327,586 Shares
ACTIVISION, INC.
Common Stock
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The stockholders of Activision, Inc. listed in this prospectus under the
section entitled "Selling Stockholders" are offering and selling up to 327,586
shares of our common stock under this prospectus.
The selling stockholders acquired all 327,586 shares of our common stock in
connection with our acquisition on March 26, 2002, of Shaba Games LLC, a
California based console software development company. The selling stockholders
were all of the members of Shaba.
We will not receive any of the proceeds from the sale of shares being
offered by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"ATVI." On May 7, 2002, the closing sale price of our common stock as reported
by Nasdaq was $30.65 per share.
Our principal executive offices are located at 3100 Ocean Park Boulevard,
Santa Monica, California 90405, and our telephone number is (310) 255-2000.
No underwriting is being used in connection with this offering of common
stock. The shares of common stock are being offered without underwriting
discounts. The expenses of this registration will be paid by us. Normal
brokerage commissions, discounts and fees will be payable by the selling
stockholders.
Investing in our common stock involves risks that are described in the
"Risk Factors" section beginning on page 2 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
These securities may not be sold 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.
The date of this Prospectus is May 8, 2002.
TABLE OF CONTENTS
Page
FORWARD LOOKING STATEMENTS ...................................................1
RISK FACTORS .................................................................2
ACTIVISION, INC. ............................................................10
USE OF PROCEEDS .............................................................12
SELLING STOCKHOLDERS ........................................................12
DESCRIPTION OF CAPITAL STOCK ................................................13
PLAN OF DISTRIBUTION ........................................................14
LEGAL MATTERS ...............................................................14
EXPERTS .....................................................................14
WHERE YOU CAN FIND MORE INFORMATION..........................................15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .............................15
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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. These securities are not
being offered for sale in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
is accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
Information contained in our web site does not constitute part of this
document.
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FORWARD LOOKING STATEMENTS
We make statements in this prospectus and the documents incorporated by
reference that are considered forward looking statements under the federal
securities laws. Such forward looking statements are based on the beliefs of our
management as well as assumptions made by and information currently available to
them. The words "anticipate," "believe," "may," "estimate," "expect," and
similar expressions, and variations of such terms or the negative of such terms,
are intended to identify such forward looking statements.
All forward looking statements are subject to certain risks, uncertainties
and assumptions. If one or more of these risks or uncertainties materialize, or
if underlying assumptions prove incorrect, our actual results, performance or
achievements could differ materially from those expressed in, or implied by, any
such forward looking statements. Important factors that could cause or
contribute to such difference include those discussed under "Risk Factors" in
this prospectus and under "Business-Factors Affecting Future Performance" in our
Annual Report on Form 10 K for the fiscal year ended March 31, 2001. You should
not place undue reliance on such forward looking statements, which speak only as
of their dates. We do not undertake any obligation to update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. You should carefully consider the information set forth
under the heading "Risk Factors."
RISK FACTORS
You should carefully consider the risks described below before investing in
our common stock. The occurrence of any of the following risks could harm our
business and our prospects. In that event, our business may be negatively
affected, the price of our stock may decline and you may lose part or all of
your investment.
We depend on a relatively small number of brands for a significant portion of
our revenues and profits.
A significant portion of our revenues are derived from products based on a
relatively small number of popular brands each year. In addition, many of these
products have substantial production or acquisition costs and marketing budgets.
In fiscal 2001, 49% of our worldwide net publishing revenues (37% of
consolidated net revenues) was derived from two brands, one of which accounted
for 39% and the other of which accounted for 10% of worldwide net publishing
revenues (29% and 8%, respectively, of consolidated net revenues). In fiscal
2000, two brands accounted for 34% of our worldwide net publishing revenues (24%
of consolidated net revenues), one of which accounted for 19%, and the other of
which accounted for 15% of worldwide net publishing revenues (13% and 11%,
respectively, of consolidated net revenues). We expect that a limited number of
popular brands will continue to produce a disproportionately large amount of our
revenues. Due to this dependence on a limited number of brands, the failure of
one or more products based on these brands to achieve anticipated results may
significantly harm our business and financial results.
Our future success depends on our ability to release popular products.
The life of any one game product is relatively short, in many cases
less than one year. It is therefore important for us to be able to continue to
develop many high quality new products that are popularly received. If we are
unable to do this, our business and financial results may be significantly
harmed.
We focus our development and publishing activities principally on
products that are, or have the potential to become, franchise brand properties.
Many of these products are based on intellectual property and other character or
story rights acquired or licensed from third parties. The license and
distribution agreements are limited in scope and time, and we may not be able to
renew key licenses when they expire or to include new products in existing
licenses. The loss of a significant number of our intellectual property licenses
or of our relationships with licensors could have a material adverse effect on
our ability to develop new products and therefore on our business and financial
results.
The current transition in console platforms has a material impact on the market
for interactive entertainment software.
When new console platforms are announced or introduced into the market,
consumers typically reduce their purchases of game console entertainment
software products for current console platforms in anticipation of new platforms
becoming available. During these periods, sales of our game console
entertainment software products can be expected to slow down or even decline
until new platforms have been introduced and have achieved wide consumer
acceptance. We are currently experiencing such a transition period. Each of the
three current principal hardware producers recently launched a new platform.
Sony made the first shipments of its PlayStation 2 console system in North
America and Europe in the fourth quarter of calendar year 2000. During that
quarter, Sony's manufacturing shortages resulted in significant shipment delays
of PlayStation 2 units in North America and Europe. In November 2001, Nintendo
made the first shipments of its Nintendo GameCube console system in North
America. In
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addition, in November 2001, Microsoft made the first shipments of its Xbox
console system in North America, and Microsoft released its Xbox console system
in Europe and Japan in the first quarter of calendar year 2002. In June 2001,
Nintendo launched its Game Boy Advance hand held device. Shortages of these
platforms or lack of consumer acceptance could adversely affect our sales of
products for these platforms. Current sales of some of our products for the
existing PlayStation and Nintendo 64 platforms have been negatively affected by
the new platform transition.
We must make significant expenditures to develop products for new platforms
which may not be successful or released when anticipated.
The interactive entertainment software industry is subject to rapid
technological change. New technologies could render our current products or
products in development obsolete or unmarketable. We must continually anticipate
and assess the emergence and market acceptance of new interactive entertainment
software platforms well in advance of the time the platform is introduced to
consumers. New platforms have historically required the development of new
software and also have the effect of undermining demand for products based on
older technologies. Because product development cycles are difficult to predict,
we must make substantial product development and other investments in a
particular platform well in advance of introduction of the platform. If the
platforms for which we develop new software products or modify existing products
are not released on a timely basis or do not attain significant market
penetration, or if we develop products for a delayed or unsuccessful platform,
we may not be able to recover in revenues our development costs which could be
significant and our business and financial results could be significantly
harmed. An announcement by Sega Corporation that it has discontinued its
Dreamcast platform shows that even experienced hardware manufacturers are not
immune to failure.
We are exposed to seasonality in the purchases of our products.
The interactive entertainment software industry is highly seasonal, with
the highest levels of consumer demand occurring during the year-end holiday
buying season. As a result, our net revenues, gross profits and operating income
have historically been highest during the second half of the year. Additionally,
in a platform transition period such as the one taking place now, sales of game
console software products can be significantly affected by the timeliness of
introduction of game console platforms by the manufacturers of those platforms,
such as Sony, Microsoft and Nintendo. The timing of hardware platform
introduction is also often tied to holidays and is not within our control.
Further, delays in development, licensor approvals or manufacturing can also
affect the timing of the release of our products, causing us to miss key selling
periods such as the year-end holiday buying season.
We depend on skilled personnel.
Our success depends to a significant extent on our ability to identify,
hire and retain skilled personnel. 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. We may not be able to attract and retain skilled personnel or may incur
significant costs in order to do so. If we are unable to attract additional
qualified employees or retain the services of key personnel, our business and
financial results could be negatively impacted. We depend on Sony and Nintendo
for the manufacture of products that we develop for their hardware platforms.
Generally, when we develop interactive entertainment software products for
hardware platforms offered by Sony or Nintendo, the products are manufactured
exclusively by that hardware manufacturer.
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Our hardware platform licenses with Sony and Nintendo provide that the
manufacturer may change prices for the manufacturing of products. In addition,
these agreements include other provisions such as approval rights of all
products and related promotional materials that give the manufacturer
substantial control over our costs and the release of new titles. Since each of
the manufacturers is also a publisher of games for its own hardware platforms
and manufactures products for all of its other licensees, a manufacturer may
give priority to its own products or those of our competitors in the event of
insufficient manufacturing capacity. Our business and financial results could be
materially harmed by unanticipated delays in the manufacturing and delivery of
our products by Sony or Nintendo. In addition, our business and financial
results could be materially harmed if Sony or Nintendo used their rights under
these agreements to delay the manufacture or delivery of our products, limit the
costs recoverable by us to manufacture software for their consoles, or elect to
manufacture software themselves or use developers other than us.
If our products contain defects, our business could be harmed significantly.
Software products as complex as the ones we publish may contain undetected
errors when first introduced or when new versions are released. We cannot assure
you that, despite extensive testing prior to release, errors will not be found
in new products or releases after shipment, resulting in loss of or delay in
market acceptance. This loss or delay could significantly harm our business and
financial results.
Inadequate intellectual property protections could prevent us from enforcing or
defending our proprietary technology.
We regard our software as proprietary and rely on a combination of
copyright, trademark and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights. We
own or license various copyrights and trademarks. While we provide "shrinkwrap"
license agreements or limitations on use with our software, it is uncertain to
what extent these agreements and limitations are enforceable. We are aware that
some unauthorized copying occurs within the computer software industry, and if a
significantly greater amount of unauthorized copying of our interactive
entertainment software products were to occur, it could cause material harm to
our business and financial results.
Policing unauthorized use of our products is difficult, and software piracy
can be a persistent problem, especially in some international markets. Further,
the laws of some countries where our products are or may be distributed either
do not protect our products and intellectual property rights to the same extent
as the laws of the United States, or are poorly enforced. Legal protection of
our rights may be ineffective in such countries, and as we leverage our software
products using emerging technologies such as the Internet and online services,
our ability to protect our intellectual property rights and to avoid infringing
intellectual property rights of others may diminish. We cannot assure you that
existing intellectual property laws will provide adequate protection for our
products in connection with these emerging technologies.
We may be subject to intellectual property claims.
As the number of interactive entertainment software products increases and
the features and content of these products continue to overlap, software
developers increasingly may become subject to infringement claims. Many of our
products are highly realistic and feature materials that are based on real world
examples, which may inadvertently infringe upon the intellectual property rights
of others. Although we believe that we make reasonable efforts to ensure that
our products do not violate the intellectual property rights of others, it is
possible that third parties still may claim infringement. From time to time, we
receive communications from third parties regarding such claims. Existing or
future infringement claims against us, whether valid or not, may be time
consuming and expensive to defend.
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Intellectual property litigation or claims could force us to do one or more of
the following:
o Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
o Obtain a license from the holder of the infringed intellectual
property, which if available at all, may not be available on
commercially favorable terms; or
o Redesign our interactive entertainment software products, which could
cause us to incur additional costs, delay introduction and possibly
reduce commercial appeal of our products.
Any of these actions may cause material harm to our business and financial
results.
We rely on independent third parties to develop many of our software products.
We often rely on independent third party interactive entertainment software
developers to develop many of our software products. Since we depend on these
developers in the aggregate, we remain subject to the following risks:
o Continuing strong demand for developers' resources, combined with
recognition they receive in connection with their work, may cause
developers who worked for us in the past to either work for our
competitors in the future or to renegotiate our agreements with them
on terms less favorable to us.
o Limited financial resources and business expertise and inability to
retain skilled personnel may force developers out of business prior to
completing our products or require us to fund additional costs.
Increased competition for skilled third party software developers also has
compelled us to agree to make significant advance payments on royalties to game
developers. If the products subject to these arrangements do not generate
sufficient revenues to recover these royalty advances, we would have to
write-off unrecovered portions of these payments, which could cause material
harm to our business and financial results. In a few cases, we also agree to pay
developers fixed per unit product royalties after royalty advances are fully
recouped. To the extent that sales prices of products on which we have agreed to
pay a fixed per unit royalty are marked down, our profitability could be
adversely affected.
We operate in a highly competitive industry.
The interactive entertainment software industry is intensely competitive
and new interactive entertainment software products and platforms are regularly
introduced. Our competitors vary in size from small companies to very large
corporations with significantly greater financial, marketing and product
development resources than we have. Due to these greater resources, certain of
our competitors can undertake more extensive marketing campaigns, adopt more
aggressive pricing policies, pay higher fees to licensors of desirable motion
picture, television, sports and character properties and pay more to third party
software developers than we can. We believe that the main competitive factors in
the interactive entertainment software industry include: product features; brand
name recognition; compatibility of products with popular platforms; access to
distribution channels; quality of products; ease of use; price; marketing
support; and quality of customer service.
We compete primarily with other publishers of personal computer and video
game console interactive entertainment software. Significant third party
software competitors currently include, among
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others: Acclaim Entertainment, Inc.; Capcom Co. Ltd.; Eidos PLC; Electronic Arts
Inc.; Infogrames SA; Konami Company Ltd.; Namco Ltd.; Sega Enterprises, Ltd.;
Take-Two Interactive Software, Inc.; THQ Inc. and Vivendi Universal Publishing.
In addition, integrated video game console hardware and software companies such
as Sony Computer Entertainment, Nintendo Co. Ltd., and Microsoft Corporation
compete directly with us in the development of software titles for their
respective platforms.
We also compete with other forms of entertainment and leisure activities.
For example, we believe that the overall growth in the use of the Internet and
online services by consumers may pose a competitive threat if customers and
potential customers spend less of their available time using interactive
entertainment software and more using the Internet and online services.
We may face difficulty obtaining access to retail shelf space necessary to
market and sell our products effectively.
Retailers of our products typically have a limited amount of shelf space
and promotional resources, and there is intense competition among consumer
interactive entertainment software products for high quality retail shelf space
and promotional support from retailers. To the extent that the number of
products and platforms increases, competition for shelf space may intensify and
may require us to increase the consideration we pay to vendors. Retailers with
limited shelf space typically devote the most and highest quality shelf space to
the best selling products. We cannot assure you that our new products will
consistently achieve such "best seller" status. Due to increased competition for
limited shelf space, retailers and distributors are in an increasingly better
position to negotiate favorable terms of sale, including price discounts, price
protection, marketing and display fees and product return policies. Our products
constitute a relatively small percentage of any retailer's sale volume, and we
cannot assure you that retailers will continue to purchase our products or to
provide our products with adequate levels of shelf space and promotional support
on acceptable terms. A prolonged failure in this regard may significantly harm
our business and financial results.
Our sales may decline substantially without warning and in a brief period of
time because we generally do not have long-term contracts for the sale of our
products.
We currently sell our products directly through our own sales force to mass
merchants, warehouse club stores, large computer and software specialty chains
and through catalogs, as well as to a limited number of distributors, in the
United States and Canada. Outside North America, we sell our products directly
to retailers as well as third party distributors in certain territories. Our
sales are made primarily on a purchase order basis without long-term agreements
or other forms of commitments. The loss of, or significant reduction in sales
to, any of our principal retail customers or distributors could significantly
harm our business and financial results. Our two largest customers, Wal-Mart
Stores, Inc. and Toys "R" Us, Inc., accounted for approximately 13% and 12%,
respectively, of our worldwide net publishing revenues for fiscal 2001 (10% and
9%, respectively, of our consolidated net revenues). Our five largest retailers,
including Wal-Mart and Toys "R" Us, accounted for approximately 45% of our
worldwide net publishing revenues for fiscal 2001 (34% of our consolidated net
revenues). Our two largest customers, Wal Mart and Toys "R" Us, accounted for
approximately 13% and 9%, respectively, of our worldwide net publishing revenues
for fiscal 2000 (9% and 6%, respectively, of our consolidated net revenues). Our
five largest retailers, including Wal Mart and Toys "R" Us, accounted for
approximately 37% of our worldwide net publishing revenues for fiscal 2000 (26%
of our consolidated net revenues).
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We may permit our customers to return our products and to receive pricing
concessions which could reduce our net revenues and results of operations.
We are exposed to the risk of product returns and price protection with
respect to our distributors and retailers. We may permit product returns from or
grant price protection to our customers under certain conditions. Return
policies allow distributors and retailers to return defective, shelf-worn and
damaged products in accordance with terms granted. Price protection policies,
when granted and applicable, allow customers a credit against amounts they owe
us with respect to merchandise unsold by them. We provide price protection to a
number of our customers to manage our customers' inventory levels in the
distribution channel. We also offer a 90-day limited warranty to our end users
that our products will be free from manufacturing defects. Although we maintain
a reserve for returns and price protection, and although we may place limits on
product returns and price protection, we could be forced to accept substantial
product returns and provide price protection to maintain our relationships with
retailers and our access to distribution channels. Product returns and price
protection that exceed our reserves could significantly harm our business and
financial results.
We may be burdened with payment defaults and uncollectible accounts if our
distributors or retailers cannot honor their credit arrangements with us.
Distributors and retailers in the interactive entertainment software
industry have from time to time experienced significant fluctuations in their
businesses, and a number of them have failed. The insolvency or business failure
of any significant retailer or distributor of our products could materially harm
our business and financial results. We typically make sales to most of our
retailers and some distributors on unsecured credit, with terms that vary
depending upon the customer and the nature of the product. Although we have
insolvency risk insurance to protect against our customers' bankruptcy,
insolvency or liquidation, this insurance contains a significant deductible and
a co-payment obligation, and the policy does not cover all instances of
non-payment. In addition, while we maintain a reserve for uncollectible
receivables, the reserve may not be sufficient in every circumstance. As a
result, a payment default by a significant customer could significantly harm our
business and financial results.
We may not be able to maintain our distribution relationships with key vendors.
Our CD Contact, NBG and CentreSoft subsidiaries distribute interactive
entertainment software products and provide related services in the Benelux
territories, Germany and the United Kingdom, respectively, and, via export, in
other European territories for a variety of entertainment software publishers,
many of which are our competitors. These services are generally performed under
limited term contracts. While we expect to use reasonable efforts to retain
these vendors, we may not be successful in this regard. The cancellation or
non-renewal of one or more of these contracts could significantly harm our
business and financial results. Sony and Eidos products accounted for
approximately 26% and 13%, respectively, of our worldwide net distribution
revenues for fiscal 2001.
Our international revenues may be subject to regulatory requirements as well as
currency fluctuations.
Our international revenues have accounted for a significant portion of our
total revenues. International sales and licensing accounted for 66%, 51% and 43%
of our total net revenues in fiscal 1999, 2000 and 2001, respectively. We expect
that international revenues will continue to account for a significant portion
of our total revenues in the future. International sales may be subject to
unexpected regulatory requirements, tariffs and other barriers. Additionally,
foreign sales which are made in local currencies may fluctuate. Presently, we
engage in limited currency hedging activities. Although exposure to currency
fluctuations to date has been insignificant, fluctuations in currency exchange
rates may in the
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future have a material negative impact on revenues from international sales and
licensing and thus our business and financial results.
Our software may be subject to governmental restrictions or rating systems.
Legislation is periodically introduced at the local, state and federal levels in
the United States and in foreign countries to establish a system for providing
consumers with information about graphic violence and sexually explicit material
contained in interactive entertainment software products. In addition, many
foreign countries have laws that permit governmental entities to censor the
content and advertising of interactive entertainment software. We believe that
mandatory government-run rating systems eventually may be adopted in many
countries that are significant markets or potential markets for our products. We
may be required to modify our products or alter our marketing strategies to
comply with new regulations, which could delay the release of our products in
those countries.
Due to the uncertainties regarding such rating systems, confusion in the
marketplace may occur, and we are unable to predict what effect, if any, such
rating systems would have on our business. In addition to such regulations,
certain retailers have in the past declined to stock some of our products
because they believed that the content of the packaging artwork or the products
would be offensive to the retailer's customer base. While to date these actions
have not caused material harm to our business, we cannot assure you that similar
actions by our distributors or retailers in the future would not cause material
harm to our business.
Our software may be subject to legal claims.
Within the past two years, two lawsuits, Linda Sanders, et al. v. Meow
Media, Inc., et al., United States District Court for the District of Colorado,
and Joe James, et al. v. Meow Media, Inc., et al., United States District Court
for the Western District of Kentucky, Paducah Division, have been filed against
numerous video game companies, including us, by the families of victims who were
shot and killed by teenage gunmen. These lawsuits allege that the video game
companies manufactured and/or supplied these teenagers with violent video games,
teaching them how to use a gun and causing them to act out in a violent manner.
While our general liability insurance carrier has agreed to defend us in these
lawsuits, it is uncertain whether or not the insurance carrier would cover all
or any amounts which we might be liable for if the lawsuits are not decided in
our favor. If either of the lawsuits are decided against us and our insurance
carrier does not cover the amounts we are liable for, it could have a material
adverse effect on our business and financial results. It is possible that
similar additional lawsuits may be filed in the future. Payment of significant
claims by insurance carriers may make such insurance coverage materially more
expensive or unavailable in the future, thereby exposing our business to
additional risk.
We may face limitations on our ability to integrate additional acquired
businesses or to find suitable acquisition opportunities.
We intend to pursue additional acquisitions of companies, properties and
other assets that can be purchased or licensed on acceptable terms and which we
believe can be operated or exploited profitably. Some of these transactions
could be material in size and scope. While we will continually be searching for
additional acquisition opportunities, we may not be successful in identifying
suitable acquisitions. As the interactive entertainment software industry
continues to consolidate, we face significant competition in seeking and
consummating acquisition opportunities. We may not be able to consummate
potential acquisitions or an acquisition may not enhance our business or may
decrease rather than increase our earnings. In the future, we may issue
additional shares of our common stock in connection with one or more
acquisitions, which may dilute our existing stockholders. Future acquisitions
could also divert substantial management time and result in short term
reductions in earnings or special transaction or other
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charges. In addition, we cannot guarantee that we will be able to successfully
integrate the businesses that we may acquire into our existing business. Our
stockholders may not have the opportunity to review, vote on or evaluate future
acquisitions.
Our shareholder rights plan, charter documents and other agreements may make it
more difficult to acquire us without the approval of our Board of Directors.
We have adopted a shareholder rights plan under which one right entitling
the holder to purchase one one-hundredth of a share of our Series A Junior
Preferred Stock at a price of $40 per share (subject to adjustment) under
certain circumstances is attached to each outstanding share of common stock.
Such shareholder rights plan makes an acquisition of control in a transaction
not approved by our Board of Directors more difficult. Our Amended and Restated
By-laws have advance notice provisions for nominations for election of nominees
to the Board of Directors which may make it more difficult to acquire control of
us. Our long-term incentive plans provide for acceleration of stock options
following a change in control, which has the effect of making an acquisition of
control more expensive. A change in control constitutes a default under our
revolving credit facility. In addition, some of our officers have severance
compensation agreements that provide for substantial cash payments and
acceleration of other benefits in the event of a change in control. These
agreements and arrangements may also inhibit a change in control and may have a
negative effect on the market price of our common stock.
Our stock price is highly volatile.
The trading price of our common stock has been and could continue to be
subject to wide fluctuations in response to certain factors, including:
o Quarter to quarter variations in results of operations
o Our announcements of new products
o Our competitors' announcements of new products
o Our product development or release schedule
o General conditions in the computer, software, entertainment, media or
electronics industries
o Timing of the introduction of new platforms and delays in the actual
release of new platforms
o Changes in earnings estimates or buy/sell recommendations by analysts
o Investor perceptions and expectations regarding our products, plans
and strategic position and those of our competitors and customers
o Other events or factors.
In addition, the public stock markets experience extreme price and trading
volume volatility, particularly in high technology sectors of the market. This
volatility has significantly affected the market prices of securities of many
technology companies for reasons often unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
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We do not pay dividends on our common stock.
We have not paid any dividends on our common stock and do not anticipate
paying dividends in the near future. In addition, our revolving credit facility
currently prohibits us from paying dividends on our common stock.
ACTIVISION, INC.
We are a leading international publisher of interactive entertainment
software products. We have built a company with a diverse portfolio of products
that spans a wide range of categories and target markets and that is used on a
variety of game hardware platforms and operating systems. We have created,
licensed and acquired a group of highly recognizable brands which we market to a
growing variety of consumer demographics.
Our products cover the action, adventure, extreme sports, racing, role
playing, simulation and strategy game categories. We offer our products in
versions which operate on the Sony PlayStation, Sony PlayStation 2, Nintendo 64,
Nintendo GameCube, Microsoft Xbox and Sega Dreamcast console systems, the
Nintendo Game Boy Color and Game Boy Advance hand held devices, as well as on
personal computers. Over the next few years, we plan to produce many titles for
the recently released Sony PlayStation 2, Microsoft Xbox and Nintendo GameCube
console systems and Game Boy Advance hand held device. Driven partly by the
enhanced capabilities of the next generation of platforms, we believe that in
the next few years there will be significant growth in the market for
interactive entertainment software and we plan to leverage our skills and
resources to extend our leading position in the industry.
Our publishing business involves the development, marketing and sale of
products, either directly, by license or through our affiliate label program
with third party publishers. In addition to publishing, we maintain distribution
operations in Europe that provide logistical and sales services to third party
publishers of interactive entertainment software, our own publishing operations
and manufacturers of interactive entertainment hardware.
Our objective is to be a worldwide leader in the development, publishing
and distribution of quality interactive entertainment software products that
deliver a highly satisfying consumer entertainment experience. Our strategy
includes the following elements:
Create and Maintain Diversity in Product Mix, Platforms and Markets. We
believe that maintaining a diversified mix of products can reduce our operating
risks and enhance profitability. Therefore, we develop and publish products
spanning a wide range of product categories, including action, adventure,
extreme sports, racing, role playing, simulation and strategy, and products
designed for target audiences ranging from game enthusiasts and children to mass
market consumers and "value priced" buyers. We develop, publish and distribute
products that operate on Sony PlayStation and PlayStation 2, Nintendo 64,
Nintendo GameCube, Microsoft Xbox and Sega Dreamcast console systems, Nintendo
Game Boy and Game Boy Advance hand held devices and the personal computer. We
typically release our console products for use on multiple platforms in order to
reduce the risks associated with any single platform, leverage our costs over a
larger installed base and increase unit sales.
Create, Acquire and Maintain Strong Brands. We focus development and
publishing activities principally on products that are, or have the potential to
become, franchise properties with sustainable consumer appeal and brand
recognition. These products can thereby serve as the basis for sequels, prequels
and related new products that can be released over an extended period of time.
We believe that the publishing and distribution of products based in large part
on franchise properties enhances predictability of revenues and the probability
of high unit volume sales and operating profits. We have
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entered into a series of strategic relationships with the owners of intellectual
property pursuant to which we have acquired the rights to publish products based
on franchises such as Star Trek, various Disney films such as Toy Story 2 and
Marvel Comics' properties such as Spider Man, X Men, Blade, Iron Man and
Fantastic Four. We have also capitalized on the success of our Tony Hawk's Pro
Skater products to sign long term agreements, many of which are exclusive, with
numerous other extreme sports athletes including superstars Mat Hoffman in BMX
pro biking, Kelly Slater in pro surfing, Shaun Palmer in snowboarding and Shaun
Murray in wakeboarding.
Enforce Disciplined Product Selection and Development Processes. The
success of our publishing business depends, in significant part, on our ability
to develop games that will generate high unit volume sales and that can be
completed up to our high quality standards. Our publishing units have
implemented a formal control process for the selection, development, production
and quality assurance of our products. We apply this process, which we refer to
as the "Greenlight Process," to products under development with external, as
well as internal resources. The Greenlight Process includes in depth reviews of
each project at five intervals during the development process by a team that
includes several of our highest ranking operating managers and coordination
between our sales and marketing personnel and development staff at each step in
the process.
We develop our products using a strategic combination of our internal
development resources and external development resources acting under contract
with us, some of whom are independent and some of whom we have a capital
investment. We typically select our external developers based on their track
record and expertise in producing products in the same category. One developer
will often produce the same game for multiple platforms and will produce sequels
to the original game. We believe that this selection process allows us to
strengthen and leverage the particular expertise of our internal and external
development resources.
Continue to Improve Profitability. We are continually striving to reduce
our risk and increase our operating leverage and efficiency with the goal of
increased profitability. We believe the key factor affecting our profitability
will be the success rate of our product releases. Therefore, our product
selection and development process includes, as a significant component, periodic
evaluations of the expected commercial success of products under development.
Through this process, titles that we determine to be less promising are either
discontinued before we incur additional development costs, or if necessary,
corrections can be made in the development process. In addition, our focus on
cross platform releases and branded products will, we believe, contribute to
this strategic goal.
In order to further our emphasis on improved profitability, we have
implemented a number of operational initiatives. We have significantly increased
our product development capabilities by allocating a larger portion of our
product development investments to experienced independent development companies
working under contract with us, thereby taking advantage of specialized third
party developers without incurring the fixed overhead obligations associated
with increased internally employed staff. Our sales and marketing operations
work with our studio resources to increase the visibility of new product
launches and to coordinate timing and promotion of product releases. Our finance
and administration and sales and marketing personnel work together to improve
inventory management and receivables collections. We have broadly instituted
objective based reward programs that provide incentives to management and staff
throughout the organization to produce results that meet our financial
objectives.
Grow Through Continued Strategic Acquisitions and Alliances. The
interactive entertainment industry is consolidating, and we believe that success
in this industry will be driven in part by the ability to take advantage of
scale. Specifically, smaller companies are more capital constrained, enjoy less
predictability of revenues and cash flow, lack product diversity and must spread
fixed costs over a smaller revenue base. Several industry leaders are emerging
that combine the entrepreneurial and creative spirit of
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the industry with professional management, the ability to access the capital
markets and the ability to maintain favorable relationships with strategic
developers, property owners and retailers. Through twelve completed acquisitions
since 1997, we believe that we have successfully diversified our operations, our
channels of distribution, our development talent pool and our library of titles,
and have emerged as one of the industry's leaders. We intend to continue to
expand our resources through acquisitions, strategic relationships and key
license transactions. We expect to focus our acquisition strategy on increasing
our development capacity through the acquisition of or investment in selected
experienced development firms, and expanding our intellectual property library
through licenses and strategic relationships with intellectual property owners.
USE OF PROCEEDS
All net proceeds from the sale of our shares of common stock will go to the
stockholders who offer and sell their shares. Accordingly, we will not receive
any of the proceeds from the sale of the common stock being offered hereby for
the account of the selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock by the selling stockholders as of May 7,
2002, the number of shares of common stock being offered by this prospectus and
the number of shares of common stock beneficially owned by the selling
stockholders after the offering.
Number of
Shares of
Name of Shares of Number of Shares Number of Shares of
Selling Stockholder Owned Prior of Common Stock Common Stock Owned
Being Offered to the Offering Being Offered (1) After the Offering
-------------------- --------------- ----------------- -------------------
Christopher Scholz 22,586 22,586 0
Zachary Krefting 22,586 22,586 0
Richard D'Aloisio 22,586 22,586 0
Tom Teuscher 22,586 22,586 0
Scott Werner 22,586 22,586 0
Gerald T. O'Neil 22,586 22,586 0
Scholz Family Trust 90,346 90,346 0
All Selling Stockholders
as a Group 225,862 225,862 0
----------------
(1) This amount does not include the following, which are more fully described
below: (i) 32,759 shares of common stock subject to certain escrow
requirements; and (ii) 68,965 shares of common stock to be issued to the
selling stockholders upon completion of certain software program delivery
and revenue requirements.
We entered into an agreement and plan of merger (the "Merger Agreement")
with Activision Publishing, Inc., Shaba Acquisition Inc., Shaba Games LLC, and
the selling stockholders pursuant to
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which Shaba Games LLC was merged with and into Shaba Acquisition, Inc., a wholly
owned subsidiary of ours. The selling stockholders were all of the members of
Shaba Games LLC. The transactions contemplated by the Merger Agreement were
consummated on March 26, 2002.
Pursuant to a warranty escrow agreement among us, the selling stockholders
and Comerica Bank, an aggregate of 32,759 shares of common stock, or ten percent
(10%) of the total number of shares of common stock issued in connection with
the merger, have been deposited in an escrow account in connection with the
transaction (the "Escrow Shares"). The Escrow Shares have been deposited in
order to ensure that the representations, warranties and covenants made by the
selling stockholders under the Merger Agreement are not breached and in order to
provide a source of indemnification to Activision pursuant to the Merger
Agreement. The Escrow Shares will be released from escrow and issued to the
selling stockholders on March 26, 2003, to the extent not used to indemnify us
prior to such date. In addition, an aggregate amount of 68,965 shares of common
stock, or 21.05% of the total number of shares of our common stock issued in
connection with the merger, have been deposited in an escrow account (the
"Product Escrow Shares"). The Product Escrow Shares are subject to release from
escrow and issuance to the selling stockholders upon fulfillment of certain
software program delivery and ranking requirements and certain revenue
requirements, as described in the Merger Agreement a copy of which is attached
as an exhibit to the registration statement of which this prospectus is a part.
We will file a prospectus supplement to this prospectus to reflect any
increase in the number of shares of common stock offered for sale being offered
by the selling stockholders hereunder in the event the conditions described
above are fulfilled.
Prior to the acquisition of Shaba by us, Shaba was a party to various
development agreements with us. Other than such contracts and the fact that the
selling stockholders were members of Shaba, which became a wholly owned
subsidiary of ours on March 26, 2002 pursuant to the Merger Agreement, none of
the selling stockholders has had a material relationship with us within the past
three years.
DESCRIPTION OF CAPITAL STOCK
We have 130,000,000 shares of authorized capital stock, $.000001 par value,
consisting of 125,000,000 shares of common stock and 3,750,000 shares of serial
preferred stock and 1,250,000 shares of Series A Junior Preferred Stock. As of
April 2, 2002, 56,801,865 shares of our common stock were outstanding. Our
common stock is listed on the Nasdaq National Market under the symbol "ATVI."
Each outstanding share of common stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of common stock
can elect all of the directors then standing for election. Subject to
preferences which may be applicable to any outstanding shares of preferred
stock, holders of common stock are entitled to such distributions as may be
declared from time to time by our Board of Directors out of funds legally
available. We have not paid, and have no current plans to pay, dividends on our
common stock. We intend to retain all earnings for use in our business.
Holders of common stock have no conversion, redemption or preemptive rights
to subscribe to any of our securities. All outstanding shares of common stock
are fully paid and nonassessable. In the event of any liquidation, dissolution
or winding up of the affairs of holders of our common stock will be entitled to
share ratably in our assets remaining after provision for payment of liabilities
to creditors and preferences applicable to outstanding shares of preferred
stock.
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The rights, preferences and privileges of holders of common stock are
subject to the rights of the holders of any outstanding shares of preferred
stock. At present, no shares of preferred stock are outstanding. As of April 2,
2002, we had approximately 3,200 stockholders of record, excluding banks,
brokers and depository companies that are stockholders of record for the account
of beneficial owners.
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company, 17 Battery Place, New York, New York 10004.
PLAN OF DISTRIBUTION
The common stock may be sold from time to time by the selling stockholders,
or by pledgees, donees, transferees or other successors in interest. Such sales
may be made on one or more exchanges or in the over the counter market, or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The shares may be sold
from time to time in one or more of the following transactions, without
limitation: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares 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 or for its account
pursuant to this prospectus, as supplemented, (c) an exchange distribution in
accordance with the rules of such exchange, and (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus, as supplemented. From time to time the selling stockholders may
engage in short sales, short sales against the box, puts and calls and other
transactions in our securities or derivatives thereof, and may sell and deliver
the shares in connection therewith.
From time to time selling stockholders may pledge their shares pursuant to
the margin provisions of their respective customer agreements with their
respective brokers. Upon a default by a selling stockholder, the broker may
offer and sell the pledged shares of common stock from time to time as described
above.
All expenses of registration of the common stock (other than commissions
and discounts of underwriters, dealers or agents), estimated to be approximately
$16,000 shall be borne by us. As and when we are required to update this
prospectus, we may incur additional expenses in excess of this estimated amount.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock offered
hereby have been passed upon for us by Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, New York 10104. Kenneth L.
Henderson, one of our directors, is a managing partner of Robinson Silverman. In
addition, Robinson Silverman owns approximately 14,232 shares of our common
stock.
EXPERTS
Our consolidated financial statements and schedule as of March 31, 2000,
and for each of the years in the two year period ended March 31, 2000, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements as of and for the year ended March
31, 2001, incorporated by reference in this prospectus have been so incorporated
by reference in reliance upon the report of
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PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You may read and copy such material at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1 800 SEC 0330 for more information on the
operation of the Public Reference Room. You can also find our SEC filings at the
SEC's web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
o Our Annual Report on Form 10-K for the fiscal year ended March 31,
2001;
o Our Quarterly Reports on Form 10-Q for the quarterly periods ended
June 30, 2001, September 30, 2001, and December 31, 2001;
o Our Current Reports on Form 8-K filed on July 11, 2001, July 31, 2001,
October 4, 2001 and January 18, 2002; and
o The description of our common stock and the rights associated with our
common stock contained in our Registration Statement on Form S-3,
Registration No. 333-46425, and our Registration Statement on Form
8-A, File No. 001-15839, filed on April 19, 2000.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Activision, Inc.
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
Attn: Investor Relations
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327,586 Shares
ACTIVISION, INC.
Common Stock
----------------
PROSPECTUS
----------------
May 8, 2002
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