singular include the plural and words in the plural include the singular. ARTICLE 2. Warrant Certificates SECTION 2.1 Issuance and Dating. The Credit Warrants initially shall be issued as of the date of this Agreement. The Company, Infogrames and CUSH hereby agree that the Credit Warrants initially shall be issued in the name of CUSH and that the provisions of Section 2.4 shall not apply to such issuance. The Credit Warrants shall be evidenced by a Warrant Certificate substantially in the form of Exhibit A, which is hereby 5 7 incorporated in and expressly made a part of this Agreement. The Warrant Certificate may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company) and shall bear the legend required by Section 2.5. Each Credit Warrant shall be dated the date of its execution by the Company. The terms of the Credit Warrants set forth in Exhibit A are part of the terms of this Agreement. SECTION 2.2 Execution. (a) With respect to the Credit Warrants to be issued pursuant to this Agreement, one or more Warrant Certificates representing the Credit Warrants shall be executed on behalf of the Company by manual or facsimile signature by one Officer and attested by its Secretary or an Assistant Secretary under its corporate seal which may be impressed, affixed, imprinted or reproduced on such Warrant Certificate or may be in facsimile form. (b) Upon written order from any Holder, the Company shall execute and deliver to such Holder Warrant Certificates registered in the name or names and for such number of Credit Warrants as shall be specified by such Holder in such order in exchange for Warrant Certificate(s) then held by such Holder for a like number of Credit Warrants. SECTION 2.3 Certificate Register. The Company shall keep a register ("Certificate Register") of the Warrant Certificates and of their transfer and exchange. The Certificate Register shall show the names and addresses of the respective Holders and the date and number of Credit Warrants evidenced on the face of each of the Warrant Certificates. SECTION 2.4 Transfer and Exchange. (a) When Credit Warrants are presented to the Company with a request to register the transfer of such Credit Warrants or to exchange such Credit Warrants for an equal number of Credit Warrants of other authorized denominations, the Company shall register the transfer or make the exchange as requested; provided, however, that the Warrant Certificates representing such Credit Warrants surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company, duly executed by the Holder thereof or the attorney of such Holder duly authorized in writing; and (ii) in the case of Credit Warrants that are Transfer Restricted Securities, shall be accompanied by the following additional information and documents: (A) a certificate from such Holder in substantially the form of Exhibit C hereto certifying that: (1) such securities are being delivered for registration in the name of such Holder without transfer; 6 8 (2) such securities are being transferred to the Company; (3) such securities are being transferred pursuant to an effective registration statement under the Securities Act; or (4) such securities are being transferred (w) to a "qualified institutional buyer" ("QIB") as defined in Rule 144A under the Securities Act pursuant to such Rule 144A, if available, (x) in an offshore transaction in accordance with Rule 904 under the Securities Act, (y) in a transaction meeting the requirements of Rule 144 under the Securities Act or (z) pursuant to another available exemption from the registration requirements of the Securities Act; and (B) in the case of any transfer described under clause (a)(ii)(A)(4)(x), (y) or (z) of this Section 2.4, evidence reasonably satisfactory to the Company (which may include an opinion of counsel) as to compliance with the restrictions set forth in the legend in Section 2.5. (b) (i) To permit registrations of transfers and exchanges, the Company shall execute Warrant Certificates as required pursuant to the provisions of this Section 2.4. (ii) All Warrant Certificates issued upon any registration of transfer or exchange of Credit Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Agreement, as the Warrant Certificates surrendered upon such registration of transfer or exchange. (iii) Prior to due presentment for registration of transfer of any Credit Warrant, the Company may deem and treat the Person in whose name any Credit Warrant is registered as the absolute owner of such Credit Warrant and the Company shall not be affected by notice to the contrary. (iv) No service charge shall be made to a Holder for any registration of transfer or exchange upon surrender of any Warrant Certificate. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Warrant Certificates. (v) Upon any sale or transfer of Credit Warrants pursuant to an effective registration statement under the Securities Act, pursuant to Rule 144(k) under the Securities Act or pursuant to an opinion of counsel reasonably satisfactory to the Company that no legend is required, the Company shall permit the Holder thereof to exchange such Credit Warrants for Credit Warrants represented by Warrant Certificates 7 9 that do not bear the legend set forth in Section 2.5 and rescind any restriction on the transfer of such Credit Warrants. SECTION 2.5 Legends. Except for Warrant Certificates delivered pursuant to Section 2.4(b)(v) of this Agreement, each Warrant Certificate evidencing the Credit Warrants (and all Warrant Certificates issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares (unless such Warrant Shares are not Transfer Restricted Securities) shall bear a legend in substantially the following form (with any appropriate modification for the Warrant Shares): "THE WARRANTS AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE WARRANTS (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; (D) PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT; OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT." SECTION 2.6 Replacement Certificates. If a mutilated Warrant Certificate is surrendered to the Company or if the Holder of a Warrant Certificate claims that the Warrant Certificate has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Warrant Certificate if the requirements of Section 8-405 of the Uniform Commercial Code as in effect in the State of New York are met. If required by the Company, such Holder shall furnish an indemnity sufficient in the reasonable judgment of the Company to protect the Company from any loss which it may suffer if a Warrant Certificate is replaced. The Company may charge the Holder for its reasonable expenses in replacing a Warrant Certificate. Every replacement Warrant Certificate is an additional obligation of the Company. 8 10 SECTION 2.7 Cancellation. (a) In the event the Company shall purchase or otherwise acquire Credit Warrants, the Warrant Certificates in respect thereof shall thereupon be delivered to the Company for cancellation. (b) The Company shall cancel and destroy all Warrant Certificates surrendered for transfer, exchange, replacement, exercise or cancellation. The Company may not issue new Warrant Certificates to replace Warrant Certificates to the extent they evidence Credit Warrants which have been exercised or Credit Warrants which the Company has purchased or otherwise acquired. ARTICLE 3. Exercise Terms SECTION 3.1 Exercise Price. Each Credit Warrant shall entitle the Holder thereof to purchase one share of Common Stock for a per share exercise price of $0.01 (the "Exercise Price"). SECTION 3.2 Limitations on Exercise. Each Credit Warrant may be exercised at any time in the discretion of the Holder thereof, provided, that no Credit Warrant shall be exercisable prior to February 28, 2000 and after the Expiration Date. SECTION 3.3 Expiration. A Credit Warrant shall terminate and become void as of the earlier of (a) the close of business on the Expiration Date and (b) the time and date such Credit Warrant is exercised. The Credit Warrants shall terminate and become void after the Expiration Date. SECTION 3.4 Manner of Exercise. Credit Warrants may be exercised upon (a) surrender to the Company of the Warrant Certificates, together with the form of election to purchase Common Stock attached as Exhibit B hereto duly filled in and signed by the Holder thereof and (b) payment to the Company of the Exercise Price for the number of Warrant Shares in respect of which such Credit Warrant is then exercised. Such payment shall be made (i) in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose or (ii) by the surrender (which surrender shall be evidenced by cancellation of the number of Credit Warrants represented by any Warrant Certificate presented in connection with a Cashless Exercise) of a Credit Warrant or Credit Warrants (represented by one or more relevant Warrant Certificates), and without the payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Credit Warrant would otherwise then be nominally exercised if payment of the Exercise Price as of the date of exercise were being made in cash and (2) the Cashless Exercise Ratio. An exercise of a Credit Warrant in accordance with clause (ii) of the immediately preceding sentence is herein called a "Cashless Exercise". All provisions of 9 11 this Agreement shall be applicable with respect to an exercise of Warrant Certificates pursuant to a Cashless Exercise for less than the full number of Credit Warrants represented thereby. Subject to Section 3.2, the rights represented by the Credit Warrants shall be exercisable at the election of the Holder thereof either in full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise in respect of less than all the Warrant Shares purchasable on such exercise at any time prior to the Expiration Date a new Warrant Certificate exercisable for the remaining Warrant Shares will be issued. The Company shall execute and deliver to the Holder the required new Warrant Certificate. SECTION 3.5 Issuance of Warrant Shares. Subject to Section 2.6, upon the surrender of Warrant Certificates and payment of the per share Exercise Price, as set forth in Section 3.4, the Company shall issue (and, if applicable, cause any transfer agent for the Common Stock (the "Transfer Agent") to countersign) and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Credit Warrants or other securities or property to which it is entitled, registered or otherwise to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price as set forth in Section 3.4. SECTION 3.6 Fractional Warrant Shares. The Company shall not be required to issue fractional Warrant Shares on the exercise of Credit Warrants. If more than one Credit Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.6, be issuable on the exercise of any Credit Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value for one Warrant Share on the Business Day immediately preceding the date the Credit Warrant is exercised, multiplied by such fraction, computed to the nearest whole cent. SECTION 3.7 Reservation of Warrant Shares. The Company shall at all times keep reserved out of its authorized shares of Common Stock a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Credit Warrants. Any registrar for the Common Stock shall at all times until the Expiration Date, or the time at which all Credit Warrants have been exercised or cancelled, reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with any Transfer Agent. All Warrant Shares which may be issued upon exercise of Credit Warrants shall, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company will supply any Transfer Agent with duly 10 12 executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.6. The Company will furnish to any Transfer Agent a copy of all notices of adjustments and certificates related thereto transmitted to each Holder. SECTION 3.8 Compliance with Law. If any shares of Common Stock required to be reserved for purposes of exercise of Credit Warrants require, under any other Federal or state law or applicable governing rule or regulation of any national securities exchange, registration with or approval of any Governmental Authority, or listing on any such national securities exchange before such shares may be issued upon exercise, the Company will cause such shares to be duly registered or approved by such Governmental Authority or listed on the relevant national securities exchange; provided that the Company shall not have any obligation to register the Warrant Shares under the Securities Act except pursuant to the Amended and Restated Registration Rights Agreement. SECTION 3.9 Registration Rights. Each Holder of the Credit Warrants and the Warrant Shares shall be entitled to the registration rights in respect of the Warrant Shares set forth in the Amended and Restated Registration Rights Agreement. ARTICLE 4. Antidilution Provisions SECTION 4.1 Changes in Common Stock. In the event that at any time or from time to time after the date hereof the Company shall (a) pay a dividend or make a distribution on its Common Stock in shares of its Common Stock or other shares of capital stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (d) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock purchasable upon exercise of each Credit Warrant immediately after the happening of such event shall be adjusted so that, after giving affect to such adjustment, the Holder of each Credit Warrant shall be entitled to receive the number of shares of Common Stock upon exercise that such holder would have owned or have been entitled to receive had such Credit Warrants been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 4.1 shall become effective immediately after the effective date, retroactive to the record date therefor in the case of a dividend or distribution in shares of Common Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. SECTION 4.2 Cash Dividends and Other Distributions. In the event that at any time or from time to time after the date hereof the Company shall distribute to 11 13 holders of Common Stock (a) any dividend or other distribution of cash, evidences of its indebtedness, shares of its capital stock or any other properties or securities or (b) any options, warrants or other rights to subscribe for or purchase any of the foregoing (other than, in each case set forth in (a) and (b), (i) any dividend or distribution described in Section 4.1 or (ii) any rights, options, warrants or securities described in Section 4.3) then the number of shares of Common Stock thereafter purchasable upon the exercise of each Credit Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Credit Warrant immediately prior to the record date for any such dividend or distribution by a fraction, the numerator of which shall be the Current Market Value per share of Common Stock on the record date for such distribution, and the denominator of which shall be such Current Market Value per share of Common Stock less the sum of (x) any cash distributed per share of Common Stock and (y) the fair value (the "Fair Value") (as determined in good faith by the Board, whose determination shall be evidenced by a Board resolution delivered to each Holder) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription of purchase rights (notwithstanding the foregoing, if the Fair Value per share of Common Stock in the above formula equals or exceeds the Current Market Value per share of Common Stock in the above formula, then the Current Market Value per share of Common Stock shall be equal to the Fair Value per share of the Common Stock on the record date as determined in good faith by the Board and described in a Board resolution delivered to each Holder). Such adjustments shall be made whenever any distribution is made and shall become effective as of the date of distribution, retroactive to the record date for any such distribution; provided, however, that the Company is not required to make an adjustment pursuant to this Section 4.2 if at the time of such distribution the Company makes the same distribution to Holders of Credit Warrants as it makes to holders of Common Stock pro rata based on the number of shares of Common Stock for which such Credit Warrants are exercisable (whether or not currently exercisable). SECTION 4.3 Rights Issue. In the event that at any time or from time to time after the date hereof the Company shall issue, sell, distribute or otherwise grant any rights to subscribe for or to purchase, or any options or warrants for the purchase of, or any securities convertible or exchangeable into, Common Stock, entitling such holders to subscribe for or purchase shares of Common Stock or stock or securities convertible into Common Stock, whether or not immediately exercisable, convertible or exchangeable, as the case may be, and the price per share of Common Stock issuable upon exercise, conversion or exchange thereof is lower at the record date for such issuance than the then Current Market Value per share of Common Stock, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Credit Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Credit Warrant immediately prior to the date of issuance of such rights, options, warrants or securities by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the number of additional 12 14 shares of Common Stock offered for subscription or purchase or into or for which such securities are convertible or exchangeable, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the total number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate consideration received through issuance of such rights, warrants, options, or convertible securities. Such adjustment shall be made whenever such rights, options or warrants are issued and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights, options, warrants or securities. Notwithstanding any other provision of this Section 4.3, the number of shares of Common Stock purchasable upon exercise of any Credit Warrant shall not be adjusted pursuant to this Section 4.3 in connection with the issuance or grant of Common Stock upon the exercise of rights or options to the Company's employees under bona fide employee benefit plans adopted prior to the date of this Agreement by the Board and approved by the holders of Common Stock when required by law, if the number of shares of Common Stock underlying such rights and options do not exceed 5% of the Common Stock outstanding on the date of this Agreement. If the Company at any time shall issue two or more securities as a unit and one or more of such securities shall be rights, options or warrants for or securities convertible or exchangeable into, Common Stock subject to this Section 4.3, the consideration allocated to each such security shall be determined in good faith by the Board. SECTION 4.4 Issuance of Additional Shares of Common Stock. In the event that at any time or from time to time after the date hereof the Company shall issue or sell any additional shares of Common Stock for consideration in an amount per additional share of Common Stock less than the Current Market Value, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Credit Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of each Credit Warrant immediately prior to such issue or sale by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, and the denominator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale, and (ii) the number of shares of Common Stock which could be purchased at the Current Market Value with the aggregate consideration received from the issuance or sale of the additional shares of Common Stock. For the purposes of this Section 4.4, the date as of which the Current Market Value per share of Common Stock shall be computed shall be the earlier of (x) the date on which the Company shall enter into a firm contract for the issuance of such additional shares of Common Stock or (y) the date of actual issuance of such additional shares of Common Stock. Notwithstanding any other provision of this Section 4.4, the number of shares of Common Stock purchasable upon exercise of any Credit Warrant shall not be adjusted pursuant to this Section 4.4 as a result of the issuance or sale of Common Stock in connection with: (a) a bona fide firm commitment underwritten public offering of 13 15 Common Stock of the Company, (b) a transaction to which Section 4.1, 4.2 or 4.3 is applicable, (c) the exercise of the Credit Warrants, the exercise of any other warrants issued by the Company prior to the date of this Agreement or the exercise of any warrants issued in connection with the Shareholder Subordinated Debt (as defined in the Credit Agreement), (d) a private placement of Common Stock of the Company sold for a cash purchase price not more than 10% below the Current Market Value of the Common Stock so sold in such private placement and (e) the exercise of rights or options issued to the Company's employees under bona fide employee benefit plans adopted by the Board and approved by the holders of Common Stock when required by law, if such Common Stock would otherwise be covered by this Section 4.4. SECTION 4.5 Combination; Liquidation. (a) Except as provided in Section 4.5(b), in the event of any Combination, each Holder shall have the right to receive upon exercise of its Credit Warrants such number of shares of capital stock or other securities or property which such Holder would have been entitled to receive upon or as a result of such Combination had such Credit Warrants been exercised immediately prior to such event. (b) In the event of (i) a Combination where consideration to holders of Common Stock in exchange for their shares is payable solely in cash, or (ii) the dissolution, liquidation or winding-up of the Company, then each Holder of the Credit Warrants will be entitled to receive distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of its Credit Warrants, as if such Credit Warrants had been exercised immediately prior to such event, less the Exercise Price. In case of any Combination described in this Section 4.5(b), the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall make payment to each Holder by delivering a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by such Holder surrendering such Credit Warrants. SECTION 4.6 Tender Offers: Exchange Offers. In the event that the Company or any subsidiary of the Company shall purchase shares of Common Stock pursuant to a tender offer or an exchange offer for a price per share of Common Stock that is greater than the then Current Market Value per share of Common Stock in effect at the end of the trading day immediately following the day on which such tender offer or exchange offer expires, then the number of shares of Common Stock thereafter purchasable upon the exercise of each Credit Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock purchasable upon the exercise of such Credit Warrant immediately prior to such purchase by a fraction the numerator of which shall be the sum of (x) the fair market value of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer or exchange offer) of all shares of Common Stock validly tendered or exchanged and not withdrawn as of the expiration time of such tender offer or exchange offer (the "Purchased Shares") and (y) the product of the number 14 16 of shares of Common Stock outstanding (less the Purchased Shares) at the expiration time of such offer or exchange offer and the first reported sales price of the Common Stock on the trading day immediately following the day on which such tender offer or exchange offer expires and the denominator of which shall be the number of shares of Common Stock outstanding (including any Purchased Shares) at the expiration time of such tender offer or exchange offer multiplied by the first reported sales price of the Common Stock on the trading day immediately following the day on which such tender offer or exchange offer expires, such increase to become effective immediately prior to the opening of business on the day immediately following the day on which such tender offer or exchange offer expires. SECTION 4.7 Other Events. If any event occurs as to which the foregoing provisions of this Article 4 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Credit Warrants in accordance with the essential intent and principles of such provisions, then such Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of decreasing the number of shares of Common Stock subject to purchase upon exercise of this Credit Warrant. SECTION 4.8 Current Market Value. For the purpose of any computation of Current Market Value under this Article 4 and Section 3.6, the "Current Market Value" per share of Common Stock at any date shall be (a) for purposes of Section 3.6, the closing price on the Business Day immediately prior to the date of the exercise of the applicable Credit Warrant pursuant to Article 3 and (b) in all other cases, the average of the daily closing prices for the 20 consecutive trading days ending on the last full trading day on the exchange or market specified in the second succeeding sentence prior to such date. The closing price for any day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case (1) on the principal national securities exchange on which the shares of Common Stock are listed or to which such shares are admitted to trading or (2) if the Common Stock is not listed or admitted to trading on a national securities exchange, in the over-the-counter market as reported by the Nasdaq National Market or any comparable system or (3) if the Common Stock is not listed on the Nasdaq National Market or a comparable system, as furnished by two members of the NASD selected from time to time in good faith by the Board for that purpose. In the absence of all of the foregoing, or if for any other reason the Current Market Value per share cannot be determined pursuant to the foregoing provisions of this Section 4.8, the Current Market Value per share shall be the (x) the fair market value thereof determined in good faith in the most recently completed arm's-length transaction between the Company and a person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the three months preceding such date or (y) if no transaction shall have occurred on such date or within 15 17 such three-month period, the fair market value thereof as determined by an investment bank of nationally recognized standing selected by the Company and acceptable to the Required Holders. The Company shall pay the fees and expenses of any investment bank involved in the determination of Current Market Value. SECTION 4.9 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges which resulted in the adjustments pursuant to this Article 4, if any thereof shall not have been exercised, the number of Warrant Shares purchasable upon the exercise of each Credit Warrant shall be readjusted as if (a) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (b) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised; provided, however, that no such readjustment shall (except by reason of an intervening adjustment under Section 4.1) have the effect of decreasing the number of Warrant Shares purchasable upon the exercise of each Credit Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. SECTION 4.10 Minimum Adjustment. The adjustments required by the preceding Sections of this Article 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the number of shares of Common Stock purchasable upon exercise of Credit Warrants that would otherwise be required shall be made (except in the case of a subdivision or combination of shares of Common Stock, as provided for in Section 4.1) unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% the number of shares of Common Stock purchasable upon exercise of Credit Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Article 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Article 4, fractional interests in Common Stock shall be taken into account to the nearest one-hundredth of a share. SECTION 4.11 Notice of Adjustment. Whenever the number of shares of Common Stock and other property, if any, purchasable upon exercise of Credit Warrants is adjusted, as herein provided, the Company shall deliver to each Holder a certificate of a firm of independent accountants (who may be the regular accountants employed by the Company) setting forth, in reasonable detail, the event requiring the 16 18 adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board determined the fair market value of any evidences of indebtedness, other securities or property or warrants or other subscription or purchase rights), and specifying the number of shares of Common Stock purchasable upon exercise of Credit Warrants after giving effect to such adjustment. SECTION 4.12 Notice of Certain Transactions. In the event that the Company shall propose (a) to pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other distribution to the holders of its Common Stock, (b) to offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any reclassification of its Common Stock, capital reorganization or Combination or (d) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or in the event of a tender offer or exchange offer described in Section 4.6, the Company shall within five Business Days send to each Holder a notice, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, purchasable upon exercise of each Credit Warrant after giving effect to any adjustment which will be required as a result of such action. Such notice shall be given by the Company as promptly as possible and, in the case of any action covered by clause (a) or (b) above, at least ten days prior to the record date for determining holders of the Common Stock for purposes of such action and, in the case of any other such action, at least 15 Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. SECTION 4.13 Adjustment to Warrant Certificate. The form of Warrant Certificate need not be changed because of any adjustment made pursuant to this Article 4, and Warrant Certificates issued after such adjustment may state the same number of shares of Common Stock as are stated in any Warrant Certificates issued prior to the adjustment. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. 17 19 ARTICLE 5. Miscellaneous SECTION 5.1 Representations and Warranties. The Company hereby represents and warrants to each Holder that (a) the Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, (b) the Company has the corporate power and authority to execute and deliver this Warrant Agreement and the Warrant Certificates, to issue Credit Warrants and Warrant Shares and to perform its obligations under this Warrant Agreement and the Warrant Certificates, (c) the execution, delivery and performance by the Company of this Warrant Agreement and the Warrant Certificates, the issuance of the Credit Warrants and the issuance of the Warrant Shares upon exercise of the Credit Warrants have been duly authorized by all necessary corporate action and do not and will not violate, or result in a breach of, or constitute a default under, or require any consent under, or result in the creation of any lien upon the Company's assets pursuant to, any law, rule, regulation or contractual obligation binding upon the Company, (d) this Warrant Agreement has been duly executed and delivered by the Company and constitutes a legal, valid, binding and enforceable obligation of the Company, (e) when the Credit Warrants and Warrant Certificates have been issued by the Company as contemplated hereby, such Credit Warrants and Warrant Certificates will constitute legal, valid, binding and enforceable obligations of the Company and (f) the Warrant Shares, when issued by the Company upon exercise of the related Credit Warrants in accordance with the terms hereof, will be duly authorized, validly issued, fully paid and nonassessable shares of the Common Stock of the Company with no personal liability attaching to the ownership thereof. SECTION 5.2 Reports; Rule 144A. (a) The Company shall provide the Holder with such financial statements and reports as are distributed to holders of Common Stock generally. (b) The Company hereby agrees to make available upon request, for so long as any Credit Warrants or Warrant Shares remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to any Holder or beneficial owner of Credit Warrants or Warrant Shares in connection with any sale thereof and any prospective purchaser thereof from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales pursuant to Rule 144A. SECTION 5.3 Persons Benefitting. Nothing in this Agreement is intended or shall be construed to confer upon any Person other than the Company and any Holder any right, remedy or claim under or by reason of this agreement or any part hereof. SECTION 5 4 Rights of Holders. Except as otherwise specifically required herein, holders of unexercised Credit Warrants are not entitled (a) to receive 18 20 dividends or other distributions, (b) to receive notice of or vote at any meeting of the stockholders, (c) to consent to any action of the stockholders, (d) to receive notice of any other proceedings of the Company or (e) to exercise any other rights as stockholders of the Company. SECTION 5.5 Amendment. Any amendment or supplement to this Agreement (including any Exhibit hereto) shall require the written consent of the Holders of a majority of the outstanding Credit Warrants (the "Required Holders"). The consent of each Holder directly affected shall be required for any amendment pursuant to which the exercisability of any Credit Warrant would be delayed, the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Credit Warrants would be decreased (other than pursuant to adjustments provided herein). SECTION 5.6 Notices. (a) All notices and communications hereunder shall be in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. (b) Notices to any party shall be sent to it at the following addresses, or any other address as to which the Company or the Holder, as the case may be, are notified in writing. If to the Company: Infogrames, Inc. 417 Fifth Avenue, 8th Floor New York, New York 10016 Attention: Director of Legal Services Telephone No.: (212) 679-3424 Telecopy No.: (212) 726-6500 With a copy to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Attention: Dennis J. Friedman, Esq. Telephone No.: (212) 408-5100 Telecopy No.: (212) 541-5369 If to any Holder: To the Address set forth in the Certificate Register 19 21 SECTION 5.7 GOVERNING LAW. THIS AGREEMENT AND THE WARRANT CERTIFICATES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES REGARDING CONFLICTS OF LAW. SECTION 5.8 Successors. All agreements of the Company in this Agreement and the Warrant Certificates shall bind its successors. SECTION 5.9 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 5.10 Headings. The headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 5.11 Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. SECTION 5.12 Prior Agreements. This Agreement supercedes any and all agreements, whether oral or written, among the parties hereto related to the issuance by the Company to Infogrames or CUSH of warrants to acquire Common Stock in connection with the execution and performance of the Assignment and Acceptance. All such agreements are hereby terminated and shall be of no further force and effect. Any warrant certificates issued in connection with such prior agreement are hereby cancelled without further action on the part of Infogrames, CUSH or the Company. 20 22 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. INFOGRAMES, INC. By: /s/ David. J. Fremed ------------------------------- Name: David J. Fremed Title: CFO INFOGRAMES ENTERTAINMENT S.A. By: /s/ Bruno Bonnell ------------------------------- Name: Bruno Bonnell Title: CEO CALIFORNIA U.S. HOLDINGS, INC. By: /s/ Thomas Schmider ------------------------------- Name: Thomas Schmider Title: CFO 21 EX-10.26I 14 ex10-26i.txt WARRANT CERTIFICATE 1 Exhibit 10.26i [FORM OF FACE OF WARRANT CERTIFICATE] THE WARRANTS AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE WARRANTS (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, UNLESS PREVIOUSLY REGISTERED UNDER THE SECURITIES ACT, ONLY (A) TO THE COMPANY; (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE); (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A; (D) PURSUANT TO AN OFFSHORE TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT; OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. Certificate for 225,000 Warrants WARRANTS TO PURCHASE COMMON STOCK OF INFOGRAMES, INC. (formerly GT Interactive Software Corp.) THIS CERTIFIES THAT California U.S. Holdings, Inc., or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware corporation (the "Company"), one share of common stock, $0.01 par value, of the Company (the "Common Stock") at the per share exercise price of $0.01 (the "Exercise Price"), or by Cashless Exercise referred to below. This Warrant Certificate shall terminate and become void as of the close of business on February 15, 2005 (the 2 "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares purchasable upon exercise of the Warrants shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of February 15, 2000 (as amended, restated, supplemented or otherwise modified from time to time, the "Warrant Agreement"), among the Company and the parties referred to therein, and is subject to the terms and provisions contained in the Warrant Agreement. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company and the Holder of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part (i) by surrender of this Warrant Certificate with the form of election to purchase Warrant Shares attached hereto duly executed and with the simultaneous payment of the Exercise Price in cash (subject to adjustment) to the Company or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall be made in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose. Payment by Cashless Exercise shall be made by the surrender of a Warrant or Warrants represented by one or more Warrant Certificates and without payment of the Exercise Price in cash, in exchange for the issuance of such number of shares of Common Stock equal to the product of (1) the number of shares of Common Stock for which such Warrant would otherwise then be nominally exercised if payment of the Exercise Price were being made in cash and (2) the Cashless Exercise Ratio. The Warrants shall be exercisable from time to time in the discretion of the Holder on or after February 28, 2000, provided, that in no event shall the Warrants be exercisable after the Expiration Date. In the event the Company enters into a Combination, the Holder hereof shall exercise the Warrants evidenced by this Warrant Certificate and will be entitled to receive upon exercise of the Warrants the shares of capital stock or other securities or other property of such surviving entity as such Holder would have been entitled to receive upon or as the result of such Combination had the Holder exercised its Warrants immediately prior to such Combination; provided, that in the event that, in connection with such Combination, consideration to holders of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such events, less the Exercise Price. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the 3 Warrant Certificates pursuant to Section 2.4 of the Warrant Agreement but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. Upon any partial exercise of the Warrants, there shall be issued to the Holder hereof a new Warrant Certificate in respect of the shares of Common Stock as to which the Warrants shall not have been exercised. This Warrant Certificate may be exchanged by presenting this Warrant Certificate to the Company properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Current Market Value for one Warrant Share on the date the Warrant is exercised, multiplied by such fraction, computed to the nearest whole cent. The Warrants do not entitle any holder hereof to any of the rights of a stockholder of the Company. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issuance, be duly and validly issued and fully paid and non-assessable. INFOGRAMES, INC. By: /s/ David J. Fremed ----------------------------- Title: David J. Fremed Name: CFO [SEAL] Attest: /s/ Denis Guyennot ------------------------------- Secretary 4 FORM OF ELECTION TO PURCHASE WARRANT SHARES (to be executed only upon exercise of Warrants) The undersigned hereby irrevocably elects to exercise [ ] Warrants at an exercise price per Warrant (subject to adjustment) of $0.01 to acquire an equal number of shares of Common Stock of Infogrames, Inc. on the terms and conditions specified in the within Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to Infogrames, Inc. and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: ____________, 20 __ _______________________________ (Signature of Owner) _______________________________ (Street Address) _______________________________ (City) (State) (Zip Code) Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised Warrants evidenced by the within Warrant Certificate to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 5 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of Infogrames, Inc. (the "Company") This Certificate relates to __________ Warrants held in definitive form by _______________ (the "Transferor"). The Transferor has requested the Company by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of this Warrant does not require registration under the Securities Act of 1933 (the "Securities Act"), because(1): [ ] Such Warrant is being acquired for the Transferor's own account without transfer. [ ] Such Warrant is being transferred to the Company. [ ] Such Warrant is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. [ ] Such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A. [ ] Such Warrant is being transferred pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act. [ ] Such Warrant is being transferred pursuant to another available exemption from the registration requirements under the Securities Act. The Company is entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. [INSERT NAME OF TRANSFEROR] By ________________________ Title: Date: _________ 1. Please check applicable box EX-10.26J 15 ex10-26j.txt FOURTH AMENDMENT 1 Exhibit 10.26j FOURTH AMENDMENT THIS FOURTH AMENDMENT (this "Amendment") is made and entered into as of this 15th day of February, 2000, by and among GT Interactive Software Corp., a Delaware corporation (the "Borrower"), and Infogrames Entertainment SA (the "Lender"). Statement of Purpose The Borrower is a party to the Credit Agreement, dated as of September 11, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), among the Borrower, the lenders from time to time parties thereto (the "Existing Lenders") and First Union National Bank, as administrative agent for the Existing Lenders (the "Existing Agent"). Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. Pursuant to a Master Assignment and Acceptance, dated as of the date hereof (the "Assignment and Acceptance"), the Lender has acquired all of the commitments of each of the Existing Lenders under the Credit Agreement. Simultaneously with the acquisition by the Lender of the commitments under the Credit Agreement pursuant to the Assignment and Acceptance, the Existing Agent has resigned as Administrative Agent under the Credit Agreement and the other Loan Documents, and the Borrower has informed the Existing Agent that the Borrower and the Lender, as the sole lender under the Credit Agreement on the date hereof, has appointed the Lender as successor Administrative Agent under the Credit Agreement and the other Loan Documents pursuant to Section 12.9 of the Credit Agreement. In connection with the resignation of the Existing Agent and pursuant to a Collateral Assignment Agreement, dated as of the date hereof (the "Collateral Assignment Agreement"), the Existing Agent has assigned to the Lender, as successor Administrative Agent under the Credit Agreement, all of the Existing Agent's right, title and interest in the Collateral and the Collateral Documents (each such capitalized term as defined in the Collateral Assignment Agreement). The Borrower and the Lender have requested that certain Letters of Credit described on Schedule A hereto that were issued under the Credit Agreement and are outstanding on the date hereof remain outstanding until the expiry thereof by their respective terms and have requested that the Existing Agent, as Issuing Lender under the Credit Agreement, enter into a Reimbursement and Cash Collateral Agreement pursuant to which such Letters of Credit, subject to the terms and conditions hereof, will remain outstanding. In connection with the aforesaid, the Borrower has requested that the Lender agree to amend certain provisions of the Credit Agreement as set forth more fully below and, subject to the terms and conditions hereof, the Lender is willing to agree to such requested amendments. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 2 SECTION 1. AMENDMENTS. 1.1 Amendments to Section 1.1 (Definitions). Section 1.1 of the Credit Agreement is hereby amended by adding the following new defined term in its proper alphabetical order: "Reimbursement and Cash Collateral Agreement" means the Reimbursement and Cash Collateral Agreement, dated as of February 15, 2000, between the Borrower and First Union. 1.2 Amendment to Article X (Negative Covenants). Article X of the Credit Agreement is hereby amended by: (a) adding new paragraph (j) at the end of Section 10.1 as follows: "(j) Debt of the Borrower under the Reimbursement and Cash Collateral Agreement."; and (b) adding new paragraph (l) at the end of Section 10.3 as follows: "(l) Liens of First Union securing Debt under the Reimbursement and Cash Collateral Agreement.". SECTION 2. MISCELLANEOUS. 2.1 Continuing Effect; No Other Amendments or Waivers. Except as expressly amended pursuant to this Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Amendment shall not constitute the Lender's consent or indicate its willingness to consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents. 2.2 Counterparts. This Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. 2.3 Governing Law. This Amendment shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. GT INTERACTIVE SOFTWARE CORP. By:______________________________ Name: Title: INFOGRAMES ENTERTAINMENT SA, as Administrative Agent and Lender By:______________________________ Name: Title: -3- EX-10.26K 16 ex10-26k.txt REIMBURSEMENT AND CASH COLLATERAL AGREEMENT 1 Exhibit 10.26k REIMBURSEMENT AND CASH COLLATERAL AGREEMENT, dated as of February 15, 2000, between GT INTERACTIVE SOFTWARE CORP. (the "Account Party") and FIRST UNION NATIONAL BANK ("First Union"), as issuing lender (in such capacity, the "Issuing Lender"). STATEMENT OF PURPOSE: The Account Party and the Issuing Lender are parties to the Credit Agreement, dated as of September 11, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), among the Account Party, as the borrower (in such capacity, the "Borrower"), the lenders from time to time parties thereto (the "Existing Lenders") and First Union National Bank, as administrative agent for the Existing Lenders (the "Existing Agent"). Pursuant to a Master Assignment and Acceptance, dated as of the date hereof (the "Assignment and Acceptance"), Infogrames Entertainment SA ("Infogrames") will acquire all of the commitments of each of the Existing Lenders under the Credit Agreement, and in connection therewith, is required to deposit cash collateral in respect of the Letters of Credit outstanding on the Assignment Effective Date, as more fully set forth therein. In connection with the acquisition by Infogrames of the commitments under the Credit Agreement pursuant to the Assignment and Acceptance, the Existing Agent will resign as Administrative Agent under the Credit Agreement and the other Loan Documents (as defined in the Credit Agreement), and the Borrower has informed the Existing Agent that the Borrower and Infogrames, as the sole lender under the Credit Agreement on the Assignment Effective Date, will appoint Infogrames as successor Administrative Agent under the Credit Agreement and the other Loan Documents pursuant to Section 12.9 of the Credit Agreement. In connection with the resignation of the Existing Agent and pursuant to a Collateral Assignment Agreement, dated as of the date hereof (the "Collateral Assignment Agreement"), the Existing Agent will assign to Infogrames, as successor Administrative Agent under the Credit Agreement, all of the Existing Agent's right, title and interest in the Collateral and the Collateral Documents (each such capitalized term as defined in the Collateral Assignment Agreement). The Account Party and Infogrames have requested that the Letters of Credit issued under the Credit Agreement and outstanding on the Assignment Effective Date remain outstanding until the expiry thereof by their respective terms and have 2 requested that the Issuing Lender enter into this Agreement to set forth (a) the terms under which the Letters of Credit would remain outstanding and (b) the reimbursement obligations in respect of such Letters of Credit. NOW, THEREFORE, in consideration of the premises and to induce the Issuing Lender to enter into this Agreement, the Account Party hereby agrees with the Issuing Lender as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Defined Terms. (a) The following terms shall have the following meanings: "Account Collateral": the collective reference to the Cash Collateral and the Cash Collateral Account. "Agreement": this Reimbursement and Cash Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Application": the application relating to a Letter of Credit pursuant to which the Issuing Lender issued such Letter of Credit "Assignment and Acceptance": as defined in the Statement of Purpose. "Assignment Effective Date": as defined in the Assignment and Acceptance. "Business Day": any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York, are open for the conduct of their domestic commercial banking business. "Cash Collateral": the collective reference to: (a) all cash, instruments, securities and funds deposited from time to time in the Cash Collateral Account; (b) all investments of funds in the Cash Collateral Account and all instruments and securities evidencing such investments; and 2 3 (c) all interest, dividends, cash, instruments, securities and other property received in respect of, or as proceeds of, or in substitution or exchange for, any of the foregoing. "Cash Collateral Account": account no. 2000002149297 established at the office of First Union National Bank at 301 South College Street, Charlotte, North Carolina 28288-0737, designated "GT Interactive Software Collateral Custody Account". "Code": means the Uniform Commercial Code as in effect in the State of North Carolina; provided that, if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interests in any Account Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than North Carolina, "Code" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. "Collateral Assignment Agreement": as defined in the Statement of Purpose. "Contractual Obligation": as to any Person, any material provision of any security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Agreement": as defined in the Statement of Purpose. "Credit Documents": this Agreement, the Applications and all other agreements, instruments and documents delivered in connection herewith. "Dollars" and "$": dollars in lawful currency of the United States of America. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Letters of Credit": the collective reference to the letters of credit described on Schedule A. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or 3 4 any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including without limitation, any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing). "Obligations": in each case, whether now in existence or hereafter arising: (a) the Reimbursement Obligations and (b) all other fees and commissions (including reasonable attorney's fees), charges, obligations, covenants and duties owing by the Account Party to the Issuing Lender under or in respect of this Agreement, any Letter of Credit or any of the other Credit Documents, of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note. "Permitted Investments": investments in (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within 365 days from the date of acquisition thereof, (b) commercial paper maturing no more than 365 days from the date of creation thereof and currently having at least "A2P2" rating obtainable from either Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc., (c) certificates of deposit maturing no more than 365 days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of "A" or better by a nationally recognized rating agency, or (d) time deposits maturing no more than 30 days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the Federal Deposit Insurance Corporation, or any successor thereto (the "FDIC"), or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by First Union as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by First Union as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks. 4 5 "Reimbursement Obligations": the obligations of the Account Party to reimburse the Issuing Lender pursuant to Section 2.3 for amounts drawn under the Letters of Credit. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1994 Revision), International Chamber of Commerce Publication No. 500, and any amendment thereof. (b) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section and paragraph references are to this Agreement unless otherwise specified. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. ARTICLE 2 REIMBURSEMENT PROVISIONS SECTION 2.1 Letters of Credit. (a) The Letters of Credit shall be deemed to have been issued under this Agreement on the Assignment Effective Date and, thereafter, the Letters of Credit and the obligations and liabilities of the Account Party and the Issuing Lender in respect thereof shall be governed by and subject to the terms and conditions of this Agreement. (b) The Account Party hereby acknowledges that the Issuing Lender shall have no obligation to extend the expiry date of any Letter of Credit as set forth on Schedule A. (c) On or before June 30, 2000, the Account Party shall have (i) provided the Issuing Lender with (A) a replacement letter of credit, in form and substance reasonably satisfactory to the Issuing Lender, for each Letter of Credit, or (B) a "back-to-back" letter of credit, in form and substance, and issued by an issuing lender, reasonably 5 6 satisfactory to the Administrative Agent, for each Letter of Credit or (ii) obtained the written consent of the beneficiary of each Letter of Credit to cancel such Letter of Credit. SECTION 2.2 Letter of Credit Fees, Commissions and Other Charges. (a) The Account Party shall pay to the Issuing Lender a letter of credit commission with respect to each Letter of Credit in an amount equal to the face amount of such Letter of Credit multiplied by 4%. Such commission shall be payable monthly in arrears on the last Business Day of each calendar month. (b) In addition to the foregoing commissions, the Account Party shall upon demand by the Issuing Lender pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. SECTION 2.3 Reimbursement Obligations. The Account Party agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Account Party of the date and amount of a draft or drawing paid under any Letter of Credit for the amount of (a) such draft or drawing, as applicable, so paid and (b) any taxes, reasonable fees, charges or other reasonable costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified in Section 5.3 in Dollars and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Account Party under this Article from the date such amounts become payable until payment in full at a rate per annum equal to the Prime Rate, plus 4.5%. If the Account Party fails to timely reimburse the Issuing Lender on the date the Account Party receives the notice referred to in this Section, the Issuing Lender may apply funds on deposit in the Cash Collateral Account to reimburse the Issuing Lender for the amount of any such payment in the manner set forth in Section 3.6. SECTION 2.4 Obligations Absolute. The Account Party's obligations under this Article 2 (including without limitation, the Reimbursement Obligations) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Account Party may have or have had against the Issuing Lender or any beneficiary of a Letter of Credit. The Account Party also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Account Party's Reimbursement Obligations shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any 6 7 dispute between or among the Account Party and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Account Party against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Account Party agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Customs and, to the extent not inconsistent therewith, the Code shall be binding on the Account Party and shall not result in any liability of the Issuing Lender to the Account Party. The responsibility of the Issuing Lender to the Account Party in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. SECTION 2.5 Payments; Computation of Interest and Fees. Each payment by the Account Party on account of any amount due under this Agreement shall be made in Dollars not later than 1:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Issuing Lender at its address for notices specified in Section 5.3, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after 2:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. If any payment under this Agreement shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in such case be included in computing any interest if payable along with such payment. All fees payable hereunder shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed and interest shall be computed on the basis of a 365/66-day year and assessed for the actual number of days elapsed. SECTION 2.6 Evidence of Debt. The Issuing Lender shall maintain, in accordance with its usual practice, an account or accounts evidencing the indebtedness of the Account Party resulting from each drawing under any Letter of Credit and the amounts of principal and interest payable and paid from time to time in respect thereof hereunder. In any legal action or proceeding in respect of this Agreement or any Letter of Credit, the entries made in such account or accounts shall be prima facie evidence of the 7 8 existence and amounts of the obligations of the Account Party therein recorded, provided that any failure to make any such recordation (or any error therein) shall not affect the obligations of the Account Party to make payments required under this Agreement or in respect of any Letter of Credit. SECTION 2.7 Uniform Customs. THE LETTERS OF CREDIT SHALL BE SUBJECT TO THE UNIFORM CUSTOMS. ARTICLE 3 CASH COLLATERAL SECTION 3.1 Grant of Security Interest. In substitution and replacement of the Liens securing the Letters of Credit granted in favor of the Existing Agent pursuant to the Collateral Documents and as collateral security for the prompt and complete payment and performance when due of the Obligations, the Account Party hereby grants to the Issuing Lender a security interest in and to all of the Account Party's right, title and interest in and to the Account Collateral. SECTION 3.2 Maintenance of Cash Collateral Account. The Cash Collateral Account shall be maintained until the Obligations have been paid and performed in full. The Account Collateral shall be subject to the exclusive dominion and control of the Issuing Lender, which shall hold the Cash Collateral and administer the Cash Collateral Account subject to the terms and conditions of this Agreement. The Account Party shall have no right of withdrawal from the Cash Collateral Account nor any other right or power with respect to the Account Collateral, except as expressly provided herein. SECTION 3.3 Representation and Warranty as to Account Collateral. The Account Party represents and warrants to the Issuing Lender that this Agreement, subject to the filings described in Section 3.4(b), creates in favor of the Issuing Lender a perfected, first priority security interest in all of the Account Collateral. SECTION 3.4 Covenants as to Account Collateral. The Account Party covenants and agrees with the Issuing Lender that: (a) The Account Party will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Account Collateral, or (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any 8 9 Person with respect to, any of the Account Collateral, or any interest therein, except for the Lien created by this Agreement. (b) The Account Party will maintain the Lien created by this Agreement as a first, perfected security interest and defend the right, title and interest of the Issuing Lender in and to the Account Collateral against the claims and demands of all Persons whomsoever. At any time and from time to time, upon the written request of the Issuing Lender, and at the sole expense of the Account Party, the Account Party will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Issuing Lender reasonably may request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including without limitation, of financing statements under the Code. SECTION 3.5 Investment of Cash Collateral. (a) Collected funds on deposit in the Cash Collateral Account shall be invested by the Issuing Lender from time to time in Permitted Investments. All investments shall be made in the name of the Issuing Lender or a nominee of the Issuing Lender and in a manner, determined by the Issuing Lender in its sole discretion, that preserves the Issuing Lender's perfected, first priority Lien in such investments. (b) The Issuing Lender shall have no obligation to invest collected funds. (c) The Issuing Lender shall have no responsibility to the Account Party for any loss or liability arising in respect of such investments of the Cash Collateral (including without limitation, as a result of the liquidation of any thereof before maturity), except to the extent that such loss or liability arises from the Issuing Lender's gross negligence or willful misconduct. (d) The Account Party will pay or reimburse the Issuing Lender for any and all reasonable costs, expenses and liabilities of the Issuing Lender incurred in connection with this Agreement, the maintenance and operation of the Cash Collateral Account and the investment of the Cash Collateral, including without limitation, any reasonable investment, brokerage or placement commissions and fees incurred by the Issuing Lender in connection with the investment or reinvestment of the Cash Collateral. SECTION 3.6 Remedies; Application of Cash Collateral. (a) Upon the failure of the Account Party to pay (i) the Reimbursement Obligations under this Agreement when and as due or (ii) any other Obligation (other than any Reimbursement 9 10 Obligation) when and as due and such failure shall continue unremedied for three Business Days, the Issuing Lender may, with notice to the Account Party, but without any other notice of any kind except notices required by law which may not be waived, apply Account Collateral, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or in any way relating to the Account Collateral or the rights of the Issuing Lender hereunder, including without limitation, reasonable attorneys' fees and disbursements of counsel to the Issuing Lender, to the payment of the Obligations then due and payable. In addition to the rights, powers and remedies granted to it under this Agreement, the Issuing Lender shall have all the rights, powers and remedies available at law, including without limitation, the rights and remedies of a secured party under the Code. To the extent permitted by law, the Account Party waives presentment, demand, protest and all notices of any kind, except for notices referred to in this Section, and all claims, damages and demands it may acquire against the Issuing Lender arising out of the exercise by it of any rights hereunder. (b) The Account Party shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Account Collateral are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by the Issuing Lender to collect such deficiency. SECTION 3.7 Release of Cash Collateral. (a) The Issuing Lender shall release the Cash Collateral to the Account Party within two Business Days after the date on which a Letter of Credit shall have expired in accordance with its terms in an amount equal to 105% of the face amount of such Letter of Credit, less (i) any Obligations paid prior to such date in respect of such Letter of Credit and (ii) any Obligations remaining unpaid on such date in respect of such Letter of Credit. (b) Upon release of any portion of the Account Collateral in accordance with this Section, the Issuing Lender shall, at the Account Party's expense, promptly execute and deliver to the Account Party such documents as the Account Party shall request to evidence the release of such Account Collateral from the Liens granted hereby. (c) This Agreement shall remain in effect from the date hereof through and including the date upon which all Obligations shall have been indefeasibly and irrevocably paid and satisfied in full and upon such date this Agreement shall terminate and the Liens granted hereby shall terminate and all rights to the Account Collateral shall revert to the Account Party. Upon any such termination, (i) the Issuing Lender shall promptly assign, release, transfer and deliver to the Account Party the Account Collateral held by it hereunder, all instruments of assignment executed in connection therewith, 10 11 together with all monies held by the Issuing Lender or any of its agents hereunder, free and clear of the Liens hereof and (ii) the Issuing Lender will promptly execute and deliver to the Account Party such documents and instruments (including but not limited to appropriate Uniform Commercial Code termination statements) as the Account Party shall request to evidence such termination in each such case at the expense of the Account Party. SECTION 3.8 Issuing Lender's Appointment as Attorney-in-Fact. (a) To permit the Issuing Lender to exercise it rights and remedies under this Agreement, the Account Party hereby irrevocably constitutes and appoints the Issuing Lender and any officer or agent of the Issuing Lender, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Account Party and in the name of the Account Party or in the Issuing Lender's own name, from time to time in the Issuing Lender's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including without limitation, any financing statements, endorsements, assignments or other instruments of transfer. (b) The Account Party hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in Section 3.8(a). All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Liens created hereby are released. SECTION 3.9 Duty of Issuing Lender. The Issuing Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Account Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to comply with the specific duties and responsibilities set forth herein and to exercise reasonable care to assure the safe custody of the Account Collateral. The powers conferred on the Issuing Lender in this Agreement are solely for the protection of the Issuing Lender's interests in the Account Collateral and shall not impose any duty upon the Issuing Lender to exercise any such powers. Neither the Issuing Lender nor its directors, officers, employees or agent shall be liable for any action lawfully taken or omitted to be taken by any of them under or in connection with the Account Collateral or this Agreement, except for its or their gross negligence or willful misconduct. SECTION 3.10 Execution of Financing Statements. Pursuant to Section 9-402 of the Code, the Account Party authorizes the Issuing Lender to file financing statements with respect to the Account Collateral without the signature of the Account 11 12 Party in such form and in such filing offices as the Issuing Lender reasonably determines appropriate to perfect the Liens of the Issuing Lender under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. ARTICLE 4 CONDITIONS SECTION 4.1 Conditions. This Agreement shall become effective upon the satisfaction of the following conditions precedent: (a) Agreement. The Issuing Lender shall have received this Agreement, executed and delivered by a duly authorized officer of the Account Party. (b) Assignment and Acceptance. The Assignment Effective Date shall have occurred under the Assignment and Acceptance. (c) Deposit of Cash Collateral. The Account Party shall deposit, and the Issuing Lender shall have received, in the Cash Collateral Account immediately available funds in the amount equal to 105% of the aggregate undrawn face amount of the Letters of Credit, as set forth on Schedule A as of the Assignment Effective Date. (d) Amendment to Credit Agreement. The Issuing Lender shall have received a copy of an executed amendment to the Credit Agreement, in form and substance reasonably satisfactory to the Issuing Lender, permitting the existence of the indebtedness and the Liens under this Agreement, and such amendment shall have become effective in accordance with its terms. ARTICLE 5 MISCELLANEOUS SECTION 5.1 Representations and Warranties. The Account Party hereby represents and warrants to the Issuing Lender that: (a) The Account Party has the corporate power and authority to execute and deliver and to perform its obligations under, and has taken all necessary corporate action to authorize the execution, delivery and performance of, this Agreement. 12 13 (b) This Agreement constitutes a legal, valid and binding obligation of the Account Party enforceable in accordance with its terms, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (c) The execution, delivery and performance of this Agreement will not violate any material provision of any Requirement of Law or Contractual Obligation of the Account Party and will not result in the creation or imposition of any Lien on any of the properties or revenues of the Account Party pursuant to any material provision of any Requirement of Law or Contractual Obligation of the Account Party. (d) No consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including without limitation, any stockholder or creditor of the Account Party), is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. SECTION 5.2 Method of Communication. Except as otherwise provided in this Agreement, all notices and communications hereunder shall be in writing, or by telephone subsequently confirmed in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (a) on the date of delivery if delivered by hand or sent by telecopy, (b) on the next Business Day if sent by recognized overnight courier service and (c) on the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Issuing Lender as understood by the Issuing Lender will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. SECTION 5.3 Notices. Notices to any party shall be sent to it at the following addresses, or any other address as to which all the other parties are notified in writing. If to the Account Party: GT Interactive Software Corp. 417 Fifth Avenue, 8th Floor New York, New York 10016 Attention: Robert De Laurentis
13 14 Telephone No.: (212) 726-6553 Telecopy No.: (212) 726-6590 With copies to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022-3903 Attention: David P. Levin, Esq. Telephone No.: (212) 715-9217 Telecopy No.: (212) 715-8000 Infogrames Entertainment SA 84, rue du 1er Mars 1943 Villeurbanne, 69100 France Attention: Olivier Carton Telephone No.: (011 33) 472 655000 Telecopy No.: (011 33) 472 655116 Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, California 94105 Attention: Ronald Bornstein Telephone No.: (415) 983-1000 Telecopy No.: (415) 983-1200 If to Issuing Lender: First Union National Bank One First Union Center, TW-10 301 South College Street Charlotte, North Carolina 28288-0608 Attention: John McGowan Telephone No.: (704) 374-7096 Telecopy No.: (704) 383-6249
SECTION 5.4 Amendments and Waivers. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Account Party and the Issuing Lender. SECTION 5.5 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective 14 15 to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 5.6 Integration. This Agreement and the other Credit Documents represent the agreement of the Account Party and the Issuing Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Issuing Lender or the Account Party relative to subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. SECTION 5.7 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Issuing Lender, any right, remedy, power or privilege hereunder or under the other Credit Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 5.8 Payment of Expenses; Indemnity. The Account Party will (a) pay all reasonable out-of-pocket expenses of the Issuing Lender in connection with (i) the preparation, execution and delivery of this Agreement and each other Credit Document, whenever the same shall be executed and delivered, (ii) the preparation, execution and delivery of any waiver, amendment or consent by the Issuing Lender relating to this Agreement or any other Credit Document, including without limitation reasonable fees and disbursements of counsel for the Issuing Lender and (iii) the administration and enforcement of any rights and remedies of the Issuing Lender under this Agreement or any other Credit Document, including consulting with accountants and attorneys concerning the nature, scope or value of any right or remedy of the Issuing Lender hereunder or under any other Credit Document or any factual matters in connection therewith, which expenses shall include without limitation the reasonable fees and disbursements of such Persons, and (b) defend, indemnify and hold harmless the Issuing Lender, and its parents, subsidiaries, affiliates, employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, judgments, settlements, damages, costs and expenses, suffered by any such Person in connection with any claim, investigation, litigation or other proceeding (whether or not the Issuing Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with this Agreement, the Letters of Credit or any other Credit Document, including without limitation, reasonable attorney's and consultant's fees of the Issuing Lender, 15 16 except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 5.9 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Account Party and the Issuing Lender and their respective successors and assigns, except that either party may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other party hereto. SECTION 5.10 WAIVERS OF JURY TRIAL. THE ACCOUNT PARTY AND THE ISSUING LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY LETTER OF CREDIT AND FOR ANY COUNTERCLAIM THEREIN. SECTION 5.11 Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. SECTION 5.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 16 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. GT INTERACTIVE SOFTWARE CORP. By:Denis Guyennot --------------------------- Name: Denis Guyennot FIRST UNION NATIONAL BANK, as Issuing Lender By: John McJowan --------------------------- Name: John McJowan 17 EX-10.26L 17 ex10-26l.txt COLLATERAL ASSIGNMENT AGREEMENT 1 Exhibit 10.26l COLLATERAL ASSIGNMENT AGREEMENT COLLATERAL ASSIGNMENT AGREEMENT (this "Agreement"), dated as of February 15, 2000, by and among the parties listed on the signature pages hereof. STATEMENT OF PURPOSE: The Existing Agent referred to below is also party to a certain Credit Agreement, dated as of September 11, 1998 (as heretofore amended, supplemented or otherwise modified, the "Credit Agreement"), by and among GT Interactive Software Corp. (the "Borrower"), the banks, financial institutions and other entities party thereto (the "Existing Lenders"), NationsBanc Montgomery Securities, LLC, as syndication agent, Fleet Bank, N.A., as documentation agent, and First Union National Bank ("First Union"), as administrative agent for the Existing Lenders (in such capacity, the "Existing Agent"). First Union (a) has acted as Administrative Agent under the Credit Agreement, (b) is the designated grantee under the agreements identified on Schedule 1 (each such agreement as heretofore amended, supplemented or otherwise modified, collectively, the "Security Documents") of Liens, for the benefit of the Existing Lenders, (c) is the designated beneficiary under the Guaranty Agreement (as heretofore amended, supplemented or otherwise modified, the "Guaranty"; and, together with the Security Documents, collectively, the "Collateral Documents") of a guaranty, for the benefit of the Existing Lenders, of the Obligations and (d) has possession of the collateral identified on Schedule 2 (the "Pledged Stock"). Pursuant to a Master Assignment and Acceptance Agreement, dated as of the date hereof (the "Assignment and Acceptance"), Infogrames Entertainment SA ("Infogrames") will acquire all of the Commitments of each of the Existing Lenders under the Credit Agreement (Infogrames, in its capacity as the assignee of all such Commitments under the Assignment and Acceptance, the "Assignee"). In connection with the acquisition by the Assignee of the Commitments under the Credit Agreement pursuant to the Assignment and Acceptance, the Existing Agent will resign as Administrative Agent under the Credit Agreement and the other Loan Documents, and the Borrower has informed the Existing Agent that the Borrower and the Assignee, as the sole Lender under the Credit Agreement on the Assignment Effective Date (as defined in the Assignment and Acceptance), will appoint Infogrames as successor Administrative Agent under the Credit Agreement and the other Loan Documents (in such capacity, the "Successor Agent") pursuant to Section 12.9 of the Credit Agreement. In connection with the resignation of the Existing Agent, the Borrower and the Assignee have requested that the Existing Agent enter into this Agreement, among other things, 2 to assign all of the Existing Agent's right, title and interest in the Collateral (as defined in the Security Documents) and the Collateral Documents to the Successor Agent pursuant to Section 12.9 of the Credit Agreement. NOW, THEREFORE, each of the parties hereto hereby agrees as follows: SECTION 1. DEFINITIONS Section 1.1. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. SECTION 2. RESIGNATION OF EXISTING AGENT; APPOINTMENT OF SUCCESSOR AGENT Section 2.1. Confirmation of Resignation. The Existing Agent hereby confirms its resignation as Administrative Agent pursuant to Section 12.9 of the Credit Agreement, effective as of the Assignment Effective Date. The Borrower and the Assignee, as the sole Lender under the Credit Agreement on the Assignment Effective Date, hereby waive any requirement for prior notice of such resignation pursuant to Section 12.9 of the Credit Agreement. Section 2.2. Appointment of Successor. The Assignee, as the sole Lender under the Credit Agreement on the Assignment Effective Date, hereby appoints Infogrames, effective as of the Assignment Effective Date, to be successor Administrative Agent pursuant to Section 12.9 of the Credit Agreement and hereby waives any requirement under Section 12.9 of the Credit Agreement of the Successor Agent having minimum capital and surplus of $500,000,000. Section 2.3. Acceptance by Successor. Infogrames hereby accepts its appointment as successor Administrative Agent under the Credit Agreement, effective as of the Assignment Effective Date. SECTION 3. ASSIGNMENT AND ACCEPTANCE Section 3.1. Assignment. The Existing Agent hereby assigns, as of the Assignment Effective Date, to the Successor Agent, for the benefit of the Lenders (including without limitation, the Assignee), all of the Existing Agent's right, title and interest in, to and under (a) the Collateral, the Security Documents and any other Loan Document evidencing the grant of any lien or security interest in any property of the Borrower or any Guarantor, (b) the Guaranty and (c) the Pledged Stock (all of the foregoing described in clauses (a), (b) and (c), collectively, the "Assigned Collateral"). 2 3 Section 3.2. Acceptance. The Successor Agent hereby accepts, as of the Assignment Effective Date, all of the Existing Agent's right, title and interest in, to and under the Assigned Collateral. Section 3.3. Effect on Collateral Documents. Effective as of the Assignment Effective Date, all references in the Collateral Documents to First Union or the Administrative Agent shall be deemed, where appropriate, to be references to Infogrames or the Successor Agent, as the case may be. The parties hereto hereby agree that nothing contained in this Agreement or in the Assignment and Acceptance shall affect the ability of the Assignee to amend, modify or terminate any Loan Document pursuant to the terms thereto. Section 3.4. Further Assurances. The Existing Agent shall promptly execute and deliver, at any time and from time to time, upon the reasonable written request of the Successor Agent and at the expense of the Borrower, any and all such further instruments and documents and take such further reasonable action as the Successor Agent may reasonably deem necessary in obtaining the full benefits of this Agreement and the Collateral Documents and of the rights and powers herein and therein granted. SECTION 4. CERTAIN OBLIGATIONS AND DUTIES OF THE EXISTING AGENT; REPRESENTATIONS AND WARRANTIES Section 4.1. Delivery of Pledged Stock. The Existing Agent shall promptly deliver to the Successor Agent, and the Successor Agent shall acknowledge in writing receipt of, all of the Pledged Stock. Section 4.2. Certain Representations and Warranties. (a) The Existing Agent hereby represents and warrants as follows: (i) It is a national bank duly organized, validly existing and in good standing and has all requisite power and authority to enter into and perform its obligations under this Agreement. (ii) The execution, delivery and performance by it of this Agreement has been duly authorized by all necessary action on its part. (iii) This Agreement has been duly executed and delivered by it. (b) Each of the Borrower and the Guarantors hereby represents and warrants as follows: (i) It is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to enter into and perform its obligations under this Agreement. 3 4 (ii) The execution, delivery and performance by it of this Agreement has been duly authorized by all necessary action on its part. (iii) This Agreement has been duly executed and delivered by it. (c) The Successor Agent hereby represents and warrants as follows: (i) It is a societe anonyme duly formed, validly existing and in good standing under the laws of France and has all requisite power and authority to enter into and perform its obligations under this Agreement. (ii) The execution, delivery and performance by it of this Agreement has been duly authorized by all necessary action on its part. (iii) This Agreement has been duly executed and delivered by it. SECTION 5. EXPENSES Section 5.1. Expenses. All reasonable expenses of the Existing Agent incurred in connection with this Agreement or the assignment of the Assigned Collateral to the Successor Agent, as and when described herein, including, without limitation, any required filing of record of any instrument effecting or giving notice of the assignment evidenced hereby shall be at the expense of and are for the account of the Borrower, payable upon demand therefor by the Existing Agent. Section 5.2. Indemnification. The Borrower hereby confirms and agrees that the provisions of Section 13.2 of the Credit Agreement only as they pertain to the Existing Agent shall survive its resignation as Administrative Agent and that any obligations of the Borrower under such Section shall constitute "Borrower Obligations" and "Obligations" under the Credit Agreement and Collateral Documents or any successor documents thereto. The parties hereto hereby confirm and agree that the provisions of Section 12.7 of the Credit Agreement only as they pertain to the Existing Agent shall survive its resignation as Administrative Agent. Section 5.3. Exculpatory Provisions. The Existing Agent (a) shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained in the Credit Agreement or in the Loan Documents, (b) makes no representation or warranty whatsoever as to the value or condition of the Assigned Collateral or any part thereof, or as to the tide of any of the grantors thereto or as to the security afforded by the Collateral Documents, the Assigned Collateral or this Agreement, or as to the validity, execution, enforceability, legality or sufficiency of this Agreement (except as set forth in Section 4.2(a) of this Agreement) or any Collateral Documents, the Assigned Collateral or of the obligations and other indebtedness secured thereby, or the validity, perfection or priority of any lien or security interest in the Collateral, (c) makes no representation or warranty or assumes any responsibility with respect to the financial condition of the Borrower, any of its 4 5 Subsidiaries or any other obligor or the performance or observance by the Borrower, any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement, and (d) shall not incur any liability or responsibility whatsoever in respect of any of the foregoing. SECTION 6. EFFECTIVENESS OF AGREEMENT; MISCELLANEOUS Section 6.1. Conditions. This Agreement shall be and become effective as of the date first above written upon (a) execution and delivery of this Agreement by each of the parties hereto and (b) the occurrence of the Assignment Effective Date under the Assignment and Acceptance. Section 6.2. Headings. Section and other headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. Section 6.3. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 6.4. Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective permitted successors and assigns, and nothing herein or in any other agreement executed or delivered in connection herewith is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement, any Collateral Document or the Assigned Collateral. Section 6.5. Conflict with Other Agreements. The parties agree that in the event of any conflict between the provisions of this Agreement and the provisions of any of the Collateral Documents or agreements identified in Schedule 1, the provisions of this Agreement shall control. Section 6.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Section 6.7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written by their respective duly authorized officers. EXISTING AGENT: FIRST UNION NATIONAL BANK, as Existing Agent By: ------------------------------- Name: Title: SUCCESSOR AGENT: INFOGRAMES ENTERTAINMENT, S.A., as Successor Agent By: ------------------------------- Name: Title: BORROWER: GT INTERACTIVE SOFTWARE CORP. By: ------------------------------- Name: Title: 6 7 GUARANTORS: HUMONGOUS ENTERTAINMENT, INC. WIZARDWORKS GROUP, INC. SINGLETRAC ENTERTAINMENT TECHNOLOGIES, INC. SWAN ACQUISITION CORP. CANDEL INC. FORMGEN, INC. GOLD MEDALLION SOFTWARE INC. MEDIATECHNICS, LTD. LEGEND ENTERTAINMENT COMPANY LLC By: ------------------------------- Name: Title: 7 EX-10.26M 18 ex10-26m.txt FIFTH AMENDMENT 1 Exhibit 10.26m FIFTH AMENDMENT THIS FIFTH AMENDMENT (this "Amendment") is made and entered into as of this 31st day of March, 2000, by and among GT Interactive Software Corp., a Delaware corporation, as Borrower, and Infogrames Entertainment, S.A. (the "Lender"). Statement of Purpose The Borrower is a party to the Credit Agreement dated as of September 11, 1998 (as heretofore amended, restated, supplemented or otherwise modified, the "Credit Agreement"), by and between the Borrower and the Lender, as Administrative Agent and as sole lender. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. The Borrower has requested that the Lender agree to amend, waive and consent under certain provisions of the Credit Agreement as set forth more fully below and subject to the terms and conditions hereof, the Lender is willing to agree to such requested amendments. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS. 1.1 Amendments to Section 1.1 (Definitions). Section 1.1 of the Credit Agreement is hereby amended by (a) deleting in their entirety the definitions of the following terms: "Application", "Concentration Account", "Credit Facility", "Extensions of Credit", "Issuing Lender", "Letters of Credit", "L/C Facility", "L/C Obligations", "L/C Participants", "Prime Rate", "Reimbursement Obligation", (b) inserting the words " Letter of Credit Documents, Letter of Credit Guaranty, Surety Bond Guaranty" immediately after the phrase "the Account Control Agreement (once executed)" found in the definition of "Loan Documents" and (b) inserting the following new defined terms in their proper alphabetical order: "Concentration Account" means the account to be established by the Borrower and maintained at a financial institution satisfactory to the Administrative Agent, that shall be used for the daily concentration of funds received by the Borrower or any of its Subsidiaries (a) from the domestic operation of their respective businesses or (b) in the United States from the foreign operation of their respective businesses. "Credit Facility" means the collective reference to the Revolving Credit Facility and the Letter of Credit Guaranties. 2 "Extensions of Credit" means, as to any Lender at any time, an amount equal to the aggregate principal amount of all Loans made by such Lender then outstanding. "Issuing Lender" means any financial institution satisfactory to the Lender. "Letter of Credit" has the meaning assigned under the Letter of Credit Documents. "Letter of Credit Documents" means each standby or documentary letter of credit issued by an Issuing Lender (the "Letters of Credit") and all documents related thereto, including any Letter of Credit Guaranty; provided that at no time shall the obligations thereunder, including with respect to any outstanding Letters of Credit and drawn but unreimbursed Letters of Credit, exceed $25,000,000. "Letter of Credit Guarantor" means Infogrames Entertainment, S.A. "Letter of Credit Guaranty" means any guaranty or indemnity issued by the Letter of Credit Guarantor, guaranteeing the obligations of the Borrower under the Letter of Credit Documents, provided that in no case shall the sum of the guaranteed obligations (x) under the Surety Bond Guaranties and (y) under the Letter of Credit Guaranties exceed $25,000,000. "L/C Obligations" means at any time, an amount equal to the sum of (I) all obligations of the Letter of Credit Guarantor under the Surety Bond Guaranty plus (II) the greater of (a) the sum of the amount of all obligations of the Borrower under (1) the Letter of Credit Documents and (2) the amount of all obligations of Borrower under the Reimbursement and Cash Collateral Agreement, (b) the sum of (1) the amount of all obligations of the Letter of Credit Guarantor under the Letter of Credit Guaranty and (2) the amount of all obligations of the Borrower under the Reimbursement and Cash Collateral Agreement, and (c) the sum of (1) the aggregate undrawn and unexpired amount of the then outstanding (i) Letters of Credit and (ii) letters of credit under the Reimbursement and Cash Collateral Agreement and (2) drawn but unreimbursed (i) Letters of Credit and (ii) letters of credit under the Reimbursement and Cash Collateral Agreement. "Prime Rate" means, at any time, the rate of interest per annum set forth from time to time in the New York edition of the Wall Street Journal as the "prime rate". Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. "Reimbursement Obligation" means the obligation of the Borrower or Letter of Credit Guarantor to reimburse the Issuing Lender pursuant to the Letter of Credit -2- 3 Documents, the Letter of Credit Guaranty, any surety bonds issued on behalf of the Borrower, and the Surety Bond Guaranty. "Surety Bond Guaranty" means any guaranty or indemnity issued by the Letter of Credit Guarantor, guaranteeing the obligations of the Borrower under certain surety bonds, provided that in no case shall the sum of the guaranteed obligations (x) under the Surety Bond Guaranties and (y) under the Letter of Credit Guaranties exceed $25,000,000." 1.2 Amendment to Section 2.5 (Permanent Reduction of Aggregate Commitment). Section 2.5(b) is hereby amended by deleting the proviso found subclause (ii) thereof and replacing such proviso with the following new proviso: "provided that this clause (ii) shall not apply to the first $5,000,000 of any such Net Cash Proceeds received in any Fiscal Year if and only if such sales of assets have been approved by the independent directors of the Borrower prior to such sale" 1.3 Amendment to Section 2.6 (Termination of Credit Facility). Section 2.6 of the Credit Agreement is hereby amended by deleting the reference to "March 31, 2000" contained in said Section and by substituting therefor a reference to "June 30, 2000". 1.4 Amendment to Article III (Letter of Credit Facility). Article III is deleted in its entirety and replaced with the following new Article III: "ARTICLE III. Intentionally omitted." 1.5 Amendment to Section 4.3 (Fees). Section 4.3 of the Credit Agreement is hereby amended by adding a new paragraph (e) at the end of said Section as follows' "(e) The Borrower agrees to pay to the Letter of Credit Guarantor a fee in respect of each Letter of Credit issued under the Letter of Credit Documents (the "Letter of Credit Fee") computed at a rate equal to 2.00% of the stated amount of each Letter of Credit payable in arrears on the last Business Day of each calendar quarter." 1.6 Amendment to Section 4.5 (Crediting of Payments and Proceeds). Section 4.5 of the Credit Agreement is hereby amended by deleting the phrase "and Issuing Lender's fees then due and payable" contained therein and substituting in lieu thereof the phrase "and Letter of Credit Guarantor's fees then due and payable". 1.7 Amendment to Section 4.8 (Circumstances Affecting LIBOR Rate and Alternative Currency Availability). Section 4.8 of the Credit Agreement is hereby amended by deleting the phrase "Letter of Credit or Application," found in the final paragraph thereof. -3- 4 1.8 Amendment to Section 4.11 (Payments Free and Clear). Section 4.11(a) of the Credit Agreement is hereby amended by deleting the phrase "or Letter of Credit" found in the last sentence thereof. 1.9 Amendment to Section 10.1 (Limitations on Debt). Section 10.1 of the Credit Agreement is hereby amended by deleting the word "and" found at the end of clause (h) thereof, deleting the period at the end of clause (i) thereof, replacing such period with a semicolon and inserting the following new clauses (j) and (k); "(j) Debt of the Borrower and its Subsidiaries representing obligations under surety bonds issued in the ordinary course of business; provided that such obligations have been guaranteed by Infogrammes Entertainment, S.A. pursuant to the Surety Bond Guaranty; provided that in no case shall the sum of the guaranteed obligations (x) under the Surety Bond Guaranty and (y) under the Letter of Credit Guaranty exceed $25,000,000; and (k) Debt of the Borrower and its Subsidiaries representing obligations under surety bonds issued in the ordinary course of business in an aggregate amount not to exceed $5,000,000, which Debt is not guaranteed pursuant to the Surety Bond Guaranty." 1.10 Amendment to Section 11.1 (Debt Cross-Default). Section 11.1(g) of the Credit Agreement is hereby amended by deleting the phrase "or any Reimbursement Obligation" both times it appears. 1.11 Amendment to Section 12.6 (Non-Reliance on the Administrative Agent and Other Lenders. Section 12.6 of the Credit Agreement is hereby amended by deleting the phrase "or participate in Letter of Credit hereunder" found therein. 1.12 Amendment to Section 12.8 (The Administrative Agent in Its Individual Capacity. Section 12.8 of the Credit Agreement is hereby amended by deleting the phrase "and with respect to any Letter of Credit issued by it or participated in by it" found therein. 1.13 Amendment to Section 13.11 (Amendments, Waivers and Consents). Section 13.11 of the Credit Agreement is hereby amended by deleting the final sentence thereof and replacing such sentence with the following new sentence: "In addition, no amendment, waiver or consent to the provisions of Article XII shall be made without the written consent of the Administrative Agent." SECTION 2. CONSENTS. 2.1 Consent to Letter of Credit Documents. Effective as of the Effective Date, the Lender hereby consents under Section 10.1 (Limitations on Debt) of the Credit Agreement solely to the extent necessary to permit it to enter into the Letter of Credit attached hereto as Exhibit A and the Surety Bond attached hereto as Exhibit B. Any additional surety bonds or Letters of Credit must be approved by the Lender. -4- 5 SECTION 3. WAIVERS. 3.1 Waiver of Section 9.1 (EBITDA). Effective as of the Effective Date, the Lender hereby waives any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Section 9.1 of the Credit Agreement for the period from April 1, 1999 through June 30, 2000. 3.2 Waiver of Article 7 (Financial Information and Notices). Effective as of the Effective Date, the Lender hereby waives any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Sections 7.1(d), 7.1(e), 7.1(f) and 7.2(b) for the period from the Effective Date until June 30, 2000. -5- 6 SECTION 4. MISCELLANEOUS. 4.1 Representations and Warranties; No Default. (a) After giving effect to this Amendment, the Borrower hereby represents and warrants that (i) all representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the Effective Date (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct as of such earlier date) and (ii) no Default or Event of Default shall have occurred and be continuing or would result from the execution and delivery of this Amendment. (b) The Borrower hereby further represents and warrants that it is truly and justly indebted to the Administrative Agent and the Lender in respect of the Obligations, without defense, counterclaim or offset of any kind. 4.2 Payment of Fees and Expenses. (a) The Borrower shall pay to the Administrative Agent, for the account of the Lender, a waiver and amendment fee equal to $125,000 (the "Amendment Fee"), which shall be fully earned on the Effective Date and payable on March 31, 2000; provided that failure to pay such Amendment Fee on or prior to March 31, 2000 shall constitute an immediate Event of Default. Payment of the Amendment Fee shall be in addition to any and all other fees and expenses required to be paid from time to time by the Borrower to the Administrative Agent and/or the Lender pursuant to this Amendment, the Credit Agreement or the other Loan Documents. (b) The Borrower hereby agrees to pay all reasonable costs, fees and expenses of the Administrative Agent and the Lender, including the fees and expenses of financial advisors retained by the Administrative Agent and counsel retained by the Administrative Agent and the Lender, in each case incurred in connection with the transactions contemplated by this Amendment, including but not limited to the preparation of a revised form of Credit Agreement incorporating all changes made by this and all prior amendments. 4.3 Intentionally Omitted. 4.4 Additional Borrowings. From time to time after the date hereof, the Borrower and the Lender may agree to increase the Aggregate Commitment, subject to such additional conditions and terms as are mutually acceptable, provided that (i) nothing contained in this Amendment shall require the Lender to increase the Aggregate Commitment and (ii) the conditions and terms of any such increase to the Aggregate Commitment and any additional loans associated with such increase (the "Additional Loans") shall be unique to such increase and such Additional Loans and any Loans outstanding prior to such increase (as well as the Aggregate Commitment in effect immediately prior to such increase) shall be unaffected by such increase of the Aggregate Commitment or the issuance of Additional Loans. -6- 7 4.5 Conditions to Effectiveness of this Amendment. This Amendment shall become effective on the date (the "Effective Date") on which the Administrative Agent shall have received: (a) counterparts of this Amendment duly executed by the Borrower and the Lender; and (b) payment in full of all fees and other amounts due and payable pursuant to the Credit Agreement and this Amendment, including reimbursement or payment of all reasonable fees and expenses of financial advisors retained by the Administrative Agent and counsel retained by the Administrative Agent and each Lender that, in each case, has been invoiced to the Borrower. 4.6 Continuing Effect; No Other Amendments or Waivers. Except as expressly amended pursuant to this Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Amendment shall not constitute the Lender's consent or indicate their willingness to consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents, including without limitation, any amendment, modification or waiver of any Section amended or waived pursuant to this Amendment for any other date or time period or in connection with any other transaction. 4.7 Integration. This Amendment represents the agreement of the Borrower, the Administrative Agent and the Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Borrower, the Administrative Agent and the Lender relative to the subject matter hereof not expressly set forth or referred to herein, or in the Credit Agreement, as amended through the date hereof. 4.8 Counterparts. This Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. 4.9 Governing Law. This Amendment shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. GT INTERACTIVE SOFTWARE CORP. By:______________________________________ Name: Title: INFOGRAMES ENTERTAINMENT, S.A., as Administrative Agent and Lender By:______________________________________ Name: Title: -8- EX-10.26N 19 ex10-26n.txt SIXTH AMENDMENT 1 Exhibit 10.26n SIXTH AMENDMENT THIS SIXTH AMENDMENT (this "Amendment") is made and entered into as of this 29th day of June, 2000, by and among Infogrames, Inc. (formerly GT Interactive Software Corp.), a Delaware corporation (the "Borrower"), and Infogrames Entertainment SA, a French corporation (the "Lender"). Statement of Purpose The Borrower is a party to the Credit Agreement dated as of September 11, 1998 (as heretofore amended, restated, supplemented or otherwise modified, the "Credit Agreement"), by and between the Borrower and the Lender, as administrative agent (the "Administrative Agent") and as sole lender. Capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Credit Agreement. The Borrower has requested that the Lender agree to amend certain provisions of the Credit Agreement as set forth more fully below and subject to the terms and conditions hereof, the Lender is willing to agree to such requested amendments. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS. 1.1 Amendments to Section 1.1 (Definitions). Section 1.1 of the Credit Agreement is hereby amended by deleting in their entirety the definitions of the following terms: "Aggregate Commitment", "Documentation Agent", "Syndication Agent" and inserting the following new definition in its proper alphabetical order: "Aggregate Commitment" means One Hundred Twenty Five Million U.S. Dollars (U.S.$ 125,000,000). 1.2 Amendment to Section 2.5 (Permanent Reduction of the Aggregate Commitment). Section 2.5 of the Credit Agreement is hereby amended by deleting in its entirety the sentence "On the Transaction Closing Date, the Aggregate Commitment shall automatically be permanently reduced to the lesser of $75,000,000 or the Aggregate Commitment on such date" contained in paragraph (b) of said Section. 1.3 Amendment to Section 2.6 (Termination of Credit Facility). Section 2.6 of the Credit Agreement is hereby amended by deleting the reference to "June 30, 2000" contained in said Section and by substituting therefor a reference to "September 30, 2000." 2 1.4 Amendment to Section 8.16 (Pursuit of Closing Transaction). Section 8.16 of the Credit Agreement is hereby deleted in its entirety. 1.5 Amendment to Section 8.17 (Pursuit of Refinancing). Section 8.17 of the Credit Agreement is hereby deleted in its entirety. 1.6 Amendment to Section 12.10 (Syndication Agent and Documentation Agent). Section 12.10 of the Credit Agreement is hereby deleted in its entirety. 1.7 Amendment to Section 13.1 (Notices). Section 13.1 of the Credit Agreement is hereby amended by deleting "Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022-3903, Attention: David P. Levin, Esq., Telephone (212) 715-9217, Telecopy No.: (212) 715-8000" contained in paragraph (b) of said Section and by substituting therefor "Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention: Dennis J. Friedman, Esq., Telephone (212) 408-5100, Telecopy No.: (212) 541-5369." 1.8 Amendment to Section 13.14 (Governing Law). Section 13.14 of the Credit Agreement is hereby deleted in its entirety and replaced by the following new Section 13.14. "THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES REGARDING CONFLICT OF LAW." 1.9 Amendment to Schedule 6.1(u) (Litigation). Schedule 6.1(u) to the Credit Agreement is hereby replaced with the attached Amended and Restated Schedule 6.l(u). SECTION 2. WAIVERS. 2.1 Waiver of Article VII (Financial Information and Notices). Effective as of the Effective Date, the Lender and the Administrative Agent hereby waive any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Sections 7.1(d), 7.1(e), 7.1(f) and 7.2(b) for the period from the Effective Date until September 30, 2000. 2.2 Waiver of Section 9.1 (EBITDA). Effective as of the Effective Date, the Lender hereby waives any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Section 9.1 of the Credit Agreement for the period through September 30, 2000. 2.3 Waiver of Section 9.2 (Capital Expenditure). Effective as of the Effective Date, the Lender hereby waives any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Section 9.2 of the Credit Agreement for the period through September 30, 2000. -2- 3 2.4 Waiver of Section 10.9 (Certain Accounting Changes). Effective as of the June 27, 2000, the Lender hereby waives any Default or Event of Default that may arise by reason of the failure of the Borrower to comply with Section 10.9 of the Credit Agreement for the period through September 30, 2000. SECTION 3. MISCELLANEOUS. 3.1 Representations and Warranties; No Default. (a) After giving effect to this Amendment, the Borrower hereby represents and warrants that (i) all representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the Effective Date (unless stated to relate to a specific earlier date, in which case, such representations and warranties shall be true and correct as of such earlier date) and (ii) no Default or Event of Default shall have occurred and be continuing or would result from the execution and delivery of this Amendment. (b) The Borrower hereby further represents and warrants that it is truly and justly indebted to the Administrative Agent and the Lender in respect of the Obligations, without defense, counterclaim or offset of any kind. 3.2 Additional Borrowings. From time to time after the date hereof, the Borrower and the Lender may agree to increase the Aggregate Commitment, subject to such additional conditions and terms as are mutually acceptable, provided that (i) nothing contained in this Amendment shall require the Lender to increase the Aggregate Commitment and (ii) the conditions and terms of any such increase to the Aggregate Commitment and any additional loans associated with such increase (the "Additional Loans") shall be unique to such increase and such Additional Loans and any Loans outstanding prior to such increase (as well as the Aggregate Commitment in effect immediately prior to such increase) shall be unaffected by such increase of the Aggregate Commitment or the issuance of Additional Loans. 3.3 Conditions to Effectiveness of this Amendment. This Amendment shall become effective on the date (the "Effective Date") on which the Administrative Agent shall have received counterparts of this Amendment duly executed by the Borrower and the Lender. 3.4 Continuing Effect; No Other Amendments or Waivers. Except as expressly amended pursuant to this Amendment, the Credit Agreement is and shall continue to be in full force and effect in accordance with its terms, and this Amendment shall not constitute the Lender's consent or indicate their willingness to consent to any other amendment, modification or waiver of the Credit Agreement or the other Loan Documents, including without limitation, any amendment, modification or waiver of any Section amended or waived pursuant to this Amendment for any other date or time period or in connection with any other transaction. 3.5 Integration. This Amendment represents the agreement of the Borrower, the Administrative Agent and the Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Borrower, the Administrative Agent -3- 4 and the Lender relative to the subject matter hereof not expressly set forth or referred to herein, or in the Credit Agreement, as amended through the date hereof. 3.6 Counterparts. This Amendment may be executed by the parties hereto on one or more counterparts, and all of such counterparts shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. 3.7 Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES REGARDING CONFLICT OF LAW. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -4- 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. INFOGRAMES, INC. By: /s/ David Fremed ------------------------------------ Name: David Fremed Title: Chief Financial Officer INFOGRAMES ENTERTAINMENT SA as Administrative Agent and Lender By: /s/ Bruno Bonnell ------------------------------------ Name: Bruno Bonnell Title: Chief Executive Officer -5- EX-23.1 20 ex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-5 (Registration Nos. 333-00428, 333-33353, 333-39352, 333-61197 and 333-62271). ARTHUR ANDERSEN LLP New York, New York June 29, 2000 EX-24.1 21 ex24-1.txt POWER OF ATTORNEY 1 Exhibit 24.1 POWER OF ATTORNEY The undersigned, acting in the capacity or capacities stated with their respective names below, hereby constitute and appoint DAVID FREMED AND HARRY RUBIN, and each of them severally, the attorneys-in-fact of the undersigned with full power to them and each of them to sign for and in the name of the undersigned in the capacities indicated below the Annual Report on Form 10-K of Infogrames, Inc. for the fiscal year ended March 31, 2000, and any and all amendments thereto. This Power of Attorney may be executed in multiple counterparts, each of which shall be deemed an original, but which taken together shall constitute one instrument. /s/ Bruno Bonnell Chief Executive Officer June 27, 2000 - ------------------------------------ and Director Bruno Bonnell /s/ Steven A. Denning Director June 27, 2000 - ------------------------------------ Steven A. Denning /s/ Denis Guyennot Director June 27, 2000 - ------------------------------------ Denis Guyennot /s/ Thomas A. Heymann Director June 27, 2000 - ------------------------------------ Thomas A. Heymann /s/ Ann E. Kronen Director June 27, 2000 - ------------------------------------ Ann E. Kronen /s/ Thomas Schmider Director June 27, 2000 - ------------------------------------ Thomas Schmider
EX-27.1 22 ex27-1.txt FINANCIAL DATA SCHEDULE
5 1,000 12-MOS MAR-31-2000 APR-01-1999 MAR-31-2000 19,587 0 109,324 (23,337) 38,179 (107,413) 52,172 (26,411) 159,207 212,247 97,828 0 0 207 (154,426) 159,207 375,569 375,569 296,301 296,301 421,827 263,291 17,167 (281,251) 40,882 (322,133) (477) 1,888 0 (320,722) (19.50) (19.50)
-----END PRIVACY-ENHANCED MESSAGE-----