Atari 2009 Annual Report Download - page 49

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
49
On October 18, 2007, funds affiliated to BlueBay High Yield Investments (Luxembourg) SARL, a Company director,
bought out loans outstanding previously extended by Guggenheim Corporate Funding LLC to Atari Inc., with an
aggregate value of USD 3 million. On October 23, 2007, Atari Inc. secured a credit facility of USD 10 million from
BlueBay High Yield Investments (Luxembourg) SARL, a Company director. The facility expires December 31, 2009 and
replaces the Guggenheim Corporate Funding LLC facility. The credit facility was increased to USD 14 million by way of
an addendum dated December 4, 2007. As part of the ORANE-BSA issue carried out in January 2009 the Company
undertook to pay off the €14 million loan granted by BlueBay to Atari Inc. under this facility. This loan was therefore fully
repaid as of March 31, 2009.
As of March 31, 2009, BlueBay Asset Management held 31.17% of the Company‟s shares and 31.14% of the voting
rights, on behalf of the BlueBay Value Recovery (Master) Fund and the BlueBay Multi-Strategy (Master) Fund Limited,
both of which it manages. BlueBay Asset Management also held 1,663,292 warrants issued in 2009 (exercisable for
1,663,292 shares), 1,327,731 ORANE bonds issued in 2009 and exchanged as part of the public exchange offer in
January 2009 (exercisable for 22,571,426 shares) and 342,095 ORANE bonds issued in 2009 and acquired as part of
the issue of ORANE bonds with warrants attached (ORANE-BSA) in January 2009 (exercisable for 8,983,414 shares).
During the fiscal year, BlueBay Asset Management Plc. and BlueBay High Yield Investments (Luxembourg) SARL were
members of the Company's Board of Directors. As of May 25, 2009, only BlueBay Value Recovery (Master) Fund Limited
was a member of the Board of Directors.
The fact that companies belonging to the same group are, at the same time, a principal shareholder, a director and a
major creditor of the Company is liable to give rise to conflicts of interest.
It should also be noted that Frank E. Dangeard is Chairman of the Board of Directors and BlueBay‟s special advisor and
that Jeff Lapin is the Company‟s Chief Operating Officer and BlueBay Value Recovery (Master) Fund Limited‟s
representative on the Board of Directors.
Risks related to the enforcement of guarantees provided by the Group
See Note 13.4 to the consolidated financial statements.
In connection with short- and medium-term financing provided to the Company and its European and Asian subsidiaries
within the framework of the refinancing of its bank debt, in April 2006 the Group had to renew and provide guarantees
and senior pledges to Banc of America, involving essential assets of the Group (securities accounts, shares, industrial
property rights, intragroup receivables).
Should the Group default on the debt, Banc of America could enforce guarantees securing it, which would very
significantly reduce the Group's assets and jeopardize its ability to continue as a going concern.
Under the seventh and eighth amendments to the April 21, 2006 credit agreement with Banc of America, dated
February 27, 2009 and March 31, 2009, respectively, the Company provided additional security interests and confirmed
the security interests given earlier and extended their application to new outstanding amounts for a maximum amount of
€61.8 million.
The extension of the guarantees given significantly increases the risk of a reduction in the Company‟s assets, as referred
to above.
RISKS RELATED TO THE GROUP’S ABILITY TO DISTRIBUTE DIVIDENDS
The Company did not pay out dividends for fiscal year 2008-2009 and does not envisage paying any in the near future.
Its ability to distribute dividends depends on the distributable earnings generated (which depend in turn on its operating
income, cash balances and financial position). In addition, certain financing agreements to which the Company is a party
prohibit or limit the payment of dividends under certain circumstances.
CONTRACTUAL RISKS
Risks related to licenses
The Group does not hold title to all of the assets it needs to conduct its business. It depends to a large extent on
licensing agreements for themes (characters, stories, trademarks, etc.). The success of its publishing business is largely
dependent on its ability to acquire intellectual property and to develop it in full compliance with applicable agreements.
Accordingly, apart from financial considerations, the term and renewal of licenses for themes obtained by the Group
depend on the conditions applicable to the reproduction and exploitation of the theme features concerned. In particular,
the Group is bound by confidentiality rules concerning the technology of patent holders and the financial terms of
contracts signed with them.
Given the fact that no single license used by the Group accounted for more than 20% of consolidated revenue in fiscal
year 2008-2009, the Group considers that the loss of a license (non-renewal or cancellation) would not by itself have a
material impact on the Group's business or income. Nevertheless, the simultaneous loss of several licenses would be
likely to have a material adverse impact on the Group's financial position, business and income if such loss was not
offset by new licenses with an equivalent economic impact on its business.