Document/Exhibit Description Pages Size
1: POS AM Post-Effective Amendment No. 1 on Form S-3 to S-1 33 198K
2: EX-23.1 Consent of Arthur Andersen L.L.P. 1 6K
3: EX-23.2 Consent of Eide Helmeke and Co. L.L.P. 1 5K
4: EX-23.3 Consent of McLaughlin & Associates 1 5K
5: EX-23.4 Consent of Ernst & Young LLP 1 5K
POS AM — Post-Effective Amendment No. 1 on Form S-3 to S-1
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-14441
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Post-Effective Amendment No. 1 on Form S-3
to
Form S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)
[Download Table]
DELAWARE 7372 13-3689915
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
16 EAST 40TH STREET,
NEW YORK, NEW YORK 10016
(212) 726-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RONALD CHAIMOWITZ,
16 EAST 40TH STREET,
NEW YORK, NEW YORK 10016
(212) 726-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
COPIES TO:
DAVID P. LEVIN, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box: [ ]
------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to Section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED DECEMBER 20, 1996
LOGO
3,458,375 SHARES
COMMON STOCK
The 3,458,375 shares (the "Shares") of Common Stock offered hereby are
being sold by the holders thereof (the "Selling Stockholders"). GT Interactive
Software Corp. ("GTIS" or the "Company") has agreed to pay the expenses of this
offering but will not receive any of the proceeds from the sale of the Shares
offered hereby. The aggregate proceeds to the Selling Stockholders will be the
purchase price of the Shares sold, less the aggregate brokers' and dealers'
discounts, commissions and concessions, and other expenses of issuance and
distribution not borne by the Company. See "Plan of Distribution" and "Selling
Stockholders." The Common Stock is listed on the Nasdaq National Market under
the symbol "GTIS." On December 19, 1996, the last reported sale price for the
Common Stock, as reported on the Nasdaq National Market, was $7 3/4 per share.
The Shares were originally issued as consideration to the Selling
Stockholders in connection with the acquisition by the Company of Humongous
Entertainment, Inc. The Shares may be sold from time to time by the Selling
Stockholders in transactions in the over-the-counter market or otherwise at
prices and on terms then prevailing at the time of sale, at prices related to
the then-current market price or in negotiated transactions. The Selling
Stockholders and any dealers, brokers or agents that participate with the
Selling Stockholders in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Any commissions or discounts received by any such dealers,
brokers or agents may be deemed to be underwriting commissions or discounts
under the Securities Act. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments which the Selling Stockholders
may be required to make in respect thereof. See "Plan of Distribution."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------------
The Company was incorporated in Delaware in September 1992 and commenced
operations in February 1993. Unless the context otherwise provides, as used in
this Prospectus "GTIS" or the "Company" refers to GT Interactive Software Corp.
and its wholly owned subsidiaries. The Company's principal executive offices are
located at 16 East 40th Street, New York, New York 10016, and its telephone
number is (212) 726-6500. The Company's home page can be accessed on the World
Wide Web at http://www.gtinteractive.com. Information contained in the Company's
Web site shall not be deemed to be part of this Prospectus.
The mark "GT" in stylized form is a trademark of the Company. This
Prospectus also includes product names, trademarks and trade names of companies
other than GTIS which are the property of their respective companies. Humongous
Entertainment, Inc. products are not in any manner affiliated with Putt-Putt
Golf Courses of America, Inc.
ADDITIONAL INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). The Common Stock is quoted for trading on the
Nasdaq National Market, and the Registration Statement and such reports, and
other information concerning the Company may be inspected at the offices of the
Nasdaq Stock Market located at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock, reference is made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
with respect to any contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to such exhibit. Copies of the Registration Statement and exhibits may be
inspected without charge at the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office upon payment of fees prescribed by the Commission, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. The Registration Statement, including all
exhibits and schedules, and such reports and other information may also be
accessed electronically by means of the Commission's site on the World Wide Web
at http://www.sec.gov. The Company has been an electronic filer since the filing
of its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are by this reference incorporated in
and made a part of this Prospectus: (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (File No. 0-27338); (ii) the
2
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; (iii) the Company's Current Reports
on Form 8-K dated June 24, 1996, July 10, 1996 and November 5, 1996; (iv) the
description of the Company's capital stock set forth in its Registration
Statement under the Exchange Act on Form 8-A filed with the Commission on
November 30, 1995, and (v) the Index to Consolidated Financial Statements and
the respective financial statements (and the notes thereto) of the Company,
WizardWorks Group and Slash Corporation, and the financial statement schedule of
the Company, set forth on pages F-1 through F-38 in the Prospectus included in
the Company's Registration Statement on Form S-1 (Registration No. 333-14441) at
effectiveness.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Shares offered
hereby shall be deemed to be incorporated by reference herein and to be part of
this Prospectus from their respective dates of filing. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded to the extent that a statement
contained herein or in any other document subsequently filed which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus is delivered, upon a written or oral request, a copy of any
or all of the documents that are incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to GT Interactive
Software Corp., Attention: Andrew Gregor, 16 East 40th Street, New York, New
York 10016. Telephone Number: (212) 726-6500.
3
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" appearing elsewhere in this Prospectus or
incorporated herein by reference and Consolidated Financial Statements and notes
thereto incorporated herein by reference. This Prospectus contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
THE COMPANY
GT Interactive Software Corp. creates, publishes and merchandises
interactive entertainment, edutainment and value-priced consumer software for a
variety of platforms on a world-wide basis. Similar to major film studios and
record companies, the Company employs a portfolio approach to achieve a broad
base of products across most major consumer software categories. Recognizing
that software distribution capabilities attract publishing content, the Company
has used its strong distribution to build its current position as a leader in
the consumer software publishing business. According to PC Data, in the first
eight months of 1996 the Company had achieved the industry's highest market
share in number of units sold in the PC software games category. The Company has
experienced significant growth in its published front-line titles, growing from
5 titles released in 1994 to 24 titles released in 1995 to 57 titles released
during the nine months ended September 30, 1996.
The Company's current strategy is to obtain new software content by
blending its in-house development capabilities with the multi-title publishing
relationships it has established with independent software developers and
content providers. To that end, the Company completed several acquisitions of
leading software companies in 1995 and 1996 which have increased its internal
software development capabilities and publishing base. In July 1996, the Company
acquired Humongous, a premier developer and publisher of award-winning
children's software, which has become the centerpiece of its edutainment
business. In addition, the Company acquired WizardWorks, a developer and
publisher of value-priced software, and FormGen, a publisher of interactive PC
shareware and software. These 1996 acquisitions supplemented the Company's 1995
acquisition of Slash, a publisher, purchaser, repackager and distributor of
value-priced software.
The Company has established multi-title software publishing relationships
with a wide range of leading content providers, including id Software, a
developer of 3-D action games, such as Quake, Doom, Doom II and Hexen; 3D
Realms, the creator of the best-selling Duke Nukem 3D; Williams, an arcade game
developer whose titles include Mortal Kombat 3, NBA Hang Time and War Gods; and
Scavenger, the developer of Scorcher, Amok and Into The Shadows. The Company has
also entered into multi-title relationships with edutainment content providers
such as Mercer Mayer, a leading children's author and the creator of The Little
Critter books, and Stan and Jan Berenstain, the creators of The Berenstain Bears
series.
The Company believes that it is currently the largest distributor of
consumer software to mass merchants in the United States. The Company is the
primary supplier of its own and third party consumer software to approximately
2,245 Wal-Mart stores and approximately 739 Target stores and supplies
value-priced software under specially designed programs to approximately 2,149
Kmart stores. In addition, the Company has established direct selling
relationships for its own published software with a variety of major retailers,
including Sam's Club, Price-Costco, CompUSA, Best Buy, Egghead and Computer
City, at approximately 20,000 locations nationwide.
The Company believes that significant growth opportunities exist in
international markets and across a variety of next generation platforms. In
order to exploit international markets, in January 1995, the Company established
a software publishing operation in London, England, with responsibility for
European markets and is currently publishing, marketing and distributing its
consumer software products in over 35 countries world-wide. The Company believes
that it is well positioned to take advantage of existing and emerging next
generation platforms. Recently, GTIS successfully launched Doom for the Sony
PlayStation in Europe and Japan. In addition, the Company released Quake for PCs
in Europe in August 1996, where it was the number one selling title upon its
release.
4
RECENT DEVELOPMENTS
On December 3, 1996, the Company announced that it expected net revenues
for its fourth fiscal quarter ending December 31, 1996 to be below analysts'
expectations, and that based on recent sales data, the Company expected net
revenues for its fourth quarter to be in a range of between $115 and $125
million. The Company also stated that it expected pre-tax income for the fourth
quarter to be below analysts' expectations. The Company cited as major factors
for its expectations a widespread weakness in the PC specialty retail market
exemplified by the pending Chapter 7 proceeding of Neostar Retail Group, Inc.
("Neostar"); lower-than-anticipated demand for new releases, even those in the
"mega-hit" category; and unanticipated delays in the shipment of certain of the
Company's software titles which were scheduled to reach the market in the
quarter. The Company stated that analysis of recent sales data through
Thanksgiving weekend indicated that the specialty retail channel, which
comprises a majority of industry sales, is showing an onset of weakness on a
scale that is widespread and unexpected and that going into 1997 it is taking a
conservative view of the domestic PC market.
5
RISK FACTORS
In addition to other information contained or incorporated by reference in
this Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below.
CUSTOMER CONCENTRATION AND CREDIT RISK
The Company is the primary supplier of software to Wal-Mart Stores, Inc.
("Wal-Mart"), including titles published by the Company and products from other
publishers. On a pro forma basis, giving effect to the acquisition of Slash
Corporation ("Slash"), sales to Wal-Mart accounted for approximately 42% and 48%
of the Company's net sales for 1994 and 1995, respectively, and 53% and 44% for
the nine months ended September 30, 1995 and 1996, respectively. The Company's
status as Wal-Mart's primary supplier is not based upon any written agreement or
understanding. Accordingly, such status could be terminated at any time by
Wal-Mart. In addition, Wal-Mart has dedicated, and the Company currently
anticipates that Wal-Mart will continue to dedicate, the software department in
a limited number of stores to other software distributors on a test basis. There
can be no assurance that Wal-Mart will continue to use the Company as its
primary supplier of consumer software, or at all. The loss of Wal-Mart as a
customer, a significant decrease in product shipments to or an inability to
collect receivables from Wal-Mart or any other adverse change in the Company's
relationship with Wal-Mart would have a material adverse effect on the Company's
business, operating results and financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS
In June 1995 the Company acquired Slash, in June 1996 the Company acquired
WizardWorks Group, Inc. ("WizardWorks") and Candel Inc., the parent company of
FormGen, Inc. ("FormGen"), in July 1996 the Company acquired Humongous
Entertainment, Inc. ("Humongous") and in November 1996 the Company acquired the
business of Warner Interactive Entertainment Europe ("Warner Interactive
Europe"). The Company undertook these acquisitions to expand its publishing and
distribution capabilities with the assumption that the combined entity would be
better able to take advantage of market opportunities than if each of the
companies were operated individually. This synergy will depend in part on the
ability of the Company to retain in-house publishing staffs and third-party
relationships and to utilize distribution, sales and marketing capabilities. The
Company is in the process of integrating the acquired companies by consolidating
certain operations, offices and facilities, and combining administrative,
accounting, sales and marketing and distribution functions. The integration of
these acquired companies will involve, among other things, the opening of new
facilities or the expansion of existing facilities, the expansion of accounting
systems, controls and procedures, the increase in warehouse and distribution
capabilities, the closing of redundant facilities and the elimination of
duplicate personnel. The Company is in the early stages of integrating certain
of the acquired companies and there can be no assurance that the integration
will be completed without disrupting the Company's business. Should the Company
not be able to achieve such integration in a timely manner or in a coordinated
fashion, it could materially and adversely affect the Company's business,
operating results or financial condition.
The Company believes that its future growth will depend, in part, on its
ability to continue to identify, acquire and integrate companies which have
software development and publishing capabilities. While the Company reviews
acquisition opportunities in the ordinary course of its business, some of which
may be material and some of which are currently under investigation or
discussion, the Company presently has no commitments or understandings with
respect to any material acquisitions and there can be no assurance that the
Company will be successful in identifying and acquiring suitable acquisition
candidates. If any such acquisition candidates are identified, there can be no
assurance that the Company will be successful in financing such acquisitions,
negotiating terms favorable to the Company, consummating such acquisitions or
integrating the acquired businesses into the Company's operations. Moreover, in
connection with any such acquisitions, the Company may be required to incur
indebtedness or assume other liabilities which could have
6
a material adverse effect on the Company's operating results, liquidity and
capital resources, or to issue shares of its capital stock which could result in
dilution to stockholders.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced and may continue to experience significant
quarterly fluctuations in net sales and operating results due to a variety of
factors, including fluctuations in the mix of products with varying profit
margins sold by the Company, the size and timing of acquisitions, the size and
growth rate of the consumer software market, market acceptance of the Company's
products (including the Company's published and third-party distributed titles)
and those of its competitors, development and promotional expenses relating to
the introduction of new products or enhancements of existing products, projected
and actual changes in computing platforms, the timing and success of product
introductions by the Company and its competitors, product returns, changes in
pricing policies by the Company and its competitors, the accuracy of retailers'
forecasts of consumer demand, the timing of orders from major customers, order
cancellations and delays in shipment. In addition, delays in the introduction of
the Company's front-line titles could result in material fluctuations of the
Company's operating results. The Company has experienced, and expects to
experience in the future, significant fluctuations in its quarterly net sales
and operating results as a result of such factors. In response to competitive
pressures, the Company may take certain pricing or marketing actions that could
materially and adversely affect the Company's business, operating results and
financial condition. Products are generally shipped as orders are received and,
accordingly, the Company operates with little backlog. The Company's expense
levels are based, in part, on its expectations regarding future sales and, as a
result, operating results would be disproportionately adversely affected by a
decrease in sales or a failure to meet the Company's sales expectations.
Defective front-line published products may result in higher customer support
costs and product returns. Further, the consumer software business is seasonal.
Net sales are typically significantly higher during the fourth calendar quarter,
due primarily to the increased demand for consumer software during the year-end
holiday buying season. Net sales in other quarters are generally lower and vary
significantly. Accordingly, the Company believes that period to period
comparisons of operating results are not necessarily meaningful and should not
be relied upon as an indication of future performance. There can be no assurance
that the Company will achieve consistent profitability on a quarterly or annual
basis. Due to all of the foregoing factors, the Company's operating results in
any quarter may be below the expectations of public market analysts and
investors. In such event, the market price of the Company's Common Stock would
likely be materially and adversely affected. See "-- Possible Volatility of
Stock Price."
DEPENDENCE ON NEW PRODUCT AND PRODUCT ENHANCEMENT INTRODUCTIONS; PRODUCT DELAYS
The Company's continued success in the publishing business depends on the
timely introduction of successful new products or enhancements of existing
products to replace declining revenues from older products. Consumer preferences
for software products are difficult to predict, and few consumer software
products achieve sustained market acceptance. If revenues from new products or
enhancements were to fail to replace declining revenues from existing products,
the Company's business, operating results and financial condition could be
adversely affected. The process of developing software products such as those
offered by the Company is extremely complex and is expected to become more
complex and expensive in the future as new platforms and technologies are
addressed. A significant delay in the introduction of one or more new products
or enhancements could have a material adverse effect on the ultimate success of
such products and on the Company's business, operating results and financial
condition, particularly in view of the seasonality of the Company's business.
See "-- Reliance on Third-Party Software Developers; Reliance on Other
Publishers," "-- Fluctuations in Quarterly Operating Results; Seasonality" and
"Business -- GTIS Publishing."
RELIANCE ON THIRD-PARTY SOFTWARE DEVELOPERS; RELIANCE ON OTHER PUBLISHERS
Although the Company has substantially increased, primarily through
acquisitions, its internal software development capabilities in 1996, a
significant portion of the Company's published products have been licensed from,
or developed by, the Company in collaboration with independent software
developers. Due primarily to the increased demand for consumer software
programs, the payment of advances and guaranteed royalties to independent
developers has increased and may continue to increase. As of September 30, 1996,
the
7
Company had recorded approximately $57.4 million of royalty advances on its
balance sheet. There can be no assurance that the release of products associated
with such advances will not be delayed, which would delay the Company's ability
to receive revenue to offset such advances or royalties, or that the sales of
such products will be sufficient to cover the amount of such advances or royalty
prepayments. The Company's success depends in part on its continued ability to
obtain and renew product development agreements with independent software
developers. As independent developers are in high demand, there can be no
assurance that independent developers, including those which have developed
products for the Company in the past, will be available to develop products for
the Company in the future. For instance, the Company does not currently have any
contractual agreement with id Software pursuant to which the Company has control
over, or has been promised rights to, future products to be developed by id
Software; such rights are negotiated on a title-by-title basis. Many independent
developers have limited financial resources, which could expose the Company to
the risk that such developers may go out of business prior to completing a
project. In addition, because the Company's published products are often
developed with outside developers, the Company cannot always control the timing
of the introduction of its products. While the Company maintains production
liaisons with independent developers, there can be no assurance that new
products developed by third-party developers whose products are published by the
Company will be introduced on schedule or at all or within acceptable quality
guidelines or that they will achieve market acceptance. The Company's success is
also dependent in part on its ability to obtain content for its products from
external sources. There can be no assurance that the Company will be able to
obtain or renew product development agreements, or to obtain such content, on
favorable terms, or at all. Such agreements are terminable, in some cases
without notice, upon the occurrence of one or more of the following events:
those involving the bankruptcy or insolvency of either party to such agreements,
the cessation of operations by either of such parties or the material breach of
specified provisions of such agreements which breach is not cured within a
designated timeframe. See "Business -- GTIS Publishing."
The Company also distributes products on behalf of other publishers. There
can be no assurance that the Company will obtain or renew any rights to
distribute such products. Failure to retain or obtain such rights could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- The GTIS Merchandising and Distribution
Approach" and "-- GTIS Publishing."
CHANGING PRODUCT PLATFORMS
The consumer software market is characterized by rapidly changing
technology, particularly with respect to product platforms. The Company must
continually anticipate the emergence of, and adapt its products to, popular
platforms for consumer software. When the Company chooses to publish or develop
a product for a new platform, it may be required to make a substantial
development investment one to two years in advance of shipments of products on
that platform. If the Company invests in the development of a product for a
platform that does not achieve significant market penetration, the Company's
planned revenues from that product will be adversely affected and it may not
recover its development investment. If the Company does not choose to publish or
co-develop for a platform that achieves significant market success, the
Company's revenue growth may also be adversely affected. See "Business --
Industry Background" and "-- GTIS Publishing."
INTERNATIONAL SALES
The Company began to broaden its international sales efforts in late 1994
by establishing relationships with software publishers and distributors in
leading international markets. The Company expects that international sales will
account for a significant portion of its net sales in the future. International
sales are subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other barriers, fluctuating exchange rates, potential
political instability, difficulties installing and managing foreign operations
and difficulty in collection of accounts receivable. In addition, acceptance of
the Company's products in certain markets has required, and may in the future
require extensive, time-consuming and costly modifications to localize the
products for use in particular markets. Software piracy presents a particularly
acute problem in certain international markets such as South America, the Middle
East, the Pacific Rim and the Far East, and the laws of foreign jurisdictions
may not protect the Company's proprietary rights to the same extent as the laws
of the United States. There can be no assurance that these or other factors will
not have a
8
material adverse effect on the Company's future international sales and,
consequently, on the Company's business, operating results and financial
condition. See "Business -- GTIS Publishing" and "-- International."
RELIANCE ON HIT TITLES
A significant percentage of the Company's net sales has been attributable
to a limited number of hit titles. For example, sales of the Company's top five
titles during 1995 and the first nine months of 1996 accounted for approximately
10% and 13% of the Company's net sales for such periods, respectively, and
approximately 34% and 35% of the Company's published front-line product sales
for such periods, respectively. The Company's business, operating results and
financial condition could be materially and adversely affected if the Company
does not publish an adequate number of hit titles in each fiscal quarter. See
"Business -- GTIS Publishing."
COMPETITION
The market for consumer software products is highly competitive. Only a
small percentage of products introduced in the consumer software market achieve
any degree of sustained market acceptance. Competition is based primarily upon
price, access to retail shelf space, product enhancements, ability to operate on
popular platforms, availability of titles, new product introductions, marketing
support and distribution systems. Many of the companies with which the Company
currently competes or may compete in the future have comparable or greater
financial, technical, marketing, sales and customer support resources, larger
and more seasoned internal development teams, greater name recognition and a
larger customer base, than the Company. In addition, the Company believes that
large software companies, media companies and film studios are increasing their
focus on the interactive entertainment and edutainment software markets and, as
a result of their financial and other resources, name recognition and customer
base, may become significant competitors of the Company. Moreover, in a number
of geographic markets, certain of the titles offered by the Company, including
various hit titles, are offered on a limited number of platforms and compete
with the same titles offered by the Company's competitors on other platforms.
Current and future competitors with greater financial resources than the Company
may be able to 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. The market is
also extremely competitive with respect to access to third party developers and
content providers. This competition is based primarily on breadth of
distribution, development funding, reputation and royalty rates. To the extent
that competitors maintain or achieve greater title portfolio breadth, title
rights for popular platforms, or access to third party developers and content
providers, or price, shelf access, marketing support, distribution or other
selling advantages, the Company could be materially and adversely affected. In
addition, several competitors of the Company have recently sought to expand
their distribution capabilities. New hardware platforms and electronic delivery
systems may be introduced into the software market and potential new competitors
may enter the software development and distribution market, resulting in greater
competition for the Company. There can be no assurance that the Company will
have the resources required to respond effectively to market or technological
changes or to compete successfully with current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition. In addition, as
part of its value-added distribution program, the Company seeks to provide its
mass merchant customers with a wide variety of popular titles. Achieving such a
product mix requires the Company to supplement the distribution of its published
products with certain third party software products, including products
published by the Company's competitors. There can be no assurance that such
competitors will continue to provide such products to the Company for
distribution at the Company's mass merchant customers. The failure to obtain
software titles developed or published by one or more of the Company's
competitors, and not being able to obtain these products from other distributors
could have a material adverse effect on the Company's relationships with such
mass merchant customers, which in turn would have a material adverse effect on
the Company's business, operating results and financial condition. See "Business
-- Competition."
9
DEPENDENCE ON KEY PERSONNEL
The continued success of the Company depends to a significant extent upon
the continued performance and contribution of its senior management and on its
ability to continue to attract, motivate and retain highly qualified employees.
In particular, the Company is highly dependent on the management services of
Joseph J. Cayre, the Chairman of the Board of Directors, Ronald Chaimowitz, the
President and Chief Executive Officer of the Company and Charles F. Bond,
President of the Company's Slash Division. The loss of the services of any of
the Company's senior management could have a material adverse effect on the
Company's business, operating results and financial condition. Competition for
highly skilled employees with technical, management, marketing, sales, product
development and other specialized training is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Specifically, the Company may experience increased costs in order to
attract and retain skilled employees. In addition, while the Company has entered
into employment agreements with Messrs. Chaimowitz and Bond, there can be no
assurance that such employees will not leave or compete with the Company. The
Company's failure to attract additional qualified employees or to retain the
services of key personnel could materially and adversely affect the Company's
business, operating results and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for the Common Stock have been, and may in the future be,
volatile. Market prices for the Company's Common Stock will be influenced by a
number of factors, including quarterly variations in the financial results of
the Company and its competitors, acquisitions, changes in earnings estimates by
analysts and conditions in the computer software industry, the overall economy
and the financial markets. These and other factors may adversely affect the
market price of the Common Stock.
PRODUCT RETURNS
The Company accepts product returns or provides markdowns or other credits
on varying terms in the event that the customer holds excess inventory of the
Company's products. Software products as complex as those published by the
Company may contain undetected errors when first introduced or when new versions
are released. It is the Company's practice to accept returns of defective or
damaged products at any time. At the time of product shipment, the Company
establishes a return reserve which covers expected future returns and, if
necessary, price protection, the Company's policies for stock balancing and
returns of defective or damaged products. This estimate of the potential for
future returns of products is based on historical return rates, seasonality of
sales, retailer inventories of the Company's products and other factors. The
Company has historically experienced, and reserved for, product returns at a
rate of approximately 30% of gross sales. Product returns that exceed the
Company's reserves, or loss of or delay in market acceptance of a new product as
a result of software failures or otherwise, could materially and adversely
affect the Company's business, operating results and financial condition.
Although the Company maintains reserves which it believes to be adequate with
respect to product returns and price reductions, there can be no assurance that
actual returns to the Company will not exceed the reserves established.
RAPID EXPANSION
The Company has experienced significant and rapid sales growth since it
commenced operations. There can be no assurance that the Company will be able to
maintain its present level of sales or continue to experience sales growth.
There can be no assurance that, if the Company continues to experience sales
growth, it can do so without adversely affecting its profitability.
The Company's ability to manage its growth effectively will require it to
continue to attract, train, motivate, manage and retain key employees and to
improve its operational, financial and management information systems. If the
Company's management becomes unable to manage growth effectively, the Company's
business, operating results and financial condition could be adversely affected.
See "Business -- Facilities" and "-- Business Strategy".
10
RELIANCE ON MERCHANDISING SERVICES
The Company relies upon REPS, a company controlled by certain of the Cayre
Family Stockholders (as defined below), as the primary source of the field sales
representative services provided by the Company to Wal-Mart and to other of its
retail customers. The Company believes that the quality of the field sales
representative services provided by REPS is an important aspect of the Company's
merchandising strength. REPS has agreed to continue to perform such services, at
its cost, pursuant to an agreement expiring in 1997, which agreement may be
terminated only by the Company. The Company believes that the terms of this
agreement are as fair to the Company as the terms obtainable from an
unaffiliated third party. In the event that the Company is unable to extend such
agreement on terms that are favorable to the Company, or REPS ceases to provide
such services for any other reason, and the Company is not able to obtain
comparable services from another source, the Company's business, operating
results and financial condition could be materially and adversely affected.
MANUFACTURING RISKS
The production of the Company's published products involves duplicating
software programs onto CD-ROM disks and floppy diskettes, printing user manuals
and product packaging materials, and packaging finished products. Each of the
foregoing activities is performed for the Company by third parties in accordance
with the Company's specifications, including, in some cases, entities controlled
by the Cayre Family Stockholders. While these services are available from
multiple parties and at multiple sites, there can be no assurance that an
interruption in the manufacture of the Company's products will not occur and, if
it does occur, that it could be remedied without undue delay and without
materially and adversely affecting the Company's business, operating results or
financial condition. In addition, as consumer demand for CD-ROM based software
increases, the Company must compete for CD-ROM duplication services with its
competitors, as well as publishers of music and video CDs. An inability to
secure adequate CD-ROM stamping capacity could have a material adverse effect on
the Company's business, operating results and financial condition. While the
Company engages in ongoing efforts to ensure an adequate and timely supply of
CD-ROMs from a number of suppliers, and to date has incurred no difficulty in
securing its required supply, there can be no assurance that the future supply
of CD-ROMs will be sufficient to meet the Company's requirements.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company sells a significant portion of its published software under
licenses from independent developers and, in such cases, does not acquire the
copyrights for the underlying work. The Company relies primarily on a
combination of patent, trademark, copyright, trade secret and other proprietary
rights laws, license agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights and the rights of
its co-developers. Unauthorized copying occurs within the software industry, and
if a significant amount of unauthorized copying of the Company's published
products or products distributed by it were to occur, the Company's business,
operating results and financial condition could be materially and adversely
affected. Also, as the number of software products in the industry increases and
the functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. There can be
no assurance 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. Any such claims or litigation, with or without
merit, could be costly and cause a diversion of management's attention, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Intellectual Property and
Proprietary Rights" for the description of the Company's litigation against
Micro Star Software.
RISK OF CUSTOMER BUSINESS FAILURE
Sales are typically made on credit, with terms that vary depending upon the
customer and the nature of the product. The Company does not hold collateral to
secure payment. Retailers and distributors compete in a volatile industry and
are subject to the risk of business failure. For example, the Company currently
has an
11
uninsured receivable in the amount of approximately $1.4 million from Neostar, a
retailer currently engaged in Chapter 11 bankruptcy proceedings. A motion to
convert the proceedings to Chapter 7 liquidation proceedings has been made, but
no decision in respect thereto has been made as of the date of this Prospectus.
The Company believes its existing reserves are adequate to cover its exposure
with respect to such receivable. Although the Company maintains a reserve for
uncollectible receivables that it believes to be adequate, there can be no
assurance that such reserve is adequate or that additional payment defaults on
significant sales would not materially and adversely affect its business,
operating results and financial condition.
CONCENTRATION OF SHARE OWNERSHIP
The Common Stock entitles its holders to one vote per share on all matters
submitted to a vote of the holders of the Company's Common Stock. As of November
15, 1996, Joseph J. Cayre, Kenneth Cayre, Stanley Cayre, the various trusts for
the benefit of their respective children, and Jack J. Cayre (collectively, the
"Cayre Family Stockholders") collectively held approximately 53.6% of the
combined voting power of the outstanding shares of Common Stock. Accordingly,
the Cayre Family Stockholders have the voting power required to elect all
directors and to approve other matters required to be voted upon by the
stockholders of the Company.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue shares of
Preferred Stock and to determine the designations, preferences and rights and
the qualifications or restrictions of those shares without any further vote or
action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate actions, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the "DGCL").
In general, this statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Furthermore, certain other provisions of the Company's
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws, such as the provision for a staggered Board of Directors, may have the
effect of discouraging, delaying or preventing a merger, tender offer or proxy
contest, which could adversely affect the market price of the Company's Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 15, 1996, the Company had a total of 66,307,064 shares of
Common Stock outstanding. Upon the effectiveness of the registration of the
Shares, approximately 50,840,000 shares of Common Stock will be "restricted"
securities within the meaning of Rule 144 under the Securities Act. Generally,
under Rule 144, a person who has held restricted shares for two years may sell
such shares, subject to certain volume limitations and other restrictions,
without registering them under the Securities Act. In addition and subject to
certain limitations, holders of approximately 48,480,000 shares of the Company's
Common Stock (including Common Stock issuable upon the exercise of warrants)
have contractual rights to require the Company to register such shares for
future sale and holders of approximately 2,750,000 additional shares of Common
Stock (including Common Stock issuable upon the exercise of warrants) have
contractual rights to include such shares in future Registration Statements
filed by the Company under the Securities Act. Further, the Company has
registered on a registration statement on Form S-8 (Registration No. 333-428),
the shares of Common Stock subject to outstanding options or reserved for
issuance under the Company's 1995 Stock Incentive Plan. As of November 15, 1996,
options to purchase 5,486,349 shares of Common Stock were outstanding, of which
approximately 1,040,000 option shares were exercisable as of such date. In
connection with licensing and distribution arrangements and acquisitions of
other companies, the Company has issued and may continue to issue Common Stock
or securities convertible into Common Stock. Any such sales, or future sales of
substantial amounts of Common Stock, could adversely affect prevailing market
prices for the Common Stock and could adversely affect the Company's ability to
raise needed capital.
12
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
GT Interactive Software Corp. creates, publishes and merchandises
interactive entertainment, edutainment and value-priced consumer software for a
variety of platforms on a world-wide basis. Similar to major film studios and
record companies, the Company employs a portfolio approach to achieve a broad
base of products across most major consumer software categories. The Company
obtains new software content by blending its internal software development
capabilities with the multi-title publishing relationships it has established
with a variety of independent software design groups and content providers.
Recognizing that software distribution capabilities attract software publishing
content, the Company has used its strong distribution foundation to build its
current position as a leader in the consumer software publishing business.
According to PC Data, in the first eight months of 1996 the Company had achieved
the industry's highest market share in number of units sold in the PC software
game category. The Company has experienced significant growth in its published
front-line titles, growing from 5 titles released in 1994 to 24 titles released
in 1995 to 57 titles released during the nine months ended September 30, 1996.
INDUSTRY BACKGROUND
The world-wide consumer software market has grown dramatically in recent
years, driven by the increasing installed base of multimedia PCs in the home,
the introduction of new dedicated game systems from Sony, Sega, Nintendo and
others, the proliferation of software titles, and the development of new and
expanding distribution channels. Recent improvements in computer technology have
presented an opportunity to fundamentally change the user's PC experience by
introducing an interactive element to audio and visual entertainment. Multimedia
PCs, generally configured with enhanced memory, high-resolution color monitors,
sound boards, stereo speakers and high-capacity CD-ROM drives, provide
interactive entertainment and learning environments that combine text, realistic
sound, advanced graphics and animation. Rapidly declining prices of
microprocessors and CD-ROM drives have made these computers more affordable.
The world-wide consumer software industry has also recently undergone a
number of profound changes with the introduction of new hardware platforms and
new technologies, such as on-line networks and the Internet. The "next
generation" of game systems are based on 32- and 64-bit microprocessors that
incorporate dedicated graphics chipsets. The Sony PlayStation ("PlayStation")
and Sega Saturn ("Saturn") hardware systems began shipping in Japan in the last
quarter of 1994 and in North America in 1995. The Nintendo 64 ("N64") system
began shipping in Japan in June 1996 and recently began shipping in North
America. Historically, sales of console software titles have exceeded sales of
PC titles in both units and dollars. In addition, the proliferation of on-line
networks and the Internet has created new opportunities for the consumer
software industry, including on-line game playing by users in various locations,
additional promotional techniques including on-line distribution of shareware,
and direct on-line marketing, sales and distribution to end users.
Growth in the installed base of multimedia PCs and in other powerful and
functional platforms has created a mass market for consumer software products.
The development of a mass market for software products has been characterized by
the rise in importance of mass merchant software sales as a distribution
channel, increasing price pressure as well as competition for limited retail
shelf space to accommodate the abundance of new titles. This abundance has
resulted in the increased importance of brand name recognition in a hit driven
market. Faced with the challenges of marketing and distribution, many
independent software developers and content providers are pursuing relationships
with publishing companies with broader distribution capabilities, including
enhanced access to mass market retailers and greater merchandising, marketing
and promotional support. At the same time, retailers are faced with the
challenge of managing the increasing
13
number of new titles with limited shelf space. Another result of these market
pressures is the trend in the industry toward the consolidation of software
companies and the diversification of products offered by such companies.
The Company believes that success in the industry will be achieved by those
companies that are able to create significant brand name recognition or hits,
establish strong retail relationships and consistently offer a diversified
high-quality software portfolio providing significant sell-through opportunities
for retailers of all kinds.
BUSINESS STRATEGY
The Company's objective is to become one of the world's leading consumer
software companies. GTIS' initial business strategy was to establish a strong
distribution capability as a foundation to build its current position as a
leader in the consumer software publishing business.
The Company believes that significant growth opportunities exist in
international markets and across a variety of next generation hardware
platforms, including PlayStation, Saturn and N64, for which the Company is
creating software products. Key elements of its strategy are to:
Continue to expand and diversify the publishing business. The Company's
current strategy is to obtain new software content by blending its in-house
software development capabilities with the multi-title publishing relationships
it has established with independent software developers and content providers.
To that end, the Company completed several acquisitions of leading software
companies in 1995 and 1996 which have substantially increased its internal
development capabilities and its publishing base. The Company acquired
Humongous, a premier developer and publisher of award-winning children's
software which has become the centerpiece of its edutainment business. In
addition, the Company acquired WizardWorks, a developer and publisher of
value-priced software, and FormGen, a publisher of interactive PC shareware and
software. These 1996 acquisitions supplemented the Company's 1995 acquisition of
Slash, a publisher, purchaser, repackager and distributor of value-priced
software. On an ongoing basis, GTIS intends to evaluate potential acquisitions
of or investments in other software publishers or developers which it believes
will complement or enhance its existing business.
With the acquisitions of Slash and WizardWorks, the Company has
significantly enhanced its presence in the value-priced software market.
WizardWorks' internal development capabilities have enabled the Company to
create original lines of value-priced software. The Company's value-priced
software marketing operations give the Company the flexibility to offer a
particular product at various price points in response to market pricing
pressures. This enables the Company to manage the entire life-cycle of its
published product from the initial release of the product through the final
closeout sale.
The Company intends to seek additional ways to deepen and broaden its
software product lines, including exploring new genres and platforms. Pursuant
to this goal, the Company's strategies include attracting and retaining top
developers and content providers, such as id Software, Williams, 3D Realms,
Mercer Mayer, Stan and Jan Berenstain and Scavenger, as well as developing its
own titles. Similar to the music industry, GTIS employs its own "A&R" (Artists &
Repertoire) group whose sole responsibilities are to identify, attract and
retain independent software developers.
Develop a leading position in the 32- and 64-bit game platforms. The
Company is leveraging its strength in the PC software market to build a leading
position in the emerging 32- and 64-bit game software market. To that end, the
Company has become an approved licensee of PlayStation and expects to become an
approved licensee of Saturn and N64. In addition, the Company has entered into
multi-title relationships with id Software, Williams, 3D Realms and other
content providers and software developers for the publishing of titles for use
on these game systems. As additional platforms that are suited to the Company's
products emerge, the Company intends to publish products that it believes will
have the greatest sales potential in the consumer software market.
14
Broaden its international presence. The Company believes that markets
outside the United States present significant growth opportunities. The Company
began to broaden its international sales efforts in late 1994 by establishing
relationships with software publishers and distributors in the largest
international markets. In January 1995, the Company established a publishing
operation in the United Kingdom with responsibility for European markets. That
operation was expanded in November 1996 when the Company acquired the business
of Warner Interactive Europe, a subsidiary of Warner Music Group. Recently, GTIS
successfully launched Doom for PlayStation in Europe and in Japan. In addition,
the Company released Quake for PCs in Europe, where it was the number one
selling title upon its release.
In September 1995, the Company entered into joint venture agreements with
SOFTBANK, the leading distributor of PC software in Japan, and Roadshow
Entertainment PTY LTD, a leading entertainment company in Australia, for the
publishing and distribution of the Company's products in Japan and Australia,
respectively. It was pursuant to the SOFTBANK arrangement that Doom was launched
in Japan. The Company is aggressively seeking new opportunities to form
alliances with local publishers and distributors in other foreign markets.
Develop new brands and leverage hit titles. The Company believes that,
with the proliferation of software titles and the competition for shelf space,
brand name recognition of its published products, whether created internally or
by third parties, is an important component of its success as a publisher. For
example, the Company has licensed titles from Mercer Mayer in order to
capitalize on the popularity of Mercer Mayer's multi-million selling The Little
Critter book series. In addition, the popularity of Doom has resulted in the
success of Doom-related products which have sold over 3.8 million copies.
Further, Humongous has built significant brand name recognition in the
edutainment area with its critically acclaimed software titles and identifiable
characters. The Company intends to further build its characters and other
properties to which the Company has exclusive rights through licensing and
merchandising across various media, including books, television and films.
Pursue the Internet and on-line network opportunities. The Internet and
on-line networks are an integral element of all GTIS marketing and promotional
efforts. The Company generates awareness through its Web site for its software
titles prior to their market debut. The wide acceptance of the Internet into
consumers' homes has created new opportunities for the consumer software
industry. The Company intends to further explore these opportunities, including
on-line game playing by users in various locations, additional promotional
techniques including on-line distribution of shareware, and direct on-line
marketing, sales and distribution to end users.
Maintain its leadership position as a distributor and merchandiser. GTIS
believes that it is the largest distributor of third party computer software to
mass merchants in the United States and intends to maintain its position in this
area. The Company believes that its distribution capabilities have served as a
foundation upon which it has built its current position as a leader in the
consumer software publishing business. The Company's proprietary
state-of-the-art distribution and point-of-sale replenishment system, as well as
its experienced management team, enable it to handle efficiently high sales
volumes, 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. GTIS intends to continue to invest in and upgrade that system and
seeks to explore innovative value-added programs to establish and strengthen
retail relationships.
GTIS PUBLISHING
The Company publishes high quality consumer software, developed internally
or in collaboration with independent developers, which is available in various
formats for use on multiple platforms. Like major film studios and record
companies, GTIS employs a portfolio approach to achieve a broad base of products
across all major consumer software categories. The Company combines its internal
software development capabilities with relationships with a variety of
independent software design groups, such as id Software, a leading developer of
3-D action games (Quake, Final Doom, Doom II and Hexen); Williams, the home
entertainment division of leading arcade company WMS Industries (Mortal Kombat
3, NBA Hang Time and War Gods);
15
3D Realms, the creator of the best selling Duke Nukem 3D; Scavenger, designers
of Scorcher, Amok and Into the Shadows; and Cybersites, creators of the popular
Internet game, S.P.Q.R.
During 1996, the Company has consummated a number of strategic acquisitions
and investments that have significantly increased its internal development
capabilities and added to its expanding publishing base. In July 1996, the
Company acquired Humongous, a premier developer and publisher of original
interactive children's entertainment software. Humongous' award-winning software
line features popular characters such as Putt-Putt, Freddi Fish, Fatty Bear and
Buzzy the Knowledge Bug. USA Today (December 26, 1995) listed Humongous as one
of "Six Firms Worth Watching in '96," and Fortune magazine (July 10, 1995) named
Humongous one of "25 Cool Companies." Humongous, which has become the
centerpiece of the Company's edutainment business, joins the Company's existing
popular children's titles, strengthening the Company's presence in the growing
children's software category.
The Company further increased its internal software development
capabilities in June 1996 when it acquired WizardWorks, a developer and
publisher of a wide variety of consumer software products. The WizardWorks
product line includes GameWizards, a series of gaming strategy, hint and tip
guides on CD-ROM that incorporate full-motion video game segments, cheat codes
and detailed maps. WizardWorks also offers the !Zone line of add-on levels that
complement the industry's most popular entertainment titles, including GTIS
titles such as Doom, Heretic, Hexen and Duke Nukem 3D. Through the CompuWorks
line, WizardWorks offers a line of home office productivity software that
includes such well-known titles as CompuWorks Publisher and CompuWorks Draw.
Also included in the acquisition of WizardWorks was MacSoft, a leading publisher
of entertainment, edutainment and productivity software for the Macintosh. GTIS
is consolidating all of its Macintosh offerings under the MacSoft brand,
strengthening its position in this segment of the market.
In June 1996, the Company also acquired FormGen, a publisher of interactive
PC shareware and software. Foremost among FormGen's current titles is the
best-selling Duke Nukem 3D for PCs, published under license from 3D Realms.
Independent of its acquisition of FormGen, the Company has secured the rights to
publish Duke Nukem 3D world-wide directly from 3D Realms for all next generation
platforms.
In November 1996, the Company invested in convertible preferred stock of
Off World Entertainment, Inc. (also known as "OddWorld Inhabitants" or
"OddWorld"), which is convertible into 50% of the common equity. OddWorld's
principal developers have extensive experience in the ground-breaking
application of computer-generated images in film, commercials and theme park
rides. OddWorld is currently developing "StoryDwellings" -- a game series that
combines life-like character motion with intuitive controller interfaces inside
highly rendered backgrounds, bringing players into a rich, deeply developed
world that is more like a film than a game.
The Company has also pursued strategic relationships with independent
developers of software products. GTIS believes it has been successful in
identifying talented developers and establishing mutually beneficial
relationships with those developers. The Company's early publishing success was
based in large part on the Doom series of software titles. These products have
sold an aggregate of over 3.8 million copies since the introduction of the
series in 1994 and have been the Company's most popular titles. The Doom series,
which includes Doom II, Doom-related products, Heretic and Hexen, is licensed to
the Company from, and developed by, id Software. Another id Software title,
Quake, is currently being published by the Company in the U.S. and Europe.
The Company believes that its success with the Doom-related titles and its
software distribution capabilities have enabled it to attract and retain
additional quality independent software developers and content providers.
Consequently, the Company has experienced significant growth in its published
titles, growing from 5 front-line titles released in 1994 to 24 titles released
in 1995 to 57 titles released during the nine months ended September 30, 1996.
The Company has entered into several multi-title publishing contracts with
Williams, pursuant to which the Company has acquired the rights to publish
software products based on virtually all of Williams' coin-operated video games,
for use on a number of platforms world-wide, excluding Japan and North America.
The
16
Company has acquired similar rights to games developed by Atari Games
Corporation ("Atari"), which was recently acquired by Williams.
GTIS is also leveraging its strength in the PC software market to build a
leading position in the emerging 32- and 64-bit video game software market. To
that end, the Company has become an approved licensee of PlayStation and expects
to become an approved licensee of Saturn and N64. In addition, the Company has
entered into relationships with id Software, Williams, 3D Realms and other
content providers and software developers for the publishing of next generation
titles, such as Doom II, Quake, Duke Nukem 3D and Mortal Kombat 3.
Edutainment
In July 1996, the Company acquired Humongous, a premier developer and
publisher of original interactive children's entertainment software. Humongous
software features popular characters such as Putt-Putt, Freddi Fish, Fatty Bear
and Buzzy the Knowledge Bug. Humongous titles, such as Putt-Putt Saves The Zoo,
Freddi Fish and the Case of the Missing Kelp Seeds and Fatty Bear's Birthday
Surprise, have won dozens of awards in the past few years.
Humongous has become the centerpiece of the Company's edutainment business.
Current Humongous titles join GTIS' existing popular children's properties,
including those from award-winning children's author Mercer Mayer (Just Me and
My Dad and Just Me and My Mom), strengthening the Company's presence in the
growing children's software category. Among the edutainment software products to
be published by the Company are software titles based on the Berenstain Bears
series, created by Stan and Jan Berenstain.
Value-Priced Software
In addition to publishing front-line software, GTIS also creates, publishes
and distributes a variety of value-priced products. The Company believes that
the value-priced segment of the consumer software market affords a growth
opportunity as a result of the proliferation of software titles which cannot
find front-line shelf space and the demand by many PC owners for moderately
priced products. The Company's value-priced marketing operations give the
Company the flexibility to offer a particular product at various price points in
response to market pricing pressures. This enables the Company to manage the
entire life-cycle of its published product from the initial release of the
product through the final closeout sale.
In early 1995, the Company began to repackage and offer for distribution to
mass merchants five- and ten-pack boxes of value-priced software titles. These
generally include previously top-selling software titles whose popularity had
peaked at higher retail price points or titles that never realized substantial
popular recognition. The Company's acquisition in June 1995 of Slash, a leading
publisher, purchaser, repackager and distributor of value-priced software,
solidified the Company's presence in the value-priced market. Through its Slash
Division, the Company licenses catalog titles, purchases excess inventory
(primarily in the CD-ROM format) from major publishers and may repackage the
titles into compilation boxes, such as five-packs and ten-packs.
The Company further expanded its value-priced product line in June 1996,
when it acquired WizardWorks, a leading developer and publisher of value-priced
interactive entertainment, edutainment and productivity software. The
WizardWorks value-priced product line includes the GameWizards, a series of
gaming strategy, hint and tip guides; the !Zone line of add-on level software
for complementing the industry's most popular entertainment titles; and the
CompuWorks line of home office productivity software. The Company believes that
the imminent consolidation of the Slash Division and WizardWorks into one
distinct value-priced division will serve to strengthen its position in the
value-priced market.
In 1995, the Company commenced supplying value-priced software under
specially designed fixture-based programs to Kmart and Wal-Mart. These programs
utilize sophisticated distribution and point of sale replenishment systems
similar to those already in use by the Company for front-line products.
17
International
In January 1995, the Company established a publishing operation in London,
England, with responsibility for European markets. The Company is currently
publishing, marketing and distributing its consumer software products in over 35
countries world-wide, including Quake which was the number one selling PC title
in Europe upon its release. The Company distributes its products direct to
retail merchants in most of the U.K., through a sub-distribution agreement with
Virgin Interactive Entertainment plc in French- and German-speaking countries
and through wholesalers in most of the rest of the European market.
The Company believes that the European market for 32- and 64-bit game
systems software represents a significant growth opportunity. In late 1995, the
Company successfully launched Doom for PlayStation in Europe and, in Spring
1996, in Japan. Through its strategic alliance with Williams, the Company has
acquired the exclusive right to publish and distribute, in most major markets
excluding North America and Japan, 32-and 64-bit software products based on
virtually all of Williams' coin-operated video games, as well as games developed
by Atari, which was recently acquired by Williams. These titles include NBA Hang
Time, based on the popular arcade basketball game, NHL Open Ice, an arcade-style
hockey brawl, Robotron X, the sequel to the arcade classic, Mortal Kombat
Trilogy, based on the record-setting martial arts arcade series, and Area 51,
based on the popular arcade game.
In November 1996, the Company acquired the business of Warner Interactive
Europe, a European subsidiary of Warner Music Group. The acquisition established
direct GTIS operations in France and Germany, as well as Australia. As part of
the transaction, the Company also acquired an internal product development team
based in Manchester, England.
The Company has also entered into joint venture agreements with SOFTBANK,
the leading distributor of personal computer software in Japan, and Roadshow
Entertainment PTY LTD, a leading entertainment company in Australia, under which
the Company and each of the other parties publish and distribute the Company's
titles in Japan and Australia, respectively. In October 1995, the Company and
SOFTBANK further strengthened their relationship through the purchase from the
Company and certain stockholders, by an affiliate of SOFTBANK, of an equity
interest in the Company. Additionally, in June 1996, the Company purchased a
9.9% interest in, and entered into a multi-title publishing agreement with,
Mirage, a U.K. developer of entertainment software. The Company is aggressively
seeking new opportunities to form strategic alliances with local publishers and
distributors in other foreign markets.
THE GTIS MERCHANDISING AND DISTRIBUTION APPROACH
The Company believes that it is the only software publisher 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. GTIS sells its own published titles to specialty retailers
and distributes its own products, as well as those of other publishers, to
certain mass merchants. The Company is the primary supplier of its own and
third-party consumer software to approximately 2,245 Wal-Mart stores and
approximately 739 Target stores and supplies value-priced software under
specially designed fixture-based programs to approximately 2,149 Kmart stores.
In addition, the Company sells its own published products to a variety of major
retailers, including Sam's Club, Price-Costco, CompUSA, Best Buy, Egghead and
Computer City, at over 20,000 locations nationwide.
The Company believes that its merchandising and distribution capability is
an important element of its success and gives it a competitive advantage. The
Company's distribution approach is based on direct sales to a significant number
of specialty, multi-purpose and mass merchant retailers of computer software.
This approach includes shipment of software directly to individual stores or
warehouse locations for each of its retail accounts, in-store merchandising
programs for a variety of its retail accounts and value-added distribution
programs employing a proprietary point-of-sale inventory replenishment system
for certain of its mass merchant accounts.
GTIS initially designed its merchandising and distribution program in
collaboration with Wal-Mart. Under this program currently executed for certain
mass merchants, the Company typically manages
18
substantially all of a store's software inventory, by designing, supplying and
restocking displays of software according to a program plan devised in concert
with the customer specifically for each individual store. Drawing upon its
regional and store specific data base, the Company updates each store plan on a
continual basis. This store-specific program plan, together with the Company's
proprietary point-of-sale replenishment system, enables the Company to ensure
that the mass merchants' shelves will remain fully stocked with a tailored mix
of titles designed to maximize the sales volume per square foot of shelf space.
Utilizing its point-of-sale replenishment systems and electronic data
interchange (EDI) links with its largest mass merchant accounts, the Company is
able to efficiently handle high sales volumes to those customers, 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 state-of-the-art 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.
Based on the strength of its current consumer software distribution
operation, GTIS has successfully attracted other publishers to utilize its mass
merchant distribution services for their products. Such products are generally
distributed by GTIS under the name of the publisher who is, in turn, responsible
for the publishing, packaging, marketing and customer support of such products.
GTIS believes that its program of distributing other publishers' products
leverages the Company's distribution capabilities and adds a source of revenue
that does not require additional product development expenditures. 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.
MARKETING
GTIS believes that marketing is critically important to the success of its
products. The Company employs a wide range of sophisticated marketing techniques
including (i) in-store promotions that utilize display towers and endcaps, (ii)
direct mailings, (iii) advertising in computer and general consumer publications
and (iv) on-line marketing to promote sales of its products. The Company
monitors and measures the effectiveness of its marketing strategies throughout
the product lifecycle.
The Internet is an integral element of GTIS' marketing efforts used, in
part, to generate awareness for its titles months prior to their market debut.
GTIS incorporates the Internet into its marketing programs through the creation
of product-dedicated mini-sites, on-line promotions and news group seedings.
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.
GTIS' marketing programs have continued to expand along with the Company's
publishing business. For example, to launch Just Me and My Mom, an interactive
storybook based on the popular Mercer Mayer book, GTIS unveiled a multi-tiered
marketing campaign which included cross-promotions with Family PC magazine and
Scholastic Software Clubs, the showcasing of the game at an EPCOT Center exhibit
and magazine subscriber invoice inserts, as well as game demos sent to
approximately 750,000 educators.
As of October 1, 1996, the Company's staff included 54 employees in
domestic sales and marketing and 33 employees in international marketing and
distribution. The Company expects to increase its sales and marketing staff to
provide greater penetration into the retail market and increased marketing
support for its products. The Company also uses independent field sales
representative organizations to assist in the sales of software products and
customer support.
19
COMPETITION
The market for consumer software products is highly competitive and is
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. A number of competitors offer products that
compete with one or more of the Company's products, and some of those
competitors have recently attempted to increase their focus on the distribution
business. Only a small percentage of products introduced in the consumer
software market achieve any degree of sustained market acceptance. Principal
competitive factors in marketing consumer software include content, price,
access to retail shelf space, product enhancements, the ability to operate on
popular platforms, the availability of hit titles, new product introductions,
marketing support and distribution systems. GTIS believes that it competes
effectively in these areas, particularly in the areas of quality content,
platform support, a breadth of titles, price, access to retail shelf space,
marketing support and distribution systems. Moreover, in a number of geographic
markets, certain of the titles offered by the Company, including various hit
titles, are offered on a limited number of platforms and compete with the same
titles offered by the Company's competitors on other platforms. Many of the
Company's current and potential competitors, however, have comparable or greater
financial, technical, marketing, sales and customer support resources, larger
and more seasoned internal development teams, greater name recognition and a
larger customer base, than the Company. In addition, the Company believes that
large software companies, media companies and film studios are increasing their
focus on the interactive entertainment and edutainment software markets and, as
a result of their financial and other resources, name recognition and customer
base, may become significant competitors of the Company. The market is also
extremely competitive with respect to access to third party developers and
content providers. This competition is based primarily on breadth of
distribution, development funding, reputation and royalty rates. The Company
believes that it competes favorably with respect to each of these factors. To
the extent that competitors maintain or achieve greater title portfolio breadth,
title rights for popular platforms or access to third party developers and
content providers, or price, shelf access, marketing support, distribution or
other selling advantages, the Company could be materially and adversely
affected. There can be no assurance that the Company will have the resources
required to respond to market or technological changes or to compete
successfully in the future.
The market for the Company's products is characterized by significant price
competition, and the Company expects that it will face increasing pricing
pressures from its current competitors. There can be no assurance that the
Company will be able to provide products that compare favorably with the
products of the Company's competitors or that competitive pressures will not
require the Company to reduce its prices. Any material reduction in the price of
the Company's products would negatively affect operating income as a percentage
of net revenue and would require the Company to increase unit sales in order to
maintain net revenue.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company generally sells its software published under licenses from
independent developers and does not customarily acquire the copyrights. The
Company relies primarily on a combination of trademark, copyright, trade secret
and other proprietary rights laws, license agreements, employee and third-party
nondisclosure agreements and other methods to protect its proprietary rights and
the rights of its developers. United States copyright law, international
conventions and international treaties, however, may not provide meaningful
protection against unauthorized duplication or infringement of the Company's
software.
Policing unauthorized use of an easily duplicated and broadly disseminated
product such as computer software is very difficult. Software piracy is expected
to be a persistent problem for the software industry. These problems are
particularly acute in certain international markets such as South America, the
Middle East, the Pacific Rim and the Far East. If a significant amount of
unauthorized copying of the Company's products were to occur, the Company's
business, operating results and financial condition could be adversely affected.
20
Software developers and publishers are subject to infringement claims.
There can be no assurance 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. Any such claims or litigation,
with or without merit, could be costly and a diversion of management's
attention, which could have a material adverse effect on the Company's business,
operating results and financial condition. Adverse determinations in such claims
or litigation could have a material adverse effect on the Company's business,
operating results and financial condition. The Company is presently in
litigation against Micro Star Software ("Micro Star"), the publisher of a
product entitled "Nuke It" comprised largely of additional levels of play for
Duke Nukem 3D which are created by game users and available over the Internet
("Player Created Levels"). The Company contends that the sale of Nuke It
infringes the copyright on Duke Nukem 3D (which the Company publishes under
license with the owner of 3D Realms) and violates the Lanham Act's trademark,
unfair competition and false advertising provisions. On September 26, 1996, the
Company obtained a preliminary injunction in federal court in San Diego,
California ordering the recall of all copies of Nuke It then in the stores,
based on the use of Duke Nukem 3D's protected expression on Nuke It's packaging
and in some copies of the Nuke It CD-ROM. The Court also held as a preliminary
matter that the Player Created Levels contained in Nuke It did not themselves
contain expression from the Duke Nukem 3D game in protectable form. Because the
Company believes that this holding is erroneous, it is pursuing an expedited
appeal to the U.S. Court of Appeals for the Ninth Circuit, seeking an injunction
halting the sale of Nuke It and any subsequent Micro Star product containing
additional levels of play for Duke Nukem 3D. Micro Star has appealed the Court's
decision granting the injunction. The Company intends vigorously to pursue this
litigation to protect its intellectual property rights.
MANUFACTURING
The Company's CD-ROM disk and floppy diskette duplication is contracted out
to a number of third-party disk duplication companies. Printing of user manuals
and of packaging materials is performed to the Company's specifications by
outside sources. Disks, user manuals and sales brochures are packaged for sale
by outside sources, including companies owned or controlled by certain of the
Cayre Family Stockholders. 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. See "Risk Factors -- Manufacturing
Risks."
EMPLOYEES
As of October 1, 1996, GTIS had 932 employees, consisting of 105 in
domestic sales and marketing, 525 in distribution, 34 in manufacturing, 33 in
international marketing and distribution, 96 in publishing and product
development, 28 in information services, 9 in purchasing and 102 in
administration and finance. Of the 525 employees in distribution, 361 are
members of Local 734, L.I.U. of N.A., AFL-CIO (the "Union"). These employees,
who are located at the Company's distribution center in Edison, New Jersey, are
subject to a collective bargaining agreement the Company entered into with the
Union on May 12, 1995. The Company believes that its relations with its
employees are good.
FACILITIES
The Company's principal administrative, sales, marketing and development
facilities are located in approximately 18,000 square feet of space at 16 East
40th Street and approximately 13,000 square feet of space at 10 East 40th
Street, in New York City. The leases on the facility located at 16 East 40th
Street will expire in December 2002, and the lease on the facility located at 10
East 40th Street will expire in June 1997. The Company also maintains a facility
in London, England of approximately 6,000 square feet, from which it conducts
its European operations, under a lease that expires in the year 2020. The
buildings which house the 16 East 40th Street facility in New York City and the
London facility are owned by 16 East 40th Associates and Marylebone 248 Realty
LLC, respectively, affiliates of Joseph J. Cayre. The Company believes that the
terms of the leases are no less favorable to the Company than those it could
obtain from independent third parties.
21
The Company maintains 2,400 square feet of office space in Edina, Minnesota
for its Slash Division, under a lease that expires in December 1997. The Company
maintains a 192,900 square-foot distribution center in Edison, New Jersey under
a lease that expires in July 1999, a 34,400 square-foot distribution center in
Edina, Minnesota under a lease that expires in December 1997 and another 79,900
square-foot distribution center in Edina under a lease that expires at the end
of 1997. In Redwood, California, the Company maintains a 4,000 square-foot
office space under a lease that expires in November 1998.
The Company also maintains offices in the Minneapolis, Minnesota area,
Scottsdale, Arizona and Woodinville, Washington for each of its WizardWorks,
FormGen and Humongous subsidiaries, respectively. In the Minneapolis area, the
Company currently maintains three properties: a 15,000 square-foot office,
warehouse and distribution space under a lease that expires in March 2006, a
24,000 square foot warehouse space in Brainerd, Minnesota, leased on a
month-to-month basis, and a 1,000 square foot office space in Golden Valley,
Minnesota, leased on a month-to-month basis. In Scottsdale, the Company
maintains a 25,000 square-foot office space under a lease that expires in
December 1998. In Woodinville, the Company maintains a 25,000 square-foot office
and warehouse space under a lease that expires in December 1997. The Slash and
WizardWorks businesses, which are in the midst of consolidation, are in the
process of moving into one approximately 240,000 square-foot office, warehouse
and distribution space in the Minneapolis, Minnesota area under a lease that
expires in September 1999.
In addition, in connection with the Company's recent acquisition of the
business of Warner Interactive Europe, the Company has assumed the leases for
offices in London and Manchester, England, Hamburg, Germany and Paris, France.
Such leases will expire in December 2009, March 2000, March 1998 and December
2003, respectively.
The Company has experienced significant and rapid expansion since its
formation and is seeking additional office space for the New York City
operations. The Company believes that suitable additional or alternative space
will be available in the future on commercially reasonable terms as needed.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings material to its
financial condition or results of operations.
22
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares.
SELLING STOCKHOLDERS
The following table provides certain information with respect to the Shares
held by each Selling Stockholder, which information has been furnished to the
Company by the Selling Stockholders and other sources and which information the
Company has not verified. Each Selling Stockholder is hereby offering all of the
shares of Common Stock held by such Selling Stockholder, but ten percent of the
shares held by such Selling Stockholder is held in escrow, and may not be sold,
transferred, pledged or assigned by such Selling Stockholder until July 9, 1997.
The Shares offered by this Prospectus may be offered from time to time in whole
or in part by the persons named below or by their transferees. See "Plan of
Distribution."
Ms. Shelley M. Day and Mr. Ronald D. Gilbert are President and Creative
Director, respectively, of Humongous, a wholly-owned subsidiary of the Company.
The Shares were originally issued as consideration to the Selling Stockholders
in connection with the acquisition by the Company of Humongous (the
"Acquisition"). In connection with the Acquisition, the Company agreed to
register the Shares under the Securities Act. Prior to the Acquisition, Hummer
Winblad Venture Partners, L.P., Hummer Winblad Venture Partners II, L.P. and
Hummer Winblad Technology Fund II, L.P., as a group, and Random House, Inc. each
appointed a member to the Board of Directors of Humongous.
[Enlarge/Download Table]
SHARES BENEFICIALLY
OWNED
PRIOR TO THE OFFERING
-----------------------
NUMBER OF PERCENT SHARES THAT
NAME SHARES OF CLASS(1) MAY BE OFFERED
----------------------------------------------------------- ---------- ----------- --------------
Shelley M. Day............................................. 1,134,294 1.7 1,134,294
Ronald D. Gilbert.......................................... 1,134,294 1.7 1,134,294
Wayne Smith................................................ 113,429 * 113,429
Dev Madan.................................................. 9,452 * 9,452
Megan Folsom............................................... 284 * 284
Susan Klamert.............................................. 827 * 827
Michelle Cooper............................................ 591 * 591
Hummer Winblad Venture Partners, L.P....................... 283,573 * 283,573
Hummer Winblad Venture Partners II, L.P.................... 272,230 * 272,230
Hummer Winblad Technology Fund II, L.P..................... 11,343 * 11,343
Random House, Inc.......................................... 498,058 * 498,058
---------------
* Less than 1%
(1) Based on 66,307,064 shares of the Company's Common Stock outstanding as of
November 15, 1996.
23
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. The Shares may be sold from time to time by or for the
account of any of the Selling Stockholders or by their pledgees, donees,
distributees or transferees or other successors in interest to the Selling
Stockholders. Such persons may choose to sell all or any of the Shares in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices related to the then-current market price or in
negotiated transactions. Brokers or dealers involved in the sale may receive
commissions or discounts in connection with such sale in amounts to be
negotiated (and, if such broker-dealer acts as agent for the purchaser of such
Shares, from such purchaser).
The Company has agreed with the Selling Stockholders to keep the
Registration Statement, of which this Prospectus constitutes a part, effective
until the earlier of June 30, 1998 or the last day of the minimum holding period
relating to the Shares required by Rule 144(d)(1) under the Securities Act,
subject to certain exceptions.
24
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kramer, Levin, Naftalis & Frankel, New York, New York.
Certain members of, and persons associated with, such firm own an aggregate of
26,357 shares of Common Stock.
EXPERTS
The Consolidated Financial Statements and schedule of the Company for the
years ended December 31, 1993, December 31, 1994 and December 31, 1995, and the
nine months ended September 30, 1995 and 1996, incorporated by reference in this
Prospectus and elsewhere in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report. The financial statements of Slash for the year ended
December 31, 1994, incorporated by reference in this Prospectus, have been
audited by Eide Helmeke, PLLP, independent public accountants, as indicated in
their reports with respect thereto, and are incorporated by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report. The financial statements of Slash for the year ended
December 31, 1993, incorporated by reference in this Prospectus, have been
audited by McLaughlin & Associates, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports. The audited financial statements of WizardWorks
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Ernst & Young LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon such report given on the
authority of said firm as experts in accounting and auditing.
25
LOGO
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
[Enlarge/Download Table]
TOTAL
----------
SEC registration fee (actual).................................................. $ 108,031
Accounting fees and expenses................................................... 50,000
Legal fees and expenses........................................................ 50,000
Printing and engraving expenses................................................ 120,000
Miscellaneous expenses......................................................... 21,969
----------
Total........................................................................ $ 350,000
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Amended and Restated Certificate of Incorporation
contains provisions permitted by Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal actions or
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify directors and/or officers in an action or
suit by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the director
or officer is adjudged to be liable to the corporation. Where a director or
officer is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such director or officer actually and reasonably incurred.
The Registrant's Amended and Restated Certificate of Incorporation provides
indemnification of directors and officers of the Registrant to the fullest
extent permitted by the DGCL. Pursuant to the registration rights agreement
entered into with the Company, the Selling Stockholders have agreed to indemnify
directors and officers of the Company against certain liabilities, including
liabilities under the Securities Act.
II-1
The Registrant maintains liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Registrant.
ITEM 16. EXHIBITS
Exhibits 2.1 and 2.2 below are incorporated herein by reference to the
exhibit with the corresponding number filed as part of the Current Report on
Form 8-K filed on July 9, 1996. Exhibit 4.1 below is incorporated herein by
reference to the exhibit with the corresponding number filed as part of the
Registrant's Registration Statement on Form S-1 filed on October 20, 1995, and
all amendments thereto (Registration No. 33-98448).
[Enlarge/Download Table]
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization by and among the Registrant, GT Acquisition
Sub, Inc., WizardWorks Group, Inc. and the Stockholders of WizardWorks Group, Inc.
dated June 24, 1996.
2.2 Escrow Agreement by and among the Registrant, 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.
4.1 Specimen form of stock certificate for Common Stock.
5.1** Opinion of Kramer, Levin, Naftalis & Frankel.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Eide Helmeke PLLP.
23.3* Consent of McLaughlin & Associates.
23.4* Consent of Ernst & Young LLP.
23.5** Consent of Kramer, Levin, Naftalis & Frankel (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on the signature page of this Registration
Statement).
27.1** Financial Data Schedule for the years ended December 31, 1993, 1994 and 1995.
---------------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the Common Stock covered hereby, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration
II-2
Statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement, provided, however, that clauses (i) and (ii) do not apply if
the information required to be included in a post-effective amendment by
such clauses is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement or amendment to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York, State of New York, on December 20,
1996.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
--------------------------------------
Name: Ronald Chaimowitz
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Joseph J. Cayre, Ronald Chaimowitz and
Jack J. Cayre his true and lawful attorney-in-fact and agent, each acting alone,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
[Enlarge/Download Table]
SIGNATURE TITLE(S) DATE
------------------------------------- ------------------------------------ ------------------
/s/ JOSEPH J. CAYRE Chairman of the Board December 20, 1996
-------------------------------------
Joseph J. Cayre
/s/ ANDREW GREGOR Senior Vice President, Finance and December 20, 1996
------------------------------------- Administration, and Chief Financial
Andrew Gregor Officer (Principal Financial and
Accounting Officer)
/s/ RONALD CHAIMOWITZ President, Chief Executive Officer December 20, 1996
------------------------------------- and Director
Ronald Chaimowitz
/s/ JACK J. CAYRE Executive Vice President, Director December 20, 1996
-------------------------------------
Jack J. Cayre
/s/ KENNETH CAYRE Director December 20, 1996
-------------------------------------
Kenneth Cayre
/s/ STANLEY CAYRE Director December 20, 1996
-------------------------------------
Stanley Cayre
/s/ STEVEN A. DENNING Director December 20, 1996
-------------------------------------
Steven A. Denning
[Enlarge/Download Table]
SIGNATURE TITLE(S) DATE
------------------------------------- ------------------------------------ ------------------
/s/ WILLIAM E. FORD Director December 20, 1996
-------------------------------------
William E. Ford
/s/ JORDAN A. LEVY Director December 20, 1996
-------------------------------------
Jordan A. Levy
/s/ ALVIN N. TELLER Director December 20, 1996
-------------------------------------
Alvin N. Teller
EXHIBIT INDEX
Exhibits 2.1 and 2.2 below are incorporated herein by reference to the
exhibit with the corresponding number filed as part of the Current Report on
Form 8-K filed on July 9, 1996. Exhibit 4.1 below is incorporated herein by
reference to the exhibit with the corresponding number filed as part of the
Registrant's Registration Statement on Form S-1 filed on October 20, 1995, and
all amendments thereto (Registration No. 33-98448).
[Enlarge/Download Table]
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------------------------------------------------------------------- ------------
2.1 Agreement and Plan of Reorganization by and among the Registrant, GT
Acquisition Sub, Inc., WizardWorks Group, Inc. and the Stockholders of
WizardWorks Group, Inc. dated June 24, 1996.
2.2 Escrow Agreement by and among the Registrant, 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.
4.1 Specimen form of stock certificate for Common Stock.
5.1** Opinion of Kramer, Levin, Naftalis & Frankel.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Eide Helmeke PLLP.
23.3* Consent of McLaughlin & Associates.
23.4* Consent of Ernst & Young LLP.
23.5** Consent of Kramer, Levin, Naftalis & Frankel (contained in the opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on the signature page of this Registration
Statement).
27.1** Financial Data Schedule for the years ended December 31, 1993, 1994 and
1995.
---------------
* Filed herewith.
** Previously filed.
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950123-96-007508 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Fri., Apr. 26, 1:48:41.2pm ET 
