As Filed With the Securities and Exchange Commission on June 26, 2001
Registration No. 333-60272
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO.1
TO
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 Identification No.)
incorporation or organization)
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.
Daniel P. Murphy, Esq.
Stradling Yocca Carlson & Rauth,
A Professional Corporation
660 Newport Center Drive
Newport Beach, California 92660
Tel: (949) 725-4000
Fax: (949) 725-4100
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
=============================================================================================
Title of Securities Amount to be Proposed Maximum Amount of
to be Registered Registered Aggregate Offering Price(1) Registration Fee
- -----------------------------------------------------------------------------------------
Common Stock, $0.001
par value........... 4,658,216 $9,060,231 $2,266
Common Stock, $0.001
par value, issuable
upon the exercise of
warrants............ 560,000(2) $1,089,200 $273
Common Stock, $0.001
par value, issuable
upon conversion of
preferred stock..... 15,183,685(3) $29,532,268 $7,384
Total............... 20,401,901 $39,681,699 $9,923(4)
=============================================================================================
(1) Estimated solely for purposes 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 30,
2001, which was $1.945 per share.
(2) Includes additional shares of Common Stock that may become issuable pursuant
to the anti-dilution adjustment provisions of the warrants.
(3) Includes additional shares of Common Stock that may become issuable pursuant
to the anti-dilution provisions of the Series A Preferred Stock. Each share
of Series A Preferred Stock is convertible into a number of shares of Common
Stock determined by dividing $27.80 by the lesser of (a) $2.78 and
(b) eighty-five percent (85%) of the average of the closing prices per share
as reported by the Nasdaq National Market for the twenty (20) trading days
preceding the date of conversion. If the Series A Preferred Stock was
converted on May 1, 2001, it would be converted into an aggregate of
15,183,685 shares of Common Stock.
(4) Previously 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 amendment 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 the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
PROSPECTUS
INTERPLAY ENTERTAINMENT CORP.
20,401,901 Shares of Common Stock
($0.001 par value)
_________
This prospectus relates to the offer and sale from time to time of up to
20,401,901 shares of our Common Stock that are held by Titus Interactive S.A.,
Universal Studios, Inc. and Liolios Group, Inc. 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, pursuant to
the exercise of warrants to purchase Common Stock or pursuant to the conversion
of shares of our Series A Preferred Stock issued to the selling stockholders in
private placement transactions. See our Certificate of Designation of Progress
for more information about our Series A Preferred Stock. See Exhibits 10.33,
10.34 and 10.35 to our Form 10-K for the fiscal year ended December 31, 1999.
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.
Concurrent with the Filing of the registration statement of which this
prospectus is a part, we have filed Amendment No. 1 to our registration
statement on Form S-3 (File No. 333-59008) relating to the offer and sale of up
to 16,253,540 shares of our common stock. We currently have on file Amendment
No. 2 to our registration statement on Form S-3 (File No. 333-50252) relating to
the offer and sale of up to 11,256,511 shares of our Common Stock. The aggregate
number of shares being offered, assuming the effectiveness of each of our
registration statements, is 47,911,952. The completion of this offering and the
concurrent offering do not depend on each other.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"IPLY." On May 1, 2001, the last reported sale price of our Common Stock
was $2.18 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 June __, 2001.
TABLE OF CONTENTS
Page
About Interplay............................................................ 2
Risk Factors............................................................... 3
Where You Can Find Additional Information.................................. 19
Use of Proceeds............................................................ 19
Selling Stockholders....................................................... 20
Plan of Distribution....................................................... 22
Legal Matters.............................................................. 22
Experts.................................................................... 22
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.
2
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 depend, in part, on external financing to fund our capital needs. If we are
unable to obtain sufficient financing on favorable terms, we may not be able to
continue to operate our business.
Historically, our business has not generated revenues sufficient to create
operating profits. To supplement our revenues, we have funded our capital
requirements with debt and equity financing. Our ability to obtain additional
equity and debt financing depends on a number of factors including:
. the progress and timely completion of our product development
programs;
. our products' commercial success;
. our ability to license intellectual property on favorable terms;
. the introduction and acceptance of new hardware platforms by third
parties;
. our compliance with the financial covenants of our existing line
of credit.
If we cannot raise additional capital on favorable terms, we will have to
reduce our costs by selling or consolidating our operations, and by delaying,
canceling or scaling back product development and marketing programs. These
measures could materially and adversely affect our ability to publish successful
titles, and may not be enough to generate sufficient cash flow to continue our
business.
We expect that our existing capital resources will be sufficient to meet
our cash requirements through March 31, 2002.
Our failure to comply with the covenants in our existing credit agreement could
result in the termination of the agreement and a substantial reduction in the
cash available to finance our operations.
Pursuant to our credit agreement with LaSalle Business Credit Inc., or
LaSalle, entered into in April 2001, we agreed:
. to safeguard, maintain and insure substantially all of our
property, which property is collateral for any loans made under
the credit agreement;
. not to incur additional debt, except for trade payables and
similar transactions, or to or make loans;
. not to enter into any significant corporate transaction, such as a
merger or sale of substantially all of our assets without the
knowledge of LaSalle;
. to maintain an agreed-upon tangible consolidated net worth, to be
set by the parties for periods subsequent to April 2001;
. to maintain a ratio of earnings before interest, taxes,
depreciation and amortization, or EBITDA, to interest expense of
at least 1.25 to 1.00;
. not to make capital expenditures in an aggregate amount of more
than $2.5 million in any fiscal year without the consent of
LaSalle; and
. to maintain EBITDA of at least the following amounts for the
following periods:
------------------------------------------------------------------
- six month period from January 1, 2001 negative $7.2 million
through June 30, 2001
------------------------------------------------------------------
- nine month period from January 1, 2001 negative $3.5 million
through September 30, 2001
------------------------------------------------------------------
- during any consecutive twelve month $7.7 million
period from and after January 1, 2001
------------------------------------------------------------------
We are in breach of the financial covenants pertaining to net worth and
minimum EBITDA. If LaSalle does not waive compliance with these covenants, or
if we breach other covenants or if there are other events of default in effect
under the credit agreement and LaSalle did not waive compliance with them,
LaSalle would be able to terminate the credit agreement and accelerate all
outstanding amounts owed to LaSalle. Because we depend on our credit agreement
to fund our operations, LaSalle's termination of the credit agreement could
cause material harm to our business.
The unpredictability of our quarterly results may cause our stock price to
decline.
Our operating results have fluctuated in the past and may fluctuate in the
future due to several factors, some of which are beyond our control. These
factors include:
. demand for our products and our competitors' products;
. the size and rate of growth of the market for interactive
entertainment software;
. changes in personal computer and video game console platforms;
. the timing of announcements of new products by and us and our
competitors and 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; and
. the level of our international and original equipment manufacturer
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;
. approvals required from content and technology licensors; and
. the timing of the release and market penetration of new game
hardware platforms.
It is likely that in some future periods our operating results will not
meet the expectations of the public or of public market analysts. Any
unanticipated change in revenues or operating results is likely to cause our
stock price to fluctuate since such changes reflect new information available to
investors and analysts. New information may cause securities analysts and
investors to revalue our stock and this may cause fluctuations in our stock
price.
There are high fixed costs to developing our products. If our revenues decline
because of delays in the introduction of our products, or if there are
significant defects or dissatisfaction with our products, our business could be
harmed.
We have incurred significant net losses in recent periods, including losses
of $8.4 million in the first quarter of fiscal 2001, $12.1 million during fiscal
2000 and $41.7 million during fiscal 1999. Our losses stem partly from the
significant costs we incur to develop our entertainment software products.
Moreover, a significant portion of our operating expenses are relatively fixed,
with planned expenditures based largely on sales forecasts. At the same time,
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.
Relatively fixed costs and short windows in which to earn revenues, mean
that sales of new products are important in enabling us to recover our
development costs, to fund operations and to replace declining net revenues from
older products. Our failure to accurately assess the commercial success of our
new products, and our delays in releasing new products, could reduce our net
revenues and our ability to recoup development and operational costs.
In the past, revenues have been reduced by:
. delays in the introduction of new software products;
. delays in the introduction, manufacture or distribution of the
platform for which a software product was developed;
. a higher than expected level of product returns and markdowns on
products released during the year;
. the cost of restructuring our operations, including international
distribution arrangements; and
. lower than expected worldwide sales of entertainment software
releases.
Similar problems may occur in the future. Any reductions in our net
revenues could harm our business and financial results.
Our growing dependence on revenues from game console software products increases
our exposure to seasonal fluctuations in the purchases of game consoles.
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. Moreover, unlike delays in the introduction of our
personal computer entertainment software products, which we have some ability to
control, delays in game console
software products largely depend on the timeliness of introduction of game
console platforms by the manufacturers of those platforms, such as Sega and
Nintendo. The introduction by a manufacturer of a new game platform too late in
the holding buying season could result in a substantial loss of revenues by us.
Seasonal fluctuations in revenues from game console products may cause material
harm to our business and financial results.
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 believe that our future revenue will continue to depend 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 cause material
harm to our business. Further, if we do not achieve market acceptance, we could
be forced to accept substantial product returns or grant significant pricing
concessions to maintain our relationship with retailers and our access to
distribution channels. If we are forced to accept significant product returns or
grant significant pricing concessions, our business and financial results could
suffer material harm.
Our largest stockholder, Titus Interactive SA, may implement or block corporate
actions in ways that are not in the best interests of our stockholders as a
whole.
Titus currently owns approximately 33.5% of our common stock, and, in
connection with their ownership of our Series A Preferred Stock, controls
approximately 44.5% of the total voting power of our stock. Upon conversion of
the Series A Preferred Stock held by Titus as of June 19, 2001, Titus could own
up to approximately 8.7 million additional shares of our common stock, bringing
its total ownership to approximately 46%, of our common stock. For the
conversion formula, please see our Certificate of Designations of Rights,
Preferences, Privileges and Restrictions of Series A Preferred Stock. Pursuant
to the terms of our Series A Preferred Stock, Titus also has the ability to
block approval of a merger or change in control that the holders of a majority
of our common stock may deem beneficial.
In connection with its investment, Titus has elected its Chief Executive
Officer and its President to serve as members of our Board of Directors. Titus
may, under certain circumstances, elect as many as four of the seven members of
our Board.
As a consequence of its stock ownership and Board representation, Titus
exerts significant influence over corporate policy and potentially may implement
or block corporate actions that are not in the interests of Interplay and its
stockholders as a whole. For example, Titus could compel us to
enter into agreements with Titus on terms more favorable than those we would
agree to with a third party. Titus could also use its veto over mergers to
prevent a merger than may be in the best interests of our stockholders as a
whole or to try to negotiate more favorable merger consideration for itself.
We may be unable to maintain our listing on the Nasdaq National Market, which
could cause our stock price to decline significantly.
Our common stock currently is quoted on the Nasdaq National Market. 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 were 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, may be conducted on the Nasdaq Small Cap Market, in
the over-the-counter market on the "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 most likely
would be reduced as a result.
A significant percentage of our international sales depend on our distribution
agreement with Virgin and Virgin's diligent sales efforts and timely payments
pursuant to that agreement.
In connection with our acquisition in February 1999 of a 43.9% limited
liability company membership interest in VIE Acquisition Group, LLC, or VIE, the
parent entity of Virgin Interactive Entertainment Limited, or Virgin, we signed
an international distribution agreement with Virgin. Under this agreement, we
appointed Virgin as exclusive distributor for most of our products in Europe,
the Commonwealth of Independent States, Africa and the Middle East, for a seven-
year period. During the course of the last two years, due to a dispute
regarding the amount of overhead fees and commissions we owed Virgin, Virgin
withheld approximately $3.1 million in proceeds from their distribution of our
products.
In April 2001, we entered into a settlement agreement with Virgin in which:
. each party entered into a general release from claims against the
other party;
. Virgin paid us $3.1 million in settlement of amounts due us under
the distribution agreement;
. we paid Virgin $330,000 for marketing overhead related to sales of
our products;
. VIE redeemed our membership interest in VIE in full in exchange
for the performance of our obligations under the settlement
agreement; and
. pursuant to the concurrent third amendment to our distribution
agreement with Virgin, the overhead fees owed to Virgin going
forward were immediately reduced and will be eliminated by July
2002.
Nevertheless, because Virgin remains our exclusive distributor throughout
much of the world, our revenues could fall significantly and our business and
financial results could suffer material harm if:
. further disputes arise over amounts payable by us to Virgin;
. Virgin fails to deliver to the full proceeds owed us from
distribution of our products;
. fails to effectively distribute our products abroad; or
. otherwise fails to perform under the distribution agreement.
Two of our directors have substantial, conflicting interests in our most
significant distributor, Virgin Interactive Entertainment, Limited.
As noted below in the section entitled "Selling Stockholders," all of the
equity interests of VIE are owned by Titus, a significant stockholder of
Interplay, which is controlled by two of our directors, Messrs. Herve Caen and
Eric Caen. Herve Caen is the Chief Executive Officer of Titus and Eric Caen is
the President of Titus. Due to their positions with both of us and Titus,
either of the Caens could influence or induce us to enter into agreements or
business arrangements with VIE, or its subsidiary Virgin, on terms less
favorable to us than we would negotiate with an unaffiliated third party in an
arm's length transaction.
Our long-term exclusive distribution agreement with Virgin may discourage
potential acquirors from acquiring us.
Pursuant to the settlement agreement we entered into with Titus, Virgin and
VIE on April 11, 2001, during the seven-year term of our February 1999
distribution agreement with Virgin, we agreed not to sell, license our
publishing rights, or enter into any agreement to either sell or license our
publishing rights with respect to any products covered by the distribution
agreement in the territory covered by the distribution agreement, with the
exception of two qualified sales each year.
The restrictions on sales and licensing of publishing rights until 2006 may
discourage potential acquirors from entering into an acquisition transaction
with us, or may cause potential acquirors to demand terms that are less
favorable to our stockholders. In addition, the settlement agreement contains
termination penalties of a minimum of $10 million, subject to substantial
increases pursuant to the terms of the settlement agreement, which also may
discourage potential acquirors that already have their own distribution
capabilities in these territories.
Our reliance on third party software developers subjects us to the risks that
these developers will not supply us with high quality products on acceptable
terms and in a timely manner.
Third party interactive entertainment software developers, such as Bioware
Corp. Planet Moon Studios and TSR, Inc., develop many of our software products.
Since we depend on these developers in the aggregate, we remain subject to the
following risks:
. continuing strong demand for the developers' products may cause
developers who developed products for us in the past to instead
work for our competitors in the future;
. the inability for us to control whether developers complete
products on a timely basis or within acceptable quality standards,
or at all;
. limited financial resources may force developers out of business
prior to their completion of projects for us or require us to fund
additional costs; and
. the possibility that developers could demand that we renegotiate
our arrangements with them to include new terms less favorable to
us.
Increased competition for skilled third party software developers also has
compelled us to agree to make advance payments on royalties and to guarantee
minimum royalty payments to intellectual property licensors and game developers.
If the products subject to these arrangements do not generate sufficient sales
volumes to recover these royalty advances and guaranteed payments, we would have
to write-off unrecovered portions of these payments, which could cause material
harm to our business and financial results.
If we fail to anticipate changes in video game platforms and technology, our
business may be harmed.
The interactive entertainment software industry is subject to rapid
technological change. New technologies could render our current products or
products in development obsolete or unmarketable. Some of these new
technologies include:
. operating systems such as Microsoft Windows 2000;
. technologies that support games with multi-player and online
features;
. new media formats such as online delivery and digital video disks,
or DVDs; and
. recent releases or planned releases in the near future of new
video game consoles such as the Sony Playstation 2, the Nintendo
Gamecube and the Microsoft Xbox.
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 new
software products or modify existing products are not released on a timely basis
or do not attain significant market penetration, or if we develop products for a
delayed or unsuccessful platform, our business and financial results could
suffer material harm.
New interactive entertainment software platforms and technologies also may
undermine demand for products based on older technologies. Our success will
depend in part on our ability to adapt our products to those emerging game
platforms which gain widespread consumer acceptance. Our business and financial
results may suffer material harm if we fail to:
. anticipate future technologies and platforms;
. obtain licenses to develop products for those platforms on
favorable terms; or
. create software for those new platforms on a timely basis.
We compete with a number of companies that have substantially greater financial,
marketing and product development resources than we do.
The interactive entertainment software industry is intensely competitive
and new interactive entertainment software programs and platforms are regularly
introduced. The greater resources of our competitors permit them to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies, and
pay higher fees than we can to licensors of desirable motion picture,
television, sports and character properties and to third party software
developers. 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; and
. our ability to obtain licenses to popular motion picture,
television, sports and character properties and to third party
software developers.
We compete primarily with other publishers of personal computer and video
game console interactive entertainment software. Significant competitors
include:
. Electronic Arts Inc.
. Activision, Inc.
. Infogrames Entertainment
. Microsoft Corporation
. LucasArts Entertainment Company
. Midway Games Inc.
. Acclaim Entertainment, Inc.
. Vivendi Universal Interactive
Publishing
. Ubi Soft Entertainment Publishing
. The 3DO Company
. Take Two Interactive Software, Inc.
. Eidos PLC
. THQ Inc
Many of these competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry than
we do. Competitors with more extensive customer bases, broader customer
relationships and broader industry alliances may be able to use such resources
to their advantage in competitive situations, including establishing
relationships with many of our current and potential customers.
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 online services
by consumers may pose a competitive threat if customers and potential customers
spend less of their available home personal computing time using interactive
entertainment software and more time using the Internet and online services.
We may face difficulty obtaining access to retailers necessary to market and
sell our products effectively.
Retailers typically have a limited amount of shelf space and promotional
resources, and there is intense competition among consumer software producers,
and in particular producers of 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 require us to increase
our marketing expenditures. Due to increased competition for limited shelf
space, retailers and distributors are in an improving 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 cause material harm to our business.
Because we sell a substantial portion of our products on a purchase order basis,
our sales may decline substantially without warning and in a brief period of
time.
We currently sell our products through our sales force to mass merchants,
warehouse club stores, large computer and software specialty chains and through
catalogs in the United States and Canada, as well as to certain distributors.
Outside North America, we generally sell products to third party distributors.
We make our sales 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 cause material harm to our
business.
If we are compelled to distribute a larger proportion of our products through
mass merchants, our gross profit may decline.
Mass merchants are the most important distribution channel for retail sales
of interactive entertainment software. A number of these mass merchants have
entered into exclusive buying
arrangements with software developers or other distributors, which arrangements
could prevent us from selling some or all 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 lower our gross profit. This trend could cause material
harm to our business.
If our distributors or retailers cannot honor their credit arrangements with us,
we may be burdened with payment defaults and uncollectible accounts.
We typically sell 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
cause material harm to our business.
Our customers have the right to return our products and to receive pricing
concessions and such rights could reduce our net revenues and results of
operations.
We are exposed to the risk of product returns and pricing concessions 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
pricing concessions to our customers to manage our customers' inventory levels
in the distribution channel. We could be forced to accept substantial product
returns and provide pricing concessions to maintain our relationships with
retailers and our access to distribution channels. Product return and pricing
concessions that exceed our reserves have caused material harm to our results of
operations in the recent past and may do so again in the future.
Substantial sales of our common stock by our existing stockholders may reduce
the price of our stock and dilute existing stockholders.
We have filed registration statements covering a total of approximately
49.4 million shares of our common stock for the benefit of the holders we
describe below. Assuming the effectiveness of these registration statements,
these shares are eligible for immediate resale in the public market.
. Universal Studios, Inc. holds approximately 12.7%, of our
outstanding common stock, all of which are being registered
hereunder.
. Titus currently holds approximately 33.5% of our outstanding
common stock and upon conversion of its shares of Series A
Preferred Stock, may own up to approximately 46.0% of our common
stock. All of the shares of common stock issuable to Titus upon
the conversion of the preferred stock or the exercise of the
warrants are being registered in this registration statement.
. Pursuant to registration statement 333-59008, filed on April 4,
2001, we intend to register shares equal to approximately 21.2% of
our outstanding common stock, held by a number of our investors as
set forth in that registration statement.
. Employees and directors hold options and warrants to purchase 9.5%
of our common stock, substantially all of which are eligible for
immediate resale. We may issue options to purchase up to an
additional 2.0% of our common stock to employees and directors,
which we anticipate will be freely tradeable when issued.
Although the holders described above are subject to restrictions on the
transfer of our common stock, future sales by such holders could decrease the
trading price of our common stock and, therefore, the price at which you could
resell your shares. A lower market price for our shares also might impair our
ability to raise additional capital through the sale of our equity securities.
Any future sales of our stock would also dilute existing stockholders.
We depend 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 may not 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 limit our
commercial success and cause material harm to our business.
We may fail to obtain new licenses from hardware companies on acceptable terms
or to obtain renewals of existing or future licenses from licensors.
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 and Microsoft. In
addition, each of these companies has the right to approve the technical
functionality and content of our products for their platforms prior to
distribution. Due to the competitive 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 cause material harm to our business.
Our sales volume and the success of our products depends in part upon the number
of product titles distributed by hardware companies for use with their video
game platforms.
Even after we have obtained licenses to develop and distribute software, we
depend upon hardware companies such as Sony Computer Entertainment, Nintendo and
Microsoft to manufacture
the CD-ROMs that contain our software. These CD-ROM's are then run on the
companies' video game consoles. This process subjects us to the following risks:
. we are required to submit and pay for minimum numbers of CD-ROM's
we want produced containing our software, regardless of whether
these CD-ROM's are sold, shifting onto us the financial risk
associated with poor sales of the software developed by us; and
. reorders of CD-ROMs are expensive, reducing the revenues we
receive from software releases that have stronger sales than
initially anticipated and that require the production of
additional CD-ROMs.
As a result, Sony, Nintendo and Microsoft can shift onto us the risk that
if actual retailer and consumer demand for our interactive entertainment
software differs from our forecasts, we must either the bear the loss from
overproduction or the lesser revenues associated with producing additional CD-
ROM's. Either situation could lead to material reductions in our net revenues.
We have a limited number of key personnel. The loss of any single key person or
the failure to hire and integrate capable new key personnel could harm our
business.
Our interactive entertainment software requires extensive time and creative
effort to produce and market. The production of this software is closely tied
to 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 also will depend upon our ability to
attract, motivate and retain qualified employees and contractors, particularly
software design and development personnel. Competition for highly skilled
employees is intense, and we may fail to attract and retain such personnel.
Alternatively, we may incur 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
cause material harm to our business.
Our international sales expose us to risks of unstable foreign economies,
difficulties in collection of revenues, increased costs of administering
international business transactions and fluctuations in exchange rates.
Our net revenues from international sales accounted for 34 % of our total
net revenues in fiscal year 2000, 30% of our total net revenues in fiscal year
1999 and 28% of our total net revenues in fiscal year 1998. Most of these
revenues come from our distribution relationship with Virgin, pursuant to which
Virgin became the exclusive distributor for most of our products in Europe, the
Commonwealth of Independent States, Africa and the Middle East. We intend to
continue to expand our direct and indirect sales, marketing and product
localization activities worldwide.
Our international sales and operations are subject to a number of inherent
risks, including the following:
. recessions in foreign economies may reduce purchases of our
products;
. translating and localizing products for international markets is
time-consuming and expensive;
. accounts receivable are more difficult to collect and when they
are collectible, they may take longer to collect;
. regulatory requirements may change unexpectedly;
. it is difficult and costly to staff and manage foreign operations;
. fluctuations in foreign currency exchange rates;
. political and economic instability; and
. we depend on Virgin as our exclusive distributor in Europe, the
Commonwealth of Independent States, Africa and the Middle East.
These factors may cause material declines in our future international net
revenues and, consequently, could cause material harm to our business.
The most significant, continuing risk we face from our international sales
and operations stems from exchange rate fluctuations. Because we do not engage
in currency hedging activities, fluctuations in currency exchange rates have
caused significant reductions in our net revenues from international sales and
licensing due to the loss in value upon conversion into U.S. Dollars. We may
suffer similar losses in the future.
Inadequate intellectual property protections could prevent us from enforcing or
defending our proprietary technology.
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 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, it could cause material harm to
our business and financial results.
Policing unauthorized use of our products is difficult, and software piracy
can be a persistent problem, especially in some international markets. Further,
the laws of some 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 United States, 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 online services,
our ability to protect our intellectual property rights and to avoid infringing
others' intellectual property rights may diminish. We cannot assure you that
existing intellectual property laws will provide adequate protection for our
products in connection with these emerging technologies.
We may unintentionally infringe on the intellectual property rights of others
which could expose us to substantial damages or restrict our operations.
As the number of interactive entertainment software products increases and
the features and content of these products continue to overlap, software
developers increasingly may become subject to infringement claims. Although we
believe that we make reasonable efforts to ensure that our
products do not violate the intellectual property rights of others, it is
possible that third parties still may claim infringement. From time to time, we
receive communications from third parties regarding such claims. Existing or
future infringement claims against us, whether valid or not, may be time
consuming and expensive to defend. Intellectual property litigation or claims
could force us to do one or more of the following:
. cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. obtain a license from the holder of the infringed intellectual
property, which license, if available at all, may not be available
on commercially favorable terms; or
. redesign our interactive entertainment software products, possibly
in a manner that reduces their commercial appeal.
Any of these actions may cause material harm to our business and financial
results.
Our software may be subject to governmental restrictions or rating systems.
Legislation is periodically introduced at the state and federal levels in
the United States 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. In addition, many
foreign countries have laws that permit governmental entities to censor the
content of interactive entertainment software. We believe that mandatory
government-run rating systems eventually will be adopted in many countries that
are significant markets or potential markets for our products. We may be
required to modify our products to comply with new regulations, which could
delay the release of our products in those countries.
Due to the uncertainties regarding 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 some 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 caused material harm to our business, we cannot assure you that similar
actions by our distributors or retailers in the future would not cause material
harm to our business.
Our directors and officers control a large percentage of our voting stock and
may use this control to compel corporate actions that are not in the best
interests of our stockholders as a whole.
Including Titus, our directors and executive officers beneficially own
approximately 69.5% of our aggregate common stock. In addition, in the event
Titus converts its shares of Series A Preferred Stock into common stock, the
additional shares could increase Titus' ownership to approximately 46%, and the
total number of share owned by our directors and executive officers to ___%.
These stockholders can control substantially all matters requiring stockholder
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 that otherwise could result in
a premium in the price of our common stock.
Moreover, since Titus owns 100% of VIE and only up to approximately 46% of
Interplay, Titus will recognize more revenue on a consolidated basis to the
extent it is able to divert revenues to the Virgin entities at the expense of
Interplay. Therefore, Titus has an incentive to compel Interplay to enter into
transactions with the Virgin entities on terms less favorable than might prevail
in a transaction with an unaffiliated third party.
We may fail to implement Internet-based product offerings successfully.
We seek to establish an online presence by creating and supporting sites on
the Internet and by offering our products through these sites. Our ability to
establish an online presence and to offer online products successfully depends
on:
. increases in the Internet's data transmission capability;
. growth in an online market sizeable enough to make commercial
transactions profitable.
Because global commerce and the exchange of information on the Internet and
other open networks are relatively new and evolving, a viable commercial
marketplace on the Internet may not emerge and complementary products for
providing and carrying Internet traffic and commerce may not be developed. Even
with the proper infrastructure, we may fail to develop a profitable online
presence or to generate any significant revenue from online product offerings in
the near future, or 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 online service,
our business and financial condition could suffer material harm.
Some provisions of our charter documents may make takeover attempts difficult,
which could depress the price of our stock and inhibit our ability to receive a
premium price for your shares.
Our Board of Directors has the authority, without any action by the
stockholders, to issue up to 4,280,576 shares of preferred stock and to fix the
rights and preferences of such shares. In addition, our certificate of
incorporation and bylaws contain provisions that
. eliminate the ability of stockholders to act by written consent
and to call a special meeting of stockholders; and
. require stockholders to give advance notice if they wish to
nominate directors or submit proposals for stockholder approval.
These provisions may have the effect of delaying, deferring or preventing a
change in control, may discourage bids for our common stock at a premium over
its market price and may
adversely affect the market price, and the voting and other rights of the
holders, of our common stock.
Our stock price is volatile.
The trading price of our common stock has previously and could continue to
fluctuate in response to factors that are largely beyond our control, and which
may not be directly related to the actual operating performance of our business,
including:
. 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;
. price and trading volume volatility of the broader public markets,
particularly the high technology sections of the market.
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 foreseeable future.
Increases in interest rates will increase the cost of our debt.
Our working capital line of credit bears interest at either the bank's
prime rate or LIBOR, at our option. As such, if interest rates increase, we
will have to use more cash to service our debt, which could impede our ability
to meet other expenses as they become due and could cause material harm to our
business and financial condition.
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 of 1934, as amended (the "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, all documents filed by us pursuant to the Exchange Act after the date of
the initial registration statement and prior to effectiveness of the
registration statement 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;
2. Amendment No. 1 to our Annual Report on Form 10-K;
3. Amendment No. 2 to our Annual Report on Form 10-K;
4. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
5. the description of our capital stock contained in our Registration
Statement on Form 8-A; and
6. all other reports filed by us pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, 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.
19
SELLING STOCKHOLDERS
Pursuant to a Stock Purchase Agreement dated April 14, 2000, we agreed to
file a registration statement with the SEC to register the shares of our Common
Stock issuable to Titus Interactive SA upon the conversion of our Series A
Preferred Stock and the exercise of warrants to purchase our Common Stock issued
to Titus on that date, and to keep the registration statement effective until
such shares are sold. Herve Caen and Eric Caen, both executives, officers and
directors of Titus, have been members of our Board of Directors since November
1999 and Herve Caen has served as our President since November 1999. Titus
currently owns substantially all of the equity interest in the parent entity of
Virgin Interactive Entertainment Limited, our exclusive distributor in Europe
and certain other countries.
Pursuant to a Shareholders' Agreement dated March 30, 1994, as amended
October 8, 1996, we have agreed to file a registration statement with the SEC to
register all of the shares of our Common Stock owned by Universal Studios, Inc.,
and to keep the registration statement effective until such shares are sold.
Pursuant to a Financial Public Relations Agreement dated August 7, 2000
(the "Liolios Agreement"), we agreed to file a registration statement with the
SEC to register the shares of our Common Stock issuable to Liolios Group, Inc.
upon exercise of a warrant to purchase our Common Stock dated April 25, 2001.
Under such warrant, 25,000 shares of our Common Stock are exercisable 90 days
after the date of the Liolios Agreement at a price of $3.00 per share, 25,000
shares are exercisable 180 days after the date of the Liolios Agreement at a
price of $4.00 per share, 25,000 shares are exercisable 270 days after the date
of the Liolios Agreement at a price of $5.00 per share, and 25,000 shares are
exercisable 360 days after the date of the Liolios Agreement at a price of
$6.00 per share.
The registration statement of which this prospectus is a part was filed
with the SEC pursuant to such agreements. 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 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), and (3) 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 owned by each such stockholder
after this offering, assuming that all of the shares of our Common Stock owned
by each such stockholder are sold.
Percentage
of Common
Stock Owned
Common Stock Common Stock Upon
Common Stock Owned Being Offered Owned Upon Completion
Prior to the Pursuant to this Completion of of this
Name Offering Prospectus this Offering(1) Offering(1)
------------------------------ ------------------ ---------------- ---------------- ---------------
Titus Interactive, SA/(2)/ 28,460,940 15,643,685 12,817,255(2) 23.8(2)
Universal Studios, Inc./(3)/ 4,658,216 4,658,216 0 *
Liolios Group, Inc. 100,000 100,000 0 *
____________________
* less than 1%
(1) For purposes of determining the number of and percentage of Common Stock
owned upon completion of this offering, we have assumed that (a) no selling
stockholder will have acquired additional shares of our Common Stock prior
to completion of this offering, and (b) Titus will have sold none of the
10,795,455 shares of Common Stock it owns that we have registered for
resale on a concurrent registration statement on Form S-3, No. 333-50252.
(2) The number of shares of Common Stock that Titus beneficially owned prior to
this offering includes (a) the 4,545,455 shares of Common Stock we issued
Titus in connection with the Stock Purchase Agreement dated March 18, 1999,
(b) the 6,250,000 shares of Common Stock we issued Titus in connection with
the Stock Purchase Agreement dated July 20, 1999, (c) 15,183,685 shares of
Common Stock that Titus's 719,424 shares of Series A Preferred Stock would
convert into if converted on May 1, 2001, (d) the 2,000,000 shares of
Common Stock transferred to Titus by Brian Fargo pursuant to an Exchange
Agreement dated July 20, 1999 in exchange for 96,666 shares of Titus Common
Stock, (e) 21,800 shares of our Common Stock that Titus purchased on the
open market in February 1999, and (f) 460,000 shares of stock subject to a
warrant exercisable within sixty (60) days of the date of this prospectus.
20
(3) The number of shares beneficially owned by Universal prior to this offering
includes 1,824,897 shares of Common Stock purchased from the Company and
1,216,598 shares of Common Stock purchased from Mr. Fargo pursuant to a
Stock Purchase Agreement and an aggregate of 1,616,721 additional shares of
Common Stock purchased from Mr. Fargo in April of 1995 and 1996 pursuant to
an Option Agreement, dated March 30, 1994.
Our Relationships with the Selling Stockholders
Transactions with Titus and Fargo
In March 1999, we entered into a Stock Purchase Agreement with Titus
Interactive SA and Brian Fargo ("Titus 1"). Under the terms of Titus 1, we sold
2.5 million shares of our common stock to Titus for $10 million. Pursuant to
the terms of Titus 1, the purchase price was recalculated based on the average
closing price per share of our common stock as reported by Nasdaq during: (i)
the ten trading days ended June 30, 1999; and (ii) the ten trading days ended
August 20, 1999. Pursuant to the June 30, 1999 adjustment, we issued to Titus
an additional 1,161,771 shares of our common stock without additional
consideration, and issued to Titus a promissory note in the principal amount of
approximately $1.1 million, bearing interest at the rate of 10% per year and due
January 1, 2000. This promissory note was issued in lieu of issuing to Titus
additional shares of our common stock pursuant to the June 30, 1999 adjustment.
As a result of the August 1999 adjustment, and following stockholder
approval of the transaction, the purchase price was adjusted to $2.20, which
resulted in us issuing Titus an additional 883,684 shares of our common stock
for no additional consideration. Therefore, the aggregate number of shares of
common stock that we issued under Titus 1 was 4,545,455. In August 2000, we
issued Titus 883,684 shares of our common stock and Titus cancelled the June
1999 promissory note.
In May 1999 we signed a letter of intent with Titus pursuant to which Titus
loaned us $5 million. Pursuant thereto, on July 20, 1999, we entered into a
stock purchase agreement with Titus ("Titus 2") providing for the sale of 6.25
million shares of our common stock to Titus for $25 million, less the $5 million
previously loaned to us. Upon the closing of Titus 2, we entered into a
Stockholder Agreement with Titus and Brian Fargo (the "Stockholder Agreement")
pursuant to which: (a) Titus and Fargo each had the right to designate two
directors and together had the right to designate the remaining three directors
to our Board of Directors; (b) Titus and Brian Fargo each granted to the other a
right of first refusal with respect to either party's sale of our common stock;
(c) we granted to Titus and Fargo preemption rights with respect to the future
issuance of our equity securities; and (d) we agreed to not amend our
Certificate of Incorporation or Bylaws without the prior approval of Titus and
Fargo. The Stockholder Agreement has since terminated. Upon the Closing, we
also entered into the Film Production Joint Venture Agreement with Titus and
Fargo (the "Fargo JV Agreement") pursuant to which we, along with Fargo agreed:
(a) to each contribute intellectual properties at our own discretion to the
joint venture contemplated by the Fargo JV Agreement (the "Joint Venture"); (b)
to each contribute $1 million to the Joint Venture; and (c) that proceeds from
the Joint Venture, if any, would be allocated to each party in accordance with
its capital contributions, and then to the party contributing the intellectual
property that generated the proceeds. In addition, at the Titus 2 closing we
entered into:
. three-year employment agreements with Fargo and Herve Caen, pursuant to
which we employed Fargo as our Chief Executive Officer, and Herve Caen
as our President; and
. an exchange agreement with Titus and Fargo, pursuant to which Fargo
exchanged 2 million shares of our common stock for 96,666 shares of
Titus common stock.
In April 2000, we entered into a Stock Purchase Agreement with Titus
("Titus 3") providing for the issuance to Titus of 719,424 shares of our Series
A Preferred Stock (the "Preferred Stock") and warrants to purchase up to 500,000
shares of our common stock, in exchange for $20 million and Titus's agreement
to:
. provide a $20 million guaranty (the "Titus Guaranty") of our line of
credit from Greyrock Capital;
. extend to us a $5 million supplemental line of credit (the "Line of
Credit"); and
. provide us with its financial reports as required by Greyrock Capital as
a condition to the release of $2.5 million in cash collateral held by
Greyrock Capital.
We were obligated to repay to Titus any amounts that Titus may have paid
under the Titus Guaranty, and such repayment was secured by a second-priority
security interest in our assets. In addition, as a condition of the Titus
Guaranty, we granted Titus a right of first refusal on any sale of our assets
for $100,000 or more. During December 2000 through March 2001, we drew
approximately $3 million on the Line of Credit. The Line of Credit was repaid
in full and terminated, and the Titus Guaranty was released, in April 2001.
Titus can convert the Preferred Stock into our common stock at any time
following May 31, 2001 pursuant to a conversion formula based on a trailing
average of the market price of our common stock as set forth in greater detail
in our certificate of designations. The Preferred Stock is entitled to voting
power equivalent to the voting power of the shares of our common stock into
which the Preferred Stock can be converted, subject to a maximum of 7,619,047
votes.
As part of Titus 3 we issued three warrants to Titus for the purchase of
our common stock in the amounts of 350,000 shares, 100,000 shares, and 50,000
shares. All three warrants are exercisable at $3.79 per share, and are for a
term of 10 years. The 350,000 share warrant and the 50,000 share warrant are
fully exercisable. The 100,000 share warrant currently is exercisable into
60,298 shares pursuant to a pre-determined calculation which provides that this
warrant is exercisable in proportion to the amount drawn on the Line of Credit
by us.
We agreed to register all of our common stock issued pursuant to Titus 1
and Titus 2, and all of the common stock issuable upon conversion of the
Preferred Stock and the warrants issued pursuant to Titus 3.
In June 2000, we entered into a technology and content license agreement
with Titus pursuant to which Titus licensed from us the content for the game
"Messiah," the trademarks "Mummy" and "Kingpin," and the game engine for
Messiah. Titus paid us an advance payment of royalties of $3 million pursuant
to the license agreement.
Transactions with Titus and Virgin
In February 1999, we acquired a 43.9% interest in VIE Acquisition Group,
LLC ("VIE"), the parent entity of Virgin Interactive Entertainment Limited
("Virgin"). Management of VIE was governed by an operating agreement, to which
we became a party. In connection with the acquisition, we entered into an
international distribution agreement with Virgin (the "Distribution Agreement").
Pursuant the Distribution Agreement, Virgin hired our European sales and
marketing personnel and is distributing substantially all of our titles in
Europe, the Commonwealth of Independent States, Africa and the Middle East.
Pursuant to the Distribution Agreement, we were required to pay to Virgin:
. a commission of 15% of the net proceeds received by Virgin for the
distribution of our products, with a fixed minimum of 4.5 million
pounds, and
. an overhead fee of $1.5 million for the period ending June 30, 2002.
In connection with the acquisition of equity in VIE, we entered into a
product publishing agreement with Virgin pursuant to which we published
substantially all of Virgin's titles in North and South America and Japan (the
"Publishing Agreement"). We also entered into a termination agreement with
Virgin and VIE which provided terms for our withdrawal as a member of VIE and
termination of the Distribution Agreement (the "Termination Agreement").
In late 1999, Titus acquired the holder of a 50.1% equity interest in VIE.
In early 2000, Titus acquired additional 6% of VIE.
In May 2000, we amended the Distribution Agreement with Virgin to, among
other things, eliminate the overhead fees and minimum commissions payable by us.
In April 2001, we settled certain disputes with Virgin relating to minimum
commissions payable by and us and net past due balances owed by Virgin to us,
and amended the Distribution Agreement, the Termination Agreement and the
Publishing Agreement. As a result of the settlement, VIE redeemed our interest
in VIE and Virgin paid us $3.1 million in net past due balances owed under the
Distribution Agreement. In addition, we agreed to pay Virgin a one-time
marketing fee of $333,000 for the period ended June 30, 2001, and monthly
overhead fees of $111,000 per month for a nine month period beginning April 2001
and $83,000 per month for a six month period beginning January 2002, with no
further commitment for overhead fees for the remainder of the term of the
Distribution Agreement. The Publishing Agreement was amended to cover only the
publishing rights for a product currently known as "Lotus."
Transactions With Fargo and Universal
We entered into a Stock Purchase Agreement with Brian Fargo and Universal
Studios, Inc., dated January 25, 1994, for the purchase of common stock (the
"Universal Purchase Agreement"). On March 30, 1994, pursuant to the Universal
Purchase Agreement, Universal purchased 1,824,897 shares of common stock from us
for a purchase price of $15 million and 1,216,598 shares of common stock from
Fargo for a purchase price of $10 million.
Pursuant to the Universal Purchase Agreement, we entered into an Option
Agreement with Fargo and Universal, dated March 30, 1994 (the "Universal Option
Agreement"), pursuant to which Mr. Fargo granted Universal an option to purchase
additional shares of common stock held by Fargo. Pursuant to the Universal
Option Agreement, Universal purchased 1,216,598 additional shares of common
stock from Fargo at a price of $9.10 per share on April 25, 1995 and 1,150,123
additional shares of common stock at a price of $14.62 per share on April 26,
1996, such that Universal became a 35% owner of us as of April 25, 1995 and a
45% owner of us as of April 26, 1996. In order to acquire sufficient shares of
common stock for sale to Universal on each of the three sale dates, Fargo
acquired such number of shares as was required for sale to Universal from our
existing shareholders in simultaneous transactions.
Pursuant to the Universal Purchase Agreement, we entered into a
Shareholders' Agreement with Mr. Fargo and Universal dated March 30, 1994, as
amended in October 1996 and March 1998, which restricts transfer of shares,
rights of first refusal, voting provisions, registration rights and restrictions
on corporate actions. Only the rights of first refusal between Universal and
Fargo and the registration rights of Universal and Fargo survived the closing of
the initial public offering of our common stock. For his services in connection
with such transaction, Fargo was awarded a bonus of $1.0 million in March 1994.
Fargo agreed to defer the payment of such bonus to a future date.
Transactions with Universal
We have three merchandising license agreements with MCA/Universal
Merchandising Inc., a subsidiary of Universal. Pursuant to an agreement dated
May 23, 1994, we had the exclusive right to use the theme and characters of the
Waterworld motion picture in software products for specified platforms. This
right expired July 31, 1998. Pursuant to an agreement dated May 23, 1994, we
have the non-exclusive right to use the theme and characters of the Casper
motion picture in software products for specified platforms for a period of
three years following the release of such motion picture. Pursuant to an
agreement dated April 16, 1996, we have the exclusive right to the theme and
characters of the Flipper motion picture for an interactive story book product
on specified platforms until June 1, 2001. Each of the agreements provide for us
to pay specified advances against royalties and for specified royalty
guarantees. To date, we have paid a total of $0.6 million, $0.6 million and
$30,000, respectively, in advances and royalty payments under such agreements.
Pursuant to a letter agreement dated September 27, 1996 with Universal
Interactive Studios, or UIS, a subsidiary of Universal, we have the exclusive
distribution rights in North America for PlayStation versions of Disruptor, plus
the exclusive rights to manufacture, publish and distribute Disruptor on any
video game platform outside of North America. On August 16, 1995, we entered
into an exclusive distribution agreement with UIS pursuant to which UIS agreed
to distribute our interactive software products in Europe through UIS's
affiliate, MCA Home Video, Inc. The distribution agreement was subsequently
terminated. In June 1998, we paid UIS the remaining $1.4 million owed pursuant
to this letter agreement.
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
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 pursuant to this prospectus
in options transactions. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the selling stockholders.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares. The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their shares other than ordinary course brokerage
arrangements, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of shares 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.
22
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.. $ 9,923
Accounting Fees and Expenses*........... 5,000
Legal Fees and Expenses*................ 10,000
Printing Costs*......................... 1,000
Miscellaneous Expenses*................. 1,000
-------
Total.............................. $26,923
=======
* 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.
- -------------------
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation. *
10.1 Stock Purchase Agreement dated March 18, 1999 by and between the
Company and Titus Interactive SA (incorporated herein by reference to
Exhibit 10.24 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998)
10.2 Stock Purchase Agreement dated July 20, 1999 by and among the
Company, Titus Interactive SA and Brian Fargo (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the three month period ended June 30, 1999).
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10.3 Shareholders' Agreement dated March 30,1994 by and among the Company,
MCA Inc., and Brian Fargo (incorporated by reference to Exhibit 4.2
of the Company's S-1 filed March 23, 1999).
10.4 Warrant to Purchase Common Stock of Interplay Entertainment Corp.
dated April 25, 2001 issued to Liolios Group, Inc. *
10.5 Financial Public Relations Agreement dated August 7, 2000 by and
among the Company and Liolios Group, Inc. *
10.6 Stock Purchase Agreement between the Company and Titus Interactive
S.A., dated April 14, 2000 (incorporated herein by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
23.1 Consent of Arthur Andersen LLP, independent public accountants. +
23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (incorporated herein by reference to the previously
filed signature page to the registration statement in the Form S-3
filed on May 4, 2001 (File No. 333-60272) at page II-4).
* Previously filed.
+ To be filed.
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.
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(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.
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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 Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 26th day of
June, 2001.
INTERPLAY ENTERTAINMENT CORP.
By: /s/ Brian Fargo
-------------------------------
Brian Fargo, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
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 Amendment
No. 1 to 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 June 26, 2001
- --------------------------------- Executive Officer
Brian Fargo (Principal Executive Officer)
/s/ Manuel Marrero Chief Financial Officer and Chief June 26, 2001
- --------------------------------- Operating Officer (Principal
Manuel Marrero Financial Officer and
Principal Accounting Officer)
*
- --------------------------------- Director June 26, 2001
R. Stanley Roach
II-4
Signature Title Date
--------- ----- ----
*
_________________________________ Director June 26, 2001
Richard S.F. Lehrberg
*
_________________________________ Director June 26, 2001
Keven F. Baxter
_________________________________ Director June __, 2001
Herve Caen
_________________________________ Director June __, 2001
Eric Caen
* By: /s/ Manuel Marrero
---------------------------
Manuel Marrero,
Attorney-in-Fact
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EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------ ----------- -----------
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation. *
10.1 Stock Purchase Agreement dated March 18, 1999 by and between the
Company and Titus Interactive SA (incorporated herein by reference to
Exhibit 10.24 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998)
10.2 Stock Purchase Agreement dated July 20, 1999 by and among the
Company, Titus Interactive SA and Brian Fargo (incorporated herein by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the three month period ended June 30, 1999).
10.3 Shareholders' Agreement dated March 30,1994 by and among the Company,
MCA Inc., and Brian Fargo (incorporated by reference to Exhibit 4.2
of the Company's S-1 filed March 23, 1999).
10.4 Warrant to Purchase Common Stock of Interplay Entertainment Corp.
dated April 25, 2001 issued to Liolios Group, Inc. *
10.5 Financial Public Relations Agreement dated August 7, 2000 by and
among the Company and Liolios Group, Inc. *
10.6 Stock Purchase Agreement between the Company and Titus Interactive
S.A., dated April 14, 2000 (incorporated herein by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.
23.1 Consent of Arthur Andersen LLP, independent public accountants. +
23.2 Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (incorporated herein by reference to the previously
filed signature page to the registration statement in the Form S-3
filed on May 4, 2001 (File No. 333-60272) at page II-4).
* Previously filed.
+ To be filed.
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