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As filed with the Securities and Exchange Commission on October 13, 2000.
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
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)
27001 Agoura Road, Suite 325
Calabasas Hills, California 91301
(818) 871-5000
(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.
27001 Agoura Road, Suite 325
Calabasas Hills, California 91301
(818) 871-5000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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with a copy to:
CATHERINE E. ALBRIGHT, ESQ.
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
(213) 896-6019
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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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE AGGREGATE PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE(1)
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Common Stock, par value
$.01 per share........... 1,000,000 $21.5625 $21,562,500.00 $5,693.00
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(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 October 10, 2000 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.
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PRELIMINARY, SUBJECT TO COMPLETION
DATED OCTOBER 13, 2000
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.
27001 Agoura Road, Suite 325
Calabasas Hills, California 91301
(818) 571-5000
1,000,000 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 1,000,000 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.
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.
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This prospectus is dated October __, 2000.
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TABLE OF CONTENTS
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Where You Can Find More Information..........................................................2
Cautionary Statement Regarding Forward-Looking Statements....................................3
The Company..................................................................................3
Risk Factors.................................................................................3
Use of Proceeds.............................................................................10
Selling Shareholders........................................................................10
Plan of Distribution........................................................................11
Legal Proceedings...........................................................................12
Legal Matters...............................................................................13
Experts ....................................................................................13
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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 we file the initial registration statement and prior to the effectiveness
of the registration statement as well as after the date of this prospectus will
automatically update and supersede that information. Accordingly, 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:
- Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
2000 and June 30, 2000.
- Annual Report on Form 10-K/A for the fiscal year ended December 31,
1999.
- Current Reports on Form 8-K dated March 21, 2000, June 22, 2000, and
September 15, 2000; and
- 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.
27001 Agoura Road, Suite 325
Calabasas Hills, California 91301
Attention:Senior Vice President -
Finance and Administration
(818) 871-5000
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
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date other that than the date on the front of those documents.
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 otherwise.
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.
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's 64, Game Boy Color, and Game
Boy Advance, Sega's Dreamcast, Microsoft's X-Box, 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, Sony, Sega, and Microsoft.
RISK FACTORS
You should carefully consider the following risk factors before deciding
to acquire shares of our common stock:
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
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that have high public visibility or recognition or that reflect the trends of
popular culture. The inability to renew successful licenses could limit our
economic success.
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
licensor, if required, and produce the initial order of cartridges or CD-ROMs.
During the development cycle, the market appeal of a title may decline.
WE RELY ON EXTERNAL DEVELOPERS FOR THE DEVELOPMENT OF MANY OF OUR TITLES.
Although we have several titles in development by our internal studios,
many of our titles are developed by third party developers. A delay in the work
performed by third party developers may result in delays in product releases.
The future success of many of our titles will depend on our continued ability to
maintain proven relationships and obtain developer agreements on favorable terms
with skilled third party developers. We cannot guarantee that we will be able to
establish or maintain relationships with third party developers.
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, Nintendo's Gamecube and Game Boy Advance
and Microsoft's X-Box, could materially affect our business. The new platforms
for which we develop titles may not achieve market acceptance. Further, we have
no control over the release dates of the new platforms nor the number of units
that will
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be shipped upon such release. It is difficult to ensure that our schedule for
releasing new titles will coincide with the release of the corresponding
platforms. We anticipate it will be more costly to develop titles for the new
platforms. 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, especially if a new platform does not
reach an expected level of acceptance. 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
titles 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 plan to release our first
on-line game, which is currently in development by our in-house studio, Genetic
Anomalies, Inc., in the fourth quarter of 2000. We cannot be assured that our
approach to on-line games will meet with customer acceptance. 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. We also
are developing games for other mobile platforms, including cellular telephones
and mobile handheld devices, under a recently signed agreement with Siemens AG
of Germany. Because we are less experienced in developing games for these
devices and such platforms present additional and different risks than those
related to traditional console games, we cannot predict with any degree of
certainty the financial impact of our alliance with Siemens.
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. 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 write down slow-moving or obsolete inventory to net realizable value.
An unsuccessful title requires 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 54% OF OUR GROSS 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 67% of our gross sales in 1997, 65% of our gross sales in 1998 and
54% of our gross sales in 1999. Our largest single customer is Wal-Mart.
Wal-Mart accounted for 15% of our gross sales in 1999, as compared to 19% in
1998.
We have no written agreements or other understandings with any of our
customers that relate 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 existing platform
licenses for Sega's Dreamcast, Sony's PlayStation and PlayStation 2, Nintendo's
Game Boy Color and Nintendo 64, and our pending licenses for Nintendo's Gamecube
and Game Boy Advance and Microsoft's X-Box, require that we obtain approval for
the publication of new games on a title-by-title basis. We expect that our
pending licenses for the next generation of platforms will contain similar
provisions. 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 the manufacturers. However,
should any manufacturer choose not to renew or extend our license agreement at
the end of its current term, or if any manufacturer were to terminate our
license for any reason, we would be unable to publish additional titles for that
manufacturer's platform.
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\
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 change prices for products at any time and
includes other provisions that give the manufacturer substantial control over
our release of new titles.
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 DOWN PREPAID ROYALTIES OR CAPITALIZED DEVELOPMENT COSTS
BELOW THE CURRENT RECORDED VALUE, 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; in addition, the THQ/JAKKS Pacific, LLC
Agreement requires minimum guaranteed payments to JAKKS Pacific, Inc. We cannot
assure you that the sales of products for which such royalties are paid or
guaranteed payments are made will be sufficient to cover the amount of these
required payments.
We capitalize our advances to developers on our balance sheet as a part
of "prepaid royalties." We analyze all of our capitalized costs quarterly, and
we take write-offs when, based on our estimates, future individual product
contribution will not be sufficient to recover our investment.
WE HAVE RECENTLY EXPANDED OUR FOREIGN DISTRIBUTION ACTIVITIES THROUGH THE
ACQUISITION OF RUSHWARE AND THE OPENING OF OFFICES IN FRANCE AND AUSTRALIA.
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.
We recently opened offices in France and Australia. Our French office
will serve as our distributor in France and other French-speaking countries. The
Australian office will be our distributor in Australia and the general
Asian-Pacific region.
The increase in our distribution activities and foreign operations
subject us to the following risks, and may entail other risks:
- 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.
- We will have to maintain inventories of other companies' products.
As a result of our efforts to increase our foreign sales, foreign sales
accounted for a greater portion of our net sales in 1999 than in the past.
Foreign sales are subject to inherent risks, including
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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 our European and Australian offices will generally be
denominated in the currency denomination of the country in which the sales are
made or, if made in Europe, European Currency Units ("euros"). To the extent our
foreign sales 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:
- the timing of our release of new titles;
- the popularity of both new titles and titles released in prior periods;
- changes 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
titles for different platforms; and
- 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.
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 officers with whom we have employment agreements are
Brian J. Farrell, our President and Chief Executive Officer, Jeffrey C. Lapin,
our Vice Chairman and Chief Operating Officer, Don Traeger, President of Pacific
Coast Power & Light Company, Dennis Harper, Vice President - Product Development
of Pacific Coast Power & Light Company, Shawn
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Broderick, President of Genetic Anomalies, Inc., Steve Gray, General Manager of
Heavy Iron Studios, Michael Kulas, President of Volition, Inc, Philip Holt,
Vice-President of Volition, Inc., Adam Pletcher, Art Director of Volition, and
John Slagel, Senior Programmer of Volition.
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 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:
- 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.
- 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.
- 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:
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- As competition for popular properties increases, our cost of acquiring
licenses for such properties may increase, resulting in reduced margins.
- As competition for retail shelf space becomes more intense, we may need
to increase our marketing expenditures to maintain sales of our games.
- We could be required to reduce the wholesale unit prices of our games.
FLUCTUATIONS IN STOCK PRICE
The market price of our common stock has experienced and may continue to
experience wide fluctuations. Factors affecting our stock price may include:
- Actual or anticipated variations in our operating results;
- Variations in the level of market acceptance of our titles;
- Delays and timing of product introductions;
- Changes in recommendations or earning estimates by securities analysts;
- Conditions and trends in our industry; or
- General market or economic conditions.
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 SHAREHOLDERS
The following table sets forth the selling shareholders' beneficial
ownership of the shares offered pursuant to this prospectus and assumes that the
selling shareholders will sell all of their shares offered under this
prospectus. We are unable to determine the exact number of shares that will
actually be sold. The number of shares of our common stock that each of the
selling shareholders will own after the completion of the offering described in
this prospectus constitutes less than one percent of the aggregate number of
shares of our common stock outstanding as of the date of this prospectus.
Mr. Kulas is the President of Volition, Inc., which we acquired on
August 31, 2000. Mr. Slagel is a Senior Programmer, Mr. Pletcher is the Art
Director, Mr. Allender is a Senior Programmer, and Mr. Whiteside is an Artist of
Volition. Otherwise, none of the selling shareholders listed below have held any
position or office or had a material relationship with us or any of our
affiliates within the past three years other than as a result of the ownership
of shares of our common stock.
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Shares Shares
Beneficially Beneficially
Name of Selling Owned Prior to Shares Being Owned After the
Shareholder the Offering Offered Offering
--------------------- --------------- ------------- ---------------------
<S> <C> <C> <C>
Michael J. Kulas 881,021 879,121 1,900
Adam Pletcher 43,956 43,956 0
John Slagel 43,966 43,956 10
Mark Allender 21,978 21,978 0
Jasen Whiteside 10,989 10,989 0
0
TOTAL 1,001,910 1,000,000 1,910
--------------------------------------------------------------------------------
</TABLE>
The shares being offered by Mr. Allender include 10,989 shares of our
common stock underlying options that are exercisable within 60 days of the date
of this prospectus. The shares being offered by Messrs. Pletcher, Slagel and
Whiteside consist entirely of shares of our common stock underlying options that
are exercisable within 60 days of the date of this prospectus.
PLAN OF DISTRIBUTION
The selling shareholders may offer the shares at various times in one or
both of the following transactions:
- 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
- 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:
- 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;
- sell common stock short and redeliver the shares to close out such short
positions; and/or
- 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.
-11-
<PAGE> 13
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 PROCEEDINGS
Two individual shareholders have filed essentially identical purported
class actions in the United States District Court for the Central District of
California (Thomas E. Wiener, et al. v. THQ Inc., et al., Case No. 00-01783 AHM
(C.D. Cal.) and John H. Cottrell, et al. v. THQ Inc., et al., Case No. 00-02264
GAF (C.D. Cal.)) alleging that we and certain of our directors and senior
officers violated Section 10(b) of the Securities and Exchange Act of 1934 and
SEC Rule 10b-5. Each case seeks class action status on behalf of all individuals
who purchased our shares of common stock between October 26, 1999 and February
10, 2000. Each complaint alleges that we issued false and misleading statements
about our financial results and prospects during the class period, and that the
individual defendant directors and officers participated in the alleged scheme
so as to sell their personal shares at inflated prices. These cases were
consolidated and recently, our Motion to Dismiss was granted with leave to
amend. On October 2, 2000 the plaintiffs amended their complaints. We believe
the claims are without merit, and intend to vigorously defend against them.
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<PAGE> 14
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 15,000
shares of our common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-K/A for the year ended December 31, 1999 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
-13-
<PAGE> 15
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>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.... $ 5,693.00
Accountants' fees and expenses......................... $ 5,000.00
Legal fees and expenses................................ $ 10,000.00
Miscellaneous.......................................... $ 1,000.00
Total............................................ $ 21,693.00
</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.
-14-
<PAGE> 16
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 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, and Jeffrey C. Lapin, the Vice Chairman and Chief
Operating Officer and a director of the Company have entered into employment
agreements with the Company pursuant to which the Company has agreed to
indemnify Messrs. Farrell and Lapin for losses, liabilities, damages and
expenses incurred as a result of their 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>
4 Stockholders Rights Agreement dated as of June 21, 2000,
between the Company and American Stock Transfer & Trust
Company, as Rights Agent (Filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated June 22, 2000,
and incorporated herein by reference)
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
-15-
<PAGE> 17
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:
(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.
-16-
<PAGE> 18
(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.
-17-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Calabasas Hills, State of California on October 12,
2000.
THQ Inc.
By: /s/ Fred A. Gysi
-------------------------------------------------
Fred A. Gysi
Chief Financial Officer, Senior Vice President -
Finance and Administration, Treasurer
and Secretary
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 Executive October 12, 2000
------------------------------------------ Officer (Principal Executive Officer)
Brian J. Farrell
/s/ Lawrence Burstein Director October 12, 2000
------------------------------------------
Lawrence Burstein
/s/ Bruce Jagid Director October 12, 2000
------------------------------------------
Bruce Jagid
/s/ Jeffrey C. Lapin Director, Vice Chairman and Chief October 12, 2000
------------------------------------------ Operating Officer
Jeffrey C. Lapin
/s/ James L. Whims Director October 12, 2000
------------------------------------------
James L. Whims
/s/ L. Greg Ballard Director October 12, 2000
------------------------------------------
L. Greg Ballard
/s/ Fred A. Gysi Senior Vice President - Finance and October 12, 2000
------------------------------------------ Administration, Chief Financial Officer
Fred A. Gysi and Secretary (Principal Financial
Officer and Principal Accounting Officer)
</TABLE>
-18-
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION SEQUENTIAL PAGE NUMBER
------ ------------------- ----------------------
<S> <C> <C>
4 Stockholders Rights Agreement dated as of June *
21, 2000, between the Company and American Stock
Transfer & Trust Company, as Rights Agent (Filed
as Exhibit 4 to the Company's Current Report on
Form 8-K dated June 22, 2000, and incorporated
herein by reference)
5 Opinion of Sidley & Austin. 20
23.1 Consent of Deloitte & Touche LLP. 21
23.2 Consent of Sidley & Austin (included in Exhibit 5). *
24 Power of Attorney (set forth on signature page *
hereto)
* Not Applicable
</TABLE>
-19-
