-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WpGRmdR//e4TV0kWrQwP9eDeeTTvRzcx2GvEMxVzCwKHeDJ5225kqUasoVw4dFz3 TD36yADAzqrrkPboz+xoBA== 0000889812-99-000318.txt : 19990205 0000889812-99-000318.hdr.sgml : 19990205 ACCESSION NUMBER: 0000889812-99-000318 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCLAIM ENTERTAINMENT INC CENTRAL INDEX KEY: 0000804888 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 382698904 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-69367 FILM NUMBER: 99520496 BUSINESS ADDRESS: STREET 1: ONE ACCLAIM PLAZA CITY: GLEN COVE STATE: NY ZIP: 11542 BUSINESS PHONE: 5166565000 MAIL ADDRESS: STREET 1: OEN ACCLAIM PALZA CITY: GLEN COVEY STATE: NY ZIP: 11542 FORMER COMPANY: FORMER CONFORMED NAME: GAMMA CAPITAL CORP DATE OF NAME CHANGE: 19880608 S-3/A 1 AMENDMENT NO. 1 TO REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on February 3, 1999 Registration No. 333-69367 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- AMENDMENT NO. 1 to FORM S-3 Registration Statement Under The Securities Act of 1933 --------------------------------- ACCLAIM ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) --------------------------------- Delaware 38-2698904 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) --------------------------------- One Acclaim Plaza Glen Cove, New York 11542 (516) 656-5000 (Address and telephone number of registrant's principal executive offices) --------------------------------- Gregory E. Fischbach Chief Executive Officer Acclaim Entertainment, Inc. One Acclaim Plaza Glen Cove, New York 11542 (516) 656-5000 (Name, address and telephone number of agent for service) -------------------------------------------------- Copy to: Eric M. Lerner, Esq. Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Telephone: (212) 940-8800 --------------------------------- Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1999 ACCLAIM ENTERTAINMENT, INC. 206,000 SHARES OF COMMON STOCK The Business Acclaim Entertainment, Inc. is a worldwide developer, publisher and mass marketer of interactive entertainment software for use with dedicated interactive entertainment hardware platforms and multimedia personal computer systems. We own and operate four software development studios located in the U.S. and the U.K., and publish and distribute our software directly in North America, the U.K., Germany, France and Australia. Common Stock The 206,000 shares of common stock covered by this prospectus are being offered and sold from time to time by Fringe Pty. Ltd. (trading as Digital Leisure), a company doing business in Australia. We will not receive any proceeds from the sale of the shares. The shares were originally issued by us to Digital Leisure in a privately-negotiated transaction pursuant to the exemption for registration provided under Section 4(2) of the Securities Act of 1933. See "Plan of Distribution" for information regarding the manner in which the shares are being sold under this prospectus. Our common stock is traded on The Nasdaq Stock Market National Market System under the symbol "AKLM." On February 2,1999, the last reported sale price of the common stock was $9.96875 per share. The offering is subject to withdrawal and cancellation at any time, without notice. See "Risk Factors" beginning on page 5 for a discussion of certain factors that you should consider before you invest in the common stock being sold with this prospectus. Neither the Securities and Exchange Commission (SEC) nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. February __, 1999. TABLE OF CONTENTS Page No. The Company 3 Risk Factors 5 Use of Proceeds 16 Selling Stockholder 16 Plan of Distribution 17 Legal Proceedings 19 Legal Matters 19 Experts 19 DEFINED TERMS As used in this prospectus, (a) "Acclaim" or "we" means Acclaim Entertainment, Inc., (b) "Subsidiary" means Acclaim Entertainment Pty. Ltd., Acclaim's wholly-owned subsidiary, a company doing business in Australia, (c) "Selling Stockholder" means, collectively, Fringe Pty. Ltd. (trading as Digital Leisure; "Digital Leisure"), a company doing business in Australia, and its permitted transferees, (d) "Common Stock" means Acclaim's common stock, par value $0.02 per share, and (e) "Acquisition Shares" means the 206,000 shares of Common Stock issued to Digital Leisure and covered by this prospectus. Forward-Looking Statements Some of the statements contained in this prospectus discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements, including those risks and uncertainties discussed in the "Risk Factors" section of this prospectus. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this prospectus, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Incorporation of Certain Documents by Reference The following documents filed by us with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein by reference: o Annual Report on Form 10-K for the fiscal year ended August 31, 1998 filed on November 6, 1998 (File No. 0-16986); o Quarterly Report on Form 10-Q for the period ended November 30, 1998 filed on January 14, 1999 (File No. 0-16986); and o The information in respect of the Common Stock under the caption "Description of Registrant's Securities to be Registered" contained in the Registration Statement on Form 8-A, filed on June 8, 1988 (File No. 0-16986), as amended by the Current Report on Form 8-K, filed on August 25, 1989 (File No. 33-9460-C), relating to the one-for-two reverse stock split effected by Acclaim. In addition, all documents filed by us with the SEC pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference into this prospectus. In addition, if we revise or update a document included in this prospectus or incorporate a document by reference into this prospectus, then the document contained herein (or incorporated by reference herein) shall be considered revised or updated upon our filing of such updated or revised document. We will provide, without charge, to each person, including any beneficial owner, to whom this prospectus is delivered, upon the written or oral request of such person, a copy of any and all of the documents incorporated herein by reference (other than exhibits to such documents unless such exhibits are specifically incorporated by reference herein). Requests for such documents should be directed to the Secretary of Acclaim Entertainment, Inc., One Acclaim Plaza, Glen Cove, New York 11542. Telephone requests for such copies should be directed to the Secretary at (516) 656-5000. Where You Can Find More Information Acclaim has filed with the SEC a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") covering the Acquisition Shares to be sold by the Selling Stockholder. This prospectus does not contain all of the information included in the registration statement. Any statement made in this prospectus concerning the contents of any documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the registration statement. You should read the exhibit for a more complete understanding of the document or matter involved. Each statement regarding a document is qualified in its entirety by reference to the actual document. Acclaim is required to file periodic reports and other information with the SEC under the Exchange Act. You may read and copy the registration statement, including the attached exhibits, and any reports, statements or other information that we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Acclaim's SEC filings are also available to the public on the SEC Internet site (http://www.sec.gov). You should rely only on the information provided in this prospectus or that to which we have referred you. No person has been authorized to provide you with different information. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The information in this prospectus is accurate as of the date on the front cover. You should not assume that the information contained in this prospectus is accurate as of any other date. 2 The Company Acclaim is a worldwide developer, publisher and mass marketer of interactive entertainment software for use with dedicated interactive entertainment hardware platforms ("Platforms") and multimedia personal computer systems (PCs). Acclaim owns and operates four software development studios located in the U.S. and the U.K., and publishes and distributes its software directly in North America, the U.K., Germany, France and Australia. Acclaim's operating strategy is to develop and maintain a core of key brands and franchises (e.g., Turok, NFL Quarterback Club and All Star Baseball) to support the various Platforms and PCs that dominate the interactive entertainment market at a given time or which it perceives as having the potential for achieving mass market acceptance. Acclaim emphasizes sports simulation and arcade-style software for Platforms, and fantasy/role-playing, real-time simulation, adventure and sports simulation software for PCs. Acclaim also engages, to a lesser extent, in the distribution of software developed by third-party software publishers and the development and publication of comic book magazines and strategy guides relating to its software. The software industry is driven by the size of the installed base of Platforms (such as those manufactured by Nintendo Co., Ltd. (Japan) (Nintendo Co., Ltd. and its subsidiary, Nintendo of America, Inc., are collectively referred to as "Nintendo"), Sony Corporation (Sony Corporation and its affiliate, Sony Computer Entertainment America, are collectively referred to as "Sony") and Sega Enterprises Ltd. ("Sega")), and PCs dedicated for home use. The industry is characterized by rapid technological change, as evidenced by the successive introductions of hardware systems from Nintendo, Sega and Sony (e.g., the 8-bit cartridge system from Nintendo in 1985; 16-bit cartridge systems from Sega in 1990 and Nintendo in 1991; 32-bit CD systems from Sega and Sony in 1995; the 64-bit cartridge system from Nintendo in 1996; and the introduction by Sega in November 1998 of Dreamcast, a new 64-bit CD system, in Japan). These successive introductions have resulted in Platform and related software product cycles. To date, no single Platform or system has achieved long-term dominance in the interactive entertainment market. Accordingly, Acclaim must continually anticipate and adapt its software to emerging Platforms. Based on information available in 1994 and based on its historical experience with respect to the transition from 8- to 16-bit Platforms, Acclaim believed that software sales for 16-bit Platforms would, although continuing to decrease overall, remain substantial through the 1996 holiday season. Accordingly, it anticipated that sales of its 32-bit and PC software in fiscal 1996 would grow as compared to fiscal 1995 but that the majority of its revenues in fiscal 1996 would still be derived from 16-bit software sales. However, the 16-bit software market matured much more rapidly than anticipated by Acclaim, its Christmas 1995 16-bit software sales were substantially lower than anticipated and, by April 1996, Acclaim derived minimal profits from software sales and made the decision to exit the 16-bit and portable software markets. In connection with the decision to exit the 16-bit and portable software markets in April 1996, Acclaim recorded a special cartridge video charge of approximately $48.9 million in the second quarter of fiscal 1996, consisting of provisions of approximately $28.8 million (reflected in net revenues), and approximately $20.1 million (reflected in cost of revenues) to adjust accounts receivable and inventories at February 29, 1996 to their estimated net realizable values. Acclaim recorded a loss from operations of $274.5 million and a net loss (on an after-tax basis) of $221.4 million for fiscal 1996. The net loss for the year reflected (1) write-offs of receivables, (2) the 3 establishment of additional receivables and inventory reserves, (3) severance charges incurred in connection with a company downsizing, (4) the reduction of certain deferred costs, and (5) an operating loss for the year resulting primarily from price protection and similar concessions granted to retailers at greater than anticipated levels in connection with its 16- and 32-bit software. Acclaim recorded a loss from operations of $150.9 million and a net loss (on an after-tax basis) of $159.2 million for fiscal 1997. The net loss for the year reflected, among other things, (1) a charge for certain claims and litigations for which the settlement obligation was probable and estimable of $23.6 million, (2) a write-down of goodwill of $25.2 million to reduce the carrying value of the goodwill associated with its subsidiary, Acclaim Comics, Inc., to its estimated undiscounted cash flows and (3) downsizing charges of $10 million. As a result of the acquisitions of the development studios in 1995 (two of which were completed in fiscal 1996), Acclaim's fixed costs relating to the development of software and its general and administrative expenses substantially increased in fiscal 1996. These expenses in the aggregate had a negative impact on Acclaim's liquidity and profitability in fiscal 1996 and fiscal 1997. The rapid technological advances in game systems have significantly changed the look and feel of software as well as the software development process. According to our estimates, the average development cost for a title for Platforms approximately three years ago was approximately $300,000 to $400,000, while the average development cost for a title for Platforms and PCs is currently between $1 million and $2 million. Approximately 75% of our gross revenues in the first quarter of fiscal 1999 was derived from software developed by our studios. The process of developing software is extremely complex and is expected to become more complex and expensive in the future as new platforms and technologies are introduced. Acclaim recorded earnings from operations of $24.7 million and net earnings (on an after-tax basis) of $20.7 million for fiscal 1998. The improved results for fiscal 1998 primarily resulted from increased sales in the U.S. of its 64-bit and, to a lesser extent, 32-bit software. They also reflect significantly reduced operating expenses, resulting primarily from (1) a reduction in personnel, (2) the sale or discontinuance of certain non-profitable businesses, (3) the consolidation of certain of the development studio operations to reduce overhead expenses and (4) various other cost reductions. Acclaim recorded net earnings of $8.0 million and $10.3 million in the first quarter of fiscal 1998 and 1999, respectively. The fiscal 1999 period results primarily reflect increased sales in the United States of Acclaim's 32- and 64-bit software. Although revenues from the sale of N64 and PlayStation software are anticipated to continue to grow in the second quarter of fiscal 1999 and for fiscal 1999 as a whole, we do not anticipate that, for fiscal 1999 as a whole, we will achieve our fiscal 1998 growth rate. No assurance can be given as to the future growth of the installed base of 32- and 64-bit Platforms, the future growth of the software market therefor or of our results of operations and profitability in future periods. The results for the first quarter of fiscal 1998 and 1999 also reflect our significantly reduced operating expenses as compared to prior periods. See "Risk Factors." Acclaim's ability to generate sales growth and profitability will be materially dependent on (1) the growth of the software market for 32- and 64-bit Platforms and PCs and (2) the ability to identify, develop and publish "hit" software for Platforms with significant installed bases. A Delaware corporation, Acclaim was founded in 1987. Acclaim's principal executive offices are located at One Acclaim Plaza, Glen Cove, New York 11542, and its telephone number is (516) 656-5000. Its Internet site is: "http://www.acclaim.net." 4 RISK FACTORS Our future operating results depend upon many factors and are subject to various risks and uncertainties. Some of the risks and uncertainties which may cause our operating results to vary from anticipated results or which may materially and adversely affect our operating results are as follows: Recent Operating Results Our net revenues increased from $161.9 million in fiscal 1996 to $165.4 million in fiscal 1997 and to $326.6 million in fiscal 1998 and increased from $92.3 million for the quarter ended November 30, 1997 to $104.8 million for the quarter ended November 30, 1998. We had a net loss of $221.4 million in fiscal 1996, a net loss of $159.2 million in fiscal 1997, net earnings of $20.7 million in fiscal 1998, and net earnings of $8.0 million and $10.3 million in the quarters ended November 30, 1997 and 1998, respectively. For the most part, the increase in revenues and earnings in fiscal 1998 and the fiscal 1999 period reflects increased sales in the U.S. of our software for Nintendo's N64 and Sony's PlayStation Platforms. Charges for litigation settlements and other claims of $23.6 million, a writedown of the goodwill associated with our subsidiary, Acclaim Comics, Inc., of $25.2 million and downsizing charges of $10 million are included in the loss for fiscal 1997. Special charges relating to our exit from the 16-bit and portable software business aggregating approximately $114 million are included in the loss for fiscal 1996. Our revenues and operating results in fiscal 1996 and 1997 were affected principally by the industry transition from 16-bit to 32- and 64-bit Platforms. We had anticipated that sales of software for the older Platforms would dominate Christmas 1995 sales and would be material in Christmas 1996. Therefore, we focused our development efforts on 16-bit software for fiscal 1996 and 1997. However, sales of 16-bit software decreased much more rapidly than we anticipated in calendar 1996, which resulted in reduced revenues and net losses in fiscal 1996 and 1997. In 1998, the interactive entertainment hardware market was characterized by the growth of the installed base of N64 and PlayStation units worldwide. This growth had a positive impact on our operating results for fiscal 1998 and in the first quarter of fiscal 1999. Although N64 and PlayStation have achieved significant market acceptance worldwide and we anticipate that the installed base of N64 and PlayStation units will continue to grow in the short term, we cannot assure investors that the installed base of either or both will grow at the present rate, if at all. Also, there is no assurance that revenues from sales of software for these Platforms will increase as the installed base increases. In fiscal 1997 and 1998, we took various actions to reduce our operating expenses. See "--Liquidity and Bank Relationships" below for a description of these actions. As a result, operating expenses in fiscal 1997 and 1998 were substantially lower than in prior comparable periods. Although we anticipate that operating expenses will increase in dollar terms in fiscal 1999, we intend to monitor our operating expenses closely and do not anticipate they will increase materially as a percentage of net revenues. However, we cannot assure stockholders that operating expenses will not increase as a percentage of net revenues in the remainder of fiscal 1999 and beyond. Any such increase could negatively impact our profits in fiscal 1999 and beyond. Liquidity and Bank Relationships We generally experienced negative cash flow from operations in fiscal 1996 and 1997 which, for the most part, was a result of net losses in these periods. We used net cash in operations of approximately $38.3 million in fiscal 1996 and approximately $29.2 million in fiscal 1997 and derived net cash from operations of approximately $23.3 million in fiscal 1998. We derived net cash from operations of 5 approximately $7.1 million and $11.4 million in the first quarter of fiscal 1998 and 1999, respectively. A tax refund of approximately $54.0 million had a positive impact on net cash from operating activities in fiscal 1997. We believe that the cash flows from operations in fiscal 1999 will be sufficient to cover our operating expenses and those current obligations that we must pay in the remainder of fiscal 1999. Our belief is based on the anticipated continued growth of the installed base of 32- and 64- bit Platforms, the anticipated success of our software for those Platforms and the resulting continued growth of our net revenues. However, we cannot assure investors that our operating expenses and current obligations will be significantly less than the cash flows available from operations in fiscal 1999 or in the future. Our long-term liquidity depends mainly on our publishing "hit" software for the dominant Platforms. In order to provide liquidity, in fiscal 1997 and 1998, we took a number of actions including (1) significantly reducing the number of our employees, (2) consolidating our development studio operations and (3) eliminating certain operations, such as the coin-operated video game subsidiary. In addition, in February 1997, we completed an offering of $50 million of 10% Convertible Subordinated Notes (the "Notes"). Of the net proceeds of the offering, we used approximately $16 million to retire a term loan from Midland Bank plc and $2 million to pay down a portion of a mortgage loan from Fleet Bank. In March 1997, we sold substantially all of the assets and certain liabilities of Acclaim Redemption Games, Inc. (formerly, Lazer-Tron Corporation) for $6 million in cash. Due to our financial performance in the first three quarters of fiscal 1998, we were unable to comply with financial covenants under our revolving credit facility with BNY Financial Corporation (BNY), our lead institutional lender. BNY waived the resulting defaults at the end of each of the first three quarters of fiscal 1998. We have negotiated new financial covenants as of and for the period ended August 31, 1998 and future periods. We were in compliance with the new financial covenants at November 30, 1998. Although we expect to continue to comply with these new covenants, we cannot assure compliance. In addition, factors beyond our control may result in future covenant defaults or a payment default. We may not be able to obtain waivers of any future default(s). If such defaults occur and are not waived by the lender, the lender could accelerate the loan or exercise other remedies. Such actions would have a negative impact on our liquidity and operations. Substantial Leverage and Ability to Service Debt Our debt level could have important consequences to our stockholders because a portion of cash flow from operations must be set aside to pay down debt, including the outstanding Notes, and existing bank obligations. Therefore, these funds are not available for other purposes. Additionally, a high debt level limits our ability to obtain additional debt financing in the future, or to pursue possible expansion of our business or acquisitions. Also, high debt levels could limit our flexibility in reacting to changes in the interactive entertainment industry and economic conditions generally. These limitations make us more vulnerable to adverse economic conditions and restrict our ability to withstand competitive pressures or take advantage of business opportunities. Some of our competitors currently have a lower debt level, and are likely to have significantly greater operating and financing flexibility, than us. Based upon current levels of operations, we believe we can meet our interest obligations on the Notes, and interest and principal obligations under bank agreements, when due. However, if cash flow from operations is not enough to meet debt obligations when due, we may have to restructure our indebtedness. We cannot guarantee that we will be able to restructure or refinance our debt on satisfactory terms. In addition, restructuring or refinancing may not be permitted by the terms of the indenture governing the Notes (the "Indenture"), or existing indebtedness. We cannot assure stockholders that our operating cash flows will be sufficient to meet debt service requirements. Also, we cannot 6 guarantee stockholders that future operating cash flows will be sufficient to repay the Notes, or that we will be able to refinance the Notes or other indebtedness at maturity. See "--Prior Rights of Creditors" below. Prior Rights of Creditors We have outstanding long-term debt (including current portions) of $52.2 million at November 30, 1998. Certain of the indebtedness is secured by liens on substantially all of our assets. If we do not timely pay interest or principal on indebtedness when due, we will be in default under loan agreements and the Indenture. In addition, the Indenture provides that, upon the occurrence of certain events, we may be obligated to repurchase all or a portion of the outstanding Notes. If such a repurchase event occurs and we do not have, or are unable to obtain, sufficient financial resources to repurchase the Notes, we would be in default under the Indenture. In addition, the occurrence of certain repurchase events would constitute a default under some of our current loan agreements. Further, we depend on dividends and other advances and transfers of funds from our subsidiaries to meet some debt service obligations. State and foreign law regulate the payment of dividends by our subsidiaries, which is also subject to the terms of existing bank agreements and the Indenture. A significant portion of assets, operations, trade payables and other indebtedness is located at our subsidiaries. The creditors of the subsidiaries would generally recover from these assets on the obligations owed to them by the subsidiaries before any recovery by our creditors and before any assets are distributed to our stockholders. If we are unable to meet current bank obligations, a default would occur under existing bank agreements. Such default, if not waived, could result in acceleration of our obligations under the bank agreements. Moreover, default could result in a demand by the lenders for immediate repayment and would entitle any secured creditor in respect of such debt to proceed against the collateral securing the defaulted loan. Additionally, an event of default under the Indenture may result in actions by IBJ Schroder Bank & Trust Company, as trustee, on behalf of the holders of the Notes. In the event of such acceleration by creditors or action by the trustee, holders of indebtedness would be entitled to payment out of our assets. If we become insolvent, are liquidated or reorganized, it is possible that there would be insufficient assets remaining after payment to the creditors for any distribution to our stockholders. Industry Trends; Platform Transition; Technological Change The interactive entertainment industry is characterized by rapid technological change due in large part to: o the introduction of Platforms incorporating more advanced processors and operating systems; o the impact of technological changes embodied in PCs; o the development of electronic and wireless delivery systems; and o the entry and participation of new companies in the industry. These factors, among others, have resulted in Platform and software life cycles. No single Platform has achieved long-term dominance. Accordingly, we must continually anticipate and adapt our software to emerging Platforms and systems. The process of developing software is extremely complex and is expected to become more complex and expensive in the future as new platforms and technologies are introduced. 7 Development of software currently requires substantial investment in research and development in the areas of graphics, sound, digitized speech, music and video. We cannot guarantee that we will be successful in developing and marketing software for new platforms. Substantially all of our revenues in fiscal 1998 and the first quarter of fiscal 1999 were derived from the sale of software designed for N64, PlayStation and PCs. In the past, we expended significant development and marketing resources on product development for Platforms that have not achieved the results we anticipated. If we (1) do not develop software for Platforms that achieve significant market acceptance, (2) discontinue development of software for a Platform that has a longer than expected life cycle, (3) develop software for a Platform that does not achieve a significant installed base or (4) continue development of software for a Platform that has a shorter than expected life cycle, we may experience losses from operations. We cannot guarantee that we will be able to predict accurately such matters, and failure to do so would negatively affect us. Results of operations and cash flows were negatively affected during fiscal 1996 and 1997 by the significant decline in sales of 16-bit software and the transition to the new Platforms. Because (1) there were a significant number of titles competing for limited shelf space and (2) the new Platforms had not achieved market penetration similar to that of the 16-bit Platforms in prior years, the number of units of each title sold for the newer Platforms was significantly less than the number of units of a title generally sold in prior years for 16-bit Platforms. In fiscal 1998, the interactive entertainment hardware market was characterized by the worldwide growth of the installed base of N64 and PlayStation units and related software. Although we anticipate that the installed base of these Platforms will continue to grow in the short term and that the market for software for these Platforms will also continue to grow, we cannot guarantee that the hardware or software market will continue to grow at the current rate. Revenue and Earnings Fluctuations; Seasonality Historically, we have derived substantially all of our revenues from the publication and distribution of software for the then dominant Platforms. Revenues are subject to fluctuation during transition periods, as in fiscal 1996 and 1997, when new Platforms have been introduced but none has achieved mass-market penetration. In addition, the timing of release of new titles impacts earnings in any given period. Earnings also may be materially impacted by other factors including (1) the level and timing of market acceptance of titles, (2) increases or decreases in development and/or promotion expenses for new titles, and (3) the timing of orders from major customers. A significant portion of revenues in any quarter is generally derived from sales of new titles introduced in that quarter or in the immediately preceding quarter. If we are unable to begin volume shipments of a significant new title during the scheduled quarter, revenues and earnings will be negatively affected in that quarter. In addition, because a majority of the unit sales for a title typically occur in the first 90 to 120 days following the introduction of the title, earnings may increase significantly in a period in which a major title is introduced and may decline in the following period or in periods in which there are no major title introductions. Also, certain operating expenses are fixed and do not vary directly in relation to revenue. Consequently, if net revenue is below expectations, operating results are likely to be negatively affected. The interactive entertainment industry is highly seasonal. Typically, net revenues are highest during the last calendar quarter (which includes the holiday selling season), decline in the first calendar quarter, are lower in the second calendar quarter and increase in the third calendar quarter. The seasonal pattern is due primarily to the increased demand for software during the year-end holiday selling season. However, earnings vary significantly and are largely dependent on releases of major new titles and, 8 accordingly, may not necessarily reflect the seasonal patterns of the industry as a whole. We expect that operating results will continue to fluctuate significantly in the future. Dependence on Entertainment Platform Manufacturers; Need for License Renewals The following table shows the percent of gross revenues for fiscal 1996, 1997 and 1998 and for the quarters ended November 30, 1997 and 1998 derived from sales of software for the indicated Platforms: Fiscal Year ended August 31, Quarter ended November 30, ---------------------------- -------------------------- 1996 1997 1998 1997 1998 ---- ---- ---- ---- ---- Title Nintendo-compatible 29% 41% 60% 75% 62% Sega-compatible 36% 12% 1% * * Sony-compatible 19% 28% 30% 15% 31% - --------------------- * represents less than 1% We are substantially dependent on the entertainment platform manufacturers as the sole manufacturers of the Platforms marketed by them, as the sole licensors of the proprietary information and technology needed to develop software for those Platforms and, in the case of Nintendo and Sony, as the sole manufacturers of the software developed by us for the compatible Platform. The entertainment platform manufacturers have in the past and may in the future limit the number of titles we can release in any year, which may limit any future growth in sales. In the past, we have been able to renew and/or negotiate extensions of our software license agreements with the entertainment platform developers. However, we cannot assure stockholders that, at the end of their current terms, we will be able to obtain extensions or that we will be successful in negotiating definitive license agreements with developers of new Platforms. If we cannot obtain licenses from developers of new Platforms or if our existing license agreements are terminated, our financial position and results of operations will be materially adversely affected. In addition, the termination of any one of the license agreements or other arrangements could negatively affect our financial position and results of operations. In addition to licensing arrangements, we depend on the entertainment platform manufacturers for the protection of the intellectual property rights to their respective Platforms and technology and their ability to discourage unauthorized persons from producing software for the Platforms developed by each of them. We also rely upon the entertainment platform manufacturers for the manufacture of certain cartridge and CD-based read-only memory (ROM) software. Reliance on New Titles; Product Delays Our ability to maintain favorable relations with retailers and to receive the maximum advantage from advertising expenditures depends on our ability to provide retailers with a timely and continuous flow of product. The life cycle of a title generally ranges from less than three months to upwards of 12 9 months, with the majority of sales occurring in the first 90 to 120 days after release. We actively market our current releases while simultaneously supporting our back catalogue with pricing and sales incentives. We are constantly required to develop, introduce and sell new titles in order to generate revenue and/or to replace declining revenues from previously released titles. In addition, it is difficult to predict consumer preferences for titles, and few titles achieve sustained market acceptance. We cannot assure stockholders that our new titles will be released in a timely fashion, will achieve any significant degree of market acceptance, or that such acceptance will be sustained for any meaningful period. Competition for retail shelf space, consumer preferences and other factors could result in the shortening of the life cycle for older titles and increase the importance of our ability to release titles on a timely basis. The timely shipment of a title depends on various factors, including quality assurance testing by us and the manufacturers. We generally submit new titles to the entertainment platform manufacturers and other intellectual property licensors for approval prior to development and/or manufacture. Since we are required to engage Nintendo or Sony, as the case may be, to manufacture titles developed by us for the Platforms marketed by them, our ability to control our supply of Nintendo or Sony titles and the timing of their delivery is limited. If the title is rejected by the manufacturer as a result of bugs in software or if there is a substantial delay in the approval of a product by an entertainment platform manufacturer or licensor, our financial condition and results of operations could be negatively impacted. In the past, we have experienced significant delays in the introduction of certain new titles and such delays may occur in the future. Moreover, it is likely that in the future certain new titles will not be released in accordance with our internal development schedule or the expectations of public market analysts and investors. A significant delay in the introduction of, or the presence of a defect in, one or more new titles could negatively affect the ultimate success of our titles. If we do not develop, introduce and sell new competitive titles on a timely basis, results of operations and profitability will be negatively affected. Reliance on "Hit" Titles The market for software is "hits" driven. Therefore, our future success depends on developing and marketing "hit" titles for Platforms with significant installed bases. Sales of our top four titles accounted for approximately 53% of gross revenues for fiscal 1998 and sales of our top title accounted for approximately 33% of gross revenues for fiscal 1997. Sales of our top three titles accounted for approximately 69% of gross revenues for the first quarter of fiscal 1999 and sales of our top three titles accounted for approximately 71% of gross revenues for the first quarter of fiscal 1998. We cannot assure stockholders that we will be able to publish "hit" titles in the future. If we do not publish "hit" titles in the future, our financial condition, results of operations and profitability could be negatively affected, as they were in fiscal 1996 and 1997. Inventory Management; Risk of Product Returns Generally, we are not contractually obligated to accept returns, except for defective product. However, we may permit customers to return or exchange product and may provide price protection or other concessions on products unsold by the customer. Accordingly, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Also, management must make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting periods. Among the more significant of such estimates are allowances for estimated returns, price concessions and other discounts. At the time of shipment, we establish reserves in respect of such estimates taking into account the potential for product returns and other discounts based on historical 10 return rates, seasonality, level of retail inventories, market acceptance of products in retail inventories and other factors. In fiscal 1996, price allowances, returns and exchanges were significantly higher than reserves. This shortfall had a negative impact on results of operations and liquidity in fiscal 1996. We believe that, at November 30, 1998, we have established adequate reserves for future price protection, returns, exchanges and other concessions. However, we cannot guarantee the adequacy of our reserves. If the reserves are exceeded, our financial condition and results of operations will be negatively impacted. In addition, we offer stock-balancing programs for our PC software. We have established reserves for such programs, which have not been material to date. Future stock-balancing programs may become material and/or exceed reserves for such programs. If so exceeded, results of operations and financial condition could be negatively impacted. Increased Product Development Costs As a result of the calendar 1995 acquisitions of the development studios, beginning in fiscal 1996, our fixed software development and overhead costs were significantly higher as compared to historical levels. These costs negatively impacted results of operations and profitability in fiscal 1996 and 1997. In fiscal 1998, we consolidated our development studio operations to reduce overhead expenses. Due to our planned release of a higher number of software titles and increasing software development costs, we anticipate that our future research and development expenses will increase as a percentage of net revenues as compared to fiscal 1998. Competition The market for software is highly competitive. Only a small percentage of titles introduced in the software market achieve any degree of sustained market acceptance. Competition is based primarily upon: o quality of titles; o the publisher's access to retail shelf space; o product features; o the success of the Platform for which the software is written; o price of titles; o the number of titles available for the Platform for which the software is written; and o marketing support. We compete with a variety of companies that offer products that compete directly with one or more of our titles. Typically, the chief competitor on a Platform is the developer of that Platform, to whom we pay royalties and, in some cases, manufacturing charges. Accordingly, the developers have a price, marketing and distribution advantage with respect to software marketed by them. This advantage is particularly important in a mature or declining market which supports fewer full-priced titles and is characterized by customers who make purchasing decisions on titles based primarily on price, unlike developing markets with limited titles, when price has been a less important factor in software sales. Our competitors vary in size from very small companies with limited resources to very large corporations with greater financial, marketing and product development resources than us, such as Nintendo, Sega and Sony. Our competitors also include a number of independent software publishers licensed by the hardware developers. Additionally, the entry and participation of new companies, including diversified entertainment companies, in markets in which we compete may adversely impact our performance in these markets. 11 The availability of significant financial resources has become a major competitive factor in the software industry, primarily as a result of the costs associated with developing and marketing software. As competition increases, significant price competition and reduced profit margins may result. In addition, competition from new technologies may reduce demand in markets in which we have traditionally competed. Prolonged price competition or reduced demand as a result of competing technologies would negatively impact our business. We may not be able to compete successfully. Intellectual Property Licenses and Proprietary Rights Some of our software embodies trademarks, tradenames, logos or copyrights licensed to us by third parties (such as the NBA, the NFL or their respective players' associations), the loss of which could prevent the release of a title or limit its economic success. License agreements generally extend for a term of two to three years and are terminable in the event of our material breach (including our failure to pay amounts due to the licensor in a timely manner) or our bankruptcy or insolvency and certain other events. Since competition is intense, we may not be successful in the future in acquiring intellectual property rights with significant commercial value. In addition, we cannot assure stockholders that these licenses will be available on reasonable terms or at all. In order to protect our titles and proprietary rights, we rely mainly on a combination of: o copyrights; o trade secret laws; o patent and trademark laws; o nondisclosure agreements; and o other copy protection methods. It is our policy that all employees and third-party developers sign nondisclosure agreements. These measures may not be sufficient to protect our intellectual property rights against infringement. Additionally, we have "shrinkwrap" license agreements with the end users of our PC titles, but rely on the copyright laws to prevent unauthorized distribution of other software. Existing copyright laws afford only limited protection. Notwithstanding our rights to our software, it may be possible for third parties to copy illegally our titles or to reverse engineer or otherwise obtain and use our proprietary information. Illegal copying occurs within the software industry, and if a significant amount of illegal copying of our published titles or titles distributed by us occurs, our business could be adversely impacted. Policing illegal use of our titles is difficult, and software piracy is expected to persist. Further, the laws of certain countries in which our titles are distributed do not protect us and our intellectual property rights to the same extent as the laws of the U.S. We believe that our titles, trademarks and other proprietary rights do not infringe on the proprietary rights of others. However, as the number of titles in the industry increases, we believe that claims and lawsuits with respect to software infringement will also increase. From time to time, third parties have asserted that features or content of certain of our titles may infringe upon intellectual property rights of such parties. We have asserted that third parties have likewise infringed our proprietary rights. Some of these claims have resulted in litigation by and against us. To date, no such claims have had a negative effect on our ability to develop, market or sell our titles. Existing or future infringement claims by or against us may result in costly litigation or require us to license the intellectual property rights of third parties. The owners of intellectual property licensed by us generally reserve the right to protect such intellectual property against infringement. 12 International Sales International sales represented approximately 41% of net revenues in fiscal 1996, 50% of net revenues in fiscal 1997, 34% of net revenues in fiscal 1998 and 41% and 30% of net revenues in the first quarter of 1998 and 1999, respectively. We expect that international sales will continue to account for a significant portion of net revenues in future periods. International sales are subject to the following inherent risks: o unexpected changes in regulatory requirements; o tariffs and other economic barriers; o fluctuating exchange rates; o difficulties in staffing and managing foreign operations; and o the possibility of difficulty in accounts receivable collection. Because we believe that exposure to foreign currency losses is not currently material, we do not hedge against foreign currency risks. In some markets, localization of our titles is essential to achieve market penetration. As a result of the inherent risks, we may incur incremental costs and experience delays in localizing our titles. These risk factors or other factors could have a negative effect on future international sales and, consequently, on our business. Dependence on Key Personnel and Employees The software industry is characterized by a high level of employee mobility and aggressive recruiting among competitors for personnel with technical, marketing, sales, product development and management skills. Successful operations depend on our ability to identify, hire and retain such personnel. We may not be able to attract and retain such personnel or may incur significant costs in order to do so. In particular, we are highly dependent upon the management services of Gregory Fischbach, Co-Chairman of the Board and Chief Executive Officer, and James Scoroposki, Co-Chairman of the Board and Senior Executive Vice President. The loss of the services of either of these two could have a negative impact on our business. Although we have employment agreements with Messrs. Fischbach and Scoroposki, they may leave or compete with us in the future. If we are unable to attract additional qualified employees or retain the services of key personnel, our business could be negatively impacted. Litigation In conjunction with then pending class actions and other litigations and claims for which the settlement obligation was then probable and estimable, we recorded a charge of $23.6 million during the year ended August 31, 1997. During fiscal 1998, we settled substantially all such litigations and claims for amounts approximating the accrued liabilities. We are also party to various litigations arising in the course of our business and certain other litigations. We may be required to record additional material charges in future periods in conjunction with litigations to which we are or become a party. If we have to record additional charges to earnings from an adverse result in such litigations or from settlements which exceed the related accrued liabilities, we may experience a negative effect on our financial condition and results of operations. For a discussion of the various claims and litigations to which we are currently a party, see "Legal Proceedings." 13 Anti-Takeover Provisions The Board of Directors has the authority (subject to certain limitations imposed by the Indenture) to issue shares of preferred stock and to determine their characteristics without stockholders' approval. If preferred stock is issued, the rights of common stockholders are subject to, and may be negatively affected by, the rights of preferred stockholders. If preferred stock is issued, it will provide flexibility in connection with possible acquisitions and other corporate actions; however, it could make it more difficult for a third party to acquire a majority of our outstanding voting stock. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which may make it more difficult or more expensive or discourage a tender offer, change in control or takeover attempt that is opposed by the Board. In addition, employment arrangements with certain members of management provide for severance payments upon termination of their employment if there is a change in control. Volatility of Stock Price There is a history of significant volatility in the market prices of companies engaged in the software industry, including Acclaim. The market price of our Common Stock is likely to continue to be highly volatile. The following factors may have a significant impact on the market price of the Common Stock: o timing and market acceptance of product introductions by us; o the introduction of products by our competitors; o loss of any key personnel; o variations in quarterly operating results; or o changes in market conditions in the software industry generally. In the past, we have experienced significant fluctuations in operating results and, if our future revenues or operating results or product releases do not meet expectations, the price of our Common Stock may be negatively affected. Year 2000 Issue Until recently, computer programs were generally written using two digits rather than four to define the applicable year. Accordingly, such programs may be unable to distinguish properly between the year 1900 and the year 2000. In fiscal 1997, we commenced a Year 2000 date conversion project to address necessary code changes, testing and implementation in respect of our internal computer systems. Project completion is planned for the middle of calendar 1999. We anticipate that our Year 2000 date conversion project as it relates to internal systems will be completed on a timely basis. Our software for N64, PlayStation and PCs is Year 2000 compliant. We believe the costs to become Year 2000 compliant will not significantly impact our results of operations. We are currently seeking information regarding Year 2000 compliance from vendors, customers, manufacturers, outside developers, and financial institutions associated with us. Project completion for this phase is planned for the middle of calendar 1999. However, given the reliance on third-party information as it relates to their compliance programs and the difficulty of determining potential errors on the part of external service suppliers, we cannot guarantee that our information systems or operations will not be affected by mistakes, if any, of third parties or third-party failures to complete the Year 2000 project on a timely basis. There can be no assurance that the systems of other companies on which our systems rely will be timely converted or that any such failure to convert by another company would not have a material adverse effect on our systems. The cost of the Year 2000 project and the date on which we believe we will complete the necessary modifications are based on our estimates which were derived utilizing numerous assumptions 14 of future events, including the continued availability of resources, third-party modification plans and other factors. We presently believe that the Year 2000 issue will not pose significant operational problems for our internal information systems and products. However, if the anticipated modifications and conversions are not completed on a timely basis, or if the systems of other companies on which our systems and operations rely are not converted on a timely basis, the Year 2000 issue could have a material adverse effect on results of operations. We do not currently have any contingency plans in place to address the failure of timely conversion of our and/or third-party systems in respect of the Year 2000 issue. Any failure by us to address any unforseen Year 2000 issues could materially adversely affect results of operations. Euro Conversion The January 1, 1999 adoption of the Euro has created a single-currency market in much of Europe. For a transition period from January 1, 1999 to June 30, 2002, the existing local currencies will remain legal tender as denominations of the Euro. Acclaim does not anticipate that its systems will be materially adversely affected by the conversion to the Euro. Acclaim has analyzed the impact of conversion to the Euro on its existing systems and is implementing modifications to its current systems to handle Euro invoicing for transactions. Acclaim anticipates that the cost of such modifications will not have a material adverse effect on its results of operations or liquidity in fiscal 1999. Due to numerous uncertainties, we cannot reasonably estimate the effect that the conversion to the Euro will have on our pricing or market strategies, and the impact, if any, that such conversion will have on our financial condition or results of operations. ------------------ Stockholders should not use historical trends or other factors affecting our operating results and financial condition to anticipate results or trends in future periods because of the risk factors disclosed above. Also, stockholders should not consider historic financial performance as a reliable indicator of future performance. 15 USE OF PROCEEDS Acclaim will not receive any proceeds from the sale of any of the Acquisition Shares by the Selling Stockholder. SELLING STOCKHOLDER The shares covered by this prospectus will be offered and sold by the Selling Stockholder (Digital Leisure and its permitted transferees). From time to time, a prospectus supplement will be filed by Acclaim setting forth the names of, and the number of Acquisition Shares being sold by, such permitted transferees. On November 12, 1998, Acclaim, the Subsidiary, and, among others, Digital Leisure, entered into an Asset Purchase Agreement pursuant to which the parties agreed that the Subsidiary would purchase certain assets of Digital Leisure in exchange for cash and the 206,000 shares of Common Stock covered by this prospectus. Acclaim issued the Acquisition Shares to Digital Leisure in November 1998 pursuant to the exemption from registration provided under Section 4(2) of the Securities Act. In accordance with the terms of the Asset Purchase Agreement, Digital Leisure is permitted to transfer such shares to certain shareholders of Digital Leisure and/or employees of the Subsidiary; provided, however, such transferee or assignee agrees to be bound by the terms of the Registration Rights Agreement entered into by Acclaim, the Subsidiary and Digital Leisure, dated November 12, 1998 (the "Registration Rights Agreement"), and such distribution does not involve any public solicitation or distribution (as defined in the rules and regulations promulgated by the SEC). Subject to the next paragraph, and in accordance with the terms of the Asset Purchase Agreement, the Selling Stockholder is permitted to immediately sell, assign, transfer or otherwise dispose of 50,000 shares of the Acquisition Shares. With respect to the balance of the Acquisition Shares, Acclaim will deliver from escrow to Digital Leisure, from time to time in accordance with the Asset Purchase Agreement, up to an aggregate of 156,000 shares. Accordingly, the Selling Stockholder may not sell, assign, transfer or otherwise dispose of, or pledge or hypothecate any of such 156,000 shares, unless and until certain conditions set forth in the Asset Purchase Agreement are met. In the event such conditions are not met, or are only partially met, some or all, as the case may be, of the balance of the shares will be forfeited by Digital Leisure and returned to Acclaim. The Acquisition Shares are restricted securities within the meaning of the Securities Act and cannot be offered or sold without an effective registration statement covering such offer and sale or pursuant to an applicable exemption from the registration requirements of such Act. Pursuant to the terms of the Registration Rights Agreement, Acclaim filed the registration statement of which this prospectus is a part and will use its best efforts to keep the registration statement effective until no later than four years from the date of this prospectus (or until all of the Acquisition Shares are disposed of by the Selling Stockholder or forfeited by Digital Leisure, if earlier, subject to the availability of the provisions of Rule 144). Neither Acclaim nor any of its affiliates has had any material relationship with Digital Leisure or any of its affiliates within the past three years. 16 The following table sets forth certain information with respect to the Acquisition Shares held by Digital Leisure: Name Beneficial Ownership Prior Shares Being Offered Shares Beneficially Owned to Offering After the Offering (1) Fringe Pty. Ltd. (trading 206,000 206,000 0 as Digital Leisure)
- ---------------------------- (1) Assumes that all of the Acquisition Shares are sold by the Selling Stockholder pursuant to this prospectus. Digital Leisure may not receive all of the Acquisition Shares in accordance with the Asset Purchase Agreement, or may choose to dispose of none or only a portion of the Acquisition Shares held by it pursuant to this prospectus. Acclaim is not required, pursuant to the Registration Rights Agreement, to keep the registration statement effective past four years from the date of this prospectus. Accordingly, it is currently anticipated that unsold shares would be sold thereafter in reliance upon Rule 144 promulgated under the Securities Act. PLAN OF DISTRIBUTION The Selling Stockholder has advised Acclaim that it may from time to time sell all or a portion of the Acquisition Shares on The NASDAQ Stock Market or in any other securities market on which the Common Stock is then listed or traded, in negotiated transactions or otherwise, at prices then prevailing or related to the then-current market price or at negotiated prices. Sales on or through The NASDAQ Stock Market will be effected at such prices as may be obtainable and as may be satisfactory to the Selling Stockholder. No sales or distributions other than as disclosed herein will be effected until after this prospectus shall have been appropriately amended or supplemented, if required, to set forth the terms thereof. Normal commission expenses and brokerage fees will be paid by the Selling Stockholder. The Acquisition Shares may be sold directly or through brokers or dealers, or in a distribution by one or more underwriters on a firm commitment or best efforts basis. The method by which the Acquisition Shares may be sold include (a) a block trade (which may involve crosses) in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; (c) exchange distributions and/or secondary distributions in accordance with the rules of The NASDAQ Stock Market; (d) ordinary brokerage transactions in which the broker solicits purchasers; and (e) privately-negotiated transactions. The Selling Stockholder may from time to time deliver all or a portion of the Acquisition Shares held by it to cover a short sale or sales or upon exercise of a put equivalent position. In addition, any shares that qualify for sale under Rule 144 or Rule 144A under the Securities Act may be sold under any such rules rather than pursuant to this prospectus. Brokers or dealers may receive commission or discounts from the Selling Stockholder in amounts to be negotiated immediately prior to the sale. The Selling Stockholder and any underwriters, dealers or agents that participate in the distribution of the Acquisition Shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the resale of the shares by them or any discounts, commissions or concessions received by any such underwriters, dealers or agents may be deemed to be underwriting discounts and commissions under said Act. 17 Acclaim has agreed to indemnify the Selling Stockholder, each underwriter, if any, of the Acquisition Shares (including any broker or dealer through which such shares may be sold) and each person, if any, who controls the Selling Stockholder or any such underwriter within the meaning of Section 15 of the Securities Act, against certain liabilities, including liabilities under such Act. The Selling Stockholder has represented and warranted to, and agreed with Acclaim that, during such time as it may be engaged in a distribution of the Acquisition Shares, the Selling Stockholder will, among other things, (a) not engage in any stabilization activity in connection with Acclaim's securities, (b) furnish to each broker or dealer through whom or which it offers securities copies of the prospectus, as may be required, (c) inform such broker or dealer as to the number of shares it is selling, that such securities are part of a distribution and that it is subject to the provisions of Regulation M under the Exchange Act, (d) report to Acclaim any disposition of the shares if any such disposition shall have occurred, and (e) not bid for, or purchase, any company securities other than as permitted under the Exchange Act. 18 LEGAL PROCEEDINGS Acclaim, Iguana Entertainment, Inc. and Gregory E. Fischbach were sued in an action entitled Jeffery Spangenberg vs. Acclaim Entertainment, Inc., Iguana Entertainment, Inc., and Gregory Fischbach filed in August 1998 in the District Court of Travis County, Texas (Cause No. 98-09418). The plaintiff alleges that the defendants (i) breached their employment obligations to the plaintiff, (ii) breached a Texas statute covering wage payment obligations based on their alleged failure to pay bonuses to the plaintiff; and (iii) made fraudulent misrepresentations to the plaintiff in connection with the plaintiff's employment relationship with Acclaim, and accordingly, seeks unspecified damages. Acclaim intends to defend this action vigorously. The SEC has issued orders directing a private investigation relating to, among other things, Acclaim's earnings estimate for fiscal 1995 and its decision in the second quarter of fiscal 1996 to exit the 16-bit portable and cartridge markets. Acclaim has provided documents to the SEC, and the SEC has taken testimony from company representatives. Acclaim intends fully to cooperate with the SEC in its investigation. No assurance can be given as to whether such investigation will result in any litigation or, if so, as to the outcome of this matter. In conjunction with then pending class actions and other litigations and claims for which the settlement obligation was then probable and estimable, Acclaim recorded a charge of $23.6 million during the year ended August 31, 1997. During fiscal 1998, Acclaim settled substantially all of its outstanding litigations and claims for amounts approximating the accrued liabilities. Acclaim is also party to various litigations arising in the ordinary course of business, the resolution of none of which, Acclaim believes, will have a material adverse effect on its liquidity or results of operations. LEGAL MATTERS Certain legal matters in respect of the shares offered hereby will be passed upon for Acclaim by Rosenman & Colin LLP, 575 Madison Avenue, New York, New York 10022. EXPERTS The consolidated financial statements and schedule of Acclaim and its subsidiaries as of August 31, 1998 and 1997 and for each of the years in the three-year period ended August 31, 1998 have been incorporated by reference in this prospectus and in the registration statement of which it forms a part in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 19 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 16. Exhibits Exhibit Number Description 3.1 -- Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, filed on April 21, 1989, as amended (Registration No. 33-28274) (the "1989 S-1"). 3.2 -- Amendment to the Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the 1989 S-1). 3.3 -- Amendment to the Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 4(d) to the Registrant's Registration Statement on Form S-8, filed on May 19, 1995 (Registration No. 33-59483) (the "1995 S-8"). 3.4 -- Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 4(e) to the 1995 S-8). 4.1 -- Specimen form of the Registrant's common stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the year ended August 31, 1989, as amended (File No. 0-16986). *5 -- Opinion of Rosenman & Colin LLP *23.1 -- Consent of KPMG LLP *23.3 -- Consent of Rosenman & Colin LLP (included in Exhibit 5) 24.1 -- Power of Attorney (previously filed with this Registration Statement on Form S-3 on December 21, 1998) - ------------- * Filed herewith. II-1 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Nassau and State of New York on February 2, 1999. ACCLAIM ENTERTAINMENT, INC. By /s/ ---------------------------------- Gregory E. Fischbach Chief Executive Officer II-2 Pursuant to the requirements of Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Co-Chairman of the Board; Chief February 2, 1999 - ----------------------- Executive Officer; President; Gregory E. Fischbach Director /s/ Co-Chairman of the Board; Senior February 2, 1999 - ----------------------- Executive Vice President; Treasurer; James R. Scoroposki Secretary; Acting Chief Financial and Accounting Officer; Director /s/ Director February 2, 1999 - ----------------------- Kenneth L. Coleman /s/ Director February 2, 1999 - ----------------------- Bernard J. Fischbach /s/ Director February 2, 1999 - ----------------------- Robert H. Groman /s/ Director February 2, 1999 - ----------------------- James Scibelli /s/ Director February 2, 1999 - ----------------------- Michael Tannen II-3 EX-5 2 OPINION OF ROSENMAN & COLIN LLP EXHIBIT 5 Rosenman & Colin LLP 575 Madison Avenue New York, NY 10022 February 3, 1999 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Gentlemen: We have been requested by Acclaim Entertainment, Inc. (the "Company"), a Delaware corporation, to furnish our opinion in connection with the Company's Registration Statement on Form S-3 (Registration No. 333-69367), as amended (as so amended, the "Registration Statement"), covering an aggregate of up to 206,000 shares (the "Acquisition Shares") of common stock, par value $0.02 per share, of the Company to be offered and sold by the Selling Stockholder named therein. In connection with the foregoing, we have made such examination as we have deemed necessary for the purpose of rendering this opinion. Based upon such examination, it is our opinion that the Acquisition Shares have been duly authorized and are validly issued, fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to our name under the caption "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, ROSENMAN & COLIN LLP By /s/ ---------------------- A Partner EML EX-23.1 3 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS Board of Directors of Acclaim Entertainment, Inc.: We consent to the use in this registration statement on Form S-3 of Acclaim Entertainment, Inc. of our report dated October 22, 1998, which report is included in Acclaim's 1998 Annual Report on Form 10-K, which is incorporated by reference herein, and to the reference to our firm under the heading "Experts" in the prospectus. KPMG LLP New York, New York February 3, 1999 -----END PRIVACY-ENHANCED MESSAGE-----