Filed Pursuant to Rule 424(b)(3)
Registration No. 333-46425
ACTIVISION, INC.
$60,000,000
6 3/4% Convertible Subordinated Notes Due 2005
3,178,808 Shares of Common Stock
________________________
This Prospectus relates to the resale (the "Offering") of (i) up
to $60,000,000 aggregate principal amount of 6 3/4% Convertible
Subordinated Notes Due 2005 (the "Notes") of Activision, Inc., a Delaware
corporation (the "Company"), and (ii) up to 3,178,808 shares of Common
Stock, $.000001 par value (the "Common Stock"), of the Company, which are
initially issuable upon conversion of the Notes by any holders thereof (the
"Shares" and together with the Notes, the "Securities"). The Securities
may be offered from time to time for the accounts of holders named herein
or in supplements to this Prospectus (the "Selling Securityholders"). All
of the Notes were originally sold by the Company in an underwritten private
placement to certain institutional investors in December 1997.
The Notes are convertible, in whole or in part, at the option of the
Selling Securityholder at any time prior to the close of business on the
business day immediately preceding January 1, 2005, unless previously
redeemed or repurchased, into shares of Common Stock, at a conversion price
of $18.8750 per share (equivalent to a conversion rate of 52.9801 shares
per $1,000 principal amount of Notes), subject to adjustment in certain
circumstances. The Common Stock is traded on The Nasdaq National Market
("NASDAQ") under the symbol "ATVI." On April 20, 1998, the last sale price
for the Common Stock as reported on NASDAQ was $11.25 per share.
The Notes are redeemable, in whole or in part, at the option of the
Company at any time on or after January 10, 2001 at the redemption prices
set forth in this Prospectus, plus accrued and unpaid interest to the date
of redemption. No sinking fund is provided for the Notes. If a Change in
Control (as defined herein) of the Company occurs, holders of Notes may
elect to require the Company to repurchase their Notes, in whole or in
part, at a purchase price equal to 100% of the principal amount thereof
plus accrued interest through the date of repurchase. See "Description of
Notes - Certain Rights to Require Repurchase of Notes."
The Notes are general unsecured obligations of the Company,
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined herein) of the Company and effectively
subordinated in right of payment to the prior payment in full of all
indebtedness of the Company's subsidiaries. The Indenture (as defined
herein) does not restrict the Company's ability to incur Senior
Indebtedness or additional indebtedness or the Company's subsidiaries'
ability to incur additional indebtedness. At December 31, 1997, Senior
Indebtedness and indebtedness of the Company's subsidiaries were
approximately $3.0 million. See "Description of Notes - Subordination."
The Notes currently trade in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market of the Nasdaq Stock
Market, Inc. However, Notes registered for resale pursuant to the
Registration Statement (of which this Prospectus is a part) will no longer
by eligible for trading on PORTAL.
The Company intends that the Registration Statement of which this
Prospectus is a part will remain effective for two years from the date of
this Prospectus, or such earlier date as of which such Registration
Statement is no longer required for the transfer of the Securities. The
Company has agreed to bear certain expenses in connection with the
registration and sale of the Securities being offered by the Selling
Securityholders.
The Company will not receive any of the proceeds from the sale of the
Notes and the Shares being offered by the Selling Securityholders. The
Securities may be offered in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices. In
addition, the Shares may be offered from time to time through ordinary
brokerage transactions on NASDAQ. See "Plan of Distribution." The Selling
Securityholders and any brokers, dealers or agents that participate with
the Selling Securityholders in the distribution of the Notes or Shares may
be deemed to be "Underwriters" within the meaning of the Securities Act, in
which case any commissions received by such brokers-dealers, agents or
underwriters and any profit on the resale of the Notes or Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act.
For a discussion of certain matters which should be considered by
prospective investors, see "Risk Factors" commencing on page 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 22, 1998.
<PAGE>
RISK FACTORS
Before purchasing any of the Securities offered hereby, prospective
investors should carefully consider the following factors in addition to
the other information in this Prospectus.
Fluctuations in Quarterly Results; Future Operating Results Uncertain;
Seasonality
The Company's quarterly operating results have varied significantly in
the past and will likely vary significantly in the future depending on
numerous factors, several of which are not under the Company's control.
Such factors include, but are not limited to, demand for the Company's
products and those of its competitors, the size and rate of growth of the
interactive entertainment software market, development and promotional
expenses relating to the introduction of new products, changes in computing
platforms, product returns, the timing of orders from major customers,
delays in shipment, the level of price competition, the timing of product
introduction by the Company and its competitors, product life cycles,
software defects and other product quality problems, the level of the
Company's international revenues, and personnel changes. In particular,
during the past few fiscal years the Company's operating results for the
quarters ended June 30 have been less favorable than in other quarters as a
result of the release of fewer new products during the June 30 quarters in
accordance with the Company's product release schedules. Products are
generally shipped as orders are received, and consequently, the Company
operates with little or no backlog. Net revenues in any quarter are,
therefore, substantially dependent on orders booked and shipped in that
quarter.
The Company's expenses are based in part on the Company's product
development and marketing budgets. Product development and marketing costs
generally are expensed as incurred, which is often long before a product
ever is released. In addition, a large portion of the Company's expenses
are fixed. As the Company increases its development and marketing
activities, current expenses will increase and, if sales from previously
released products are below expectations, net income is likely to be
disproportionately affected.
Due to all of the foregoing, revenues and operating results for any
future quarter are not predictable with any significant degree of accuracy.
Accordingly, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied
upon as indications of future performance.
The Company's business has experienced and is expected to continue to
experience significant seasonality, in part due to consumer buying
patterns. Net revenues and net income typically are significantly higher
during the fourth calendar quarter, due primarily to the increased demand
for consumer software during the year-end holiday buying season. Net
revenues and net income in other quarters are generally lower and vary
significantly as a result of new product introductions and other factors.
The Company expects its net revenues and operating results to continue to
reflect significant seasonality.
Dependence On New Product Development; Product Delays
The Company's future success depends on the timely introduction of
successful new products to replace declining revenues from older products.
If, for any reason, revenues from new products were to fail to replace
declining revenues from older products, the Company's business, operating
results and financial condition would be materially and adversely affected.
In addition, the Company believes that the competitive factors in the
interactive entertainment software marketplace create the need for higher
quality, distinctive products that incorporate increasingly sophisticated
effects and the need to support product releases with increased marketing,
resulting in higher development, acquisition and marketing costs. The lack
of market acceptance or significant delay in the introduction of, or the
presence of a defect in, one or more products could have a material adverse
effect on the Company's business, operating results and financial
condition, particularly in view of the seasonality of the Company's
business. Further, because a large portion of a product's revenue
generally is associated with initial shipments, the delay of a product
introduction expected near the end of a fiscal quarter may have a material
adverse effect on operating results for that quarter.
The Company has, in the past, experienced significant delays in the
introduction of certain new products. The timing and success of
interactive entertainment products remain unpredictable due to the
complexity of product development, including the uncertainty associated
with technological developments. Although the Company has implemented
substantial development controls, there likely will be delays in developing
and introducing new products in the future. There can be no assurance that
new products will be introduced on schedule, or at all, or that they will
achieve market acceptance or generate significant revenues.
Reliance on Third Party Developers and Independent Contractors
The percentage of products published by the Company that are developed
by independent third party developers has increased over the last several
fiscal years. From time to time, the Company also utilizes independent
contractors for certain aspects of internal product development and
production. The Company has less control over the scheduling and the
quality of work by independent contractors and third party developers than
that of its own employees. A delay in the work performed by independent
contractors and third party developers or poor quality of such work may
result in product delays. Although the Company intends to continue to rely
in part on products that are developed primarily by its own employees, the
Company's ability to grow its business and its future operating results
will depend, in significant part, on the Company's continued ability to
maintain relationships with skilled independent contractors and third party
developers. There can be no assurance that the Company will be able to
maintain such relationships.
Uncertainty of Market Acceptance; Short Product Life Cycles
The market for entertainment systems and software has been
characterized by shifts in consumer preferences and short product life
cycles. Consumer preferences for entertainment software products are
difficult to predict and few entertainment software products achieve
sustained market acceptance. There can be no assurance that new products
introduced by the Company will achieve any significant degree of market
acceptance, that such acceptance will be sustained for any significant
period, or that product life cycles will be sufficient to permit the
Company to recoup development, marketing and other associated costs. In
addition, if market acceptance is not achieved, the Company could be forced
to accept substantial product returns to maintain its relationships with
retailers and its access to distribution channels. Failure of new products
to achieve or sustain market acceptance or product returns in excess of the
Company's expectations would have a material adverse effect on the
Company's business, operating results and financial condition.
Product Concentration; Dependence On Hit Products
A key aspect of the Company's strategy is to focus its development and
acquisition efforts on selected, high quality entertainment software
products. The Company derives a significant portion of its revenues from a
select number of high quality entertainment software products released each
year, and many of these products have substantial production or acquisition
costs and marketing budgets. During fiscal 1996 and 1997, one title
accounted for approximately 49% and 23%, respectively, of the Company's
consolidated net revenues. In addition, during fiscal 1997, one other
title accounted for approximately 16% of the Company's consolidated net
revenues. The Company anticipates that a limited number of products will
continue to produce a disproportionate amount of revenues. Due to this
dependence on a limited number of products, the failure of one or more of
the Company's principal new releases to achieve anticipated results may
have a material adverse effect on the Company's business, operating results
and financial condition.
The Company's strategy also includes as a key component developing and
releasing products that have franchise value, such that sequels,
enhancements and add-on products can be released over time, thereby
extending the life of the property in the market. While the focus on
franchise properties, if successful, results in extending product life
cycles, it also results in the Company depending on a limited number of
titles for its revenues. There can be no assurance that the Company's
existing franchise titles can continue to be exploited as successfully as
in the past. In addition, new products that the Company believes will have
potential value as franchise properties may not achieve market acceptance
and therefore may not be a basis for future releases.
Changes in Technology and Industry Standards
The consumer software industry is undergoing rapid changes, including
evolving industry standards, frequent new platform introductions and
changes in consumer requirements and preferences. The introduction of new
technologies, including operating systems such as Microsoft's Windows 95,
technologies that support multi-player games, and new media formats such as
on-line delivery and digital video disks ("DVD"), could render the
Company's previously released products obsolete or unmarketable. The
development cycle for products utilizing new operating systems,
microprocessors or formats may be significantly longer than the Company's
current development cycle for products on existing operating systems,
microprocessors and formats and may require the Company to invest resources
in products that may not become profitable. There can be no assurance that
the mix of the Company's future product offerings will keep pace with
technological changes or satisfy evolving consumer preferences, or that the
Company will be successful in developing and marketing products for any
future operating system or format. Failure to develop and introduce new
products and product enhancements in a timely fashion could result in
significant product returns and inventory obsolescence and could have a
material adverse effect on the Company's business, operating results and
financial condition.
Limited Protection of Intellectual Property and Proprietary Rights; Risk of
Litigation
The Company holds copyrights on its products, manuals, advertising and
other materials and maintains trademark rights in the Company name, the
Activision logo, and the names of products owned by the Company. The
Company regards its software as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, employee and
third-party nondisclosure agreements and other methods to protect its
proprietary rights. Unauthorized copying is common within the software
industry, and if a significant amount of unauthorized copying of the
Company's products were to occur, the Company's business, operating results
and financial condition could be adversely effected. There can be no
assurance that third parties will not assert infringement claims against
the Company in the future with respect to current or future products. As
is common in the industry, from time to time the Company receives notices
from third parties claiming infringement of intellectual property rights of
such parties. The Company investigates these claims and responds as it
deems appropriate. Any claims or litigation, with or without merit, could
be costly and could result in a diversion of management's attention, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's
business, operating results and financial condition.
Policing unauthorized use of the Company's products is difficult, and
while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a
persistent problem. In selling its products, the Company relies primarily
on "shrink wrap" licenses that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. Further, the
Company enters into transactions in countries where intellectual property
laws are not well developed or are poorly enforced. Legal protections of
the Company's rights may be ineffective in such countries.
Risk of Software Defects
Software products such as those offered by the Company frequently
contain errors or defects. Despite extensive product testing, in the past
the Company has released products with defects and has discovered software
errors in certain of its product offerings after their introduction. In
particular, the PC hardware environment is characterized by a wide variety
of non-standard peripherals (such as sound cards and graphics cards) and
configurations that make pre-release testing for programming or
compatibility errors very difficult and time-consuming. There can be no
assurance that, despite testing by the Company, errors will not be found in
new products or releases after commencement of commercial shipments,
resulting in a loss of or delay in market acceptance, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
Industry Competition; Competition For Shelf Space
The interactive entertainment software industry is intensely
competitive. Competition in the industry is principally based on product
quality and features, the compatibility of products with popular platforms,
company or product line brand name recognition, access to distribution
channels, marketing effectiveness, reliability and ease of use, price and
technical support. Significant financial resources also have become a
competitive factor in the entertainment software industry, principally due
to the substantial cost of product development and marketing that is
required to support best-selling titles. In addition, competitors with
broad product lines and popular titles typically have greater leverage with
distributors and other customers who may be willing to promote titles with
less consumer appeal in return for access to such competitor's most popular
titles.
The Company's competitors range from small companies with limited
resources to large companies with substantially greater financial,
technical and marketing resources than those of the Company. The Company's
competitors currently include Electronic Arts, LucasArts, Microsoft, Sega,
Nintendo, Sony, Cendant, GT Interactive, Broderbund, Midway, Interplay,
Virgin and Eidos, among many others.
As competition increases, significant price competition, increased
production costs and reduced profit margins may result. Prolonged price
competition or reduced demand would have a material adverse effect on the
Company's business, operating results and financial condition. There can
be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced
by the Company will not have a material adverse effect on its business,
operating results and financial condition.
Retailers typically have a limited amount of shelf space, and there is
intense competition among entertainment software producers for adequate
levels of shelf space and promotional support from retailers. As the
number of entertainment software products increases, the competition for
shelf space has intensified, resulting in greater leverage for retailers
and distributors in negotiating terms of sale, including price discounts
and product return policies. The Company's products constitute a
relatively small percentage of a retailer's sale volume, and there can be
no assurance that retailers will continue to purchase the Company's
products or promote the Company's products with adequate levels of shelf
space and promotional support.
Dependence on Distributors; Risk of Customer Business Failure; Product
Returns
Certain mass market retailers have established exclusive buying
relationships under which such retailers will buy consumer software only
from one intermediary. In such instances, the price or other terms on
which the Company sells to such retailers may be adversely effected by the
terms imposed by such intermediary, or the Company may be unable to sell to
such retailers on terms which the Company deems acceptable. The loss of,
or significant reduction in sales attributable to, any of the Company's
principal distributors or retailers could materially adversely effect the
Company's business, operating results and financial condition.
Distributors and retailers in the computer industry have from time to
time experienced significant fluctuations in their businesses and there
have been a number of business failures among these entities. The
insolvency or business failure of any significant distributor or retailer
of the Company's products could have a material adverse effect on the
Company's business, operating results and financial condition. Sales are
typically made on credit, with terms that vary depending upon the customer
and the nature of the product. The Company does not hold collateral to
secure payment. Although the Company has obtained insolvency risk
insurance to protect against any bankruptcy filings that may be made by its
customers, such insurance contains a significant deductible as well as a
co-payment obligation, and the policy does not cover all instances of non-
payment. In addition, the Company maintains a reserve for uncollectible
receivables that it believes to be adequate, but the actual reserve which
is maintained may not be sufficient in every circumstance. As a result of
the foregoing, a payment default by a significant customer could have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company also is exposed to the risk of product returns from
distributors and retailers. Although the Company provides reserves for
returns that it believes are adequate, and although the Company's
agreements with certain of its customers place certain limits on product
returns, the Company could be forced to accept substantial product returns
to maintain its relationships with retailers and its access to distribution
channels. Product returns that exceed the Company's reserves could have a
material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Key Personnel
The Company's success depends to a significant extent on the
performance and continued service of its senior management and certain key
employees. Competition for highly skilled employees with technical,
management, marketing, sales, product development and other specialized
training is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. Specifically, the
Company may experience increased costs in order to attract and retain
skilled employees. Although the Company generally enters into term
employment agreements with its skilled employees and other key personnel,
there can be no assurance that such employees will not leave the Company or
compete against the Company. The Company's failure to attract or retain
qualified employees could have a material adverse effect on the Company's
business, operating results and financial condition.
Risks Associated With International Operations; Currency Fluctuations
International sales and licensing accounted for 28%, 23% and 26% of
the Company's total revenues in the fiscal years 1995, 1996 and 1997,
respectively. The Company intends to continue to expand its direct and
indirect sales, marketing and localization activities worldwide. Such
expansion will require significant management time and attention and
financial resources in order to develop adequate international sales and
support channels. There can be no assurance, however, that the Company
will be able to maintain or increase international market demand for its
products. International sales are subject to inherent risks, including the
impact of possible recessionary environments in economies outside the
United States, the costs of transferring and localizing products for
foreign markets, longer receivable collection periods and greater
difficulty in accounts receivable collection, unexpected changes in
regulatory requirements, difficulties and costs of staffing and managing
foreign operations, and political and economic instability. There can be
no assurance that the Company will be able to sustain or increase
international revenues or that the foregoing factors will not have a
material adverse effect on the Company's future international revenues and,
consequently, on the Company's business, operating results and financial
condition. The Company currently does not engage in currency hedging
activities. Although exposure to currency fluctuations to date has been
insignificant, there can be no assurance that fluctuations in currency
exchange rates in the future will not have a material adverse impact on
revenues from international sales and licensing and thus the Company's
business, operating results and financial condition.
Risks Associated with Acquisitions
In November, 1997, the Company completed two significant acquisitions:
Combined Distribution (Holdings) Limited ("CDH"), a United Kingdom based
software distributor, and NBG EDV Handels & Verlags GmbH ("NBG") and Target
Software Vertriebs GmbH ("Target"), two affiliated German based software
distribution companies. CDH, through its subsidiaries, CentreSoft Limited
("CentreSoft") and PDQ Limited, distributes products throughout the United
Kingdom and, to a lesser extent, continental Europe. NBG and Target
distribute software products throughout Germany, Switzerland and Austria.
The Company intends to integrate the operations of these recently acquired
subsidiaries with its previously existing European operations. This
process, as well as the process of managing two significant new operations,
will require substantial management time and effort and could divert the
attention of management from other matters. In addition, there is a risk
of loss of key employees, customers and vendors of the newly acquired
operations as well as existing operations as this process is implemented.
There is no assurance that the Company will be successful in integrating
these operations or that, if the operations are combined, there will not be
adverse effects on its business.
Consistent with its strategy to enhance distribution and product
development capabilities, the Company intends to continue to pursue
acquisitions of companies and intellectual property rights and other assets
that can be acquired on acceptable terms and which the Company believes can
be operated or exploited profitably. Some of these acquisitions could be
material in size and scope. While the Company will continually be
searching for appropriate acquisition opportunities, there can be no
assurance that the Company will be successful in identifying suitable
acquisitions. If any potential acquisition opportunities are identified,
there can be no assurance that the Company will consummate such
acquisitions or if any such acquisition does occur, that it will be
successful in enhancing the Company's business or be accretive to the
Company's earnings. As the entertainment software business continues to
consolidate, the Company faces significant competition in seeking
acquisitions and may in the future face increased competition for
acquisition opportunities, which may inhibit its ability to complete
suitable transactions. Future acquisitions could also divert substantial
management time, could result in short term reductions in earnings or
special transaction or other charges and may be difficult to integrate with
existing operations or assets.
The Company may, in the future, issue additional shares of Common
Stock in connection with one or more acquisitions, which may dilute its
shareholders, including investors in the offering. Additionally, with
respect to most of its future acquisitions, the Company's shareholders may
not have an opportunity to review the financial statements of the entity
being acquired or to vote on such acquisitions.
Risk of CentreSoft Vendor Defections; Vendor Concentration
The Company's recently acquired CentreSoft subsidiary performs
software distribution services in the United Kingdom and, via export, in
other European territories for a variety of entertainment software
publishers, many of which are competitors of the Company. These services
are generally performed under limited term contracts some of which provide
for cancellation in the event of a change of control. While the Company
expects to use reasonable efforts to retain these vendors, there can be no
assurance that the Company will be successful in this regard. The
cancellation or non-renewal of one or more of these contracts could have a
material adverse effect on the Company's business, operating results and
financial condition. Three of CentreSoft's vendors accounted for 37%, 14%
and 10%, respectively, of CentreSoft's net revenues in fiscal year 1997.
Subordination; Absence of Financial Covenants
The Notes are unsecured and subordinated in right of payment in full
to all existing and future Senior Indebtedness of the Company. As a result
of such subordination, in the event of bankruptcy, liquidation or
reorganization of the Company or upon acceleration of the Notes due to an
Event of Default under the Indenture and in certain other events, the
assets of the Company will be available to pay obligations on the Notes
only after all Senior Indebtedness has been paid in full, and there may not
be sufficient assets remaining to pay amounts due on the Notes then
outstanding. The Indenture does not contain financial covenants and does
not prohibit or limit the incurrence of Senior Indebtedness or the
incurrence of other indebtedness and other liabilities by the Company, and
the incurrence of additional indebtedness and other liabilities by the
Company could adversely affect the Company's ability to pay its obligations
on the Notes. At December 31, 1997, Senior Indebtedness and indebtedness of
the Company's subsidiaries were approximately $3.0 million. The Company
anticipates that from time to time it will incur additional indebtedness,
including Senior Indebtedness. See "Description of Notes - Subordination."
Absence of Public Market for the Notes
The Notes are a new issue of securities for which there is currently
no trading market. Although the Notes are eligible for trading in the
PORTAL market (except for Notes registered for resale pursuant to the
Registration Statement of which this Prospectus forms a part), the Company
does not intend to apply for listing of the Notes on a national securities
exchange or quotation of the Notes on NASDAQ. The initial purchasers of
the Notes have advised the Company that they currently intend to make a
market in the Notes, although they are not obligated to do so and may
discontinue such market making at any time without notice. In addition,
such market making activity will be subject to the limits imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Accordingly, there can be no assurance that any market
for the Notes will develop or, if one does develop, that it will be
maintained. If an active market for the Notes fails to develop or be
sustained, the trading price of such Notes could be materially adversely
affected.
Volatility of Price of Stock and Notes
There has been a history of significant volatility in the market
prices of companies engaged in the interactive entertainment software
industry, including the Company. It is likely that the market price of the
shares of the Company's Common Stock will continue to be highly volatile
and the price of the Company's Notes will also be subject to such
fluctuations. Factors such as the timing and market acceptance of new
product introductions by the Company, the introduction of new products by
the Company's competitors, loss of key personnel of the Company, variations
in quarterly operating results or changes in market conditions in the
interactive entertainment software industry generally may have a
significant impact on the market price of the Company's Common Stock and
Notes. It is possible that in some future quarter the Company's revenue or
operating results will be below the expectations of, and certain new
products will not be introduced when anticipated by, public market analysts
and investors. In such event, the price of the Company's Common Stock would
likely be materially adversely affected. Volatility in the price of the
Company's Common Stock, changes in prevailing interests rates and changes
in perceptions of the Company's creditworthiness may in the future
adversely affect the price of the Notes offered hereby.
Limitations on Repurchase of Notes
Upon the occurrence of a Change in Control (as defined herein), each
holder of Notes will have certain rights, at the holder's option, to
require the Company to repurchase all or a portion of such holder's Notes.
If a Change in Control were to occur, there can be no assurance that the
Company would have sufficient funds to pay the repurchase price for all
Notes tendered by the holders thereof. The Company's repurchase of Notes as
a result of the occurrence of a Change in Control may be prohibited or
limited by, or create an event of default under, the terms or other
agreements relating to borrowings which constitute Senior Indebtedness as
may be entered into, amended, supplemented or replaced from time to time.
Failure of the Company to repurchase Notes at the option of the holder upon
a Change in Control would result in an Event of Default with respect to the
Notes. No Notes may be redeemed at the option of holders upon a Change in
Control if there has occurred and is continuing an Event of Default (other
than a default in the payment of the repurchase price with respect to such
Notes on the repurchase date). See "Description of Notes - Certain Rights
to Require Repurchase of Notes."
Shares Eligible for Future Sale.
Sales of substantial amounts of Common Stock in the public market
could have an adverse effect on the price of the Company's Common Stock and
the Notes. Of the approximately 18,958,090 shares of Common Stock
outstanding as of April 14, 1998, and the approximately 2,867,464 shares
issuable upon exercise of warrants and options that will have vested within
sixty days after April 14, 1998, approximately 21,825,554 are freely
tradeable in the public market, are registered for resale under currently
effective registration statements or are immediately eligible for sale in
the public market subject to compliance with Rule 144 or Rule 145. Sales
of substantial blocks of the Company's Common Stock by holders whose shares
are currently registered for resale could have an adverse effect on the
market price of the Common Stock.
THE COMPANY
Activision is a leading international publisher, developer and
distributor of interactive entertainment software. The Company's products
span a wide range of product genres, including action, adventure, strategy
and simulation, and have included best selling titles such as MechWarrior
2, Hexen II, Nightmare Creatures, Heavy Gear, Dark Reign, Zork: Nemesis,
Blood Omen, Pitfall and Shanghai. Since its founding in 1979, the Company
has published hundreds of entertainment software products for a variety of
personal computer and console platforms.
Publish high quality titles. The Company seeks to differentiate its
titles through the highest quality production values and superior gaming
play, supported by comprehensive trade and consumer marketing programs
coordinated with product releases. Accordingly, the Company must support
the development, production, acquisition and marketing of its titles with
the resources necessary to create best selling products. In order to
reduce the financial risks associated with the higher development and
marketing budgets required to support this strategy, the Company pursues a
balance between internally and externally developed titles; between
products based on proven technology and newer technology; and between PC
and console products.
Focus on franchise properties. The Company focuses its publishing and
developing activities principally on titles that are, or have the potential
to become, franchise properties with sustainable consumer appeal and brand
recognition. These titles can thereby serve as the basis for sequels,
prequesl, mission packs and other add-ons and related new titles that can
be released over an extended period of time. The Company believes that the
publishing and distribution of products based in large part on franchise
properties will enhance revenue predictability. The Company currently is
publishing products based on several franchise properties, including Quake,
Hexen, Zork, Pitfall and Shanghai. The Company also has rights to several
other properties that it believes will have franchise value, including
Heavy Gear, Dark Reign, Battlezone, Heretic and Nightmare Creatures.
Expand direct distribution capabilities. In North America, the
Company's products are sold primarily on a direct basis to major computer
and software retailing organizations, consumer electronic stores and
discount warehouses. In international territories, the Company's products
are sold both direct to retail and through third party distribution and
licensing arrangements. In order to maximize the revenues to be generated
by each of its products, the Company is expanding its worldwide direct
distribution capabilities. The Company believes that a dedicated internal
sales force and direct distribution to retailers provide significant
competitive advantages, including the ability to compete more effectively
for shelf space, to create additional point-of-sale promotional
opportunities, to more properly manage inventory levels, and to increase
margins by eliminating third party distributors. Consistent with this
strategy, the Company has concluded several acquisitions in recent months
including the acquisitions of CDH, NBG and Target, in an effort to bolster
its direct distribution capabilities in international markets.
Continue to grow OEM revenues. The Company also generates significant
revenue throughout the world as a result of arrangements with OEMs, in
which the Company's titles are sold together with hardware or peripheral
devices manufactured by the OEM. The Company believes that OEM bundle
arrangements expand the distribution of its titles to a broader and more
diverse audience, and it intends to continue aggressively pursuing these
arrangements.
Enhance Product Flow. In order to expand the Company's library of
titles, intellectual property rights and talent base, the Company is
actively engaged in the exploration of acquisition opportunities in the
software development business. Consistent with this strategy, in August
1997 the Company acquired Raven Software Corporation ("Raven"), an
entertainment software developer based in Madison, Wisconsin that has
created numerous best selling titles, including Heretic, Hexen: Beyond
Heretic and Hexen II. In addition, in order to create a closer
relationship with independent developers, the Company from time to time
makes investments and acquires minority equity interests in independent
developers at the same time as it acquires publishing rights to the
developer's products.
The Company's principal executive offices are located at 3100 Ocean
Park Blvd., Santa Monica, California 90405, and its telephone number is
(310) 255-2000. The Company also maintains offices in London, Tokyo,
Sydney, Germany and Madison, Wisconsin. The Company's World Wide Web home
page is located at http://www.activision.com.
USE OF PROCEEDS
The Notes and shares of Common Stock offered by the Selling
Securityholders are not being sold by the Company, and the Company will not
receive any of the proceeds from the sale thereof.
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in a private placement
and were resold by the initial purchasers thereof to qualified
institutional buyers (within the meaning of Rule 144A under the Securities
Act) or other institutional accredited investors (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt
from registration under the Securities Act, and in sales outside the United
States to persons other than U.S. persons in reliance upon Regulation S
under the Securities Act. The Notes and the Common Stock issuable upon
conversion thereof that may be offered pursuant to this Prospectus will be
offered by the Selling Securityholders.
The following table sets forth (i) the names of each Selling
Securityholder (ii) the principal amount of Notes beneficially owned by
each Selling Securityholder and (if one percent or more) the percentage of
Notes outstanding and (iii) the number of Shares issuable upon conversion
of the Notes, the ownership of Shares of Common Stock prior to conversion
of the Notes as of the date such information was provided to the Company
and (if one percent or more) the percentage of Common Stock owned by each
Selling Securityholder after the Offering.
Any or all of the Notes or Shares listed below may be offered for sale
pursuant to this Prospectus by the Selling Securityholders from time to
time. Accordingly, no estimate can be given as to the amount of the Notes
or Shares that will be held by the Selling Securityholders upon
consummation of any such sales. In addition, the Selling Securityholders
identified below may have sold, transferred or otherwise disposed of all or
a portion of their Notes since the date on which the information regarding
their Notes was provided, in transactions exempt from the registration
requirements of the Securities Act. The table has been prepared based on
information furnished to the Company by or on behalf of the Selling
Securityholders.
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Into Number of Shares Percentage of
Principal Percentage Which the of Common Stock Common Stock
Amount of Notes Notes are Owned Before Owned After
Name of Notes(1) Outstanding(1) Convertible(2) the Offering(3) the Offering(4)
<S> <C> <C> <C> <C> <C>
J.P. Morgan & Co. $3,000,000 5.0% 158,940 10,700 *
Incorporated
522 Fifth Avenue
New York, NY 10036
General Motors Employees $1,000,000 1.7% 52,980 0 0%
Domestic Group Pension
Trust
c/o General Motors
Investment
767 Fifth Avenue
16th Floor
New York, NY 10153
Credit Suisse First $9,375,000 15.6% 496,688 0 0%
Boston Corporation
5 World Trade Center
New York, NY 10048
California Public Employees $1,500,000 2.5% 79,470 0 0%
Retirement System
1001 Marina Village Parkway
Third Floor
Alameda, CA 94501
Seligman Global Horizons $165,000 * 8,741 16,000 *
Fund
c/o J.&W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
Seligman Communications $190,000 * 10,066 19,600 *
& Information Portfolio
c/o J.&W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
Seligman Communication $10,000,000 17% 529,801 1,000,000 5.3%
& Information Fund
c/o J.&W. Seligman & Co.
Incorporated
100 Park Avenue
New York, NY 10017
Drew University $20,000 * 1,059 0 0%
c/o Bank of New York
Drew University Acct.
#598600
1 Wall Street, 26th Floor
New York, NY 10286
Baptist Health $133,000 * 7,046 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
Nicholas-Applegate Income $1,900,000 3.2% 100,662 0 0%
& Growth Fund
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
Wake Forest University $410,000 * 21,721 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
Engineers Joint Pension Fund $208,000 * 11,019 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
Boston Museum of Fine Arts $56,000 * 2,966 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
San Diego County Convertible $1,729,000 2.9% 91,602 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
San Diego City Retirement $564,000 * 29,880 0 0%
c/o Nicholas-Applegate
Capital Mgmt.
600 W. Broadway, 32nd Floor
San Diego, CA 92101
Oregon Public Employee $2,000,000 3.3% 105,960 0 0%
Retirement Fund
227 West Monroe, Suite 3000
Chicago, IL 60606
Acorn Fund $13,000,000 21.7% 688,741 0 0%
227 West Monroe, Suite 3000
Chicago, IL 60606
Franklin Investors Securities $4,000,000 6.7% 211,920 0 0%
Trust - Convertible
Securities Fund
777 Mariners Island Blvd.
7th Floor
San Mateo, CA 94404
FSS - Franklin Small Cap $4,900,000 8.2% 259,602 1,344,600 7.1%
Growth Fund
777 Mariners Island Blvd.
7th Floor
San Mateo, CA 94404
FSS - Franklin California $3,000,000 5.0% 158,940 390,000 2.1%
Growth Fund
777 Mariners Island Blvd.
7th Floor
San Mateo, CA 94404
Argent Classic Convertible $1,500,000 2.5% 79,470 0 0%
Arbitrage Fund (Bermuda) L.P.
10 Queen Stret
Hamilton, Bermuda HMEX
</TABLE>
____________
* Less than 1%.
(1) The information set forth herein is as of April 20, 1998 and is based
upon $60.0 million aggregate principal amount of Notes outstanding.
(2) Assumes conversion of the full amount of Notes held by such Selling
Securityholder at the initial conversion price of $18.8750 per share;
such conversion price is subject to adjustment as described under
"Description of Notes - Conversion Rights." Accordingly, the number
of Shares issuable upon conversion of the Notes may increase or
decrease from time to time. Fractional shares will not be issued
upon conversion of the Notes; cash will be paid in lieu of fractional
shares, if any.
(3) Does not include the Shares issuable upon conversion of the Notes.
(4) Percentages are based on 18,958,090 shares of Common Stock that were
issued and outstanding as of April 14, 1998 before taking into account
any of the assumed conversions.
The information concerning the Selling Securityholders may change from
time to time. Any material changes will be set forth in one or more
supplements to this Prospectus.
<PAGE>
Other than their ownership of the Company's securities, none of the
Selling Securityholders has had any material relationship with the Company
within the past three years, other than Credit Suisse First Boston
Corporation, Piper Jaffray, Inc. and UBS Securities LLC, which have acted
as initial purchasers and/or underwriters for the Company.
DESCRIPTION OF NOTES
The Notes have been issued under an Indenture dated as of December 22,
1997 (the "Indenture"), between the Company and State Street Bank & Trust
Company of California, N.A. as Trustee (the "Trustee"). The following
summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Indenture, copies of which will be available for
inspection at the Corporate Trust Office of the Trustee in Los Angeles,
California. Capitalized terms used in this section, unless otherwise
defined in this Prospectus, are defined in the Indenture, and such
definitions are incorporated in their entirety herein by reference.
General
The Notes are unsecured, subordinated general obligations of the
Company, will mature on January 1, 2005 and are limited to an aggregate
principal amount of $60,000,000. The Notes bear interest at the rate of 6
3/4% per annum from December 22, 1997, or from the most recent Interest
Payment Date on which interest has been paid or provided for, payable
semiannually on January 1 and July 1 of each year, commencing July 1, 1998,
to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding December 15 or June 15
(whether or not a Business Day (as defined herein)), as the case may be.
Interest on the Notes will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Form, Denomination and Registration
The Notes were issued in the form of a single Global Note. The Global
Note was deposited with the Depositary and registered in the name of the
Depositary or its nominee. Except as set forth below, the Global Note may
be transferred, in whole and not in part, only to the Depositary or another
nominee of the Depositary. Investors may hold their beneficial interests in
the Global Note directly through the Depositary if they have an account
with the Depositary or indirectly through organizations which have accounts
with the Depositary.
Notes that are (i) originally issued to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not Qualified Institutional Buyers (within the
meaning of Rule 144A) (the "Regulation D Notes") or (ii) issued as
described under "- Certificated Notes" will be issued in definitive form.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Note has previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Note representing the principal
amount of the Note being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company and organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and "a clearing
agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary was created to hold securities for
institutions that have accounts with the Depositary ("participants") and to
facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes
in accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers (which may include the Initial Purchasers),
banks, trust companies, clearing corporations and certain other
organizations. Access to the Depositary's book-entry system is also
available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depositary will credit, on
its book-entry registration and transfer system, the principal amount of
the Notes represented by such Global Note to the accounts of participants.
The accounts to be credited shall be designated by the Initial Purchasers
of such Notes. Ownership of beneficial interests in the Global Note will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Note will be
shown on, and the transfer of those ownership interests will be effected
only through, records maintained by the Depositary (with respect to
participants' interests) and such participants (with respect to the owners
of beneficial interests in the Global Note other than participants). The
laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depositary, or its nominee, is the registered holder
and owner of the Global Note, the Depositary or such nominee, as the case
may be, will be considered the sole legal owner and holder of the related
Notes for all purposes of such Notes and the Indenture. Except as set forth
below, owners of beneficial interests in the Global Note will not be
entitled to have the Notes represented by the Global Note registered in
their names, will not receive or be entitled to receive physical delivery
of certificated Notes in definitive form and will not be considered to be
owners or holders of any Notes under the Global Note. The Company
understands that under existing industry practice, in the event an owner of
a beneficial interest in the Global Note desires to take any action that
the Depositary, as the holder of the Global Note, is entitled to take, the
Depositary would authorize the participants to take such action, and that
the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and premium, if any, and interest on Notes
represented by the Global Note registered in the name of and held by the
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner and holder of the Global Note.
The Company expects that the Depositary or its nominee, upon receipt
of any payment of principal or of premium, if any, or interest on the
Global Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal
amount of the Global Note as shown on the records of the Depositary or its
nominee. The Company also expects that payments by participants to owners
of beneficial interests in the Global Note held through such participants
will be governed by standing instructions and customary practices and will
be the responsibility of such participants. The Company will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global
Note for any Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of
the relationship between the Depositary and its participants or the
relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Notes in definitive form, the Global Note may not be transferred except as
a whole by the Depositary to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or to another nominee of such
Depositary.
Although the Depositary has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Note among
participants of the Depositary, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Trustee nor the Company will have any
responsibility for the performance by the Depositary or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Transfers of beneficial interests in the Global Note may be made only
in accordance with the restrictions set forth under "Transfer
Restrictions." The Notes are not issuable in bearer form.
The Notes were issued only in fully registered form, without
exception, in denominations of $1,000 and integral multiples thereof. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Certificated Notes
If any depository is at any time unwilling or unable to continue as a
depository for the reasons set forth under "Form, Denomination and
Registration," the Company will issue certificates for the Notes in
definitive, fully registered form, without interest coupons, in exchange
for the Global Note. In addition, upon request, the Company will issue
certificates for Notes in definitive, fully registered form, without
interest coupons, in exchange for beneficial interests of like principal
amount in the Global Note, but only upon at least 60 days' prior written
notice given to the Trustee in accordance with DTC's customary procedures.
Upon receipt of such notice from the Trustee, the Company will cause the
requested certificates to be prepared for delivery. In all cases,
certificates for Notes delivered in exchange for the Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by DTC.
Certificated Notes will bear a legend imposing restrictions on
transfer, as set forth in the Indenture, (unless the Company determines
otherwise in accordance with applicable law), subject, with respect to such
Notes, to the provisions of such legend. The Holder of a registered
individual Note may transfer such Note by surrendering it at the office or
agency maintained by the Company for such purpose in New York, New York or
Los Angeles, California. Upon the transfer, exchange or replacement of
Notes bearing the legend, or upon specific request for removal of the
legend on a Note, the Company will deliver only Notes that bear such
legend, or will refuse to remove such legend, as the case may be, unless
there is delivered to the Company such satisfactory evidence, which may
include an opinion of counsel, as may reasonably be required by the Company
that neither the legend nor the restrictions on transfer set forth therein
are required to ensure compliance with the provisions of the Securities
Act. Before any Note in certificated form may be transferred to a Person
who takes delivery in the form of an interest in the Global Note, the
transferor will first be required to provide the Trustee with a written
certificate, as specified in the Indenture, to the effect that such
transfer will comply with the appropriate transfer restrictions applicable
to such Notes.
Notwithstanding any statement herein, the Company and the Trustee
reserve the right to impose such transfer, certification, exchange or other
requirements, and to require such restrictive legends on certificates
evidencing Notes, as they may determine are necessary to ensure compliance
with the securities laws of the United States and the states therein and
any other applicable laws.
Payments and Paying Agents
Payments of principal of and interest on the Notes will be made at the
office of the Trustee in Los Angeles, California or the office of its
affiliate in New York, New York or, at the option of the Holder and subject
to any fiscal or other laws and regulations applicable thereto, at the
corporate trust office of the Trustee or any Paying Agent outside New York,
New York and Los Angeles, California. Payment in respect of principal on
Notes will be made only against surrender of such Notes and will be made by
U.S. dollar check drawn on a bank in New York City or Los Angeles,
California or, for Holders of at least $2,000,000 of Notes, by wire
transfer to an account maintained by the payee with a bank in the United
States or Europe, provided that a written request from such Holder to such
effect is received by the Trustee or any Paying Agent no later than 15 days
prior to the relevant payment date. Payment in respect of interest on each
Interest Payment Date with respect to any such Note will be made to the
Person in whose name such Note is registered on the relevant Record Date by
U.S. dollar check drawn on a bank in New York, New York or Los Angeles,
California or, for Holders of at least $2,000,000 of Notes, by wire
transfer to an account maintained by the payee with a bank in the United
States, provided that a written request from such Holder to such effect is
received by the Trustee or any Paying Agent no later than the relevant
Record Date. Unless revoked, any such designation made by such Person with
respect to such Note will remain in effect with respect to any future
payments payable to such Person. The Company will pay any administrative
costs imposed by banks in connection with payments by wire transfer.
If the due date for payment of principal or interest on any Note is
not a Business Day at the place in which it is presented for payment, the
Holder thereof shall not be entitled to payment of the amount due until the
next succeeding Business Day at such place and shall not be entitled to any
further interest or other payment in respect of any such delay. As used in
the Indenture regarding payment, "Business Day" means a day on which banks
are open for business and carrying out transactions in U.S. dollars in the
relevant place of payment.
Subject to certain limitations set forth in the Indenture, the Company
reserves the right at any time to vary or terminate the appointment of the
Trustee or any Paying Agent with or without cause and to appoint another
Trustee or additional or other Paying Agents and to approve any change in
the specified offices through which any Paying Agent acts.
Conversion Rights
The Notes are convertible, in whole or in part, into shares of Common
Stock at the option of the Holder at any time following the date of
original issuance thereof and prior to the close of business on the
Business Day immediately preceding the maturity date, unless previously
redeemed, initially at the conversion price of $18.8750 per share. The
right to convert Notes called for redemption will terminate at the close of
business on the Business Day immediately preceding the Redemption Date
unless the Company defaults in making the payment due on the Redemption
Date. See "Optional Redemption."
The conversion price will be subject to adjustment upon the occurrence
of certain events, including (i) the payment of dividends (and other
distributions) of Common Stock on any class of capital stock of the
Company; (ii) the issuance to all holders of Common Stock of rights,
warrants or options entitling them to subscribe for or purchase Common
Stock at less than the current market price (as defined) thereof;
(iii) subdivisions and combinations of Common Stock; (iv) distributions to
all holders of Common Stock of evidences of indebtedness of the Company,
shares of capital stock, securities, cash or property (excluding any
rights, warrants or options referred to in clause (ii) above and any
dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in clause (i) above); (v) distributions consisting
exclusively of cash to all holders of Common Stock in an aggregate amount
that, together with (a) other all-cash distributions made within the
preceding 12 months and (b) any cash and the fair market value, as of the
expiration of the tender or exchange offer referred to below, of
consideration payable in respect of any tender or exchange offer by the
Company or a Subsidiary for the Common Stock concluded within the preceding
12 months, exceeds 12.5% of the Company's aggregate market capitalization
(such aggregate market capitalization being the product of the current
market price of the Common Stock multiplied by the number of shares of
Common Stock then outstanding) on the date of such distribution; and
(vi) the successful completion of a tender or exchange offer made by the
Company or any Subsidiary for the Common Stock which involves an aggregate
consideration that, together with (a) any cash and the fair market value of
other consideration payable in respect of any tender or exchange offer by
the Company or a Subsidiary for Common Stock concluded within the preceding
12 months and (b) the aggregate amount of any all-cash distributions to all
holders of Common Stock made within the preceding 12 months, exceeds 12.5%
of the Company's aggregate market capitalization on the expiration of such
tender or exchange offer. No adjustment of the conversion price will be
required to be made until cumulative adjustments amount to 1% or more of
the conversion price as last adjusted.
If the Company, by means of dividend or otherwise, declares or makes a
distribution in respect of the Common Stock referred to in clause (iv) or
(v) above, the Holder of each Note, upon the conversion thereof subsequent
to the close of business on the date fixed for the determination of
shareholders entitled to receive such distribution and prior to the
effectiveness of the conversion price adjustment in respect of such
distribution pursuant to clause (iv) or (v) above, will be entitled to
receive for each share of Common Stock into which such Note is converted
that portion of the evidences of indebtedness, shares of capital stock,
cash and other property so distributed applicable to one share of Common
Stock; provided, however, that the Company may, with respect to all Holders
so converting, in lieu of distributing any portion of such distribution not
consisting of cash or securities of the Company, pay such Holder cash equal
to the fair market value thereof.
In the event that the Company distributes rights or warrants (other
than those referred to in clause (ii) of the preceding paragraph) pro rata
to holders of Common Stock, so long as any such rights or warrants have not
expired or been redeemed by the Company, the Holder of any Note surrendered
for conversion will be entitled to receive upon such conversion, in
addition to the shares of Common Stock issuable upon such conversion (the
"Conversion Shares"), a number of rights or warrants to be determined as
follows: (i) if such conversion occurs on or prior to the date for the
distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same
number of rights or warrants to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled to at the
time of such conversion in accordance with the terms and provisions of and
applicable to the rights or warrants, and (ii) if such conversion occurs
after such Distribution Date, the same number of rights or warrants to
which a holder of the number of shares of Common Stock into which such Note
was convertible immediately prior to such Distribution Date would have been
entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants. The conversion
price of the Notes will not be subject to adjustment on account of any
declaration, distribution or exercise of such rights or warrants.
In the case of certain reclassifications, consolidations, mergers,
sales or transfers of assets or other transactions pursuant to which the
Common Stock is converted into the right to receive other securities, cash
or other property, each Note then outstanding would, without the consent of
any Holders, become convertible only into the kind and amount of
securities, cash and other property receivable upon the transaction by a
holder of the number of shares of Common Stock which would have been
received by such Holder immediately prior to such transaction if such
Holder had converted its Note.
Fractional shares of Common Stock will not be issued upon conversion,
but, in lieu thereof, the Company will pay a cash adjustment based upon
market price.
Except as described in this paragraph, no Holder will be entitled,
upon conversion of a Note, to any actual payment or adjustment on account
of accrued and unpaid interest (although such accrued and unpaid interest
will be deemed paid by the appropriate portion of the Common Stock received
by the Holders upon such conversion) or on account of dividends on shares
of Common Stock issued in connection therewith. Notes surrendered for
conversion during the period from the close of business on any Regular
Record Date to the opening of business on the corresponding Interest
Payment Date (except Notes called for redemption on a Redemption Date
within such period between and including such Regular Record Date and such
Interest Payment Date) must be accompanied by payment to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount converted.
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for capital stock) and, pursuant to the conversion
price adjustment provisions of the Indenture, the conversion price of the
Notes is reduced, such reduction may be deemed to be the receipt of taxable
income to Holders of Notes.
In addition, the Company may make such reductions in the conversion
price as the Company's Board of Directors deems advisable to avoid or
diminish any income tax to holders of shares of Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for income tax purposes or for any other reasons.
Optional Redemption
The Notes may be redeemed at the Company's option, in whole or in
part, on at least 20 but not more than 60 days' notice by mail to the
registered Holders thereof, at any time on or after January 10, 2001,
through December 31, 2001 at 103.3750% of the principal amount and
thereafter at the following Redemption Prices (expressed as percentages of
principal amount), if redeemed during the 12-month period beginning on
January 1 of the years set forth below:
Year Percentage
2002. . . . . . . . . . . . . . . . . . . . . . . . 102.2500%
2003. . . . . . . . . . . . . . . . . . . . . . . . 101.1250%
and thereafter at 100% of the principal amount thereof, in each case
together with accrued and unpaid interest to (but not including) the
Redemption Date (subject to the rights of Holders of record on any Regular
Record Date to receive interest due on any Interest Payment Date that is on
or prior to such Redemption Date). If less than all the Notes are to be
redeemed, the Trustee will select or cause to be selected the particular
Notes to be redeemed by such method as it deems fair and appropriate and
which may provide for the selection for redemption of portions (equal to
$1,000 or any integral multiple thereof) of the principal amount of any
Note of a denomination larger than $1,000.
No sinking fund is provided for the Notes.
Certain Rights to Require Repurchase of Notes
The Indenture provides that if a Change in Control (as defined below)
occurs, each Holder will have the right, at its option, to require the
Company to repurchase all or any part of such Holder's Notes on the date
(the "Repurchase Date") fixed by the Company that is not less than 30 days
nor more than 45 days after the date the Company gives notice of the Change
in Control, at a price (the "Repurchase Price") equal to 100% of the
principal amount thereof, together with accrued and unpaid interest through
the Repurchase Date. On or prior to the Repurchase Date, the Company shall
deposit with the Trustee or with a Paying Agent an amount of money
sufficient to pay the aggregate Repurchase Price of the Notes which is to
be paid on the Repurchase Date.
The Company may not repurchase any Note pursuant to the preceding
paragraph at any time when the subordination provisions of the Indenture
otherwise would prohibit the Company from making payments of principal in
respect of the Notes. Failure by the Company to repurchase the Notes when
required under the preceding paragraph will constitute an Event of Default
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture.
On or before the 15th day after the Company knows or reasonably should
know a Change in Control has occurred, the Company will be required to mail
to all Holders a notice (the "Company Notice") of the occurrence of such
Change in Control, the Repurchase Date, the date by which the repurchase
right must be exercised, the Repurchase Price for the Notes and the
procedures which the Holder must follow to exercise such right. To exercise
the repurchase right, the Holder will be required to deliver, on or before
the Repurchase Date, written notice to the Company (or an agent designated
by the Company for such purpose) of the Holder's exercise of such right,
together with the certificates evidencing the Note or Notes with respect to
which the right is being exercised, duly endorsed for transfer.
The term "Beneficial Owner" shall be determined in accordance with
Rules 13d-3 and 13d-5 promulgated by the Securities and Exchange Commission
(the "Commission") under the Exchange Act or any successor provision
thereto, except that a Person shall be deemed to have "beneficial
ownership" of all shares that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
A "Change in Control" shall be deemed to have occurred at such time as
(i) any Person, or any Persons acting together in a manner which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the
Exchange Act, or any successor provision thereto, together with any
Affiliates thereof, (a) become the Beneficial Owners, directly or
indirectly, of capital stock of the Company, entitling such Person or
Persons and its or their Affiliates to exercise more than 50% of the total
voting power of all classes of the Company's capital stock entitled to vote
generally in the election of the Company's directors or (b) shall succeed
in having sufficient of its or their nominees (who are not supported by a
majority of the then current Board of Directors of the Company) elected to
the Board of Directors of the Company such that such nominees, when added
to any existing directors remaining on the Board of Directors of the
Company after such election who are Affiliates of or acting in concert with
such Persons, shall constitute a majority of the Board of Directors of the
Company, (ii) the Company shall be a party to any transaction pursuant to
which the Common Stock is converted into the right to receive other
securities (other than common stock), cash and/or property (or the Company,
by dividend, tender or exchange offer or otherwise, distributes other
securities, cash and/or property to holders of Common Stock) and the value
of all such securities, cash and/or property distributed in such
transaction and any other transaction effected within the 12 months
preceding consummation of such transaction (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and
described in a board resolution) is more than 50% of the average of the
daily Closing Prices for the five consecutive Trading Days ending on the
Trading Day immediately preceding the date of such transaction (or, if
earlier, the Trading Day immediately preceding the "ex" date (as defined in
the Indenture) for such transaction), or (iii) the Company shall
consolidate with or merge into any other Person or sell, convey, transfer
or lease its properties and assets substantially as an entirety to any
Person other than a Subsidiary, or any other Person shall consolidate with
or merge into the Company (other than, in the case of this clause (iii),
pursuant to any consolidation or merger where Persons who are shareholders
of the Company immediately prior thereto become the Beneficial Owners of
shares of capital stock of the surviving company entitling such Persons to
exercise more than 50% of the total voting power of all classes of such
surviving company's capital stock entitled to vote generally in the
election of directors); provided that a Change in Control shall not be
deemed to have occurred if either (a) at least 90% of the consideration
(excluding cash payments for fractional shares) in the transaction or
transactions constituting the Change in Control consists of common stock or
securities convertible into common stock that are, or upon issuance will
be, traded on a United States national securities exchange or approved for
trading on an established automated over-the-counter trading market in the
United States; or (b) the last sale price of the Common Stock for any five
trading days during the ten trading days immediately preceding the Change
of Control is at least equal to 110% of the conversion price in effect on
such day.
The effect of these provisions granting the Holders the right to
require the Company to repurchase the Notes upon the occurrence of a Change
in Control may make it more difficult for any Person or Group to acquire
control of the Company or to effect a business combination with the
Company. Moreover, under the Indenture, the Company will not be permitted
to pay principal of or interest on the Notes, or otherwise acquire the
Notes (including any repurchase at the election of the Holders upon the
occurrence of a Change in Control) if a payment default on Senior
Indebtedness has occurred and is continuing, or in the event of the
insolvency, bankruptcy, reorganization, dissolution or other winding up of
the Company where Senior Indebtedness is not paid in full. The Company's
ability to pay cash to Holders following the occurrence of a Change in
Control may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases.
In the event a Change in Control occurs and the Holders exercise their
rights to require the Company to repurchase Notes, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 (other than Commission filing requirements, if not then
applicable) and 14e-1, as then in effect, with respect to any such
purchase.
Registration Rights
The Company has agreed pursuant to a registration rights agreement
(the "Registration Rights Agreement"), to file with the Commission a
registration statement (the "Shelf Registration Statement"), of which this
Prospectus is a part, to cover resales by Holders of the Notes and the
Common Stock issuable upon conversion thereof within 60 days after the
first date of original issuance of the Notes. Additionally, the Company
will use its reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act no later than
120 days after the first date of original issuance of the Notes, and keep
the Shelf Registration Statement effective after its effective date for as
long as shall be required until the Notes and the Common Stock may be
transferred freely pursuant to Rule 144(k) under the Securities Act or any
successor rule or regulation thereto.
The Company will, among other things, provide to each Holder for whom
such Shelf Registration Statement was filed copies of the prospectus which
is a part of the Shelf Registration Statement, notify each such Holder when
the Shelf Registration Statement has become effective, and take certain
other actions as are required to permit unrestricted resales of the Notes
and the Common Stock issuable upon conversion of the Notes by such Holders
to third parties, other than through underwritten offerings. A Holder
selling such securities pursuant to the Shelf Registration Statement
generally will be (a) required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to purchasers,
(b) subject to certain of the civil liability provisions under the
Securities Act in connection with such sales, and (c) bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification obligations). If the Prospectus
is unavailable for periods in excess of those permitted under the
Registration Rights Agreement, additional interest will accrue on the Notes
over and above the rate set forth in the title of the Notes, from and
including the date on which any Registration Default shall occur but
excluding the date on which all Registration Defaults have been cured, at a
rate of 0.50% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all the provisions of the Registration
Rights Agreement, a copy of which is available upon request to the Company.
Consolidation, Merger and Sale of Assets
The Indenture provides that the Company, without the consent of the
Holders, may consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to
any Person or may permit any Person to consolidate with or merge into, or
transfer or lease its properties substantially as an entirety to, the
Company, provided that (i) the successor, transferee or lessee is organized
under the laws of any United States jurisdiction; (ii) the successor,
transferee or lessee, if other than the Company, expressly assumes the
Company's obligations under the Indenture and the Notes by means of a
supplemental indenture entered into with the Trustee; (iii) after giving
effect to the transaction, no Event of Default and no event which, with
notice or lapse of time, or both, would constitute an Event of Default
shall have occurred and be continuing; and (iv) certain other conditions
are met.
Under any consolidation by the Company with, or merger by the Company
into, any other Person or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety as
described in the preceding paragraph, the successor resulting from such
consolidation or into which the Company is merged or the transferee or
lessee to which such conveyance, transfer or lease is made will succeed to,
and be substituted for, and may exercise every right and power of, the
Company under the Indenture, and thereafter, except in the case of a lease,
the predecessor (if still in existence) will be released from its
obligations and covenants under the Indenture and the Notes.
Events of Default
An Event of Default is defined in the Indenture to be a (i) default in
the payment of any interest upon any of the Notes for 30 days or more after
such payment is due, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (ii) default in the payment of
the principal of and premium, if any, on any of the Notes when due, whether
or not such payment is prohibited by the subordination provisions of the
Indenture; (iii) default in the Company's obligation to provide notice of a
Change of Control or default in the payment of the repurchase price in
respect of any Note on the repurchase date therefor (whether or not such
payment is prohibited by the subordination provisions of the Indenture);
(iv) default by the Company in the performance or breach of any of its
other covenants in the Indenture which will not have been remedied by the
end of a 60-day period after written notice to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Notes; (v) failure to pay when due upon
final maturity or acceleration thereof any indebtedness for money borrowed
by the Company or a Subsidiary in an outstanding principal amount in excess
of $5,000,000, if such indebtedness is not discharged, or such acceleration
is not waived or annulled, within ten days after written notice as provided
in the Indenture; and (vi) certain events of bankruptcy, insolvency or
reorganization of the Company.
The Indenture provided that if an Event of Default (other than of a
type referred to in clause (vi) of the preceding paragraph) shall have
occurred and is continuing, either the Trustee or the Holders of at least
25% in principal amount of the Outstanding Notes may declare the principal
amount of all Notes to be immediately due and payable. Such declaration may
be rescinded if certain conditions are satisfied. If an Event of Default of
the type referred to in clause (vi) of the preceding paragraph shall have
occurred, the principal amount of the Outstanding Notes shall automatically
become immediately due and payable.
The Indenture further provides that the Holders of not less than a
majority in principal amount of the Outstanding Notes may direct the time,
method and place of conducting any proceedings for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee,
provided that such direction is not in conflict with any rule of law or
with the Indenture. The Trustee may take any other action deemed proper by
it that is not inconsistent with such direction.
The Indenture contains provisions entitling the Trustee, subject to
its duty during the continuance of an Event of Default to act with the
required standard of care, to be indemnified by the Holders before
proceeding to exercise any right or power under the Indenture at the
request of the Holders.
No Holder will have any right to institute any proceeding with respect
to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event
of Default and unless the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding
as Trustee, and the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of the Outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note or of the right to convert such
Note in accordance with the Indenture.
The Indenture requires the Company to file annually with the Trustee a
certificate, executed by a designated officer of the Company, stating to
the best of his knowledge that the Company is not in default under certain
covenants under the Indenture or, if he has knowledge that the Company is
in such default, specifying such default.
Modification and Waiver
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, to enter into one or more
supplemental indentures adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or modifying in any
manner the rights of the Holders of the Notes, except that no such
modification or amendment may, without the consent of the Holders of each
of the Outstanding Notes affected thereby, among other things, (i) change
the Stated Maturity of the principal of or any installment of interest on
any Note; (ii) reduce the principal amount thereof or any premium thereon
or the rate of interest thereon; (iii) adversely affect the right of any
Holder to convert any Note as provided in the Indenture; (iv) change the
place of payment where, or the coin or currency in which, the principal of
any Note or any premium or interest thereon is payable; (v) impair the
right to institute suit for the enforcement of any such payment on or with
respect to any Note on or after the Stated Maturity (or, in the case of
redemption, on or after the Redemption Date); (vi) modify the subordination
provisions of the Indenture in a manner adverse to the Holders;
(vii) modify the redemption provisions of the Indenture in a manner adverse
to the Holders; (viii) modify the provisions of the Indenture relating to
the Company's requirement to offer to repurchase Notes upon a Change in
Control in a manner adverse to the Holders; (ix) reduce the percentage in
principal amount of the Outstanding Notes the consent of whose Holders is
required for any such modification or amendment of the Indenture or for any
waiver of compliance with certain provisions of, or of certain defaults
under, the Indenture; or (x) modify the foregoing requirements.
The Holders of a majority in principal amount of the Outstanding Notes
may, on behalf of the Holders of all Notes, waive compliance by the Company
with certain restrictive provisions of the Indenture. The Holders of a
majority in principal amount of the Outstanding Notes may, on behalf of the
Holders of all Notes, waive any past default under the Indenture and its
consequences, except a default in the payment of the principal of or any
premium or interest on any Note or in respect of a provision which under
the Indenture cannot be modified or amended without the consent of the
Holders of each Outstanding Note affected.
Subordination
The payment of the principal of and premium, if any, and interest on
the Notes is, to the extent set forth in the Indenture, subordinated in
right of payment to the prior payment in full of all Senior Indebtedness.
When there is a payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, the holders of all Senior Indebtedness
will first be entitled to receive payment in full of all amounts due or to
become due thereon, or provision for such payment in money or money's
worth, before the Holders will be entitled to receive any payment in
respect of the principal of or premium, if any, or interest on the Notes.
No payments on account of principal of, premium, if any, or interest on the
Notes or on account of the purchase or acquisition of Notes may be made if
there has occurred and is continuing a default in any payment with respect
to Senior Indebtedness or if any judicial proceeding is pending with
respect to any such default. The Notes are also effectively subordinated in
right of payment to the prior payment in full of all indebtedness of the
Company's subsidiaries.
By reason of such subordination, in the event of insolvency, Holders
of the Notes and other creditors of the Company who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness.
"Senior Indebtedness" is defined in the Indenture as the principal of
and premium, if any, and interest on all indebtedness of the Company for
borrowed money, other than the Notes, whether outstanding on the date of
execution of the Indenture or thereafter created, incurred, guaranteed or
assumed, except such indebtedness that by the terms of the instrument or
instruments by which such indebtedness was created or incurred expressly
provides that it (i) is junior in right of payment to the Notes or any
other indebtedness of the Company or (ii) ranks pari passu in right of
payment to the Notes. The term "indebtedness for borrowed money" when used
with respect to the Company is defined to mean (a) any obligation of, or
any obligation guaranteed by, the Company for the repayment of borrowed
money, whether or not evidenced by bonds, debentures, notes or other
written instruments, (b) all obligations of the Company with respect to
interest rate hedging arrangements to hedge interest rates relating to
Senior Indebtedness of the Company, (c) any deferred payment obligation of,
or any such obligation guaranteed by, the Company for the payment of the
purchase price of property or assets evidenced by a note or similar
instrument, and (d) any obligation of, or any such obligation guaranteed
by, the Company for the payment of rent or other amounts under a lease of
property or assets, which obligation is required to be classified and
accounted for as a capitalized lease on the balance sheet of the Company
under generally accepted accounting principles.
At December 31, 1997, Senior Indebtedness and indebtedness of the
Company's Subsidiaries were approximately $3.0 million. The Company and its
Subsidiaries expect from time to time to incur additional indebtedness. The
Indenture does not limit or prohibit the incurrence of additional Senior
Indebtedness or additional indebtedness of the Company or its Subsidiaries.
Defeasance
The Indenture provides that (i) if applicable, the Company will be
discharged from any and all obligations in respect of the Outstanding Notes
(except for certain obligations to register the transfer or exchange of
Notes, to replace stolen, lost or mutilated Notes, to provide for
conversion of the Notes, to maintain Paying Agents and hold moneys for
payment in trust and to repurchase Notes in the event of a Change in
Control) or (ii) if applicable, the Company may decide not to comply with
certain restrictive covenants, but not including the obligation to provide
for conversion of the Notes or repurchase Notes in the event of a Change in
Control, and that such decision will not be deemed to be an Event of
Default under the Indenture and the Notes, in either of case (i) or
(ii) upon irrevocable deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations that will provide money in an amount sufficient
in the opinion of a nationally recognized firm of independent public
accountants expressed in written opinions thereof to pay the principal of,
premium, if any, and each installment of interest on the Outstanding Notes.
With respect to clause (ii), the obligations under the Indenture other than
with respect to such covenants and the Events of Default other than the
Event of Default relating to such covenants will remain in full force and
effect. Such trust may only be established if, among other things (a) with
respect to clause (i), the Company has delivered to the Trustee an Opinion
of Counsel to the effect that the Company has received from, or there has
been published by, the U.S. Internal Revenue Service (the "IRS") a ruling
or there has been a change in law which, in the opinion of counsel to the
Company, provides that Holders will not recognize gain or loss for federal
income tax purposes as a result of such deposit, defeasance and discharge
and will be subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or, with respect to clause (ii),
the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Holders will not recognize gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject
to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had
not occurred; (b) no Event of Default (or event that with notice or lapse
of time, or both, would constitute an Event of Default) shall have occurred
or be continuing; (c) the Company has delivered to the Trustee an Opinion
of Counsel to the effect that such deposit shall not cause the Trustee or
the trust so created to be subject to the Investment Company Act of 1940,
as amended; and (d) certain other customary conditions precedent are
satisfied.
Regarding the Trustee
State Street Bank & Trust Company of California, N.A., the Trustee
under the Indenture, has been appointed by the Company as registrar, Paying
Agent, transfer agent and conversion agent of the Notes.
Governing Law
The Indenture and the Notes are governed by and construed in
accordance with the laws of the State of New York.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 55,000,000
shares of capital stock, $.000001 par value, consisting of 50,000,000
shares of Common Stock and 5,000,000 shares of preferred stock. As of
April 14, 1998, approximately 18,958,090 shares of Common Stock were
outstanding. The Common Stock is listed on NASDAQ under the symbol "ATVI."
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election
of directors. There is no cumulative voting in the election of directors,
which means that the holders of a majority of the outstanding shares of
Common Stock can elect all of the directors then standing for election.
Subject to preferences which may be applicable to any outstanding shares of
preferred stock, holders of Common Stock are entitled to such distributions
as may be declared from time to time by directors of the Company out of
funds legally available therefor. The Company has not paid, and has no
current plans to pay, dividends on its Common Stock. The Company intends
to retain all earnings for use in its business.
Holders of Common Stock have no conversion, redemption or preemptive
rights to subscribe to any securities of the Company. All outstanding
shares of Common Stock are fully paid and nonassessable. In the event of
any liquidation, dissolution or winding-up of the affairs of the Company,
holders of Common Stock will be entitled to share ratably in the assets of
the Company remaining after provision for payment of liabilities to
creditors and preferences applicable to outstanding shares of preferred
stock.
The rights, preferences and privileges of holders of Common Stock are
subject to the rights of the holders of any outstanding shares of preferred
stock. At present, no shares of preferred stock are outstanding. As of
April , 1998, the Company had approximately 5,000 stockholders of
record, excluding banks, brokers and depository companies that are
stockholders of record for the account of beneficial owners.
The transfer agent for the Common Stock of the Company is Continental
Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The Selling Securityholders may sell all or a portion of the Notes and
shares of Common Stock beneficially owned by them and which may be offered
hereby from time to time on any exchange or market on which the Securities
are listed or quoted, as applicable, on terms to be determined at the times
of such sales. The Selling Securityholders may also make private sales
directly or through a broker or brokers. Alternatively, any of the Selling
Securityholders may from time to time offer the Notes or shares of Common
Stock which may be offered hereby through dealers or agents, who may
receive compensation in the form of discounts, commissions or concessions
from the Selling Securityholders and the purchasers of the Notes or shares
of Common Stock for whom they may act as agent. Such dealers or agents may
include the initial purchasers of the Notes, which may perform investment
banking or other services for or engage in other transactions with the
Company from time to time in the future.
To the extent required, the aggregate principal amount of Notes and
number of shares of Common Stock to be sold hereby, the names of the
Selling Securityholders, the purchase price, the name of any such agent or
dealer and any applicable commissions, discounts or other terms
constituting compensation with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement. The aggregate proceeds to
the Selling Securityholders from the sale of the Notes or shares of Common
Stock offered by them hereby will be the purchase price of such Notes or
shares of Common Stock less discounts and commissions, if any.
The Notes and the shares of Common Stock which may be offered hereby
may be sold from time to time in one or more transactions at fixed offering
prices, which may be changed, or at varying prices determined at the time
of sale or at negotiated prices. Such prices will be determined by the
holders of such securities or by agreement between such holders and brokers
or dealers who receive fees or commissions in connection therewith.
The Common Stock is listed for trading on NASDAQ, and the Company
intends that the shares of Common Stock issuable upon conversion of the
Notes will be authorized for listing on NASDAQ. There is no assurance as
to the development or liquidity of any trading market that may develop for
the Notes.
In the order to comply with the securities laws of certain states, if
applicable, the Notes and shares of Common Stock offered hereby will be
sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states, the Notes and shares of Common
Stock offered hereby may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and compliance with
same is effected.
The Selling Securityholders and any broker-dealers or agents that
participate with the Selling Securityholders in the distribution of the
Notes or shares of Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such broker-dealers or agents and any
profit on the resale of the Notes or shares of Common Stock offered hereby
and purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company has agreed
to indemnify the Selling Securityholders against certain liabilities
arising under the Securities Act. The Company has agreed to pay certain
expenses incident to the offer and sale of the Notes and Common Stock
offered hereby by the Selling Securityholders to the public, other than
underwriting discounts and selling commissions or fees, if any.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material
U.S. federal income tax aspects of the acquisition, ownership and
disposition of the Notes or the Common Stock. This discussion is a summary
for general information only and does not consider all aspects of U.S.
federal income tax that may be relevant to the purchase, ownership and
disposition of the Notes or the Common Stock by a prospective investor in
light of such investor's personal circumstances.
For purposes of this discussion, the term "U.S. Holder" means a
beneficial owner of the Notes or the Common Stock that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United
States, (ii) treated as a domestic corporation or a domestic partnership,
or (iii) an estate or trust other than a "foreign estate" or "foreign
trust" as defined in Section 7701(a)(31) of the Code (a "U.S. Holder").
Except as expressly described herein, this discussion does not address the
tax consequences to a Holder that is not a U.S. Holder (a "Foreign
Holder"). This discussion also does not address the U.S. federal income tax
consequences of ownership of Notes or Common Stock not held as capital
assets within the meaning of Section 1221 of the Code, or the U.S. federal
income tax consequences to investors subject to special treatment under the
U.S. federal income tax laws, such as dealers in securities or foreign
currency, tax-exempt entities, banks, thrift institutions, insurance
companies or other financial institutions, persons that hold the Notes or
the Common Stock as part of a "straddle," a "hedge" against currency risk
or a "conversion transaction," persons that have a "functional currency"
other than the U.S. dollar, persons who enter into certain "constructive
sales" involving the Notes or the Common Stock or substantially identical
property, and investors in pass-through entities. Moreover, the effect of
any applicable state, local or foreign tax laws is not discussed.
This discussion is based on the Code, existing and proposed
regulations thereunder, and current administrative rulings and court
decisions. All the foregoing is subject to change, possibly on a
retroactive basis, and any such change could affect the continuing validity
of this discussion.
EACH PERSON CONSIDERING THE PURCHASE OF A NOTE IS STRONGLY URGED TO
CONSULT ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF FEDERAL INCOME
TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION, TO ITS PARTICULAR SITUATIONS. THE CONTENTS OF THIS OFFERING
CIRCULAR ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH
PROSPECTIVE PURCHASER SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR
AND/OR TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
Stated Interest
This discussion assumes that the Notes will be treated as debt, not
equity, for federal income tax purposes. Each U.S. Holder of a Note and the
Company must report the Note as debt for such purposes. The stated interest
on a Note therefore will be taxable to a U.S. Holder as ordinary interest
income either at the time it accrues or is received, depending on such U.S.
Holder's method of accounting for federal income tax purposes.
The Company intends to take the position (which generally will be
binding on all U.S. Holders) that the Notes were not issued with original
issue discount for federal income tax purposes and thus that no amounts
other than stated interest will be treated as interest under the original
issue discount rules of the Code. This position is based on the presumption
in the Regulations that an optional redemption of the Notes at a price not
less than their face amount will not occur and the assumptions that the
interest rate on the Notes will not be increased pursuant to the
Registration Rights Agreement, and that the price at which the Notes were
sold to the public was equal to their face amount (or was within the de
minimis exception for original issue discount).
Market Discount
Generally, the market discount rules discussed below will not apply to
a U.S. Holder who acquired a Note when it was originally issued. These
rules would apply, however, to any Note purchased after original issue at a
price less than its stated redemption price at maturity.
Gain recognized on the disposition (including a redemption) of a Note
that has accrued market discount will be treated as ordinary income, not
capital gain, to the extent of the accrued market discount, provided that
the amount of market discount exceeds a statutory de minimis amount.
"Market discount" is defined as the excess, if any, of (i) the stated
redemption price at maturity over (ii) the tax basis of the debt obligation
in the hands of the Holder immediately after its acquisition.
Unless a U.S. Holder elects to compute market discount on a constant
interest rate basis, the accrued market discount would be the amount
calculated by multiplying the market discount by a fraction, the numerator
of which is the number of days the obligation has been held by the U.S.
Holder and the denominator of which is the number of days after the U.S.
Holder's acquisition of the obligation up to and including its maturity
date. A U.S. Holder of a Note acquired at market discount also may be
required to defer the deduction of all or a portion of the interest on an
indebtedness incurred or maintained to carry the Note until it is disposed
of in a taxable transaction.
If a U.S. Holder of a Note acquired at market discount disposes of
such Note in any transaction other than a sale, exchange or involuntary
conversion, even though otherwise nontaxable (e.g., a gift) such U.S.
Holder will be deemed to have realized an amount equal to the fair market
value of the Note and would be required to recognize the deemed gain as
ordinary income to the extent of any accrued market discount.
A U.S. Holder of a Note acquired at market discount may elect to
include the market discount in income as it accrues, either on a
straight-line basis or, if elected, on a constant interest rate basis. The
current income inclusion election would apply to all market discount
obligations acquired by the electing U.S. Holder on or after the first day
of the first taxable year to which the election applies. The election may
be revoked only with the consent of the Service. If a U.S. Holder of a Note
so elects to include market discount in income currently, the
above-discussed rules with respect to ordinary income recognition resulting
from sales and certain other disposition transactions and to deferral of
interest deductions would not apply.
Amortizable Bond Premium
If a U.S. Holder of a Note purchases it at a cost that is in excess of
the amount payable on maturity of the Note, that excess may be treated as
"amortizable bond premium" that is allocated among the interest payments on
the Note using a constant interest rate method over the remaining term of
the Note. The amount allocated to each interest payment would be applied
against and offset a portion of the income from that interest payment, with
a corresponding reduction in the U.S. Holder's basis in the Note. The
interest offset would be available only if an election under Section 171 of
the Code is made or is in effect. The election would apply to all debt
instruments held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies
and may not be revoked without the consent of the IRS. The amount of the
premium attributable to the conversion feature of the Note must be
eliminated in determining the amount of any amortizable bond premium.
Tax Basis
A U.S. Holder's initial tax basis in a Note will be equal to the
purchase price paid by such U.S. Holder for such Note.
Sale or Redemption
Unless a nonrecognition provision applies, the sale, exchange,
redemption (including pursuant to an offer by the Company) or other
disposition of a Note (other than conversion) will be a taxable event for
federal income tax purposes. In such event, a U.S. Holder will recognize
gain or loss equal to the difference between (i) the amount of cash plus
the fair market value of any property received upon such sale, exchange,
redemption or other taxable disposition (other than in respect of accrued
and unpaid interest thereon, which will be ordinary income) and (ii) the
U.S. Holder's adjusted tax basis therein, which will generally equal such
Holder's cost for the Note, less any principal payments received. Such gain
or loss should be capital gain or loss and will be long-term capital gain
or loss if the Note had been held by the U.S. Holder for more than one year
at the time of such sale, exchange, redemption or other disposition (which,
in the case of individuals who have held their Notes for more than
18 months will be taxed at a rate of not more than 20%).
Deemed Dividends
Section 305 of the Code treats as a distribution taxable as a dividend
(to the extent of the issuing corporation's current or accumulated earnings
and profits) certain actual or constructive distributions of stock with
respect to stock or convertible securities. Under U.S. Treasury
regulations, an adjustment in the conversion price, or the failure to make
such an adjustment, may, under certain circumstances, be treated as a
constructive dividend. Generally, a U.S. Holder's tax basis in a Note will
be increased by the amount of any such constructive distribution.
Conversion of Note into Common Stock
No gain or loss will be recognized for federal income tax purposes on
conversion of Notes into shares of Common Stock, except with respect to any
cash received in lieu of a fractional share. The tax basis for the shares
of Common Stock received upon conversion will be equal to the tax basis of
the Notes converted into Common Stock, and the holding period of the shares
of Common Stock will include the holding period of the Notes converted. A
U.S. Holder will recognize taxable gain or loss on cash received in lieu of
fractional shares of Common Stock in an amount equal to the difference
between the amount of cash received and the U.S. Holder's tax basis in such
fractional shares. Subject to the market discount rules discussed above,
such gain or loss should be capital gain or loss if the fractional shares
are capital assets in the hands of the U.S. Holder and long-term capital
gain or loss if the fractional shares have been deemed held for more than
one year which, in the case of individuals who have held their Notes for
more than 18 months will be taxed at a rate of not more than 20%.
Dividends
Dividends paid on the Common Stock generally will be includable in the
income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits.
Sale of Common Stock
Upon the sale or exchange of Common Stock, a United States Holder
generally will recognize capital gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any property
received upon the sale or exchange and (ii) such Holder's adjusted tax
basis in the Common Stock. Such capital gain or loss will be long-term if
the United States Holder's holding period in the Common Stock is more than
one year at the time of the sale or exchange, and in the case of
individuals who have held their Common Stock for more than 18 months, will
be taxed at a rate of not more than 20%. A United States Holder's basis and
holding period in Common Stock received upon conversion of a Note are
determined as discussed above under "Conversion of the Note into Common
Stock."
Backup Withholding
A U.S. Holder of Notes or Common Stock may be subject to "backup
withholding" at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments and, under
certain circumstances, principal payments on the Notes or proceeds from the
disposition of Common Stock. These backup withholding rules apply if the
U.S. Holder, among other things, (i) fails to furnish a social security
number or other taxpayer identification number ("TIN") certified under
penalties of perjury within a reasonable time after the request therefor,
(ii) furnishes an incorrect TIN, (iii) fails to report properly interest or
dividends, or (iv) under certain circumstances, fails to provide a
certified statement, signed under penalties of perjury, that the TIN
furnished is the correct number and that such U.S. Holder is not subject to
backup withholding. A U.S. Holder who does not provide the Company with its
correct TIN also may be subject to penalties. Any amount withheld from a
payment to a U.S. Holder under the backup withholding rules is creditable
against the U.S. Holder's federal income tax liability, provided the
required information is furnished to the Service. Backup withholding will
not apply, however, with respect to payments made to certain holders,
including corporations and tax-exempt organizations, provided their
exemption from backup withholding is properly established.
The Company will report to the U.S. Holders of Notes and Common Stock
and to the Service the amount of any "reportable payments" for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
Certain U.S. Tax Consequences to Foreign Holders
General. The following is a general discussion of certain U.S. federal
income tax consequences of the acquisition, ownership and disposition of
the Notes and Common Stock by a Foreign Holder. This discussion does not
address tax consequences arising under the laws of any foreign, state or
local jurisdiction. The tax treatment of Foreign Holders of the Notes may
vary depending on their particular situations. Certain Foreign Holders
(including insurance companies, tax-exempt organizations, financial
institutions and broker-dealers) may be subject to special rules not
discussed below. Prospective investors who are Foreign Holders are urged to
consult their tax advisors regarding the U.S. federal tax consequences of
acquiring, holding and disposing of Notes, as well as any tax consequences
that may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
Interest on Notes. Interest paid by the Company to a Foreign Holder will
qualify for the portfolio interest exemption and will not be subject to
U.S. federal income or withholding tax if (i) such interest is not
effectively connected with the conduct of a trade or business within the
United States by such Foreign Holder, (ii) the Foreign Holder does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (iii) the
Foreign Holder is not a controlled foreign corporation with respect to
which the Company is a "related person" within the meaning of the Code, and
(iv) either (a) the Foreign Holder of the Notes certifies to the Company,
under penalties of perjury, that the Foreign Holder is not a U.S. person
and provides the beneficial owner's name and address on a U.S. Treasury
Form W-8 (or suitable substitute form) or (b) a securities clearing
organization, bank or other financial institution that holds the Note
certifies, under penalties of perjury, that such Form W-8 (or suitable
substitute form) has been received from the Foreign Holder by it or by a
financial institution between it and the Foreign Holder and furnishes the
payor with a copy thereof.
Except to the extent that an applicable treaty otherwise provides, a
Foreign Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is
effectively connected with a United States trade or business of the Foreign
Holder. Effectively connected interest received by a corporate Foreign
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty
rate). Even though such effectively connected interest is subject to income
tax, and may be subject to the branch profits tax, it is not subject to
withholding tax if the Holder delivers an appropriate form to the payor,
which form includes, among other things, a representation that the amounts
for which the form is furnished are effectively connected with the conduct
of a trade or business in the United States.
Interest income of a Foreign Holder that is not effectively connected
with a United States trade or business and that does not qualify for the
portfolio interest exemption described above will generally be subject to a
withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
Conversion of Notes. A Foreign Holder generally will not recognize gain
or loss upon any conversion of a Note into Common Stock, except with
respect to the receipt of cash in lieu of fractional shares where any of
the conditions exist that result in taxation as described below under "Gain
on Disposition of Notes or Common Stock."
Dividends on Common Stock. In the event that dividends are paid to a
Foreign Holder of Common Stock, unless such dividends are effectively
connected with the conduct of a trade or business of the Foreign Holder
within the United States, such dividends will be subject to withholding of
U.S. federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Under current U.S. Treasury
Regulations, dividends paid to an address in a country outside the United
States are presumed to be paid to a resident of such country and are
subject to 30% withholding unless the recipient establishes that the
recipient is entitled to a reduced tax treaty rate.
In order to be exempt from withholding on effectively connected income
under current Treasury Regulations certain certification and disclosure
requirements must be satisfied. If the dividend is effectively connected
with the conduct of a trade or business of the Foreign Holder within the
United States, the dividend would, unless exempted by treaty, be subject to
U.S. federal income tax on a net income basis at applicable graduated
individual or corporate rates. Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be
subject to an additional "branch profits" tax at a rate of 30% or such
lower rate as may be specified by an applicable treaty.
Under recently adopted Treasury Regulations which will become
effective January 1, 1999 (the "Final Regulations"), a Foreign Holder
seeking an exemption from withholding under the effectively connected
income exemption described above, or a reduced rate of withholding pursuant
to a treaty, generally will be required to provide the company (or other
payor) a foreign beneficial owner certificate on Form W-8, which form may
include, among other things, the Foreign Holder's taxpayer identification
number, country of residence and certain other information and
representations. The Final Regulations also provide special rules to
determine whether, for purposes of determining the applicability of a tax
treaty, interest paid to a Foreign Holder that is an entity should be
treated as paid to the entity itself, or to those holding an interest in
the entity.
A Foreign Holder of Common Stock that is eligible for a reduced U.S.
withholding tax pursuant to a tax rate treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the Service.
Gain on Disposition of Notes or Common Stock. Except for amounts received
with respect to accrued but unpaid interest that would be taxable to the
Foreign Holder if paid by the Company (see "Certain U.S. Tax Consequences
to Foreign Holders - Interest on Notes" above) a Foreign Holder generally
will not be subject to U.S. federal income tax on any gain recognized on a
disposition of a Note or a share of Common Stock unless (i) subject to the
exception discussed below, the Company is or has been a "United States real
property holding corporation" (a "USRPHC") within the meaning of
Section 897 (c)(2) of the Code at any time within the shorter of (a) the
Foreign Holder's holding period for the Common Stock or (b) the five-year
period ending on the date of disposition (the "Required Holding Period"),
(ii) the gain is effectively connected with the conduct of a trade or
business within the United States of the Foreign Holder and, if a tax
treaty applies, attributable to a permanent establishment maintained by the
Foreign Holder, (iii) the Foreign Holder is an individual who holds the
Note or Common Stock as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition and certain
other conditions are met; or (iv) the Foreign Holder is subject to tax
pursuant to the provisions of the Code applicable to certain expatriates.
If a Foreign Holder that is a foreign corporation falls under clause (ii)
above, it will be taxed on its gain under regular graduated U.S. federal
income tax rates and will, under certain circumstances, be subject to
branch profits tax at a 30% rate or such lower rate as may be specified by
an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its
U.S. real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets
used or held for use in a trade of business. The Company believes that it
currently is not a USRPHC. Even if it were, a Foreign Holder would
generally not be subject to tax or withholding in respect of such tax on
gain from a sale or other disposition of a share of Common Stock by reason
of the Company's USRPHC status if the Common Stock is regularly traded on
an established securities market ("regularly traded") during the calendar
year in which such sale or other disposition of the Common Stock occurs,
provided that such foreign Holder is not a "5% Holder" (i.e., the Foreign
Holder beneficially own more than 5% of the Common Stock at any time during
the required Holding Period). The Company believes that the Common Stock
will be treated as regularly traded.
The "regularly-traded" exception will also apply to a "non-regularly
traded class of interests" in a United States corporation that is
convertible into a regularly traded class of interests in the corporation
unless, on the date such non-regularly traded interest was acquired by its
present holder, such interest had a fair market value greater than the fair
market value on that date of 5% of the regularly traded class of the
corporation's stock into which it is convertible. (Interests of a
non-regularly traded class acquired over a period of time will be
aggregated and valued as of the date of the subsequent acquisition for
purposes of applying the 5% test described above.) Accordingly, except with
respect to the sale, exchange, conversion or redemption of the Notes by a
Foreign Holder whose aggregate actual or constructive ownership of such
Notes on an applicable determination date had a fair market value greater
than 5% of the Common Stock, no withholding or income taxation under the
FIRPTA rules should be required with respect to the sale, exchange,
conversion or redemption of Notes by a Foreign Holder.
The foregoing discussion assumes that the Notes constitute interests
that are non-regularly traded interests convertible into a regularly traded
class of interests. If the Notes were to become regularly traded, the
regularly traded exemption might not apply to Notes owned by a person who
beneficially owns (actually or constructively) more than 5% of the total
fair market value of the Notes at any time during the five year period
ending on the date of disposition of the Notes or other applicable
determination date.
If the Company is or has been a USRPHC within the Required Holding
Period, and if the "regularly traded" exception discussed above were
inapplicable, a Foreign Holder of Notes or Common Stock (without regard to
the Foreign Holder's ownership percentage) generally would be subject to
FIRPTA tax on gain recognized on a sale or other disposition of the Notes
or Common Stock. Any amount withheld pursuant to such withholding tax would
be credited against such Foreign Holder's U.S. federal income tax
liability.
Any Foreign Holder that may approach or exceed any of the 5% ownership
thresholds discussed above, either alone or in conjunction with related
persons, should consult its own tax advisor concerning the United States
tax consequences that may result. A Foreign Holder who sells or otherwise
disposes of Notes may be required to inform its transferee whether such
Notes constitute a United States real property interest.
Federal Estate Taxes. If interest on the Notes qualifies for the
portfolio interest exemption and is, therefore, exempt from withholding of
U.S. federal income tax under the rules described above, the Notes will not
be included in the estate of a deceased Foreign Holder for U.S. federal
estate tax purposes. Common Stock owned, or treated as owned, by a Foreign
Holder (as specifically determined for U.S. federal estate tax purposes) at
the time of death will be included in such Foreign Holder's gross estate
for U.S. federal income tax liability. Foreign Holders are urged to consult
their tax advisors concerning the potential applicability of these
provisions.
Information Reporting and Backup Withholding. The Company must report
annually to the Service and to each Foreign Holder the amount of interest
and dividends paid to such Foreign Holder and the amount of any tax
withheld. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns
reporting such interest and dividends may also be made available to the tax
authorities of the country in which the Foreign Holder resides under the
provisions of an applicable income tax treaty.
In the case of payments of interest to Foreign Holders, current U.S.
Treasury regulations provide that the 31% backup withholding tax and
certain information reporting will not apply to such payments with respect
to which either the certification of foreign status on IRS Form W-8 has
been received or an exemption has otherwise been established, provided that
neither the Company nor its Paying Agent has actual knowledge that the
Holder is a U.S. person or that the conditions of any other exemption are
not in fact satisfied. Under current U.S. Treasury regulations, these
information reporting and backup withholding requirements will apply,
however, to the gross proceeds paid to a Foreign Holder on the disposition
of the Notes by or through a U.S. office of a U.S. or foreign broker,
unless the Foreign Holder certifies to the broker under penalties or
perjury as to its name, address and status as a foreign person or the
Foreign Holder otherwise establishes an exemption. The information
reporting requirement, but not backup withholding, will also apply to a
payment of the proceeds of a disposition of the Notes by or through a
foreign office of a U.S. broker or foreign brokers with certain types of
relationships to the U.S. unless the broker has in its records documentary
evidence that the beneficial owner is not a U.S. person and certain other
conditions are met, or the beneficial owner otherwise establishes an
exemption.
Under current U.S. Treasury Regulations, United States backup
withholding tax generally will not apply to (i) the payment of dividends
paid on Common Stock to a Foreign Holder at an address outside the United
States or (ii) the payment of the proceeds of the sale of Common Stock to
or through the foreign office of a broker. In the case, however, of the
payment of proceeds from such a sale of Common Stock through a foreign
office of a broker that is a U.S. person or "U.S. related person,"
information reporting (but not backup withholding) is required with respect
to the payment unless the broker has documentary evidence in its files that
the owner is a Foreign Holder and certain other requirements are met or the
Holder otherwise establishes an exemption. For this purpose, a "U.S.
related person" is a controlled foreign corporation or a foreign person 50%
or more of whose gross income from all sources for the three-year period
ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived
from activities that are effectively connected with the conduct of a U.S.
trade or business. The payment of the proceeds of a sale or shares of
Common Stock to or through a U.S. office of a broker is subject to
information reporting and possible backup withholding unless the owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
Under the Final Regulations (effective January 1, 1999), information
reporting and backup withholding will not apply to payments of interest or
dividends to a Foreign Holder provided (i) the withholding agent can
reliably associate such payments with Form W-8 timely furnished by the
Foreign Holder in which the Foreign Holder represents that it is a foreign
person, and (ii) certain other requirements are satisfied. Also,
information reporting and backup withholding will not apply under the Final
Regulations to payments of proceeds from a sale or disposition of the Notes
or Common Stock provided the sale is (i) effected at an office outside the
United States by a payor that is not a U.S. person or a U.S. related person
as defined above, or certain other entities, (ii) effected at an office of
a U.S. broker either inside or outside the United States and the broker can
associate such payments with documentation upon which it can rely in order
to treat the payee as a foreign beneficial owner, including a certification
that the beneficial owner has not been and reasonably expects not to be
present in the United States for a period aggregating 183 days or more
during each calendar year to which the certificate pertains, and certain
other requirements are satisfied. Discussions herein concerning the Final
Regulations are not intended to be a complete discussion thereof, and
Foreign Holders are urged to consult their tax advisors concerning the
application of the Final Regulations in light of their own circumstances.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be refunded or credited against the
Foreign Holder's U.S. federal income tax liability, provided that the
required information is furnished to the Service.
LEGAL MATTERS
Certain legal matters in connection with the Notes and the shares of
Common Stock offered hereby have been passed upon for the Company by
Robinson Silverman Pearce Aronsohn & Berman LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company and its subsidiaries as of March 31, 1996 and for the years
ended March 31, 1996 and 1995 incorporated in this Prospectus by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1997 have been audited by Coopers & Lybrand LLP, independent
accountants, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and financial statement schedule
of the Company and its subsidiaries as of March 31, 1997 and for the year
ended March 31, 1997, appearing in the Company's March 31, 1997 annual
report on Form 10-K, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Combined Distribution
(Holdings) Limited and subsidiaries as of April 30, 1997 and the period
June 28, 1996 (inception) to April 30, 1997 have been incorporated by
reference herein and in the Registration Statement in reliance on the
report of Grant Thornton, independent auditors, incorporated by reference
herein, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of the Company and its
subsidiaries as of March 31, 1996 and for the years ended March 31, 1996
and 1995 incorporated in this Prospectus by reference to the Company's
Current Report on Form 8-K dated January 6, 1998 have been audited by
Coopers & Lybrand LLP, independent accountants, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The supplemental consolidated financial statements of the Company and
its subsidiaries as of March 31, 1997 and for the year ended March 31,
1997, appearing in the Company's Form 8-K dated January 6, 1998, have been
incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, and Grant Thornton, independent auditors, incorporated
by reference herein, and upon the authority of said firms as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the SEC at its offices at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the SEC located at Seven World Trade Center, New
York, New York 10048 and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials
can be obtained by mail from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, and can also be obtained electronically through the SEC's
Electronic Data Gathering, Analysis and Retrieval system at the SEC's Web
site (http://www.sec.gov). The Company's Common Stock is listed on The
Nasdaq National Market and copies of such reports and other information can
also be inspected at the offices of The Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the SEC a registration statement on Form S-
3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
with respect to the Notes and the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, as permitted by the rules and
regulations of the SEC. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof, which may be
inspected and copied at the public reference facilities of the SEC referred
to above. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the full text of such contract or document
filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company furnishes stockholders with annual reports containing
audited financial statements and with proxy material for its annual
meetings complying with the proxy requirements of the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents which have been filed by the Company with the
SEC are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended March
31, 1997, which contains audited consolidated balance sheets of the Company
and subsidiaries as of March 31, 1997 and 1996, and related consolidated
statements of income, shareholders equity and cash flows for the years
ended March 31, 1997, 1996 and 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended June 30, 1997, September 30, 1997 and December 31, 1997.
3. The Company's Current Report on Form 8-K filed December 5, 1997,
with respect to the acquisition of CDH and NBG.
4. Amendment No. 1 to the Company's Current Report on Form 8-K, filed
on December 12, 1997, containing certain financial statements relating to
CDH and the acquisition of CDH.
5. The Company's Current Report on Form 8-K, filed December 23, 1997,
with respect to the Company's $60,000,000 Convertible Subordinated Notes
issuance.
6. The Company's Current Report on Form 8-K, dated January 6, 1998,
containing certain restated financial statements.
7. All other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since March 31, 1997.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all
securities then remaining unsold, shall be deemed to be incorporated by
reference in and to be a part of this Prospectus from the date of filing of
such reports and documents.
Any statement contained herein or in a document which is incorporated
by reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement in any
subsequently filed document that is also deemed to be incorporated by
reference herein modifies or supersedes such prior statement.
This Prospectus incorporates documents by reference which are not
presented or delivered herewith. These documents are available upon
written or oral request from the Company, without charge, to each person to
whom a copy of this Prospectus has been delivered, other than exhibits to
those documents. Requests should be directed to the Office of the
Secretary, Activision, Inc., 3100 Ocean Park Boulevard, Santa Monica,
California 90405 (telephone (310) 255-2000).
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference into this
Prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include the various matters
described herein under "Risk Factors" and various other factors described
in the Company's other filings with the Commission.
<PAGE>
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No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
Prospectus, and if given or made, such information or representations must
not be relied upon as having been authorized by the Company or the Selling
Securityholders. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that the
information herein is correct as of any time subsequent to its date. This
Prospectus does not constitute an offer of solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer of solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
Page
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Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selling Securityholders . . . . . . . . . . . . . . . . . . . . . . . . .12
Description of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . .16
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . 27
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . .27
Certain United States Federal Tax Considerations. . . . . . . . . . . . .28
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . .36
Documents Incorporated by Reference . . . . . . . . . . . . . . . . . . .36
Special Note Regarding Forward Looking Statements . . . . . . . . . . . .37
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ACTIVISION, INC.
$60,000,000
6 3/4 Convertible Subordinated Notes
due 2005
3,178,808 Shares of Common Stock
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PROSPECTUS
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April 22, 1998
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