<PAGE>
As filed with the Securities and Exchange Commission on December 21, 1998
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
---------------------------------
ACCLAIM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
---------------------------------
Delaware 38-2698904
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
---------------------------------
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
(Address and telephone number of registrant's principal executive offices)
---------------------------------
Gregory E. Fischbach
Chief Executive Officer
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542
(516) 656-5000
(Name, address and telephone number of agent for service)
--------------------------------------------------
Copy to:
Eric M. Lerner, Esq.
Rosenman & Colin LLP
575 Madison Avenue
Telephone: (212) 940-8800
---------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount to be registered Proposed maximum Proposed maximum Amount of
security to be registered aggregate price per unit aggregate offering price registration fee
(1) (1)
<S> <C> <C> <C> <C>
Common Stock, par value 206,000 $ 9.34375 $ 1,924,813 $ 536
$0.02 per share
</TABLE>
<PAGE>
[balance of front cover]
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933,
solely for the purpose of determining the registration fee, based on
the average of the high and low prices of the Common Stock as quoted
on The NASDAQ Stock Market's National Market System on December 15,
1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
- -------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1998
ACCLAIM ENTERTAINMENT, INC.
206,000 SHARES OF COMMON STOCK
The Business
Acclaim Entertainment, Inc. is a worldwide developer, publisher and
mass marketer of interactive entertainment software for use with
dedicated interactive entertainment hardware platforms and multimedia
personal computer systems. We own and operate four software
development studios located in the U.S. and the U.K., and publish and
distribute our software directly in North America, the U.K., Germany,
France and Australia.
Common Stock
The 206,000 shares of common stock covered by this prospectus are
being offered and sold from time to time by Fringe Pty. Ltd. (trading
as Digital Leisure), a company doing business in Australia. We will
not receive any proceeds from the sale of the shares. The shares were
originally issued by us to Digital Leisure in a privately-negotiated
transaction pursuant to the exemption for registration provided under
Section 4(2) of the Securities Act of 1933. See "Plan of Distribution"
for information regarding the manner in which the shares are being
sold under this prospectus.
Our common stock is traded on The Nasdaq Stock Market National Market
System under the symbol "AKLM." On December 18, 1998, the last reported
sale price of the common stock was $11.4375 per share.
The offering is subject to withdrawal and cancellation at any time,
without notice.
See "Risk Factors" beginning on page 5 for a discussion of certain
factors that you should consider before you invest in the common stock
being sold with this prospectus.
Neither the Securities and Exchange Commission (SEC) nor any state
securities commission has approved or disapproved these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
December , 1998.
<PAGE>
TABLE OF CONTENTS
Page No.
The Company 3
Risk Factors 5
Use of Proceeds 15
Selling Stockholder 15
Plan of Distribution 16
Legal Proceedings 18
Legal Matters 19
Experts 19
DEFINED TERMS
As used in this prospectus, (a) "Acclaim" or "we" means Acclaim
Entertainment, Inc., (b) "Subsidiary" means Acclaim Entertainment Pty. Ltd.,
Acclaim's wholly-owned subsidiary, a company doing business in Australia, (c)
"Selling Stockholder" means, collectively, Fringe Pty. Ltd. (trading as Digital
Leisure; "Digital Leisure"), a company doing business in Australia, and its
permitted transferees, (d) "Common Stock" means Acclaim's common stock, par
value $0.02 per share, and (e) "Acquisition Shares" means the 206,000 shares of
Common Stock issued to Digital Leisure and covered by this prospectus.
<PAGE>
Forward-Looking Statements
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements, including those risks and uncertainties discussed in the "Risk
Factors" section of this prospectus. In light of the significant risks and
uncertainties inherent in the forward-looking statements included in this
prospectus, the inclusion of such statements should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
Incorporation of Certain Documents by Reference
The following documents filed by us with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference:
o Annual Report on Form 10-K for the fiscal year ended August 31, 1998 filed
on November 6, 1998 (File No. 0-16986); and
o The information in respect of the Common Stock under the caption
"Description of Registrant's Securities to be Registered" contained in the
Registration Statement on Form 8-A, filed on June 8, 1988 (File No.
0-16986), as amended by the Current Report on Form 8-K, filed on August
25, 1989 (File No. 33-9460-C), relating to the one-for-two reverse stock
split effected by Acclaim.
In addition, all documents filed by us with the SEC pursuant to
Sections 13(a), 14 or 15(d) of the Exchange Act subsequent to the date of
this prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference into this prospectus. In addition, if we
revise or update a document included in this prospectus or incorporate a
document by reference into this prospectus, then the document contained
herein (or incorporated by reference herein) shall be considered revised or
updated upon our filing of such updated or revised document.
We will provide, without charge, to each person, including any
beneficial owner, to whom this prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference herein).
Requests for such documents should be directed to the Secretary of Acclaim
Entertainment, Inc., One Acclaim Plaza, Glen Cove, New York 11542. Telephone
requests for such copies should be directed to the Secretary at (516)
656-5000.
<PAGE>
Where You Can Find More Information
Acclaim has filed with the SEC a registration statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act") covering
the Acquisition Shares to be sold by the Selling Stockholder. This prospectus
does not contain all of the information included in the registration statement.
Any statement made in this prospectus concerning the contents of any documents
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the registration statement. You
should read the exhibit for a more complete understanding of the document or
matter involved. Each statement regarding a document is qualified in its
entirety by reference to the actual document.
Acclaim is required to file periodic reports and other information
with the SEC under the Exchange Act. You may read and copy the registration
statement, including the attached exhibits, and any reports, statements or
other information that we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Acclaim's SEC filings are also available to the public
on the SEC Internet site (http://www.sec.gov).
You should rely only on the information provided in this prospectus or
that we have referred you to. No person has been authorized to provide you with
different information.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
The information in this prospectus is accurate as of the date on the
front cover. You should not assume that the information contained in this
prospectus is accurate as of any other date.
2
<PAGE>
The Company
Acclaim is a worldwide developer, publisher and mass marketer of
interactive entertainment software for use with dedicated interactive
entertainment hardware platforms ("Platforms") and multimedia personal computer
systems (PCs). Acclaim owns and operates four software development studios
located in the U.S. and the U.K., and publishes and distributes its software
directly in North America, the U.K., Germany, France and Australia.
Acclaim's operating strategy is to develop and maintain a core of key
brands and franchises (e.g., Turok, NFL Quarterback Club and All Star Baseball)
to support the various Platforms and PCs that dominate the interactive
entertainment market at a given time or which it perceives as having the
potential for achieving mass market acceptance. Acclaim emphasizes sports
simulation and arcade-style software for Platforms, and fantasy/role-playing,
real-time simulation, adventure and sports simulation software for PCs.
Acclaim also engages, to a lesser extent, in the distribution of
software developed by third-party software publishers and the development and
publication of comic book magazines and strategy guides relating to its
software.
The software industry is driven by the size of the installed base of
Platforms (such as those manufactured by Nintendo Co., Ltd. (Japan) (Nintendo
Co., Ltd. and its subsidiary, Nintendo of America, Inc., are collectively
referred to as "Nintendo"), Sony Corporation (Sony Corporation and its
affiliate, Sony Computer Entertainment America, are collectively referred to as
"Sony") and Sega Enterprises Ltd. ("Sega")), and PCs dedicated for home use.
The industry is characterized by rapid technological change, as evidenced by
the successive introductions of hardware systems from Nintendo, Sega and Sony
(e.g., the 8-bit cartridge system from Nintendo in 1985; 16-bit cartridge
systems from Sega in 1990 and Nintendo in 1991; 32-bit CD systems from Sega and
Sony in 1995; the 64-bit cartridge system from Nintendo in 1996; and the
planned introduction by Sega in the fall of 1998 of Dreamcast, a new 64-bit CD
system, in Japan). These successive introductions have resulted in Platform and
related software product cycles. To date, no single Platform or system has
achieved long-term dominance in the interactive entertainment market.
Based on information available in 1994 and based on its historical
experience with respect to the transition from 8- to 16-bit Platforms, Acclaim
believed that software sales for 16-bit Platforms would, although continuing to
decrease overall, remain substantial through the 1996 holiday season.
Accordingly, it anticipated that sales of its 32-bit and PC software in fiscal
1996 would grow as compared to fiscal 1995 but that the majority of its
revenues in fiscal 1996 would still be derived from 16-bit software sales.
However, the 16-bit software market matured much more rapidly than anticipated
by Acclaim, its Christmas 1995 16-bit software sales were substantially lower
than anticipated and, by April 1996, Acclaim derived minimal profits from
software sales and made the decision to exit the 16-bit and portable software
markets.
In connection with the decision to exit the 16-bit and portable
software markets in April 1996, Acclaim recorded a special cartridge video
charge of approximately $48.9 million in the second quarter of fiscal 1996,
consisting of provisions of approximately $28.8 million (reflected in net
revenues), and approximately $20.1 million (reflected in cost of revenues) to
adjust accounts receivable and inventories at February 29, 1996 to their
estimated net realizable values.
Acclaim recorded a loss from operations of $274.5 million and a net
loss (on an after-tax basis) of $221.4 million for fiscal 1996. The net loss
for the year reflected (1) write-offs of receivables, (2) the establishment of
additional receivables and inventory reserves, (3) severance charges incurred
in connection with a company downsizing, (4) the reduction of certain deferred
costs, and (5) an operating
3
<PAGE>
loss for the year resulting primarily from price protection and similar
concessions granted to retailers at greater than anticipated levels in
connection with its 16- and 32-bit software.
Acclaim recorded a loss from operations of $150.9 million and a net
loss (on an after-tax basis) of $159.2 million for fiscal 1997. The net loss
for the year reflected, among other things, (1) a charge for certain claims and
litigations for which the settlement obligation was probable and estimable of
$23.6 million, (2) a write-down of goodwill of $25.2 million to reduce the
carrying value of the goodwill associated with its subsidiary, Acclaim Comics,
Inc., to its estimated undiscounted cash flows and (3) downsizing charges of
$10 million.
As a result of the acquisitions of the development studios in 1995
(two of which were completed in fiscal 1996), Acclaim's fixed costs relating to
the development of software and its general and administrative expenses
substantially increased in fiscal 1996. These expenses in the aggregate had a
negative impact on Acclaim's liquidity and profitability in fiscal 1996 and
fiscal 1997.
Acclaim recorded earnings from operations of $24.7 million and net
earnings (on an after-tax basis) of $20.7 million for fiscal 1998. The improved
results for fiscal 1998 primarily resulted from increased sales in the U.S. of
its 64-bit and, to a lesser extent, 32-bit software. They also reflect
significantly reduced operating expenses, resulting primarily from (1) a
reduction in personnel, (2) the sale or discontinuance of certain
non-profitable businesses, (3) the consolidation of certain of the development
studio operations to reduce overhead expenses and (4) various other cost
reductions.
As a result of the industry transition to the new 32- and 64-bit
Platforms, Acclaim's software sales during fiscal 1996, 1997 and 1998 were
significantly lower than in fiscal 1995. Acclaim expects that, unless and until
the installed base of the new Platforms increases substantially, unit sales and
revenues from the sale of software for these Platforms will be substantially
lower than software sales levels achieved prior to fiscal 1996, when the
current transition began. No assurance can be given as to the future growth of
the installed base of the new Platforms or of Acclaim's results of operations
and profitability in future periods. See "Risk Factors."
Acclaim's ability to generate sales growth and profitability will be
materially dependent on (1) the growth of the software market for 32- and
64-bit Platforms and PCs and (2) the ability to identify, develop and publish
"hit" software for Platforms with significant installed bases.
A Delaware corporation, Acclaim was founded in 1987. Acclaim's
principal executive offices are located at One Acclaim Plaza, Glen Cove, New
York 11542, and its telephone number is (516) 656-5000. Its Internet site is:
"http://www.acclaim.net."
4
<PAGE>
RISK FACTORS
Our future operating results depend upon many factors and are subject
to various risks and uncertainties. Some of the risks and uncertainties which
may cause our operating results to vary from anticipated results or which may
materially and adversely affect our operating results are as follows:
Recent Operating Results
Our net revenues increased from $161.9 million in fiscal 1996 to
$165.4 million in fiscal 1997 and to $326.6 million in fiscal 1998. We had a
net loss of $221.4 million in fiscal 1996, a net loss of $159.2 million in
fiscal 1997 and net earnings of $20.7 million in fiscal 1998. For the most
part, the increase in revenues and earnings in fiscal 1998 reflects increased
sales in the U.S. of our software for Nintendo's N64 and Sony's PlayStation
Platforms. Charges for litigation settlements and other claims of $23.6
million, a writedown of the goodwill associated with our subsidiary, Acclaim
Comics, Inc., of $25.2 million and downsizing charges of $10 million are
included in the loss for fiscal 1997. Special charges relating to our exit from
the 16-bit and portable software business aggregating approximately $114
million are included in the loss for fiscal 1996.
Our revenues and operating results in fiscal 1996 and 1997 were
affected principally by the industry transition from 16-bit to 32- and 64-bit
Platforms. We had anticipated that sales of software for the older Platforms
would dominate Christmas 1995 sales and would be material in Christmas 1996.
Therefore, we focused our development efforts on 16-bit software for fiscal
1996 and 1997. However, sales of 16-bit software decreased much more rapidly
than we anticipated in calendar 1996, which resulted in reduced revenues and
net losses in fiscal 1996 and 1997.
In fiscal 1998, the interactive entertainment hardware market was
characterized by the growth of the installed base of N64 and PlayStation units
worldwide. This growth had a positive impact on our operating results for
fiscal 1998. Although N64 and PlayStation have achieved significant market
acceptance worldwide and we anticipate that the installed base of N64 and
PlayStation units will continue to grow in the short term, we cannot guarantee
investors that the installed base of either or both will grow at the present
rate, if at all. Also, there is no assurance that revenues from sales of
software for these Platforms will increase as the installed base increases.
In fiscal 1997 and 1998, we took various actions to reduce our
operating expenses. See "--Liquidity and Bank Relationships" below for a
description of these actions. As a result, operating expenses in fiscal 1997
and 1998 were substantially lower than in prior periods. Although we anticipate
that operating expenses will increase in dollar terms in fiscal 1999, we intend
to monitor our operating expenses closely and do not anticipate they will
increase materially as a percentage of net revenues. However, we cannot assure
stockholders that operating expenses will not increase as a percentage of net
revenues in fiscal 1999 and beyond. Any such increase could negatively impact
our profits in fiscal 1999 and beyond.
Liquidity and Bank Relationships
We used net cash in operations of approximately $38.3 million in
fiscal 1996 and approximately $29.2 million in fiscal 1997 and derived net cash
from operations of approximately $23.3 million in fiscal 1998. A tax refund of
approximately $54.0 million had a positive impact on net cash from operating
activities in fiscal 1997. We experienced negative cash flow from operations in
fiscal 1996 and 1997 which, for the most part, was a result of net losses in
these periods.
5
<PAGE>
We had positive cash flow from operations in fiscal 1998. We believe
that the cash flows from operations will be sufficient to cover our operating
expenses and those current obligations that we must pay in fiscal 1999. Our
belief is based on the anticipated continued growth of the installed base of
32- and 64- bit Platforms, the anticipated success of our software for those
Platforms and the resulting continued growth of our net revenues. However, we
cannot assure investors that our operating expenses and current obligations
will be significantly less than the cash flows available from operations in the
future. Our long-term liquidity depends mainly on our publishing "hit" software
for the dominant Platforms.
In order to provide liquidity, in fiscal 1997 and 1998, we took a
number of actions including (1) significantly reducing the number of our
employees, (2) consolidating our development studio operations and (3)
eliminating certain operations, such as the coin-operated video game
subsidiary. In addition, in February 1997, we completed an offering of $50
million of 10% Convertible Subordinated Notes (the "Notes"). Of the net
proceeds of the offering, we used approximately $16 million to retire a term
loan from Midland Bank plc and $2 million to pay down a portion of a mortgage
loan from Fleet Bank. In March 1997, we sold substantially all of the assets
and certain liabilities of Acclaim Redemption Games, Inc. (formerly, Lazer-Tron
Corporation) for $6 million in cash.
Due to our financial performance in the first three quarters of fiscal
1998, we were unable to comply with financial covenants under our revolving
credit facility with BNY Financial Corporation (BNY), our lead institutional
lender. BNY waived the resulting defaults at the end of each of the first three
quarters of fiscal 1998. We have negotiated new financial covenants as of and
for the period ended August 31, 1998 and future periods. We were in compliance
with the new financial covenants at August 31, 1998. Although we expect to
comply with these new covenants in the future, we cannot make any guarantee of
compliance. In addition, factors beyond our control may result in future
covenant defaults or a payment default. We may not be able to obtain waivers of
any future default(s). If such defaults occur and are not waived by the lender,
the lender could accelerate the loan or exercise other remedies. Such actions
would have a negative impact on liquidity and operations.
Substantial Leverage and Ability to Service Debt
We will not be able to meet our loan obligations to our lenders unless
future operations are profitable. Our future operations depend on factors
beyond our control, such as prevailing economic conditions and financial,
business and other factors.
Our debt level could have important consequences to our stockholders
because a portion of cash flow from operations must be set aside to pay down
debt, including the Notes, and existing bank obligations. Therefore, these
funds are not available for other purposes. Additionally, a high debt level
limits our ability to obtain additional debt financing in the future, or to
pursue possible expansion of our business or acquisitions. Also, high debt
levels could limit our flexibility in reacting to changes in the interactive
entertainment industry and economic conditions generally. These limitations
make us more vulnerable to adverse economic conditions and restrict our ability
to withstand competitive pressures or take advantage of business opportunities.
Some of our competitors currently have a lower debt level, and are likely to
have significantly greater operating and financing flexibility, than us.
Based upon current levels of operations, we believe we can meet our
interest obligations on the Notes, and interest and principal obligations under
bank agreements, when due. However, if cash flow from operations is not enough
to meet debt obligations when due, we may have to restructure our indebtedness.
We cannot guarantee that we will be able to restructure or refinance our debt
on satisfactory terms. In addition, restructuring or refinancing may not be
permitted by the terms of the indenture governing the Notes (the "Indenture"),
or existing indebtedness. We cannot assure stockholders
6
<PAGE>
that our operating cash flows will be sufficient to meet current debt
service requirements. Also, we cannot guarantee stockholders that future
operating cash flows will be sufficient to repay the Notes, or that we will be
able to refinance the Notes or other indebtedness at maturity. See "--Prior
Rights of Creditors" below.
Prior Rights of Creditors
We have outstanding long-term debt (including current portions) of
$52.7 million at August 31, 1998. Certain of the indebtedness is secured by
liens on substantially all of our assets. If we do not timely pay interest or
principal on indebtedness when due, we will be in default under loan agreements
and the Indenture.
In addition, the Indenture provides that, upon the occurrence of
certain events, we may be obligated to repurchase all or a portion of the
outstanding Notes. If such a repurchase event occurs and we do not have, or are
unable to obtain, sufficient financial resources to repurchase the Notes, we
would be in default under the Indenture. In addition, the occurrence of certain
repurchase events would constitute a default under some of our current loan
agreements.
Further, we depend on dividends and other advances and transfers of
funds from our subsidiaries to meet some debt service obligations. State and
foreign law regulate the payment of dividends by the subsidiaries, which is
also subject to the terms of existing bank agreements and the Indenture. A
significant portion of assets, operations, trade payables and other
indebtedness is located at our subsidiaries. The creditors of the subsidiaries
would generally recover from these assets on the obligations owed to them by
the subsidiaries before any recovery by our creditors and before any assets are
distributed to our stockholders.
If we are unable to meet current bank obligations, a default would
occur under existing bank agreements. Such default, if not waived, could result
in acceleration of our obligations under the bank agreements. Moreover, default
could result in a demand by the lenders for immediate repayment and would
entitle any secured creditor in respect of such debt to proceed against the
collateral securing the defaulted loan. Additionally, an event of default under
the Indenture may result in actions by IBJ Schroder Bank & Trust Company, as
trustee, on behalf of the holders of the Notes. In the event of such
acceleration by creditors or action by the trustee, holders of indebtedness
would be entitled to payment out of our assets. If we become insolvent, are
liquidated or reorganized, it is possible that there would be insufficient
assets remaining after payment to the creditors for any distribution to our
stockholders.
Industry Trends; Platform Transition; Technological Change
The interactive entertainment industry is characterized by rapid
technological change due in large part to:
o the introduction of Platforms incorporating more advanced processors and
operating systems;
o the impact of technological changes embodied in PCs;
o the development of electronic and wireless delivery systems; and
o the entry and participation of new companies in the industry.
These factors, among others, have resulted in Platform and software
life cycles.
No single Platform has achieved long-term dominance. Accordingly, we
must continually anticipate and adapt our software to emerging Platforms and
systems. The process of developing software
7
<PAGE>
is extremely complex and is expected to become more complex and expensive in
the future as new Platforms and technologies are introduced.
Development of software currently requires substantial investment in
research and development in the areas of graphics, sound, digitized speech,
music and video. We cannot guarantee that we will be successful in developing
and marketing software for new Platforms.
Substantially all of our revenues in fiscal 1998 were derived from the
sale of software designed for N64, PlayStation and PCs. In the past, we
expended significant development and marketing resources on product development
for Platforms that have not achieved the results we anticipated. If we (1) do
not develop software for Platforms that achieve significant market acceptance,
(2) discontinue development of software for a Platform that has a longer than
expected life cycle, (3) develop software for a Platform that does not achieve
a significant installed base or (4) continue development of software for a
Platform that has a shorter than expected life cycle, we may experience losses
from operations. We cannot guarantee that we will be able to predict accurately
such matters, and failure to do so would materially negatively affect us.
Results of operations and cash flows were negatively affected during
fiscal 1996 and 1997 by the significant decline in sales of 16-bit software and
the transition to the new Platforms. Because (1) there were a significant
number of titles competing for limited shelf space and (2) the new Platforms
had not achieved market penetration similar to that of the 16-bit Platforms in
prior years, the number of units of each title sold for the newer Platforms was
significantly less than the number of units of a title generally sold in prior
years for 16-bit Platforms. In fiscal 1998, the interactive entertainment
hardware market was characterized by the worldwide growth of the installed base
of N64 and PlayStation units and related software. Although we anticipate that
the installed base of these Platforms will continue to grow in the short term
and that the market for software for these Platforms will also continue to
grow, we cannot guarantee that the hardware or software market will continue to
grow at the current rate.
Revenue and Earnings Fluctuations; Seasonality
Historically, we have derived substantially all of our revenues from
the publication and distribution of software for then dominant Platforms.
Revenues are subject to fluctuation during transition periods, as in fiscal
1996 and 1997, when new Platforms have been introduced but none has achieved
mass-market penetration. In addition, the timing of release of new titles
impacts earnings in any given period. Earnings also may be materially impacted
by other factors including (1) the level and timing of market acceptance of
titles, (2) increases or decreases in development and/or promotion expenses for
new titles, and (3) the timing of orders from major customers.
A significant portion of revenues in any quarter is generally derived
from sales of new titles introduced in that quarter or in the immediately
preceding quarter. If we are unable to begin volume shipments of a significant
new title during the scheduled quarter, revenues and earnings will be
negatively affected in that quarter. In addition, because a majority of the
unit sales for a title typically occur in the first 90 to 120 days following
the introduction of the title, earnings may increase significantly in a period
in which a major title is introduced and may decline in the following period or
in periods in which there are no major title introductions. Also, certain
operating expenses are fixed and do not vary directly in relation to revenue.
Consequently, if net revenue is below expectations, operating results are
likely to be negatively affected.
The interactive entertainment industry is highly seasonal. Typically,
net revenues are highest during the last calendar quarter (which includes the
holiday selling season), decline in the first calendar quarter, are lower in
the second calendar quarter and increase in the third calendar quarter. The
seasonal
8
<PAGE>
pattern is due primarily to the increased demand for software during the
year-end holiday selling season. However, earnings vary significantly and are
largely dependent on releases of major new titles and, accordingly, may not
necessarily reflect the seasonal patterns of the industry as a whole. We expect
that operating results will continue to fluctuate significantly in the future.
Dependence on Entertainment Platform Manufacturers; Need for License Renewals
The following table shows the percent of gross revenues for fiscal
1996, 1997 and 1998 derived from sales of software for the indicated Platforms:
Title 1996 1997 1998
- ----- ---- ---- ----
Nintendo-compatible 29% 41% 60%
Sega-compatible 36% 12% 1%
Sony-compatible 19% 28% 30%
We are substantially dependent on the entertainment platform
manufacturers as the sole manufacturers of the Platforms marketed by them, as
the sole licensors of the proprietary information and technology needed to
develop software for those Platforms and, in the case of Nintendo and Sony, as
the sole manufacturers of the software developed by us for the compatible
Platform. The entertainment platform manufacturers have in the past and may in
the future limit the number of titles we can release in any year, which may
limit any future growth in sales.
In the past, we have been able to renew and/or negotiate extensions of
our software license agreements with the entertainment platform developers.
However, we cannot assure stockholders that, at the end of their current terms,
we will be able to obtain extensions or that we will be successful in
negotiating definitive license agreements with developers of new Platforms.
If we cannot obtain licenses from developers of new Platforms or if
our existing license agreements are terminated, our financial position and
results of operations will be materially adversely impacted. In addition, the
termination of any one of the license agreements or other arrangements could
negatively affect our financial position and results of operations.
In addition to licensing arrangements, we depend on Nintendo, Sony and
Sega for the protection of the intellectual property rights to their respective
Platforms and technology and their ability to discourage unauthorized persons
from producing software for the Platforms developed by each of them. We also
rely upon the entertainment platform manufacturers for the manufacture of
certain cartridge and CD-based read-only memory software.
Reliance on New Titles; Product Delays
Our ability to maintain favorable relations with retailers and to
receive the maximum advantage from advertising expenditures depends on our
ability to provide retailers with a timely and continuous flow of product. The
life cycle of a title generally ranges from less than three months to upwards
of 12 months, with the majority of sales occurring in the first 90 to 120 days
after release. We actively market our current releases while simultaneously
supporting our back catalogue with pricing and sales incentives. We are
constantly required to develop, introduce and sell new titles in order to
generate revenue and/or to replace declining revenues from previously released
titles. In addition, it is difficult to predict consumer preferences for
titles, and few titles achieve sustained market acceptance. We cannot assure
stockholders that our new titles will be released in a timely fashion, will
achieve any significant degree of market acceptance, or that such acceptance
will be sustained for any meaningful period. Competition for retail
9
<PAGE>
shelf space, consumer preferences and other factors could result in the
shortening of the life cycle for older titles and increase the importance of
our ability to release titles on a timely basis.
The timely shipment of a title depends on various factors, including
quality assurance testing by us and the manufacturers. We generally submit new
titles to the entertainment platform manufacturers and other intellectual
property licensors for approval prior to development and/or manufacture. Since
we are required to engage Nintendo or Sony, as the case may be, to manufacture
titles developed by us for the Platforms marketed by them, our ability to
control our supply of Nintendo or Sony titles and the timing of their delivery
is limited.
If the title is rejected by the manufacturer as a result of bugs in
software or if there is a substantial delay in the approval of a product by an
entertainment platform manufacturer or licensor, our financial condition and
results of operations could be negatively impacted. In the past, we have
experienced significant delays in the introduction of certain new titles and
such delays may occur in the future. Moreover, it is likely that in the future
certain new titles will not be released in accordance with our internal
development schedule or the expectations of public market analysts and
investors. A significant delay in the introduction of, or the presence of a
defect in, one or more new titles could negatively affect the ultimate success
of our titles. If we do not develop, introduce and sell new competitive titles
on a timely basis, results of operations and profitability will be negatively
affected.
Reliance on "Hit" Titles
The market for software is "hits" driven. Therefore, our future
success depends on developing and marketing "hit" titles for Platforms with
significant installed bases. Sales of our top four titles accounted for
approximately 53% of gross sales for fiscal 1998 and sales of our top title
accounted for approximately 33% of gross revenues for fiscal 1997. We cannot
assure stockholders that we will be able to publish "hit" titles in the future.
If we do not publish "hit" titles in the future, our financial condition,
results of operations and profitability could be materially negatively
affected, as they were in fiscal 1996 and 1997.
Inventory Management; Risk of Product Returns
Generally, we are not contractually obligated to accept returns,
except for defective product. However, we may permit customers to return or
exchange product and may provide price protection or other concessions on
products unsold by the customer. Accordingly, management must make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Also, management must make estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting periods.
Among the more significant of such estimates are allowances for
estimated returns, price concessions and other discounts. At the time of
shipment, we establish reserves in respect of such estimates taking into
account the potential for product returns and other discounts based on
historical return rates, seasonality, level of retail inventories, market
acceptance of products in retail inventories and other factors. In fiscal 1996,
price allowances, returns and exchanges were significantly higher than
reserves. This shortfall had a negative impact on results of operations and
liquidity in fiscal 1996. We believe that, at August 31, 1998, we have
established adequate reserves for future price protection, returns, exchanges
and other concessions. However, we cannot guarantee the adequacy of our
reserves. If the reserves are exceeded, our financial condition and results of
operations will be negatively impacted.
In addition, we offer stock-balancing programs for our PC software. We
have established reserves for such programs, which have not been material to
date. Future stock-balancing programs may
10
<PAGE>
become material and/or exceed reserves for such programs. If so exceeded,
results of operations and financial condition could be negatively impacted.
Increased Product Development Costs
As a result of the calendar 1995 acquisitions of the development
studios, beginning in fiscal 1996, our fixed software development and overhead
costs were significantly higher as compared to historical levels. These costs
negatively impacted results of operations and profitability in fiscal 1996 and
1997. Although we have consolidated our development studio operations to reduce
overhead expenses, these costs may continue to affect negatively our
operations.
Competition
The market for software is highly competitive. Only a small percentage
of titles introduced in the software market achieve any degree of sustained
market acceptance. Competition is based primarily upon:
o quality of titles;
o the publisher's access to retail shelf space;
o product features;
o the success of the Platform for which the software is written;
o the number of titles available for the Platform for which the software
is written; and
o marketing support.
We compete with a variety of companies that offer products that
compete directly with one or more of our titles. Typically, the chief
competitor on a Platform is the developer of that Platform, to whom we pay
royalties and, in some cases, manufacturing charges. Accordingly, the
developers have a price, marketing and distribution advantage with respect to
software marketed by them. This advantage is particularly important in a mature
or declining market which supports fewer full-priced titles and is
characterized by customers who make purchasing decisions on titles based
primarily on price, unlike developing markets with limited titles, when price
has been a less important factor in software sales. Our competitors vary in
size from very small companies with limited resources to very large
corporations with greater financial, marketing and product development
resources than us, such as Nintendo, Sega and Sony. Our competitors also
include a number of independent software publishers licensed by the hardware
developers.
Additionally, the entry and participation of new companies, including
diversified entertainment companies, in markets in which we compete may
adversely impact our performance in these markets.
The availability of significant financial resources has become a major
competitive factor in the software industry, primarily as a result of the costs
associated with developing and marketing software. As competition increases,
significant price competition and reduced profit margins may result. In
addition, competition from new technologies may reduce demand in markets in
which we have traditionally competed. Prolonged price competition or reduced
demand as a result of competing technologies would negatively impact our
business. We may not be able to compete successfully.
Intellectual Property Licenses and Proprietary Rights
Some of our software embodies trademarks, tradenames, logos or
copyrights licensed to us by third parties (such as the NBA, the NFL or their
respective players' associations), the loss of which could prevent the release
of a title or limit its economic success. Since competition is intense, we may
not be
11
<PAGE>
successful in the future in acquiring intellectual property rights with
significant commercial value. In addition, we cannot assure stockholders that
these licenses will be available on reasonable terms or at all.
In order to protect our titles and proprietary rights, we rely mainly
on a combination of:
o copyrights;
o trade secret laws;
o patent and trademark laws;
o nondisclosure agreements; and
o other copy protection methods.
It is our policy that all employees and third-party developers sign
nondisclosure agreements. These measures may not be sufficient to protect our
intellectual property rights against infringement. Additionally, we have
"shrinkwrap" license agreements with the end users of our PC titles, but rely
on the copyright laws to prevent unauthorized distribution of other software.
Existing copyright laws afford only limited protection.
Notwithstanding our rights to our software, it may be possible for third
parties to copy illegally our titles or to reverse engineer or otherwise obtain
and use our proprietary information. Illegal copying occurs within the software
industry, and if a significant amount of illegal copying of our published
titles or titles distributed by us occurs, our business could be adversely
impacted. Policing illegal use of our titles is difficult, and software piracy
is expected to persist. Further, the laws of certain countries in which our
titles are distributed do not protect us and our intellectual property rights
to the same extent as the laws of the U.S.
We believe that our titles, trademarks and other proprietary rights do
not infringe on the proprietary rights of others. However, as the number of
titles in the industry increases, we believe that claims and lawsuits with
respect to software infringement will also increase. From time to time, third
parties have asserted that features or content of certain of our titles may
infringe upon intellectual property rights of such parties. We have asserted
that third parties have likewise infringed our proprietary rights. Some of
these claims have resulted in litigation by and against us. To date, no such
claims have had a negative effect on our ability to develop, market or sell our
titles. Existing or future infringement claims by or against us may result in
costly litigation or require us to license the intellectual property rights of
third parties.
The owners of intellectual property licensed by us generally reserve
the right to protect such intellectual property against infringement.
International Sales
International sales represented approximately 41% of net revenues in
fiscal 1996, 50% of net revenues in fiscal 1997 and 34% of net revenues in
fiscal 1998. We expect that international sales will continue to account for a
significant portion of net revenues in future periods. International sales are
subject to the following inherent risks:
o unexpected changes in regulatory requirements;
o tariffs and other economic barriers;
o fluctuating exchange rates;
o difficulties in staffing and managing foreign operations; and
o the possibility of difficulty in accounts receivable collection.
12
<PAGE>
Because we believe that exposure to foreign currency losses is not
currently material, we do not hedge against foreign currency risks.
In some markets, localization of our titles is essential to achieve
market penetration. As a result of the inherent risks, we may incur incremental
costs and experience delays in localizing our titles. These risk factors or
other factors could have a negative effect on future international sales and,
consequently, on our business.
Dependence on Key Personnel and Employees
The software industry is characterized by a high level of employee
mobility and aggressive recruiting among competitors for personnel with
technical, marketing, sales, product development and management skills.
Successful operations depend on our ability to identify, hire and retain such
personnel. We may not be able to attract and retain such personnel or may incur
significant costs in order to do so.
In particular, we are highly dependent upon the management services of
Gregory Fischbach, Co-Chairman of the Board and Chief Executive Officer, and
James Scoroposki, Co-Chairman of the Board and Senior Executive Vice President.
The loss of the services of either of these two could have a negative impact on
our business. Although we have employment agreements with Messrs. G. Fischbach
and Scoroposki, they may leave or compete with us in the future. If we are
unable to attract additional qualified employees or retain the services of key
personnel, our business could be negatively impacted.
Litigation
In conjunction with certain claims and litigations for which the
settlement obligation was then estimable and probable, we recorded a charge of
$23.6 million in the year ended August 31, 1997. We may be required to record
additional material charges in future periods in conjunction with litigations
to which we are a party. If we have to record additional charges to earnings
from an adverse result in such litigations, we may experience a negative effect
on our financial condition and results of operations. For a discussion of the
various claims and litigations to which we are currently a party, see "Legal
Proceedings."
Anti-Takeover Provisions
The Board of Directors has the authority (subject to certain
limitations imposed by the Indenture) to issue shares of preferred stock and to
determine their characteristics without stockholders' approval. If preferred
stock is issued, the rights of common stockholders are subject to, and may be
negatively affected by, the rights of preferred stockholders. If preferred
stock is issued, it will provide flexibility in connection with possible
acquisitions and other corporate actions; however, it could make it more
difficult for a third party to acquire a majority of our outstanding voting
stock. In addition, we are subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which may make it more difficult
or more expensive or discourage a tender offer, change in control or takeover
attempt that is opposed by the Board. In addition, employment arrangements with
certain members of management provide for severance payments upon termination
of their employment if there is a change in control.
Volatility of Stock Price
There is a history of significant volatility in the market prices of
companies engaged in the software industry, including Acclaim. The market price
of our Common Stock is likely to continue to be
13
<PAGE>
highly volatile. The following factors may have a significant impact on the
market price of the Common Stock:
o timing and market acceptance of product introductions by us;
o the introduction of products by our competitors;
o loss of any key personnel;
o variations in quarterly operating results; or
o changes in market conditions in the software industry generally.
In the past, we have experienced significant fluctuations in operating
results and, if our future revenues or operating results or product releases do
not meet expectations, the price of our Common Stock may be negatively
affected.
Year 2000 Issue
Until recently, computer programs were generally written using two
digits rather than four to define the applicable year. Accordingly, such
programs may be unable to distinguish properly between the year 1900 and the
year 2000. In fiscal 1997, we commenced a Year 2000 date conversion project to
address necessary code changes, testing and implementation in respect of our
internal computer systems. Project completion is planned for the middle of
calendar 1999. Management anticipates that our Year 2000 date conversion
project as it relates to internal systems will be completed on a timely basis.
Our software for N64, PlayStation and PCs are Year 2000 compliant. We are
currently seeking information regarding Year 2000 compliance from vendors,
customers, manufacturers, outside developers, and financial institutions
associated with us. Project completion for this phase is planned for the middle
of 1999. However, given the reliance on third-party information as it relates
to their compliance programs and the difficulty of determining potential errors
on the part of external service suppliers, we cannot guarantee that our
information systems or operations will not be affected by mistakes, if any, of
third parties or third-party failures to complete the Year 2000 project on a
timely basis. There can be no assurance that the systems of other companies on
which our systems rely will be timely converted or that any such failure to
convert by another company would not have an adverse effect on our systems.
The cost of the Year 2000 project and the date on which we believe we
will complete the necessary modifications are based on estimates which were
derived utilizing numerous assumptions of future events, including the
continued availability of resources, third-party modification plans and other
factors. We presently believe that the Year 2000 issue will not pose
significant operational problems for our internal information systems and
products. However, if the anticipated modifications and conversions are not
completed on a timely basis, or if the systems of other companies on which our
systems and operations rely are not converted on a timely basis, the Year 2000
issue could have an adverse effect on operations.
We do not currently have any contingency plans in place to address the
failure of timely conversion of our and/or third-party systems in respect of
the Year 2000 issue.
------------------
Stockholders should not use historical trends or other factors
affecting our operating results and financial condition to anticipate results
or trends in future periods because of the risk factors disclosed above. Also,
stockholders should not consider historic financial performance as a reliable
indicator of future performance.
14
<PAGE>
USE OF PROCEEDS
Acclaim will not receive any proceeds from the sale of any of the
Acquisition Shares by the Selling Stockholder.
SELLING STOCKHOLDER
The shares covered by this prospectus will be offered and sold by the
Selling Stockholder (Digital Leisure and its permitted transferees). From time
to time, a prospectus supplement will be filed by Acclaim setting forth the
names of, and the number of Acquisition Shares being sold by, such permitted
transferees.
On November 12, 1998, Acclaim, the Subsidiary, and, among others,
Digital Leisure, entered into an Asset Purchase Agreement pursuant to which the
parties agreed that the Subsidiary would purchase certain assets of Digital
Leisure in exchange for cash and the 206,000 shares of Common Stock covered by
this prospectus. Acclaim issued the Acquisition Shares to Digital Leisure in
November 1998 pursuant to the exemption from registration provided under
Section 4(2) of the Securities Act. In accordance with the terms of the Asset
Purchase Agreement, Digital Leisure is permitted to transfer such shares to
certain shareholders of Digital Leisure and/or employees of the Subsidiary;
provided, however, such transferee or assignee agrees to be bound by the terms
of the Registration Rights Agreement entered into by Acclaim, the Subsidiary
and Digital Leisure, dated November 12, 1998 (the "Registration Rights
Agreement"), and such distribution does not involve any public solicitation or
distribution (as defined in the rules and regulations promulgated by the SEC).
Subject to the next paragraph, and in accordance with the terms of the
Asset Purchase Agreement, the Selling Stockholder is permitted to immediately
sell, assign, transfer or otherwise dispose of 50,000 shares of the Acquisition
Shares. With respect to the balance of the Acquisition Shares, Acclaim will
deliver from escrow to Digital Leisure, from time to time in accordance with
the Asset Purchase Agreement, up to an aggregate of 156,000 shares.
Accordingly, the Selling Stockholder may not sell, assign, transfer or
otherwise dispose of, or pledge or hypothecate any of such 156,000 shares,
unless and until certain conditions set forth in the Asset Purchase Agreement
are met. In the event such conditions are not met, or are only partially met,
some or all, as the case may be, of the balance of the shares will be forfeited
by Digital Leisure and returned to Acclaim.
The Acquisition Shares are restricted securities within the meaning of
the Securities Act and cannot be offered or sold without an effective
registration statement covering such offer and sale or pursuant to an
applicable exemption from the registration requirements of such Act. Pursuant
to the terms of the Registration Rights Agreement, Acclaim filed the
registration statement of which this prospectus is a part and will use its best
efforts to keep the registration statement effective until no later than four
years from the date of this prospectus (or until all of the Acquisition Shares
are disposed of by the Selling Stockholder or forfeited by Digital Leisure, if
earlier, subject to the availability of the provisions of Rule 144).
Neither Acclaim nor any of its affiliates has had any material
relationship with Digital Leisure or any of its affiliates within the past
three years.
15
<PAGE>
The following table sets forth certain information with respect to the
Acquisition Shares held by Digital Leisure:
<TABLE>
<CAPTION>
Name Beneficial Ownership Shares Being Offered Shares Beneficially Owned
Prior to Offering After the Offering (1)
<S> <C> <C> <C>
Fringe Pty. Ltd. (trading 206,000 206,000 0
as Digital Leisure)
</TABLE>
- ----------------------------
(1) Assumes that all of the Acquisition Shares are sold by the Selling
Stockholder pursuant to this prospectus. Digital Leisure may not
receive all of the Acquisition Shares in accordance with the Asset
Purchase Agreement, or may choose to dispose of none or only a portion
of the Acquisition Shares held by it pursuant to this prospectus.
Acclaim is not required, pursuant to the Registration Rights Agreement,
to keep the registration statement effective past four years from the
date of this prospectus. Accordingly, it is currently anticipated that
unsold shares would be sold thereafter in reliance upon Rule 144
promulgated under the Securities Act.
PLAN OF DISTRIBUTION
The Selling Stockholder has advised Acclaim that it may from time to
time sell all or a portion of the Acquisition Shares on The NASDAQ Stock Market
or in any other securities market on which the Common Stock is then listed or
traded, in negotiated transactions or otherwise, at prices then prevailing or
related to the then-current market price or at negotiated prices. Sales on or
through The NASDAQ Stock Market will be effected at such prices as may be
obtainable and as may be satisfactory to the Selling Stockholder. No sales or
distributions other than as disclosed herein will be effected until after this
prospectus shall have been appropriately amended or supplemented, if required,
to set forth the terms thereof. Normal commission expenses and brokerage fees
will be paid by the Selling Stockholder. The Acquisition Shares may be sold
directly or through brokers or dealers, or in a distribution by one or more
underwriters on a firm commitment or best efforts basis. The method by which
the Acquisition Shares may be sold include (a) a block trade (which may involve
crosses) in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
prospectus; (c) exchange distributions and/or secondary distributions in
accordance with the rules of The NASDAQ Stock Market; (d) ordinary brokerage
transactions in which the broker solicits purchasers; and (e)
privately-negotiated transactions. The Selling Stockholder may from time to
time deliver all or a portion of the Acquisition Shares held by it to cover a
short sale or sales or upon exercise of a put equivalent position. In addition,
any shares that qualify for sale under Rule 144 or Rule 144A under the
Securities Act may be sold under any such rules rather than pursuant to this
prospectus.
Brokers or dealers may receive commission or discounts from the
Selling Stockholder in amounts to be negotiated immediately prior to the sale.
The Selling Stockholder and any underwriters, dealers or agents that
participate in the distribution of the Acquisition Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
resale of the shares by them or any discounts, commissions or concessions
received by any such underwriters, dealers or agents may be deemed to be
underwriting discounts and commissions under said Act.
16
<PAGE>
Acclaim has agreed to indemnify the Selling Stockholder, each
underwriter, if any, of the Acquisition Shares (including any broker or dealer
through which such shares may be sold) and each person, if any, who controls
the Selling Stockholder or any such underwriter within the meaning of Section
15 of the Securities Act, against certain liabilities, including liabilities
under such Act.
The Selling Stockholder has represented and warranted to, and agreed
with Acclaim that, during such time as it may be engaged in a distribution of
the Acquisition Shares, the Selling Stockholder will, among other things, (a)
not engage in any stabilization activity in connection with Acclaim's
securities, (b) furnish to each broker or dealer through whom or which it
offers securities copies of the prospectus, as may be required, (c) inform such
broker or dealer as to the number of shares it is selling, that such securities
are part of a distribution and that it is subject to the provisions of
Regulation M under the Exchange Act, (d) report to Acclaim any disposition of
the shares if any such disposition shall have occurred, and (e) not bid for, or
purchase, any company securities other than as permitted under the Exchange
Act.
17
<PAGE>
LEGAL PROCEEDINGS
Acclaim and certain of its current and former directors and/or
executive officers were sued in various complaints filed in April 1994, which
were consolidated into an action entitled In re Acclaim Entertainment, Inc.
Securities Litigation (CV 94 1501) (the "WMS Action"). The plaintiffs, on
behalf of a class of Acclaim's stockholders, consisting of all those who
purchased the Common Stock for the period January 4, 1994 to March 30, 1994,
claimed damages arising from (i) Acclaim's alleged failure to comply with the
disclosure requirements of the securities laws in respect of its relationship
with WMS Industries Inc. ("WMS") and the status of negotiations on and the
likelihood of renewal of an agreement with WMS, pursuant to which WMS granted
Acclaim a right of first refusal to create software for "computer games," "home
video games" and "handheld game machines" based on arcade games released by WMS
through March 21, 1995, (ii) statements made by Acclaim's representative that
rumors relating to the nonrenewal of the agreement were "unsubstantiated" and
that talks between Acclaim and WMS were continuing, which allegedly were
materially false and misleading, and (iii) a claim that the defendants should
have disclosed the likely nonrenewal of the agreement. The parties have
executed a settlement agreement, which was approved by the court, and the WMS
Action has been dismissed. Acclaim is required, among other things, to deliver
the settlement amount, which consists of cash and shares of Common Stock
(delivered in December 1998), and common stock purchase warrants (to be
delivered in 1999 after the plaintiffs' lawyers have delivered an allocation
schedule to Acclaim). Acclaim has agreed to pay to the plaintiffs in the WMS
Action a portion of the proceeds recovered by the Company from Mt. Hawley
Insurance Company ("Mt. Hawley"), based on Mt. Hawley's disclaimer of coverage
for liability from the WMS Action.
Acclaim, Iguana Entertainment, Inc. and Gregory E. Fischbach were sued
in an action entitled Jeffery Spangenberg vs. Acclaim Entertainment, Inc.,
Iguana Entertainment, Inc., and Gregory Fischbach filed in August 1998 in the
District Court of Travis County, Texas (Cause No. 98-09418). The plaintiff
alleges that the defendants (i) breached their employment obligations to the
plaintiff, (ii) breached a Texas statute covering wage payment obligations
based on their alleged failure to pay bonuses to the plaintiff; and (iii) made
fraudulent misrepresentations to the plaintiff in connection with the
plaintiff's employment relationship with Acclaim, and accordingly, seeks
unspecified damages. Acclaim intends to defend this action vigorously.
The SEC has issued orders directing a private investigation relating
to, among other things, Acclaim's earnings estimate for fiscal 1995 and its
decision in the second quarter of fiscal 1996 to exit the 16-bit portable and
software markets. Acclaim has provided documents to the SEC, and the SEC has
taken testimony from company representatives. Acclaim intends fully to
cooperate with the SEC in its investigation. No assurance can be given as to
whether such investigation will result in any litigation or, if so, as to the
outcome of this matter.
The New York State Department of Taxation and Finance, following a
field audit of Acclaim with respect to franchise tax liability for its fiscal
years ended August 31, 1989, 1990 and 1991, has notified Acclaim that a stock
license fee (plus interest and penalties) of approximately $2.0 million,
relating to Acclaim's outstanding capital stock as of 1989, is due to the
State. Acclaim is contesting the fee and a petition denying liability has been
filed. No assurance can be given as to the outcome of this matter.
In conjunction with claims arising from certain of Acclaim's
acquisitions and then pending litigations and claims for which the settlement
obligation was probable and estimable, it recorded a charge of $23.6 million
during the year ended August 31, 1997. Approximately $11.7 million of these
litigation settlements will be satisfied in cash, of which $6.6 million has
been paid as of August 31, 1998. The remainder is payable with non-cash items,
such as stock or warrants.
18
<PAGE>
Acclaim is also party to various litigations arising in the ordinary
course of business, the resolution of none of which, Acclaim believes, will
have a material adverse effect on its liquidity or results of operations.
LEGAL MATTERS
Certain legal matters in respect of the shares offered hereby will be
passed upon for Acclaim by Rosenman & Colin LLP, 575 Madison Avenue, New York,
New York 10022.
EXPERTS
The consolidated financial statements and schedule of Acclaim and its
subsidiaries as of and for the years ended August 31, 1998 and 1997 and for
each of the years in the three-year period ended August 31, 1998 have been
incorporated by reference in this prospectus and in the registration statement
of which it forms a part in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses of issuance and distribution of the Acquisition Shares
are to be paid by the Registrant. The following itemized list is an estimate of
the expenses:
SEC registration fee...................................... $ 510
Legal fees and expenses................................... 12,500
Accounting expenses....................................... 10,000
Miscellaneous............................................. 1,990
-------
Total..................................................... $25,000
Item 15. Indemnification of Directors and Officers
The Certificate of Incorporation of the Registrant provides that any
person may be indemnified against all expenses and liabilities to the fullest
extent permitted by the General Corporation Law of the State of Delaware (the
"GCL").
Section 145 of the GCL, the law of the state in which the Registrant
is incorporated, empowers a corporation, within certain limitations, to
indemnify any person against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any suit or proceeding to which he is a party by reason of the
fact that he is or was a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, as long as
he acted in good faith and in a manner which he reasonably believed to be in,
or not opposed to, the best interests of the corporation. With respect to any
criminal proceeding, he must have had no reasonable cause to believe his
conduct was unlawful.
II-1
<PAGE>
Item 16. Exhibits
Exhibit
Number Description
------ -----------
3.1 -- Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, filed on
April 21, 1989, as amended (Registration No. 33-28274)
(the "1989 S-1").
3.2 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.2 to
the 1989 S-1).
3.3 -- Amendment to the Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 4(d) to
the Registrant's Registration Statement on Form S-8, filed
on May 19, 1995 (Registration No. 33-59483) (the "1995
S-8").
3.4 -- Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 4(e) to the 1995
S-8).
4.1 -- Specimen form of the Registrant's common stock
certificate (incorporated by reference to Exhibit 4.1 to
the Registrant's Annual Report on Form 10-K for the year
ended August 31, 1989, as amended (File No. 0-16986).
*5 -- Opinion of Rosenman & Colin LLP
*23.1 -- Consent of KPMG Peat Marwick LLP
*23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5)
*24.1 -- Power of Attorney
- --------------------
* Filed herewith.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities
Act");
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended, that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act, and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Nassau and State of New York on December 18,
1998.
ACCLAIM ENTERTAINMENT, INC.
By /s/
-----------------------------------
Gregory E. Fischbach
Chief Executive Officer
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gregory E. Fischbach and James R.
Scoroposki, and each or either of them, his true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitition, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all the exhibits
thereto, and other documents in connection therewith, with the SEC, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises as fully, to all intents and purposes, as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Co-Chairman of the Board; Chief Executive
- -------------------------------------- Officer; President; Director December 18, 1998
Gregory E. Fischbach
/s/ Co-Chairman of the Board; Senior Executive December 18, 1998
- -------------------------------------- Vice President; Treasurer; Secretary;
James R. Scoroposki Acting Chief Financial and Accounting
Officer; Director
/s/ Director December 18, 1998
- --------------------------------------
Kenneth L. Coleman
/s/ Director December 18, 1998
- --------------------------------------
Bernard J. Fischbach
/s/ Director December 18, 1998
- --------------------------------------
Robert H. Groman
/s/ Director December 18, 1998
- --------------------------------------
James Scibelli
/s/ Director December 18, 1998
- --------------------------------------
Michael Tannen
</TABLE>
II-5
<PAGE>
EXHIBIT 5
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
December 18, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been requested by Acclaim Entertainment, Inc. (the "Company"), a
Delaware corporation, to furnish our opinion in connection with the Company's
Registration Statement (the "Registration Statement") on Form S-3 covering an
aggregate of up to 206,000 shares (the "Acquisition Shares") of common stock,
par value $0.02 per share, of the Company to be offered and sold by the Selling
Stockholder named therein.
In connection with the foregoing, we have made such examination as we have
deemed necessary for the purpose of rendering this opinion. Based upon such
examination, it is our opinion that the Acquisition Shares have been duly
authorized and are validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption "Legal Matters" in
the Prospectus included in the Registration Statement.
Very truly yours,
ROSENMAN & COLIN LLP
By /s/
-------------------
A Partner
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Acclaim Entertainment, Inc.:
We consent to the use in this registration statement on Form S-3 of Acclaim
Entertainment, Inc. of our report dated October 22, 1998, incorporated by
reference herein, and to the reference to our firm under the heading "Experts"
in the prospectus.
KPMG PEAT MARWICK LLP
New York, New York
December 21, 1998
