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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1997
REGISTRATION NO. 333-_______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
T.HQ, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3541686
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
(818) 591-1310
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRIAN J. FARRELL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
T.HQ, INC.
5016 NORTH PARKWAY CALABASAS
CALABASAS, CALIFORNIA 91302
(818) 591-1310
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
WITH A COPY TO:
SHERWIN L. SAMUELS, ESQ.
SIDLEY & AUSTIN
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013
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 Section 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED AMOUNT TO BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.0001 per share............ 544,648 shares $12.0625 $6,569,816.50 $1,990.85
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
on the basis of average high and low prices of the shares of Common
Stock on the NASDAQ National Market on July 21, 1997 as reported by the
National Association of Securities Dealers Automated Quotation System.
The maximum offering price is deemed to be the aggregate of the market
value of the shares of Common Stock.
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, AS AMENDED, 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.
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T.HQ, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-3 Item Number and Caption Location in Registration Statement or Prospectus
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<S> <C>
1. Forepart of Registration Statement and Outside Front Facing Page; Cross-Reference Sheet; Outside Front
Cover Page of Prospectus...................................... Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page and Outside Back Cover Page of
of Prospectus................................................. Prospectus; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................................... Risk Factors
4. Use of Proceeds............................................... Use of Proceeds
5. Determination of Offering Price............................... Determination of Offering Price
6. Dilution...................................................... *
7. Selling Security Holders...................................... Selling Securityholders
8. Plan of Distribution.......................................... Plan of Distribution
9. Description of Securities to be Registered.................... *
10. Interests of Named Experts and Counsel........................ Legal Matters; Experts
11. Material Changes.............................................. *
12. Incorporation of Certain Information by Reference............. Available Information
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................................... *
</TABLE>
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* Not applicable.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
544,648 Shares
Common Stock
T.HQ, INC.
This Prospectus relates to up to 544,648 shares of common stock, par
value $.0001 per share (the "Common Stock"), of T.HQ, Inc., a New York
corporation (together with its subsidiaries, the "Company"), that may be offered
from time to time by certain holders (the "Selling Securityholders"). Such
shares of Common Stock consist of (a) 52,660 shares previously issued to Selling
Securityholders; (ii) 225,000 shares that may be acquired by certain
Securityholders upon exercise of options (the "Options") granted by the Company;
and (iii) 266,988 shares that may be acquired by certain Securityholders upon
exercise of warrants (the "Warrants") granted by the Company. See "Selling
Securityholders."
This Prospectus also relates to up to 266,988 shares of Common Stock
issuable by the Company upon the exercise of the Warrants. The price to public
and Proceeds to the Company for all shares, if any, issued by the Company upon
the exercise of Warrants will be, in each case and on a per share and aggregate
basis, the exercise price of the Warrant or Warrants exercised; the total price
to public and Proceeds to the Company will be $4,236,905 if all of the Warrants
are exercised. No commissions or underwriting discounts will be paid by the
Company in connection with the issuance of shares of Common Stock upon the
exercise of any of the Warrants. See "Plan of Distribution." The Company has
incurred certain expenses, estimated at $25,000, in connection with this
offering of securities, and has agreed to indemnify the Selling Securityholders
and certain other persons against liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See "Selling
Securityholders" and "Plan of Distribution."
The number of shares of Common Stock issuable by the Company upon the
exercise of Warrants is subject to adjustment under certain circumstances
specified in the Warrant Agreements. Accordingly, this Prospectus also covers,
in addition to the 266,988 shares of Common Stock currently issuable by the
Company upon exercise of the Warrants, such number of additional shares of
Common Stock as may become issuable upon exercise of the Warrants
------------------------------
THE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS WHICH
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 securities offered hereby by the Selling Securityholders are
offered subject to prior sale and when and if acquired by the Selling
Securityholders.
THE DATE OF THE PROSPECTUS IS JULY __, 1997
<PAGE> 4
pursuant to certain adjustments. The shares of Common Stock issuable upon
exercise of the Warrants, as such numbers of shares may be from time to time
adjusted, are sometimes referred to herein as the "Warrant Shares."
The Company will not receive any of the proceeds from the sale of the shares of
Common Stock by the Selling Securityholders. The price to public for shares of
Common Stock offered by Selling Securityholders and the Proceeds to Selling
Securityholders will depend upon the market price of such securities when sold.
The Company will receive the specified purchase price per share of Common Stock
upon the exercise of the Options or Warrants owned by the Selling
Securityholders. See "Use of Proceeds." The Selling Securityholders may, from
time to time, sell the shares of Common Stock at market prices prevailing on the
NASDAQ Stock Market at the time of sale or sell the shares of Common Stock under
certain other terms. The Selling Securityholders may engage brokers or dealers
to sell the Common Stock and will be responsible for all commissions and
discounts, if any, so incurred. See "Plan of Distribution."
The Common Stock is quoted on the NASDAQ National Market System
("NASDAQ NMS") under the trading symbol "THQI." On July 21, 1997, the last
reported sale price of the Common Stock on NASDAQ NMS was $11.875 per share.
T-HQ is a registered trademark and trade name of the Company.
Nintendo(R), Super Nintendo Entertainment System(R) ("SNES"), Game Boy(R) and
Nintendo 64(R) are registered trademarks of Nintendo of America, Inc.
("Nintendo"), Sega(R), Genesis(R), Game Gear(R) and Saturn(R) are registered
trademarks of Sega of America, Inc. ("Sega"). Sony PlayStation(R) is a
registered trademark of Sony Computer Entertainment Inc. ("Sony"). Nintendo,
Sega and Sony are referred to herein collectively as the "Manufacturers." This
Prospectus may include trademarks other than those identified in this paragraph.
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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 periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, New York, New York 10007 and Northwestern Atrium Center, 500
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained upon written request addressed to the Commission,
Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois, at prescribed rates. The Commission maintains a site
on the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Company's Common Stock is quoted on the
Nasdaq National Market System under the trading symbol "THQI", and such reports,
proxy statements, and other information concerning the Company can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, DC 20006. Statements contained in this
Prospectus as to the contents of any agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
agreement or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
Additional information regarding the Company and the shares of Common
Stock offered hereby is contained in the Registration Statement on Form S-3 and
the exhibits thereto (the "Registration Statement") filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission or are contained in exhibits and schedules to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement which may
be inspected without charge at, and copies thereof may be obtained at prescribed
rates from, the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (as amended by the Company's Form 10 K/A filed with the
Commission on July 2, 1997);
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997;
(3) The Company's Current Report on Form 8-K dated March 28, 1997 (as
amended by the Company's Form 8-K/A filed with the Commission on May 6, 1997);
and
(4) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A (Registration No. 0-18813), which was filed
with the Commission on September 23, 1991.
All documents filed by the Company pursuant to Sections 13(a), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which is deemed to be
incorporated by reference herein modifies or supersedes such prior statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon oral or
written request, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Written or telephone
inquiries should be directed to THQ Inc., 5016 North Parkway Calabasas,
Calabasas, California 91302, Attention: Vice President-Finance and
Administration, telephone (818) 591-1310.
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RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions that the Company
has made and makes forward-looking statements regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements involve risks and
uncertainties, and that the actual results may differ materially from those in
the forward-looking statements as a result of various uncertainties, including
uncertainties relating to the interactive entertainment software industry and
other factors, including without limitation, the following important factors,
which, in some cases have affected and in the future could affect the Company's
actual results and could cause such results to differ materially from those
expressed in forward-looking statements made by or on behalf of the Company. In
each instance in which a risk factor identifies an event that would or could
adversely affect the Company, such risks should be viewed as potentially
adversely affecting the Company's business, results of operations and financial
condition.
All references to shares of Common Stock, including shares subject to
warrants and options and warrant and option exercise prices, have been adjusted
to reflect the one-for-fifteen reverse stock split effective February 15, 1995.
ACQUISITION OF PROPERTIES AND DEVELOPMENT OF NEW TITLES
The Company's continuing profitability is a direct result of its
ability to timely develop and sell new interactive software titles released by
the Company for use on a particular hardware platform ("Titles") to replace
declining revenues from older Titles. Consumer preferences for interactive
entertainment software ("Software") are difficult to predict, and few Software
titles achieve sustained market acceptance. If revenues from new Titles fail to
replace declining revenues from existing Titles, the Company would be materially
and adversely affected.
The development of new Titles is dependant in substantial part upon the
Company's identification and exploitation in a timely manner of Titles based
upon entertainment projects (such as movies, television programs and arcade
games), sports and entertainment personalities, or popular sports, trends or
concepts ("Properties") that have high public visibility or recognition or that
reflect the trends of popular culture. The determination of which Titles the
Company should develop is highly subjective and there can be no assurances that
any new Title will be successful. In addition, the Company is in competition
with numerous other Software companies for licenses to develop Software based on
such Properties. To the extent competition intensifies for licenses to highly
desirable Properties, the Company may encounter increased difficulty in
obtaining these licenses. The failure of the Company to accurately identify and
secure the rights to Properties that are or will become popular would have a
material adverse effect on the Company.
Properties generate significant public interest for periods that are
unpredictable and short. Consequently, the Company's commercially successful
Titles may be marketable in material quantities for only a limited time, often
for less than six months. As is typical of Software, the life cycle of a Title
generally consists of a relatively high level of sales during the first few
months after introduction, followed by market saturation and a decline in sales.
Accordingly, substantially all of the Company's net sales for a particular year
are generated by Titles released in that year. In some instances, a sales
decline may also be accompanied by decreasing sales prices, which may result in
credits or allowances to the Company's customers. See " -- Discounts, Allowances
and Returns; Inventory Management." In addition, the development cycle for new
Titles, including the development of the necessary game software, approval by
the Manufacturer and production of the initial cartridges or CD-ROMs, typically
has ranged from nine to 18 months. During such period, the market appeal of a
Title may decline. To the extent the Company experiences delays in the
development or shipment of new Titles, or if new Titles are not successful in
the market, the Company would be materially and adversely affected.
For the reasons set forth above, there can be no assurance that the
Company will be able to release Titles scheduled for release within such
scheduled time period or at all, or that the Company will be able to secure the
rights to new Titles at a rate that will maintain the Company's current
development and release schedule.
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DISCOUNTS, ALLOWANCES AND RETURNS; INVENTORY MANAGEMENT
Although the Company's arrangements with its distributors and retailers
generally do not give such customers the right to return manufactured products
embodying the Titles (the "Products") to the Company (other than defective
Products) or to cancel firm orders, the Company often negotiates accommodations
to retailers (and, less often, to distributors) when demand for specific items
falls below expectations for the purpose of maintaining its relationships with
its customers. Such accommodations consist of acquiescing to the customer's
request that not all booked orders be filled or that not all shipped orders be
accepted, negotiated price discounts, credits against future orders and, less
often, the return of Products to the Company. It is the Company's practice to
accept all returns of defective or damaged Products.
At the time of Product shipment, the Company establishes provisions
against the gross revenues generated by such shipment based on estimates of
future returns of, and other customer accommodations that may be granted with
respect to, such Products, based on the Company's historical experience,
retailer inventories of the Titles and other factors. For the years ended
December 31, 1995 and 1996, provisions of approximately $4.1 million and $5.2
million, respectively, were taken against gross sales made during such periods.
As of December 31, 1996 and March 31, 1997, respectively, the Company's
aggregate reserve against accounts receivable for returns and customer
accommodations was approximately $4.4 million and $3.8 million, respectively.
The Company cannot predict the amount or nature of accommodations that
will be provided to its customers in future periods. Although the Company
believes its reserves are adequate with respect to such matters, there can be no
assurance that actual returns and other customer accommodations will not exceed
the reserves established. To the extent such accommodations were to exceed the
Company's reserves, the Company would be adversely affected.
The identification by the Company of slow-moving or obsolete inventory,
whether as a result of requests from customers for accommodations or otherwise,
would require the Company to establish reserves against such inventory or to
write-down the value of such inventory to its estimated net realizable value. In
1993 and 1994 the Company incurred material charges to income as a result of
such write-downs, but has not experienced such problems subsequent to those
periods. While the Company believes that substantially all of its current
inventory is saleable in the ordinary course, there can be no assurance that in
the future the Company will not be required to incur charges related to
slow-moving or obsolete inventory.
REVENUE FLUCTUATIONS AND SEASONALITY
The Company has experienced and may continue to experience significant
quarterly fluctuations in net sales and operating results due to a variety of
factors, including the timing of releases of new Titles by the Company, the
popularity of both new Titles and Titles released in prior periods, fluctuations
in the mix of Titles with varying profit margins, the timing of customer orders,
the timing of shipments by the Manufacturers, fluctuations in the size and rate
of growth of consumer demand for Software for various hardware platforms
("Platforms"), the timing of the introduction of new Platforms and the accuracy
of retailer's forecasts of consumer demand. The Company's expenses are based, in
part, on its expectations of future revenues and, as a result, operating results
would be disproportionately and adversely affected by a decrease in sales or a
failure by the Company to meet its sales expectations. In addition, the Software
market is highly seasonal, with sales typically significantly higher during the
fourth quarter (due primarily to the increased demand for interactive games
during the year-end holiday buying season). There can be no assurance that the
Company can maintain consistent profitability on a quarterly or annual basis.
CUSTOMER CONCENTRATION AND CREDIT RISK
Sales to the Company's ten largest customers collectively accounted for
approximately 52% of the Company's gross sales in 1995 and 54% of the Company's
gross sales in 1996. Toys "R" Us, Wal-Mart and Target accounted for
approximately 12%, 8% and 8%, respectively, of the Company's gross sales in
1996. For the quarter ended March 31, 1997, Toys "R" Us, Wal-Mart and Target
accounted for 10%, 6% and 10% of the Company's gross sales, respectively. The
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<PAGE> 9
Company has no written agreement or other understanding with any of its
customers that relate to future purchases by such customers, and thus such
purchases could be terminated at any time. A termination of or other adverse
change in the Company's relationship with any of its largest customers would
have a material adverse effect on the Company.
The Company's sales of Products are typically made on credit, with
terms that vary depending upon the customer and demand for such Products. The
Company does not hold any collateral to secure payment by its customers, and
currently does not factor any of its receivables. Thus, the Company bears the
risk of its customers' and distributors' inability to pay such receivables or
the effect of any delay in such payment. Retailers and distributors compete in a
volatile industry and are subject to the risk of business failure. A business
failure by any of the Company's largest customers would have, and a business
failure by any of the Company's distributors or other retailers could have, a
material adverse effect on the Company.
RISKS ASSOCIATED WITH TITLES FOR MULTIMEDIA PERSONAL COMPUTERS AND PROPRIETARY
TITLES
In 1996, the Company acquired Heliotrope Studios, Inc. ("Heliotrope")
in order to expand its offerings of interactive games and to enable the Company
to develop Titles for the multimedia personal computer ("PC") market. While the
principals of Heliotrope have certain experience developing and marketing CD-ROM
games for PCs, prior to this acquisition the Company had no experience in this
segment of the Software market. The development and marketing of such Titles can
be expected to subject the Company to risks in addition to those encountered in
the operation of the Company's historical business, some of which may not be
anticipated by the Company. Such risks include the ability to accurately predict
which Titles have appeal to the purchasers of interactive games for PCs, greater
reliance on distributors in order to obtain retail distribution, and the greater
retailer returns experienced for CD-ROMs for PCs. There can be no assurance that
the Company will be able to successfully develop and market Titles for the PC
market.
In 1997, the Company expects to release its first proprietary Title,
Pax Imperia: Eminent Domain, an intergalactic strategy game. The Company's
strategy includes acquiring or developing other Properties that are proprietary
to the Company. The developing and marketing of such Titles can also be expected
to subject the Company to additional risks, including the risk that Titles that
do not have high public visibility or recognition will have more limited market
appeal.
GROWTH STRATEGY
From time to time the Company evaluates potential acquisitions of, or
investments in, other Software publishers or developers that the Company
believes will complement or enhance its business. In connection with any such
acquisitions, the Company may incur debt or issue debt or additional equity
securities, depending on market conditions and other factors. There can be no
assurance that the Company will consummate any such acquisitions or investments
or, if consummated, that such acquisitions or investments will prove to be
beneficial to the Company.
DEPENDENCE ON THE PLATFORM MANUFACTURERS
The Company is wholly dependent on the Manufacturers and its licenses
with the Manufacturers (the "Platform Licenses") for the right to publish Titles
for the Manufacturers' Platforms and for the manufacture of its Titles. For the
year ended December 31, 1996, 76% of the Company's net sales consisted of
Nintendo Titles, 14% consisted of Sega Titles and 10% consisted of Sony Titles,
and for the quarter ended March 31, 1997, 77% of net sales consisted of Nintendo
Titles, 3% consisted of Sega Titles and 20% consisted of Sony Titles. The
Company's current Platform License with Sega limits the Company to introducing
three titles for the Sega Genesis per year of the license. In addition, the
Company's Platform License with Sony, and with Nintendo for Nintendo 64 require
that the Company obtain approval for the publication of new Titles on a
title-by-title basis. As a result, the number of Titles the Company is able to
publish for these Platforms, and thus the Company's revenues from Titles for
these Platforms, may be limited.
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<PAGE> 10
In the event that, at the end of the term of the current Platform
License with a Manufacturer, such Manufacturer chooses not to renew or extend
such agreement, or if a Manufacturer were to terminate such license for any
reason, the Company would be unable to publish additional Titles for such
Manufacturer's Platform, which would materially and adversely affect the
Company.
Each of the Manufacturers is the sole manufacturer of the Products
published by the Company under license from such Manufacturer. The Platform
Licenses provide that such Manufacturer may raise prices for the Titles at any
time and include other provisions giving the Manufacturer substantial control
over the Company's release of new Titles. Furthermore, the relatively long
manufacturing cycle for cartridge-based Products (from 30 to 75 days) requires
the Company to accurately forecast retailer and consumer demand for its Titles.
Since each of the Manufacturers is also a publisher of Software for its own
Platforms, and also manufactures products for all of their other licensees, the
Manufacturers may give priority to their own products or those of other
publishers in the event of insufficient manufacturing capacity. If the Company
experiences unanticipated delays in the delivery of Products for these or any
other reasons, the Company would be materially and adversely affected.
RECOVERY OF PREPAID ROYALTIES, GUARANTEES AND CAPITALIZED DEVELOPMENT COSTS
The Company typically enters into agreements with licensors of
Properties and developers of Titles that require advance payments of royalties
and/or guaranteed minimum royalty payments. There can be no assurance that the
sales of Products for which such royalties are paid will be sufficient to cover
the amount of these required royalty payments. The Company capitalizes its
prepaid royalties, and capitalizes software development costs upon the
establishment of technological feasibility of the Title under development.
Amortization of these payments and costs is determined on a title-by-title basis
based on the greater of (i) the ratio of current gross revenues for a Title to
the sum of its current and anticipated gross revenues, or (ii) the straight-line
method over the estimated remaining economic life of the Title. The Company
analyzes such capitalized costs quarterly and writes off as project abandonment
losses these capitalized payments and costs (and expenses any unpaid guaranteed
minimum royalties) when, based on the Company's estimate, future revenues will
not be sufficient to recover such costs. If the Company were required to write
off a material portion of its prepaid royalties or capitalized development
costs, the Company's results of operations could be adversely affected.
CHANGES IN CONSUMER DEMAND AND TECHNOLOGY
During the approximately 20-year history of the interactive
entertainment industry, there have been periods of significant growth in
consumer interest, followed by periods in which growth has substantially
declined. The Company's sales are dependent, among other factors, on the
popularity and unit sales of Platforms generally, as well as the relative
popularity and unit sales of the Platforms of the various Manufacturers. The
relative popularity of Platforms has experienced wide fluctuations in recent
years. Unexpected declines in the popularity of a particular Platform can be
expected to have a material adverse effect on consumer demand for Titles
released or scheduled for release for such Platform.
The interactive game industry is characterized by rapid technological
change. As a result, the Company must continually anticipate and adapt its
offerings to emerging Platforms and evolving consumer preferences. The
development of Software for new Platforms requires substantial investment.
Generally, such development efforts must occur well in advance of the release of
new Platforms in order to introduce Titles on a timely basis following the
release of such Platforms. The development and marketing of Titles for new
Platforms may require greater financial and technical resources than are
currently available to the Company. In addition, there can be no assurance that
the new Platforms for which the Company develops Titles will achieve market
acceptance and, as a result, there can be no assurance that the Company's
development efforts with respect to such new Platforms will lead to marketable
Titles or Titles that generate sufficient revenues to recover their development
and marketing costs. This risk can be expected to increase in the future, as
continuing increases in development costs require corresponding increases in net
sales in order for the Company to maintain profitability. In addition, as the
Company introduces CD-ROM Titles for PCs, the Company's game software must
maintain compatibility with such computers, their operating software and their
hardware accessories. The failure of the Company to timely develop
-8-
<PAGE> 11
Titles for new Platforms that achieve significant market acceptance, to maintain
net sales that are commensurate with product development costs, or to maintain
such compatibility would have a material adverse effect on the Company.
The introduction of new Platforms and technologies can render existing
Software obsolete and unmarketable. More commonly, as more advanced Platforms
are introduced, consumer demand for Software for older Platforms diminishes. For
example, while the Company's experience indicates that competition for licenses
to develop new Titles for 16-bit Platforms is significantly less intense than
for 32-bit and 64-bit Platforms, there can be no assurance that, as a result of
such reduced consumer demand for such Titles, the Company's Titles for 16-bit
Platforms will generate sufficient sales to make such Titles profitable. Despite
this diminishing demand, the Company intends to continue to publish new Titles
for older Platforms for so long as the Company believes there is a significant
market for such Titles.
A number of Software publishers who compete with the Company are
currently developing Software for use by consumers over the Internet. While the
Company believes that the market for such Software is currently insignificant,
future increase in the availability of such Software or technological advances
in such Software could result in a decline in Platform- based Software and thus
have a material adverse effect on the Company.
COMPETITION
The interactive entertainment industry is intensely competitive. The
Company competes, for both licenses to Properties and the sale of Software, with
the Manufacturers, each of whom is the largest developer and marketer of
Software for its Platforms. There can be no assurance that these companies will
not increase their own Software development efforts. As a result of their
commanding positions in the industry as the manufacturers of Platforms and
publishers of Software for their Platforms, the Manufacturers generally have
better bargaining positions with respect to retail pricing, shelf space and
purchases than do any of their licensees, including the Company. In addition,
each of the Manufacturers has dozens of active licensees, each of which is also
a competitor of the Company. Each of the Manufacturers and many of these other
competitors (such as Acclaim Entertainment, Inc., Disney Interactive, Inc.,
Electronic Arts Inc., GT Interactive Software Corp., Midway Games Inc. and
Microsoft Corporation) have broader Software lines and greater financial,
marketing and other resources than the Company; these competitive advantages
enable such competitors to market their Software more aggressively and make
higher offers or guarantees in connection with the acquisition of licensed
Properties. In addition, as competition for retail shelf space becomes more
intense, the Company may need to increase marketing expenditures to maintain
sales of its Titles; and as competition for popular Properties increases, the
cost of acquiring licenses for such Properties is likely to increase, resulting
in reduced margins. Prolonged price competition, increased licensing costs or
reduced profit margins would have a material adverse effect on the Company.
There can be no assurance that the Company will be able to compete successfully
with the Manufacturers and their other licensees in the future.
In addition, the market for the Company's products is characterized by
significant price competition, and the Company expects that it will face
increasing pricing pressures from its current and future competitors.
Accordingly, there can be no assurance that the Company will be able to provide
products that compare favorably with the products of the Company's competitors
or that competitive pressures will not require the Company to reduce its prices.
Any material reduction in the price of the Company's products would negatively
affect operating income as a percentage of net revenue and would require the
Company to increase unit sales in order to maintain net revenue.
The Company believes that large diversified entertainment companies, in
addition to large software companies, are increasing their focus on the
interactive entertainment market, which will result in greater competition for
the Company. In particular, many of the Company's competitors are developing
on-line interactive games and interactive networks that will be competitive with
the Company's interactive products. 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 materially and
adversely affect its business, operating results and financial condition.
-9-
<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
The Company relies to a substantial extent on the management,
marketing, sales, technical and software development skills of a limited number
of employees to formulate and implement its business plan, including the
development of its Titles. The Company's success depends upon, to a significant
extent, its ability to attract and retain key management and software
development personnel. Competition for such employees is acute and the process
of locating key personnel with the combination of skills and attributes required
to execute the Company's strategy is often lengthy. The loss of services of key
personnel could have a material adverse effect on the Company. The only officer
with whom the Company has an employment agreement is Brian J. Farrell, its
President and Chief Executive Officer.
PROPRIETARY RIGHTS OF THE MANUFACTURERS
The Company depends on the Manufacturers for the protection of
intellectual property rights to their respective Platforms, cartridges and
CD-ROMs, their ability to control the proliferation of new titles by licensees
and others, and their ability to discourage unauthorized persons from producing
Software for their Platforms. There can be no assurance that the Manufacturers
will be able to continue to (i) protect their rights so that the proprietary
information and technology licensed by the Company from the Manufacturers will
not become generally available, (ii) control the proliferation of Software,
(iii) discourage unauthorized persons from producing Software, or (iv) believe
that it is in their best interests to continue any of the foregoing policies. A
change in any of these policies could have a material adverse effect on the
Company.
PROPRIETARY RIGHTS OF THE COMPANY
As a result of the Company's acquisition of Heliotrope, the Company
owns the rights to certain intellectual property with respect to Pax Imperia:
Eminent Domain. However, other than such rights, its licenses from the
Manufacturers to produce Titles and its licenses to develop and/or publish
Titles based on Properties owned or controlled by others, the Company does not
have any material proprietary rights, technology or intellectual property.
As a result of the proprietary rights of the Manufacturers and the
efforts taken by the Manufacturers to protect such rights, the Company does not
believe that there is a material amount of unauthorized copying of the Company's
Titles. However, unauthorized production occurs in the computer software
industry generally, and were a significant amount of unauthorized production of
the Company's CD-ROM Products for PCs to occur, the Company could be materially
and adversely affected.
FOREIGN SALES AND CURRENCY FLUCTUATIONS
For fiscal years 1995 and 1996, foreign sales represented approximately
26% and 30%, respectively, of the Company's net sales, and the Company expects
that foreign sales will continue to account for a significant portion of its net
sales in future periods. Foreign sales are subject to inherent risks, including
unexpected changes in regulatory requirements, tariffs and other barriers,
difficulties in staffing and managing foreign operations and the possibility of
difficulty in accounts receivable collection. There can be no assurance that
these or other factors will not have an adverse effect on the Company's future
foreign sales.
Because the majority of foreign sales are made in U.S. dollars, the
Company does not believe that foreign currency fluctuations have had a material
effect on its results of operations. To the extent the Company's foreign sales
increase and such sales are not denominated in U.S. dollars, the Company's
reported sales and results of operations could be adversely affected by foreign
currency fluctuations. The Company has not engaged in any foreign exchange
hedging activities and does not have any current plans to engage in any such
activities.
-10-
<PAGE> 13
VOLATILITY OF SHARE PRICE
The market price of the Common Stock has been, and is likely to
continue to be, highly volatile. Such price has fluctuated substantially in
recent periods. In addition, there has been a history of significant volatility
in the market prices for shares of other companies engaged in the Software
industry. Factors such as the timing and market acceptance of new Titles, the
introduction of new Software by the Company's competitors, loss of key personnel
of the Company, variations in quarterly operating results or changes in market
conditions in the Software industry generally could have a significant impact on
the market price of the Common Stock. Thus, there can be no assurance that the
market price of the Common Stock will not decline below the public offering
price or experience extreme volatility.
NO DIVIDENDS
The Company has not paid any cash or other dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future.
-11-
<PAGE> 14
THE COMPANY
T.HQ develops, publishes and distributes interactive entertainment
software for the various hardware platforms that collectively dominate the home
video game market. The Company currently publishes Titles for all major
dedicated platforms manufactured by Sony, Sega and Nintendo. The Company
currently publishes products in most interactive software games, including
action, adventure, arcade, fighting, driving, strategy, simulation and sports.
The Company was incorporated in 1989, and its principal executive
offices are located at 5016 North Parkway Calabasas, Calabasas, California 91302
and its telephone number is (818) 591-1310.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale
by the Selling Securityholders of the shares of Common Stock. All of the
proceeds will be received by the Selling Securityholders. See "Selling
Securityholders." Upon exercise of any of the Options or Warrants, the Company
will receive proceeds equal to the aggregate exercise price of such Options or
Warrants. The aggregate exercise price of the unexercised Options and Warrants
is approximately $5,366,655. The Company will use such proceeds for general
corporate purposes.
SELLING SECURITYHOLDERS
This Prospectus relates to the offer and sale by the Selling
Securityholders of shares of Common Stock that were acquired by them in private
transactions prior to the date of this Prospectus and shares of Common Stock
underlying immediately exercisable Options or Warrants, all as specified in the
table below. The Securities offered by this Prospectus are offered for the
account of the Selling Securityholders.
The number of shares of Common Stock to be sold by a Selling
Securityholder pursuant to this Prospectus or otherwise is not within the
knowledge of the Company. Except as otherwise set forth in the footnotes to the
table there is not as of the date of this Prospectus, and there has not been
within the last three years, any material relationship between any Selling
Securityholder and the Company or any predecessor or affiliate of the Company.
Because the Selling Securityholders may sell all or a part of
their shares of Common Stock, no estimate can be given as to the number of
shares of Common Stock to be held by any Selling Securityholder upon termination
of the offering. The shares of Common Stock owned by the Selling Securityholders
directly or pursuant to immediately exercisable Options or Warrants represent
approximately 7.28% of the issued and outstanding shares of Common Stock and
shares of Common Stock underlying immediately exercisable Options and Warrants
as of July 21, 1997.
The following table sets forth, as of July 22, 1997, the names
of the Selling Securityholders, their positions with the Company, and the number
of shares of Common Stock owned by them and offered pursuant to this Prospectus.
<TABLE>
<CAPTION>
Company Shares Common
Name/Position With Company Beneficially Owned Shares Offered
- -------------------------- ------------------ --------------
<S> <C> <C>
Brian J. Farrell,
President, Chairman and Chief
Executive Officer 281,334(1) 200,000
Frost Capital Partners, Inc. 25,000(2) 25,000
</TABLE>
-12-
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
Inland Productions, Inc. 52,660 52,660
Broad Capital Associates, Inc. 213,333(3) 100,000
Catapult Entertainment, Inc. 33,333(4) 33,333
Sovereign Equity Capital
Management 6,667(5) 6,667
Ira Edelson 5,000(6) 5,000
Neidiger/Tucker/Bruner, Inc. 20,328(7) 20,328
H.K. Financial Corporation 16,000(8) 8,000
William Richard DeMoulin and
Cynthia DeMoulin 10,666(8) 5,333
Tony DiFatta 5,332(8) 2,666
Porpoise Investors, L.P. 10,000(8) 5,000
Bruce R. Bielfield 2,666(8) 1,333
Steven Lumish 2,666(8) 1,333
Stephen R. Levy 5,332(8) 2,666
Delaware Charter Guarantee &
Trust Company TTEE
FBO Lloyd Renard IRA 5,332(8) 2,666
Wayne D. Panfil 2,666(8) 1,333
Annette L. Bingaman and Steven
W. Bingaman 5,332(8) 2,666
C. Wesley Woodcock, Jr. 2,666(8) 1,333
Viola M. Enright and
Robert E. Enright 20,000(8) 10,000
P. Scott Clark 5,332(8) 2,666
Peter S. Shen 5,332(8) 2,666
J.B.R. Investments 5,332(8) 2,666
Benjamin Rakov 98,666(8) 49,333
</TABLE>
- ------------------
(1) Includes 273,334 shares of Common Stock underlying Options
exercisable within 60 days of July 22, 1997.
(2) Consists of 25,000 shares of Common Stock underlying an immediately
exercisable Option.
(3) Consists of (a) 113,333 shares issuable to such person upon
exercise of Warrants at an exercise price of $22.50 per share, and
(b) 100,000 shares (included in the "Common Shares Offered" column
of this section) issuable to such person upon exercise of warrants,
at an exercise price of $11.25 per share.
-13-
<PAGE> 16
(4) Consists of 33,333 shares issuable to such person upon exercise of
Warrants at an exercise price of $18.75 per share.
(5) Consists of 6,667 shares issuable to such person upon exercise of
Warrants at an exercise price of $15.00 per share.
(6) Consists of 5,000 shares issuable to such person upon exercise of
Warrants at an exercise price of $1.93 per share.
(7) Consists of (a) 10,164 shares issuable to such person upon exercise
of Options (the "Neidiger Options") at an exercise price of $11.10
per share, and (b) 10,164 shares issuable at an exercise price of
$20.25 per share to such person upon exercise of the Warrants
issuable to such person upon exercise of the Neidiger Options.
(8) 50% of such shares shown as owned by such person and included in
the "Common Shares Offered" column of this section consist of
shares issuable to such person upon exercise of Warrants at an
exercise price of $20.25 per share.
PLAN OF DISTRIBUTION
The Warrant Shares will be issued and sold by the Company only
to the registered holders of the Warrants if, when and to the extent that such
Warrants are exercised in accordance with the terms thereof. No commissions or
discounts will be paid to any third party in connection with any issuance of
Warrant Shares.
The Warrant Shares and the shares underlying the Options
(collectively the "Shares") registered hereunder for the account of the Selling
Securityholders may be sold by the Selling Securityholders from time to time in
negotiated transactions or otherwise, at a fixed offering price (which price may
be changed), at varying prices determined at the time of sale or at negotiated
prices. The Shares may be sold to one or more purchasers directly by any of the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time, individually or collectively in one or more groups, offer the
Shares through brokers or dealers, in a distribution by one or more underwriters
on a firm commitment or best efforts basis. The methods by which the Shares may
be sold by the Selling Securityholders include (i) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent buy may position and resell a portion of the block as
principal to facilitate the transaction, (ii) purchasers by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus, (iii) ordinary brokerage transactions and transactions in which
the broker solicits purchasers, and (iv) privately negotiated transactions.
Finally, Selling Securityholders eligible to sell Shares under Rule 144 or Rule
144A may elect to sell Shares under such Rule or Rules rather than under this
Prospectus.
The Selling Securityholders and all dealers or agents, if any,
who participate in the distribution of the Shares offered hereby by the Selling
Securityholders may be deemed to be underwriters, and any profit on the sale of
such shares by them, and all discounts, commissions received by such dealers or
agents, if any (whether received from the Selling Securityholders and/or from
the purchasers of the Shares for whom those dealers or agents may act as
agents), may be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of shares is made, to the extent
required by applicable law, a supplement to this Prospectus will be distributed
that will set forth the aggregate amount of shares being offered and the terms
of the offer, including the name or names of all dealers or agents, if any, all
discounts, commissions and other items constituting compensation from the
Selling Securityholders, if any, and all discounts, commissions or concessions
allowed or re-allowed or paid to dealers, if any.
The Selling Securityholders will be subject to applicable
provisions of the Exchange Act and rules and regulations thereunder, which
provisions may limit the timing of the purchase and sale of the shares of Common
Stock by the Selling Securityholders.
-14-
<PAGE> 17
The Company will pay all of the expenses incident to this
offering, other than commissions and fees of third parties employed by a Selling
Securityholder, including attorneys' fees.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
shares of Common Stock offered hereby will be passed upon for the Company by
Sidley & Austin, Los Angeles, California. Attorneys at Sidley & Austin
participating in matters for the Company own approximately 9,700 shares of
common stock.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (as amended by Form 10-K/A) have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report thereon, which is
incorporated herein by reference, and have been so 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.
-15-
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all
fees and expenses in connection with the distribution of the securities being
registered pursuant to this Registration Statement, all of which fees and
expenses will be paid by the Registrant:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $1,991
Printing............................................................. $1,500
Accountants' fees and expenses....................................... $3,000
Legal fees and expenses.............................................. $16,000
Miscellaneous........................................................ $2,509
Total........................................................... $25,000
</TABLE>
- ---------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 721 through 726 of the New York Business Corporation Law
permit indemnification of officers and directors under certain circumstances and
subject to certain limitations. Article SEVENTH of the Certificate of
Incorporation of the Company provides with respect to the indemnification of
directors and officers that the Registrant may indemnify any and all directors
and officers that the Registrant may indemnify any and all directors and
officers, to the fullest extent permitted by the New York Business Corporation
Law, from and against any and all of the expenses, liabilities or other matters
referred to in or covered by the New York Business Corporation Law, and that the
indemnification provided for therein shall not be deemed exclusive of any other
rights to which the persons so indemnified may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to acting in their official capacity and as to action in another capacity by
holding such office, and such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the heirs, executors
and administrators of such a person.
These indemnification provisions and the indemnification agreements
between the Company and its directors and officers may be sufficiently broad to
permit indemnification of the Company's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
or otherwise.
The Company maintains a directors' and officers' liability insurance
policy covering certain liabilities that may be incurred by directors and
officers in connection with the performance of their duties. The entire premium
for such insurance is paid by the Company.
Subject to the approval of the Company's shareholders at its annual
shareholders meeting on July 22, 1997, the Company will reincorporate from New
York to Delaware. The following disclosures the relevant provisions of the
Delaware general corporation law and the Company's Certificate of Incorporation
upon completion of the reincorporation. Section 145 of the Delaware General
Corporation Law permits indemnification of officers, directors, and other
corporate agent under certain circumstances and subject to certain limitations.
The Certificate of Incorporation of the Company contains a provision eliminating
the personal liability of the directors to the Company or its stockholders to
the fullest extent set forth in Section 102(b)(7) of the Delaware General
Corporation Law and provides for indemnification of directors, officers,
employees and agents of the Company consistent with the provisions of Section
145 of the Delaware General Corporation Law. The Certificate of Incorporation
also provides that the Company may purchase directors and officers insurance.
The Company, however, has no obligation to purchase such insurance.
II-1
<PAGE> 19
Brian J. Farrell, the President and Chief Executive Officer, as well as
a director has entered into a separate employment agreement with the Company.
Pursuant to the terms of the employment agreement, the Company will indemnify
Mr. Farrell for losses, liabilities, damages and expenses incurred as a result
of his acting properly on behalf of the Company.
For the undertaking with respect to indemnification, see Item 17
herein.
- ----------------
ITEM 16. EXHIBITS
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
5 Opinion of Sidley & Austin regarding legality of certain securities being registered.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Sidley & Austin (incorporated by reference to Exhibit 5 to this Registration Statement).
24 Power of Attorney (incorporated by reference to the signature page to this Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS
a. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission 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 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.
b. The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) 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
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 20
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to
include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(4) 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.
II-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, 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 city of Calabasas, state of California on this 25th day
of July, 1997.
THQ INC.
By: /s/ Brian J. Farrell
-----------------------------------------
Brian J. Farrell
Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Brian J. Farrell and Deborah A.
Lake, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, 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, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Brian J. Farrell Director, Chief Executive Officer July 25, 1997
- --------------------------------- and President (Principal Executive
Brian J. Farrell Officer)
/s/ Lawrence Burstein Director July 25, 1997
- ---------------------------------
Lawrence Burstein
/s/ Bruce Jagid Director July 25, 1997
- ---------------------------------
Bruce Jagid
/s/ Jeffrey C. Lapin Director July 25, 1997
- ---------------------------------
Jeffrey C. Lapin
/s/ L. Michael Haller
- --------------------------------- Director July 25, 1997
L. Michael Haller
/s/ James L. Whims Director July 25, 1997
- ---------------------------------
James L. Whims
/s/ Deborah A. Lake Vice President-Finance and July 25, 1997
- --------------------------------- Administration
Deborah A. Lake (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
II-4
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- ------- ------------------- -----------
<S> <C> <C>
5 OPINION OF SIDLEY & AUSTIN REGARDING LEGALITY OF CERTAIN
SECURITIES BEING REGISTERED.
23.1 CONSENT OF DELOITTE & TOUCHE LLP.
23.2 CONSENT OF SIDLEY & AUSTIN, INCORPORATED BY REFERENCE TO EXHIBIT *
5 TO THIS REGISTRATION STATEMENT.
24 POWER OF ATTORNEY, INCORPORATED BY REFERENCE TO THE SIGNATURE *
PAGE OF THIS REGISTRATION STATEMENT
</TABLE>
* NOT APPLICABLE
<PAGE> 1
[SIDLEY & AUSTIN LETTERHEAD]
WRITER'S DIRECT NUMBER
(213) 896-6040
EXHIBIT 5
July 28, 1997
Securities and Exchange Commission
450 5th St., N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: 544,648 shares of Common Stock, par value, $.0001 per share, of
T.HQ, Inc.
Gentlemen:
We refer to the Registration Statement on Form S-3 (the
"Registration Statement") being filed by T.HQ, Inc., a New York corporation (the
"Company"), with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Securities Act"), relating to (a) the registration for
resale by the securityholders named therein (the "Securityholders") of 544,648
shares of common stock, par value $.0001 per share (the "Common Stock") of the
Company consisting of (i) 52,660 issued and outstanding shares of Common Stock
(the "Outstanding Shares"); (ii) 225,000 shares of Common Stock issuable upon
the exercise of options (the "Option") granted by the Company to the
Securityholders named therein; and (iii) 266,988 shares of Common Stock issuable
upon exercise of the Warrants (the "Warrant") granted by the Company to the
Securityholders named therein; and (b) the registration of up to 266,988 shares
of Common Stock issuable by the Company upon the exercise of the Warrants (the
"Warrant Shares").
We have acted as counsel to the Company in connection with the
Registration Statement and have examined such records, documents and questions
of law, and satisfied ourselves as to such matters of fact, as we have
considered relevant and necessary as a basis for this opinion. In addition, we
have examined the originals, or photocopies, of such other corporate records of
the Company, certificates of public officials and of officers of the Company and
such agreements, instruments and other documents as we have deemed necessary as
a basis for the opinions expressed below. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of all natural persons and the conformity with the original
documents or any copies thereof submitted to us for our examination. As to the
questions of fact material to such opinions, we have, when relevant facts were
not independently established by us, relied upon a certificate of the Company or
its officers or of public officials.
<PAGE> 2
SIDLEY & AUSTIN LOS ANGELES
T.HQ, Inc.
July 28, 1997
Page 2
Based on the foregoing, we are of the opinion that:
1. The Outstanding Shares are legally issued, fully paid and
nonassessable.
2. The shares of Common Stock issuable upon exercise of the
Options, when issued in accordance with the terms of the underlying Options, and
when certificates representing such shares have been duly executed and
countersigned and duly delivered to the persons entitled thereto against payment
to the Company for the exercise price provided for in the underlying Option,
will be legally issued, fully paid and nonassessable shares of Common Stock.
3. The shares of Common Stock issuable upon exercise of the
Warrants, when issued in accordance with the terms of the underlying Warrants,
and when certificates representing such shares have been duly executed and
countersigned and duly delivered to the persons entitled thereto against payment
to the Company for the exercise price provided for in the underlying Warrant,
will be legally issued, fully paid and nonassessable shares of Common Stock.
We do not find it necessary for purposes of this opinion to
cover, and accordingly we express no opinion as to, the application of the
securities or "Blue Sky" laws of the various states to the resale of the
Outstanding Shares, shares underlying the Options, shares underlying the
Warrants and the Warrant Shares.
This opinion is limited to the General Corporation Law of the
State of New York.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to all references to our firm in the
Registration Statement. Subject to the foregoing sentence, this opinion is
solely for your benefit and may not be relied upon by, nor may copies be
delivered to, any other person without our prior written consent. In giving our
consent, we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations thereunder. This opinion is given as of
the date hereof and we assume no obligation to advise you of changes that may
hereafter be brought to our attention.
Very truly yours,
/s/ Sidley & Austin
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
T.HQ, Inc. on Form S-3 of our report dated February 7, 1997 (March 11, 1997 as
to Note 12) appearing in the Annual Report on Form 10-K (as amended by Form
10-K/A) of T.HQ, Inc. for the year ended December 31, 1996, and to the
reference to Deloitte & Touche LLP under the heading "Experts" in the
Prospectus, which is part of the Registration Statement.
Deloitte & Touche LLP
Los Angeles, California
July 28, 1997
