<PAGE> 1
As filed with the Securities and Exchange Commission on August 16, 1999.
Registration No. 333-_______________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THQ INC.
(Exact name of Registrant as specified in its Charter)
Delaware 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)
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BRIAN J. FARRELL
President and Chief Executive Officer
THQ 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)
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with a copy to:
KENNETH H. LEVIN, 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
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE(1)
=============================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share................... 464,979 $28.9375 $13,455,330 $3,741
=============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 and was based on
the average of the high and low prices of the Common Stock on the NASDAQ
National Market on August 11, 1999 as reported by the National
Association of Securities Dealers Automated Quotation System.
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.
================================================================================
<PAGE> 2
PRELIMINARY, SUBJECT TO COMPLETION
DATED AUGUST 16, 1999
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.
PROSPECTUS
THQ INC.
5016 North Parkway Calabasas
Calabasas, California 91302
(818) 591-1310
464,979 SHARES OF COMMON STOCK
This prospectus relates to the resale, from time to time, by the selling
shareholders named in this prospectus of up to 464,979 shares of our common
stock. We will not receive any of the proceeds from the sale of the shares sold
pursuant to this prospectus. The price to the public for the shares and the
proceeds to the selling shareholders will depend upon the market price of such
securities when sold.
SEE "RISK FACTORS" ON PAGE 3 FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
YOU BEFORE YOU INVEST IN OUR COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated August [__], 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Where You Can Find More Information............................................... 3
Cautionary Statement Regarding Forward-looking Statements......................... 4
Risk Factors...................................................................... 4
The Company....................................................................... 11
Use of Proceeds................................................................... 11
Selling Shareholder............................................................... 11
Plan of Distribution.............................................................. 12
Legal Matters..................................................................... 13
Experts........................................................................... 13
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC allows us to "incorporate by reference" the documents we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The documents incorporated by reference
contain important business and financial information about us that is not
included in this prospectus. Information that we file with the SEC after the
date of this prospectus will automatically update and supersede that
information. Accord ingly, we incorporate by reference the documents listed
below and any future filings made by us with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until all of the
shares are sold:
o Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
o Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999;
o Current Reports on Form 8-K dated January 8 and May 24, 1999 and Current
Report on Form 8-K/A filed March 10, 1999; and
o The description of the common stock contained in the Registration
Statement on Form 8-A filed on September 23, 1991.
You may request a copy of these filings, at no cost to you, by writing
or telephoning us at the following address:
THQ Inc.
5016 North Parkway Calabasas
Calabasas, California 91302
Attention: Vice President -
Finance and Administration
(818) 591-1310
You should rely only on the information provided or incorporated by
reference in this prospectus or in any prospectus supplement. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other that than the date on the front of those
documents.
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<PAGE> 4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 define the concept of "forward-looking
statements." Our filings with the SEC, our press releases and our other public
statements may include, or may incorporate by reference, certain statements that
may be deemed "forward-looking statements." This may include all statements
relating to our objectives, strategies, plans, intentions and expectations. It
also may include all statements, other than statements of historical facts, that
address actions, events or circumstances that we expect, believe or intend will
occur in the future.
We make no promise to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or other wise.
All forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from historical results or those implied by
the forward-looking statements.
RISK FACTORS
You should carefully consider the following risk factors before deciding
to acquire shares of our common stock:
THE EXPIRATION OF OUR WORLD CHAMPIONSHIP WRESTING LICENSE COULD ADVERSELY AFFECT
US.
Our license to distribute Turner's World Championship Wrestling games
has expired. We distributed our last two WCW titles in the first quarter of
1999, and we completed distribution of all of our WCW titles during the second
quarter of 1999. Because our WCW games accounted for approximately 65% in 1998
and 50% in the first half of 1999, we could experience decreased revenues and
profits in 1999 and beyond.
In recognition of the importance of wrestling games to our company, we
have secured another major wrestling license. In partnership with JAKKS Pacific,
Inc., we have an exclusive, long-term license agreement with Titan Sports, Inc.
to publish titles based on the World Wrestling Federation franchise on all
hardware platforms. This license permits us to release our first WWF game after
November 16, 1999.
The following factors may cause our revenues and profits from our WWF
games to be less than those that have been generated by our WCW games:
o The license fees payable under the WWF license are higher than
those that were payable under the WCW license.
o We must share 50-50 any profits from the WWF games with our joint
venture partner, JAKKS Pacific.
o The revenues generated by the WWF games may not be reflected in
our consolidated net sales and the expenses of the joint venture
may not be included in our consolidated operating expenses. We
are continuing to discuss with JAKKS the appropriate accounting
treatment for the joint venture and its impact on each of us.
o Our WWF games may not attain the success in the marketplace
attained by our WCW games.
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WE MUST CONTINUE TO DEVELOP AND SELL NEW TITLES IN ORDER TO REMAIN PROFITABLE.
Our historical profitability has directly resulted from our ability to
timely develop and sell successful new titles for use on various platforms. We
cannot assure you that we will be able to secure the rights to new titles at a
rate that will maintain our current development and release schedule, that we
will be able to release new titles by the dates we have scheduled, or that all
of our scheduled titles will ever be released. If the revenues from our new
titles fail to replace declining revenues from existing titles, our revenues and
profits would be materially and adversely affected.
While we develop a limited number of games for which no license is
required, the development of most of our new games is dependent upon our ability
to identify and license desirable properties. Examples of properties that we
seek to license are entertainment projects, such as movies, television programs
and arcade games; sports and entertainment personalities; and popular sports,
fads or concepts that have high public visibility or recognition or that reflect
the trends of popular culture.
Consumer preferences for games are difficult to predict, and even the
most successful titles remain popular for only limited periods of time, often
less than six months. The life cycle of a game generally consists of a
relatively high level of sales during the first few months after introduction,
followed by a decline in sales. Accordingly, substantially all of our net sales
for a particular year are generated by titles released in that year and in the
latter part of the prior year. In some instances, a sales decline may also be
accompanied by decreasing sales prices, which may result in credits or
allowances to our customers.
In addition, the development cycle for new titles is long, typically
ranging from nine to 24 months. In order to distribute a product, we must
develop the necessary game software, obtain approval from the manufacturer and
produce the initial order of cartridges or CD-ROMs. During the development
cycle, the market appeal of a title may decline.
CUSTOMER ACCOMMODATIONS OR UNSALEABLE INVENTORY COULD ADVERSELY AFFECT OUR
EARNINGS.
We sometimes negotiate accommodations to retailers or distributors when
demand for specific games falls below expectations, in order to maintain our
relationships with our customers. These accommodations include our not requiring
that all booked orders be filled or that all shipped orders be accepted. We also
negotiate price discounts, credits against future orders and the return of
products with our customers.
Although we believe that the reserves that we have established for
customer accommodations are adequate, there is the possibility that actual
customer accommodations could exceed our reserves. The effect of this would be a
reduction in our earnings. We cannot predict the amount or nature of
accommodations that will be provided to our customers in future periods.
We have established reserves for slow-moving or obsolete inventory. An
unsuccessful title would require that we increase the reserve for that title or
that we write down the inventory for that title to its estimated net realizable
value. We work to minimize this risk by communicating frequently with our
customers and by attempting to accurately forecast retailer and consumer demand
for each of our titles. However, this can be often difficult to accomplish,
especially for games for the Nintendo platforms, since there is a 30 to 60-day
manufacturing cycle for these cartridge-based products.
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OVER 65% OF OUR SALES ARE MADE TO OUR TEN LARGEST CUSTOMERS. WE COULD BE
ADVERSELY AFFECTED IF ANY OF THEM REDUCED OR TERMINATED THEIR PURCHASES FROM US
OR DID NOT PAY THEIR OBLIGATIONS TO US.
Sales to our ten largest customers collectively accounted for
approximately 54% of our gross sales in 1996, 67% of our gross sales in 1997 and
65% of our gross sales in 1998. Our largest single customer is Wal- Mart.
Wal-Mart accounted for 19% of our net sales in 1998, as compared to 10% in 1997,
and this percentage may increase in the future.
We have no written agreements or other understandings with any of our
customers that relates to future purchases, so purchases by these customers or
any others could be reduced or terminated at any time. A substantial reduction
or a termination of purchases by any of our largest customers would have a
material adverse effect on us.
Our sales are typically made on credit, with terms that vary depending
upon the customer and other factors. Normally we do not hold any collateral to
secure payment by our customers, and currently we do not factor any of our
receivables. While we attempt to carefully monitor the creditworthiness of our
customers and distributors, we bear the risk of their inability to pay our
receivables and of any delay in payment. A business failure by any of our
largest customers would have a material adverse effect on us, as could a
business failure by any of our distributors or other retailers.
THE DEVELOPMENT AND MARKETING OF PC TITLES DIFFER FROM CONSOLE TITLES AND ENTAIL
ADDITIONAL RISKS.
We have less experience developing and marketing PC titles than games
for consoles. The development and marketing of PC games subjects us to some
different risks than those we encounter in connection with console games. These
risks include the ability to accurately predict which titles have appeal to the
purchasers of games for PC's, greater reliance on distributors in order to
obtain retail distribution, and higher retailer returns experienced for PC
games. We cannot assure you that we will be able to successfully develop and
market titles for the PC market.
WE CANNOT PUBLISH OR MANUFACTURE TITLES WITHOUT MANUFACTURERS' APPROVAL. OUR
ABILITY TO CONTINUE TO DEVELOP AND MARKET SUCCESSFUL CONSOLE TITLES IS DEPENDENT
ON THE MANUFACTURERS CONTINUING TO DO BUSINESS WITH US.
We are wholly dependent on the manufacturers and our non-exclusive
licenses with them, both for the right to publish titles for their platforms and
for the manufacture of our products for their platforms. Our platform licenses
for the PlayStation and Nintendo 64 require that we obtain approval for the
publication of new games on a title-by-title basis. As a result, the number of
titles we are able to publish for these platforms, and thus our revenues from
titles for these platforms, may be limited.
We currently have good relationships with both of the manufacturers.
However, should either of the manufacturers choose not to renew or extend our
license agreement at the end of its current term, or if either were to terminate
our license for any reason, we would be unable to publish additional titles for
that manufacturer's platform.
Each of the manufacturers is the sole source for the fabrication of the
products we publish for that manufacturer's platforms. Each platform license
provides that the manufacturer may raise prices for products at any time, and
include other provisions that give the manufacturer substantial control over our
release of new titles.
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<PAGE> 7
Since each of the manufacturers is also a publisher of games for its own
platforms, and also manufactures products for all of its other licensees, a
manufacturer may give priority to its own products or those of other publishers
in the event of insufficient manufacturing capacity. We could be materially and
adversely affected by unanticipated delays in the delivery of products.
IF WE NEEDED TO WRITE OFF PREPAID ROYALTIES OR CAPITALIZED DEVELOPMENT COSTS IN
EXCESS OF THE AMOUNTS WE HAVE RESERVED, OUR RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED.
We typically enter into agreements with licensors of properties and
developers of titles that require advance payments of royalties and/or
guaranteed minimum royalty payments. We cannot assure you that the sales of
products for which such royalties are paid will be sufficient to cover the
amount of these required royalty payments.
We capitalize our advances to developers on our balance sheet as a part
of "prepaid royalties." For each PC title, we are required by generally accepted
accounting principles to capitalize internal software development costs that are
incurred after the establishment of technological feasibility of the title.
However, to date, we have not capitalized a material amount of these costs. In
addition, we have not incurred material internal development costs for
PlayStation or Nintendo 64 titles.
We analyze all of our capitalized costs quarterly, and we take
write-offs when, based on our estimates, future revenues will not be sufficient
to recover our investment.
THE COMPUTER SYSTEMS OF COMPANIES WITH WHOM WE DO BUSINESS MAY NOT BE YEAR 2000
COMPLIANT.
We are in the process of communicating with others with whom we do
significant business, including our major retail accounts and certain providers
of product distribution information services, to determine their year 2000
compliance and the extent to which we are vulnerable to any third party year
2000 issues. We cannot guarantee that the systems of other companies on which
our systems rely will be timely converted. A failure to convert by another
company, or a conversion that is incompatible with our systems, could have a
material adverse effect on us.
WE HAVE RECENTLY EXPANDED OUR FOREIGN DISTRIBUTION ACTIVITIES THROUGH THE
ACQUISITION OF RUSHWARE. INCREASED DISTRIBUTION ACTIVITIES AND FOREIGN
OPERATIONS SUBJECTS US TO CERTAIN RISKS.
In December 1998, we acquired Rushware Microhandelsgesellschaft GmbH and
its subsidiaries, Softgold Computerspiele GmbH and ABC Spielspass GmbH. Rushware
is a leading German distributor of interactive entertainment software for PC's,
and will serve as our distributor and publisher in Germany and other German-
speaking countries. We believe this acquisition will significantly increase both
the proportion of our business that consists of the distribution of products
published by other companies and the proportion of our foreign sales that are
made in German-speaking countries.
The increase in our distribution activities and foreign operations
subject us to the following risks, and may entail other risks:
o The distribution business generally operates on lower gross
margins than the publishing business, and thus may require a
greater level of sales in order to cover overhead.
o We will have to maintain inventories of other company's products.
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<PAGE> 8
Rushware has a license for the exclusive right to continue distributing,
through August 1, 2000, the PC and PlayStation products developed and published
by LucasArts in German-speaking Europe.
Rushware's license agreement with LucasArts has contributed a
substantial portion of Rushware's sales in the past and is expected to do so
again in 1999. The termination or non-renewal of Rushware's license agreement
with LucasArts would have a material effect on Rushware's sales and
profitability.
As a result of this acquisition and our other efforts to increase our
foreign sales, we expect that foreign sales will account for a greater portion
of our net sales in 1999 and 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 possible difficulties collecting foreign accounts receivable. These factors
or others could have an adverse effect on our future foreign sales or the
profits generated from these sales.
Sales generated by Rushware will generally be denominated in Deutsche
marks or European Currency Units ("euros"). To the extent our foreign sales
increase and are not denominated in U.S. dollars, our sales and profits could be
materially and adversely affected by foreign currency fluctuations.
OUR REVENUES FLUCTUATE DUE TO SEASONAL DEMAND AND THE NATURE OF THE INTERACTIVE
ENTERTAINMENT BUSINESS.
We have experienced, and may continue to experience, significant
quarterly fluctuations in net sales and operating results. The interactive
entertainment market is highly seasonal, with sales typically significantly
higher during the fourth quarter, due primarily to the increased demand for
games during the year-end holiday buying season. Other factors that cause
fluctuations include:
o the timing of our release of new titles;
o the popularity of both new titles and titles released in prior
periods;
o changes in the mix of titles with varying profit margins;
o the timing of customer orders;
o the timing of shipments by the manufacturers;
o fluctuations in the size and rate of growth of consumer demand
for titles for different platforms; and
o the timing of the introduction of new platforms and the accuracy
of retailers' forecasts of consumer demand.
We may not be able to maintain consistent profitability on a quarterly
or annual basis.
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THE INTERACTIVE ENTERTAINMENT INDUSTRY GENERATES SIGNIFICANT COMPETITION FOR
EMPLOYEES. WE MUST ATTRACT AND RETAIN KEY EMPLOYEES TO IMPLEMENT OUR BUSINESS
STRATEGY.
We rely to a substantial extent on the management, marketing, sales,
technical and software development skills of a limited number of employees to
formulate and implement our business plan, including the development of our
titles. Our success depends upon, to a significant extent, our ability to
attract and retain key personnel. Competition for employees can be intense and
the process of locating key personnel with the right combination of skills is
often lengthy. The loss of services of key personnel could have a material
adverse effect on us. The only officers with whom we have employment agreements
are Brian J. Farrell, our President and Chief Executive Officer, and C. Noah
Davis, our Chief Technology Officer.
OUR FAILURE TO TIMELY DEVELOP TITLES FOR NEW PLATFORMS THAT ACHIEVE SIGNIFICANT
MARKET ACCEPTANCE, OR TO MAINTAIN NET SALES THAT ARE COMMENSURATE WITH PRODUCT
DEVELOPMENT COSTS, WOULD HAVE A MATERIAL ADVERSE EFFECT ON US.
The interactive entertainment industry has experienced periods of
significant growth in consumer interest, followed by periods in which growth has
substantially declined. Our sales are dependent, among other factors, on the
popularity and unit sales of the game platforms of the various manufacturers.
The popularity of the consoles marketed by the manufacturers has experienced
wide fluctuations. 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 that platform.
The interactive entertainment industry is characterized by rapid
technological change. As a result, we must continually anticipate and adapt our
offerings to emerging platforms and evolving consumer preferences. The
development of titles for new platforms requires substantial investment.
Generally, these 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 have prior
development and marketing efforts.
The introduction of new technologies, including new platforms such as
Sega's Dreamcast, Sony's Playstation 2, and the newly announced DVD-based next
generation Nintendo console, could materially affect our business. The new
platforms for which we develop titles may not achieve market acceptance. Our
development efforts with respect to such new platforms may not 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 us to maintain profitability.
The introduction of new platforms and technologies can render existing
games obsolete and unmarketable. More commonly, as more advanced platforms are
introduced, consumer demand for titles for older platforms diminishes. We cannot
assure you that, as a result of such reduced consumer demand for titles on older
platforms, our titles for such platforms will generate sufficient sales to make
such titles profitable.
A number of our competitors have developed or are currently developing
games for use by consumers over the Internet. We have not released any of our
titles for play over the Internet. While we believe that the market for these
games has not had a material effect on the sales of our products, future
increases in the availability of such games or technological advances in these
games or the Internet could result in a decline in platform-based games and thus
have a material adverse effect on us.
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WE COULD BE ADVERSELY AFFECTED BY THE UNAUTHORIZED COPYING OF OUR GAMES.
As a result of the proprietary rights of the manufacturers and the
efforts taken by the manufacturers to protect their rights, we do not believe
that there is a material amount of unauthorized copying of our products.
However, unauthorized production occurs in the computer software industry
generally, and were a significant amount of unauthorized production of our
CD-ROM products for PC's to occur, we could be materially and adversely
affected.
THE INTERACTIVE ENTERTAINMENT INDUSTRY IS CONSOLIDATING. IN MAKING ACQUISITIONS,
WE FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES WITH GREATER FINANCIAL
RESOURCES.
Consistent with our strategy to enhance our distribution and product
development capabilities, we intend to continue to pursue acquisitions of
companies, intellectual property rights and other assets that can be acquired on
acceptable terms and which we believe can be operated or exploited profitably.
As the interactive entertainment industry continues to consolidate, we
face significant competition in making acquisitions, which may constrain our
ability to complete suitable transactions. This is particularly of concern for
us because many of our competitors for potential acquisitions, such as Microsoft
Corporation and Hasbro Inc., have significant financial and other resources.
WE MUST CONFRONT OTHER CONSEQUENCES OF THE INTENSE COMPETITION IN OUR INDUSTRY.
The interactive entertainment industry is intensely competitive.
Significant elements of this competition include the following:
o We compete, for both licenses to properties and the sale of
games, with the manufacturers. Each of the manufacturers is the
largest developer and marketer of titles for its platforms. As a
result of their commanding positions in the industry, the
manufacturers generally have better bargaining positions with
respect to retail pricing, shelf space and retailer
accommodations than do any of their licensees, including us.
o Some of our other competitors have greater name recognition among
consumers and licensors of properties; a broader product line; or
greater financial, marketing and other resources than us.
Accordingly, these competitors may be able to market their
products more effectively or make larger offers or guarantees in
connection with the acquisition of licensed properties.
o We believe that large toy companies and large software companies
are increasing their focus on the interactive entertainment
market, which might result in greater competition for us. In
addition, many of our competitors are developing on-line
interactive games and interactive networks that will be
competitive with our interactive products.
Competitive pressures could have the following effects on us:
o As competition for popular properties increases, our cost of
acquiring licenses for such properties may increase, resulting in
reduced margins.
o As competition for retail shelf space becomes more intense, we
may need to increase our marketing expenditures to maintain sales
of our games.
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<PAGE> 11
o We could be required to reduce the wholesale unit prices of our
games.
THE COMPANY
We develop, publish and distribute interactive entertainment software
for the leading hardware platforms in the home video game market. We currently
publish titles for Sony's PlayStation, Nintendo 64, Nintendo Game Boy and Game
Boy Color, and PC's in most software genres, including action, adventure,
driving, fighting, puzzle, role playing, simulation, sports and strategy. Our
customers include Wal-Mart, Toys "R" Us, Kay Bee Toys, Target, Electronics
Boutique, Best Buy and other national and regional retailers, discount store
chains and specialty retailers.
Our titles are developed both internally and under contract with
independent developers, and are typically based on properties licensed from
third parties. We continually seek to identify and develop titles based on
entertainment projects, sports and entertainment personalities, or popular
sports, trends or concepts that have high public visibility or recognition or
that reflect the trends of popular culture. Other than titles that we may
release on CD-ROM for use on PC's, all of our products consist of cartridges and
CD-ROMs manufactured for us by Nintendo and Sony.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
offered pursuant to this prospectus. All of such proceeds will be received by
the selling shareholders.
SELLING SHAREHOLDER
The following table sets forth the selling shareholders' beneficial
ownership of the shares offered pursuant to this prospectus.
Mr. Lapin has been our Vice Chairman since November 1998 and is one of
our directors. Messrs. Burstein, Jagid and Whims are also each directors. The
shares being offered by Messrs. Lapin, Burstein, Jagid and Whims are issuable to
each upon exercise of stock options.
Mr. Traeger is the President and Mr. Harper is the Vice President -
Product Development of Pacific Coast Power & Light Company, which we acquired
on May 24, 1999.
The shares being offered by each of the selling shareholders constitutes
less than one percent of the aggregate number of shares of common stock
outstanding as of the date of this prospectus. The number of shares indicated as
beneficially owned by each selling shareholder includes shares underlying
options exercisable by such selling shareholder within 60 days.
<TABLE>
<CAPTION>
Shares Beneficially
Name of Selling Owned Prior
Shareholder to the Offering Shares Being Offered
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<S> <C> <C>
Donald A. Traeger 360,340 180,170
Dennis D. Harper 15,764 6,006
TechFarm II, L.P. (1) 123,557 56,303
</TABLE>
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<TABLE>
<CAPTION>
Shares Beneficially
Name of Selling Owned Prior
Shareholder to the Offering Shares Being Offered
----------- --------------- --------------------
<S> <C> <C>
Jeffrey C. Lapin 127,667 200,000
Lawrence Burstein 102,017 7,500
Bruce Jagid 83,000 7,500
James L. Whims 81,765(2) 7,500
TOTAL 894,110 464,979
</TABLE>
- ----------
(1) TechFarm II, L.P. is a partnership consisting of Gordon A. Campbell, its
general partner, and Gordon A. Campbell, Kurt A. Keilhacker, Koji Morihiro
and James L. Whims, its limited partners. This prospectus also covers the
sale of the shares by each of these persons in the event that TechFarm
makes a distribution of the shares to any of them.
(2) Includes 36,765 shares held of record by TechFund Capital L.P.
("TechFund"). Mr. Whims is a managing member of the general partner of
TechFund and accordingly may be deemed to share beneficial ownership of the
shares held of record by TechFund. Mr. Whims disclaims beneficial ownership
of such shares.
PLAN OF DISTRIBUTION
The selling shareholders may offer the shares at various times in one or
both of the following transactions:
o through brokers or dealers, acting as principal or agent, in
transactions on the NASDAQ National Market or on stock exchanges
in ordinary brokerage transactions, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated
prices or otherwise; and/or
o directly, or indirectly through brokers or agents, in private
sales at negotiated prices.
This prospectus may be supplemented or amended from time to time to
describe a specific plan of distribution.
In connection with the distribution of the shares or otherwise, the
selling shareholders may:
o enter into hedging transactions with broker-dealers or other
financial institutions; in connection with such transactions,
broker-dealers or other financial institutions may engage in
short sales of common stock in the course of hedging the
positions they assume with a selling shareholder;
o sell common stock short and redeliver the shares to close out
such short positions; and/or
-12-
<PAGE> 13
o enter into option or other transactions with broker-dealers or
other financial institutions that require the delivery to such
broker-dealer or other financial institution of the shares. Those
broker-dealers or other financial institutions may resell the
shares pursuant to this prospectus, as supplemented or amended to
reflect such transaction.
The selling shareholders may from time to time transfer shares to a
donee, successor or other person other than for value, and such transfers will
not be made pursuant to this prospectus. To the extent permitted by applicable
law, this prospectus covers sales by such transferee. We may in our discretion
supplement or amend this prospectus to include such transferee as an additional
named selling shareholder.
In effecting sales of the shares, brokers or dealers engaged by a
selling shareholder may arrange for other brokers or dealers to participate.
Brokers or dealers may receive compensation in the form of commissions or
discounts from a selling shareholder and may receive a commission from the
purchasers of the shares for whom such broker-dealers may act as agents, all in
amounts to be negotiated.
The selling shareholders and all dealers or agents, if any, who
participate in the distribution of the shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with such sales.
Any profit on the sale of such shares by such shareholder, and all discounts,
commissions or concessions received by such dealers or agents, may be deemed to
be underwriting discounts and commissions under the Securities Act of 1933.
Upon being notified by a selling shareholder that any agreement or
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering or secondary distribution or a purchase
by a broker-dealer, to the extent required by applicable law we will distribute
a supplement to this prospectus.
Shares that qualify for sale pursuant to Rule 144 of the Securities Act
of 1933 may be sold under Rule 144 rather than pursuant to this prospectus.
We have agreed to bear the expenses of registration of the shares and
other costs and expenses incurred by the selling shareholders in connection with
the sale of the shares. However, we will not pay any discounts, commissions or
fees of selling brokers or similar securities industry professionals and any
fees and expenses of counsel and accountants for the selling shareholders.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares have
been passed upon for us by Sidley & Austin, Los Angeles, California. Attorneys
at Sidley & Austin participating in matters for us own approximately 22,750
shares of our common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K for the year ended December 31, 1998 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 in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
-13-
<PAGE> 14
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............ $ 3,692
Accountants' fees and expenses................................. $15,000
Legal fees and expenses........................................ $25,000
Miscellaneous.................................................. $ 2,000
Total..................................................... $45,692
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Delaware General Corporation Law, directors and officers, as
well as other employees or persons, may be indemnified against judgments, fines
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation, i.e., a "derivative
action"), and against expenses (including attorney's fees) in any action
(including a derivative action), if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. However, in the case of
a derivative action, a person cannot be indemnified for expenses in respect of
any matter as to which the person is adjudged to be liable to the corporation
unless and to the extent a court determines that such person is fairly and
reasonably entitled to indemnity for such expenses.
Delaware law also provides that, to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action or matter, the corporation must indemnify
such party against expenses (including attorneys' fees) actually and reasonably
incurred by such party in connection therewith.
Expenses incurred by a director or officer in defending any action may
be paid by a Delaware corporation in advance of the final disposition of the
action upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it is ultimately determined that such party is
not entitled to be indemnified by the corporation.
The Delaware General Corporation Law provides that the indemnification
and advancement of expenses provided thereby are not exclusive of any other
rights granted by bylaws, agreements or otherwise, and provides that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person, whether or not the corporation would have the power to indemnify
such person under Delaware law.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against
-14-
<PAGE> 15
public policy as expressed in the 1933 Act and 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 1933 Act
and will be governed by the final adjudication of such issue.
Brian J. Farrell, the President and Chief Executive Officer and a
director of the Company, has entered into an employment agreement with the
Company pursuant to which the Company has agreed to indemnify Mr. Farrell for
losses, liabilities, damages and expenses incurred as a result of his acting on
behalf of the Company, subject to certain conditions and limitations.
ITEM 16. EXHIBITS
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
5 Opinion of Sidley & Austin.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Sidley & Austin (included in Exhibit 5).
24 Power of Attorney (set forth on the signature page hereto).
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant 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 Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby further undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
-15-
<PAGE> 16
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 230-424(b) of 17
C.F.R.) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and (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;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrants 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant 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 the 11th day of August, 1999.
THQ Inc.
By: /s/ Brian J. Farrell
-------------------------------------------------
Brian J. Farrell
Chairman of the Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian J. Farrell and Fred A. Gysi, 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, President and Chief August 11, 1999
- ------------------------- Executive Officer (Principal
Brian J. Farrell Executive Officer)
/s/ Lawrence Burstein Director August 11, 1999
- -------------------------
Lawrence Burstein
/s/ Bruce Jagid Director August 11, 1999
- -------------------------
Bruce Jagid
/s/ Jeffrey C. Lapin Director and Vice Chairman August 11, 1999
- -------------------------
Jeffrey C. Lapin
/s/ L. Michael Haller Director and Senior Vice August 11, 1999
- ------------------------- President
L. Michael Haller
/s/ James L. Whims Director August 11, 1999
- -------------------------
James L. Whims
/s/ L. Greg Ballard Director August 11, 1999
- -------------------------
L. Greg Ballard
/s/ Fred A. Gysi Vice President-Finance and August 11, 1999
- ------------------------- Administration, Chief Financial
Fred A. Gysi Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION SEQUENTIAL PAGE NUMBER
- ------ ------------------- ----------------------
<S> <C> <C>
5 OPINION OF SIDLEY & AUSTIN.
23.1 CONSENT OF DELOITTE & TOUCHE LLP.
23.2 CONSENT OF SIDLEY & AUSTIN (INCLUDED IN EXHIBIT 5). *
24 POWER OF ATTORNEY (SET FORTH ON SIGNATURE PAGE HERETO) *
</TABLE>
* NOT APPLICABLE
-18-
<PAGE> 1
[SIDLEY & AUSTIN LETTERHEAD]
August 12, 1999
EXHIBIT 5
THQ Inc.
5016 N. Parkway Calabasas, Suite 100
Calabasas, CA 91302
Re: Registration Statement on Form S-3
Gentlemen/Ladies:
We have acted as counsel for THQ Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended, pursuant to the above-captioned registration statement (the
"Registration Statement"), relating to the registration of the offer and sale
from time to time, by the selling securityholders named therein of 464,979
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") consisting of (i) 242,479 issued and outstanding shares of Common Stock
(the "Outstanding Shares"), and (ii) 222,500 shares of Common Stock issuable
upon the exercise of options granted by the Company to certain securityholders
named therein (the "Option Shares").
In rendering this opinion, we have examined and relied upon a copy of
the Registration Statement. We have also examined originals, or copies of
originals certified to our satisfaction, of such agreements, documents,
certificates and other statements of governmental officials and other
instruments, and have examined such questions of law and have satisfied
ourselves as to such matters of fact, as we have considered relevant and
necessary as a basis for this opinion. 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 of any copies thereof submitted to us for our examination.
Based upon and subject to the foregoing, it is our opinion that:
1. The Outstanding Shares have been legally issued and are fully
paid and nonassessable; and
<PAGE> 2
THQ Inc.
March 10, 1999
Page 2
2. The Option Shares, when issued in accordance with the terms of
the underlying options, and when certificates representing such shares have been
duly executed, countersigned and duly delivered to the persons entitled thereto
against payment to the Company for the exercise price provided for in the
underlying options, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In giving such 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. The opinions expressed herein are 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
THQ Inc. on Form S-3 of our report dated February 24, 1999 appearing in the
Annual Report on Form 10-K of THQ Inc. for the year ended December 31, 1998 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 12, 1999
