As filed with the Securities and Exchange Commission on December 11, 2001
Registration No. 333-70226
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ACCLAIM ENTERTAINMENT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-2698904
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
--------------------------------------------------------------------------
(Address and telephone number of registrant's principal executive offices)
Gregory E. Fischbach
Chief Executive Officer
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
---------------------------------------------------------
(Name, address and telephone number of agent for service)
Copy to:
Eric M. Lerner, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Telephone: (212) 940-8800
---------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class of Proposed maximum Proposed maximum Amount of
security to be registered Amount to be registered aggregate price per unit aggregate offering price registration fee
- ------------------------- ----------------------- ------------------------ ------------------------ ----------------
Common Stock, par value
$0.02 per share.......... 9,898,106(1) $5.55 $54,934,488 (2) $13,130
(1) To be offered from time to time by selling stockholders based upon
prevailing market prices.
(2) The proposed maximum aggregate price per unit was estimated pursuant to
Rule 457(c) promulgated under the Securities Act of 1933, solely for the
purpose of determining the registration fee, based on the average of high
and low prices of the registrant's common stock as quoted on The Nasdaq
Small Cap Market System on December 7, 2001. This amount has been paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendement which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED DECEMBER 11, 2001
PROSPECTUS
--------------------------------
ACCLAIM ENTERTAINMENT, INC.
9,898,106 SHARES OF COMMON STOCK
This prospectus covers the resale of 9,898,106 shares of Acclaim's common stock
by the selling stockholders named in this prospectus. Acclaim will not receive
any proceeds from the sale of any shares by the selling stockholders. See
"Selling Stockholders" and "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 1 FOR A DISCUSSION OF INVESTMENT
RISK FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON
STOCK OFFERED AND SOLD BY THIS PROSPECTUS.
Our common stock is traded on The Nasdaq Small Cap Market System under
the symbol "AKLM." On December 7, 2001, the last reported sale price
of the common stock was $5.75 per share.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
December __, 2001
TABLE OF CONTENTS
Page Number
RISK FACTORS..............................................................1
INFORMATION ABOUT ACCLAIM................................................12
USE OF PROCEEDS..........................................................14
SELLING STOCKHOLDERS.....................................................15
PLAN OF DISTRIBUTION.....................................................19
LEGAL PROCEEDINGS........................................................21
LEGAL MATTERS............................................................22
EXPERTS..................................................................22
FORWARD-LOOKING STATEMENTS...............................................22
WHERE YOU CAN FIND MORE INFORMATION......................................23
INFORMATION NOT REQUIRED IN PROSPECTUS...................................25
- -7
i
RISK FACTORS
Our future operating results depend upon many factors and are subject
to various risks and uncertainties. The known material risks and uncertainties
which may cause our operating results to vary from anticipated results or which
may negatively affect our operating results and profitability are as follows:
LIQUIDITY AND MEETING CASH REQUIREMENTS ARE DEPENDENT ON ACHIEVING TIMELY
PRODUCT RELEASES AND SALES OBJECTIVES; IF CASH FLOWS FROM OPERATIONS ARE NOT
SUFFICIENT TO MEET OUR NEEDS, WE MAY BE FORCED TO SELL ASSETS, REFINANCE DEBT,
OR FURTHER DOWNSIZE OPERATIONS
If we do not substantially achieve the overall projected revenue levels
for fiscal 2002 as reflected in our business operating plans and do not receive
the ongoing support of our primary lender and our vendors, we will have
insufficient liquidity in fiscal 2002, and either will require additional
financing to fund operations or will need to make further significant expense
reductions including, without limitation, the sale of assets or the
consolidation of operations, staff reductions, and/or the delay, cancellation or
reduction of certain product development and marketing programs. Some of these
measures will require third-party consents or approvals, including that of our
primary lender, and there can be no such assurance that such consents or
approvals can be obtained.
Based on the ongoing interim support provided by our primary lender
from time to time in the form of periodic supplemental loans, the ongoing
support of our vendors, the net proceeds from our July 2001 private placement of
$31.5 million of common stock and anticipated positive cash flow from operations
at levels assuming we meet our sales forecast by successfully achieving our
planned product release schedule, we expect to meet our currently projected cash
and operating requirements for the next twelve months, including the repayment
of our remaining 10% convertible subordinated notes due March 2002 ($28.1
million principal amount, plus interest) at maturity. If we do not achieve the
cash flow anticipated from our product release schedule and sales assumptions or
do not continue to receive the support of our primary lender and vendors, there
can be no assurance that we will be able to meet our cash requirements or be
able to arrange additional financing on satisfactory terms, if at all.
Additionally, we cannot assure our investors that our future operating cash
flows will be sufficient to meet our operating requirements, our debt service
requirements or to repay our indebtedness at maturity including, without
limitation, repayment of our remaining 10% convertible subordinated notes. If
this were to occur, and our primary lender determined not to provide further
interim support and/or to seek available remedies, our operations and liquidity
would be materially adversely affected and we could be forced to cease
operations.
Although the actions we have taken have contributed in returning our
annual operations to profitability in fiscal 2001, we cannot assure our
shareholders and investors that we will achieve profitability or the sales
necessary to avoid further expense reductions in fiscal 2002. See "Industry
Trends, Console Transitions and Technological Change May Adversely Affect Our
Revenues and Profitability" below.
GOING CONCERN CONSIDERATION
At August 31, 2001, our independent auditors' report, as prepared by
KPMG LLP and dated October 23, 2001, which appears in our 2001 Form 10-K,
includes an explanatory paragraph relating to substantial doubt as to our
ability to continue as a going concern, due to our working capital and
stockholders' deficits at August 31, 2001 and the recurring use of cash in
operating activities.
ABILITY TO SERVICE DEBT AND PRIOR RIGHTS OF CREDITORS MAY ADVERSELY AFFECT
HOLDERS OF COMMON STOCK
If our cash from operations and projected cash flow for the first half
of fiscal 2002 are insufficient to make interest and principal payments on our
notes, which are due March 1, 2002, we may have to restructure our
indebtedness. We cannot guarantee that we will be able to restructure or
refinance our debt on satisfactory terms, or obtain permission to do so under
the terms of our existing indebtedness. We cannot assure investors that our
future operating cash flows will be sufficient to meet our debt service
requirements or to repay our indebtedness at maturity. Our failure to meet these
obligations could result in defaults being declared by our primary lender, and
our primary lender seeking its remedies, including immediate repayment of the
debt and/or foreclosure on collateral, which could cause us to become insolvent
or cease operations.
In order to meet our debt service obligations, from time to time we
also depend on dividends, advances and transfers of funds from our subsidiaries.
State and foreign law regulate the payment of dividends by these subsidiaries,
which is also subject to the terms of our revolving credit and security
agreement with our primary lender and the indenture governing our remaining 10%
converted subordinated notes. A significant portion of our assets, operations,
trade payables and indebtedness is located among these foreign subsidiaries. The
creditors of the subsidiaries would generally recover from these assets on the
obligations owed to them by the subsidiaries before any recovery by our
creditors and before any assets are distributed to stockholders.
A VIOLATION OF OUR FINANCING ARRANGEMENTS COULD RESULT IN OUR PRIMARY LENDER
DECLARING DEFAULT AND SEEKING REMEDIES
If we violate the financial or other covenants contained in the
revolving credit and security agreement with our primary lender or in the
indenture governing the remaining 10% convertible subordinated notes, we will be
in default under the revolving credit and security agreement and/or the
indenture. If a default occurs under the revolving credit and security agreement
and is not timely cured or waived by our primary lender, our primary lender
could seek remedies against us, including: (1) penalty rates of interest; (2)
immediate repayment of the debt; and/or (3) the foreclosure on any assets
securing the debt. Pursuant to the terms of the revolving credit and security
agreement, we are required to maintain specified levels of working capital and
tangible net worth, among other covenants. As of August 31, 2001, we received
waivers from our primary lender with respect to those financial covenants
contained in the revolving credit and security agreement for which we were not
in compliance.
2
We are presently negotiating with our primary lender amendments to the
revolving credit and security agreement, including the financial covenants
contained in the agreement. We believe that we will be in compliance with the
financial covenants in the agreement, as amended, in the near term and for the
next twelve months. We, however, cannot make any assurances that the agreement
will be amended, and if amended, that we will be able to comply with the amended
financial covenants. If waivers from our primary lender are necessary in the
future, we cannot assure that we will be able to obtain waivers of any future
covenant violations as we have in the past. If we are liquidated or reorganized,
after payment to the creditors, there are likely to be insufficient assets
remaining for any distribution to our stockholders.
REVENUES AND LIQUIDITY ARE DEPENDENT ON TIMELY INTRODUCTION OF NEW TITLES
The timely shipment of a new title depends on various factors,
including the development process, debugging, approval by hardware licensors,
and approval by third-party licensors. It is likely that some of our titles will
not be released in accordance with our operating plans. Because net revenues
associated with the initial shipments of a new product generally constitute a
high percentage of the total net revenues associated with the life of a product,
a significant delay in the introduction of one or more new titles would
negatively affect sales and have a negative impact on our financial condition,
liquidity and results of operations, as was the case in fiscal 2000 and 2001. We
cannot assure stockholders that our new titles will be released in a timely
fashion in accordance with our business plan.
The average life cycle of a new title generally ranges from less than
three months to upwards of twelve to eighteen months, with the majority of sales
occurring in the first thirty to one hundred and twenty days after release.
Factors such as competition for access to retail shelf space, consumer
preferences and seasonality could result in the shortening of the life cycle for
older titles and increase the importance of our ability to release new titles on
a timely basis. Therefore, we are constantly required to introduce new titles in
order to generate revenues and/or to replace declining revenues from older
titles. In the past, we experienced delays in the introduction of new titles,
which have had a negative impact on our results of operations. The complexity of
next-generation systems has resulted in higher development expenses, longer
development cycles, and the need to carefully monitor and plan the product
development process. If we do not introduce titles in accordance with our
operating plans for a period, our results of operations, liquidity and
profitability in that period could be negatively affected.
INDUSTRY TRENDS, CONSOLE TRANSITIONS AND TECHNOLOGICAL CHANGE MAY ADVERSELY
AFFECT OUR REVENUES AND PROFITABILITY
The life cycle of existing game systems and the market acceptance and
popularity of new game systems significantly affects the success of our
products. We cannot guarantee that we will be able to predict accurately the
life cycle or popularity of each system. If we (1) do not develop software for
games consoles that achieve significant market acceptance; (2) discontinue
development of software for a system that has a longer-than-expected life cycle;
(3) develop software for a system that does not achieve significant popularity;
or (4) continue development
3
of software for a system that has a shorter-than-expected life cycle, we will
experience losses from operations.
In addition, the cyclical nature of the video and computer games
industry requires us to continually adapt software development efforts to
emerging hardware systems. The industry is currently in the midst of a hardware
transition from 32-bit and 64-bit to 128-bit game consoles such as Sony's
PlayStation 2, Nintendo's GameCube and Microsoft's Xbox. No assurance can be
given that these new game consoles will achieve commercial success similar to
and/or consistent with the previous level of installed bases of the 32-bit
PlayStation or 64-bit N64, nor can any assurances be made as to the timing of
their success. In early 2001, Sega announced its plans to exit the hardware
business, cease distribution and sales of its Dreamcast console and re-deploy
its resources to develop software for multiple consoles. In addition, we cannot
guarantee that we will be successful in developing and publishing software for
these new systems. Further, we have no control over the release dates of new
game systems or the number of units that will be shipped upon such release. It
is difficult to ensure that the our schedule for releasing new titles will
coincide with the release of the corresponding game systems. Additionally, if
fewer than expected units of a new game system are produced or shipped, such as
recently occurred with Sony's PlayStation 2, we may experience
lower-than-expected sales.
OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO RELEASE "HIT" TITLES
The market for software is "hits" driven. Therefore, our future success
depends on developing, publishing and distributing "hit" titles for popular
systems. If we do not publish "hit" titles in the future, our financial
condition, results of operations and profitability could be negatively affected,
as has occurred in the past. It is difficult to predict consumer preferences for
titles, and few titles achieve sustained market acceptance. We cannot assure
stockholders that we will be able to publish "hit" titles in the future.
IF PRODUCT RETURNS, PRICE CONCESSIONS AND ADJUSTMENTS EXCEED ALLOWANCES, WE
MAY INCUR LOSSES
In the past, during platform transitions, we have had to increase
price concessions granted to our retailer customers. Coupled with more
competitive pricing, if our allowances for returns and price concessions are
exceeded, our financial condition and results of operations will be negatively
impacted, as has occurred in the past. We grant price concessions to our key
customers who are major retailers that control the market access to the
consumer, when those concessions are necessary to maintain our relationships
with the retailers and access to our retail channel customers. If the consumers'
demand for a specific title falls below expectations or significantly declines
below previous rates of sale, then, a price concession or credit may be
negotiated to spur further sales.
Management makes significant estimates and assumptions regarding
allowances for estimated product returns and price concessions in preparing the
financial statements. Management establishes at the time of product shipment,
taking into account the potential for product returns and price concessions
based primarily on: market acceptance of products in retail and distributor
inventories; level of retail inventories; seasonality; and historical return and
price adjustment rates. Management monitors and adjusts these allowances
throughout the year to take into account actual developments and results in the
4
marketplace. We believe that at August 31, 2001, our allowances for future
returns and price concessions were adequate, but we cannot guarantee the
adequacy of our current or future allowances.
IF WE ARE UNABLE TO OBTAIN OR RENEW LICENSES FROM HARDWARE DEVELOPERS, WE WILL
NOT BE ABLE TO RELEASE SOFTWARE FOR POPULAR SYSTEMS
We are substantially dependent on each hardware developer (1) as the
sole licensor of the specifications needed to develop software for its game
system; (2) as the sole manufacturer (Nintendo and Sony software) of the
software developed by us for its game systems; (3) to protect the intellectual
property rights to their game consoles and technology, and (4) to discourage
unauthorized persons from producing software for its game systems.
Substantially all of our revenues have historically been derived from
sales of software for game systems. If we cannot obtain licenses to develop
software from developers of popular interactive entertainment game consoles or
if any of our existing license agreements are terminated, we will not be able to
release software for those systems, which would have a negative impact on our
results of operations and profitability. Although we cannot assure stockholders
that when the term of existing license agreements end we will be able to obtain
extensions or that we will be successful in negotiating definitive license
agreements with developers of new systems, to date we have always obtained
extensions or new agreements with the hardware companies.
We have recently completed our negotiation with Nintendo regarding a
license relating to the development and distribution of software for Game Boy
Advance in Australia, Europe and New Zealand, and execution of this license
agreement is expected shortly. Until that time, we will develop and distribute
Game Boy Advance software under our customary and usual arrangements with
Nintendo. We cannot give any assurance that those agreements will be executed by
Nintendo or that Nintendo will continue to allow us to develop and distribute
Game Boy Advance software for those territories under such arrangements. In such
event, our operations would be adversely affected.
Our revenue growth may also be dependent on constraints the hardware
companies impose. If new license agreements contain product quantity
limitations, our revenue and profitability may be negatively impacted.
In addition, when we develop software titles for systems offered by
Sony and Nintendo, the products are manufactured exclusively by that hardware
manufacturer. Since each of the manufacturers is also a publisher of games for
its own hardware systems, a manufacturer may give priority to its own products
or those of our competitors in the event of insufficient manufacturing capacity.
We could be materially harmed by unanticipated delays in the manufacturing and
delivery of products.
PROFITABILITY IS AFFECTED BY RESEARCH AND DEVELOPMENT EXPENSE
FLUCTUATIONS DUE TO CONSOLE TRANSITIONS AND DEVELOPMENT FOR MULTIPLE CONSOLES
Our research and development expenses decreased by 31% or $17.6 million
to $39.9 million, or 20% of net sales for the year ended August 31, 2001 from
$57.4 million for the same
5
period one year ago. Although fiscal 2001 product development expenses were
lower than in fiscal 2000 due to our focus on fewer, better games, our product
development expenses may increase thereafter as a result of releasing more games
across multiple platforms and the complexity of developing games for the new
128-bit game consoles. We anticipate that our profitability will continue to be
impacted by the levels of research and development expenses relative to
revenues, and by fluctuations relating to the timing of development in
anticipation of the future platforms.
During fiscal 2000, we focused our development efforts and costs on
N64, PlayStation, PlayStation 2, Xbox and Dreamcast, while incurring incremental
costs in the development of tools and engines necessary for the new platforms.
Our fiscal 2002 release schedule is developed around PlayStation 2, GameCube,
Xbox, Game Boy Advance and PCs. The release schedule for fiscal 2002 will also
continue to support certain legacy systems, such as PlayStation, on a limited
basis through a select group of independent software developers.
INABILITY TO PROCURE COMMERCIALLY VALUABLE INTELLECTUAL PROPERTY LICENSES MAY
PREVENT PRODUCT RELEASES OR RESULT IN REDUCED PRODUCT SALES
Our titles often embody trademarks, trade names, logos, or copyrights
licensed by third parties, such as the NBA, the NFL and MLB and their respective
players' associations. We may not be successful in acquiring or renewing
licenses to property rights with significant commercial value. The loss of one
or more of these licenses would prevent us from releasing a title or limit our
economic success. Based on factors such as our product release strategy,
financial resources and the economic viability of such products, licenses
relating to South Park, WWF and ECW software were not renewed or were
terminated. For example, our license for the WWF properties expired in November
1999 and was not renewed. Sales of titles using WWF properties aggregated 0% of
gross revenues for the fiscal year ended August 31, 2001 as compared to 11% for
the fiscal year ended August 31, 2000. As a result of ECW's bankruptcy in fiscal
2000 we are not able to utilize the ECW license. Sales of titles using ECW
properties aggregated 10% of gross revenues during that year. Our license for
the South Park properties was terminated in September 2000 following product
disagreements with Comedy Partners. Sales of titles using South Park properties
aggregated less than 1% and 8% of gross revenues in fiscal 2001 and 2000,
respectively. Accordingly, we cannot assure stockholders that our licenses will
be extended on reasonable terms or at all. See "Legal Proceedings."
License agreements relating to these rights generally extend for a term
of two to three years. The agreements are terminable upon the occurrence of a
number of factors, including our material breach of the agreement, failure to
pay amounts due to the licensor in a timely manner, or a bankruptcy or
insolvency.
COMPETITION FOR MARKET ACCEPTANCE AND RETAIL SHELF SPACE, PRICING COMPETITION,
AND COMPETITION WITH THE HARDWARE MANUFACTURERS, AFFECTS OUR REVENUE AND
PROFITABILITY
The video and computer games market is highly competitive. Only a small
percentage of titles introduced in the market achieve any degree of sustained
market acceptance. If our titles
6
are not successful, our operations and profitability will be negatively
impacted. We cannot guarantee that our titles will compete successfully.
Competition in the video and computer games industry is based primarily
upon:
o availability of significant financial resources;
o the quality of titles;
o reviews received for a title from independent reviewers who publish
reviews in magazines, websites, newspapers and other industry
publications;
o publisher's access to retail shelf space;
o the success of the game console for which the title is written;
o the price of each title;
o the number of titles then available for the system for which each
title is published; and
o the marketing campaign supporting a title at launch and through its
life.
Our chief competitors are the developers of games consoles, to whom we
pay royalties and/or manufacturing charges, as well as a number of independent
software publishers licensed by the hardware developers, such as Electronic
Arts, Activision and Konami.
The hardware developers have a price, marketing and distribution
advantage with respect to software marketed by them. Our competitors vary in
size from very small companies with limited resources to very large corporations
with greater financial, marketing and product development resources, such as
Sony, Nintendo and Microsoft.
As each game system cycle matures, significant price competition and
reduced profit margins result as we experienced in fiscal 2000. In addition,
competition from new technologies may reduce demand in markets in which we have
traditionally competed. As a result of prolonged price competition and reduced
demand as a result of competing technologies, our operations and liquidity have
been, and in the future could continue to be, negatively impacted.
REVENUES VARY DUE TO THE SEASONAL NATURE OF VIDEO AND COMPUTER GAMES SOFTWARE
PURCHASES
The video and computer games industry is highly seasonal. Typically,
net revenues are highest in the last calendar quarter, decline in the first
calendar quarter, are lower in the second calendar quarter and increase in the
third calendar quarter. The seasonal pattern is due primarily to the increased
demand for software during the year-end holiday selling season and the reduced
demand for software during the summer months. Our earnings vary significantly
and are materially affected by releases of "hit" titles and, accordingly, may
not necessarily reflect the seasonal patterns of the industry as a whole. We
expect that operating results will continue to fluctuate significantly in the
future. See "Fluctuations in Quarterly Operating Results Lead to
Unpredictability of Revenues and Income" below.
7
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS LEAD TO UNPREDICTABILITY OF REVENUES
AND INCOME
The timing of release of new titles can cause material quarterly
revenues and earning fluctuations. A significant portion of revenues in any
quarter is often derived from sales of new titles introduced in that quarter or
in the immediately preceding quarter. If we are unable to begin volume shipments
of a significant new title during the scheduled quarter, as has been the case in
the past (including the third and fourth quarters of fiscal 2001), our revenues
and earnings will be negatively affected in that period. In addition, because a
majority of the unit sales for a title typically occur in the first thirty to
one hundred and twenty days following its introduction, revenues and earnings
may increase significantly in a period in which a major title is introduced and
may decline in the following period or in which there are no major title
introductions.
Quarterly operating results also may be materially impacted by factors,
including the level of market acceptance or demand for titles and the level of
development and/or promotion expenses for a title. Consequently, if net revenues
in a period are below expectations, our operating results and financial position
in that period are likely to be negatively affected, as has occurred in the
past.
STOCK PRICE IS VOLATILE AND STOCKHOLDERS MAY NOT BE ABLE TO RECOUP THEIR
INVESTMENT
There is a history of significant volatility in the market prices of
companies engaged in the software industry, including Acclaim. Movements in the
market price of our common stock from time to time have negatively affected
stockholders' ability to recoup their investment in the stock. The price of our
common stock is likely to continue to be highly volatile, and stockholders may
not be able to recoup their investment. If our future revenues, profitability or
product releases do not meet expectations, the price of our common stock may be
negatively affected.
IF OUR SECURITIES WERE DELISTED FROM THE NASDAQ SMALL CAP MARKET, IT MAY
NEGATIVELY IMPACT THE LIQUIDITY OF OUR COMMON STOCK
In the fourth quarter of fiscal 2000, our securities were delisted from
quotation on The Nasdaq National Market. Our common stock is currently trading
on The Nasdaq Small Cap Market. Although we meet the current listing criteria
for The Nasdaq Small Cap Market, no assurance can be given as to our ongoing
ability to meet The Nasdaq Small Cap Market maintenance requirements. In order
to obtain relisting of our common stock on The Nasdaq National Market, we must
satisfy certain quantitative designation criteria. No assurance can be given
that we will be able to meet such relisting criteria for The Nasdaq National
Market in the near future.
If our common stock was to be delisted from trading on The Nasdaq Small
Cap Market, trading, if any, in the common stock may continue to be conducted on
the OTC Bulletin Board or in the non-Nasdaq over-the-counter market. Delisting
of the common stock would result in limited release of the market price of the
common stock and limited company news coverage and could restrict investors'
interest in the common stock as well as materially adversely affect the trading
market and prices for the common stock and our ability to issue additional
securities or to secure additional financing.
8
"Penny stocks" generally are equity securities with a price of less
than $5.00 per share, which are not registered on certain national securities
exchanges or quoted on the Nasdaq system. If our common stock was delisted from
The Nasdaq Small Cap Market, it could become subject to the SEC's penny stock
rules. These rules, among other things, require broker-dealers to satisfy
special sales practice requirements, including making individualized written
suitability determinations and receiving a purchaser's written consent prior to
any transaction. In addition, under the penny stock rules, additional disclosure
in connection with trades in the common stock would be required, including the
delivery of a disclosure schedule explaining the nature and risks of the penny
stock market. Such requirements could severely limit the liquidity of the common
stock.
INFRINGEMENT COULD LEAD TO COSTLY LITIGATION AND/OR THE NEED TO ENTER INTO
LICENSE AGREEMENTS, WHICH MAY RESULT IN INCREASED OPERATING EXPENSES
Existing or future infringement claims by or against us may result in
costly litigation or require us to license the proprietary rights of third
parties, which could have a negative impact on our results of operations,
liquidity and profitability.
We believe that our proprietary rights do not infringe on the
proprietary rights of others. As the number of titles in the industry increases,
we believe that claims and lawsuits with respect to software infringement will
also increase. From time to time, third parties have asserted that some of our
titles infringed their proprietary rights. We have also asserted that third
parties have likewise infringed our proprietary rights. These infringement
claims have sometimes resulted in litigation by and against us. To date, none of
these claims has negatively impacted our ability to develop, publish or
distribute our software. We cannot guarantee that future infringement claims
will not occur or that they will not negatively impact our ability to develop,
publish or distribute our software.
9
FACTORS SPECIFIC TO INTERNATIONAL SALES MAY RESULT IN REDUCED REVENUES AND/OR
INCREASED COSTS
International sales have historically represented material portions of
our revenues and are expected to continue to account for a significant portion
of our revenues in future periods. Sales in foreign countries may involve
expenses incurred to customize titles to comply with local laws. In addition,
titles that are successful in the domestic market may not be successful in
foreign markets due to different consumer preferences. International sales are
also subject to fluctuating exchange rates and may be affected by the adoption
of a single currency in much of Europe. These and other factors specific to
international sales may result in reduced revenues and/or increased costs.
CHARTER AND ANTI-TAKEOVER PROVISIONS COULD NEGATIVELY AFFECT RIGHTS OF HOLDERS
OF COMMON STOCK
Our Board of Directors has the authority to issue shares of preferred
stock and to determine their characteristics without stockholder approval. In
this regard, in June 2000, the board of directors approved a stockholder rights
plan. If the Series B junior participating preferred stock is issued it would be
more difficult for a third party to acquire a majority of our voting stock.
In addition to the Series B preferred stock, the Board of Directors may
issue additional preferred stock and, if this is done, the rights of common
stockholders may be additionally negatively affected by the rights of those
preferred stockholders.
We are also subject to anti-takeover provisions of Delaware corporate
law, which may impede a tender offer, change in control or takeover attempt that
is opposed by the Board. In addition, employment arrangements with some members
of management provide for severance payments upon termination of their
employment if there is a change in control.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 26, 2001, we had 78,976,026 shares of common stock
issued and outstanding, of which 29,387,042 are "restricted" securities within
the meaning of Rule 144 under the Securities Act. Generally, under Rule 144, a
person who has held restricted shares for one year may sell such shares, subject
to certain volume limitations and other restrictions, without registration under
the Securities Act.
As of the date of this prospectus, 26,528,324 shares of common stock
(including those shares covered by this prospectus) are covered by effective
registration statements under the Securities Act for resale on a delayed or
continuous basis by certain of our security holders, of which 829,097 shares of
common stock are issuable upon the exercise of warrants issued in settlement of
litigation.
As of November 26, 2001, the outstanding principal amount of our 10%
convertible notes was $29.2 million, which was convertible into approximately
5,641,892 shares of common stock. Currently, as a result of recent conversions,
the outstanding principal amount of our notes is $28.1 million, which is
convertible into approximately 5,429,537 shares of common stock. Such
10
shares, if issued pursuant to the terms of the indenture and the notes, would
generally be eligible for resale pursuant to Rule 144.
A total of 4,008,383 shares of common stock are issuable upon the
exercise of warrants to purchase our common stock (not including warrants issued
in settlement of litigation).
We have also registered on Form S-8 a total of 14,236,000 shares of
common stock (issuable upon the exercise of options) under our 1988 Stock Option
Plan and our 1998 Stock Incentive Plan, and a total of 2,448,425 shares of
common stock under our 1995 Restricted Stock Plan. As of August 31, 2001,
options to purchase a total of 10,200,922 shares of common stock were
outstanding under the 1988 Stock Option Plan and the 1998 Stock Incentive Plan,
of which 7,024,115 were exercisable.
In connection with licensing and distribution arrangements,
acquisitions of other companies, the repurchase of notes and financing
arrangements, we have issued and may continue to issue common stock or
securities convertible into common stock. Any such issuance or future issuance
of substantial amounts of common stock or convertible securities could adversely
affect prevailing market prices for the common stock and could adversely affect
our ability to raise capital.
11
INFORMATION ABOUT ACCLAIM
We develop, publish, distribute and market under our brand name video
and computer games on a worldwide basis for popular interactive entertainment
consoles, such as Sony's PlayStation and PlayStation 2, Nintendo's Game Boy
Advance and GameCube and Microsoft's Xbox, and, to a lesser extent, PCs. In
fiscal 2001, we released a total of thirty-five titles for PlayStation,
PlayStation 2, Game Boy Color, Dreamcast and PCs. In fiscal 2002, we currently
plan to release a total of approximately fifty titles for PlayStation,
PlayStation 2, Game Boy Advance, GameCube, Xbox and PCs. We develop our own
software in our six development studios located in the U.S. and the U.K., which
includes a motion capture studio and a recording studio in the U.S. and contract
with independent software developers to create software for us. We distribute
our software directly through our subsidiaries in North America, the U.K.,
Germany, France, Spain and Australia. We use regional distributors in connection
with distribution in Japan and the Pacific Rim. We also distribute software
developed and published by third parties, develop and publish strategy guides
relating to our software and issue "special edition" comic magazines from time
to time to support our time valued brands, Turok and Shadow Man.
Our operating strategy is to develop and publish video and computer
game software for each of the major video game consoles and PCs. We use a brand
structure and operate our business under four separate strategic business
groups or key brands: Acclaim Games, Acclaim Sports, Acclaim Max Sports, and
Club Acclaim.
The video and computer games industry currently is characterized by
rapid technological changes mostly due to the introduction of new hardware
systems, which incorporate the latest in chip design approximately every four to
five years, by Sony, Nintendo and Microsoft. Approximately, every four to five
years the new game consoles are replaced by more technologically powerful
systems, and the software published for these new systems generally has better
sound and graphics. This is especially true for simulation games such as
sports, driving, shooting and role-playing games.
These and other factors have resulted in successive introduction of
increasingly advanced game consoles and PCs, since their first introduction in
the late 1970's with the Atari 2600. As a result of the rapid technological
shifts, no single game console or PC system has achieved long-term dominance in
the video and computer games market, although Nintendo has continued as a major
publisher and game console manufacturer since the introduction of the Nintendo
Entertainment System during the Christmas season of 1985 and Sony has been a
major publisher and game console manufacturer since the introduction of
Playstation, in fiscal 1997. Therefore, we must continually anticipate game
console cycles and our research and development group must develop software
programming tools and engines for emerging hardware systems. The video and
computer games industry began to shift systems with the introduction of Sega's
Dreamcast in the fall of fiscal 2000, and the introduction of Sony's Playstation
2 in the fall of fiscal 2001. In the U.S., in November 2001, Nintendo introduced
its next-generation game console, Gamecube, and Microsoft introduced its first
game console, Xbox.
12
We invest in the creation and development of software programming tools
that are used in the design and development of our software. We have used these
programming tools to create game engines for each of the next-generation
hardware systems. We believe that these tools and engines give us a competitive
advantage in the creation of state-of-the-art software.
Fiscal 2001 was a transition year for us; approximately 24% of our
gross revenues in fiscal 2001 were derived from software developed in our
studios. The balance was contracted through third-party software developers. In
fiscal 2002 and beyond, we anticipate that the majority of our revenues will be
derived from software developed in our own studios, through the release of our
major franchise titles, All Star Baseball, Legends of Wrestling, Extreme G 3,
NFL Quarterback Club and Turok, amongst others. We believe that our long-term
success depends on our ability to design and develop innovative interactive
entertainment products.
Our software development strategy is driven by:
o the long-term anticipated success of the next-generation systems
in the domestic and European market place;
o the user demographics of the hardware systems;
o consumer preferences; and
o the cost of developing software for the hardware systems.
Our revenues in any period are generally driven by the titles we
release in that period. We have experienced delays in the introduction of new
titles, which has had a negative impact on our operations, as well as quarterly
and annual reported financial results. It is likely that some of our future
titles will not be released in accordance with our operating plans, in which
event our results of operations and profitability in that period would be
negatively affected. See "Revenues and Liquidity Are Dependent on Timely
Introduction of New Titles."
In the first quarter of fiscal 2002, we moved our quarterly closing
dates from the Saturday closest to the last calendar day of the quarter to the
Sunday closest to the last calendar day of the quarter end. Acclaim's fiscal
year-end date (August 31) remains unchanged.
As we emerge from the current game console transition and prepare to
compete in the software market for next-generation systems, it is necessary that
we continue to meet our product release schedule, sales projections and manage
our operational expenditures at the planned levels in order to generate
sufficient liquidity to fund our operations and have the liquidity to repay our
remaining note holders at maturity (March 2002).
Our results of operations in the future will be dependent in large part
on the timing and rate of growth of the software market for 128-bit and other
emerging game systems, and our ability to identify, develop and timely publish,
in accordance with our product release schedule, software that performs well in
the marketplace.
---------------------
You should not use historical trends or factors affecting our operating
results and financial condition to anticipate results or trends in future
periods. See "Risk Factors" above. Also, you should not consider historic
financial performance as a reliable indicator of future performance.
---------------------
A Delaware corporation, Acclaim was founded in 1987. Our principal
executive offices are located at One Acclaim Plaza, Glen Cove, New York 11542,
and our main telephone number is (516) 656-5000. Our Internet website is:
http://www.acclaim.com. Information contained on our website should not be
deemed part of this prospectus.
13
USE OF PROCEEDS
Acclaim will not receive any proceeds from the sale of any of the
shares of its common stock by the selling stockholders.
14
SELLING STOCKHOLDERS
Beneficial Ownership and Other Information
The following table sets forth information with respect to the shares
of common stock beneficially held by the selling stockholders:
Shares Percent Percent
Beneficial Beneficially Owned Owned
Ownership Prior Shares Being Owned After the Before After
Name to an Offering** Offered Offering(1)** Offering Offering
- ---- ---------------- ------- ------------- -------- --------
Alexandra Global Investment 5,181,882(2) 1,000,000 4,181,882 6.56% 5.30%
Fund I, Ltd.(2)
Cumber Int'l S.A.(3) 72,000 72,000 -- * --
Cumberland Benchmarked 166,000 166,000 -- * --
Partners, L.P.(3)
Cumberland Partners(3) 622,000 622,000 -- * --
LongView Partners(3) 140,000 140,000 -- * --
Hartford MF Small Company 1,313,310 710,000 603,310 1.66% *
Fund(4)
Hartford VA Small Company 3,441,100 1,962,000 1,479,100 4.36% 1.87%
Fund(4)
John D. and Catherine T. 176,940 95,000 81,940 * *
MacArthur Foundation(4)
Quissett Partners, L.P.(4) 684,500 570,000 114,500 * *
Quissett Investors (Bermuda) 619,100 515,500 103,600 * *
L.P.(4)
Raytheon Master Pension 1,366,522 1,136,722 229,800 1.73% *
Trust(4)
WTC-CIF Emerging Growth 19,278 10,778 8,500 * *
Portfolio(4)
15
Shares Percent Percent
Beneficial Beneficially Owned Owned
Ownership Prior Shares Being Owned After the Before After
Name to an Offering** Offered Offering(1)** Offering Offering
- ---- ---------------- ------- ------------- -------- --------
n-Space, Inc.(5) 120,608 120,608 -- * --
Pequot Scout Fund, L.P.(6) 1,010,500 695,000 315,500 1.28% *
Pequot Navigator Offshore 445,500 305,000 140,500 * *
Fund, Inc.(6)
Potomac Capital Partners 350,000 350,000 -- * --
L.P.(7)
RLR Partners, L.P.(8) 652,000 417,000 235,000 * *
TGT Capital Partners LP(9) 268,334 268,334 -- * --
UBS Warburg LLC(10) 240,127 233,383 6,744 * *
Z-Axis, Ltd. (11) 208,781 208,781 -- * --
Zeke L.P.(12) 1,649,421 300,000 1,349,421 2.05% 1.85%
- ------------------------
* Less than one percent.
** Beneficial ownership calculated as of November 26, 2001 in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934 and is
based on 78,976,026 shares of common stock outstanding.
(1) Assumes that all of the shares covered by this prospectus are sold by the
selling stockholders pursuant to this prospectus. The selling stockholders
may choose to dispose of none or only a portion of the shares held by them
pursuant to this prospectus.
(2) We have been advised that Mikhail Filimonov and Dimitri Sogoloff are the
principals of Alexandra Investment Management, LLC, the investment adviser
of Alexandra Global Investment Fund I, Ltd. Information in respect of the
beneficial ownership of Alexandra Global has been derived from its Schedule
13D, dated June 18, 2001, filed on its behalf with the SEC, and updated as
a result of a subsequent purchase of common stock. Acclaim has been advised
(a) Alexandra Global exercises investment discretion with respect to
5,181,882 shares of common stock as a result of its serving as investment
manager to certain investment funds, and (b) Alexandra Global has the power
to direct the vote of 5,181,882 shares of common stock. The offer and sale
by Alexandra Global of 4,181,882 of the 5,181,882 shares is covered by a
separate registration statement filed with the SEC.
(3) We have been advised that Dipak M. Patel has voting and dispositive control
over the following entities: Cumberland Associates, LLC, the investment
adviser to Cumber Int'l S.A.; Cumberland GP LLC, the general partner of
Cumberland Benchmarked Partners,
16
L.P; LongView GP LLC, the general partner of LongView Partners; and
Cumberland GP LLC, the general partner of Cumberland Partners.
(4) We have been advised that Wellington Management Company, LLP, serves as
investment manager, investment adviser or investment sub-adviser to:
Hartford MF Small Company Fund, Hartford VA Small Company Fund, the John D.
and Catherine T. MacArthur Foundation, Quisset Partners, L.P., Quisset
Investors (Bermuda) L.P., Raytheon Master Pension Trust and WTC-CIF
Emerging Growth Portfolio. Information in respect of the beneficial
ownership of Wellington Management Company has been derived from its
Schedule 13G, dated October 18, 2001, filed on its behalf with the SEC.
Acclaim has been advised (a) Wellington exercises investment discretion
with respect to 9,007,970 shares of Acclaim's common stock as a result of
its serving as the investment adviser, investment sub-adviser or investment
manager of various client accounts (including those set forth above), and
(b) Wellington has the power to direct the vote of 8,999,440 shares of
common stock.
(5) We have been advised that Eric Dyke, Sean Purcell and Dan O'Leary are the
shareholders of n-Space, Inc.
(6) We have been advised that Pequot Capital is the Investment Manager to
Pequot Navigator Offshore Fund, Inc. and Pequot Scout Fund, L.P. The
executive officers of Pequot Capital are Messrs. Arthur J. Samberg, Daniel
C. Benton and Kevin E. O'Brien, the directors of Pequot Capital are Messrs.
Samberg, Benton and O'Brien, and the controlling shareholders are Messrs.
Samberg and Benton.
(7) We have been advised that Paul J. Solit, Managing Member of Potomac Capital
Management LLC (which is the management company for the selling
stockholder) is the natural person who has voting or dispositive control
over Potomac Capital Partners, L.P.
(8) We have been advised that Ronald Rotter is the General Partner of RLR
Partners, L.P.
(9) We have been advised that Todd Turchetta has voting and dispositive control
over TGT Capital Partners, L.P.
(10) UBS Warburg LLC is owned by UBS AG, a company listed on the New York Stock
Exchange.
(11) We have been advised that David Luntz is the controlling stockholder of
Z-Axis Ltd.
(12) Ed Antoian is the General Partner of Zeke L.P. Zeke L.P. holds a total of
1,649,421 shares of Acclaim's common stock, 500,000 of which are issuable
upon the exercise of warrants received in connection with a junior
participation transaction and which are covered by a separate registration
statement filed with the SEC.
July Private Placement
In July 2001, we issued a total of 9,335,334 shares of our common stock
to the selling stockholders (i.e., those listed above other than n-Space, Inc.,
Z-Axis, Ltd. and UBS Warburg LLC) at a price of $3.60 per share, for an
aggregate gross purchase price of $33,607,201. This prospectus covers the offer
and sale by such selling stockholders named herein of the 9,335,334 shares
issued in the July private placement. The per share price represented an
17
approximate 10% discount to the then-public trading price of the common stock.
The proceeds of the private placement wereused for ongoing product development
for the next generation video game platforms, strategic acquisitions of
additional properties, holiday season marketing and advertising campaigns, and
the reduction of outstanding liabilities.
The private placement was effected under the exemption from
registration provided under section 4(2) of the Securities Act of 1933. Because
the registration statement (of which this prospectus forms a part) was not
effective on or before September 28, 2001, we paid a penalty to each investor
equal to 1% of the purchase price paid for the stock purchased by that investor.
After September 28, 2001, for every 30 days that passed without the registration
statement being declared effective, we were required to pay to each investor an
additional amount equal to 1% of the purchase price paid for the stock purchased
by that investor. A total of approximately $1 million was paid to such
investors.
This prospectus also covers the offer and sale by UBS Warburg LLC of
the 233,383 shares issuable to UBS upon exercise of a warrant issued to UBS as
of July 30, 2001, in connection with a portion of its placement agent fee with
respect to the July private placement. The shares are issuable at any time from
time to time upon the exercise of the warrant by UBS at an exercise price of
$3.60 per share and, if not exercised in full prior to July 30, 2004, expire on
that date. This warrant (and the underlying shares issuable upon exercise) was
originally issued in July 2001 by Acclaim to UBS pursuant to the exemption from
registration provided under section 4(2) of the Securities Act of 1933.
Consultants
Of the shares covered by this prospectus, 329,389 were issued to
software developers. Acclaim entered into separate agreements with n-Space and
Z-Axis under which each of n-Space and Z-Axis develops software for Acclaim. In
June 2001, in consideration for development services rendered under these
agreements, Acclaim issued 120,608 shares of common stock to n-Space and 208,781
shares of common stock to Z-Axis, both in separately privately-negotiated
transactions pursuant to the exemption from registration provided under Section
4(2) of the Securities Act.
The shares issued to each of the selling stockholders are restricted
securities within the meaning of the Securities Act and cannot be offered for
sale without an effective registration statement covering such offer and sale or
pursuant to an applicable exemption from the registration requirements of the
Securities Act. Pursuant to the terms of the various agreements, Acclaim filed
the registration statement (of which this prospectus is a part) and will use its
best efforts to keep the registration statement effective until all of the
shares issued to the selling stockholders are disposed of by them.
Except for the placement agent services provided by UBS to Acclaim and
the software development services provided by n-Space and Z-Axis to Acclaim,
neither Acclaim nor any of its affiliates has had any material relationship with
any of the selling stockholders within the past three years.
18
PLAN OF DISTRIBUTION
The selling stockholders have not employed an underwriter for the sale
of shares by the selling stockholders. The selling stockholders may offer shares
directly or through pledgees, donees, transferees or other successors in
interest at various times:
o on The Nasdaq Small Cap Market or in any other securities market on
which Acclaim's common stock is then listed or traded,
o in negotiated transactions,
o in a combination of any of the above transactions, or
o through any other available market transaction.
The selling stockholders may offer shares at (1) fixed prices which may
be changed, (2) prices prevailing at the time of sale, (3) prices related to
such prevailing market prices, or (4) at negotiated prices. Sales on or through
The Nasdaq Small Cap Market will be effected at such prices as may be obtainable
and as may be satisfactory to the selling stockholders. No sales or
distributions other than as disclosed in this prospectus will be effected until
after this prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms of the sale or distribution. The shares held by
the selling stockholders may be sold directly or through brokers or dealers, or
in a distribution by one or more underwriters on a firm commitment or best
efforts basis. The method by which the selling stockholders' shares may be sold
include:
o a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate
the transaction;
o purchases by a broker or dealer as principal and resale by that broker
or dealer for its account under this prospectus;
o exchange distributions and/or secondary distributions in accordance
with the rules of The Nasdaq Small Cap Market;
o ordinary brokerage transactions in which the broker solicits
purchasers; and
o privately negotiated transactions.
In addition, any shares of common stock that qualify for sale under Rule 144 or
Rule 144A under the Securities Act may be sold under any such rules rather than
under this prospectus.
Brokers or dealers may receive commission or discounts from the selling
stockholders in amounts to be negotiated immediately prior to the sale.
Commission expenses and brokerage fees will be paid by the selling stockholders.
The selling stockholders and any underwriters, dealers or agents that
participate in the distribution of its shares of Acclaim's common stock may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
profit on the resale of those shares by them or any
19
discounts, commissions or adjustments received by any such underwriters, dealers
or agents may be deemed to be underwriting discounts and commissions under the
Securities Act.
Acclaim has agreed to indemnify the selling stockholders, their
officers, directors, shareholders, employees, agents, counsel, and each person
who controls each selling stockholder, as determined under applicable securities
laws, against certain kinds of liability relating to this offering. Types of
liability include liability arising from any untrue statement or alleged untrue
statement in this prospectus or the registration statement of which it is a
part, any omission or alleged omission to state a material fact within this
prospectus or the registration statement of which it is a part, and any
violation under the Securities Act or any federal or state securities law or
regulation. The selling stockholders have also agreed to indemnify Acclaim and
its officers, directors, shareholders, partners, employees, agents, counsel, and
each person who controls Acclaim, as determined under applicable securities
laws, against certain kinds of liability relating to this offering. Types of
liability include liability arising from any untrue statement or alleged untrue
statement in this prospectus or the registration statement of which it is a
part, any omission or alleged omission to state a material fact within this
prospectus or the registration statement of which it is a part, and any
violation under the Securities Act or any federal or state securities law or
regulation, to the extent any of the violations occur in connection with written
information furnished by a selling stockholder in connection with this
prospectus or the registration statement of which it is a part. However, the
total amount payable in indemnity by any selling stockholder shall not exceed
net proceeds received by the selling stockholder in the registered offering out
of which the violation arises. The parties have also agreed to make contribution
in respect of any claims or damages for which indemnification is unavailable.
Expenses of this offering related to this registration statement,
estimated at $45,000, will be borne in full by Acclaim. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling Acclaim pursuant
to the foregoing provisions, Acclaim has been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
20
LEGAL PROCEEDINGS
In the first quarter of fiscal 2001, as a result of Comedy Partners'
(South Park) repeated refusal to approve our proposed projects and designs, we
refused to make royalty payments under the license agreement, resulting in the
purported termination of the license by Comedy Partners based on our refusal. On
March 9, 2001, we settled the suit brought by Comedy Partners for $900,000,
which amount was included in accrued royalities payable at August 31, 2000 and
was paid in full in Fiscal 2001.
Pending litigation, claims and related matters at August 31, 2001
consisted of the following:
We and other companies in the entertainment industry were sued in an
action entitled James, et al. v. Meow Media, et al. filed in April 1999 in the
U.S. District Court for the Western District of Kentucky, Paducah Division,
Civil Action No. 5:99 CV96-J. The plaintiffs alleged that the defendants
negligently caused injury to the plaintiffs as a result of, in the case of
Acclaim, its distribution of unidentified "violent" video games, which induced a
minor to harm his high school classmates, thereby causing damages to plaintiffs,
the parents of the deceased individuals. The plaintiffs seek damages in the
amount of approximately $110 million. The U.S. District Court for the Western
District of Kentucky dismissed this action; however, it is currently on appeal
to the U.S. Court of Appeals for the Sixth Circuit. Oral arguments were held in
late November. We intend to defend this action vigorously.
We and other companies in the entertainment industry were sued in an
action entitled Sanders et al. v. Meow Media et al., filed in April 2001 in the
U.S. District Court for the District of Colorado, Civil Action No. 01-0728. The
complaint purports to be a class action brought on behalf of all persons killed
or injured by the shootings which occurred at Columbine High School on April 20,
1999. We are a named defendant in the action along with more than ten other
publishers of computer and video games. The complaint alleges that the video
game defendants negligently caused injury to the plaintiffs as a result of their
distribution of unidentified "violent" video games, which induced two minors to
kill a teacher related to the plaintiff and to kill or harm their high school
classmates, thereby causing damages to plaintiffs. The complaint seeks:
compensatory damages in an amount not less than $15,000 for each plaintiff in
the class, but up to $20 million for some of the members of the class; punitive
damages in the amount of $5 billion; statutory damages against certain other
defendants in the action; and equitable relief to address the marketing and
distribution of "violent" video games to children. We believe the plaintiffs'
claims are substantially similar to those dismissed by the U.S. District Court,
and are on appeal, in the James case discussed above. We filed a motion to
dismiss this action on July 9, 2001. We intend to defend this action vigorously.
We received a demand for indemnification from the defendant Lazer-Tron
Corporation in a matter entitled J. Richard Oltmann v. Steve Simon, No. 98 C1759
and Steve Simon v. J. Richard Oltmann, J Richard Oltmann Enterprises, Inc.,
d/b/a Haunted Trails Amusement Parks, and RLT Acquisitions, Inc., d/b/a
Lazer-Tron, No. A 98CA 426, consolidated as U.S. District Court Northern
District of Illinois Case No. 99 C 1055. The Lazer-Tron action involves the
assertion by plaintiff Simon that defendants Oltmann, Haunted Trails and
Lazer-Tron misappropriated plaintiff's trade secrets. Plaintiff alleges claims
for Lanham Act violations, unfair competition, misappropriation of trade
secrets, conspiracy, and fraud against all defendants, and seeks damages in
unspecified amounts, including treble damages for Lanham Act claims, and an
accounting. Pursuant to an asset purchase agreement made as of March 5, 1997, we
sold Lazer-Tron to RLT Acquisitions, Inc. Under the asset purchase agreement, we
assumed and excluded specific liabilities, and agreed to indemnify RLT for
certain losses, as specified in the asset purchase agreement. In an August 1,
2000 letter, counsel for Lazer-Tron in the Lazer-Tron action asserted that our
indemnification obligations in the asset purchase agreement applied to the
Lazer-Tron action, and demanded that we indemnify Lazer-Tron for any losses
which may be incurred in the Lazer-Tron action. In an August 22, 2000 response,
we asserted that any losses which may result from the Lazer-Tron action are not
assumed liabilities
21
under the asset purchase agreement for which we must indemnify Lazer-Tron. In a
November 20, 2000 letter, Lazer-Tron responded to Acclaim's August 22 letter and
reiterated its position that we must indemnify Lazer-Tron with respect to the
Lazer-Tron action. No other action with respect to this matter has been taken to
date.
We are also party to various litigation matters arising in the ordinary
course of business which, we believe but cannot provide assurances, will not
have a material adverse effect on our liquidity or results of operations.
LEGAL MATTERS
Rosenman & Colin LLP, 575 Madison Avenue, New York, New York 10022 has
passed upon the validity of the shares offered by this prospectus for Acclaim.
EXPERTS
The consolidated financial statements of Acclaim Entertainment, Inc.
and subsidiaries as of August 31, 2001 and 2000 and for each of the years in the
three-year period ended August 31, 2001 have been incorporated by reference in
this prospectus and in the registration statement of which it forms a part in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of that firm as experts
in accounting and auditing.
The report of KPMG LLP, dated October 23, 2001, contains an
explanatory paragraph that states that the Company has working capital and
stockholders' deficits at August 31, 2001 and a recurring use of cash in
operating activities that raises substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
FORWARD-LOOKING STATEMENTS
This prospectus includes discussions of future expectations and
contains projections of results of operations or financial condition or other
"forward-looking" information. Those statements are subject to known and unknown
risks and uncertainties that could cause actual results to differ materially
from those contemplated by the statements. For a discussion of important factors
that could cause actual results to differ materially from the forward-looking
statements, see "Risk Factors." Given the significant risks and uncertainties
inherent in the forward-looking statements included in this prospectus, the
inclusion of these statements is not a representation by us or any other person
that our objectives and plans will be achieved.
22
WHERE YOU CAN FIND MORE INFORMATION
Acclaim is required to file periodic reports, proxy and information
statements and other information with the SEC. You may read any materials filed
by us at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. You may obtain information about the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. Acclaim's SEC filings are also available
to the public on the SEC's Internet website located at http://www.sec.gov.
Acclaim has filed with the SEC a registration statement on Form S-3
under the Securities Act covering the issuance of the common stock. This
prospectus is part of that registration statement. As allowed by SEC rules, this
prospectus does not contain all of the information included in the registration
statement or in the exhibits to the registration statement. For further
information with respect to Acclaim and the securities offered by this
prospectus, you should read the registration statement and the exhibits filed
with the registration statement. You may obtain copies of the registration
statement and exhibits from the SEC upon payment of a fee prescribed by the SEC
or examine the documents, free of charge, at the public reference facilities
referred to above. A summary in this prospectus of any document filed as an
exhibit to the registration statement, although materially complete, does not
summarize all of the information in that document. You should read the exhibit
for a more complete understanding of the document or matter involved.
Acclaim has also filed the following documents with the SEC under the
Securities Exchange Act and they are incorporated into this document by
reference:
(1) Acclaim's Annual Report on Form 10-K for the fiscal year ended
August 31, 2001 as amended on December 7, 2001;
(2) Current Report on Form 8-K, filed on December 4, 2001; and
23
(3) The information regarding Acclaim's common stock contained in the
Registration Statement on Form 8-A, filed on June 8, 1988, as
amended by the Current Report on Form 8-K, filed on August 25,
1989, relating to the one-for-two reverse stock split effected by
Acclaim.
Any document Acclaim files with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
before the termination of this offering will be deemed to be incorporated by
reference into this prospectus and to be a part of this prospectus from the date
it is filed.
Acclaim will provide to each person to whom this prospectus is
delivered and who makes a written or oral request, free of charge, a copy of any
document referred to above which has been incorporated into this prospectus by
reference, except exhibits to the document. Requests for these documents should
be sent to the Secretary, Acclaim Entertainment, Inc., One Acclaim Plaza, Glen
Cove, New York 11542. Telephone requests for copies should be made to the
Secretary at (516) 656-5000.
You should rely only on the information provided in this prospectus or
incorporated by reference into this prospectus. No person has been authorized to
provide you with different information and you should not rely on any
information you receive or representations made that are not contained in, or
incorporated by reference into, this prospectus.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
The information in this prospectus is accurate as of the date on the
front cover. You should not assume that the information contained in this
prospectus is accurate after the date on the cover page.
24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Acclaim will bear all expenses in connection with the preparation and
filing of this registration statement. Brokers or dealers may receive commission
or discounts from the selling stockholders in amounts to be negotiated
immediately prior to the sale; commission expenses and brokerage fees will be
paid by the selling stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article VII of Acclaim's by-laws, which are incorporated herein
by reference, Acclaim agrees to hold harmless and indemnify any of its officers,
directors, employees and agents from and against any judgments, fines,
liabilities, or amounts paid in settlement as a result of or in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative. Such action, suit, or proceeding must
have been initiated against the indemnified party in his or her capacity as an
officer, director, employee or agent of Acclaim. However, indemnification will
only be paid if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Acclaim
and, in the case of a criminal proceeding, had no reasonable cause to believe
such conduct was unlawful. No indemnification shall be payable under this
provision if a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
II-1
ITEM 16. EXHIBITS
Exhibit
Number Description
- ------ -----------
4.1 -- Indenture dated as of February 26, 1997 between the Company and
IBJ Schroder Bank & Trust Company, as trustee (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form
8-K, filed on March 14, 1997)
4.2 -- Specimen form of the Company's common stock certificate
(incorporated by reference to Exhibit 4 to the Company's Annual
Report on Form 10-K for the year ended August 31, 1989, as
amended)
4.3 -- Rights Agreement dated as of June 5, 2000, between the Company
and American Securities Transfer & Trust, Inc. (incorporated by
reference to Exhibit 4 of the Company's Current Report on
Form 8-K, filed on June 12, 2000)
4.4 -- Form of Share Purchase Agreement between the Company and certain
purchasers relating to the 2001 Private Placement (incorporated
by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 filed on September 26, 2001 (Commission
File No. 333-70226))
4.5 -- Form of Registration Rights Agreement between the Company and
certain purchasers relating to the 2001 Private Placement
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 filed on September 26, 2001
(Commission File No. 333-70226))
5 -- Opinion of Rosenman & Colin LLP (filed herewith)
23.1 -- Consent of KPMG LLP (filed herewith)
23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5)
24.1 -- Power of Attorney (included on page II-5 of the Company's
Registration Statement on Form S-3 filed on April 16, 2001
(Commission File No. 333-59048))
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement to include any material information with respect to the
plan of distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering hereof.
II-2
The undersigned registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Nassau and State of New York on December 10, 2001.
ACCLAIM ENTERTAINMENT, INC.
By /s/ James R. Scoroposki
-----------------------
James. R. Scoroposki
Co-Chairman of the Board,
Senior Executive Vice President,
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James R. Scoroposki Co-Chairman of the Board; Senior Executive December 10, 2001
- --------------------------------------- Vice President, Secretary and Treasurer
James R. Scoroposki
December 10, 2001
/s/ Gerard F. Agoglia Chief Financial Officer and Executive Vice
- --------------------------------------- President; Chief Financial and Accounting
Gerard F. Agoglia Officer
II-4