As Filed With the Securities and Exchange Commission on April 17, 2001
Registration No. 333-_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
__________
INTERPLAY ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0102707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16815 Von Karman Avenue, Irvine, California 92606
(949) 553-6655
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
__________
Brian Fargo
Interplay Entertainment Corp.
16815 Von Karman Avenue
Irvine, California 92606
(949) 553-6655
(Name, address, including zip code, and telephone number,
including area code of agent for service)
Copy to:
K.C. Schaaf, Esq.
Jeffrey B. Coyne, Esq.
Stradling Yocca Carlson & Rauth,
A Professional Corporation
660 Newport Center Drive
Newport Beach, California 92660
Approximate date of commencement of proposed sale to 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, 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
- ---------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of securities to Amount to offering price per aggregate offering Amount of
be registered be registered share (1) price registration fee
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 8,126,770 $1.33 $10,808,604 $2,702
par value shares
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 8,126,770 $1.33 $10,808,604 $2,702
par value, issuable shares
upon exercise of
Warrants
- ---------------------------------------------------------------------------------------------------------------------
Totals 16,253,540 shares $1.33 $21,617,208 $5,404
- ---------------------------------------------------------------------------------------------------------------------
(1) The offering price is estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c) using the average of the
high and low price reported by the Nasdaq National Market for the Common
Stock on April 11, 2000, which was approximately $1.33 per share.
PROSPECTUS
INTERPLAY ENTERTAINMENT CORP.
16,253,540 Shares of Common Stock
($0.001 par value)
_________
This prospectus relates to the offer and sale from time to time of up to
16,253,540 shares of our Common Stock that are held by certain of our current
stockholders named in this prospectus for their own benefit or by donees,
transferees, pledgees or other successors in interest of such stockholders that
receive such shares as a gift or other non-sale related transfer. Certain of the
shares of our Common Stock offered pursuant to this prospectus were originally
issued to the selling stockholders in connection with private placements of our
shares to those stockholders pursuant to a common stock subscription agreement
we entered into with those stockholders, and certain shares are issuable to the
Selling Stockholders pursuant to the exercise of common stock purchase warrants
issued to the Selling Stockholders in connection with such private placements.
The prices at which such stockholders may sell the shares in this offering
will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive any of the proceeds from the sale
of the shares. We will bear all expenses of registration incurred in connection
with this offering. The stockholders whose shares are being registered hereby
will bear all selling and other expenses.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"IPLY." On April 12, 2001, the last reported sale price of our Common Stock was
$1.33 per share.
See "Risk Factors" beginning on page 3 to read about the risks you should
consider carefully before buying shares of our Common Stock.
_________
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement containing this
prospectus, which has been filed with the Securities and Exchange Commission, is
declared effective. 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.
_________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
_________
The date of this Prospectus is April 17, 2001.
TABLE OF CONTENTS
Page
About Interplay............................................................ 1
Risk Factors............................................................... 2
Where You Can Find Additional Information.................................. 16
Use of Proceeds............................................................ 17
Selling Stockholders....................................................... 17
Plan of Distribution....................................................... 18
Legal Matters.............................................................. 19
Experts.................................................................... 19
SOME OF THE STATEMENTS CONTAINED IN THIS PROSPECTUS DISCUSS FUTURE EXPECTATIONS,
CONTAIN PROJECTIONS OF RESULTS OF OPERATIONS OR FINANCIAL CONDITION OR STATE
OTHER "FORWARD-LOOKING" INFORMATION. SUCH STATEMENTS CAN BE IDENTIFIED BY THE
USE OF "FORWARD-LOOKING" TERMINOLOGY, SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "CONTINUE" OR OTHER SIMILAR WORDS. THESE STATEMENTS
ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS THAT
COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THE STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" ON PAGE 3.
ABOUT INTERPLAY
Interplay Entertainment Corp. (sometimes referred to in this prospectus as
the "Company") is a leading developer, publisher and distributor of interactive
entertainment software for both core gamers and the mass market. We were
incorporated in the State of California in 1982 and reincorporated in the State
of Delaware in May 1998. We are most widely known for our titles in the
action/arcade, adventure/role-playing games and strategy/puzzle categories. We
have produced titles for many of the most popular interactive entertainment
software platforms, and currently balance our development efforts by publishing
interactive entertainment software for PCs and video game consoles such as the
Sony PlayStation. We release products through Interplay, Shiny Entertainment,
Digital Mayhem, Black Isle Studios, 14 degrees East, our distribution partners
and our wholly owned subsidiary Interplay OEM, Inc. We seek to publish
interactive entertainment software titles that are, or have the potential to
become, franchise software titles that can be leveraged across several releases
and/or platforms, and we have published many such successful franchise titles to
date. In addition, we secure licenses to use popular intellectual properties,
such as Star Trek, Caesars Palace and Advanced Dungeons & Dragons, for
incorporation into certain of our products. Our executive offices are located
at 16815 Von Karman Avenue, Irvine, California 92606, and our telephone number
is (949) 553-6655.
RISK FACTORS
In evaluating an investment in our Common Stock, you should carefully
consider the following risk factors and other information contained in or
incorporated by reference into this prospectus. Some information in this
prospectus may contain "forward looking" statements that discuss future
expectations of our financial condition and results of operations. The risk
factors noted in this section and other factors could cause our actual results
to differ materially from those contained in any forward-looking statements.
We may need to raise additional capital in the future.
We used net cash in operations of $23.2 million and $26.4 million during the
years ended December 31, 2000 and 1999, respectively. At December 31, 2000, our
working capital was $123,000. We cannot assure you that we will ever generate
positive cash flow from operations. Our ability to fund our capital
requirements out of our available cash, bank line of credit and cash generated
from our operations depends on a number of factors. Some of these factors
include the progress of our product development programs, the rate of growth of
our business, and our products' commercial success. If we issue additional
equity securities, our existing stockholders could suffer a large amount of
dilution in their ownership. In the event we have to raise additional working
capital from other sources, we cannot assure you that we will be able to raise
additional working capital on acceptable terms, if at all. In the event we
cannot raise additional working capital, we would have to take additional
actions to continue to reduce our costs, including selling or consolidating
certain operations, delaying, canceling or scaling back product development and
marketing programs and other actions. These measures could materially and
adversely affect our ability to publish successful titles, and these measures
may not be enough to generate operating profits. We might have to get the
approval of other parties, including our new senior lender and/or Titus, for
some of these measures, and we cannot assure you that we would be able to obtain
those approvals. In addition, there is a risk that our Common Stock may be
delisted from the Nasdaq National Market (see "Continued Listing on the Nasdaq
National Market," below). If such delisting were to occur, our ability to raise
equity capital could be significantly impaired.
Our business is highly seasonal, and our operating results may fluctuate
significantly in future periods.
Our operating results have fluctuated a great deal in the past and will
probably continue to fluctuate significantly in the future, both on a quarterly
and an annual basis. Many factors may cause or contribute to these
fluctuations, and many of these factors are beyond our control. Some of these
factors include the following:
. delays in shipping our products
. demand for our products
. demand for our competitors' products
. the size and rate of growth of the market for interactive entertainment
software
. changes in PC and video game console platforms
. the number of new products and product enhancements released by us and our
competitors
. changes in our product mix
. the number of our products that are returned
. the timing of orders placed by our distributors and dealers
. the timing of our development and marketing expenditures
. price competition
. the level of our international and OEM, royalty and licensing net
revenues.
Many factors make it difficult to accurately predict the quarter in which we
will ship our products. Some of these factors include:
. the uncertainties associated with the interactive entertainment software
development process
. long manufacturing lead times for Nintendo-compatible products
2
. possible production delays
. the approval process for products compatible with video game consoles such
as those from Sony Computer Entertainment, Nintendo, Sega and Microsoft
. approvals required from content and technology licensors
. the timing of the release and market penetration of new game hardware
platforms.
Because of the limited number of products we introduce in any particular
quarter, a delay in the introduction of a product may materially and adversely
affect our operating results for that quarter, and may not be recaptured in
later quarters. Such delays have had a significant adverse effect on our
operating results in certain past quarters. A significant portion of our
operating expenses is relatively fixed, and planned expenditures are based
largely on sales forecasts. If net revenues do not meet our expectations in any
given quarter, operating results may be materially adversely affected. The
interactive entertainment software industry is highly seasonal, with the highest
levels of consumer demand occurring during the year-end holiday buying season.
As a result, our net revenues, gross profits and operating income have
historically been highest during the second half of the year. The impact of
this seasonality will increase as we rely more heavily on game console net
revenues in the future. Revenues are also materially affected by new product
releases. Our failure or inability to introduce products on a timely basis to
meet these seasonal increases in demand may have a material adverse effect on
our business, operating results and financial condition.
We may over time become increasingly affected by the industry's seasonal
patterns. Although we seek to reduce the effect of such seasonal patterns on
our business by distributing our product release dates more evenly throughout
the year, we cannot assure you that these efforts will be successful. We cannot
assure you that we will be profitable in any particular period given the
uncertainties associated with software development, manufacturing, distribution
and the impact of the industry's seasonal patterns on our net revenues.
As a result of the foregoing factors it is possible that our operating results
in one or more future periods will fail to meet or exceed the expectations of
securities analysts or investors. In that event, the trading price of our
Common Stock would likely be materially adversely affected.
We have incurred significant losses in recent periods, which may continue in the
future.
We have experienced significant net losses in recent periods, including losses
of $12.1 million and $41.7 million for the years ended December 31, 2000 and
1999, respectively. The 1999 losses resulted largely from delays in the
completion of certain products, a higher than expected level of product returns
and markdowns on products released during the year, and the cost of
restructuring our operations, including international distribution arrangements.
The 2000 losses resulted from lower than expected worldwide sales of certain
releases, as well as from operating expense levels that were high relative to
our revenue level. We may experience similar problems in current or future
periods and we may not be able to generate sufficient net revenues or adequate
working capital, or bring our costs into line with revenues, so as to attain or
sustain profitability in the future.
If we fail to introduce new products on a timely basis, or if our products
contain defects, our business could be harmed significantly.
Our products typically have short life cycles, and we depend on the timely
introduction of successful new products to generate net revenues, to fund
operations and to replace declining net revenues from older products. These new
products include enhancements of or sequels to our existing products and
conversions of previously released products to additional platforms. If in the
future, for any reason, net revenues from new products fail to replace declining
net revenues from existing products, our business, operating results and
financial condition could be materially adversely affected. The timing and
success of new interactive entertainment software product
3
releases remains unpredictable due to the complexity of product development,
including the uncertainty associated with new technology. The development cycle
of new products is difficult to predict but typically ranges from 12 to 24
months with six to 12 months for adapting a product to a different technology
platform. The success of any particular software product can also be negatively
impacted by delays in the introduction, manufacture or distribution of the
platform for which the product was developed (see "Rapidly Changing Technology;
Platform Risks"). In the past, we have frequently experienced significant delays
in the introduction of new products, including certain products currently under
development. Because net revenues associated with the initial shipments of a new
product generally constitute a high percentage of the total net revenues
associated with a product, any delay in the introduction of, or the presence of
a defect in, one or more new products expected in a period could have a material
adverse effect on the ultimate success of these products and on our business,
operating results and financial condition. The cost of developing and marketing
new interactive entertainment software has increased in recent years due to such
factors as the increasing complexity and content of interactive entertainment
software, the increasing sophistication of hardware technology and consumer
tastes and the increasing costs of obtaining licenses for intellectual
properties. We expect this trend to continue. We cannot assure you that our new
products will be introduced on schedule, if at all, or that, if introduced,
these products will achieve significant market acceptance or generate
significant net revenues for us. In addition, software products as complex as
the ones we offer may contain undetected errors when first introduced or when
new versions are released. We cannot assure you that, despite testing prior to
release, errors will not be found in new products or releases after shipment,
resulting in loss of or delay in market acceptance. This loss or delay could
have a material adverse effect on our business, operating results and financial
condition.
If our products do not achieve broad market acceptance, our business could be
harmed significantly.
Consumer preferences for interactive entertainment software are always
changing and are extremely difficult to predict. Historically, few interactive
entertainment software products have achieved continued market acceptance.
Instead, a limited number of releases have become "hits" and have accounted for
a substantial portion of revenues in our industry. Further, publishers with a
history of producing hit titles have enjoyed a significant marketing advantage
because of their heightened brand recognition and consumer loyalty. We expect
the importance of introducing hit titles to increase in the future. We cannot
assure you that our new products will achieve significant market acceptance, or
that we will be able to sustain this acceptance for a significant length of time
if we achieve it. We also cannot assure you that product life cycles will be
sufficient to permit us to recover product development and other associated
costs. Most of our products have a relatively short life cycle and sell for a
limited period of time after their initial release, usually less than one year.
We believe that these trends will continue in our industry and that our future
revenue will continue to be dependent on the successful production of hit titles
on a continuous basis. Because we introduce a relatively limited number of new
products in a given period, the failure of one or more of these products to
achieve market acceptance could have a material adverse effect on our business,
operating results and financial condition. Further, if we do not achieve market
acceptance, we could be forced to accept substantial product returns or grant
significant markdown allowances to maintain our relationship with retailers and
our access to distribution channels. For example, we had significantly higher
than expected product returns and markdowns during the year ended December 31,
1999 and we cannot assure you that higher than expected product returns and
markdowns will not continue in the future. In the event that we are forced to
accept significant product returns or grant significant markdown allowances, our
business, operating results and financial condition could be materially
adversely affected.
4
Titus Interactive SA may exert a high degree of control over our management.
Titus currently owns 12,817,255 shares, or approximately 33.5 percent, of our
outstanding Common Stock, and 719,424 shares of our Series A Preferred Stock
that currently have voting power equivalent to up to 7,619,047 shares of Common
Stock. As such, Titus currently holds approximately 44.5% of the total voting
power of our stock. Commencing June 1, 2001, Titus may convert each such share,
to the extent not previously redeemed by us, into a number of shares of our
Common Stock determined by dividing $27.80 by the lesser of (a) $2.78 and (b)
eighty-five percent (85%) of the average closing price per share as reported by
Nasdaq for the twenty (20) trading days preceding the date of conversion. Based
on the closing price of our Common Stock on April 11, 2001, the Series A
Preferred Stock would be convertible into an aggregate of approximately 17.7
million shares of our Common Stock. Titus also holds warrants for up to 460,000
shares of our Common Stock, exercisable at $3.79 per share, expiring in April
2010. In connection with Titus' investment, Herve Caen, Titus' chairman and
chief executive officer, serves as our president and as a member of our Board of
Directors, and Herve Caen's brother Eric Caen, who is president and a director
of Titus, also serves on our Board of Directors. As a consequence, Titus holds
significant voting power with respect to the election of our Board of Directors
and the right of approval of certain significant corporate actions, and Herve
Caen and Eric Caen have substantial authority over our operations. Titus may,
under certain circumstances, be able to elect as many as four of the seven
members of the Board of Directors. As such, Titus may be able to exercise a high
degree of control over our management. This control could prevent or hinder a
sale of the Company on terms that are not acceptable to Titus. Moreover, Titus
holds interests that may vary from those of the Company and its other
stockholders, and Titus may exercise its control of the Company in the
furtherance of such outside interests.
If we are unable to maintain our listing on the Nasdaq National Market, our
stock price could be harmed significantly.
Our Common Stock is currently quoted on the Nasdaq National Market under the
symbol "IPLY." For continued inclusion on the Nasdaq National Market, a company
must meet certain tests, including a minimum bid price of $1.00 and net tangible
assets of at least $4 million. As of December 31, 1999, we were not in
compliance with the minimum net tangible assets requirement, and did not return
to compliance with that requirement until April 14, 2000. We were subject to a
hearing before a Nasdaq Listing Qualifications Panel, which determined to
continue the listing of our Common Stock on the Nasdaq National Market subject
to certain conditions, all of which we have fulfilled. If we fail to satisfy the
listing standards on a continuous basis, our Common Stock may be removed from
listing on the Nasdaq National Market. If our Common Stock were delisted from
the Nasdaq National Market, trading of our Common Stock, if any, would be
conducted on the Nasdaq Small Cap Market, in the over-the-counter market on the
so-called "pink sheets" or, if available, the NASD's "Electronic Bulletin
Board." In any of those cases, investors could find it more difficult to buy or
sell, or to obtain accurate quotations as to the value of, our Common Stock.
The trading price per share of our Common Stock would most likely be reduced as
a result.
In addition, Nasdaq requires two independent directors on a company's Board of
Directors, and beginning June 14, 2001 will require three. We currently do not
comply with this requirement. As such, we will have to identify and secure the
services of additional suitable independent candidates in order to maintain
Compliance with this listing requirement. Any failure to do so could lead to our
Common Stock being delisted from the Nasdaq National Market.
5
Our Distribution Agreement with Virgin subjects us to certain risks.
In connection with our acquisition of a 43.9 percent membership interest in
Virgin Interactive Entertainment Limited's ("Virgin") parent entity in February
1999, we signed an International Distribution Agreement with Virgin. Under this
Agreement, we appointed Virgin as our exclusive distributor for substantially
all of our products in Europe, the CIS, Africa and the Middle East, subject to
certain reserved rights, for a seven-year period. We pay Virgin a distribution
fee for marketing and distributing our products, as well as certain direct costs
and expenses. Virgin has been inconsistent in meeting its obligations to
deliver to us the proceeds obtained from their distribution of our products.
Because of the exclusive nature of the Agreement, if Virgin were to continue to
be inconsistent in meeting its obligations to deliver to us proceeds from
distribution, or were to experience problems with its business, or otherwise to
fail to perform under the Agreement, our business, operating results and
financial condition could be materially and adversely affected.
In May 2000, we amended the International Distribution Agreement with Virgin
to, among other things, eliminate the overhead fees and minimum commissions
payable by us. Virgin disputed the validity of this amendment, and claimed that
we were obligated, among other things, to pay a contribution to their overhead
of up to approximately $9.3 million annually, subject to decrease by the amount
of commissions earned by Virgin on its distribution of our products. As part of
the April 2001 settlement between Virgin and the Company, VIE Acquisition Group
LLC ("VIE"), the parent entity of Virgin, redeemed the Company's membership
interest in VIE. In addition, Virgin paid the Company $3.1 million, dismissed
its claim for past overhead fees, reduced the minimum monthly overhead fee
payable to Virgin to $111,000 per month for the nine month period beginning
April 2001, and $83,000 per month for the six month period beginning January
2002, and eliminated the minimum overhead commitment commencing July 2002 and
for the remaining term of the International Distribution Agreement.
We are dependent on Third Party Software Developers, which subjects us to
certain risks.
We rely on third party interactive entertainment software developers for the
development of a significant number of our interactive entertainment software
products. As there continues to be high demand for reputable and competent
third party developers, we cannot assure you that third party software
developers that have developed products for us in the past will continue to be
available to develop products for us in the future. Many third party software
developers have limited financial resources, which could expose us to the risk
that such developers may go out of business prior to completing a project. In
addition, due to our limited control over third party software developers, we
cannot assure you that such developers will complete products for us on a timely
basis or within acceptable quality standards, if at all. Due to increased
competition for skilled third party software developers, we have had to agree to
make advance payments on royalties and guaranteed minimum royalty payments to
intellectual property licensors and game developers, and we expect to continue
to enter into these kinds of arrangements. If the products subject to these
arrangements do not have sufficient sales volumes to recover these royalty
advances and guaranteed payments, we would have to write-off unrecovered
portions of these payments, which could have a material adverse effect on our
business, operating results and financial condition. Further, we cannot assure
you that third party developers will not demand renegotiation of their
arrangements with us.
If we fail to anticipate changes in video game platforms and technology, our
business will be harmed.
The interactive entertainment software industry is subject to rapid
technological change. New technologies, including operating systems such as
Microsoft Windows 2000, technologies that support multi-player games, new media
formats such as on-line delivery and digital video disks
6
("DVDs") and recent releases or planned releases in the near future of new video
game platforms such as the Sony Playstation 2, the Nintendo Gamecube and the
Microsoft Xbox could render our current products or products in development
obsolete or unmarketable. We must continually anticipate and assess the
emergence of, and market acceptance of, new interactive entertainment software
platforms well in advance of the time the platform is introduced to consumers.
Because product development cycles are difficult to predict, we must make
substantial product development and other investments in a particular platform
well in advance of introduction of the platform. If the platforms for which we
develop software are not released on a timely basis or do not attain significant
market penetration, our business, operating results and financial condition
could be materially adversely affected. Alternatively, if we fail to develop
products for a platform that does achieve significant market penetration, then
our business, operating results and financial condition could also be materially
adversely affected.
The emergence of new interactive entertainment software platforms and
technologies and the increased popularity of new products and technologies may
materially and adversely affect the demand for products based on older
technologies. The broad range of competing and incompatible emerging
technologies may lead consumers to postpone buying decisions with respect to
products until one or more emerging technologies gain widespread acceptance.
This postponement could have a material adverse effect on our business,
operating results and financial condition. We are currently developing products
for Microsoft Windows, Sony PlayStation 2 and new platforms expected to be
introduced in 2001 by Microsoft and Nintendo. Our success will depend in part on
our ability to anticipate technological changes and to adapt our products to
emerging game platforms. We cannot assure you that we will be able to anticipate
future technological changes, to obtain licenses to develop products for those
platforms on favorable terms or to create software for those new platforms. Any
failure to do so could have a material adverse effect on our business, operating
results and financial condition.
Our industry is intensely competitive.
The interactive entertainment software industry is intensely competitive and
new interactive entertainment software programs and software platforms are
regularly introduced. Our competitors vary in size from small companies to very
large corporations with significantly greater financial, marketing and product
development resources than we have. Due to these greater resources, certain of
our competitors can undertake more extensive marketing campaigns, adopt more
aggressive pricing policies, pay higher fees to licensors of desirable motion
picture, television, sports and character properties and pay more to third party
software developers than we can. We believe that the main competitive factors
in the interactive entertainment software industry include:
. product features
. brand name recognition
. access to distribution channels
. quality
. ease of use, price, marketing support and quality of customer service.
We compete primarily with other publishers of PC and video game console
interactive entertainment software. Significant competitors include:
. Electronic Arts Inc.
. Activision, Inc.
7
. Infogrames Entertainment
. Microsoft Corporation
. LucasArts Entertainment Company
. Midway Games Inc.
. Acclaim Entertainment, Inc.
. Vivendi Universal Interactive
. Ubi Soft Entertainment Publishing
. The 3DO Company
. Take Two Interactive Software, Inc.
. Eidos PLC
. THQ Inc.
In addition, integrated video game console hardware/software companies such as
Sony Computer Entertainment, Nintendo, Microsoft Corporation and Sega compete
directly with us in the development of software titles for their respective
platforms. Large diversified entertainment companies, such as The Walt Disney
Company, many of which own substantial libraries of available content and have
substantially greater financial resources, may decide to compete directly with
us or to enter into exclusive relationships with our competitors. We also
believe that the overall growth in the use of the Internet and on-line services
by consumers may pose a competitive threat if customers and potential customers
spend less of their available home PC time using interactive entertainment
software and more using the Internet and on-line services.
Retailers of our products typically have a limited amount of shelf space and
promotional resources, and there is intense competition among consumer software
producers, and in particular interactive entertainment software products, for
high quality retail shelf space and promotional support from retailers. To the
extent that the number of consumer software products and computer platforms
increases, competition for shelf space may intensify and may require us to
increase our marketing expenditures. Due to increased competition for limited
shelf space, retailers and distributors are in an increasingly better position
to negotiate favorable terms of sale, including price discounts, price
protection, marketing and display fees and product return policies. Our
products constitute a relatively small percentage of any retailer's sale volume,
and we cannot assure you that retailers will continue to purchase our products
or to provide our products with adequate levels of shelf space and promotional
support. A prolonged failure in this regard may have a material adverse effect
on our business, operating results and financial condition.
Our dependence on our distribution channels exposes us to certain risks.
We currently sell our products directly through our own sales force to mass
merchants, warehouse club stores, large computer and software specialty chains
and through catalogs in the U.S. and Canada, as well as to certain distributors.
Outside North America, we generally sell products to third party distributors.
Our sales are made primarily on a purchase order basis, without long-term
agreements. The loss of, or significant reduction in sales to, any of our
principal retail customers or distributors could materially adversely affect our
business, operating results and financial condition.
The distribution channels through which publishers sell consumer software
products evolve continuously through a variety of means, including
consolidation, financial difficulties of certain distributors and retailers, and
the emergence of new distributors and new retailers such as warehouse chains,
mass merchants and computer superstores. As more consumers own PCs, the
distribution channels for interactive entertainment software will likely
continue to change. Mass merchants have
8
become the most important distribution channels for retail sales of interactive
entertainment software. A number of these mass merchants have entered into
exclusive buying arrangements with other software developers or distributors,
which arrangements could prevent us from selling certain of our products
directly to that mass merchant. If the number of mass merchants entering into
exclusive buying arrangements with our competitors were to increase, our ability
to sell to such merchants would be restricted to selling through the exclusive
distributor. Because sales to distributors typically have a lower gross profit
than sales to retailers, this would have the effect of lowering our gross
profit. This trend could have a material adverse impact on our business,
operating results and financial condition. In addition, emerging methods of
distribution, such as the Internet and on-line services, may become more
important in the future, and it will be important for us to maintain access to
these channels of distribution. We cannot assure you that we will maintain
access or that our access will allow us to maintain our historical sales volume
levels.
Distributors and retailers in the computer industry have from time to time
experienced significant fluctuations in their businesses, and a number have
failed. The insolvency or business failure of any significant distributor or
retailer of our products could have a material adverse effect on our business,
operating results and financial condition. We typically make sales to
distributors and retailers on unsecured credit, with terms that vary depending
upon the customer and the nature of the product. Although we have insolvency
risk insurance to protect against our customers' bankruptcy, insolvency or
liquidation, this insurance contains a significant deductible and a co-payment
obligation, and the policy does not cover all instances of non-payment. In
addition, while we maintain a reserve for uncollectible receivables, the reserve
may not be sufficient in every circumstance. As a result, a payment default by
a significant customer could have a material adverse effect on our business,
operating results and financial condition.
We are exposed to the risk of product returns and markdown allowances with
respect to our distributors and retailers. We allow distributors and retailers
to return defective, shelf-worn and damaged products in accordance with
negotiated terms, and also offer a 90-day limited warranty to our end users that
our products will be free from manufacturing defects. In addition, we provide
markdown allowances to our customers to manage our customers' inventory levels
in the distribution channel. Although we maintain a reserve for returns and
markdown allowances, and although our agreements with certain of our customers
place certain limits on product returns and markdown allowances, we could be
forced to accept substantial product returns and provide markdown allowances to
maintain our relationships with retailers and our access to distribution
channels. Product return and markdown allowances that exceed our reserves could
have a material adverse effect on our business, operating results and financial
condition. In this regard, our results of operations for the year ended
December 31, 1999 were adversely affected by a higher than expected level of
product returns and markdown allowances, which reduced our net revenues. We
could continue to experience such high levels of product returns and markdown
allowances in future periods, which could have a material adverse effect on our
business, operating results and financial condition.
Sales of our common stock by our existing stockholders may harm the market for
our stock.
Universal Studios, Inc. currently holds 4,658,216 shares, or 12.2%, of our
outstanding Common Stock. We have agreed to file a registration statement
covering the resale of such shares by Universal Studios, Inc., and expect that
such registration statement will be filed in April 2001.
In 1999, we entered into two Stock Purchase Agreements with Titus, pursuant to
which Titus purchased 10,795,455 shares of our Common Stock from us for an
aggregate purchase price of $35 million. As part of the agreements, Titus'
chairman and chief executive officer became our president, and our chairman and
chief executive officer exchanged 2 million of his personal shares of our Common
Stock for an agreed upon number of Titus shares. As a result of these
transactions, Titus
9
currently owns approximately 33.5% of our outstanding Common Stock. We have
filed a registration statement under the Securities Act of 1933, as amended,
covering the resale of all of the shares of our Common Stock that we have sold
and issued to Titus.
In addition, Titus purchased 719,424 shares of Series A Preferred Stock from
us in April 2000. The Preferred Stock is convertible by Titus, redeemable by us
at the purchase price under certain circumstances, and accrues a six percent
dividend per year. Commencing June 1, 2001, Titus may convert each such share,
to the extent not previously redeemed by us, into a number of shares of our
Common Stock determined by dividing $27.80 by the lesser of (a) $2.78 and (b)
eighty-five percent (85%) of the average closing price per share as reported by
Nasdaq for the twenty (20) trading days preceding the date of conversion. Based
on the closing price of our Common Stock on April 11, 2001, the Series A
Preferred Stock would be convertible into an aggregate of approximately 17.7
million shares of our Common Stock. Titus also holds warrants to purchase up to
460,000 shares of our Common Stock. We have also agreed to register the shares
of Common Stock issuable upon conversion of the Preferred Stock.
In addition, in April 2001 we completed a private placement of 8,126,770
shares of our Common Stock for an aggregate purchase price of $12.7 million. In
connection with such transaction, we issued to each investor a warrant to
purchase one share of our Common Stock at a price of $1.75 per share for each
share purchased. Pursuant to such transactions, we have agreed to file a
registration statement covering the resale of the shares purchased and the
shares issuable upon exercise of such warrants (an aggregate of up to 16,253,540
shares of Common Stock) by April 16, 2001, and to cause such registration
statement to be declared effective by May 31, 2001.
In addition, employees and directors (who are not deemed affiliates) hold
options to buy 3,545,128 shares of Common Stock and warrants to buy 1,000,000
shares of Common Stock. Any shares registered will be eligible for resale. If
these shares are not sold or not included in the Registration Statement, they
may be included in certain registration statements to be filed by us in the
future.
We may issue options to purchase up to an additional 1,280,027 shares of
Common Stock under our stock option plans, which we anticipate will be fully
saleable when issued.
Sales of substantial amounts of Common Stock into the public market could
lower the market price of the Common Stock. Titus, our largest stockholder and
the holder of Series A Preferred Stock, and Company officers and directors may
under certain circumstances hold more than 50% of our outstanding Common Stock.
Although such persons are subject to certain restrictions on the transfer of
their Interplay stock, future sales by them could depress the market price of
the Common Stock.
We are subject to certain risks associated with the potential introduction of a
majority of Titus' common stock into the market.
We have filed a registration statement covering the resale of 10,795,445
shares of Common Stock held by Titus, which will give Titus the ability to sell
such shares on the public market. This number of shares represents approximately
36% of the outstanding shares of our Common Stock. In addition, we have agreed
to register for resale all of the shares of Common Stock issuable to Titus upon
conversion of the Series A Preferred Stock. In the event Titus sells these
shares in the public market, such sales could lead to a significant decrease in
the public trading price of shares of our Common Stock. Such a decrease in value
would affect the price at which you could resell your shares. Such an offering
by Titus could also negatively affect our ability to raise capital through the
sale of our equity securities, and could increase the dilution to our
stockholders resulting from any such sale. Further, because any such sale would
be made by our largest single stockholder, such sale might create a negative
perception of us and our securities. This perception may heighten any negative
effect on the trading price of our Common Stock and our ability to raise capital
through the sale of our equity securities.
10
We are dependent upon third party licenses of content for many of our products.
Many of our current and planned products, such as our Star Trek, Advanced
Dungeons and Dragons, Matrix and Caesars Palace titles, are based on original
ideas or intellectual properties licensed from other parties. We cannot assure
you that we will be able to obtain new licenses, or renew existing licenses, on
commercially reasonable terms, if at all. For example, Viacom Consumer Products,
Inc. has granted the Star Trek license to another party upon the expiration of
our rights in 2002. If we are unable to obtain licenses for the underlying
content that we believe offers the greatest consumer appeal, we would either
have to seek alternative, potentially less appealing licenses, or release the
products without the desired underlying content, either of which could have a
material adverse effect on our business, operating results and financial
condition. We cannot assure you that acquired properties will enhance the market
acceptance of our products based on those properties. We also cannot assure you
that our new product offerings will generate net revenues in excess of their
costs of development and marketing or minimum royalty obligations, or that net
revenues from new product sales will meet or exceed net revenues from existing
product sales.
We are dependent on licenses from and manufacturing by hardware companies.
We are required to obtain a license to develop and distribute software for
each of the video game console platforms for which we develop products,
including a separate license for each of North America, Japan and Europe. We
have obtained licenses to develop software for the Sony PlayStation and
PlayStation 2, as well as video game platforms from Nintendo, Microsoft and
Sega. We cannot assure you that we will be able to obtain new licenses from
hardware companies on acceptable terms or that any existing or future licenses
will be renewed by the licensors. In addition, Sony Computer Entertainment,
Nintendo, Microsoft and Sega each have the right to approve the technical
functionality and content of our products for their respective platforms prior
to distribution. Due to the nature of the approval process, we must make
significant product development expenditures on a particular product prior to
the time we seek these approvals. Our inability to obtain these approvals could
have a material adverse effect on our business, operating results and financial
condition.
Hardware companies such as Sony Computer Entertainment, Nintendo, Sega and
Microsoft may impose upon their licensees a restrictive selection and product
approval process, such that those licensees are restricted in the number of
titles that will be approved for distribution on the particular platform. While
we have prepared our future product release plans taking this competitive
approval process into consideration, if we incorrectly predict its impact or
otherwise fail to obtain approvals for all products in our development plans,
this failure could have a material adverse effect on our business, operating
results and financial condition. We depend upon Sony Computer Entertainment,
Nintendo, Microsoft and Sega for the manufacture of our products that are
compatible with their respective video game consoles. As a result, Sony
Computer Entertainment, Nintendo, Sega and Microsoft have the ability to raise
prices for supplying these products at any time and effectively control the
timing of our release of new titles for those platforms. Playstation and
Dreamcast products consist of CD-ROMs and are typically delivered by Sony
Computer Entertainment and Sega, respectively, within a relatively short lead
time. Other media may entail longer lead times depending on the manufacturer.
If we experience unanticipated delays in the delivery of video game console
products from Sony Computer Entertainment, Sega, Nintendo or Microsoft, or if
actual retailer and consumer demand for our interactive entertainment software
differs from our forecast, our business, operating results and financial
condition could be materially adversely affected.
11
We depend on our key personnel
Our success depends to a significant extent on the continued service of our
key product design, development, sales, marketing and management personnel, and
in particular on the leadership, strategic vision and industry reputation of our
founder and Chief Executive Officer, Brian Fargo. Our future success will also
depend upon our ability to continue to attract, motivate and retain highly
qualified employees and contractors, particularly key software design and
development personnel. Competition for highly skilled employees is intense, and
we cannot assure you that we will be successful in attracting and retaining such
personnel. Specifically, we may experience increased costs in order to attract
and retain skilled employees. Our failure to retain the services of Brian Fargo
or other key personnel or to attract and retain additional qualified employees
could have a material adverse effect on our business, operating results and
financial condition.
Our significant international sales expose us to certain risks.
Our international net revenues accounted for 34%, 30% and 28% of our total net
revenues for the years ended December 31, 2000, 1999 and 1998, respectively. In
February 1999, we entered into an International Distribution Agreement with
Virgin for the exclusive distribution of our products in selected international
territories. We intend to continue to expand our direct and indirect sales,
marketing and product localization activities worldwide. This expansion will
require a great deal of management time and attention and financial resources in
order to develop improved international sales and support channels. We cannot
assure you, however, that we will be able to maintain or increase international
market demand for our products. Our international sales and operations are
subject to a number of inherent risks, including the following:
. the impact of recessions in foreign economies
. the time and financial costs associated with translating and localizing
products for international markets
. longer accounts receivable collection periods
. greater difficulty in accounts receivable collection
. unexpected changes in regulatory requirements
. difficulties and costs of staffing and managing foreign operations
. foreign currency exchange rate fluctuations
. political and economic instability
. dependence on Virgin as an exclusive distributor for Europe.
These factors may have a material adverse effect on our future international
net revenues and, consequently, on our business, operating results and financial
condition. We currently do not engage in currency hedging activities and for
the year ended December 31, 2000, our results were negatively impacted by
$935,000 due to fluctuations in currency exchange rates. We cannot assure you
that fluctuations in currency exchange rates in the future will not have a
material adverse effect on net revenues from international sales and licensing,
and thus on our business, operating results and financial condition.
In addition, on January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and a new European currency, the euro. These eleven
countries adopted the euro as the common legal currency on that date. We make
12
a significant portion of our sales to these countries. Consequently, we
anticipate that the euro conversion will, among other things, create technical
challenges to adapt information technology and other systems to accommodate
euro-denominated transactions. The euro conversion may also limit our ability
to charge different prices for our products in different markets. While we
anticipate that the conversion will not cause major disruption of our business,
the conversion may have a material effect on our business or financial
condition.
We may not be able to protect our proprietary rights.
We regard our software as proprietary and rely on a combination of patent,
copyright, trademark and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights.
We own or license various copyrights and trademarks, and hold the rights to one
patent application related to the software engine for one of our titles. While
we provide "shrinkwrap" license agreements or limitations on use with our
software, it is uncertain to what extent these agreements and limitations are
enforceable. We are aware that some unauthorized copying occurs within the
computer software industry, and if a significantly greater amount of
unauthorized copying of our interactive entertainment software products were to
occur, our operating results could be materially adversely affected. While we
use copy protection on some of our products, we do not provide source code to
third parties unless they have signed nondisclosure agreements with respect to
that source code.
We rely on existing copyright laws to prevent unauthorized distribution of
our software. Existing copyright laws afford only limited protection. Policing
unauthorized use of our products is difficult, and software piracy can be a
persistent problem, especially in certain international markets. Further, the
laws of certain countries where our products are or may be distributed either do
not protect our products and intellectual property rights to the same extent as
the laws of the U.S. or are weakly enforced. Legal protection of our rights may
be ineffective in such countries, and as we leverage our software products using
emerging technologies, such as the Internet and on-line services, our ability to
protect our intellectual property rights and to avoid infringing others'
intellectual property rights may be diminished. We cannot assure you that
existing intellectual property laws will provide adequate protection for our
products in connection with these emerging technologies.
As the number of interactive entertainment software products in the
industry increases and the features and content of these products continues to
overlap, software developers may increasingly become subject to infringement
claims. Although we make reasonable efforts to ensure that our products do not
violate the intellectual property rights of others, we cannot assure you that
claims of infringement will not be made. Any such claims, with or without
merit, can be time consuming and expensive to defend. From time to time, we
receive communications from third parties regarding such claims. We cannot
assure you that existing or future infringement claims against us will not
result in costly litigation or require us to license the intellectual property
rights of third parties, either of which could have a material adverse effect on
our business, operating results and financial condition.
Our software may be subject to governmental restrictions or rating systems.
Legislation is periodically introduced at the state and federal levels in
the U.S. and in foreign countries to establish a system for providing consumers
with information about graphic violence and sexually explicit material contained
in interactive entertainment software products. Such a system would include
procedures for interactive entertainment software publishers to identify
particular
13
products within defined rating categories and communicate these ratings to
consumers through appropriate package labeling and through advertising and
marketing presentations. In addition, many foreign countries have laws that
permit governmental entities to censor the content of certain works, including
interactive entertainment software. In certain instances, we may be required to
modify our products to comply with the requirements of these governmental
entities, which could delay the release of those products in those countries.
Those delays could have a material adverse effect on our business, operating
results and financial condition. While we currently voluntarily submit our
products to industry-created review boards and publish their ratings on our game
packaging, we believe that mandatory government-run interactive entertainment
software products rating systems eventually will be adopted in many countries
that represent significant markets or potential markets for our products. Due to
the uncertainties inherent in the implementation of such rating systems,
confusion in the marketplace may occur, and we are unable to predict what
effect, if any, such rating systems would have on our business. In addition to
such regulations, certain retailers have in the past declined to stock certain
of our products because they believed that the content of the packaging artwork
or the products would be offensive to the retailer's customer base. While to
date these actions have not had a material adverse effect on our business,
operating results or financial condition, we cannot assure you that similar
actions by our distributors or retailers in the future would not have a material
adverse effect on our business, operating results and financial condition.
Our directors and officers control a high percentage of our voting stock.
Including Titus, our directors and executive officers beneficially own voting
stock with a total of approximately 45 percent of the aggregate Common Stock
voting power in the Company. In addition, Titus holds Preferred Stock currently
entitled to 7,619,047 votes, or approximately 20 percent of overall voting
power, and in the event Titus converts such shares into Common Stock, the
resulting shares could substantially increase Titus' voting power. These
stockholders can control substantially all matters requiring our stockholders'
approval, including the election of directors (subject to our stockholders'
cumulative voting rights) and the approval of mergers or other business
combination transactions. This concentration of voting power could discourage or
prevent a change in control.
We may not be able to successfully implement Internet-based product offerings.
We seek to establish an on-line presence by creating and supporting sites on
the Internet. Our future plans envision conducting and supporting on-line
product offerings through these sites or others. Our ability to successfully
establish an on-line presence and to offer online products will depend on
several factors outside our control. These factors include the emergence of a
robust online industry and infrastructure and the development and implementation
of technological advancements to the Internet to increase bandwidth to the point
that will allow us to conduct and support on-line product offerings. Because
global commerce and the exchange of information on the Internet and other
similar open, wide area networks are relatively new and evolving, we cannot
assure you that a viable commercial marketplace on the Internet will emerge from
the developing industry infrastructure or that the appropriate complementary
products for providing and carrying Internet traffic and commerce will be
developed. We also cannot assure you that we will be able to create or develop
a sustainable or profitable on-line presence or that we will be able to generate
any significant revenue from on-line product offerings in the near future, if at
all. If the Internet does not become a viable commercial marketplace, or if this
development occurs but is insufficient to meet our needs or if such development
is delayed beyond the point where we plan to have established an on-line
service, our business, operating results and financial condition could be
materially adversely affected.
14
Acquisitions may adversely affect our business.
As part of our strategy to enhance distribution and product development
capabilities, we intend to review potential acquisitions of complementary
businesses, products and technologies. Some of these acquisitions could be
material in size and scope. While we will continue to search for appropriate
acquisition opportunities, we cannot assure you that the Company will be
successful in identifying suitable acquisition opportunities. If we do identify
any potential acquisition opportunity, we cannot assure you that we will
consummate the acquisition, and if the acquisition does occur, we cannot assure
you that it will be successful in enhancing our business or will increase our
earnings. As the interactive entertainment software industry continues to
consolidate, we may face increased competition for acquisition opportunities,
which may inhibit our ability to complete suitable transactions or may increase
their cost. Future acquisitions could also divert substantial management time,
result in short term reductions in earnings or special transactions or other
charges and may be difficult to integrate with existing operations or assets.
We may, in the future, issue additional shares of Common Stock in connection
with one or more acquisitions, which may dilute our stockholders. Additionally,
with respect to future acquisitions, our stockholders may not have an
opportunity to review the financial statements of the entity being acquired or
to vote on these acquisitions.
Provisions of our charter documents and Delaware law may prevent a change in
control.
Our Certificate of Incorporation and Bylaws, as well as Delaware corporate
law, contain certain provisions that could delay, defer or prevent a change in
control and could materially adversely affect the prevailing market price of our
Common Stock. Certain of these provisions impose various procedural and other
requirements that could make it more difficult for stockholders to take certain
corporate actions.
Our stock price is highly volatile.
The trading price of our Common Stock has been and could continue to be
subject to wide fluctuations in response to certain factors, including:
. quarter to quarter variations in results of operations
. our announcements of new products
. our competitors' announcements of new products
. our product development or release schedule
. general conditions in the computer, software, entertainment, media or
electronics industries
. changes in earnings estimates or buy/sell recommendations by analysts
. investor perceptions and expectations regarding our products, plans and
strategic position and those of our competitors and customers
. other events or factors
In addition, the public stock markets experience extreme price and trading
volume volatility, particularly in high technology sectors of the market. This
volatility has significantly affected the market prices of securities of many
technology companies for reasons often unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect
the market price of our Common Stock.
15
We do not pay dividends on our Common Stock.
We have not paid any cash dividends on our Common Stock and do not anticipate
paying dividends in the near future.
We are subject to interest rate and foreign currency risks.
Our working capital line of credit bears interest at either the bank's
prime rate or LIBOR, at our option. We have no fixed rate debt. As such, if
interest rates increase in the future, our operating results and cash flows
could be materially and adversely affected.
Our earnings are affected by fluctuations in the value of our foreign
subsidiary's functional currency, and by fluctuations in the value of the
functional currency of our foreign receivables, primarily from Virgin. We
recognized losses of $935,000, $125,000 and $288,000 during the years ended
December 31, 2000, 1999 and 1998, respectively, primarily in connection with
foreign exchange fluctuations in the timing of payments received on accounts
receivable from Virgin.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement on Form S-3 with the SEC with
respect to the Common Stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules that are part of the registration statement. You may read and copy
any document we file at the SEC's public reference rooms in Washington D.C. We
refer you to the registration statement and the exhibits and schedules thereto
for further information with respect to us and our Common Stock. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
Our SEC filings are also available to the public from the SEC's website at
www.sec.gov.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act and, in accordance with those requirements, will
continue to file periodic reports, proxy statements and other information with
the SEC. These periodic reports, proxy statements and other information will be
available for inspection and copying at the SEC's public reference rooms and the
SEC's website referred to above.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. We incorporate by reference the documents listed
below and any additional documents filed by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities is terminated. The information we incorporate by reference is an
important part of this prospectus, and any information that we file later with
the SEC will automatically update and supersede this information.
The documents we incorporate by reference are:
1. our Annual Report on Form 10-K for the year ended December 31, 2000;
16
2. the description of our capital stock contained in our Registration
Statement on Form 8-A; and
3. all other reports filed by us pursuant to Section 13(a) or 15(d) of
the SEC Exchange Act since December 31, 2000.
You may request a copy of these filings, at no cost, by writing or calling
us at Interplay Entertainment Corp., 16815 Von Karman Avenue, Irvine, California
92606, telephone number (949) 553-6655, Attention: Victor Sze.
You should rely only on the information contained in this prospectus or any
supplement and in the documents incorporated by reference above. We have not
authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus or any supplement or in the
documents incorporated by reference is accurate on any date other than the date
on the front of those documents.
USE OF PROCEEDS
The proceeds from the sale of each selling stockholder's Common Stock will
belong to that selling stockholder. We will not receive any proceeds from such
sales.
SELLING STOCKHOLDERS
Pursuant to a Common Stock Subscription Agreement dated March 29, 2001
among us and certain investors (the "Subscription Agreement"), we sold and
issued an aggregate of 8,126,770 shares of our Common Stock to such investors.
In connection with such transaction, we issued to each such investor a warrant
to purchase one share of our Common Stock at an exercise price of $1.75 per
share, with a five year term. Fifty percent (50%) of such warrants are
exercisable immediately, and the remaining fifty percent (50%) will become
exercisable in the event that the closing price per share of our Common Stock as
reported on the Nasdaq National Market does not exceed $2.75 for twenty (20)
consecutive trading days during the ninety (90) day period following the
issuance of the warrant. Pursuant to the Subscription Agreement, we agreed to
file the registration statement of which this prospectus is a part with the SEC
to register for resale the shares of our Common Stock we issued to those
stockholders and the shares issuable upon exercise of such warrants (the
"Warrants"), and to keep the registration statement effective until the shares
registered hereunder are sold.
The following table sets forth: (1) the name of each of the stockholders
for whom we are registering shares under this registration statement; (2) the
number of shares of our Common Stock beneficially owned by each such stockholder
prior to this offering (including all shares of Common Stock issuable upon the
exercise of the Warrants as described above, whether or not exercisable within
60 days of the date hereof); (3) the number of shares of our Common Stock
offered by such stockholder pursuant to this prospectus; and (4) the number of
shares, and (if one percent or more) the percentage of the total of the
outstanding shares, of our Common Stock to be beneficially owned by each such
stockholder after this offering, assuming that all of the shares of our Common
Stock beneficially owned by each such stockholder are sold and that such
stockholders acquire no additional shares of our Common Stock prior to the
completion of this offering. Such data is based upon information provided by
each Selling Stockholder.
17
Percentage of
Common Stock Common Stock Common Stock
Common Stock Being Offered Owned Upon Owned Upon
Owned Prior to Pursuant to Completion of Completion of
Name the Offering this Prospectus this Offering this Offering
- ---------------------------------- -------------- --------------- ------------- -------------
SS Technology Fund 1,096,400 600,000 496,400 *
SS Private Equity Fund 1,600,000 1,600,000 0 *
SS Fund III 3,819,500 3,450,000 369,500 *
SS Cayman Fund 1,270,290 1,150,000 120,290 *
Fidelity Advisor Series I 2,702,530 2,701,540 990 *
Endeavor Asset Management, L.P. 512,000 512,000 0 *
Stevan Allen Birnbaum 128,000 128,000 0 *
Oxcal Venture Fund 128,000 128,000 0 *
Edward Kitchen 64,000 64,000 0 *
Managed Risk Trading, L.P. 300,000 300,000 0 *
Ram Capital Resources, LLC 36,000 36,000 0 *
Redwood Partners, LLC 240,000 240,000 0 *
Pat Allen 128,000 128,000 0 *
RLR Partners, L.P. 200,000 200,000 0 *
Watson Small-Cap Partners, I, L.P. 311,808 311,808 0 *
Watson Small-Cap Partners II, L.P. 100,576 100,576 0 *
Watson Small-Cap Fund, Ltd. 1,827,616 1,827,616 0 *
Watson Investment Partners, L.P. 124,576 124,576 0 *
Watson Investment Partners II, L.P. 18,016 18,016 0 *
Watson Offshore Fund, Ltd. 177,408 177,408 0 *
Lagunitas Partners LP 700,000 700,000 0 *
Gruber & McBaine International 240,000 240,000 0 *
Jon D. Gruber 200,000 200,000 0 *
J Patterson McBaine 60,000 60,000 0 *
Johnson Capital Group, Inc. 128,000 128,000 0 *
Peter Hitch 128,000 128,000 0 *
Spinner Global Technology Fund, Ltd. 1,000,000 1,000,000 0 *
____________________
* less than 1%
PLAN OF DISTRIBUTION
The shares of our Common Stock offered pursuant to this prospectus may be
offered and sold from time to time by the selling stockholders listed in the
preceding section, or their donees, transferees, pledgees or other successors in
interest that receive such shares as a gift or other non-sale related transfer.
These selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. All or a portion of the
Common Stock offered by this prospectus may be offered for sale from time to
time on the Nasdaq National Market or on one or more exchanges, or otherwise at
prices and terms then obtainable, or in negotiated transactions. The
18
distribution of these securities may be effected in one or more transactions
that may take place on the over-the-counter market, including, among others,
ordinary brokerage transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The selling stockholders may
also offer to sell and sell the Common Stock offered by this prospectus in
options transactions. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the selling stockholders.
We will not receive any part of the proceeds from the sale of Common Stock.
The selling stockholders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act, in
which event commissions received by such intermediary may be deemed to be
underwriting commissions under the Securities Act. We will pay all expenses of
the registration of securities covered by this prospectus. The selling
stockholders will pay any applicable underwriters' commissions and expenses,
brokerage fees or transfer taxes.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed on
by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California.
EXPERTS
The financial statements and schedule incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
19
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 14. Other Expenses of Issuance and Distribution
- ------- -------------------------------------------
The following sets forth the costs and expenses, all of which shall be
borne by the Registrant, in connection with the offering of the shares of Common
Stock pursuant to this Registration Statement:
Securities and Exchange Commission Fee..................... $ 5,404
Accounting Fees and Expenses*.............................. $ 5,000
Legal Fees and Expenses*................................... $ 5,000
Printing Costs*............................................ $ 2,000
Miscellaneous Expenses*.................................... $ 2,000
-------
Total................................................. $19,404
=======
_______________
* Estimated
Item 15. Indemnification of Directors and Officers.
- ------- -----------------------------------------
(a) As permitted by the Delaware law, the Registrant's amended and restated
certificate of incorporation eliminates the liability of directors to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent otherwise required by Delaware law. The
Registrant also carries directors and officers liability insurance.
(b) The Registrant's amended and restated certificate of incorporation
provides that the Registrant will indemnify each person who was or is made a
party to any proceeding by reason of the fact that such person is or was its
director or officer against all expense, liability and loss reasonably incurred
or suffered by such person in connection therewith to the maximum extent
authorized by Delaware law. The Registrant's bylaws provide for a similar
indemnity to its directors and officers to the fullest extent authorized by
Delaware law.
(c) The Registrant has entered into indemnification agreements with each of
its directors and officers providing for the indemnification of its directors
and officers against any and all expenses, judgments, fines, penalties and
amounts paid in settlement, to the fullest extent permitted by law.
Item 16. Exhibits.
- ------- --------
4.1 Common Stock Subscription Agreement dated March 29, 2001 between the
Company and the investors thereto.
4.2 Form of Warrant to Purchase Common Stock issued pursuant to the Common
Stock Subscription Agreement.
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
II-1
23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
Item 17. Undertakings.
- ------- ------------
The undersigned Registrant hereby undertakes:
(a) (1) 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 the Registration Statement or any material change to such
information in the Registration Statement.
(2) 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 therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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 Section 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-2
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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 has met all of the
requirements for filing on Form S-3 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irvine, State of California, on the 16th day of April, 2001.
INTERPLAY ENTERTAINMENT CORP.
By: /s/ Brian Fargo
------------------------------------------
Brian Fargo, Chairman and
Chief Executive Officer
We, the undersigned officers and directors of Interplay Entertainment
Corp., do hereby constitute and appoint Brian Fargo and Manuel Marrero, and each
of them, our true and lawful attorneys-in-fact and agents with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the SEC, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
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 date indicated.
Signature Title Date
--------- ----- ----
/s/ Brian Fargo Chairman of the Board and Chief April 16, 2001
- --------------------------------- Executive Officer
Brian Fargo (Principal Executive Officer)
/s/ Manuel Marrero Chief Financial Officer and Chief April 16, 2001
- --------------------------------- Operating Officer (Principal Financial
Manuel Marrero Officer and Principal Accounting
Officer)
/s/ R. Stanley Roach Director April 16, 2001
- ---------------------------------
R. Stanley Roach
/s/ Richard S.F. Lehrberg Director April 16, 2001
- ---------------------------------
Richard S.F. Lehrberg
Director April __, 2001
- ---------------------------------
Herve Caen
Director April __, 2001
- ---------------------------------
Eric Caen
II-4
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
4.1 Common Stock Subscription Agreement dated March 29, 2001
between the Company and the investors thereto
4.2 Form of Warrant to Purchase Common Stock issued pursuant to the
Common Stock Subscription Agreement.
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in the Opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).