We are subject to the information requirements of the Exchange Act and file reports, proxy and information statements and other information
with the SEC. We are required to file electronic versions of these documents with the SEC. Our reports, proxy and information statements and other information can be inspected and copied at prescribed rates at the Public Reference Room of the SEC
located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further
information on the operation of the Public Reference Room. The SEC also maintains a website that contains reports, proxy and information statements and other information, including electronic versions of our filings. The website address is
www.sec.gov
.
You should rely only on the information contained in or incorporated by reference into this prospectus, any applicable prospectus supplement
or any related free writing prospectus. No dealer, salesperson or any other person is authorized to give any information or to make any representation other than the information and representations contained in or incorporated by reference into this
prospectus, any applicable prospectus supplement or any related free writing prospectus. If different information is given or different representations are made, you may not rely on that information or those representations as having been authorized
by us or any selling stockholders. You may not imply from the delivery of this prospectus, any applicable prospectus supplement and any related free writing prospectus, nor from a sale made under this prospectus, any applicable prospectus supplement
and any related free writing prospectus, that our affairs are unchanged since the date of this prospectus, any applicable prospectus supplement and any related free writing prospectus or that the information contained in any document incorporated by
reference is accurate as of any date other than the date of the document incorporated by reference, regardless of the time of delivery of this prospectus, any applicable prospectus supplement and any related free writing prospectus or any sale of a
security. This prospectus, any applicable prospectus supplement and any related free writing prospectus may be used only where it is legal to sell the securities.
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or SEC, using a
shelf registration process. Under this shelf registration process, we or selling security holders may sell common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities,
subscription rights to purchase common stock, preferred stock or debt securities, and/or units consisting of some or all of these securities in any combination, in one or more offerings up to a total dollar amount of $30,000,000. This prospectus
provides you with a general description of the securities we may offer. Each time we or selling security holders offer any securities under this prospectus, we will provide a prospectus supplement that will contain more specific information about
the terms of the offering. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to the offerings. This prospectus, together with the applicable prospectus supplements and
any related free writing prospectus that we may authorize to be provided to you may also add, update or change any of the information contained in this prospectus or in documents we have incorporated by reference into this prospectus. This
prospectus, together with the applicable prospectus supplements and any related free writing prospectus that we may authorize to be delivered to you, and the documents incorporated by reference into this prospectus, includes all material information
relating to this offering.
This prospectus may not be used to consummate a sale of securities unless it is accompanied by a prospectus supplement
.
This prospectus contains summaries of certain provisions contained in some of the documents
described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed
or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the heading Where You Can Find More Information.
This prospectus and the information incorporated herein by reference include trademarks, service marks and trade names owned by us or
others. Glu, Glu Mobile, our
2-D
g character logo, Bonsai Blast, Brain Genius and Super K.O. Boxing are some of the registered trademarks
of Glu Mobile Inc. in the United States and in some other countries. Where not registered, these marks, Beat It!, Glyder, Gun Bros., Jump O Clock, Stranded and Toyshop
Adventures are trademarks of Glu. All other trademarks, service marks and trade names included or incorporated by reference into this prospectus, any applicable prospectus supplement or any related free writing prospectus are the property of
their respective owners.
You should carefully read this prospectus, any document incorporated by reference into this prospectus, the
applicable prospectus supplement and any related free writing prospectus that we may authorize to be delivered to you, together with the additional information described under Where You Can Find More Information before buying securities
in this offering.
RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below,
together with all of the other information in this prospectus and any applicable prospectus supplements, as the same may be updated from time to time by our future filings under the Securities Exchange Act of 1934, as amended (the Exchange
Act), before deciding to invest in our securities. If any of the following risks occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price
of our common stock and the value of our other securities could decline and you could lose part or even all of your investment.
Risks Relating To
Our Business
We have a history of net losses, may incur substantial net losses in the future and may not achieve profitability.
We have incurred significant losses since inception, including a net loss of $3.3 million in 2007, a net loss of
$106.7 million in 2008, a net loss of $18.2 million in 2009 and a net loss of $8.5 million for the nine months ended September 30, 2010. As of September 30, 2010, we had an accumulated deficit of $185.8 million. We
expect to incur increased costs in order to implement additional initiatives designed to increase revenues, such as increased research and development and sales and marketing expenses for our new games, particularly those designed for advanced
platforms and smartphones, such as Apples iPhone and Googles Android. If our revenues do not increase to offset these additional expenses, if we experience unexpected increases in operating expenses or if we are required to take
additional charges related to impairments or restructurings, we will continue to incur significant losses and will not become profitable. In addition, our 2009 revenues were lower than our 2008 revenues, and we expect that our revenues will likely
decline in 2010 from 2009 levels. If we are not able to significantly increase our revenues, we will likely not be able to achieve profitability in the future. Furthermore, during 2008, we incurred aggregate charges of approximately
$77.6 million for goodwill impairments, royalty impairments and restructuring activities, during 2009, we incurred aggregate charges of approximately $8.5 million for royalty impairments and restructuring activities and during the first
nine months of 2010, we incurred aggregate charges of approximately $2.0 million for royalty impairments and restructuring activities. If we continue to incur these charges, it will continue to negatively affect our operating results and our
ability to achieve profitability.
Our financial results could vary significantly from quarter to quarter and are difficult to
predict, particularly in light of the current economic environment, which in turn could cause volatility in our stock price.
Our
revenues and operating results could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a
period-to-period
basis may not be meaningful. In addition, we may not be able to predict our future revenues or results of operations. We base our current and future expense levels on our internal operating
plans and sales forecasts, and our operating costs are to a large extent fixed. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in revenues, and even a small shortfall in revenues could
disproportionately and adversely affect financial results for that quarter. This will be particularly true for 2010, as we implemented significant cost-reduction measures in 2008 and 2009, as well as in the first and second quarters of 2010, making
it more difficult for us to further reduce our operating expenses without a material adverse impact on our prospects in future periods. Individual games and carrier relationships represent meaningful portions of our revenues and net income or loss
in any quarter. We may incur significant or unanticipated expenses when licenses are added or renewed, we may experience a significant reduction in revenue if licenses are not renewed or we may incur impairments of prepaid royalty guarantees if our
forecast for games based on licensed intellectual property is lower than we anticipated at the time we entered into the agreement. For
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example, in 2008, 2009 and the first nine months of 2010, we impaired $6.3 million, $6.6 million and $0.7 million, respectively, of certain prepaid royalties and royalty guarantees
primarily due to several distribution arrangements in our Europe, Middle East and Africa region and other global development and distribution arrangements that we entered into in 2007 and 2008. In addition, some payments from carriers that we
recognize as revenue on a cash basis may be delayed unpredictably.
We are also subject to macroeconomic fluctuations in the United States
and global economies, including those that impact discretionary consumer spending, which have deteriorated significantly in many countries and regions, including the United States, and may remain depressed for the foreseeable future. Some of the
factors that could influence the level of consumer spending include continuing conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors
affecting consumer spending. These issues can also cause foreign currency rates to fluctuate, which can have an adverse impact on our business since we transact business in more than 70 countries in more than 20 different currencies. In 2008, some
of these currencies fluctuated by up to 40%, and we experienced continued significant fluctuations in 2009 and in the first nine months of 2010. These issues may continue to negatively impact the economy and our growth. If these issues persist, or
if the economy enters a prolonged period of decelerating growth or recession, our results of operations may be harmed. As a result of these and other factors, our operating results may not meet the expectations of investors or public market analysts
who choose to follow our company. Our failure to meet market expectations would likely result in a decline in the trading price of our common stock.
In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly results include:
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the number of new games released by us and our competitors, including those for smartphones and advanced platforms;
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the timing of release of new games by us and our competitors, particularly those that may represent a significant portion of revenues in a period;
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the quality and popularity of new games and games released in prior periods;
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changes in the prominence of deck placement or storefront featuring for our leading games and those of our competitors;
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fluctuations in the size and rate of growth of overall consumer demand for mobile handsets, games and related content;
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the rate at which consumers continue to migrate from traditional feature phones to more advanced platforms and smartphones;
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our success in developing and monetizing persistent-state, freemium games for smartphones;
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our ability to increase the daily and monthly active users of our persistent-state, freemium games that we develop for smartphones, as well as the number of minutes these users play such games;
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the strength or weakness in consumer demand for new mobile devices;
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the expiration of existing content licenses for particular games;
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the timing of charges related to impairments of goodwill, intangible assets, prepaid royalties and guarantees;
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changes in pricing policies by us, our competitors or our carriers and other distributors;
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changes in pricing policies by our carriers related to downloading content, such as our games, which pricing policies could be influenced by the lower average prices for content on advanced platforms and smartphones;
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changes in the mix of original and licensed games, which have varying gross margins;
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carrier policies around off portal marketing and monetization;
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the timing of successful mobile handset launches;
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the timeliness and accuracy of reporting from carriers;
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the seasonality of our industry;
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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
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our success in entering new geographic markets;
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changes in accounting rules, such as those governing recognition of revenue, including the period of time over which we recognize revenue for the sale of virtual currency and goods by means of purchases within certain
of our games, sometimes referred to as in-app purchases;
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the timing of compensation expense associated with equity compensation grants; and
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decisions by us to incur additional expenses, such as increases in marketing or research and development.
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The markets in which we operate are highly competitive, and many of our competitors have significantly greater resources than we do.
The development, distribution and sale of mobile games is a highly competitive business. For end users, we compete primarily on
the basis of game quality, brand and price. For carrier and other application storefronts, we compete for promotional placement based on these factors, as well as historical performance and perception of sales potential and relationships with
licensors of brands and other intellectual property. For content and brand licensors, we compete based on royalty and other economic terms, perceptions of development quality, porting abilities, speed of execution, distribution breadth and
relationships with carriers. We also compete for experienced and talented employees.
Our primary competitors in both our traditional
carrier-based mobile phone business and for advanced platforms and smartphones include Electronic Arts (EA Mobile) and Gameloft, with Electronic Arts having the largest market share of any company in the mobile games market. In the future, likely
competitors in our target markets include major media companies, traditional video game publishers, content aggregators, mobile software providers and independent mobile game publishers. Wireless carriers may also decide to develop, internally or
through a managed third-party developer, and distribute their own mobile games.
Some of our competitors and our potential
competitors advantages over us, either globally or in particular geographic markets, include the following:
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significantly greater revenues and financial resources;
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stronger brand and consumer recognition regionally or worldwide;
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the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobile products;
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more substantial intellectual property of their own from which they can develop games without having to pay royalties;
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greater platform specific focus, experience and expertise;
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pre-existing relationships with brand owners or carriers that afford them access to intellectual property while blocking the access of competitors to that same intellectual property;
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greater resources to make acquisitions;
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lower labor and development costs; and
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broader global distribution and presence.
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In addition, given the open nature of the
development and distribution for certain advanced platforms and smartphones, we also compete or will compete with a vast number of small companies and individuals who are able to create and launch games and other content for these mobile devices
utilizing limited resources and with limited
start-up
time or expertise. Many of these smaller developers are able to offer their games at no cost or substantially reduce prices to levels at which we may be
unable to respond competitively and still achieve profitability given their low overhead. In addition, publishers who create content for traditional gaming consoles and for online play have also begun developing games for smartphones. As an example
of the competition that we face, it has been estimated that more than 40,000 active games were available on the Apple App Store as of October 31, 2010. The proliferation of titles in these open developer channels makes it difficult for us to
differentiate ourselves from other developers and to compete for end users who purchase content for their smartphones without substantially reducing our prices, increasing development costs or increasing spending to market our products. Certain of
our large competitors have greater intellectual property rights and access to more licenses to develop titles for the Apple App Store and have considerably greater resources than we do, which enables them to develop a greater volume of games, more
rapidly than us. If our industry continues to shift to a sales and distribution model similar to the Apple App Store our ability to compete would be further challenged, since the substantial majority of our current revenue is currently derived from
our wireless carrier-based distribution channel and not from fully open storefront channels.
If we are unable to compete effectively or
we are not as successful as our competitors in our target markets, our sales could decline, our margins could decline and we could lose market share, any of which would materially harm our business, operating results and financial condition.
Our strategy to grow our business includes developing titles for advanced platforms and smartphones beyond our wireless carrier channel,
which currently comprises the substantial majority of our revenues. If we do not succeed in generating considerable revenues and gross margins from these advanced platforms and smartphones, our revenues, financial position and operating results may
suffer.
We believe that the slowdown in sales of feature phones in our traditional carrier-based business, which currently
comprises the substantial majority of our revenues, will continue to accelerate and will result in an overall decline in our revenues in 2010. As part of our strategy to grow our business, we intend to significantly increase our studio capacity that
is dedicated towards developing titles for smartphone digital storefronts (such as Apples App Store, Googles Android Market, Research In Motions Blackberry App World, Palms App Catalog, Nokias Ovi Store and
Microsofts Windows Marketplace for Mobile) as well as significantly increase our marketing-related expenditures in connection with the launch of our new games on these smartphone storefronts. The introduction of these smartphone storefronts
has drawn many of our customers away from our carrier-based business. In order to succeed, we believe that we must publish mobile games that are widely accepted and commercially successful on the new advanced platforms and smartphones. However, our
efforts on these advanced platforms and smartphones may prove unsuccessful or, even if successful, it may take us longer to achieve significant revenue than anticipated because, among others reasons:
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the open nature of many of these smartphone storefronts increases substantially the number of our competitors and competitive products and makes it more difficult for us to achieve prominent placement or featuring for
our games;
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the pricing and revenue models for titles on these smartphone storefronts are rapidly evolving (for example, the introduction of micro-transaction
capabilities and the potential introduction of usage-based pricing for games), and has resulted, and may continue to result, in significantly lower average
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selling prices for our games developed for smartphones as compared to games developed for feature phones in our traditional carrier channels, and a lower than expected return on investment for
these games;
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the billing and provisioning capabilities of some smartphones are currently not optimized to enable users to purchase games or make in-app purchases, which could make it difficult for users of these smartphones to
purchase our games or make in-app purchases and could reduce our addressable market, at least in the short term;
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the competitive advantage of our porting capabilities may be reduced as these advanced platforms and smartphones become more widely adopted;
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many of our key licenses do not grant us the rights to develop games for the iPhone and certain other smartphones;
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we have less experience with open storefront distribution channels than with carrier-based distribution;
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these smartphone digital storefronts are relatively new markets, for which we are less able to forecast with accuracy revenue levels, required marketing and developments expenses, and net income or loss;
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many OEMs and carriers are developing their own storefronts and it may be difficult for us to predict which ones will be successful, and we may expend time and resources developing games for storefronts that ultimately
do not succeed; and
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competitors may have substantially greater resources available to invest in development and publishing of products for advanced platforms and smartphones.
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If we do not succeed in generating considerable revenues and gross margins from the advanced platforms and smartphones, our revenues, financial position and
operating results may suffer.
If we do not achieve a sufficient return on our investment with respect to our efforts to develop
persistent-state, freemium games for smartphones and advanced platforms, it could negatively affect our operating results.
We
expect that a significant portion of our development activities for advanced platforms and smartphones in 2010 and beyond will be focused on persistent-state, freemium games games that are downloadable without an initial charge or
for a small fee, but which enable a variety of additional features to be accessed for a fee or otherwise monetized through various advertising and offer techniques. Our efforts to develop persistent-state, freemium games for multiple smartphones and
other advanced platforms may prove unsuccessful or, even if successful, may take us longer to achieve significant revenue than anticipated because, among others reasons:
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we have limited experience in successfully developing and marketing persistent-state, freemium games;
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we have only recently begun to embed micro-transaction capabilities into some of our games for smartphones as well as experiment with a number of advertising monetization techniques, and our limited experience in these
areas may cause us to have difficulty optimizing the monetization of our freemium games;
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some of our competitors have already released a significant number of persistent-state, freemium games on smartphones, and this competition will make it more difficult for us to differentiate our games and derive
significant revenues from them;
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our competitors may have substantially greater resources available to invest in the development and publishing of persistent-state, freemium games;
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we intend to have the significant majority of our persistent-state, freemium games be based upon our own intellectual property rather than well-known
licensed brands, and, as a result, we may encounter
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difficulties in generating sufficient consumer interest in our games, particularly since we historically have had limited success in generating significant revenues from games based on our own
intellectual property;
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persistent-state, freemium games currently represent a significant minority of the games available on smartphones and other advanced platforms and have a limited history, and it is unclear how popular this style of game
will become on smartphones or their revenue potential;
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our strategy with respect to developing persistent-state, freemium games for smartphones assumes that a large number of consumers will download our games because they are free and that we will subsequently be able to
effectively monetize these games; however, some smartphones charge users a fee for downloading content, and users of these smartphones may be reluctant to download our freemium games because of these fees, which would reduce the effectiveness of our
product strategy;
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our persistent-state, freemium games may otherwise not be widely downloaded by consumers for a variety of reasons, including poor consumer reviews or other negative publicity, ineffective or insufficient marketing
efforts or a failure to achieve prominent storefront featuring for such games;
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even if our persistent-state, freemium games are widely downloaded, we may fail to retain users of these games or optimize the monetization of these games for a variety of reasons, including poor game design or quality,
gameplay issues such as game unavailability, long load times or an unexpected termination of the game due to data server or other technical issues or our failure to effectively respond and adapt to changing user preferences through updates to our
games; and
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because these are effectively new products for us, we are less able to forecast with accuracy revenue levels, required marketing and development expenses, and net income or loss.
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If we do not achieve a sufficient return on our investment with respect to developing and selling persistent-state, freemium games, it will negatively affect
our operating results.
An acceleration in the slowdown in sales of feature phones in our traditional carrier-based business, which
represents the substantial majority of our revenues, or a decline in the average selling prices of our games sold through wireless carriers, could have a material adverse impact on our revenues, financial position and results of operations.
We currently derive the substantial majority of our revenues from sales of our games on traditional feature phones through
wireless carriers. Our revenues for each of the year ended December 31, 2009 and the nine months ended September 30, 2010 declined from the corresponding period of the prior year due to a decrease in sales in our carrier-based business,
resulting primarily from a decrease in feature phone sales, which in turn led to a decrease in the number of games that we sold, as well as increasing movement by a number of consumers to smartphones that enable the download of applications from
sources other than a carriers branded
e-commerce
service, such as the Apple App Store. We expect that we will continue to derive the substantial majority of our revenues from sales of our games on
traditional feature phones during the remainder of 2010. However, we believe that the decline in the sales of feature phones and the transition of consumers to smartphones will continue to accelerate and will result in an overall decline in our
revenues in 2010. In addition, due to the accelerating decline in the sales of feature phones, we intend to release fewer games for feature phones in future periods, which will further reduce our revenues that we derive from feature phones. The
ability of smartphones to serve as a source of significant revenues is uncertain, and we will likely be unable to generate sufficient revenues from these platforms in 2010 to make up for the expected decline in sales of our games on traditional
feature phones. In addition, games sold on smartphones typically have lower average prices than our games sold on traditional feature phones, and to the extent consumers continue to migrate to smartphones, it could result in lower average prices for
our games sold on traditional feature phones. Any acceleration in the slowdown in our carrier-based business or in sales of feature phones for that business, or any reduction in the average prices of our games sold through our wireless carriers,
could have a material adverse impact on our revenues, financial position and results of operations.
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We may need to raise additional capital or borrow funds to grow our business, and we may
not be able to raise capital or borrow funds on terms acceptable to us or at all.
The operation of our business, and our efforts
to grow our business, requires significant cash outlays and commitments. As of September 30, 2010, we had $15.9 million of cash and cash equivalents. In addition to our general operating expenses and prepaid and guaranteed royalty
payments, we had debt service obligations related to $4.7 million outstanding as of September 30, 2010. These debt service obligations consisted of $3.1 million in remaining principal and accrued interest that we owed under the
subordinated notes that we issued in December 2008 in connection with our restructuring of the MIG earnout and bonus payments (the MIG subordinated notes), and $1.6 million that was outstanding under our revolving credit facility.
In addition, of our $15.9 million of cash and cash equivalents that we held as of September 30, 2010, $1.9 million was held in our China subsidiaries. To the extent we require additional working capital in our U.S. or other
non-Chinese operations, it could be very difficult to repatriate money held in our China subsidiaries due to our declining operating profits in China, and such repatriation would be subject to taxation, potentially at high rates.
If our cash and cash equivalents, together with any cash generated from operations and borrowings under our credit facility, are insufficient
to meet our cash requirements, we will either need to seek additional capital, potentially through an additional debt or equity financing, by increasing the amount available to us for borrowing under the credit facility, procuring a new debt
facility or selling some of our assets, to fund our operations and debt repayment obligations or we will need to restructure our obligations under the MIG subordinated notes. We may not be able to raise needed cash on terms acceptable to us or at
all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, such was the case with respect to the Private Placement, particularly given our current stock price. The holders of new securities may also
receive rights, preferences or privileges that are senior to those of existing holders of our common stock, all of which is subject to the provisions of our credit facility. Additionally, we may be unable to increase the size of the credit facility
or procure a new debt facility, or to do so on terms that are acceptable to us, particularly in light of the current credit market conditions. We also may not be able to access the full $8.0 million potentially available under of our credit
facility, as the credit facilitys borrowing base is based upon our accounts receivable; as of September 30, 2010, the maximum amount available for borrowing under the credit facility was limited to $2.1 million. If new sources of
financing are required but are insufficient or unavailable, or if we are unable to restructure our obligations under the MIG subordinated notes to the extent we may need to do so, we would be required to modify our growth and operating plans to the
extent of available funding, which would harm our ability to grow our business. Furthermore, if we are unable to remain in compliance with the financial or other covenants contained in the credit facility and do not obtain a waiver from the lender
then, subject to applicable cure periods, any outstanding indebtedness under the credit facility could be declared immediately due and payable, which would also trigger the cross-default provisions of the MIG subordinated notes. This credit facility
also is scheduled to expire on June 30, 2011, and we cannot assure you that we will be able to extend the terms of this facility on terms favorable to us or at all. In the event that we default under our credit facility or are unable to
successfully extend its term beyond June 30, 2011, we would need to seek additional sources of financing, which could have unfavorable terms, and any failure to do so would have a serious impact on our business, financial position and
liquidity, including potentially forcing us to file for bankruptcy protection.
We have outstanding debt obligations and may incur
additional debt in the future, which could adversely affect our financial condition and results of operations.
In December 2008,
we renegotiated and extended our $8.0 million revolving credit facility, which is secured by substantially all of our assets, including our intellectual property, and we further amended this credit facility in August 2009, February 2010 and
March 2010. As of September 30, 2010, we had outstanding borrowings of $1.6 million under this credit facility, and we expect to continue to borrow during the term of the facility for general working capital purposes and to satisfy our
other debt obligations. In addition, in December 2008, we issued an aggregate of $25.0 million in principal amount of the MIG subordinated notes, of which we had repaid
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$22.0 million in principal as of September 30, 2010. This debt may adversely affect our operating results and financial condition by, among other things:
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requiring us to dedicate a portion of our expected cash from operations to service our debt, thereby reducing the amount of expected cash flow available for other purposes, including funding our operations;
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increasing our vulnerability to downturns in our business, to competitive pressures and to adverse economic and industry conditions;
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limiting our ability to pursue acquisitions that may be accretive to our business; and
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limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
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Our credit facility imposes restrictions on us, including restricting our ability to incur specified liens and sell the company and requiring
us to maintain compliance with specified covenants and to maintain a certain level of cash deposits with the lender. Our ability to comply with certain of these covenants may be affected by events beyond our control. Our expectations regarding cash
sufficiency assume that our operating results will be sufficient to enable us to comply with the EBITDA-related covenant. Our revenues depend on a number of factors, including the rate of sales of mobile devices, our relationships with our carriers
and licensors, consumer tastes, competitive pressures, our ability to generate revenues from advanced platforms and smartphones and foreign exchange rate fluctuations. If our revenues are lower than we anticipate, we will be required to reduce our
operating expenses to remain in compliance with this covenant. However, reducing our operating expenses could be very challenging for us, since we undertook operating expense reductions and restructuring activities in the third and fourth quarters
of 2008 that reduced our operating expenses significantly from second quarter of 2008 levels, and we implemented additional expense reduction measures in the third quarter of 2009 and the first and second quarters of 2010. Reducing operating
expenses further could have the effect of reducing our revenues. Our ability to comply with the EBITDA-related covenant will be further challenged due to the approximately $1.7 million, excluding $500,000 in leasehold improvement write-offs, in
costs we expect to incur during the fourth quarter of 2010 related to our relocation of our corporate headquarters to San Francisco and the transition of our General Counsel position. We currently believe that due primarily to this
restructuring charge in addition to the additional marketing-related expenditures we expect to incur in the fourth quarter of 2010 in connection with the launch of our new persistent-state, freemium games on smartphone storefronts, we will not be
able to comply with the EBITDA-related covenant in the fourth quarter of 2010. While we are currently engaged in discussions with the lender regarding amending the credit facility to enable our prospective compliance with the EBITDA-related covenant
and believe that we will enter into such an amendment in the near future, we cannot assure you that we will be successful in doing so. If we breach any of the covenants under our credit facility and do not obtain a waiver from the lender, then,
subject to applicable cure periods, any outstanding indebtedness under the credit facility could be declared immediately due and payable, which would also trigger the cross-default provision of our MIG subordinated notes. Should the lender call the
loan at a time when we did not have or were unable to secure cash to repay it, it would have a serious impact on our business, financial position and liquidity, including potentially forcing us to file for bankruptcy protection. In addition, this
credit facility also is scheduled to expire on June 30, 2011, and we cannot assure you that we will be able to extend the terms of this facility on terms favorable to us or at all.
Changes in foreign exchange rates and limitations on the convertibility of foreign currencies could adversely affect our business and
operating results.
Although we currently transact approximately one-half of our business in U.S. Dollars, we also transact
approximately one-fourth of our business in pounds sterling and Euros and the remaining portion of our business in other currencies. Conducting business in currencies other than U.S. Dollars subjects us to fluctuations in currency exchange
rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. Dollar relative to other currencies impact our revenues, cost of revenues and operating margins and result in foreign currency
exchange gains and losses. For example, in 2008, we recorded a $3.0 million
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foreign currency exchange loss primarily related to the revaluation of intercompany balance sheet accounts. To the extent foreign exchange rates continue to negatively affect our operating
results, it will negatively affect our ability to remain in compliance with the EBITDA-related covenant in our credit facility. To date, we have not engaged in exchange rate hedging activities, and we do not expect to do so in the foreseeable
future. Even if we were to implement hedging strategies to mitigate this risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as cash expenditures, ongoing
management time and expertise, external costs to implement the strategies and potential accounting implications.
We face additional risk
if a currency is not freely or actively traded. Some currencies, such as the Chinese Renminbi, in which our Chinese operations principally transact business, are subject to limitations on conversion into other currencies, which can limit our ability
to react to rapid foreign currency devaluations and to repatriate funds to the United States should we require additional working capital.
Inferior deck placement or storefront featuring would likely adversely impact our revenues and thus our operating results and financial
condition.
Wireless carriers provide a limited selection of games that are accessible to their subscribers through a deck on their
mobile handsets. The inherent limitation on the number of games available on the deck is a function of the limited screen size of handsets and carriers perceptions of the depth of menus and numbers of choices end users will generally utilize.
Carriers typically provide one or more top-level menus highlighting games that are recent top sellers, that the carrier believes will become top sellers or that the carrier otherwise chooses to feature, in addition to a link to a menu of additional
games sorted by genre. We believe that deck placement on the top-level or featured menu or toward the top of genre-specific or other menus, rather than lower down or in
sub-menus,
is likely to result in higher
game sales. If carriers choose to give our games less favorable deck placement, our games may be less successful than we anticipate, our revenues may decline and our business, operating results and financial condition may be materially harmed.
Conversely, the open nature of the smartphone storefronts , such as the Apple App Store, allow for vast numbers of applications to be offered
to consumers from a much wider array of competitors than in the traditional carrier channel. This may reduce the competitive advantage of our established network of relationships with wireless carriers. It may also require us to expend significantly
increased amounts to generate substantial revenues on these platforms, reducing or eliminating the profitability of publishing games for them.
The open nature of many of the smartphone storefronts substantially increases the number of our competitors and competitive products, which
makes it more difficult for us to achieve prominent placement or featuring for our games. Our failure to achieve prominent placement or featuring for our games on the smartphone storefronts could result in our games not generating significant sales.
We believe that a number of factors may influence the featuring or placement of a game in these digital storefronts, including:
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the perceived attractiveness of the title or brand;
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the past critical or commercial success of the game or of other games previously introduced by a publisher;
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the publishers relationship with the applicable digital storefront owner and future pipeline of quality titles for it; and
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the current market share of the publisher.
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If carriers choose to give our games less favorable deck placement
or if our games do not receive prominent placement on the smartphone storefronts, our games may be less successful than we anticipate, our revenues may decline and our business, operating results and financial condition may be materially harmed.
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End user tastes are continually changing and are often unpredictable; if we fail to develop
and publish new mobile games that achieve market acceptance, our sales would suffer.
Our business depends on developing and
publishing mobile games that wireless carriers will place on their decks or digital storefront owners will prominently feature and that end users will buy. We must continue to invest significant resources in research and development, analytics and
marketing to enhance our offering of games and introduce new games, and we must make decisions about these matters well in advance of product release to timely implement them. Our success depends, in part, on unpredictable and volatile factors
beyond our control, including end-user preferences, competing games, new mobile platforms and the availability of other entertainment activities. If our games and related applications do not respond to the requirements of carriers and digital
storefront owners or the entertainment preferences of end users, or they are not brought to market in a timely and effective manner, our business, operating results and financial condition would be harmed. Even if our games are successfully
introduced and initially adopted, a subsequent shift in our carriers or the entertainment preferences of end users could cause a decline in our games popularity that could materially reduce our revenues and harm our business, operating results
and financial condition.
If we are unsuccessful in establishing and increasing awareness of our brand and recognition of our games
or if we incur excessive expenses promoting and maintaining our brand or our games, our potential revenues could be limited, our costs could increase and our operating results and financial condition could be harmed.
We believe that establishing and maintaining our brand is critical to retaining and expanding our existing relationships with wireless carriers
and content licensors, as well as developing new such relationships, and is also critical to establishing a direct relationship with end users who purchase our products from
direct-to-consumer
channels, such as the Apple App Store. Our ability to promote the Glu brand depends on our success in providing high-quality mobile games. Similarly,
recognition of our games by end users depends on our ability to develop engaging games of high quality with attractive titles. However, our success also depends, in part, on the services and efforts of third parties, over which we have little or no
control. For instance, if our carriers fail to provide high levels of service, our end users ability to access our games may be interrupted, which may adversely affect our brand. If end users, smartphone storefront owners, branded content
owners and carriers do not perceive our existing games as high-quality or if we introduce new games that are not favorably received by our end users, smartphone storefront owners and carriers, then we may not succeed in building brand recognition
and brand loyalty in the marketplace. In addition, globalizing and extending our brand and recognition of our games will be costly and will involve extensive management time to execute successfully, particularly as we expand our efforts to increase
awareness of our brand and games among international consumers. Moreover, if a game is introduced with defects, errors or failures or unauthorized objectionable content or if a game has playability issues such as game unavailability, long load times
or a unexpected termination of the game due to data server or other technical issues, we could experience damage to our reputation and brand, and our attractiveness to wireless carriers, licensors, smartphone storefront owners and end users might be
reduced. In addition, although we expect to significantly increase our sales and marketing-related expenditures in connection with the launch of our new persistent-state, freemium games, these efforts may not succeed in increasing awareness of our
brand and new games. If we fail to increase and maintain brand awareness and consumer recognition of our games, our potential revenues could be limited, our costs could increase and our business, operating results and financial condition could
suffer.
We currently rely primarily on wireless carriers to market and distribute our games for feature phones and thus to generate
a significant portion of our revenues. The loss of or a change in any significant carrier relationship, including their credit worthiness, could materially reduce our revenues and adversely impact our cash position.
A significant portion of our revenues is derived from a limited number of carriers. In 2009, we derived approximately 49.1% of our revenues
from relationships with five carriers, including Verizon Wireless, which accounted for 20.5% of our revenues. We expect that we will continue to generate a substantial majority of our
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revenues through distribution relationships with fewer than 20 carriers for the foreseeable future. If any of our carriers decides not to market or distribute our games or decides to terminate,
not renew or modify the terms of its agreement with us or if there is consolidation among carriers generally, we may be unable to replace the affected agreement with acceptable alternatives, causing us to lose access to that carriers
subscribers and the revenues they afford us. In addition, having a significant portion of our revenues concentrated among a limited number of carriers also creates a credit concentration risk for us, and in the event that any significant carrier
were unable to fulfill its payment obligations to us, our operating results and cash position would suffer. Finally, our credit facilitys borrowing base is tied to our accounts receivable. If any of our wireless carriers were delinquent in
their payments to us, it would reduce our borrowing base and could require us to immediately repay any borrowings outstanding related to such carrier. If any of these eventualities come to pass, it could materially reduce our revenues and otherwise
harm our business.
Changes made by wireless carriers and other distributors to their policies regarding pricing, revenue sharing,
supplier status, billing and collections could adversely affect our business and operating results.
Wireless carriers generally
control the price charged for our mobile games either by approving or establishing the price of the games charged to their subscribers. Some of our carrier agreements also restrict our ability to change prices. In cases where carrier approval is
required, approvals may not be granted in a timely manner or at all. A failure or delay in obtaining these approvals, the prices established by the carriers for our games, or changes in these prices could adversely affect market acceptance of those
games. Similarly, for some of our carriers, including Verizon Wireless, when we make changes to a pricing plan (the wholesale price and the corresponding suggested retail price based on our negotiated revenue-sharing arrangement), adjustments to the
actual retail price charged to end users may not be made in a timely manner or at all (even though our wholesale price was reduced). A failure or delay by these carriers in adjusting the retail price for our games, could adversely affect sales
volume and our revenues for those games.
In addition, wireless carriers have the ability to change their pricing policy with their
customers for downloading content, such as our games. For example, Verizon Wireless began imposing a data surcharge to download content on those of its customers who had not otherwise subscribed to a data plan. Such charges have, and could in the
future, deter end users from purchasing our content. In addition, wireless carriers could renegotiate the revenue sharing arrangement that we have in place with them to our detriment. For example in the first quarter of 2010, China Mobile, the
largest carrier in China, reduced the revenue share that we receive from our games sold on the mBox platform in approximately 15 provinces in China, which has begun, and will likely continue, to negatively impact our revenues in China. Furthermore,
a portion of our revenues is derived from subscriptions. Our wireless carriers have the ability to discontinue offering subscription pricing, without our approval.
In China, sales to wireless carriers such as China Mobile may only be made by service providers, which are companies who have been licensed by
the government to operate and publish mobile games. China Mobile has designated four classes of licenses for service providers with respect to mobile gaming, with a Class A license being the highest designation. We hold, through our Chinese
subsidiaries, one of the three Class A licenses that have currently been awarded by China Mobile. In order to maintain this Class A license, we must maintain a certain level of monthly revenues, as well as meet certain minimum download and
customer satisfaction levels. If we were to lose this Class A license, our revenues in China would be significantly and adversely impacted.
Carriers and other distributors also control billings and collections for our games, either directly or through third-party service providers.
If our carriers or their third-party service providers cause material inaccuracies when providing billing and collection services to us, our revenues may be less than anticipated or may be subject to refund at the discretion of the carrier. Our
market is experiencing a growth in adoption of smartphones, such as the Apple iPhone and devices based on Googles Android operating system. For many of our wireless carriers, these smartphones are not yet directly integrated into the
carriers provisioning infrastructure that would allow
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them to sell games directly to consumers, and games are instead sold through third parties, which is a more cumbersome process for consumers and results in a smaller revenue share for us. These
factors could harm our business, operating results and financial condition.
A shift of technology platform by wireless carriers and
mobile handset manufacturers could lengthen the development period for our games, increase our costs and cause our games to be of lower quality or to be published later than anticipated.
End users of games must have a mobile handset with multimedia capabilities enabled by technologies capable of running third-party games and
related applications such as ours. Our development resources are concentrated in the Apple iPhone, Google Android, Blackberry, i-mode, Mophun, Palm, Symbian, Windows Mobile, BREW and Java platforms. It is likely that one or more of these
technologies will fall out of favor with handset manufacturers and wireless carriers, as transitions to different technologies and technology platforms have happened in the past and will occur in the future. If there is a rapid shift to a different
technology platform, such as Adobe Flash or Flash Lite, or a new technology where we do not have development experience or resources, the development period for our games may be lengthened, increasing our costs, and the resulting games may be of
lower quality, and may be published later than anticipated. In such an event, our reputation, business, operating results and financial condition might suffer.
We have depended on a small number of games for a significant portion of our revenues in recent fiscal periods. If these games do not
continue to succeed or we do not release highly successful new games, our revenues would decline.
In our industry, new games are
frequently introduced, but a relatively small number of games account for a significant portion of industry sales. Similarly, a significant portion of our revenues comes from a limited number of mobile games, although the games in that group have
shifted over time. For example, in 2009, 2008 and 2007, we generated approximately 35.0%, 30.5% and 52.7% of our revenues, respectively, from our top ten games, but no individual game represented more than 10% of our revenues in any of those
periods. If our new games are not successful, our revenues could be limited and our business and operating results would suffer in both the year of release and thereafter.
Failure to renew our existing brand and content licenses on favorable terms or at all and to obtain additional licenses would impair our
ability to introduce new mobile games or to continue to offer our current games based on third-party content.
Revenues derived
from mobile games and other applications based on or incorporating brands or other intellectual property licensed from third parties accounted for 77.5%, 75.0% and 88.1% of our revenues in 2009, 2008 and 2007, respectively. In 2009, revenues derived
under various licenses from our five largest licensors, Activision, Atari, Fox Mobile Entertainment, Freemantle Media and Harrahs, together accounted for approximately 27.8% of our revenues, and we expect that this percentage will increase in
2010. Any of our licensors could decide not to renew our existing license or not to license additional intellectual property and instead license to our competitors or develop and publish its own mobile games or other applications, competing with us
in the marketplace. For example, in the second quarter of 2010, PopCap Games elected not to renew its license with us pursuant to which we created our game
Zuma
, which accounted for less than 5% of our revenues for each of 2009 and the first
nine months of 2010. Many of our licensors already develop games for other platforms and may have significant experience and development resources available to them should they decide to compete with us rather than license to us. In addition, our
licensors could decide to breach the terms of our license agreements, including failure to provide the content and intellectual property required under our license agreements and necessary to develop our games, and our remedies may be limited to
recovering our direct costs but not our lost profits, and we may not be able to realize profits that we may have anticipated from such license agreements. We may be required to resort to potentially costly litigation in an effort to enforce our
rights, which efforts might prove unsuccessful. Moreover, many of our licensors have not granted us the right to develop
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games for some smartphones, such as the iPhone, and may instead choose to develop games for such platforms themselves. Additionally, licensors may elect to work with publishers who can develop
and publish products across multiple platforms, such as mobile, online and console, which we currently cannot offer.
Increased
competition for licenses may lead to larger guarantees, advances and royalties that we would be required to pay to licensors, which could significantly increase our cost of revenues and cash usage or could make us unwilling to renew existing
licenses or pursue new licenses. We may be unable or unwilling to renew these licenses or be unable to renew them on terms favorable to us, and, if we desire to do so, we may be unable to secure alternatives in a timely manner. Our budget for new
licenses in 2009 was a substantial reduction from the amount we spent for new licenses in prior years, and we expect our spending for new licenses in 2010 and future periods to be significantly reduced from 2009 levels as we focus our developing
efforts on creating persistent-state, freemium games based on our own intellectual property. Our reduced spending on new licenses may adversely impact our title plan for feature phones and our ability to generate revenues in 2010 and future periods.
Failure to maintain or renew our existing licenses or to obtain additional licenses could impair our ability to introduce new games or would prevent us from continuing to offer our current games, which would materially harm our business, operating
results and financial condition.
Even if we succeed in gaining new licenses or extending existing licenses, we may fail to anticipate the
entertainment preferences of our end users when making choices about which brands or other content to license. If the entertainment preferences of end users shift to content or brands owned or developed by companies with which we do not have
relationships, we may be unable to establish and maintain successful relationships with these developers and owners, which would materially harm our business, operating results and financial condition.
System or network failures could reduce our sales, increase costs or result in a loss of revenues or end users of our games.
We rely on wireless carriers and other third-party networks to deliver games to end users and on their or other third
parties billing systems to track and account for the downloading of our games. We also rely on our own servers to operate our new persistent-state, freemium games that are delivered as a live service, as well as to deliver games on demand to
end users through our carriers networks. In addition, certain of our subscription-based games, such as World Series of Poker, require access over the mobile Internet to our servers to enable certain features. Any technical problem with
carriers, third parties or our billing, delivery or information systems or communications networks could result in the inability of end users to download or play our games, prevent the completion of billing for a game or result in the
loss of users virtual currency or other in-app purchases, or interfere with access to some aspects of our games. For example, in connection with the release of our Gun Bros. game on the Apple App Store in the fourth quarter of 2010, we
experienced issues with our data servers that resulted in gameplay issues and the loss of some users virtual assets they acquired through in-app purchases. In the event of a loss of virtual assets, we may be required to issue refunds, we may
receive negative publicity and game ratings, and we may lose users of our games, any of which would negatively affect our business. In addition, from time to time, our carriers have experienced failures with their billing and delivery systems and
communication networks, including gateway failures that reduced the provisioning capacity of their branded
e-commerce
system. Any such technical problems could cause us to lose end users or revenues or incur
substantial repair costs and distract management from operating our business.
We face added business, political, regulatory,
operational, financial and economic risks as a result of our international operations and distribution, any of which could increase our costs and adversely affect our operating results.
International sales represented approximately 52.2%, 52.0% and 46.2% of our revenues in 2009, 2008 and 2007, respectively. In addition, as part
of our international efforts, we acquired U.K.-based Macrospace in December 2004, UK-based iFone in March 2006, China-based MIG in December 2007 and Superscape, which
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has a significant presence in Russia, in March 2008. We have international offices located in a number of foreign countries including Brazil, Canada, China, England, France, Germany, Italy,
Russia and Spain. We expect to maintain our international presence, and we expect international sales to be an important component of our revenues. Risks affecting our international operations include:
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challenges caused by distance, language and cultural differences;
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multiple and conflicting laws and regulations, including complications due to unexpected changes in these laws and regulations;
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foreign currency exchange rate fluctuations;
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difficulties in staffing and managing international operations;
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potential violations of the Foreign Corrupt Practices Act, particularly in certain emerging countries in East Asia, Eastern Europe and Latin America;
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greater fluctuations in sales to end users and through carriers in developing countries, including longer payment cycles and greater difficulty collecting accounts receivable;
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protectionist laws and business practices that favor local businesses in some countries;
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regulations that could potentially affect the content of our products and their distribution, particularly in China;
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potential adverse foreign tax consequences;
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foreign exchange controls that might prevent us from repatriating income earned in countries outside the United States, particularly China;
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the servicing of regions by many different carriers;
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imposition of public sector controls;
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political, economic and social instability;
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restrictions on the export or import of technology;
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trade and tariff restrictions and variations in tariffs, quotas, taxes and other market barriers; and
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difficulties in enforcing intellectual property rights in certain countries.
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In addition,
developing user interfaces that are compatible with other languages or cultures can be expensive. As a result, our ongoing international operations may be more costly than we expect. As a result of our international operations in Asia, Europe and
Latin America, we must pay income tax in numerous foreign jurisdictions with complex and evolving tax laws. If we become subject to increased taxes or new forms of taxation imposed by governmental authorities, our results of operations could be
materially and adversely affected.
These risks could harm our international operations, which, in turn, could materially and adversely
affect our business, operating results and financial condition.
If we fail to deliver our games at the same time as new mobile
handset models are commercially introduced, our sales may suffer.
Our business depends, in part, on the commercial introduction of
new handset models with enhanced features, including larger, higher resolution color screens, improved audio quality, and greater processing power, memory, battery life and storage. For example, some companies have launched new smartphones or mobile
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platforms, including Apples iPhone and Googles Android. In addition, consumers generally purchase the majority of content, such as our games, for a new handset within a few months of
purchasing the handset. We do not control the timing of these handset launches. Some new handsets are sold by carriers with one or more games or other applications pre-loaded, and many end users who download our games do so after they purchase their
new handsets to experience the new features of those handsets. Some handset manufacturers give us access to their handsets prior to commercial release. If one or more major handset manufacturers were to cease to provide us access to new handset
models prior to commercial release, we might be unable to introduce compatible versions of our games for those handsets in coordination with their commercial release, and we might not be able to make compatible versions for a substantial period
following their commercial release. If, because we do not adequately build into our title plan the demand for games for a particular handset or platform or experience of game launch delays, we miss the opportunity to sell games when new handsets are
shipped or our end users upgrade to a new handset, our revenues would likely decline and our business, operating results and financial condition would likely suffer.
Future mobile handsets may significantly reduce or eliminate wireless carriers control over delivery of our games and force us to
rely further on alternative sales channels, which, if not successful, could require us to increase our sales and marketing expenses significantly.
The majority of our games are currently sold through carriers branded
e-commerce
services. We
have invested significant resources developing this sales channel. However, a growing number of handset models currently available allow wireless subscribers to browse the Internet and, in some cases, download applications from sources other than a
carriers branded
e-commerce
service, such as the Apple App Store. In addition, developing other application delivery mechanisms, such as premium-SMS, enable subscribers to download applications without
having to access a carriers branded
e-commerce
service. Increased use by subscribers of open operating system handsets or premium-SMS delivery systems will enable them to bypass carriers branded
e-commerce
services and could reduce the market power of carriers. This could force us to rely further on alternative sales channels where we may not be successful selling our games and could require us to increase
our sales and marketing expenses significantly. As with our carriers, we believe that inferior placement of our games and other mobile entertainment products in the menus of off-deck distributors will result in lower revenues than might otherwise be
anticipated from these alternative sales channels. We may be unable to develop and promote our direct website distribution sufficiently to overcome the limitations and disadvantages of off-deck distribution channels and our efforts to promote direct
distribution could prove expensive. This could harm our business, operating results and financial condition.
If a substantial
number of the end users that purchase our games by subscription change mobile handsets or if wireless carriers switch to subscription plans that require active monthly renewal by subscribers or change or cease offering subscription plans, our sales
could suffer.
Subscriptions represent a significant portion of our revenues. As handset development continues, over time an
increasing percentage of end users who already own one or more of our subscription games will likely upgrade from their existing handsets. With some wireless carriers, end users are not able to transfer their existing subscriptions from one handset
to another. In addition, carriers may switch to subscription billing systems that require end users to actively renew, or opt-in, each month from current systems that passively renew unless end users take some action to opt-out of their
subscriptions, or change or cease offering subscription plans altogether. If our subscription revenues decrease significantly for these or other reasons, our sales would suffer and this could harm our business, operating results and financial
condition.
If we fail to maintain and enhance our capabilities for porting games to a broad array of mobile handsets, our
attractiveness to wireless carriers and branded content owners will be impaired, and our sales and financial results could suffer.
To reach large numbers of wireless subscribers, mobile entertainment publishers like us must support numerous mobile handsets and technologies.
Once developed, a mobile game may be required to be ported to, or
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converted into separate versions for, more than 1,000 different handset models, many with different technological requirements. These include handsets with various combinations of underlying
technologies, user interfaces, keypad layouts, screen resolutions, sound capabilities and other carrier-specific customizations. If we fail to maintain or enhance our porting capabilities, our sales could suffer, branded content owners might choose
not to grant us licenses and carriers might choose to give our games less desirable deck placement or not to give our games placement on their decks at all.
Changes to our game design and development processes to address new features or functions of handsets or networks might cause inefficiencies
in our porting process or might result in more labor intensive porting processes. In addition, in the future we will be required to port existing and new games to a broader array of handsets and develop versions specific to new smartphones. If we
utilize more labor-intensive porting processes, our margins could be significantly reduced and it may take us longer to port games to an equivalent number of handsets. For example, the time required to develop and port games to some of the new
smartphones, including the iPhone and those based on the Android platform, is longer and thus developing and porting for the advanced platforms is more costly than developing and porting for games for traditional mobile phones. Since the substantial
majority of our revenues are currently derived from our carrier-based business, it is important that we maintain and enhance our porting capabilities. However, as additional smartphone storefronts are developed and gain market prominence, our
porting capabilities represent less of a business advantage for us, yet we could be required to invest considerable resource in this area to support our existing business. These additional costs could harm our business, operating results and
financial condition.
Our industry is subject to risks generally associated with the entertainment industry, any of which could
significantly harm our operating results.
Our business is subject to risks that are generally associated with the entertainment
industry, many of which are beyond our control. These risks could negatively impact our operating results and include: the popularity, price and timing of release of games and mobile handsets on which they are played; the commercial success of any
movies upon which one of more of our games are based; economic conditions that adversely affect discretionary consumer spending; changes in consumer demographics; the availability and popularity of other forms of entertainment; and critical reviews
and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.
If one or more of our games were
found to contain hidden, objectionable content, our reputation and operating results could suffer.
Historically, many video games
have been designed to include hidden content and gameplay features that are accessible through the use of in-game cheat codes or other technological means that are intended to enhance the gameplay experience. For example, our Super K.O. Boxing game
released for feature phones includes additional characters and game modes that are available with a code (usually provided to a player after accomplishing a certain level of achievement in the game). These features have been common in console and
computer games. However, in several cases, hidden content or features have been included in other publishers products by an employee who was not authorized to do so or by an outside developer without the knowledge of the publisher. From time
to time, some of this hidden content and these hidden features have contained profanity, graphic violence and sexually explicit or otherwise objectionable material. If a game we published were found to contain hidden, objectionable content, our
wireless carriers and other distributors of our games could refuse to sell it, consumers could refuse to buy it or demand a refund of their money, and, if the game was based on licensed content, the licensor could demand that we incur significant
expense to remove the objectionable content from the game and all ported versions of the game. This could have a materially negative impact on our business, operating results and financial condition.
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Our business and growth may suffer if we are unable to hire and retain key personnel.
Our future success will depend, to a significant extent, on our ability to retain and motivate our key personnel, namely our
management team and experienced sales and engineering personnel. In addition, in order to grow our business, succeed on our new business initiatives, such as developing persistent-state, freemium titles for smartphones and advanced platforms, and
replace departing employees, we must be able to identify and hire qualified personnel. Competition for qualified management, sales, engineering and other personnel can be intense, and we may not be successful in attracting and retaining such
personnel. This may be particularly the case for us to the extent our stock price remains at a depressed level, as individuals may elect to seek employment with other companies that they believe have better long-term prospects. Competitors have in
the past and may in the future attempt to recruit our employees, and our management and key employees are not bound by agreements that could prevent them from terminating their employment at any time. For example, five of our executive officers,
including our President and Chief Executive Officer, have left our company since October 2009. We may also experience difficulty assimilating our newly hired personnel and they may be less effective or productive than we anticipated, which may
adversely affect our business. In addition, we do not maintain a key-person life insurance policy on any of our officers. Our business and growth may suffer if we are unable to hire and retain key personnel.
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
We have acquired a number of businesses in the past, including, most recently, Superscape, which has a significant presence in Russia, in March
2008 and MIG, which is based in China, in December 2007. We expect to continue to evaluate and consider a wide array of potential strategic transactions, including business combinations and acquisitions of technologies, services, products and other
assets. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these transactions could be material to our financial condition and results of operations. The process of
integrating any acquired business may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties include:
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diversion of management time and a shift of focus from operating the businesses to issues related to integration and administration;
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declining employee morale and retention issues resulting from changes in compensation, management, reporting relationships, future prospects or the direction of the business;
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the need to integrate each acquired companys accounting, management, information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is
delayed or not implemented;
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the need to implement controls, procedures and policies appropriate for a larger public company that the acquired companies lacked prior to acquisition;
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in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific
countries; and
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liability for activities of the acquired companies before the acquisition, including violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities.
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If the anticipated benefits of any future acquisitions do not materialize, we experience difficulties integrating
businesses acquired in the future, or other unanticipated problems arise, our business, operating results and financial condition may be harmed.
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In addition, a significant portion of the purchase price of companies we acquire may be allocated
to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment
assessment process, which could harm our operating results. For example, during 2008 we incurred an aggregate goodwill impairment charge related to write-downs in the third and fourth quarters of 2008 of $69.5 million as the fair values of our
three reporting units were determined to be below their carrying values.
Moreover, the terms of acquisitions may require that we make
future cash or stock payments to shareholders of the acquired company, which may strain our cash resources or cause substantial dilution to our existing stockholders at the time the payments are required to be made. For example, pursuant to our
merger agreement with MIG, we were required to make $25.0 million in future cash and stock payments to the former MIG shareholders, which payments we renegotiated in December 2008. Had we paid the MIG earnout and bonus payments on their
original terms, we could have experienced cash shortfall related to the cash payments and our stockholders could have experienced substantial dilution related to the stock payments.
Our reported financial results could be adversely affected by changes in financial accounting standards or by the application of
existing or future accounting standards to our business as it evolves.
Our reported financial results are impacted by the
accounting policies promulgated by the SEC and national accounting standards bodies and the methods, estimates, and judgments that we use in applying our accounting policies. Due to recent economic events, the frequency of accounting policy changes
may accelerate, including conversion to unified international accounting standards. Policies affecting software revenue recognition have and could further significantly affect the way we account for revenue related to our products and services. For
example, we are developing and selling games for smartphones, including persistent-state, freemium games that we have begun to release in the fourth quarter of 2010, and the accounting for revenue derived from these platforms and games, particularly
with regard to micro-transactions, is still evolving and, in some cases, uncertain. As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those
relating to the way we account for revenue, could have a significant adverse effect on our reported results although not necessarily on our cash flows.
If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or
prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which could negatively impact the price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. We have incurred, and expect to continue to incur, substantial accounting and auditing expenses and expend significant management time in
complying with the requirements of Section 404. Even if we conclude, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or
improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness
or a significant deficiency in our internal control, the disclosure of that fact, even if quickly remedied, could reduce the markets confidence in our financial statements and harm our stock price. In addition, a delay in compliance with
Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short form resale registration, action by the SEC, the suspension or delisting of our common stock from the NASDAQ Global Market and the
inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.
21
Maintaining and improving our financial controls and the requirements of being a public
company may strain our resources, divert managements attention and affect our ability to attract and retain qualified members for our board of directors.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, and the rules and
regulations of the NASDAQ Stock Market. The requirements of these rules and regulations has significantly increased our legal, accounting and financial compliance costs, makes some activities more difficult, time-consuming and costly and may also
place undue strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain
effective disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. For example, we depend on the reports of wireless carriers for information regarding the amount of sales of our games and
related applications and to determine the amount of royalties we owe branded content licensors and the amount of our revenues. These reports may not be timely, and in the past they have contained, and in the future they may contain, errors.
To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we expend
significant resources and provide significant management oversight to implement appropriate processes, document our system of internal control over relevant processes, assess their design, remediate any deficiencies identified and test their
operation. As a result, managements attention may be diverted from other business concerns, which could harm our business, operating results and financial condition. These efforts also involve substantial accounting-related costs. In addition,
if we are unable to continue to meet these requirements, we may not be able to remain listed on the NASDAQ Global Market.
The
Sarbanes-Oxley Act and the rules and regulations of the NASDAQ Stock Market make it more difficult and more expensive for us to maintain directors and officers liability insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors and officers insurance, our ability to recruit and retain qualified directors, especially those directors who may be considered
independent for purposes of the NASDAQ Stock Market rules, and officers will be significantly curtailed.
If we do not adequately
protect our intellectual property rights, it may be possible for third parties to obtain and improperly use our intellectual property and our business and operating results may be harmed.
Our intellectual property is an essential element of our business. We rely on a combination of copyright, trademark, trade secret and other
intellectual property laws and restrictions on disclosure to protect our intellectual property rights. To date, we have not sought patent protection. Consequently, we will not be able to protect our technologies from independent invention by third
parties. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise to obtain and use our technology and games. Monitoring unauthorized use of our games is difficult and costly, and we
cannot be certain that the steps we have taken will prevent piracy and other unauthorized distribution and use of our technology and games, particularly internationally where the laws may not protect our intellectual property rights as fully as in
the United States. In the future, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and divert our managements attention and our resources.
In addition, although we require our third-party developers to sign agreements not to disclose or improperly use our trade secrets and
acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property and to assign to us any ownership they may have in those works, it may still be possible for
third parties to obtain and improperly use our intellectual properties without our consent. This could harm our business, operating results and financial condition.
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Our business is subject to increasing regulation of content, consumer privacy, distribution
and online hosting and delivery in the key territories in which we conduct business. If we do not successfully respond to these regulations, our business may suffer.
Legislation is continually being introduced that may affect both the content of our products and their distribution. For example, data and
consumer protection laws in the United States and Europe impose various restrictions on our business, which will be increasingly important to our business as we continue to market our products directly to end users and to the extent we obtain
personal information about our customers. Any concerns about our practices with regard to the collection, use, disclosure, or security of personal information or other privacy related matters, even if unfounded, could damage our reputation and
operating results. The rules regarding data and consumer protection laws vary by territory although the Internet recognizes no geographical boundaries. In the United States, for example, numerous federal and state laws have been introduced which
attempt to restrict the content or distribution of games. Legislation has been adopted in several states, and proposed at the federal level, that prohibits the sale of certain games to minors. If such legislation is adopted and enforced, it could
harm our business by limiting the games we are able to offer to our customers or by limiting the size of the potential market for our games. We may also be required to modify certain games or alter our marketing strategies to comply with new and
possibly inconsistent regulations, which could be costly or delay the release of our games. In addition, two self-regulatory bodies in the United States (the Entertainment Software Rating Board) and the European Union (Pan European Game Information)
provide consumers with rating information on various products such as entertainment software similar to our products based on the content (for example, violence, sexually explicit content, language). Furthermore, the Chinese government has adopted
measures designed to eliminate violent or obscene content in games. In response to these measures, some Chinese telecommunications operators have suspended billing their customers for certain mobile gaming platform services, including those services
that do not contain offensive or unauthorized content, which could negatively impact our revenues in China. Any one or more of these factors could harm our business by limiting the products we are able to offer to our customers, by limiting the size
of the potential market for our products, or by requiring costly additional differentiation between products for different territories to address varying regulations.
Changes in our tax rates or exposure to additional tax liabilities could adversely affect our earnings and financial condition.
We are subject to income taxes in the United States and in various foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes, and, in the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.
We are also required to estimate what our tax obligations will be in the future. Although we believe our tax estimates are reasonable, the
estimation process and applicable laws are inherently uncertain, and our estimates are not binding on tax authorities. The tax laws treatment of software and internet-based transactions is particularly uncertain and in some cases currently
applicable tax laws are ill-suited to address these kinds of transactions. Apart from an adverse resolution of these uncertainties, our effective tax rate also could be adversely affected by our profit level, by changes in our business or changes in
our structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make, changes in applicable tax laws (in the United States or foreign jurisdictions), or changes in the valuation allowance
for deferred tax assets, as well as other factors. Further, our tax determinations are subject to audit by tax authorities which could adversely affect our income tax provision. Should our ultimate tax liability exceed our estimates, our income tax
provision and net income or loss could be materially affected.
We incur certain tax expenses that do not decline proportionately with
declines in our consolidated pre-tax income or loss. As a result, in absolute dollar terms, our tax expense will have a greater influence on our effective tax rate at lower levels of pre-tax income or loss than at higher levels. In addition, at
lower levels of pre-tax income or loss, our effective tax rate will be more volatile.
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We are also required to pay taxes other than income taxes, such as payroll, value-added, net
worth, property and goods and services taxes, in both the United States and foreign jurisdictions. We are subject to examination by tax authorities with respect to these non-income taxes. There can be no assurance that the outcomes from
examinations, changes in our business or changes in applicable tax rules will not have an adverse effect on our earnings and financial condition. In addition, we do not collect sales and use taxes since we do not make taxable sales in jurisdictions
where we have employees and/or property or we do not have nexus in the state. If tax authorities assert that we have taxable nexus in the state, those authorities might seek to impose past as well as future liability for taxes and/or penalties. Such
impositions could also impose significant administrative burdens and decrease our future sales. Moreover, state and federal legislatures have been considering various initiatives that could change our position regarding sales and use taxes.
Furthermore, as we expand our international operations, adopt new products and new distribution models, implement changes to our operating
structure or undertake intercompany transactions in light of changing tax laws, acquisitions and our current and anticipated business and operational requirements, our tax expense could increase.
Third parties may sue us, including for intellectual property infringement, which, if successful, may disrupt our business and could
require us to pay significant damage awards.
Third parties may sue us, including for intellectual property infringement, or
initiate proceedings to invalidate our intellectual property, which, if successful, could disrupt the conduct of our business, cause us to pay significant damage awards or require us to pay licensing fees. For example, in a recently settled dispute,
Skinit, Inc. filed a complaint against us and other defendants in which it sought unspecified damages, plus attorneys fees and costs. In the event of a future successful claim against us, we might be enjoined from using our or our licensed
intellectual property, we might incur significant licensing fees and we might be forced to develop alternative technologies. Our failure or inability to develop non-infringing technology or games or to license the infringed or similar technology or
games on a timely basis could force us to withdraw games from the market or prevent us from introducing new games. In addition, even if we are able to license the infringed or similar technology or games, license fees could be substantial and the
terms of these licenses could be burdensome, which might adversely affect our operating results. We might also incur substantial expenses in defending against third-party disputes, litigation or infringement claims, regardless of their merit.
Successful claims against us might result in substantial monetary liabilities, an injunction against us and might materially disrupt the conduct of our business and harm our financial results.
Risks Relating To Our Common Stock
Our stock price has fluctuated and declined significantly since our initial public offering in March 2007, and may continue to fluctuate,
may not rise and may decline further, which could cause our stock to be delisted from trading on the NASDAQ Global Market.
The
trading price of our common stock has fluctuated in the past and is expected to continue to fluctuate in the future, as a result of a number of factors, many of which are outside our control, such as:
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price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole, such as the continuing unprecedented volatility in the financial markets;
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changes in the operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
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actual or anticipated fluctuations in our operating results;
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
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failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our industry, our failure to meet these estimates or failure of
those analysts to initiate or maintain coverage of our stock;
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ratings or other changes by any securities analysts who follow our company or our industry;
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announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, capital raising activities or capital commitments;
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the publics response to our press releases or other public announcements, including our filings with the SEC;
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any significant sales of our stock by our directors, executive officers or large stockholders, including the investors in our recently completed private placement transaction (the Private Placement) whose
shares have been registered for resale under the Securities Act of 1933, as amended (the Securities Act), and may be freely sold at any time;
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lawsuits threatened or filed against us; and
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market conditions or trends in our industry or the economy as a whole.
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In addition, the stock
markets, including the NASDAQ Global Market on which our common stock is listed, have recently and in the past, experienced extreme price and volume fluctuations that have affected the market prices of many companies, some of which appear to be
unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could adversely affect the market price of our common stock. In the past, following periods of volatility in the market price of a
particular companys securities, securities class action litigation has often been brought against that company. Securities class action litigation against us could result in substantial costs and divert our managements attention and
resources.
Since becoming a publicly traded security listed on the NASDAQ Global Market in March 2007, our common stock has reached a
closing high of $14.67 per share and closing low of $0.23 per share. Our common stock traded below $1.00 per share from October 30, 2008 until June 12, 2009, for portions of July and August 2009 and for portions of February, March and
April 2010, and the last reported sale price of our common stock on November 11, 2010 was $2.41 per share. Under NASDAQs continued listing standards, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive
trading days, NASDAQ may notify us that it may delist our common stock from the NASDAQ Global Market. If the closing bid price of our common stock does not thereafter regain compliance for a minimum of ten consecutive trading days during the
180-days
following notification by NASDAQ, NASDAQ may delist our common stock from trading on the NASDAQ Global Market. As a result, we cannot assure you that our common stock will remain eligible for trading on the
NASDAQ Global Market. If our stock were delisted, the ability of our stockholders to sell any of our common stock at all would be severely, if not completely, limited, causing our stock price to continue to decline.
Our principal stockholders, executive officers and directors have substantial control over our company, which may prevent you or other
stockholders from influencing significant corporate decisions.
Matthew A. Drapkin and Hany M. Nada, each of whom is a member of
our board of directors, are affiliated with entities that previously held substantial amounts of our common stock and purchased shares of our common stock and warrants to purchase shares of our common stock in the Private Placement. In addition,
Mr. Drapkin and one of his partners also purchased shares and warrants in the Private Placement for their own account. These persons and entities, which we collectively refer to as the Affiliated Investors, beneficially owned approximately
27.2% of our common stock as of September 30, 2010. In addition, the Affiliated Investors, together with the other members of our board of directors, our executive officers and our other 5% or greater stockholders, beneficially owned 61.4% of
our common stock as of September 30, 2010. As a result, these stockholders will, if they so choose, be able to control or substantially control all matters requiring stockholder approval. These matters include the election of directors and
approval of significant corporate transactions, such as a merger, consolidation, takeover or other business combination involving us. These stockholders may have interests that differ from yours and may vote in a way with which you disagree and
which may be adverse to your interests. This concentration of ownership could also adversely affect the market price of our common stock or reduce any premium over market price that an acquirer might otherwise pay.
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Some provisions in our certificate of incorporation, bylaws and the terms of some of our
licensing and distribution agreements and our credit facility may deter third parties from seeking to acquire us.
Our certificate
of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, including the following:
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our board of directors is classified into three classes of directors with staggered three-year terms;
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only our chairman of the board, our lead independent director, our chief executive officer, our president or a majority of our board of directors is authorized to call a special meeting of stockholders;
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our stockholders are able to take action only at a meeting of stockholders and not by written consent;
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only our board of directors and not our stockholders is able to fill vacancies on our board of directors;
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our certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and
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advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before a meeting of stockholders.
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In addition, the terms of a number of our agreements with branded content owners and wireless carriers effectively provide that, if we undergo
a change of control, the applicable content owner or carrier will be entitled to terminate the relevant agreement. Also, our credit facility provides that a change in control of our company is an event of default, which accelerates all of our
outstanding debt, thus effectively requiring that we or the acquirer be willing to repay the debt concurrently with the change of control or that we obtain the consent of the lender to proceed with the change of control transaction. Individually or
collectively, these matters may deter third parties from seeking to acquire us.
Management might apply the net proceeds from an
offering of our securities to uses that do not improve our operating results or increase the value of your investment.
Our
management will have considerable discretion in the application of the net proceeds from offerings made pursuant to this prospectus, and you will not have the opportunity, as part of your investment decision, to assess how the proceeds will be used.
The net proceeds may be used for corporate purposes that do not improve our operating results or market value and you will not have the opportunity to evaluate the economic, financial, or other information on which we base our decisions on how to
use the proceeds. Pending application of the proceeds, they might be placed in investments that do not produce income or that lose value.
Future sales of shares by existing stockholders could affect our stock price.
The shares held by our stockholders, including our executive officers and directors and the investors in our recent Private Placement, may be
sold in the public market at any time and from time to time subject, in certain cases, to volume limitations under Rule 144 of the Securities Act. If any of these stockholders sell substantial amounts of our common stock in the public market,
the market price of our common stock could decline. In addition, shares subject to outstanding options and shares reserved for future issuance under our stock option and purchase plans will continue to become eligible for sale in the public market
to the extent permitted by the securities rules and regulations applicable to these shares.
We do not expect to pay any dividends
for the foreseeable future. Our stockholders may never obtain a return on their investment.
We have never declared or paid
dividends on our common stock, and we do not expect to pay cash dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings, if any, in the foreseeable future will be used to finance the operation and
growth of our business. In addition, our ability to pay dividends to holders of our capital stock is limited by our credit facility. Any future determination to pay
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dividends on our common stock is subject to the discretion of our board of directors and will depend upon various factors, including, without limitation, our results of operations and financial
condition. In addition, at this time our credit facility prohibits the payment of dividends.
SPECIAL
NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus and documents incorporated herein by reference contain
forward-looking statements that involve risks and uncertainties. All statements other than statements of historical fact contained in this prospectus or any documents incorporated by reference in this prospectus, including statements regarding
future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements are often identified by the use of words such as may,
will, expect, believe, anticipate, intend, could, estimate or continue, and similar expressions or variations. Such forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled Risk Factors, set forth in our Annual Report on
Form 10-K
for
the year ended December 31, 2009 and in our other SEC filings incorporated by reference into this prospectus.
You should not place
undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled Risk
Factors and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the
forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.
USE OF PROCEEDS
Except as described in any prospectus supplement, we currently intend to use the net proceeds from the sale of
securities under this prospectus for general corporate purposes including, without limitation, additions to our working capital, capital expenditures and potential acquisitions of, or investments in, companies and technologies that complement our
business. Pending such uses, we may temporarily invest the net proceeds.
RATIO OF EARNINGS TO FIXED CHARGES
The financial information provided in the table below should be read in conjunction with our financial statements and the related
notes incorporated by reference into this prospectus. The following table sets forth our ratio of earnings to fixed charges. As our earnings were inadequate to cover fixed charges for each of the periods presented, we have provided the deficiency
amounts. For purposes of calculating this deficiency, earnings consist of income (loss) from continuing operations before income taxes and minority interest. Fixed charges consist of
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interest expense, including amortization of debt issuance costs, and the portion of rental expense which we believe is representative of the interest component of rental expense.
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Year Ended December 31,
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Nine Months
Ended
September 30,
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2009
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2008
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2007
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2010
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2009
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(In thousands)
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Earnings before income taxes and minority interest
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(16,034
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(103,566
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(3,591
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(7,474
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(8,811
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)
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Fixed charges
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1,557
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454
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1,089
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726
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1,211
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Earnings
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(14,477
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)
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(103,112
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(2,502
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(6,748
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)
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(7,600
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Fixed charges
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1,557
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454
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1,089
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726
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1,211
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Ratio of earnings to fixed charges
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(1)
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(1)
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(1)
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(1)
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(1)
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(1)
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Earnings were inadequate to cover fixed charges by $16,034 for 2009, $103,566 for 2008, $3,591 for 2007, $7,474 for the nine months ended September 30, 2010 and $8,811 for the nine months ended September 30,
2009.
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DESCRIPTION OF SECURITIES WE MAY OFFER
As of the date of this prospectus, our authorized capital stock consisted of 250,000,000 shares of common stock, $0.0001 par value
per share, and 5,000,000 shares of undesignated preferred stock, $0.0001 par value per share. The following description summarizes the most important terms of the securities we may offer. Because it is only a summary, it does not contain
all the information that may be important to you. For a complete description, you should refer to the applicable prospectus supplement and any related free writing prospectus, our restated certificate of incorporation and restated bylaws and to the
applicable provisions of Delaware law.
Types of Securities We May Offer
Common Stock
As of
October 31, 2010, we had 44,572,844 shares of common stock outstanding.
Dividend Rights.
Subject
to preferences that may apply to shares of our preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our
board of directors may determine.
Voting Rights.
Each holder of common stock is entitled to one vote for
each share of common stock held on all matters submitted to a vote of stockholders. Our restated certificate of incorporation eliminates the right of stockholders to cumulate votes for the election of directors. Our restated certificate of
incorporation establishes a classified board of directors, divided into three classes with staggered three-year terms. Only one class of directors is elected at each annual meeting of our stockholders, with the other classes continuing for the
remainder of their respective three-year terms.
No Preemptive or Similar Rights.
Our common stock is not
entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation
Distributions.
Upon our liquidation, dissolution or
winding-up,
the assets legally available for distribution to stockholders will be distributable ratably among the holders of our
common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Limitations on Common Stock Rights Created by the Rights of Another Authorized Class of
Securities.
As further described below, our board of directors is authorized, subject to the limits imposed by Delaware law, to issue up to 5,000,000 shares of preferred stock. Although no shares of preferred stock
are outstanding as of the date of this prospectus, our board may authorize the issuance of such preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock.
Our common stock is listed on The NASDAQ Global Market under the trading symbol GLUU. The transfer agent and registrar for our
common stock is American Stock Transfer & Trust Co.
Preferred Stock
As of the date of this prospectus, no shares of our preferred stock were outstanding. Subject to limitations prescribed by Delaware law, our
board of directors is authorized to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the designation, powers, preferences and rights of the shares of each series
and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of our preferred stock, but not below the
number of shares of that series then outstanding, unless approved by the affirmative vote of the holders of a majority of our capital stock entitled to vote, or such other vote as may be required by the certificate of designation establishing the
series. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of Glu and might adversely affect the market price
of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of our preferred stock.
Our board of directors will fix the rights, preferences, privileges, qualifications, limitations and restrictions of the preferred stock of
each series that we sell under this prospectus, applicable prospectus supplements and any related free writing prospectus in the certificate of designation relating to that series. We will incorporate by reference into the registration statement of
which this prospectus is a part the form of any certificate of designation that describes the terms of the series of preferred stock we are offering before the issuance of the related series of preferred stock. This description of the preferred
stock in the certificate of designation, any applicable prospectus supplement and any related free writing prospectus will include:
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the number of shares in any series;
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the designation for any series by number, letter or title that shall distinguish the series from any other series of preferred stock;
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the dividend rate and whether dividends on that series of preferred stock will be cumulative, noncumulative or partially cumulative;
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the voting rights of that series of preferred stock, if any;
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the conversion provisions applicable to that series of preferred stock, if any;
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the redemption or sinking fund provisions applicable to that series of preferred stock, if any;
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the liquidation preference per share of that series of preferred stock, if any;
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the rank of that series of preferred stock relative to other series of preferred stock; and
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the terms of any other preferences or rights, if any, applicable to that series of preferred stock.
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The description of preferred stock set forth above and in any description of the terms of a particular series of preferred stock in the
related prospectus supplement and any related free writing prospectus will not be complete. You should refer to the applicable certificate of designation for such series of preferred stock for complete
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information with respect to such preferred stock. The prospectus supplement will also contain a description of certain U.S. federal income tax consequences relating to that series of
preferred stock.
Debt Securities
The following description of the terms of the debt securities summarizes some general terms that will apply to the debt securities. The
description is not complete, and we refer you to the forms of indentures which we filed with the SEC as exhibits to the registration statement of which this prospectus is a part.
General
The debt
securities will be either our senior debt securities or our subordinated debt securities. We will issue our debt securities under one or more separate indentures between us and a trustee to be named in a prospectus supplement. Senior debt securities
will be issued under a senior indenture and subordinated securities will be issued under a subordinated indenture. A copy of the form of each type of indenture has been filed as an exhibit to the registration statement of which this prospectus is a
part. The indentures may be supplemented by one or more supplemental indentures. We refer to the senior indenture and the subordinated indenture, together with any supplemental indentures, as the indentures throughout the remainder of
this prospectus.
The indentures do not limit the amount of debt securities that we may issue. The indentures provide that debt securities
may be issued up to the principal amount that we authorize from time to time. The senior debt securities will be secured or unsecured and will have the same rank as all of our other indebtedness that is not subordinated. The subordinated debt
securities will be secured or unsecured and will be subordinated and junior to all senior indebtedness. The terms of the indentures do not contain any covenants or other provisions designed to give holders of any debt securities protection against
changes in our operations, financial condition or transactions involving us, but those provisions may be included in the documents that include the specific terms of the debt securities.
We may issue the debt securities in one or more separate series of senior debt securities and subordinated debt securities. The prospectus
supplement relating to the particular series of debt securities being offered will specify the particular amounts, prices and terms of those debt securities. These terms may include:
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the title of the debt securities;
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any limit upon the aggregate principal amount of the debt securities;
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if other than United States dollars, the currency or currencies, including the euro and other composite currencies, in which payments on the debt securities will be payable and whether the holder may elect payment to be
made in a different currency;
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the date or dates when payments on the principal must be made or the method of determining that date or dates;
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interest rates, and the dates from which interest, if any, will accrue, and the dates when interest is payable and the maturity;
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the right, if any, to extend the interest payment periods and the duration of the extensions;
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the places where payments may be made and the manner of payments;
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any mandatory or optional redemption provisions;
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any subordination provisions;
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the denominations in which debt securities will be issued;
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the terms applicable to any debt securities issued at a discount from their stated principal amount;
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the currency or currencies of payment of principal or interest; and the period, if any, during which a holder may elect to pay in a currency other than the currency in which the debt securities are denominated;
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if the amount of payments of principal or interest is to be determined by reference to an index or formula, or based on a coin or currency other than that in which the debt securities are stated to be payable, the
manner in which these amounts are determined and the calculation agent, if any;
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whether the debt securities will be secured or unsecured;
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whether the debt securities will be issued in the form of one or more global securities in temporary or definitive form;
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whether and on what terms we will pay additional amounts to holders of the debt securities that are not United States persons in respect of any tax, assessment or governmental charge withheld or deducted and, if so,
whether and on what terms we will have the option to redeem the debt securities rather than pay the additional amounts;
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the certificates or forms required for the issuance of debt securities in definitive form;
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the trustees, depositaries, authenticating or paying agents, transfer agents or registrars of the debt securities;
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any deletions of, or changes or additions to, the events of default or covenants;
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conversion or exchange provisions, if any, including conversion or exchange prices or rates and adjustments to those prices and rates; and
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any other specific terms of the debt securities.
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If any debt securities are sold for any
foreign currency or currency unit or if any payments on the debt securities are payable in any foreign currency or currency unit, the prospectus supplement will contain any restrictions, elections, tax consequences, specific terms and other
information with respect to the debt securities and the foreign currency or currency unit.
Some of the debt securities may be issued as
original issue discount debt securities. Original issue discount securities may bear no interest or bear interest at below-market rates and will be sold at a discount below their stated principal amount and may bear no or below market interest. The
applicable prospectus supplement will also contain any special tax, accounting or other information relating to original issue discount securities other kinds of debt securities that may be offered, including debt securities linked to an index or
payable in currencies other than United States dollars.
Senior Debt Securities
Payment of the principal of, premium, if any, and interest on senior debt securities will rank on a parity with all of our other indebtedness
that is not subordinated.
Subordinated Debt Securities
Payment of the principal of, premium, if any, and interest on subordinated debt securities will be junior in right of payment to the prior
payment in full of all of our unsubordinated debt, including senior debt securities. We will state in the applicable prospectus supplement relating to any subordinated debt securities the subordination terms of the securities as well as the
aggregate amount of outstanding debt, as of the most recent practicable date, that by its terms would be senior to the subordinated debt securities. We will also state in such prospectus supplement limitations, if any, on issuance of additional
senior debt. In addition, the subordinated debt securities will be effectively subordinated to creditors and preferred stockholders of our subsidiaries.
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Registrar and Paying Agent
The debt securities may be presented for registration of transfer or for exchange at the corporate trust office of the security registrar or at
any other office or agency that we maintain for those purposes. In addition, the debt securities may be presented for payment of principal, interest and any premium at the office of the paying agent or at any office or agency that we maintain for
those purposes.
The trustee to be named in a prospectus supplement will be designated security registrar and paying agent for the debt
securities.
Global Securities
We may issue the debt securities of a series in whole or in part in the form of one or more global certificates that will be deposited with a
depositary we will identify in a prospectus supplement. We may issue global debt securities in either temporary or definitive form. We will describe the specific terms of the depositary arrangement with respect to any series of debt securities in
the prospectus supplement.
Conversion or Exchange Rights
Debt securities may be convertible into or exchangeable for shares of our common stock. The terms and conditions of conversion or exchange will
be stated in the applicable prospectus supplement. The terms will include, among others, the following:
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the conversion or exchange price;
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the conversion or exchange period;
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provisions regarding the convertibility or exchangeability of the debt securities, including who may convert or exchange;
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events requiring adjustment to the conversion or exchange price;
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provisions affecting conversion or exchange in the event of our redemption of the debt securities; and
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any anti-dilution provisions, if applicable.
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Registered Global Securities
Unless and until it is exchanged in whole or in part for debt securities in definitive registered form, a registered global security may not be
transferred except as a whole:
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by the depositary for that registered global security to its nominee;
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by a nominee of the depositary to the depositary or another nominee of the depositary; or
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by the depositary or its nominee to a successor of the depositary or a nominee of the successor.
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The prospectus supplement relating to a series of debt securities will describe the specific terms of the depositary arrangement involving any
portion of the series represented by a registered global security.
We anticipate that the following provisions will apply to all
depositary arrangements for debt securities:
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ownership of beneficial interests in a registered global security will be limited to persons that have accounts with the depositary for that registered global security, these persons being referred to as
participants, or persons that may hold interests through participants;
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upon the issuance of a registered global security, the depositary for the registered global security will credit, on its book-entry registration and
transfer system, the participants accounts with the respective
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principal amounts of the debt securities represented by the registered global security beneficially owned by the participants;
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any dealers, underwriters or agents participating in the distribution of the debt securities will designate the accounts to be credited; and
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ownership of beneficial interest in that registered global security will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the depositary for that registered
global security for interests of participants and on the records of participants for interests of persons holding through participants.
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The laws of some states may require that specified purchasers of securities take physical delivery of the securities in definitive form. These
laws may limit the ability of those persons to own, transfer or pledge beneficial interests in registered global securities.
So long as
the depositary for a registered global security, or its nominee, is the registered owner of that registered global security, the depositary or that nominee will be considered the sole owner or holder of the debt securities represented by the
registered global security for all purposes under the indenture. Except as stated below, owners of beneficial interests in a registered global security:
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will not be entitled to have the debt securities represented by a registered global security registered in their names;
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will not receive or be entitled to receive physical delivery of the debt securities in definitive form; and
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will not be considered the owners or holders of the debt securities under the indenture.
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Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for the
registered global security and, if the person is not a participant, on the procedures of a participant through which the person owns its interest, to exercise any rights of a holder under the indenture.
We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a
registered global security desires to give or take any action that a holder is entitled to give or take under the indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests
to give or take the action, and the participants would authorize beneficial owners owning through the participants to give or take the action or would otherwise act upon the instructions of beneficial owners holding through them.
We will make payments of principal and premium, if any, and interest, if any, on debt securities represented by a registered global security
registered in the name of a depositary or its nominee to the depositary or its nominee as the registered owners of the registered global security. None of us, the trustee or any other of our agents or agents of the trustee will be responsible or
liable for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to the beneficial ownership
interests.
We expect that the depositary for any debt securities represented by a registered global security, upon receipt of any
payments of principal and premium, if any, and interest, if any, in respect of the registered global security, will immediately credit participants accounts with payments in amounts proportionate to their respective beneficial interests in the
registered global security as shown on the records of the depositary. We also expect that standing customer instructions and customary practices will govern payments by participants to owners of beneficial interests in the registered global security
held through the participants, as is now the case with the securities held for the accounts of customers in bearer form or registered in street name. We also expect that any of these payments will be the responsibility of the
participants.
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If the depositary for any debt securities represented by a registered global security is at any
time unwilling or unable to continue as depositary or stops being a clearing agency registered under the Exchange Act, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within 90 days, we
will issue the debt securities in definitive form in exchange for the registered global security. In addition, we may at any time and in our sole discretion decide not to have any of the debt securities of a series represented by one or more
registered global securities. In that event, we will issue debt securities of the series in a definitive form in exchange for all of the registered global securities representing the debt securities. The trustee will register any debt securities
issued in definitive form in exchange for a registered global security in the name or names as the depositary, based upon instructions from its participants, will instruct the trustee.
Merger, Consolidation or Sale of Assets
Under the terms of the indentures, we may consolidate or merge with another company, or sell, lease or convey all or substantially all our
assets to another company, if:
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Glu is the continuing entity; or
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(i) Glu is not the continuing entity, (ii) the successor entity is organized under the laws of the United States of America and expressly assumes all payments on all of the debt securities and the performance
and observance of all the covenants and conditions of the applicable indenture, and (iii) the merger, sale of assets or other transaction must not cause a default on the debt securities and we must not already be in default.
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Events of Default
Unless
otherwise provided for in the prospectus supplement, the term event of default, when used in the indentures means any of the following:
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failure to pay interest for 30 days after the date payment is due and payable; however, if we extend an interest payment period under the terms of the debt securities, the extension will not be a failure to pay
interest;
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failure to pay principal or premium, if any, on any debt security when due, either at maturity, upon any redemption, by declaration or otherwise;
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failure to perform other covenants for 60 days after notice that performance was required;
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certain events in bankruptcy, insolvency or reorganization of our company; or
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any other event of default provided in the applicable resolution of our board of directors or the supplemental indenture under which we issue a series of debt securities.
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An event of default for a particular series of debt securities does not necessarily constitute an event of default for any other series of
debt securities issued under an indenture. If an event of default relating to the payment of interest, principal or any sinking fund installment involving any series of debt securities has occurred and is continuing, the trustee or the holders of
not less than 25% in aggregate principal amount of the debt securities of each affected series may declare the entire principal of all the debt securities of that series to be due and payable immediately.
If an event of default relating to the performance of other covenants occurs and is continuing for a period of 60 days after notice of
that event of default, or if any other event of default occurs and is continuing involving all of the series of senior debt securities, then the trustee or the holders of not less than 25% in aggregate principal amount of all of the series of senior
debt securities may declare the entire principal amount of all of the series of senior debt securities due and payable immediately.
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Similarly, if an event of default relating to the performance of other covenants occurs and is
continuing for a period of 60 days after notice, or if any other event of default occurs and is continuing involving all of the series of subordinated debt securities, then the trustee or the holders of not less than 25% in aggregate principal
amount of all of the series of subordinated debt securities may declare the entire principal amount of all of the series of subordinated debt securities due and payable immediately.
If, however, the event of default relating to the performance of other covenants or any other event of default that has occurred and is
continuing is for less than all of the series of senior debt securities or subordinated debt securities, then, the trustee or the holders of not less than 25% in aggregate principal amount of each affected series of the senior debt securities or the
subordinated debt securities, as the case may be, may declare the entire principal amount of all debt securities of that affected series due and payable immediately. The holders of not less than a majority, or any applicable supermajority, in
aggregate principal amount of the debt securities of a series may, after satisfying conditions, rescind and annul any of the above-described declarations and consequences involving the series.
If an event of default relating to events in bankruptcy, insolvency or reorganization occurs and is continuing, then the principal amount of
all of the debt securities outstanding, and any accrued interest, will automatically become due and payable immediately, without any declaration or other act by the trustee or any holder.
Each indenture imposes limitations on suits brought by holders of debt securities against us. Except for actions for payment of overdue
principal or interest, no holder of debt securities of any series may institute any action against us under each indenture unless:
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the holder has previously given to the trustee written notice of default and continuance of that default;
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the holders of at least 25% in principal amount of the outstanding debt securities of the affected series have requested that the trustee institute the action;
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the requesting holders have offered the trustee reasonable indemnity for expenses and liabilities that may be incurred by bringing the action;
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the trustee has not instituted the action within 60 days of the request; and
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the trustee has not received inconsistent direction by the holders of a majority in principal amount of the outstanding debt securities of the series.
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We will be required to file annually with the trustee a certificate, signed by an officer of our company, stating whether or not the officer
knows of any default by us in the performance, observance or fulfillment of any condition or covenant of an indenture.
Discharge,
Defeasance and Covenant Defeasance
We can discharge or defease our obligations under the indentures as stated below or as provided in
the prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, we may discharge obligations to holders of
any series of debt securities that have not already been delivered to the trustee for cancellation and that have either become due and payable or are by their terms to become due and payable, or are scheduled for redemption, within one year. We may
effect a discharge by irrevocably depositing with the trustee cash or United States government obligations, as trust funds, in an amount certified to be enough to pay when due, whether at maturity, upon redemption or otherwise, the principal of,
premium, if any, and interest on the debt securities and any mandatory sinking fund payments.
Unless otherwise provided in the applicable
prospectus supplement, we may also discharge any and all of our obligations to holders of any series of debt securities at any time, which we refer to as defeasance. We may
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also be released from the obligations imposed by any covenants of any outstanding series of debt securities and provisions of the indentures, and we may omit to comply with those covenants
without creating an event of default under the trust declaration, which we refer to as covenant defeasance. We may effect defeasance and covenant defeasance only if, among other things:
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we irrevocably deposit with the trustee cash or United States government obligations, as trust funds, in an amount certified to be enough to pay at maturity, or upon redemption, the principal, premium, if any, and
interest on all outstanding debt securities of the series;
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we deliver to the trustee an opinion of counsel from a nationally recognized law firm to the effect that (i) in the case of covenant defeasance, the holders of the series of debt securities will not recognize
income, gain or loss for United States federal income tax purposes as a result of the defeasance, and will be subject to tax in the same manner and at the same times as if no covenant defeasance had occurred and (ii) in the case of defeasance,
either we have received from, or there has been published by, the Internal Revenue Service a ruling or there has been a change in applicable United States federal income tax law, and based on that ruling or change, the holders of the series of debt
securities will not recognize income, gain or loss for United States federal income tax purposes as a result of the defeasance and will be subject to tax in the same manner as if no defeasance had occurred; and
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in the case of subordinated debt securities, no event or condition will exist that, based on the subordination provisions applicable to the series, would prevent us from making payments of principal of, premium, if any,
and interest on any of the applicable subordinated debt securities at the date of the irrevocable deposit referred to above or at any time during the period ending on the 91st day after the deposit date.
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Although we may discharge or decrease our obligations under the indentures as described in the two preceding paragraphs, we may not avoid,
among other things, our duty to register the transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen series of debt securities or to maintain an office or agency in respect of any series
of debt securities.
Modification of the Indenture
Except as provided in the prospectus supplement, each indenture provides that we and the trustee may enter into supplemental indentures without
the consent of the holders of debt securities to:
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secure any debt securities;
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evidence the assumption by a successor corporation of our obligations and the conversion of any debt securities into the capital stock of that successor corporation, if the terms of those debt securities so provide;
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add covenants for the protection of the holders of debt securities;
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cure any ambiguity or correct any inconsistency in the indenture;
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establish the forms or terms of debt securities of any series; and
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evidence and provide for the acceptance of appointment by a successor trustee.
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Each indenture
also provides that we and the trustee may, with the consent of the holders of not less than a majority in aggregate principal amount of debt securities of all series of senior debt securities or of subordinated debt securities then outstanding and
affected, voting as one class, add any provisions to, or change in any manner, eliminate or modify in any way the provisions of, the indenture or modify in any manner the rights of the holders of the debt securities. We and the trustee may not,
however, without the consent of the holder of each outstanding debt security affected:
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extend the stated maturity of any debt security;
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reduce the principal amount or premium, if any;
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reduce the rate or extend the time of payment of interest;
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reduce any amount payable on redemption;
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change the currency in which the principal, unless otherwise provided for a series, premium, if any, or interest is payable;
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reduce the amount of the principal of any debt security issued with an original issue discount that is payable upon acceleration or provable in bankruptcy;
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impair the right to institute suit for the enforcement of any payment on any debt security when due; or
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reduce the percentage of holders of debt securities of any series whose consent is required for any modification of the indenture for any such series.
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Concerning the Trustee
Each indenture provides that there may be more than one trustee under the indenture, each for one or more series of debt securities. If there
are different trustees for different series of debt securities, each trustee will be a trustee of a trust under the indentures separate and apart from the trust administered by any other trustee under the indenture. Except as otherwise indicated in
this prospectus or any prospectus supplement, any action permitted to be taken by a trustee may be taken by that trustee only on the one or more series of debt securities for which it is the trustee under the indenture. Any trustee under the
indentures may resign or be removed from one or more series of debt securities. All payments of principal of, premium, if any, and interest on, and all registration, transfer, exchange, authentication and delivery of, the debt securities of a series
may be effected by the trustee for that series at an office or agency designated by the trustee of that series.
If the trustee becomes a
creditor of our company, each indenture places limitations on the right of the trustee to obtain payment of claims or to realize on property received in respect of any such claim as security or otherwise. The trustee may engage in other
transactions. If it acquires any conflicting interest relating to any duties concerning the debt securities, however, it must eliminate the conflict or resign as trustee.
The holders of a majority in aggregate principal amount of any series of debt securities then outstanding will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy available to the trustee concerning the applicable series of debt securities, so long as the direction:
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would not conflict with any rule of law or with the applicable indenture;
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would not be unduly prejudicial to the rights of another holder of the debt securities; and
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would not involve any trustee in personal liability.
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Each indenture provides that if an event
of default occurs, is not cured and is known to any trustee, the trustee must use the same degree of care as a prudent person would use in the conduct of his or her own affairs in the exercise of the trusts power. The trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the request of any of the holders of the debt securities, unless they have offered to the trustee security and indemnity satisfactory to the trustee.
No Individual Liability of Incorporators, Stockholders, Officers or Directors
Each indenture provides that no incorporator and no past, present or future stockholder, officer or director of our company or any successor
corporation in those capacities will have any individual liability for any of our obligations, covenants or agreements under the debt securities or such indenture.
Governing Law
The
indentures and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York.
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Warrants
We may issue warrants for the purchase of common stock, preferred stock or debt securities, or a combination thereof. Warrants may be issued
independently or together with any offered securities and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and the purchasers of the
warrants or between us and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants. The warrant agent will not have any obligation or relationship of agency or trust for or with any
holders or beneficial owners of warrants.
For the complete terms of a particular series of warrants, you should refer to the prospectus
supplement, any related free writing prospectus and the warrant agreement for that particular series of warrants. The prospectus supplement and any related free writing prospectus relating to a particular series of warrants to purchase our common
stock, preferred stock or debt securities will describe the terms of the warrants, including the following:
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the title of the warrants;
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the offering price for the warrants, if any;
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the aggregate number of the warrants;
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the designation and terms of the common stock, preferred stock or debt securities that may be purchased upon exercise of the warrants;
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if applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with each security;
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if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable;
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the number of shares of common stock, preferred stock or debt securities that may be purchased upon exercise of a warrant and the exercise price for the warrants;
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the dates on which the right to exercise the warrants shall commence and expire;
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if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time;
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the currency or currency units in which the offering price, if any, and the exercise price are payable;
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if applicable, a discussion of material U.S. federal income tax considerations;
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the anti-dilution provisions of the warrants, if any;
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the redemption or call provisions, if any, applicable to the warrants;
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in the case of warrants for debt securities:
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the number of, and any date on and after which, debt warrants and debt securities that will be separately transferable;
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the title, total principal amount, ranking and terms, including subordination and conversion provisions, of the underlying debt securities that may be purchased upon exercise of the debt warrants;
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the time or period when the debt warrants are exercisable, the minimum or maximum amount of debt warrants that may be exercised at any one time and the final date on which the debt warrants may be exercised;
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the principal amount of underlying debt securities that may be purchased upon exercise of each debt warrant and the price, or the manner of determining the price, at which the principal amount may be purchased upon
exercise;
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whether the debt securities are secured or unsecured; and
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any book-entry procedure information;
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any provisions with respect to holders right to require us to repurchase the warrants upon a change in control; and
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any additional terms of the warrants, including terms, procedures, and limitations relating to the exchange, exercise and settlement of the warrants.
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Holders of warrants will not be entitled to:
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vote, consent or receive dividends;
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receive notice as stockholders with respect to any meeting of stockholders for the election of our directors or any other matter; or
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exercise any rights as stockholders of Glu.
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As set forth in the applicable prospectus
supplement and any related free writing prospectus, the exercise price and the number of shares of common stock, preferred stock or debt securities purchasable upon exercise of the warrant will be subject to adjustment in certain events, including
the issuance of a stock dividend to any holders of common stock, a stock split, reverse stock split, combination, subdivision or reclassification of common stock, and such other events, if any, specified in the applicable prospectus supplement and
any related free writing prospectus.
Subscription Rights
We may issue subscription rights to purchase our common stock, preferred stock or debt securities. These subscription rights may be offered
independently or together with any other security offered hereby and may or may not be transferable by the stockholder receiving the subscription rights in such offering. In connection with any offering of subscription rights, we may enter into a
standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters or other purchasers may be required to purchase any securities remaining unsubscribed for after such offering.
The prospectus supplement relating to any subscription rights we offer, if any, will, to the extent applicable, include specific terms
relating to the offering, including some or all of the following:
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the price, if any, for the subscription rights;
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the exercise price payable for our common stock, preferred stock or debt securities upon the exercise of the subscription rights;
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the number of subscription rights to be issued to each stockholder;
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the number and terms of our common stock, preferred stock or debt securities which may be purchased per each subscription right;
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the extent to which the subscription rights are transferable;
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any other terms of the subscription rights, including the terms, procedures and limitations relating to the exchange and exercise of the subscription rights;
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the date on which the right to exercise the subscription rights shall commence, and the date on which the subscription rights shall expire;
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the extent to which the subscription rights may include an over-subscription privilege with respect to unsubscribed securities or an over-allotment privilege to the extent the securities are fully subscribed; and
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if applicable, the material terms of any standby underwriting or purchase arrangement which may be entered into by Glu in connection with the offering of subscription rights.
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The description in the applicable prospectus supplement of any subscription rights we offer will
not necessarily be complete and will be qualified in its entirety by reference to the applicable subscription rights certificate, which will be filed with the SEC if we offer subscription rights. We urge you to read the applicable subscription
rights certificate and any applicable prospectus supplement in their entirety.
Units
We may issue units to purchase one or more of the securities referenced herein. The terms of such units will be set forth in a prospectus
supplement and any related free writing prospectus. The form of units and the applicable unit agreement will be filed with the SEC and incorporated by reference as exhibits to the registration statement of which this prospectus is a part or as an
exhibit to a Current Report on
Form 8-K.
We encourage you to read the applicable unit agreement and unit before you purchase any of our units.
Anti-Takeover Provisions
Provisions of Delaware law and our restated certificate of incorporation and restated bylaws could make the acquisition of Glu and the removal
of incumbent directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to negotiate with us
first.
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, the
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 that the person became an interested stockholder,
subject to exceptions, unless the business combination or the transaction in which the person became an interested stockholder is approved by our board of directors in a prescribed manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporations voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders.
Restated Certificate of Incorporation and Restated Bylaw Provisions
Our restated certificate of incorporation and our restated bylaws include a number of provisions that may have the effect of deterring hostile
takeovers or delaying or preventing changes in control of Glu, including the following:
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Board of Directors Vacancies.
Our restated certificate of incorporation and restated bylaws authorize only our board of directors to fill vacant directorships. In addition, the number of
directors constituting our board of directors may be set only by resolution adopted by a majority vote of our entire board of directors. These provisions prevent a stockholder from increasing the size of our board of directors and gaining control of
our board of directors by filling the resulting vacancies with its own nominees.
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Classified Board.
Our restated certificate of incorporation and restated bylaws provide that our board of directors is classified into three classes of directors. The existence of a
classified board of directors could delay a successful tender offeror from obtaining majority control of our board of directors, and the prospect of such delay may deter a potential offeror.
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Stockholder Action; Special Meeting of Stockholders.
Our restated certificate of incorporation provides that our
stockholders may not take action by written consent, but may take action only at annual or special meetings of our stockholders. Stockholders will not be permitted to cumulate their votes for the election of directors. Our restated bylaws further
provide that special meetings of our
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stockholders may be called only by our chairman of the board, our chief executive officer, our president, a majority of our board of directors or our lead independent director, if any.
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Advance Notice Requirements for Stockholder Proposals and Director Nominations.
Our restated bylaws provide advance notice procedures for stockholders seeking to bring business before our
annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also specify certain requirements as to the form and content of a stockholders notice. These
provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
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Issuance of Undesignated Preferred Stock.
As described above, our board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of
undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissued shares of preferred stock enables our board of directors to render
more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
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