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As filed with the Securities and Exchange Commission on July 18, 1996
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
__________________
SPECTRUM HOLOBYTE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1728656
(State of Incorporation) (I.R.S. Employer
Identification No.)
2490 Mariner Square Loop, Suite 100
Alameda, California 94501
(510) 522-3584
(Address and telephone number of principal executive offices)
Gregory S. Kennedy, Esq.
Senior Vice President, Business and Legal Affairs
Spectrum HoloByte, Inc.
2490 Mariner Square Loop, Suite 100
Alameda, California 94501
(510) 522-3584
(Name, address and telephone number of agent for service)
__________________
Copies to:
Allen L. Morgan, Esq. Lior O. Nuchi, Esq.
David C. Drummond, Esq. Rajesh A. Aji, Esq.
Wilson, Sonsini, Goodrich & Rosati McCutchen, Doyle, Brown & Enerson, LLP
650 Page Mill Road One Embarcadero Place, 2100 Geng Road
Palo Alto, California 94304 Palo Alto, California 94303-0913
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO AMOUNT TO BE PER OFFERING REGISTRATION
BE REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
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Common Stock, 1,818,368 $4.25 $5,020,814 $1,732.00
$.001 par value
per share
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(1) Calculated pursuant to Rule 457(c) based upon the average of the high and
low sale prices for the Common Stock as reported by the Nasdaq National
Market on July 11, 1996.
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED JULY 18, 1996
1,818,368 Shares
SPECTRUM HOLOBYTE, INC.
Common Stock, par value $.001 per share
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This Prospectus relates to the public offering, which is not being
underwritten, of shares of the common stock ("Common Stock") of Spectrum
HoloByte, Inc., a Delaware corporation (together with its consolidated
subsidiaries, "Spectrum" or the "Company") offered from time to time by any or
all of the Selling Stockholders named herein (the "Selling Stockholders") for
their own benefit. It is anticipated that the Selling Stockholders will
generally offer shares of Common Stock for sale at prevailing prices in the
over-the-counter market on the date of sale. The Company will receive no part
of the proceeds of sales made hereunder. The Common Stock to which this
Prospectus relates was received by the Selling Stockholders pursuant to
an offering pursuant to Regulation S of the Securities Act of 1933, as
amended (the "Securities Act") (the "Private Placement"). The Common Stock
issued to the Selling Stockholders in the Private Placement was issued pursuant
to an exemption from the registration requirements of the Securities Act,
provided by Regulation S thereof. All expenses of registration incurred in
connection with this offering are being borne by the Company, but all selling
and other expenses incurred by Selling Stockholders will be borne by such
Selling Stockholders. None of the shares offered pursuant to this Prospectus
have been registered prior to the filing of the Registration Statement of which
this Prospectus is a part.
The Common Stock of the Company is traded in the over-the-counter
market on the Nasdaq National Market System. On July 17, 1996, the closing
price of the Company's Common Stock was $5.00 (Nasdaq Symbol: SBYT).
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
Each Selling Stockholders and any broker executing selling orders on
behalf of the Selling Stockholders may be deemed to be an "underwriter" within
the meaning of the Securities Act. Commissions received by any such broker may
be deemed to be underwriting commissions under the Securities Act.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 4.
The date of this Prospectus is July 18, 1996
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS,
NOR DOES IT CONSTITUTE AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Information Incorporated by Reference. . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
AVAILABLE INFORMATION
Spectrum HoloByte, Inc. ("Spectrum HoloByte" or the "Company") is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the
following regional offices of the Commission: Seven World Trade Centers,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed rates. The
Common Stock of the Company is quoted on the Nasdaq National Market, and such
material may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (the "Registration Statement") of which this
Prospectus is a part, including exhibits relating thereto, which has been filed
with the Commission under the Securities Act in Washington, D.C. Statements
made in this Prospectus as to the contents of any referenced contract, agreement
or other document are not necessarily complete, and each such statement shall be
deemed qualified in its entirety by reference thereto. Copies of the
Registration Statement and the exhibits and schedules thereto may be obtained,
upon payment of the fee prescribed by the Commission, or may be examined without
charge, at the office of the Commission.
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INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-19463) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996.
2. The Company's Form 8-K current report pursuant to Section 13 or
15(d) of the Securities Act filed on July 12, 1996.
3. The description of the Company's Common Stock, par value $.001
per share, contained in its Registration Statement on Form 8-A
filed October 3, 1991, including any amendment or report filed
for the purpose of updating such description.
4. All other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus but prior to the termination of the
offering of the Shares.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document that also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement.
Upon written or oral request, the Company will provide without charge
to each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
therein). Requests should be submitted in writing or by telephone at (510) 522-
3584 to Gregory S. Kennedy, Esq., Senior Vice President, Business and Legal
Affairs and Secretary, Spectrum HoloByte, Inc., at the principal executive
offices of the Company, 2490 Mariner Square Loop, Suite 100, Alameda, California
94501.
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RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING
THE COMPANY AND ITS BUSINESS PROSPECTS BEFORE PURCHASING THE NOTES OR COMMON
STOCK OFFERED BY THIS PROSPECTUS.
CONTINUING LOSSES. The Company reported a net loss for fiscal 1996 of
$39.8 million, or $1.70 per share. The Company had a net loss of approximately
$18.1 million for fiscal 1995, and a net loss of approximately $58.5 million for
fiscal 1994. Since the Merger with MicroProse in December 1993, the Company has
not been able to achieve profitability on an annual basis. There can be no
assurance that any of the Company's business strategies and tactics will be
successful or that the Company will be able to achieve or sustain profitability.
SIGNIFICANT LEVERAGE. As of March 31, 1996, the Company had outstanding
indebtedness for borrowed funds of approximately $50.5 million, cumulative
redeemable preferred stock of $5.9 million, and certain additional indebtedness.
This substantial leverage will have several important consequences for the
Company's future operations, including the following: (i) a substantial portion
of the Company's cash flow from operations will be dedicated to the payment of
interest on, and principal of, its indebtedness; (ii) the Company's ability to
obtain additional financing in the future for capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired; and
(iii) the Company's ability to withstand competitive pressures, adverse economic
conditions and adverse changes in governmental regulations and to make
acquisitions or otherwise take advantage of significant business opportunities
that may arise may be negatively impacted. The Company in the future may enter
into lines of credit or other borrowing arrangements, any of which would add to
the total outstanding indebtedness of the Company. The Company's ability to meet
its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of such debt, including the Notes (see
below), or to obtain additional financing. However, there can be no assurance
that any refinancing would be possible or that any additional financing could be
obtained.
NASDAQ LISTING. The Company was notified by the Nasdaq Stock Market
("Nasdaq") that the Company was no longer in compliance with the net tangible
assets requirement of the National Association of Securities Dealers' ByLaws
for listing on the Nasdaq National Market. Nasdaq, however, granted the
Company a temporary exemption from the net tangible assets requirement. The
exemption required that the Company make a public filing with the Securities
and Exchange Commission ("SEC") and Nasdaq on or before July 12, 1996. In the
first quarter of fiscal 1997, management implemented tactics to achieve
compliance with the listing requirements of the Nasdaq National Market. The
Company raised $10 million additional equity through the sale of shares of
its Common Stock to the Selling Stockholders (which are the subject of this
registration statement) and exchanged approximately $14.9 million in
principal amount of convertible bonds for Series B and B-1 Convertible
Preferred Stock. After such measures had been taken, the Company complied
with Nasdaq's required filing on July 12, 1996. The filing contained a pro
forma balance sheet as of May 31, 1996 that evidenced compliance with the net
assets requirement. Management believes that the actions taken by the Company
in the first quarter of fiscal 1996, among others, will enable the Company to
regain compliance with the listing requirements of the Nasdaq National Market
as of the end of the fiscal quarter ended June 30, 1996.
There can be no assurance that the Company will be able to evidence
and maintain compliance with the listing requirements in future filings with
the SEC and Nasdaq. If the Company should be delisted from the Nasdaq
National Market, the Company's Common Stock could be moved to the Nasdaq
SmallCap Market for trading, provided the Company raises additional capital.
Although the Company believes that a move to the Nasdaq SmallCap Market, if
required, would not materially affect the liquidity of the Common Stock, the
market price of the Common Stock may be materially adversely affected. In
addition, Nasdaq imposes certain requirements for continued listing on the
Nasdaq SmallCap Market, including a minimum stockholders' equity requirement.
If for any reason the Company is unable to achieve and maintain compliance
with the SmallCap listing requirements and is delisted from both the Nasdaq
National Market and the Nasdaq SmallCap Market, the holders of the Company's
6 1/2 % Convertible Subordinated Notes Due 2002 (the "Notes") would be
entitled to require the Company to repurchase all or any portion of such
holders' Notes for cash at a price equal to the principal amount plus accrued
interest. In such event, the Company's business, results of operations and
financial condition would be materially and adversely affected.
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FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY. The Company's operating
results have varied significantly in the past, and are expected to vary
significantly in the future. This variability is a result of factors such as:
1) the degree of market acceptance of the Company's products, 2) the
introduction of products competitive with those of the Company, 3) the timing
and market acceptance of new hardware and software product introductions, 4) the
commencement of volume shipments of a significant new product, 5) the size and
rate of growth of the consumer software market, 6) development and promotional
expenses relating to the introduction of new products or new versions of
existing products, 7) product returns and markdowns, 8) changes in pricing
policies by the Company and its competitors, 9) the accuracy of retailers'
forecasts of consumer demand, 10) the timing of orders from major customers, 11)
order cancellations, 12) delays of shipment, and 13) write-offs of advance
royalty payments. Because a majority of the unit sales for a product typically
occurs in the first 90 to 120 days following the introduction of the product,
the Company's revenue may increase significantly in a period in which a major
product introduction occurs and may decline in following periods or in periods
in which there are no major product introductions. The Company's expenses are
based, in part, on expected future revenue. Certain overhead and product
development expenses are fixed and do not vary directly in relation to revenue.
Consequently, if net revenue is below expectations, the Company's operating
results are likely to be materially and adversely affected. In certain past
periods the Company's revenue or operating results were below the expectations
of, and certain new products were not introduced when anticipated by, public
market analysts and investors. These circumstances could recur in future
periods, and in such event, the prices of the Company's Common Stock would
likely be materially and adversely affected.
The entertainment software business is highly seasonal. Typically, net
revenue is highest during the last calendar quarter (which includes the holiday
buying season), declines in the first calendar quarter, is lowest in the second
and increases in the third calendar quarter. This seasonal pattern is due
primarily to the increased demand for entertainment software products during the
year-end holiday buying season. The Company's net revenue, however, varies
significantly and is largely dependent on releases of major new products and, as
such, may not necessarily reflect the seasonal patterns of the industry as a
whole. The Company expects that its net revenue and operating results will
continue to fluctuate significantly in the future.
STRATEGIC RESTRUCTURING. In fiscal 1996 and early fiscal 1997, the
Company undertook a strategic restructuring with the goals of better integrating
the operations of Spectrum HoloByte and MicroProse, streamlining product
development efforts and reducing operating costs. Certain domestic operations
were streamlined and consolidated in California, including marketing,
operations, customer support, finance and product planning. The Company largely
discontinued its Japanese operations, and entered into an exclusive three year
distribution agreement in Japan which is expected to generate royalties in
future periods. The Company's domestic affiliated label programs were largely
terminated and the number of products being published and actively marketed was
significantly reduced in order to focus the Company's sales and distribution
efforts. As a result of these changes, the Company has improved operating
efficiencies, reduced headcount and reduced operating costs. There can be no
assurance that the Company will be successful in meeting the objectives of this
restructuring. Furthermore, as a result of reducing the number of the Company's
products, there can be no assurance that the Company's expected revenue will be
sufficient to generate operating profits.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; PRODUCT DELAYS. A significant
portion of the Company's fiscal year revenue is generated by products introduced
during that fiscal year. The Company depends on the timely introduction of
successful new products or sequels to existing products to replace declining
revenue from older products. If for any reason revenue from new products or
other activities fails to replace declining revenue from existing products, the
Company's business, operating results and financial condition may be materially
and adversely affected.
The Company's current production schedules contemplate that the Company
will commence shipments of a number of new products in fiscal 1997. As with any
software product, however, until all aspects of the development and initial
distribution of a game are completed, there can be no assurance of its ship
date. Ship dates will vary depending on quality assurance testing and other
development factors. If the Company were unable to commence volume shipments of
a significant new product during the scheduled quarter, the Company's revenue
and earnings would likely be materially and adversely affected in that quarter.
In the past, the Company has experienced significant delays in the introduction
of certain new products. It is likely that in the future certain new products
will not be released in accordance with the Company's internal development
schedule or the expectations of public market analysts and investors. A
significant delay in the introduction of, or the presence of a defect in, one or
more new products could have a material adverse effect on the ultimate success
of such
5
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products and on the Company's business, operating results and financial
condition, particularly in the quarter in which such products were scheduled to
be introduced.
The process of developing software products such as those offered by the
Company is extremely complex and is expected to become more complex and
expensive in the future as consumers demand products with more sophisticated and
elaborate multimedia features and as new platforms and technologies are
supported. At the same time, the introduction of new technologies and
competitive products, the increase in competition for retail shelf space among
software products and other factors may cause the effective lives of the
Company's products to become shorter and the Company's ability to introduce new
products on a timely basis to become increasingly important. There can be no
assurance that new products will be introduced on schedule or at all or that
they will achieve any significant degree of market acceptance or generate
significant revenue. Historically, the Company has frequently missed both
internal and publicly announced product release schedules. To the extent that
major new products are not released on schedule, or at all, the Company's
business, operating results and financial condition may be materially and
adversely affected. As the Company intends to focus its resources on a smaller
number of titles, its exposure to the risks of delays of any one title will
increase.
UNCERTAINTY OF MARKET ACCEPTANCE; UNPREDICTABLE PRODUCT LIFE CYCLES.
Consumer preferences for entertainment software products are continually, and
rapidly, changing and are extremely difficult to predict. Few entertainment
software products achieve sustained market acceptance, for example, beyond one
holiday buying season. There can be no assurance that new products introduced by
the Company will achieve any significant degree of market acceptance, or that
acceptance, if achieved, will be sustained for any significant period. Further,
there can be no assurance that such products will not be subject to changes in
consumer preferences or that product life cycles will be sufficient to permit
the Company to recover development and other associated costs. In addition,
sales of any single title of the Company's entertainment software products will
decline over time. A majority of the unit sales for a product typically occurs
in the first 90 to 120 days after the product is introduced. Therefore, the
Company cannot rely on the sales of current products to sustain its business in
the future. Failure of new products or platforms to achieve or sustain market
acceptance would have a material and adverse effect on the Company's business,
operating results and financial condition. In addition, the Company does not
carry significant inventory of its new products. As a result, significant
production delays would have a material and adverse effect on the Company's
business and operating results. Further, if demand for a particular product is
greater than anticipated, the Company may not have sufficient inventory to meet
customer demands.
LITIGATION. On July 9, 1996, a lawsuit entitled Acclaim Entertainment,
Inc. v. Spectrum HoloByte California, Inc., No. 96-2462 WHO, was filed in the
United Stated District Court for the Northern District of California, but not
served upon the Company or its subsidiary, Microprose Software, which is also
named as a defendant. The Complaint alleges various causes of action related to
an exclusive license Acclaim Entertainment, Inc. ("Acclaim") allegedly holds
from Wizards of the Coast, Inc. ("WOTC"), to develop certain computer game
products. Acclaim alleges that its license is being infringed by a computer
game being developed by the Company. The Company also holds an exclusive
license from WOTC, and believes that all of its computer game development, which
has been disclosed to the licensor, has been within the scope of its license.
The Company is hopeful that this matter will be resolved without the serving of
the Complaint; however, should the Complaint be served, the Company intends to
deny all liability, and to vigorously defend against the lawsuit. However, in
the event the Company should not prevail in the lawsuit filed by Acclaim, the
Company may not be able to ship or sell certain of its products and may be
required to pay damages to Acclaim, both of which would have a material adverse
effect on the business and assets of the Company.
COMPETITION. The entertainment software industry is intensely
competitive and in the process of consolidation. The Company's competitors vary
in size from very small companies with limited resources to very large
corporations with greater financial, marketing and product development resources
than those of the Company. The Company competes primarily with other developers
of PC entertainment and video game entertainment software. Significant
competitors of the Company in the entertainment software industry include
Electronic Arts, Sierra On-Line, Lucas Arts, Interplay, GT Interactive, Maxis,
Acclaim Entertainment, and Broderbund Software, along with Virgin Interactive in
Europe. Additionally, the entry and participation of new industries and
companies, including diversified entertainment companies, in markets in which
the Company competes may adversely affect the Company's performance in such
markets. The availability of significant financial resources has become a major
competitive factor in the entertainment software industry, principally as a
result of the technical sophistication of advanced multimedia computer game
products requiring substantial investments in research and development and the
increasing need to license products and rights to use other intellectual
properties from third parties. Also, competitors with large product lines and
popular titles typically have greater leverage with retailers and distributors
and other customers who may be willing to promote titles with less consumer
appeal in return for access to such competitors' most popular titles.
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The Company believes that large diversified entertainment, cable and
telecommunications companies, in addition to large software companies such as
Microsoft, are increasing their focus on the interactive entertainment market,
which will result in greater competition for the Company. In particular, many of
the Company's competitors are developing on-line interactive computer games and
interactive networks that will be competitive with the Company's products. As
competition increases, significant price competition and reduced profit margins
may result. In addition, competition from new technologies may reduce demand in
markets in which the Company has traditionally competed. Prolonged price
competition or reduced demand as a result of competing technologies would have a
material and adverse effect on the Company's business, financial condition and
operating results. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition.
Retailers of the Company's products typically have a limited amount of
shelf space and promotional resources, and there is intense competition among
consumer software producers for high quality and adequate levels of shelf space
and promotional support from retailers. To the extent that the number of
consumer software products and computer platforms increases, this competition
for shelf space may intensify. Due to increased competition for limited shelf
space, retailers and distributors are increasingly in a better position to
negotiate favorable terms of sale, including price discounts and product return
policies. Retailers often require software publishers to pay fees in exchange
for preferred shelf space. The Company's products constitute a relatively small
percentage of a retailer's sales volume, and there can be no assurance that
retailers will continue to purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support.
As more consumers own multimedia PCs, the distribution channels for
entertainment software have changed, and are expected to continue to change, to
increasingly depend on mass merchandisers to reach the broader market. There can
be no assurance that the Company will make this transition successfully. In
addition, while this trend has increased the number of distribution channels, it
has intensified competition for shelf space because these new channels generally
carry only top-selling titles. In addition, other types of retail outlets and
methods of product distribution, such as online services and the Internet, may
become important in the future, and it will be important for the Company to gain
access to these channels of distribution. There can be no assurance that the
Company will gain such access or that the Company's access will allow the
Company to maintain its historical levels of sales volume.
CONCENTRATION OF CUSTOMER BASE; RISK OF CUSTOMER BUSINESS FAILURE;
PRODUCT RETURNS. The Company principally sells its products to retailers and
distributors, who in turn resell the products to consumers. During fiscal 1996,
sales to the top ten such customers represented approximately 64% of the
Company's net revenue. Sales are typically made on credit, with terms that vary
depending upon the customer and the nature of the product. The Company does not
hold collateral to secure payment. Retailers and distributors compete in a
volatile industry and are subject to the risk of business failure.
The Company is exposed to the risk of product returns from distributors
and retailers. The Company currently maintains a stock balancing policy that
allows distributors and retailers to return products subject to certain
conditions. The Company provides reserves for returns that it believes are
adequate, and the Company's agreements with various customers place certain
limits on product returns. However, new product introductions by the Company or
its competitors, or changes in consumer demand from that anticipated, could
cause customers to seek to return inventory to the Company. Due to the
unpredictability of consumer demand and the uncertainties associated with a
rapidly changing market, there can be no assurance that the Company or its
customers will be able to forecast demand accurately. Consistent with industry
trends, the Company has accepted substantial increased product returns and
markdowns on products in the last fiscal year and the Company could continue to
be forced to accept such returns and markdowns in the distribution channel to
maintain its relationships with retailers and its access to distribution
channels. These returns and markdowns are likely to increase in periods in which
the Company does not have a significant number of new product introductions. Any
significant amount of product returns or markdowns could have a material and
adverse effect on the Company's business, operating results and financial
condition.
DEPENDENCE UPON STRATEGIC RELATIONSHIPS. The Company's business strategy
relies to a significant extent on its strategic relationships with other
companies and on its alliances with key developers. There can be no assurance
that these relationships will be successful or that the Company will continue to
maintain and develop strategic relationships, or that licenses between the
Company and any third party will be renewed or extended at their expiration
dates. For example, the Company's licenses from Paramount Pictures Corporation
for the STAR TREK: THE NEXT GENERATION property expire on December 31, 1998, and
for the TOP GUN property on April 30, 1998. In addition, these agreements may be
terminated at Paramount's option in the event that the Company fails to meet
certain specified milestone dates. The Company's failure to renew or extend a
key license or maintain its strategic relationships could materially and
adversely affect the Company's business, operating results and financial
condition. In addition, under certain key license agreements, the Company must
obtain approval on a timely basis from the licensor in order to market products
it develops under the license. There can be
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no assurance that the Company will obtain such approval, and failure to do so
could have a material and adverse effect on the Company's operating results,
financial condition and business prospects.
CHANGES IN TECHNOLOGY AND PRODUCT PLATFORMS. The market for
entertainment software, including entertainment software platforms, is
undergoing rapid technological change. As a result, the Company must continually
anticipate and adapt its products to emerging platforms and evolving consumer
preferences. The introduction of new platforms and technologies can render
existing products obsolete and unmarketable. Development of entertainment
software products for new hardware platforms requires substantial investments in
research and development for technologies such as enhanced sound, digitized
speech, music and video and requires the Company to anticipate and develop
products for those platforms that will ultimately be successful. Such research
and development efforts, which generally require 12 to 24 months, must occur
well in advance of the release of new platforms in order to introduce products
on a timely basis following the release of such platforms. In addition, the
Company expects that the trend toward more complex multimedia products and
increasing product development costs will continue for the foreseeable future.
Although the Company intends to develop and market games for certain
advanced and emerging platforms, these development and marketing efforts may
require greater financial and technical resources than currently possessed by
the Company. In addition, there can be no assurance that the platforms for which
the Company develops products will achieve market acceptance and, as a result,
there can be no assurance that the Company's development efforts with respect to
such new platforms will lead to marketable products or products that generate
sufficient revenue to offset research and development costs incurred in
connection with their development. There can be no assurance that the Company
will be successful in developing and marketing products for new platforms.
Failure to develop products for new platforms that achieve significant market
acceptance may have a material and adverse effect on the Company's business,
operating results and financial condition. The Company is developing games that
may be played interactively over on-line services and the Internet, but there
can be no assurance that the market for networked videogame play will evolve or
develop as anticipated. Consumer preferences change continually and are
extremely difficult to predict. Even if a market for networked videogame play
develops, no assurance can be given that the Company's products will meet the
requirements of such market and achieve market acceptance.
In addition, the Company believes that the market is shifting to next-
generation platforms, which will result in a substantial market for 32 and 64-
bit game consoles in the next one or two years. However, there are multiple,
competing and incompatible formats being introduced in this new market. Sony
PlayStation, Sega Saturn, 3DO Multiplayer and Nintendo's Ultra 64 are currently
available. There can be no assurance that the platforms the Company chooses to
support ultimately will be successful. The development, marketing and
distribution of products for game consoles will involve substantial investment
and risks. The Company believes that the principal target audience for game
consoles may be younger than the Company's traditional customers, and there can
be no assurance that the Company's products will be successful with this
different audience. In addition, the Company anticipates that products in the
game console market will require substantially greater expenditures for
marketing, advertising and inventory buildup, often before the market acceptance
of a product is known. Inventory will be two or more times more expensive as a
result of license fees that are required to be prepaid to the manufacturers of
the hardware platforms. Further, game console products will be sold through
channels that overlap with, but are somewhat different from, the retail channels
currently utilized by the Company, and the Company will be competing in
distribution against much larger organizations with greater financial resources.
There can be no assurance that the Company will be successful in marketing and
distributing software for game consoles.
RISK OF SOFTWARE ERRORS OR FAILURES. Software products as complex as
those offered by the Company may contain undetected errors when first introduced
or when new versions are released. In the past, the Company has discovered
software errors in certain of its product offerings after their introduction and
has experienced delays or lost revenue during the period required to correct
these errors. The Company's products must maintain compatibility with certain
hardware, software and accessories. Any changes that result in incompatibility
could result in significant product returns. In particular, the PC hardware
environment is characterized by a wide variety of nonstandard peripherals (such
as sound and graphics cards) and configurations that make prerelease testing for
programming or compatibility errors very difficult and time consuming. There can
be no assurance that, despite testing by the Company, errors will not be found
in new products or releases after commencement of commercial shipments,
resulting in loss of or delay in market acceptance, which could have a material
and adverse effect on the Company's business, operating results and financial
condition. The risk of undetected product
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errors can be expected to increase as products and their development processes
become more complex and as growing competition leads to increased pressure to
reduce time to market.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT CHANGES. The Company's future
success depends in large part on the continued service of its key product
development, technical and management personnel and on its ability to continue
to attract, motivate and retain highly qualified employees, including additional
management personnel. The loss of certain key employees could have a material
and adverse effect on the Company's business. In addition, the Company depends
on teams of programmers, game designers and artists. Competition for these
skilled employees is intense, and the loss of the services of key development
personnel could have a material and adverse effect upon the Company's current
business, new product development efforts and prospects. Sid Meier, the
Company's former executive Vice President of Product Development, resigned in
May 1996. The Company currently believes that he will continue as a consultant
until the completion of MAGIC THE GATHERING. The Company's Chief Executive
Officer, Stephen M. Race, commenced employment on August 16, 1995, and the
Company intends to hire a new Senior Vice President of Development Studios and a
new Chief Financial Officer to replace Richard A. Gelhaus, the Company's former
Chief Financial Officer, who resigned effective as of December 1, 1995. The
Company has also hired a financial consultant to advise the Chief Executive
Officer on financial planning, controls and reporting structures. The Chief
Executive Officer and other officers and senior managers of the Company can be
expected to expend significant time and effort in the transition process as new
officers assume their positions with the Company and become integrated into the
Company, its operations and its culture. There can be no assurance that
qualified personnel can be readily identified and hired wherever necessary, that
any new personnel will be successfully integrated into the Company, its
operations and culture, or that new personnel, if hired, will improve the
Company's business, operations or operating results. The Company does not
currently have key person life insurance on any employees.
USE OF INDEPENDENT SOFTWARE DEVELOPERS. In addition to marketing
internally developed software, the Company also markets entertainment software
created by independent software developers. The Company has less control over
the scheduling and the quality of work of independent contractors than that of
its own employees. Furthermore, the Company's agreements to publish and market
certain independent software developers' titles will terminate after specified
dates unless renewed. The Company's business and future operating results will
depend in part on the Company's continued ability to attract and maintain
relationships with skilled independent software developers, and to enter into
and renew product development agreements with such developers. There can be no
assurance that the Company will be able to maintain such relationships or enter
into and renew such agreements.
INTERNATIONAL SALES. International sales represented approximately 26%,
29% and 49% of the Company's combined pro forma net revenue in fiscal 1994 and
historical net revenue for fiscal 1995 and 1996, respectively. The Company
expects that international sales will continue to account for a significant
portion of its net revenue in future periods. International sales are subject to
inherent risks, including unexpected changes in regulatory requirements, tariffs
and other economic barriers, fluctuating exchange rates, difficulties in
staffing and managing foreign operations and the possibility of difficulty in
accounts receivable collection. Because the Company does not believe exposure to
foreign currency losses is currently material, the Company currently has no
formal financial instruments in place as a hedge against foreign currency risks.
In some markets, localization of the Company's products is essential to achieve
market penetration. The Company may incur substantial costs and experience
delays in localizing its products, and there can be no assurance that any
localized product will ever generate significant revenue These or other
factors could have a material and adverse effect on the Company's future
international sales and, consequently, on the Company's business, operating
results and financial condition.
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RECOVERY OF PREPAID ROYALTIES AND GUARANTEES. The Company, from time to
time, enters into agreements with licensors of intellectual property and
developers of games that involve advance payments of royalties and guaranteed
minimum royalty payments. If the sales volumes of products subject to such
arrangements are not sufficient to recover such advances and guarantees, the
Company will be required to write-off unrecovered portions of such payments. The
Company has been required to write-off a material portion of these advances in
past fiscal quarters and, if the Company must write-off additional portions of
such advances or ultimately accrue for the guarantees, its results of operations
may be materially and adversely affected.
INTELLECTUAL PROPERTY. The Company regards the software that it owns or
licenses as proprietary and relies primarily on a combination of copyrights,
trade secret laws, patent and trademark laws, nondisclosure agreements and other
copy protection methods to protect its product and proprietary rights. It is the
Company's policy that all employees and third-party developers sign
nondisclosure agreements. There can be no assurance that these measures will be
sufficient to protect the Company's intellectual property rights against
infringement. The Company owns or licenses various trademarks and copyrights.
However, the Company has no license agreements with the end users of its
products and does not copy protect its software. Rather, the Company relies on
the copyright laws to prevent unauthorized distribution of its software.
Existing copyright laws afford only limited protection. It may be possible for
unauthorized third parties to copy the Company's products or to reverse engineer
or otherwise obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and software
piracy can be expected to be a persistent problem. Further, the laws of certain
countries in which the Company's products are or may be distributed do not
protect the Company's products and intellectual rights to the same extent as the
laws of the United States.
The Company believes that its products, trademarks and other proprietary
rights do not infringe on the proprietary rights of third parties. As the number
of entertainment software products in the industry increases, the Company
believes that software increasingly will become the subject of claims that such
software infringes upon the rights of others. From time to time, the Company has
received communications from third parties asserting that features or content of
certain of its products may infringe upon intellectual property rights of such
parties. The Company believes such claims have been without merit. To date, no
such claims have had an adverse effect on the Company's ability to develop,
market or sell its products. There can be no assurance that existing or future
infringement claims against the Company will not result in costly litigation or
require the Company to license the intellectual property rights of third
parties. There can be no assurance that such licenses will be available on
reasonable terms or at all.
VOLATILITY OF PRICE OF STOCK. There has been a history of significant
volatility in the market prices of companies engaged in the entertainment
software industry, including the Company. It is likely that the market price of
the shares of the Company's Common Stock will continue to be highly volatile.
Factors such as the timing and market acceptance of new product introductions by
the Company, the introduction of new products by the Company's competitors, loss
of key personnel of the Company, variations in quarterly operating results or
changes in market conditions in the entertainment software industry generally
may have a significant impact on the market price of the Company's Common Stock.
In the past, the Company has experienced fluctuations in its operating results,
and it is likely that in some future quarter the Company's revenue or operating
results will be below the expectations of, and certain new products will not be
introduced when anticipated by, public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected. In addition, the stock market has experienced and
continues to experience extreme price and volume fluctuations which have
affected the market price of software companies and which have often been
unrelated to the operating performance of these companies.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET
PRICE. As a result of this registration, 1,818,368 shares of Common Stock
will be eligible for resale in the public market. In addition, the shares of
Common Stock issuable upon conversion of both the Series B and B-1
Convertible Preferred Stock, totalling 1,918,680 shares, are freely tradable
in the public market. If a large number of such shares were sold in the
public market, such sales could have an adverse effect on the market price of
the Company's Common Stock.
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USE OF PROCEEDS
The shares of Common Stock offered by the Selling Stockholders are not
being sold by the Company, and the Company will not receive any proceeds from
the sale thereof.
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SELLING STOCKHOLDERS
The following table shows (i) the name of each Selling Stockholder;
(ii) the number of shares of Common Stock that may be offered from time to time
pursuant to this Prospectus; and (iii) the percentage of Common Stock
outstanding owned by such Selling Stockholder:
Number of Shares of
Common Stock That May Percentage of Common
Name Be Sold Stock Outstanding
---- --------------------- --------------------
Societe Financiere Mirelis SA as
Nominee for Mr. Albert Lawi 109,091 *
The Index Special Situations Fund 247,273 *
MeesPierson N.V. Re: Sam Strategy 25,000 *
Global Currency Enterprises, Inc. 100,000 *
Cook & Cie SA 109,091 *
Fondation Danonia 36,360 *
Fondation Zemara 18,180 *
Massimo Soncini 9,100 *
Banque SCS Alliance SA 35,000 *
Morgan Guaranty Co. of NY as
Nominee for Mercury Bank AG 15,000 *
Ryco & Co. as Nominee for Lombard
Odier & Cie 50,000 *
Rolain Levy 18,182 *
Faisal Finance (Switzerland) 72,727 *
David M. Dobson 10,000 *
Everest Capital Investments Ltd. 127,273 *
Everest Capital International Ltd. 509,091 1.8
Gestiras SPA Multiras 20,000 *
Gestiras SPA Adriatic Americas
Fund 50,000 *
Gestiras SPA Adriatic Global Fund 30,000 *
LABAM BV 39,000 *
Guy Huet 61,000 *
LIP - Smaller Companies Fund 100,000 *
Deutsche Bank Fondi 27,000 *
TOTAL 1,818,368 6.5
- ----------------------------
* Less than 1%.
The information concerning the Selling Stockholders may change from time
to time and will be set forth in Supplements to this Prospectus.
The Company and the Selling Stockholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the shares of
Common Stock to the public other than selling commissions or fees.
Because the Selling Stockholders may offer all or some of the shares of
their Common Stock pursuant to the offering contemplated by this Prospectus, and
because there are currently no agreements, arrangements or understandings with
respect to the sale of any of the shares of Common Stock that will be held by
the Selling Stockholders after completion of this offering, no estimate can be
given as to the number of shares of Common Stock that will be held by the
Selling Stockholders after completion of this offering. See "Plan of
Distribution."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $.001 par value and 9,000,000 shares of Preferred Stock, $.001
par value, 4,000,000 of which are designated Series A Convertible Preferred
Stock, 40,000 of which are designated Series B Participating Preferred Stock,
750,000 of which are designated Series B Convertible Preferred Stock and
1,168,860 of which are designated Series B-1 Convertible Preferred Stock.
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COMMON STOCK
As of June 30, 1996, there were 27,972,042 shares of Common Stock
outstanding which were held of record by approximately 258 stockholders.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to any prior rights of all
classes of outstanding stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. The Company
currently has only one outstanding class with prior rights. See "Preferred
Stock." In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and after payment of certain preferences.
See "Preferred Stock." The Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
WARRANTS TO PURCHASE COMMON STOCK
Effective October 17, 1991, Grotech Investors and Corporate Venture
Partners, L.P. received six-year warrants from MicroProse entitling them to
purchase an aggregate of 270,833 shares of Common Stock at $9.00 per share. In
December 1994, Grotech Investors transferred their warrants to purchase 180,555
shares of Common Stock to INCE & Co. MicroProse also issued 20,400 seven-year
warrants, on July 13, 1992, to certain noteholders of Paragon Software in
connection with MicroProse's acquisition of Paragon.
RIGHTS PLAN
In February 1996, the Board of Directors adopted a Stockholders' Rights
Plan and declared a dividend of one Preferred Stock Purchase Right (a "Right")
for each outstanding share of Common Stock. Such Rights only become
exercisable, or transferable apart from the common stock, ten business days
after a person or affiliated group (an "Acquiring Person") acquires beneficial
ownership of, or commences a tender or exchange offer for 15% or more of the
Company's common stock (with an exception up to 20% for existing stockholders
who have filed Reports on Form 13D or 13G) (a "Triggering Position").
Each right may then be exercised to acquire one one-thousandth of a share
of the Company's Series B Participating Preferred Stock at an exercise price of
$35.00, subject to adjustment. Thereafter, upon the occurrence of certain
events, the Rights entitle holders other than the Acquiring Person to acquire
common stock having a value of twice the exercise price of the Rights.
Alternatively, upon the occurrence of certain other events, the Rights would
entitle holders other than the Acquiring Person to acquire common stock of the
Acquiring Person having a value of twice the exercise price of the Rights.
The Rights may be redeemed by the Company at a redemption price of $.001
per Right at any time until the tenth business day following public announcement
that a Triggering Position has been acquired or ten business days after
commencement of a tender or exchange offer. The Rights will expire on February
6, 2006.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, in addition to
and subject to the rights of existing series of Preferred Stock, the Board of
Directors has the authority to issue up to 7,041,140 additional shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting any series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock in certain circumstances may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock and may adversely affect
the market price of, and the voting and other rights of the holders of, Common
Stock. The Company currently has no plans to issue additional shares of
Preferred Stock.
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SERIES A CONVERTIBLE PREFERRED STOCK
As of June 30, 1996, there were 4,000,000 shares of Series A Convertible
Preferred Stock ("Series A Stock") outstanding which were held of record by one
stockholder, PH(US), Inc. The holder of each share of Series A Stock has the
right to one vote for each share of Common Stock into which such shares are then
convertible. As of June 30, 1996, the Series A Stock was convertible into
196,078 shares of Common Stock. The Series A Stock is bound to certain voting
requirements, pursuant to the Amended and Restated Voting Agreement, effective
as of the Merger Date.
The Series A Stock has a liquidation preference of $1.00 per share plus
all accumulated but unpaid dividends, with no participation thereafter;
accumulates non-interest bearing dividends of 7% per annum, commencing on
September 24, 1992 and payable in preference to any dividend on Common Stock;
and is redeemable for $1.00 per share plus all accrued but unpaid dividends (the
"Redemption Price"): (i) at any time by the Company, (ii) commencing
September 24, 1997, for up to 50% of the Series A Stock, upon demand of the
holders of the majority of Series A Stock, and (iii) commencing September 24,
1998, in full upon demand of the holders of the majority of Series A Stock.
In a merger or consolidation, at the Company's option, the Series A Stock
must be either redeemed at the Redemption Price or replaced with other
securities having substantially the same characteristics as the Series A Stock
just prior to such transaction.
So long as 1,000,000 or more shares of Series A Stock are outstanding,
the Company may not adversely amend or waive any provision of its Certificate of
Incorporation that relates to the Series A Stock without approval of two-thirds
of the then outstanding Series A Stock.
SERIES B PARTICIPATING PREFERRED STOCK
The Company has designated 40,000 shares of its Preferred Stock as Series
B Participating Preferred Stock and has reserved such shares for issuance upon
exercise of the Rights described above. The Series B Participating Preferred
Stock purchasable upon exercise of the Rights will not be redeemable. Each
share of Series B Participating Preferred Stock will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of Common Stock. In the
event of liquidation, the holders of the Series B Participating Preferred Stock
will be entitled to a minimum preferential liquidation payment equal to the
greater of (i) 1,000 times the exercise price per share or (ii) 1,000 times the
per share amount to be distributed to the holders of the Common Stock. Each
share of Series B Participating Preferred Stock will have 1,000 votes, voting
together with the Common Stock. In the event of any merger, consolidation or
other transaction in which the Common Stock is exchanged, each share of Series B
Participating Preferred will be entitled to receive 1,000 times the amount
received per share of Common Stock. These rights are protected by customary
anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
the shares of Series B Participating Preferred Stock, the value of the one one-
thousandth interest in a share of Series B Participating Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.
SERIES B CONVERTIBLE PREFERRED STOCK
As of June 30, 1996, there were 750,000 shares of Series B Convertible
Preferred Stock ("Series B Convertible Preferred") outstanding which were held
of record by one stockholder, Robertson, Stephens & Company LLC. The holder of
each share of Series B Convertible Preferred has the right to one vote for each
share of Common Stock into which such shares are then convertible. As of June
30, 1996, the Series B Convertible Preferred was convertible into 750,000 shares
of Common Stock.
Subject to the liquidation preference of the Series A Stock, and on equal
priority to the Series B-1 Convertible Preferred, the Series B Convertible
Preferred has a liquidation preference of $8.00 per share plus all accumulated
but unpaid dividends, with no participation thereafter. A merger or
consolidation of the Company is treated as a liquidation event. The Series B
Convertible Preferred bears dividends if and at a rate determined by the Board
of Directors, payable in preference
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to any dividend on Common Stock, and with equal priority with the Series B-1
Convertible Preferred, but subject to any dividends payable to the Series A
Stock.
SERIES B-1 CONVERTIBLE PREFERRED STOCK
As of June 30, 1996, there were 1,168,860 shares of Series B-1
Convertible Preferred Stock ("Series B-1 Convertible Preferred") outstanding
which were held of record by one stockholder, PaineWebber, Inc. The holder of
each share of Series B-1 Convertible Preferred has the right to one vote for
each share of Common Stock into which such shares are then convertible. As of
June 30, 1996, the Series B-1 Convertible Preferred was convertible into
1,168,860 shares of Common Stock.
Subject to the liquidation preference of the Series A Stock, and on equal
priority to the Series B Convertible Preferred, the Series B-1 Convertible
Preferred has a liquidation preference of $7.57 per share plus all accumulated
but unpaid dividends, with no participation thereafter. A merger or
consolidation of the Company is treated as a liquidation event. The Series B-1
Convertible Preferred bears dividends if and at a rate determined by the Board
of Directors, payable in preference to any dividend on Common Stock, and with
equal priority with the Series B Convertible Preferred, but subject to any
dividends payable to the Series A Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" transaction with any
"interested stockholder" for a period of three years after the date of
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. By virtue of the Company's decision not to elect out of the
statute's provisions, the statute applies to the Company. The statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company. In addition, the inability of stockholders to
take action by written consent in the case of a merger, may have the effect of
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of Common Stock.
REGISTRATION RIGHTS
Following this offering, the holders ("Holders") of a significant number
of shares of Common Stock, holders of options and warrants to acquire shares of
Common Stock and holders of Series A Preferred Stock convertible into shares of
Common Stock will have certain rights to register those shares under the 1933
Act. If the Company proposes to register any of its securities under the 1933
Act (other than the registration related to this offering or a registration
relating solely to securities to be sold to participants in the Company's stock
benefit plans), holders of the Notes are entitled to require the Company to
include all or a portion of their shares issuable upon conversion of such
Notes in such registration; provided however, among other conditions, that
the underwriter of any such offering has the right to limit the number of
such shares included in such registration. In addition, a majority of such
holders may require the Company on not more than one occasion to file a
registration statement on Form S-1 under the 1933 Act, at the Company's
expense, with respect to their shares of Common Stock issuable upon
conversion of such Notes, and the Company is required to use its best efforts
to effect the registration, subject to certain conditions and limitations.
Further, certain of such holders may require the Company to file additional
registration statements on Form S-3 (if such form is then available to the
Company) with respect to the sale of Registrable Securities (as defined in
the applicable agreements), subject to certain additional conditions and
limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chemical Mellon
Stockholders Services, LLC, 450 West 33rd Street, 15th Floor, New York, New York
10001-3697.
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PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that they intend
to sell all or a portion of the shares offered hereby from time to time in the
over-the-counter market and that sales will be made at prices prevailing at the
times of such sales. The Selling Stockholders may also make private sales
directly or through a broker or brokers, who may act as agent or as principal.
In connection with any sales, the Selling Stockholders and any brokers
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act. The Company will receive no part of the proceeds of
sales made hereunder.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders (and, if they act as agent for the
purchaser of such shares, from such purchaser). Usual and customary brokerage
fees will be paid by the Selling Stockholders. Broker-dealers may agree with the
Selling Stockholders to sell a specified number of shares at a stipulated price
per share, and, to the extent such a broker-dealer is unable to do so acting as
agent for the Selling Stockholders, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to the Selling
Stockholders. Broker-dealers who acquire shares as principal may thereafter
resell such shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other broker-
dealers, including transactions of the nature described above) in the over-the-
counter market, in negotiated transactions or otherwise at market prices
prevailing at the time of sale or at negotiated prices, and in connection with
such resales may pay to or receive from the purchasers of such shares
commissions computed as described above.
Any securities covered by this Prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that any of the Selling Stockholders will sell
any or all of the shares of Common Stock offered by them hereunder.
LEGAL PROCEEDINGS
On July 9, 1996, a lawsuit entitled Acclaim Entertainment, Inc. v.
Spectrum HoloByte California, Inc., No. 96-2462 WHO, was filed in the United
Stated District Court for the Northern District of California, but not served
upon the Company or its subsidiary, Microprose Software, which is also named as
a defendant. The Complaint alleges various causes of action related to an
exclusive license Acclaim Entertainment, Inc. ("Acclaim") allegedly holds from
Wizards of the Coast, Inc. ("WOTC"), to develop certain computer game products.
Acclaim alleges that its license is being infringed by a computer game being
developed by the Company. The Company also holds an exclusive license from
WOTC, and believes that all of its computer game development, which has been
disclosed to the licensor, has been within the scope of its license. The
Company is hopeful that this matter will be resolved without the serving of the
Complaint; however, should the Complaint be served, the Company intends to deny
all liability, and to vigorously defend against the lawsuit.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of March 31, 1996
and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended March 31, 1996 incorporated by reference in this
Registration Statement, have been incorporated herein in reliance on the
report of Coopers & Lybrand, L.L.P., independent accountants, given on the
authority of said firm as experts in accounting and auditing.
16
<PAGE>
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 estimated
expenses in connection with the issuance and distribution of the securities
being registered:
SEC Registration fee . . . . . . . . . . . . . . . . . . . $ 1,732.00
Legal expenses . . . . . . . . . . . . . . . . . . . . . . 10,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . 6,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 4,063.00
----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $21,795.00
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other employees and
agents to the fullest extent permitted by Delaware General Corporation Law. The
Company is also empowered under its Bylaws to purchase and maintain insurance on
behalf of any person whom it is required or permitted to indemnify.
In addition, the Company's Certificate provides that directors of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. The Certificate further provides
that if Delaware General Corporation Law is amended to authorize Company action
further limiting the personal liability of its directors then the liability of
the Company's directors will be limited to the fullest extent permitted by the
Delaware General Corporation Law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number Description
- ------- -----------
4.3 Form of Purchase Agreement, by and between the Company and each of
the Selling Stockholders, each executed effective June 26, 1996.
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Wilson, Sonsini, Goodrich & Rosati (included in
Exhibit 5.1).
24.1 Power of Attorney (see p. II-3).
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post--effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act 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.
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 foregoing provisions, 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 Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 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.
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 Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective. 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Spectrum HoloByte, Inc., a corporation organized and existing under the laws of
the State of Delaware, certifies that it has reasonable cause 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 Alameda, State of California, on the 18th day of
July, 1996.
SPECTRUM, HOLOBYTE, INC.
By: /s/ Stephen M. Race
--------------------------------------------
(Stephen M. Race, Chief Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Stephen M. Race and Gregory S. Kennedy, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendment to this Registration
Statement on Form S-3, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen M. Race Chief Executive Officer, Acting July 18, 1996
- --------------------- Chief Financial Officer and Director
(Stephen M. Race) (Principal Executive and Financial
Officer)
/s/ William E. Meyer* Corporate Controller and Chief July 18, 1996
- --------------------- Accounting Officer
(William E. Meyer)
/s/ Gilman G. Louie* Chairman of the Board of Directors July 18, 1996
- ---------------------
(Gilman G. Louie)
/s/ David C. Costine* Director July 18, 1996
- ---------------------
(David C. Costine)
/s/ Vinod Khosla* Director July 18, 1996
- ---------------------
(Vinod Khosla)
/s/ Soo Boon Koh* Director July 18, 1996
- ---------------------
(Soo Boon Koh)
/s/ Keith Schaefer* Director July 18, 1996
- ---------------------
(Keith Schaefer)
*By:/s/ Stephen M. Race
---------------------------------
(Stephen M. Race, Attorney-in-Fact)
II-3
<PAGE>
SPECTRUM HOLOBYTE, INC.
INDEX TO EXHIBITS
Exhibit Description
------- -----------
4.3 Form of Purchase Agreement, by and between the Company
and each of the Selling Stockholders, each executed
effective June 26, 1996.
5.1 Opinion of Wilson, Sonsini, Goodrich & Rosati.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Wilson, Sonsini, Goodrich & Rosati (included
in Exhibit 5.1).
24.1 Power of Attorney (see p. II-3).
II-4
<PAGE>
CONFIDENTIAL
EXHIBIT 4.3
EXHIBIT A
TO THE PLACING AGREEMENT
PURCHASE AGREEMENT
(THIS "AGREEMENT")
MAY ___, 1996
(THE "EFFECTIVE DATE")
This Agreement, when signed by: (i) the undersigned purchaser ("PURCHASER"),
on the one hand; and (ii) Spectrum HoloByte, Inc., a Delaware corporation
("SPECTRUM"), on the other hand, will confirm the complete understanding and
agreement among the parties with respect to the matters set forth herein. It is
acknowledged and agreed that all representations, warranties, covenants and
agreements made by "Purchaser" herein shall be deemed to refer to Purchaser,
and, if Purchaser is purchasing the Shares (as hereafter defined) for the
account of any person or entity other than Purchaser ("CLIENT"), all such
representations, warranties, covenants and agreements shall also be deemed to
refer to such Client.
(1) PURCHASE, SALE AND DELIVERY OF SHARES.
(a) Upon the terms and conditions herein set forth, and on the basis of the
respective representations herein contained, Purchaser agrees to purchase
from Spectrum, and Spectrum agrees to issue and sell to Purchaser, shares
of Spectrum Common Stock, $0.001 par value (the "SHARES"). The number of
Shares to be so sold by Spectrum and purchased by Purchaser, and the
purchase price per Share to be paid by Purchaser (the "PURCHASE PRICE"),
are set forth in Schedule 1 attached hereto (the "SCHEDULE").
(b) As more fully provided in Paragraph 4 hereof, certificates evidencing
the Shares shall be delivered by Spectrum to the Escrow Agent hereafter
named, for the account of Purchaser, against remittance to the Escrow
Agent by Purchaser, for the account of Spectrum, of immediately available
funds in U.S. Dollars in an amount equal to the aggregate Purchase Price.
Provided that such delivery and payment has been timely and properly
made, title to the Shares shall vest in Purchaser at 5:00 p.m.,
California time, on the closing date specified in the Schedule ("CLOSING
DATE").
(2) REPRESENTATIONS AND COVENANTS OF PURCHASER. Purchaser hereby represents,
warrants and covenants to Spectrum as follows:
(a) Purchaser has been advised and acknowledges: (i) that the Shares have
not been, and such Shares, when issued, will not be registered under the
U.S. Securities Act
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CONFIDENTIAL
of 1933, as amended (the "SECURITIES ACT"), the securities laws of any
state of the United States or the securities laws of any other country;
(ii) that in issuing and selling the Shares to Purchaser pursuant hereto,
Spectrum is relying upon the "safe harbor" provided by Regulation S
promulgated under the Securities Act by the U.S. Securities and Exchange
Commission ("SEC") for offers and sales of securities occurring outside
the United States ("REGULATION S") and/or on Regulation D promulgated
under the Securities Act by the SEC relating to the private placement of
securities ("REGULATIONS D"); (iii) that it is a condition to the
availability of the Regulation S safe harbor that the Shares not be
offered or sold in the United States or to a U.S. Person until the
expiration of a period of forty (40) days following the Closing Date;
(iv) that, notwithstanding the foregoing, prior to the expiration of the
ninetieth (90th) day after the Closing Date (the "RESTRICTED PERIOD"),
the Shares may be offered and sold by the holder thereof only if such
offer and sale is made in compliance with the terms of this Agreement and
either: (A) if the offer or sale is within the United States or to or for
the account of a U.S. Person (as such terms are defined in Regulation S),
the securities are offered and sold pursuant to an effective registration
statement or pursuant to Rule 144 under the Securities Act; or (B) the
offer and sale is outside the United States and to other than a U.S.
Person. The foregoing restrictions are binding upon subsequent
transferees of the Shares, except for transferees pursuant to an
effective registration statement.
(b) As used herein, the term "UNITED STATES" means and includes the United
States of America, its territories and possessions, any State of the
United States, and the District of Columbia, and the term "U.S. PERSON"
means: (i) a natural person (regardless of citizenship) resident in the
United States; (ii) any partnership or corporation organized or
incorporated under the laws of the United States; (iii) any estate or
trust of which any executor, administrator or trustee is a U.S. Person;
(iv) any agency or branch of a foreign entity located in the United
States; (v) any nondiscretionary or similar account (other than an estate
or trust) held by a dealer or other fiduciary for the benefit or account
of a U.S. Person (whether or not the dealer or other fiduciary is a U.S.
Person); (vi) any discretionary or similar account (other than an estate
or trust) held by a dealer or other fiduciary organized, incorporated and
(if an individual) resident in the United States; and (vii) a corporation
or partnership organized under the laws of any jurisdiction other than
the United States by a U.S. Person principally for the purpose of
investing in securities that have not been registered under the
Securities Act unless organized or incorporated and owned entirely by
organizations or entities that come within any of the categories
described in clauses (1), (2) or (3) of Rule 501(a) under the Securities
Act;
(c) Purchaser agrees that with respect to the Shares, until the expiration
of the Restricted Period: (i) Purchaser nor any agent or representative
of Purchaser has not and will not solicit offers to buy, offer for sale
or sell any of the Shares or any other shares of Common Stock of
Spectrum, or any beneficial interest therein in
2
<PAGE>
CONFIDENTIAL
the United States or to or for the account of a U.S. Person; and (ii)
Purchaser nor any agent or representative of Purchaser has not and will
not effect a short sale of or have in effect a short position in the
Common Stock of Spectrum, or sell or acquire any security the terms of
which constitute a hedge against, or the value of which is derived from,
changes in the market price of the Common Stock of Spectrum;
(d) Purchaser has not engaged, nor is it aware that any party has engaged,
and Purchaser will not engage or cause any third party to engage in any
directed selling efforts (as such term is defined in Regulation S) in the
United States with respect to the Shares nor has Purchaser taken or is it
aware that anyone has taken, nor will Purchaser take, directly or
indirectly, or cause anyone to take, any action that constituted or
constitutes, was or is designed to constitute or reasonably might be
expected to cause or result in stabilization or manipulation of the
market price of the Common Stock of Spectrum.
(e) Purchaser: (i) is domiciled and has its principal place of business
outside the United States; and (ii) is not a U.S. Person; and (iii) at
the time of the closing, the Purchaser or persons acting on Purchaser's
behalf in connection therewith will be located outside the United States;
(f) at the time of offering to Purchaser and communication of Purchaser's
order to purchase the Shares and at the time of Purchaser's execution of
this Agreement, the Purchaser or persons acting on Purchaser's behalf in
connection therewith were located outside the United States;
(g) the purchase and sale of securities for investment, whether as principal
or as agent, is a regular part of the ordinary business of Purchaser;
(h) Purchaser is purchasing the Shares either: (i) for its own account; or
(ii) for the account and benefit of Clients of whom none is a U.S. Person
and for whom the Purchaser has, and for the entire Restricted Period will
continue to have, full investment discretion with respect to the
purchase, holding and disposition of the Shares;
(i) Purchaser is not a "distributor" (as defined in Regulation S) or a
"dealer" (as defined in the Securities Act);
(j) Purchaser has full power and lawful authority and all necessary
consents, approvals and authorizations, whether corporate, shareholder,
governmental or otherwise, as may be required to execute and deliver this
Agreement and to purchase the Shares in accordance with the terms hereof,
and this Agreement constitutes the legally valid and binding agreement of
Purchaser;
(k) Purchaser, in making the decision to purchase the Shares, has relied
upon independent investigations made by it and has not relied on any
information or
3
<PAGE>
CONFIDENTIAL
representations made by third parties. Purchaser acknowledges that it
has received all the information that it has requested and considers
necessary or appropriate for deciding whether to purchase the Shares.
Purchaser further represents that it has had an opportunity to ask
questions and receive answers from Spectrum regarding the terms and
conditions of the offering of the Shares. Purchaser acknowledges that it
is able to fend for itself, can bear the economic risk of its investment,
and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment
in the Shares and that Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D of the SEC as presently in effect;
and
(l) Purchaser understands that the Shares are being offered and sold to it
in reliance on specific provisions of federal and state securities laws
and that Spectrum is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
applicability of such provisions. Accordingly, Purchaser agrees to notify
Spectrum of any events which would cause the representations and
warranties of Purchaser to be untrue or breached at any time after the
execution of this Agreement by Purchaser and prior to the expiration of
the Restricted Period.
(3) REPRESENTATIONS AND COVENANTS OF SPECTRUM. Spectrum hereby represents,
warrants and covenants to Purchaser as follows:
(a) Spectrum is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as
amended) that: (i) has a class of its securities registered pursuant to
Section 12(b) or 12(g) of the Securities and Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), or is required to file reports pursuant to
Section l5(d); and (ii) has filed all material required to be filed by it
pursuant to Section 13(a) or 15(d) of the Exchange Act for at least the
twelve (12) months immediately preceding the date hereof;
(b) at the time of filing, no materials and reports filed by Spectrum with
the SEC pursuant to Paragraph 3(a) above contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made, in light of the
circumstances in which they were made, not misleading;
(c) Spectrum presently has, and as of the Closing Date will have, full legal
right, power and capacity and all necessary consents, approvals and
authorizations, whether corporate, shareholder, governmental or
otherwise, as may be required to execute and deliver this Agreement and
to issue and sell the Shares to Purchaser pursuant hereto in the manner
contemplated hereby;
(d) Spectrum is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and is qualified to do
business in each
4
<PAGE>
CONFIDENTIAL
other jurisdiction where the failure to be so qualified would have a
material adverse effect on the business or the assets of the Company;
(e) Spectrum has furnished Purchaser with copies of its most recent filings
with the SEC including, without limitation, its most recent annual report
on the Form 10-K, quarterly report on Form 10-Q and proxy statements;
(f) to Spectrum's knowledge, there has been no material adverse change in
the business, financial condition or prospects of Spectrum since the date
of Spectrum's most recent filing with the SEC;
(g) the Shares, when delivered pursuant hereto, will be duly and validly
authorized and issued, fully-paid and non-assessable and free and clear
of any and all liens, charges, restrictions (except as may be imposed by
U.S. federal and state securities laws), claims and encumbrances and will
not subject Purchaser to any liability by reason of holding such
securities;
(h) this Agreement, when executed and delivered by Spectrum, will be duly
and validly executed and delivered by Spectrum and will be Spectrum's
legally binding obligation enforceable against Spectrum in accordance
with its terms, except to the extent that: (i) such enforcement may be
limited by bankruptcy, insolvency or similar laws now or hereafter in
effect relating to creditors' rights and remedies generally; and (ii) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought;
(i) the execution and delivery of this Agreement and the consummation of the
issuance of the Shares and the transactions contemplated hereby do not
and will not conflict with or result in a breach by Spectrum of any of
the terms or provisions of, or constitute a default under, the
certificate of incorporation or by-laws of Spectrum, or any indenture,
mortgage, deed of trust or other material agreement or instrument to
which Spectrum is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation or
any applicable decree, judgment or order of any court, Federal or State
regulatory body, administrative agency or other governmental body having
jurisdiction over Spectrum or any of its properties or assets and said
transactions are in full compliance with the foregoing;
(j) there are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Spectrum or any third party as to the
Shares;
(k) provided that the representations and warranties made by the Purchasers
herein and by the placing agent for this transaction, Index Securities
S.A., as set forth in the Placing Agreement are complete, true and
accurate, then the issuance and sale
5
<PAGE>
CONFIDENTIAL
of the Purchase Shares pursuant to the Purchase Agreement is exempt from
the registration requirements of the Securities Act;
(l) in the event that a shelf registration statement has not been declared
effective by the SEC prior to the expiration of the Restrictive Period,
immediately after the expiration of the Restricted Period, Spectrum will
remove all restrictive legends from any certificates evidencing, and
cancel all stop-transfer instructions, if any, with respect to, the
Purchase Shares; and
(m) Spectrum has not engaged nor is it aware that any party has engaged and
Spectrum will not engage or cause any third party to engage in any
directed selling efforts (as such term is defined in Regulation S) in the
United States with respect to the Shares nor has Spectrum taken or is it
aware that anyone has taken nor will Spectrum take, directly or
indirectly, or cause anyone to take, any action that constituted or
constitutes, was or is designed to constitute or reasonably might be
expected to cause or result in stabilization or manipulation of the
market price of the Common Stock of Spectrum.
(4) THE CLOSING.
(a) Enterprise Trust & Investment Company, an independent trust company
chartered by the California State Banking Department, has been appointed
by Index Securities S.A. (the "PLACING AGENT") to act as escrow agent
(the "ESCROW AGENT") in connection with the closing of the sale of the
Shares to Purchaser. The fees and expenses of the Escrow Agent are to be
borne by Spectrum. Purchaser and Spectrum mutually agree to the
appointment of the Escrow Agent.
(b) On or prior to 5:00 p.m., California time, on the Closing Date:
(i) Purchaser shall remit to the Escrow Agent immediately available
funds in an amount equal to the Purchase Price in accordance with
the specific wire instructions set forth in the Schedule; and
(ii) Spectrum shall: (A) deliver to the Escrow Agent, at its offices
specified in the Schedule, a certificate or certificates evidencing
the Shares bearing a restrictive legend (the "RESTRICTIVE LEGEND")
substantially in the form set forth in the Placing Agreement
between Spectrum and Index Securities, S.A. (the "PLACING AGENT")
(the "PLACING AGREEMENT"), a copy of which is attached hereto as
SCHEDULE 2, registered in the name and address of Purchaser or its
nominee specified in the Schedule (the "SPECTRUM CERTIFICATES") in
such denominations as the Placing Agent may specify; and (B)
deliver to Purchaser a legal opinion from Spectrum's outside
securities counsel in form and content appearing on EXHIBIT B to
the Placing Agreement.
6
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CONFIDENTIAL
(c) Upon receipt by the Escrow Agent from Spectrum of the Spectrum
Certificates, the Escrow Agent shall: (i) deliver to the Purchaser, at
its address specified in the Schedule, the Spectrum Certificates; and
(ii) transfer in immediately available funds: (A) to the account of the
Placing Agent specified in the Schedule an amount equal to the Placement
Fee as defined in the Placing Agreement as compensation for its services
as Placing Agent, and (B) to Spectrum's accounts, as specified in the
Schedule, an aggregate amount equal to the remaining amount of the
Purchase Price, less the escrow fees.
(5) REGISTRATION, INDEMNIFICATION AND REMOVAL OF RESTRICTIVE LEGEND.
(a) No later than fifteen (15) business days after the Closing Date,
Spectrum shall prepare and file a registration statement with the SEC
under the Securities Act to register the resale of the Shares by the
Purchaser (the "REGISTRATION STATEMENT") and shall use its reasonable
best efforts, including the filing of one or more subsequent registration
statements or amendments or supplements to the Registration Statement, to
obtain effectiveness of the Registration Statement under the Securities
Act.
(b) Spectrum shall pay all Registration Expenses (as defined below) in
connection with any registration, qualification or compliance hereunder,
and the Purchaser shall pay all Selling Expenses (as defined below) and
other expenses that are not Registration Expenses relating to the Shares
resold by the Purchaser. "REGISTRATION EXPENSES" shall mean all expenses,
except for Selling Expenses, incurred by Spectrum in complying with the
registration provisions herein described, including, without limitation,
all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for Spectrum, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration. "SELLING EXPENSES" shall mean all
selling commissions, underwriting fees and stock transfer taxes
applicable to the Shares, and all other expenses incurred by Purchaser or
any transferee of Purchaser in connection with sales of the Shares.
(c) In the case of the registration effected by Spectrum pursuant to these
registration provisions, Spectrum shall use its best efforts to: (i) keep
such registration effective until the earlier of (A) the third
anniversary of the date hereof, and (B) such date as all of the Shares
have been resold; (ii) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all Shares covered by the Registration Statement; (iii) furnish such
number of prospectuses and other documents incident thereto, including
any amendment of, or supplement to, the prospectus as a Purchaser from
time to time may reasonably request; (iv) cause all Shares registered as
described herein to be listed on each securities exchange and quoted on
each quotation service on which
7
<PAGE>
CONFIDENTIAL
similar securities issued by Spectrum are then listed or quoted; (v)
provide a transfer agent and registrar for all Shares registered pursuant
to the Registration Statement and a CUSIP number for all such Shares;
(vi) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC; and (vii) file the documents required of
Spectrum and otherwise use its reasonable best efforts to maintain
requisite blue sky clearance in all United States jurisdictions specified
in writing by a Purchaser; PROVIDED, HOWEVER, that Spectrum shall not be
required to qualify to do business or consent to service of process in
any state in which it is not now so qualified or has not so consented.
(d) Spectrum shall furnish to the Purchaser upon request a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary in order to facilitate the public sale or other disposition of
all or any of the Shares held by the Purchaser.
(e) With a view to making available to the Purchaser the benefits of Rule
144 promulgated under the Securities Act ("RULE 144") and any other rule
or regulation of the SEC that may at any time permit a Purchaser to sell
Shares to the public pursuant to a registration statement, Spectrum
covenants and agrees to: (i) make and keep public information available,
as those terms are understood and defined in Rule 144, until the earlier
of (A) the third anniversary of the date hereof or (B) such date as all
of the Shares shall have been resold; (ii) file with the SEC in a timely
manner all reports and other documents required of Spectrum under the
Securities Act and Exchange Act; and (iii) furnish to the Purchaser upon
request, as long as the Purchaser owns any Shares (A) a written statement
by Spectrum that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, (B) a copy of the most recent annual
or quarterly report of Spectrum, and (C) such other information as may be
reasonably requested in order to avail the Purchaser of any rule or
regulation of the SEC that permits the selling of any such Shares
pursuant to Rule 144.
(f) Spectrum agrees to indemnify and hold harmless the Purchaser from and
against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which the Purchaser may become subject
(under the Securities Act or otherwise) insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any untrue statement of a material fact
contained in the Registration Statement, on the effective date thereof,
or in any amendment or supplement thereto, or arise out of any failure by
Spectrum to fulfill any undertaking included in the Registration
Statement or any amendment or supplement thereto, and Spectrum will,
except as provided below, as incurred, reimburse the Purchaser for any
legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim; provided,
however, that Spectrum shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is based
upon (i) an untrue statement made in such Registration
8
<PAGE>
CONFIDENTIAL
Statement or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to Spectrum by or on behalf
of the Purchaser specifically for use in preparation of the Registration
Statement; or (ii) an untrue statement which is subsequently corrected in
a supplement or amendment to the Registration Statement and which
supplement or amendment has been delivered by Spectrum to the Purchaser
via overnight courier at least five (5) business days prior to the
consummation of the transaction out of which arose such claim, damage or
liability.
(g) The Purchaser agrees to indemnify and hold harmless Spectrum from and
against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which Spectrum may become subject
(under the Securities Act or otherwise) insofar as such losses, claims,
damages or liabilities (or actions proceedings in respect thereof) arise
out of, or are based upon an untrue statement made in such Registration
Statement or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to Spectrum by or on behalf
of the Purchaser specifically for use in preparation of the Registration
Statement or any amendment or supplement thereto; PROVIDED, HOWEVER, that
the Purchaser shall not be liable in any such case for any untrue
statement included in any Prospectus which statement has been corrected,
in writing, by the Purchaser and delivered to Spectrum in sufficient time
before the sale from which such loss occurred for Spectrum to have
corrected the Registration Statement and delivered an updated Prospectus
or Prospectus supplement to the Purchasers.
(h) Promptly after receipt by any indemnified person of a notice of a claim
or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 5, such
indemnified person shall notify the indemnifying person in writing of
such claim or of the commencement of such action, and, subject to the
provisions hereinafter stated, in case any such action shall be brought
against an indemnified person and the indemnifying person shall have been
notified thereof, the indemnifying person shall be entitled to
participate therein, and, to the extent that it shall wish, to assume the
defense thereof, with counsel reasonably satisfactory to the indemnified
person. After notice from the indemnifying person to such indemnified
person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified
person for any legal expenses subsequently incurred by such indemnified
person in connection with the defense thereof; PROVIDED, HOWEVER, that if
there exists or shall exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified person for
the same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the
expense of such indemnifying person.
9
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CONFIDENTIAL
(i) If the indemnification provided for in this Section 5 is unavailable to
or insufficient to hold harmless an indemnified party under subsection(f)
or (g) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of Spectrum on the one hand and
the Purchaser on the other in connection with the matters that resulted
in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by Spectrum, on the one hand, or Purchaser, on the
other, and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
Spectrum and the Purchaser agree that it would not be just and equitable
if contribution pursuant to this subsection (i) were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this
subsection (i). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (i) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(j) The obligations of Spectrum and the Purchaser under this Section 5
shall be in addition to any liability which Spectrum and the Purchaser
may otherwise have and shall extend, upon the same terms and conditions,
to each person, if any, who controls Spectrum or the Purchaser within the
meaning of the Securities Act.
(k) Notwithstanding anything to the contrary contained herein, immediately
after the expiration of the Restrictive Period, Spectrum shall remove the
Restrictive Legend from the Spectrum Certificates.
(l) The rights and obligations of this Section 5 shall be binding upon and
available to subsequent transferees of the Shares.
(6) RECEIPT OF RISK FACTORS. By execution hereof, Purchaser acknowledges and
represents that it (a) has received from Spectrum Exhibit D attached hereto
entitled "Risk Factors", and (b) has reviewed Exhibit D and understands the
significance of the Risk Factors listed therein.
10
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CONFIDENTIAL
(7) GOVERNING LAW. This Agreement shall be construed and enforced in accordance
with the laws of the State of California of the United States without regard
to the conflicts of laws rules thereof.
(8) VENUE. Venue for the resolution of any disputes which arise concerning this
Agreement shall be in federal district court in the Northern District of
California, in the United States of America.
(9) PRESUMPTION. In interpreting the terms of this Agreement, no presumption
shall arise as a result of the role of any party in the drafting of this
Agreement.
(10) COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11
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CONFIDENTIAL
The parties hereto have executed this Agreement as of the day and year first
written above.
"PURCHASER" "SPECTRUM"
SPECTRUM HOLOBYTE, INC.
_________________________ a Delaware corporation
Name of Purchaser
By:______________________ By:______________________
Its:______________________ Its:______________________
12
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CONFIDENTIAL
SCHEDULE 1
TO THE
PURCHASE AGREEMENT
1. Name of Purchaser:
-----------------------------------------------------
2. No. of Shares of Common Stock to be purchased:
-------------------------
3. Total Purchase Price for the Shares: $
---------------------------------
5. Closing Date:
----------------------------------------------------------
6. Name and Address of Purchaser:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
7. Name and Address of Purchaser's Nominee (to appear on certificate):
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
8. Name, Address and Contact Person at Purchaser's Bank originating transfer
of Aggregate Purchase Price:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
9. Wire Transfer Instructions for Remittance of Aggregate Purchase Price by
Purchaser to Escrow Agent:
Bank of America
ABA # 121000358
CREDIT ET & IC FIDUCIARY #06846-01319
Re: Spectrum HoloByte, Inc.
13
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CONFIDENTIAL
10. Address of Escrow Agent for Delivery of certificates by Spectrum:
Enterprise Trust & Investment Company
15425 Los Gatos Boulevard, Suite 150
Los Gatos, California 95032
11. Wire Transfer Instructions for Remittance of Funds by Escrow Agent
to Spectrum:
Citibank Private Bank
153 East 53rd Street
New York, New York 10043
ABA No. 021000089
Index Securities S.A.
Account No. 37611163
12. Wire Transfer Instructions for Remittance of Funds by Escrow Agent
to Placing Agent:
------------------------------------------
------------------------------------------
------------------------------------------
13. Name and Address of Placing Agent:
INDEX SECURITIES S.A.
58 Rue de la Terrassiere
CH-1207, Geneva, Switzerland
14
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CONFIDENTIAL
SCHEDULE 2
TO THE
PURCHASE AGREEMENT
RESTRICTIVE LEGEND
"THE SHARES OF COMMON STOCK BEING OFFERED HEREBY MAY NOT BE OFFERED AND SOLD
BY THE HOLDER HEREOF EXCEPT: (i) IF THE OFFER OR SALE IS WITHIN THE UNITED
STATES OR TO OR FOR THE ACCOUNT OF A U.S. PERSON (AS SUCH TERMS ARE DEFINED
IN REGULATION S ("REGULATION S") UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT")), THE SECURITIES ARE OFFERED AND SOLD PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO RULE 144 UNDER THE SECURITIES
ACT; OR (ii) IF THE OFFER OR SALE IS OUTSIDE THE UNITED STATES AND TO OR FOR
THE ACCOUNT OF OTHER THAN A U.S. PERSON."
15
<PAGE>
EXHIBIT 5.1
July 17, 1996
Spectrum Holobyte, Inc.
2490 Mariner Square Loop, Suite 100
Alameda, California 94501
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have the Registration Statement on Form S-3 to be filed by you
with the Securities and Exchange Commission on July 18, 1996 (as such may
thereafter be amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as
amended, of 1,818,368 shares of your Common Stock, $0.001 par value (the
"Shares"). We understand that the Shares are to be registered for resale to
the public by various Selling Stockholders as described in the Registration
Statement. As your legal counsel, we have examined the proceedings taken, and
are familiar with the proceedings proposed to be taken, by you in connection
with the sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the
issuance of the Shares, including the proceedings being taken in order to
permit such transaction to be carried out in accordance with applicable state
securities laws, the Shares, when issued and sold in the manner described in
the Registration Statement and in accordance with the resolutions adopted by
the Board of Directors of the Company, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus
constituting a part thereof, and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ Wilson, Sonsini, Goodrich & Rosati
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-3 (File No.___________) of our reports dated May 10, 1996 on our
audits of financial statements and financial statement schedules of Spectrum
Holobyte, Inc. We also consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
--------------------------------
COOPERS & LYBRAND L.L.P.
San Jose, California
July 17, 1996
