<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 29, 1996
--------------
WMS INDUSTRIES INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 1-8300 36-2814522
(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification Number)
3401 NORTH CALIFORNIA AVENUE
CHICAGO, ILLINOIS 60618
(Address of Principal Executive Offices) (Zip Code)
Telephone Number, Including Area Code 312-961-1111
------------
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On March 29, 1996 (the "Closing Date"), WMS Industries Inc., a Delaware
corporation (the "Company"), through its indirect wholly owned subsidiary
Williams Interactive Inc., a Delaware corporation ("Williams"), acquired all of
the issued and outstanding capital stock (the "Shares") of Atari Games
Corporation, a California corporation ("Atari Games") from Warner Communications
Inc., a Delaware corporation ("Warner") pursuant to the terms of a Stock
Purchase Agreement dated February 23, 1996 (the "Stock Purchase Agreement").
The purchase price for the Shares, which was determined by negotiations
between the Company and Warner, is the net asset value of Atari Games as of the
Closing Date plus any additional Working Capital (as defined in the Stock
Purchase Agreement) contributions made by Warner as provided in the Stock
Purchase Agreement. The Stock Purchase Agreement requires Warner to provide
Atari Games with at least $19 million of Working Capital as of the Closing Date.
The purchase price was estimated as of the Closing Date at $23,852,000 and is
subject to adjustment based upon a March 29, 1996 consolidated balance sheet of
Atari Games to be delivered within 90 days after the Closing Date and examined
by independent auditors.
The purchase price for the Shares is payable as follows: (i) $2 million in
cash from the Company's own funds paid at the Closing, (ii) the execution and
delivery by Williams of a non-recourse promissory note in the principal amount
of 10/28th of the balance of the purchase price (the "Two Year Note") in favor
of Warner payable on March 29, 1998 and (iii) the execution and delivery by
Atari Games of a non-recourse promissory note in the principal amount of 18/28th
of the balance of the purchase price (the "Four Year Note") in favor of Warner
payable in semi-annual installments over four years (extendable by Atari Games
for an additional three years under certain conditions) equal to 50% of the
Gross Profit (as defined in the Four Year Note) from the sale or distribution of
certain products and intellectual property with respect thereto owned by Atari
Games as of the Closing Date (the "Products").
The Two Year Note is secured by the Shares. Williams' obligations under the
Two Year Note and related security agreement may be satisfied by relinquishing
the Shares to Warner. The Four Year Note is secured by the Products. Atari
Games' unpaid obligations under the Four Year Note and related security
agreement may be satisfied by transferring the Products to Warner.
Atari Games based in Milpitas, California, is engaged in the business of
developing, manufacturing, licensing, publishing and distributing coin operated
video arcade games and interactive electronic and game entertainment products
for use with home video games. The Company plans to assimilate parts of the
Atari Games business into the Company's video arcade games and home video game
business and eliminate redundancies to reduce Atari Games' operating costs.
Assimilation plans include, among other things, closing the leased manufacturing
plant in California and having future video arcade games manufactured in Chicago
2
<PAGE>
at the Company's existing plants. In addition, sales, marketing and
distribution of home video games will be combined with the Company's home video
games operation.
Item 7. Financial Statements, Proforma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
-- Financial Statements of Atari Games Corporation.
-- Report of Independent Auditors.
-- Consolidated Balance Sheets as of December 31, 1995 and December
31, 1994.
-- Consolidated Statements of Operations for the year ended December
31, 1995, nine months ended December 31, 1994 and year ended
March 31, 1994.
-- Consolidated Statements of Shareholders' Equity (Deficit).
-- Consolidated Statements of Cash Flows for the year ended December
31, 1995, nine months ended December 31, 1994 and year ended
March 31, 1994.
-- Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information. It is impracticable to provide the
required pro forma financial information at the time this report is filed. The
Company will file such information as soon as practicable, but in no event more
than sixty days from the date this report is required to be filed.
(c) EXHIBITS
2(a) Stock Purchase Agreement dated as of February 23, 1996 between Warner
Communications Inc. ("Warner") and Williams Interactive Inc.
("Williams").
2(b) Letter Agreement dated March 29, 1996 between Warner and Williams.
2(c) Form of Two-Year Promissory Note to be made by Williams in favor of
Warner in the original principal amount of 10/28th of the balance of
the purchase price ("Note A").
2(d) Form of Security Agreement (Note A) between Warner and Williams.
2(e) Form of Four-Year Promissory Note to be made by Atari Games
Corporation ("Atari Games") in favor of Warner in the original
principal amount of 18/28th of the balance of the purchase price
("Note B").
2(f) Form of Security Agreement (Note B) between Warner and Atari Games.
3
<PAGE>
2(g) Indemnity Agreement dated March 29, 1996 made by Atari Games in favor
of Warner.
23 Consent of Ernst & Young LLP.
99(a) Press release, dated March 5, 1996.
99(b) Press release, dated April 1, 1996.
4
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Atari Games Corporation
(dba Time Warner Interactive)
Year ended December 31, 1995, Nine Months Ended
December 31, 1994 and Year Ended March 31, 1994
with Report of Independent Auditors
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Consolidated Financial Statements
Year ended December 31, 1995, Nine Months Ended
December 31, 1994 and Year Ended March 31, 1994
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors............................. 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................ 3
Consolidated Statements of Operations...................... 4
Consolidated Statements of Shareholders' Equity (Deficit).. 5
Consolidated Statements of Cash Flows...................... 6
Notes to Consolidated Financial Statements................. 7
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholder
Atari Games Corporation
(dba Time Warner Interactive)
We have audited the accompanying consolidated balance sheets of Atari Games
Corporation (dba Time Warner Interactive) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the year ended December 31, 1995, the nine months
ended December 31, 1994 and the year ended March 31, 1994. Our audits also
included the financial statement schedule listed in the accompanying index.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Atari Games
Corporation (dba Time Warner Interactive) at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company has incurred
recurring operating losses and at December 31, 1995 had a working capital
deficiency and net capital deficiency. Their conditions raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
<PAGE>
As discussed in Note 13 to the financial statements, effective April 1, 1994 the
Company changed its method of accounting for prepaid royalties.
ERNST & YOUNG LLP
Walnut Creek, California
March 22, 1996
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
---------------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,973 $ 6,837
Trade receivables, less allowance for doubtful accounts 25,646 18,861
and returns ($8,152 in 1995 and $2,992 in 1994)
Inventories 7,601 7,294
Prepaid expenses and other 1,458 --
---------------------
Total current assets 40,678 32,992
Property and equipment, net 5,159 6,094
Other assets 300 537
---------------------
Total assets $ 46,137 $ 39,623
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under bank line of credit $ -- $ 28,000
Accounts payable 10,855 4,411
Accrued liabilities 16,543 12,037
Payable to Parent 67,166 17,431
---------------------
Total current liabilities 94,564 61,879
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $.10 par value:
Authorized shares -- 200 in 1995 and 1994
Outstanding shares -- 100 in 1995 and 1994 6,855 6,855
Accumulated deficit (55,282) (29,111)
---------------------
Total shareholders' equity (deficit) (48,427) (22,256)
---------------------
Total liabilities and shareholders' equity (deficit) $ 46,137 $ 39,623
=====================
</TABLE>
See accompanying notes.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net revenues $ 90,613 $55,313 $52,450
Costs and expenses:
Cost of revenues 61,640 42,790 38,211
Sales and marketing 17,983 10,825 8,516
Research and development 25,050 14,942 14,167
General and administrative 10,173 5,775 9,044
Interest and other 1,837 120 6,663
--------------------------------------------
Total costs and expenses 116,683 74,452 76,601
--------------------------------------------
Loss before (provision) benefit for
income taxes 26,070 19,139 24,151
(Provision) benefit for income taxes (101) 1,787 (1,856)
--------------------------------------------
Net loss before cumulative effect of
change in accounting principle 26,171 17,352 26,007
Cumulative effect of change in
accounting for prepaid royalty costs -- (1,368) --
--------------------------------------------
Net loss $ 26,171 $18,720 $26,007
============================================
</TABLE>
See accompanying notes.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Consolidated Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS SHAREHOLDERS'
------------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balances at March 31, 1993 4,862 $6,855 $ 15,616 $ 22,471
Net loss for year ended March 31, 1994 (26,007) (26,007)
----------------------------------------------------
Balances at March 31, 1994 4,862 6,855 (10,391) (3,536)
Purchase of all outstanding shares of
common stock by Time Warner Inc. and
conversion to 100 shares (4,762) -- -- --
Net loss for nine months ended December 31,
1994 -- -- (18,720) (18,720)
----------------------------------------------------
Balances at December 31, 1994 100 6,855 (29,111) (22,256)
Net loss for year ended December 31, 1995 (26,171) (26,171)
----------------------------------------------------
Balances at December 31, 1995 100 $6,855 $(55,282) $(48,427)
====================================================
</TABLE>
See accompanying notes.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(26,171) $(18,720) $(26,007)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,885 1,761 1,848
Provision for doubtful accounts 6,255 3,178 2,058
Gain on sale of equipment -- -- (558)
Changes in current assets and
liabilities:
Trade receivables (13,040) (16,608) (722)
Inventories (307) (1,971) 1
Tax refund receivable -- -- 3,103
Deferred income taxes -- -- 2,091
Prepaid expenses and other (1,221) 1,743 (782)
Accounts payable 6,444 1,533 (111)
Other accrued liabilities 4,506 (1,927) 2,411
--------------------------------------------
Net cash used in operating activities (21,649) (31,011) (16,668)
INVESTING ACTIVITIES
Purchases of property and equipment (950) (3,199) (2,080)
Proceeds from sale of property and
equipment -- -- 334
--------------------------------------------
Net cash used in investing activities (950) (3,199) (1,746)
FINANCING ACTIVITIES
Proceeds from bank line of credit -- 20,000 8,000
Cash advances from Parent Company 49,735 12,681 4,750
Repayment of borrowings under bank line
of credit (28,000) -- --
--------------------------------------------
Net cash provided by financing
activities 21,735 32,681 12,750
--------------------------------------------
Net decrease in cash (864) (1,529) (5,664)
Cash at beginning of period 6,837 8,366 14,030
--------------------------------------------
Cash at end of period $ 5,973 $ 6,837 $ 8,366
============================================
</TABLE>
See accompanying notes.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
December 31, 1995
1. ACCOUNTING POLICIES
OPERATIONS
Atari Games Corporation (dba Time Warner Interactive) (the "Company") develops,
manufactures, markets and distributes video games for the arcade and consumer
market. The Company is a wholly-owned subsidiary of Warner Communications Inc.
("Parent Company") which is a wholly owned subsidiary of Time Warner Inc.
BASIS OF PRESENTATION
The Company has incurred recurring operating losses and at December 31, 1995,
has working capital and shareholders' equity deficiencies. These conditions
raise substantial doubt about the ability of the Company to continue as a going
concern. The Company has historically relied on advances by its parent to fund
its cash needs. Management has reduced operating expenses as exemplified by the
June 1995 headcount reduction and the elimination of several sales offices. In
addition, the Company has re-engineered the product development process while
reducing costs. The Company's Parent signed an agreement on February 23, 1996,
to sell all of the outstanding common stock of the Company to Williams
Interactive Inc. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Time Warner Interactive and its
wholly owned subsidiaries. The Company has export sales from the United States
and also has operations in Ireland and Japan. Revenues from these foreign
sources have not been significant. Intercompany accounts and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Statement is effective for years beginning after December 15,
1995. Management has not determined what impact, if any, there will be on the
financial statements as a result of adopting FAS 121.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Provisions are made in each period for the estimated effect of
inventory obsolescence. The actual effect of inventory obsolescence may differ
from the Company's estimates, and such differences could be material to the
financial statements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided over the estimated
useful lives of the assets (two to five years) using both straight-line and
accelerated methods. Leasehold improvements are amortized over the lesser of
the estimated useful life or the lease term.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of product, net of allowances for
returns. Revenue derived from variable royalties pursuant to license agreements
is recognized as cash is received.
8
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
1. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
The Company sells video software games through distributors and retailers and
sells coin-operated video games through distributors and direct to arcade
operators. The Company provides allowances for estimated credit losses and
price protection adjustments. Actual credit losses, returns and price
protection adjustments may differ from the Company's estimates, and such
differences could be material to the financial statements.
FOREIGN CURRENCY TRANSLATION
Generally, the assets and liabilities of the Company's wholly owned foreign
subsidiaries, denominated in the local currency, are remeasured in U.S. dollars
(the functional currency) at the year end exchange rate, except for certain
nonmonetary assets, which are remeasured at the approximate average exchange
rates prevailing when acquired. Income and expense items are remeasured at
average exchange rates prevailing during the year, except that expenses relating
to certain nonmonetary assets are translated at approximate historical rates.
Foreign currency translation gains and losses have not been material.
Transaction gains and losses, which have also not been material, are included in
net loss in the period incurred.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------------
<S> <C> <C>
Raw materials $3,183 $4,305
Work in process 1,456 1,294
Finished goods 2,962 1,695
---------------
$7,601 $7,294
===============
</TABLE>
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------------
<S> <C> <C>
Machinery and equipment $ 15,331 $ 14,488
Furniture and fixtures 1,200 1,131
Leasehold improvements 1,128 1,112
Land and buildings 1,081 1,059
------------------
18,740 17,790
Accumulated depreciation and amortization (13,581) (11,696)
------------------
$ 5,159 $ 6,094
==================
</TABLE>
4. BANK LINE OF CREDIT
The Company had a $30,000,000 line of credit with a bank that expired December
31, 1995. Borrowings were guaranteed by the Parent Company and bore interest at
the London Interbank Offering Rate or the bank's reference rate plus the
applicable margin of 1% or 0%, respectively. The Company borrowed on the line
of credit during 1994 with interest rates ranging from 6.625% to 7.187%. At
December 31, 1994, the Company had outstanding borrowings of $28,000,000 under
the line of credit which was paid in July 1995.
5. ACCRUED LIABILITIES CONSIST OF THE FOLLOWING (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------------
<S> <C> <C>
Payroll and related benefits $ 1,941 $ 1,125
Accrued royalties 2,268 999
Nintendo surcharge (Note 11) 3,750 4,000
Marketing development funds 1,503 760
Price protection accrual 3,659 1,704
Other 3,422 3,449
------------------
$ 16,543 $ 12,037
==================
</TABLE>
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
6. PAYABLE TO PARENT COMPANY
The Company has received cash from its Parent Company from time to time to fund
operations. For the year ended December 31, 1995 and the nine months ended
December 31, 1994, the Company paid $300,000 and $279,000, respectively, in
interest to its Parent Company. Effective September 1995, the arrangement was
amended so that no interest would be charged on amounts advanced by the Parent
Company.
7. INCOME TAXES
In the fiscal year ending March 31, 1994, the Company retroactively adopted
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes" ("FAS 109"), and has restated all prior years. The Company previously
accounted for income taxes under Accounting Principles Board Opinion No. 11.
FAS 109 requires the recognition of deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. In addition, FAS 109 requires the recognition of future
tax benefits, such as net operating loss and credit carryforwards, to the extent
that realization of such benefits is more likely than not.
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
--------------------------------------
<S> <C> <C> <C>
Federal:
Current $(50) $(1,842) $ (462)
Deferred -- -- 2,091
--------------------------------------
(50) (1,842) 1,629
Foreign:
Current 151 55 227
--------------------------------------
Provision (benefit) for income taxes $101 $(1,787) $1,856
======================================
</TABLE>
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
7. INCOME TAXES (CONTINUED)
For the year ended December 31, 1995 and the nine months ended December 31,
1994, the current federal benefit provision reflects the reversal of previously
accrued taxes. For the year ended March 31, 1994, the federal provision for
income taxes reflects the reversal of previously recorded deferred tax assets
for which realization was deemed not probable because of the Company's operating
loss. Foreign taxes represent taxes paid by the Company's European subsidiary.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
-------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 2,743 $ 2,743 $ 3,310
R & D credit carryforward 500 500 --
Depreciation and amortization 668 681 1,321
Inventory obsolescence provisions 3,438 4,453 1,229
Accrued liabilities 6,744 3,835 1,816
Others 160 160 551
-------------------------------------------
Total deferred tax assets 14,253 12,372 8,227
Valuation allowance (14,253) (12,372) (8,227)
-------------------------------------------
Total net deferred tax assets $ -- $ -- $ --
===========================================
</TABLE>
The Company has provided a full valuation allowance for deferred tax assets
based on an assessment of realization as a separate company, taking into
consideration the Company's history of operating losses.
The net change in the valuation allowance for the year ended March 31, 1994, was
a net increase of $5,693,000.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
7. INCOME TAXES (CONTINUED)
The Company is included in the consolidated federal income tax return of Time
Warner Inc. As a result, losses for income tax purposes of approximately
$20,000,000 and $6,000,000 generated in 1995 and 1994, respectively, have been
used in the consolidated returns to offset the consolidated income and are not
available as carryforwards.
At December 31, 1995, the Company has federal net operating loss carryforwards
for federal income tax purposes of approximately $7,800,000, expiring in 2008,
and research and development credit carryforwards of approximately $500,000,
expiring in 1998 through 1999. The credit and loss carryforwards are available
only to offset the separate income and tax liabilities of Time Warner
Interactive.
8. COMMON STOCK
On September 23, 1994, the Company's majority shareholder, Warner Communications
Inc., purchased the 21% of the Company's common stock that it did not already
own. In connection with this transaction, the entire amount of the then
outstanding common stock was converted into 100 shares of outstanding common
stock.
9. COMMITMENTS
The Company leases certain facilities under operating leases. Future operating
lease commitments are due as follows (in thousands):
Year ending December 31
-----------------------
1996 $ 2,490
1997 2,560
1998 2,678
1999 2,678
2000 2,174
2001 and thereafter 8,349
--------
20,929
Less sublease income (6,416)
--------
$14,513
========
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
9. COMMITMENTS (CONTINUED)
Rent expense was $1,274,000, $1,126,000 and $1,914,000 for the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994, respectively.
10. EMPLOYEE BONUS AND RETIREMENT PLANS
The Company maintains the Atari Games Corporation 401(k) Plan, which is a tax-
deferred savings and retirement plan covering all domestic employees. The
Company's contribution to the plan is based on matching employee deferred
contributions up to a certain specified level. Amounts contributed by the
Company to the plan were approximately $394,000, $204,000 and $309,000 for the
year ended December 31, 1995, the nine months ended December 31, 1994 and the
year ended March 31, 1995, respectively.
The Company's subsidiary in Ireland maintains a noncontributory defined benefit
pension plan covering substantially all of its employees. The plan provides
pension benefits based on each employee's years of credited service and average
earnings. The subsidiary's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements under Irish law. The plan
assets are invested primarily in equity and fixed income securities. The
pension cost for the Irish pension plan includes the following components:
1995 1994 1993
--------------------------------
Service cost for benefits earned during
the year $ 65,000 $ 45,000 $ 25,000
Interest cost on projected benefit
obligation 83,000 58,000 32,000
Actual return on plan assets (89,000) (64,000) (35,000)
--------------------------------
Net pension cost $ 59,000 $ 39,000 $ 22,000
================================
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
10. EMPLOYEE BONUS AND RETIREMENT PLANS (CONTINUED)
The funded status of the pension plan at December 31, 1995 is as follows:
1995
------------
Actuarial present value of accumulated benefit obligation:
Vested $ 475,000
Nonvested 90,000
------------
$ 565,000
============
Plan assets at fair value $1,140,000
Actuarial present value of projected benefit obligation (989,000)
------------
Plan assets in excess of projected benefit obligation 151,000
Unamortized balance of net pension transition asset (6,000)
Unrecognized net gain (loss) (100,000)
------------
Prepaid pension costs included in payroll-related accruals $ 45,000
============
The expected long-term rate of return on plan assets, the discount rate and the
rate of compensation increase, which are used in the accounting for defined
benefit plans, were 8.5%, 8% and 6% in 1995 and 8%, 8% and 6% in 1994.
11. LITIGATION
On March 24, 1994, the Company settled certain litigation with Nintendo of
America Inc. and its parent company, Nintendo Co., Ltd. ("Nintendo").
As part of the settlement, the Company paid $2.5 million to Nintendo
representing compensation for costs and expenses incurred in litigation. The
Company must also pay Nintendo $4 million, representing compensation for its
costs and expenses incurred in litigation, through a $1 surcharge on each
Nintendo platform product sold through December 31, 1998, subject to certain
minimum annual amounts. The Company accrued the future $4 million in other
accrued liabilities and other expense in the year ended March 31, 1994. The
parties also entered into a licensing agreement under which the Company may sell
video games that operate on the Nintendo video game platforms.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
11. LITIGATION (CONTINUED)
In addition, the Company paid $2.25 million to Atari Corporation, a related
company through minority ownership by the Parent Company, as an inducement for
executing a general release of Nintendo and the Company from future claims and
litigation. Both payments were funded by the Parent Company in exchange for a
promissory note from the Company. This promissory note was reclassified to
payable to the Parent Company in September 1995.
The Company is involved from time to time in other disputes and litigation in
the ordinary course of business. In the opinion of management, resolution of
these matters is not expected to have a material adverse effect on the financial
position of the Company. However, depending on the amount and timing, an
unfavorable resolution of a matter could materially affect the Company's future
results of operations or cash flows in a particular period.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes was $17,000 in 1995, $211,000 for the nine months
ended December 31, 1994 and $158,000 for the year ended March 31, 1994. Cash
paid for interest was $1,028,000 in 1995, $721,000 for the nine months ended
December 31, 1994 and $100,000 for the year ended March 31, 1994.
13. CHANGE IN ACCOUNTING PRINCIPLE
Effective April 1, 1994, the Company changed its accounting policy for the
treatment of prepaid royalty costs. The Company previously capitalized prepaid
royalties and expensed them as units were shipped. Under the new policy, the
Company expenses all prepaid royalties when paid. In the opinion of management,
the expensing of prepaid royalties when paid is a preferable method as it
increases the focus on controlling costs associated with the outside development
of titles and is a prevalent method in the Company's industry. The cumulative
effect of this change in accounting policy resulted in a charge to earnings of
$1,368,000 in the nine months ended December 31, 1994.
<PAGE>
Atari Games Corporation
(dba Time Warner Interactive)
Notes to Consolidated Financial Statements
14. SUBSEQUENT EVENT
On February 23, 1996, the Parent Company signed a Stock Purchase Agreement under
which it will sell all of the Company's outstanding common stock to Williams
Interactive Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WMS INDUSTRIES INC.
(Registrant)
April 11, 1996 By: /s/ Harold H. Bach, Jr.
----------------------------------
Harold H. Bach, Jr.
Vice President-Finance
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT DESCRIPTION
- ------- -----------
2(a) Stock Purchase Agreement dated as of February 23, 1996 between Warner
Communications, Inc. ("Warner") and Williams Interactive Inc.
("Williams).
2(b) Letter Agreement dated March 29, 1996 between Warner and Williams.
2(c) Form of Two-Year Promissory Note to be made by Williams in favor of
Warner in the original principal amount of 10/28th of the balance of
the purchase price ("Note A").
2(d) Form of Security Agreement (Note A) between Warner and Williams.
2(e) Form of Four-Year Promissory Note to be made by Atari Games
Corporation ("Atari Games") in favor of Warner in the original
principal amount of 18/28th of the balance of the purchase price
("Note B").
2(f) Form of Security Agreement (Note B) between Warner and Atari Games.
2(g) Indemnity Agreement dated March 29, 1996 made by Atari Games in favor
of Warner.
23 Consent of Ernst & Young LLP.
99(a) Press release, dated March 5, 1996.
99(b) Press release, dated April 1, 1996.
<PAGE>
EXHIBIT 2(a)
STOCK PURCHASE AGREEMENT
between
WARNER COMMUNICATIONS INC., seller
and
WILLIAMS INTERACTIVE INC., buyer
February 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. DEFINITIONS........................................................ 2
2. SALE AND PURCHASE OF............................................... 12
2.1 Purchase of Shares.......................................... 12
2.2 Purchase Price.............................................. 13
2.3 Interim Balance Sheet....................................... 13
2.4 Determination of Final Net Asset Value...................... 14
2.4.1 Final Balance Sheet.................................. 14
2.4.2 Certification........................................ 14
2.4.3 Disputes............................................. 15
2.4.4 Interim Note Replacements............................ 16
3. CLOSING AND TERMINATION............................................ 16
3.1 Closing..................................................... 16
3.2 Transactions on the Closing Date............................ 16
3.3 Termination................................................. 17
4. REPRESENTATIONS AND WARRANTIES OF SELLER........................... 18
4.1 Organization of Seller and the Subsidiaries................. 19
4.2 Power and Authority......................................... 20
4.3 Capitalization of the Company; Ownership.................... 22
4.4 Capitalization of the Subsidiaries; Ownership............... 22
4.5 Government Approval......................................... 23
4.6 Financial Statements........................................ 23
4.6.1 Audited Financial Statements................................ 23
4.6.2 Unaudited Financial Information............................. 24
4.6.3 Interim Balance Sheet....................................... 25
4.7 Absence of Certain Changes or Events........................ 25
4.8 Title In or Rights To Intellectual Property................. 27
4.9 Title to Properties; Absence of Liens and Encumbrances...... 29
4.10 Inventory................................................... 31
4.11 Accounts Receivable......................................... 31
4.12 Insurance................................................... 33
4.13 Customers and Suppliers..................................... 33
4.14 Absence of Undisclosed Liabilities.......................... 34
4.15 Taxes....................................................... 34
4.16 Litigation.................................................. 36
4.17 Compliance with Law......................................... 36
4.18 Contracts................................................... 37
4.19 Brokers and Finders......................................... 39
4.20 Collective Bargaining Agreements and Labor.................. 39
4.21 Employees................................................... 41
4.22 ERISA....................................................... 41
4.23 Environmental Matters....................................... 44
4.24 Information Concerning the Company and the Subsidiaries..... 46
4.25 TWIL........................................................ 46
4.26 Bank Accounts............................................... 46
4.27 Officers and Directors...................................... 46
4.28 Accuracy of Information..................................... 46
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4.29 Disclaimer of Other Representations and Warranties;
Knowledge; Disclosure....................................... 47
5. REPRESENTATIONS AND WARRANTIES OF BUYER............................ 49
5.1 Organization and Authority of Buyer......................... 49
5.2 Government Approval......................................... 50
5.3 Financial Ability to Perform................................ 50
5.4 Brokers and Intermediaries.................................. 50
5.5 Investment Intent Regarding the Shares and the
Subsidiaries' Shares........................................ 51
6. CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND BUYER............... 51
6.1 Access and Information...................................... 51
6.2 Conduct of Business; Inter-company Accounts................. 52
6.3 Environmental Report........................................ 56
6.4 Regulatory Filings/Hart-Scott-Rodino........................ 56
6.5 Tax Matters................................................. 57
6.6 Affiliate Obligations....................................... 61
6.7 Books and Records........................................... 62
6.8 Announcement................................................ 63
6.9 Use of Names................................................ 63
6.10 Restrictive Covenants....................................... 64
6.10.1 Non-Competition............................................. 64
6.10.2 Non-Solicitation............................................ 65
6.10.3 Affiliate Veto Power........................................ 65
6.10.4 Rights and Remedies Upon Breach............................. 66
6.10.5 Severability of Covenant.................................... 66
6.11 Commercially Reasonable Efforts............................. 67
6.12 Notice of Certain Information............................... 67
6.13 Working Capital............................................. 67
6.14 Audited Financial Statements................................ 69
6.15 Compliance With Gaming Laws................................. 69
6.16 Code Section 338 Election................................... 71
6.17 Buyer Cooperation........................................... 72
6.18 Consents.................................................... 73
6.19 Public Announcement......................................... 74
6.20 Disposition of TWIL......................................... 74
6.21 Assignments by TWIL......................................... 74
7. CONDITIONS PRECEDENT OF SELLER..................................... 75
7.1 Representations and Warranties.............................. 75
7.2 Agreements.................................................. 75
7.3 Buyer Certificate; Payment.................................. 75
7.4 No Injunction............................................... 76
7.5 Government Approval......................................... 76
7.6 Miscellaneous Closing Deliveries............................ 77
8. CONDITIONS PRECEDENT OF BUYER...................................... 77
8.1 Representations and Warranties.............................. 77
8.2 Agreements.................................................. 78
8.3 Seller Certificate.......................................... 78
8.4 Interim Balance Sheet....................................... 78
8.5 Environmental Reviews....................................... 78
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
8.6 No Injunction............................................... 79
8.7 Government Approval......................................... 79
8.8 Financial Statements........................................ 80
8.9 Consents.................................................... 80
8.10 Instruments of Transfer..................................... 81
8.11 Books of Account............................................ 81
8.12 Resolutions................................................. 81
8.13 Incumbency Certificates..................................... 82
8.14 Certificates of Incorporation............................... 82
8.15 By-laws..................................................... 82
8.16 Good Standing Certificates.................................. 82
8.17 Resignations of Officers and Directors...................... 83
8.18 Disposition of TWIL......................................... 83
8.19 WEA Distribution Agreement.................................. 83
8.20 WIE License Agreement....................................... 83
8.21 Miscellaneous Closing Deliveries............................ 83
8.22 Further Documents........................................... 84
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; CERTAIN
ACKNOWLEDGMENTS.................................................... 84
9.1 Survival of Representations and Warranties of Seller........ 84
9.2 Information................................................. 85
10. INDEMNIFICATION.................................................... 86
10.1 Indemnification of Buyer and its Affiliates by Seller....... 86
10.2 Liabilities included in Indemnification..................... 89
10.3 Limitations on Indemnification by Seller.................... 91
10.4 Indemnification of Seller by Buyer.......................... 92
10.5 Notice and Defense of Claims................................ 93
11. MISCELLANEOUS...................................................... 96
11.1 Further Assurances.......................................... 96
11.2 Expenses.................................................... 96
11.3 Applicable Law.............................................. 97
11.4 Notices..................................................... 97
11.5 Entire Agreement............................................ 98
11.6 Amendments.................................................. 98
11.7 Headings; References........................................ 98
11.8 Counterparts................................................ 98
11.9 Parties in Interest; Assignment............................. 99
11.10 Severability; Enforcement................................... 99
11.11 Jurisdiction................................................ 99
11.12 Waiver...................................................... 100
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT dated as of February 23, 1996, (the "Agreement"),
between Warner Communications Inc., a Delaware corporation ("Seller"), and
Williams Interactive Inc., a Delaware corporation ("Buyer").
RECITALS
Seller is the sole record and beneficial owner of all issued and
outstanding shares of capital stock (the "Shares") of Atari Games Corporation, a
California corporation (the "Company"); and
The Company and the Subsidiaries are engaged, among other things, in the
business of developing, manufacturing, marketing, licensing, publishing and
selling coin-operated video arcade games and interactive electronic
entertainment products for use with, among other things, home video games for
dedicated game cartridge systems and personal computer CD-ROM platforms (the
"Business"); and
Upon the terms and subject to the conditions hereinafter set forth, Seller
desires to sell and Buyer desires to purchase the Shares from Seller.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein,
and in reliance upon the representations and warranties made herein, the parties
hereto hereby agree as follows:
<PAGE>
ARTICLE I
1. DEFINITIONS
1.1 The following terms as used in this Agreement shall have the meanings
set forth below:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person.
"Agreement" shall have the meaning set forth in the preamble.
"Audited Financial Statements" shall have the meaning set forth in Section
4.6.1 hereof.
"Business" shall have the meaning set forth in the second recital.
"Buyer" shall have the meaning set forth in the preamble.
"Cash Payment" shall have the meaning set forth in Section 2.2 hereof.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended.
"CERCLIS" shall have the meaning set forth in Section 4.23.5 hereof.
"Certified Final Balance Sheet" shall have the meaning set forth in Section
2.4.3 hereof.
"Closing" shall have the meaning set forth in Section 3.1 hereof.
"Closing Date" shall have the meaning set forth in Section 3.1 hereof.
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Coin-op Business" shall have the meaning set forth in Section 6.10.1
hereof.
"Company" shall have the meaning set forth in the first recital.
"Confidentiality Agreement" means that certain agreement between Time
Warner Inc. and Williams Electronics Games Inc. dated October 23, 1995 pursuant
to which, among other things, the parties thereto agreed to maintain certain
information in confidence and not to disclose such information, as provided
therein.
"Conflicting Agreements" shall have the meaning set forth in Section 6.18
hereof.
"December 31, 1995 Financial Statements" means the unaudited consolidated
balance sheet of the Company and the Subsidiaries at December 31, 1995 and
related statements of income and cash flows for the period January 1, 1995
through December 31, 1995, copies of which were heretofore delivered to Buyer.
"Disclosure Schedule" means the disclosure schedule dated as of the date
hereof delivered by Seller to Buyer concurrently herewith setting forth certain
matters referred to in this Agreement and which has been executed by the parties
hereto.
"Environmental Law" means any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, or policy or rule of common law in
effect on the date hereof or on the Closing Date and any judicial or
administrative interpretation
3
<PAGE>
thereof in effect on the date hereof or on the Closing Date relating to
pollution or protection of the environment.
"Environmental Permit" shall have the meaning set forth in Section 10.2.5
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Examination Date" shall have the meaning set forth in Section 2.3 hereof.
"Expense" shall have the meaning set forth in Section 10.1 hereof.
"Final Balance Sheet" means the audited consolidated balance sheet to be
prepared as set forth in Section 2.4.1 hereof reflecting the consolidated
financial position of the Company and the Subsidiaries as of the Closing Date.
"Final Deferred Amount" means the Final Net Asset Value minus the Cash
Payment.
"Final Four Year Note" means the promissory note made by the Company in
favor of Seller, dated the Closing Date, in the original principal amount equal
to the product of the Final Deferred Amount times the fraction 18/28, in the
form of Exhibit A to the Disclosure Schedule, the obligations thereunder being
secured in accordance with the Four Year Security Agreement.
"Final Net Asset Value" means the Net Asset Value as it exists as of the
Closing Date as reflected on and computed from the Certified Final Balance
Sheet.
4
<PAGE>
"Final Two Year Note" means the promissory note made by Buyer in favor of
Seller dated the Closing Date, in the original principal amount equal to the
product of the Final Deferred Amount times the fraction 10/28, in the form of
Exhibit B to the Disclosure Schedule, the obligations thereunder being secured
in accordance with the Two Year Security Agreement.
"Four Year Security Agreement" means the security agreement dated the
Closing Date duly executed by an authorized officer of the Company,
substantially in the form of Exhibit C to the Disclosure Schedule.
"Gaming Laws" shall have the meaning set forth in Section 6.15 hereof.
"GTI" shall have the meaning set forth in the Section 6.18 hereof.
"Hazardous Material" means any "hazardous substance", as defined by CERCLA,
any "hazardous waste", as defined by the Resource Conservation and Recovery Act,
as amended, any petroleum product, or any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material or substance within the meaning of any
other applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders) relating to or
imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or material, all as amended.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
5
<PAGE>
"Income Tax" means any Taxes measured, in whole or in part, by net or gross
income or profits.
"Indemnity Agreement" means the indemnity agreement dated the Closing Date
made by the Company in favor of the Seller, substantially in the form of Exhibit
D to the Disclosure Schedule.
"Inter-company Accounts" means any intercompany debits, credits or accounts
between the Company or any Subsidiary on the one hand and Seller and/or any
Affiliate(s) of Seller (other than the Company and the Subsidiaries) on the
other hand, exclusive, however, of any intercompany debits, credits or accounts
of the Company or any Subsidiary of Seller or any other Affiliate of Seller
arising out of or in connection with (i) the WEA Distribution Agreement or the
WIE License Agreement and set forth on the December 31, 1995 Financial
Statements or arising thereafter in the ordinary course of business; or (ii) any
other agreement separately identified as an agreement with an Affiliate on
Schedule 4.18 of the Disclosure Schedule relating to the manufacture,
distribution or sale of any product of the Business by or through Seller or an
Affiliate (other than the Company or a Subsidiary) of Seller.
"Interim Balance Sheet" means the unaudited consolidated balance sheet of
the Company and the Subsidiaries to be prepared in accordance with Section 2.3
hereof which reflects an estimate of the financial position of the Company and
the Subsidiaries as of the Closing Date and after capitalization of the
Intercompany Accounts as provided in Section 6.2.3 hereof, prepared in good
6
<PAGE>
faith, in conformity with U.S. GAAP utilizing the most recent financial
information available, consistent with the methodology, assumptions and criteria
for calculation and valuation of assets and liabilities used or employed in the
creation of the December 31, 1995 Financial Statements and otherwise in
accordance with this Agreement.
"Interim Deferred Amount" means the Interim Net Asset Value minus the Cash
Payment.
"Interim Four Year Note" means the promissory note made by the Company in
favor of Seller, dated the Closing Date, in the original principal amount equal
to the product of the Interim Deferred Amount times the fraction 18/28, in the
form of Exhibit A to the Disclosure Schedule, the obligations thereunder being
secured in accordance with the Four Year Security Agreement.
"Interim Net Asset Value" means an estimate of Net Asset Value as reflected
on and computed from the Interim Balance Sheet.
"Interim Two Year Note" means the promissory note made by Buyer in favor of
Seller dated the Closing Date, in the original principal amount equal to the
product of the Interim Deferred Amount times the fraction 10/28, in the form of
Exhibit B to the Disclosure Schedule, the obligations thereunder being secured
by the Two Year Security Agreement.
"International Nintendo Licenses" means (i) the International SNES License
Agreement dated June 23, 1994 between Nintendo Co., Ltd. and Atari Overseas Ltd.
a/k/a Time Warner Interactive Limited and (ii) the International Game Boy
License
7
<PAGE>
Agreement dated June 23, 1994 between Nintendo Co., Ltd. and Atari Overseas
Services, Ltd. a/k/a Time Warner Interactive Limited.
"Inventory" means all items of inventory notwithstanding how classified in
the Company's or the Subsidiaries' financial records, including all completed
consumer and/or coin-op market products on hand, all completed devices for the
consumer and/or coin-op markets, and including, without limitation, all raw
materials, works-in-process, alpha-and/or beta-test versions of actual or
potential products, finished goods, supplies, spare parts, samples in stores,
regardless of where located or stored.
"Liabilities" means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including, without limitation, those arising under any law, action
or governmental order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Loss" shall have the meaning set forth in Section 10.1 hereof.
"MADSP" shall have the meaning set forth in Section 6.16 hereof.
"Material Adverse Effect" means a material adverse effect on the value of
the business of the Company and the Subsidiaries or the extent or amount of the
exposure to liability presented by the Liabilities of the Company and the
Subsidiaries, taken as a whole.
"Multiemployer Plan" shall have the meaning set forth in Section 4.22.1
hereof.
8
<PAGE>
"Net Asset Value" means the consolidated assets minus the consolidated
liabilities of the Company as determined in accordance with U.S. GAAP. In
determining Net Asset Value, any amounts paid by the Company or the Subsidiaries
prior to the Closing Date pursuant to a termination or restructuring event in
accordance with Section 6.2.2 hereof shall be added back to the assets and any
liability accrued in respect of such termination or restructuring event shall be
disregarded.
"Offering Memorandum" shall have the meaning set forth in Section 4.29.1
hereof.
"Panasonic" shall have the meaning set forth in Section 6.18 hereof.
"Person" means an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
"Plans" shall have the meaning set forth in Section 4.22.1 hereof.
"Pre-Closing Period" means any tax period ending on or prior to the Closing
Date.
"Purchase Price" shall have the meaning set forth in Section 2.2 hereof.
"Returns" shall have the meaning set forth in Section 4.15 hereof.
"Security Agreements" means the Four Year Security Agreement and the Two
Year Security Agreement.
9
<PAGE>
"Seller" shall have the meaning set forth in the preamble.
"Seller's Cap" shall have the meaning set forth in Section 10.3.2 hereof.
"Seller's Basket" shall have the meaning set forth in Section 10.3.2
hereof.
"Shares" shall have the meaning set forth in the first recital.
"Subsidiaries" means, collectively, all of the following companies:
(a) TWIC;
(b) Atari Games Ireland Ltd., an Ireland corporation; and
(c) K.K. Time Warner Interactive, a Japan corporation (each a
"Subsidiary").
"Subsidiaries' Shares" means, with respect to each of the Subsidiaries,
all of the issued and outstanding capital stock of each such Subsidiary.
"Tax" or "Taxes" means all taxes and similar governmental charges,
imposts, levies, fees and assessments, however denominated (including income
taxes, franchise taxes, net worth taxes, capital taxes, estimated taxes,
withholding taxes, use taxes, gross or net receipts taxes, sales taxes, transfer
taxes or fees, excise taxes, real and personal property taxes, ad valorem taxes,
payroll related taxes, employment taxes, unemployment insurance, social security
taxes, minimum taxes and import duties and other obligations of the
10
<PAGE>
same or similar nature) together with any related liabilities, penalties, fines,
addition to tax or interest imposed by the United States or any federal, state,
county, provincial, local or foreign government or subdivision or agency of any
thereof.
"TWIC" means Time Warner Interactive (California) Inc., a California
corporation, all of the shares of which are owned as of the date hereof by the
Company.
"Tax Accrual" means the Tax accrual or any portion thereof in the amount of
approximately US$2,200,000 relating to periods prior to 1995 which was reflected
in the December 31, 1995 Financial Statements.
"TWIL" means Time Warner Interactive Ltd., a United Kingdom corporation all
of the issued and outstanding capital stock of which is owned on the date hereof
by the Company, and which shall be disposed of by the Company prior to Closing
Date in accordance with Section 6.20 hereof.
"Two Year Security Agreement" means the security agreement dated the
Closing Date, duly executed by an authorized officer of Buyer, and substantially
in the form of Exhibit E to the Disclosure Schedule.
"U.S. GAAP" means generally accepted accounting principles and practices in
effect in the United States as of the date of the report or statement in issue,
applied consistently throughout the periods involved.
"WARN Act" means the Worker Adjustment and Retraining Notification Act of
1988, as amended.
11
<PAGE>
"WEA Distribution Agreement" means that certain agreement dated August 25,
1995 between TWIC and Warner Elektra - Atlantic Corporation ("WEA"), an
Affiliate of Seller, pursuant to which, among other things, WEA has the right to
distribute and sell in the United States and Canada the Company's products
entitled "Primal Rage" and "Wayne Gretzky and the NHLPA All-Stars" for any PC
CD-ROM platform listed on Schedule 4.18 of the Disclosure Schedule.
"WIE License Agreement" means that certain agreement dated January 1, 1996
between TWIC and Warner Interactive Entertainment Ltd. ("WIE"), an Affiliate of
Seller, pursuant to which, among other things, WIE has the right to distribute
and sell in the territories of Europe certain of the Company's products,
including, without limitation, those entitled "Constructor," and "Return Fire,"
as supplemented by the side letter dated January 1, 1996 relating thereto, both
of which are listed on Schedule 4.18 of the Disclosure Schedule.
"Working Capital" shall have the meaning set forth in Section 6.13 hereof.
"Working Capital Assets" shall have the meaning set forth in Section 6.13
hereof.
"1933 Act" shall have the meaning set forth in Section 5.5 hereof.
ARTICLE II
2. SALE AND PURCHASE OF SHARES
2.1 Purchase of Shares. Upon the terms and subject to the conditions
contained herein and the performance by the parties
12
<PAGE>
hereto of their respective obligations hereunder, on the Closing Date, Seller
shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall
purchase and accept the Shares.
2.2 Purchase Price. The purchase price for the Shares shall be the total
of the Final Net Asset Value plus any additional capital contribution required
to be made by Seller pursuant to Section 6.13 hereof if not otherwise included
in the Final Net Asset Value (the "Purchase Price") as the same may be adjusted
as set forth herein. At the Closing, the Purchase Price shall be paid as
follows: (i) US$2,000,000 (the "Cash Payment") shall be paid by Buyer by wire
transfer as provided in Section 3.2.2.1; (ii) Buyer shall cause the Company to
execute and deliver to Seller the Interim Four Year Note; and (iii) Buyer shall
execute and deliver to Seller the Interim Two Year Note.
2.3 Interim Balance Sheet. Seller shall engage the firm of Ernst & Young
LLP to perform agreed upon procedures with respect to balance sheet information
as of a date (the "Examination Date") at least ten but no more than 20 days
prior to the Closing Date. At least ten days prior to the Closing Date, Seller
shall prepare and deliver to Buyer the Interim Balance Sheet together with a
certificate of Seller's Chief Financial Officer certifying that the Interim
Balance Sheet has been prepared in accordance with this Agreement. At the
Closing, Seller shall deliver a report of findings prepared in accordance with
Statement of Auditing Standards No. 75, Engagements to Apply Agreed-Upon
Procedures to Specified Elements, Accounts, or Items of a Financial Statement by
13
<PAGE>
Ernst & Young LLP based on specific procedures on specified accounts of the
Interim Balance Sheet as of the Examination Date. Schedule 2.3 of the Disclosure
Schedule identifies the accounts of the Interim Balance Sheet and the procedures
to be performed on such accounts by Ernst & Young LLP as of the Examination Date
in the preparation of such report.
2.4 Determination of Final Net Asset Value. The Purchase Price shall be
determined as follows:
2.4.1 Final Balance Sheet. Within 90 days after the Closing Date,
Buyer shall cause the Company to prepare the Final Balance Sheet. Buyer shall
prepare or cause to be prepared the Final Balance Sheet using and employing
methodology, assumptions and criteria for calculation and valuation of assets
and liabilities in accordance with U.S. GAAP applied in a manner consistent with
the Company's consolidated balance sheet at December 31, 1995 which is included
in the Audited Financial Statements delivered in accordance with Section 6.14
hereof. Buyer acknowledges that the Final Balance Sheet and the Certified Final
Balance Sheet shall not include the Tax Accrual. Seller will promptly reimburse
Buyer for one-half of any reasonable costs and expenses incurred by Buyer with
respect to services rendered by a Person other than Buyer and its Affiliates in
connection with the preparation of the Final Balance Sheet.
2.4.2 Certification. Buyer shall deliver the Final Balance Sheet to
Seller no later than 90 days following the Closing Date. Seller shall engage the
firm of Ernst & Young LLP, or if
14
<PAGE>
unavailable another firm of certified public accountants reasonably acceptable
to Seller and Buyer, to certify without qualification, other than a
qualification with respect to the Company's ability as an independent Company to
continue as a going concern, that the Final Balance Sheet (i) comports with U.S.
GAAP and (ii) was prepared using and employing the methodology, assumptions and
criteria required under Section 2.4.1 hereof. Seller shall deliver to Buyer
promptly upon receipt a draft of the proposed certification of the Final Balance
Sheet, together with any adjustments or qualifications thereto required for
Seller's accountants to so certify the Final Balance Sheet.
2.4.3 Disputes. The draft of the proposed certification of the Final
Balance Sheet shall be deemed final, binding and conclusive upon the parties
hereto (the "Certified Final Balance Sheet") unless Buyer delivers a written
notice to Seller hereunder within ten business days of its receipt of the draft
Certified Final Balance Sheet that Buyer disputes any terms or items thereof.
Buyer's sole bases for such disputes shall be that the adjustments or
qualifications to the Final Balance Sheet contained in the draft Certified Final
Balance Sheet do not comport with (i) U.S. GAAP or (ii) vary from the
methodology, assumptions and criteria used or employed in connection with the
creation of the Interim Balance Sheet. In the event of such a dispute,
representatives of Seller and Buyer will attempt for a period of 20 business
days after Seller's receipt of Buyer's notice of dispute to resolve in good
faith the disputed item(s) on a basis consistent with the Interim
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Balance Sheet and, failing such resolution, the unresolved disputed term(s) or
item(s) shall be referred for final binding resolution to a partner in the New
York City office of a nationally recognized firm of certified public accountants
mutually acceptable to Buyer and Seller whose determination shall be final,
binding and conclusive on the parties hereto. At the time that the Certified
Final Balance Sheet shall be deemed final and binding, Seller shall use its best
efforts to cause the firm of Ernst & Young LLP to issue its certification.
2.4.4 Interim Note Replacements. The Interim Two Year Note and the
Interim Four Year Note shall be replaced by the Final Two Year Note and the
Final Four Year Note within five days after issuance of the Certified Final
Balance Sheet.
ARTICLE III
3. CLOSING AND TERMINATION
3.1 Closing. The closing of the transactions provided for herein (the
"Closing") will take place at the offices of Time Warner Inc. at 75 Rockefeller
Plaza, New York, New York, at 10:00 a.m. (local time) on March 15, 1996 or at
such other date, time and place as Seller and Buyer shall agree, provided
however, that such other date shall be within two days after the satisfaction or
waiver of the conditions precedent set forth in Articles 7 and 8 hereof (the
date of the Closing being the "Closing Date").
3.2 Transactions on the Closing Date.
3.2.1 At the Closing, Seller shall deliver to Buyer the following:
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3.2.1.1 a stock certificate or stock certificates, evidencing
the Shares, in each case endorsed in blank for transfer or with separate stock
powers sufficient to transfer all of Seller's right title and interest in and to
the Shares to Buyer and to vest good and marketable title to the Shares in
accordance with the terms of this Agreement;
3.2.1.2 each of the certificates and other documents
contemplated by Article VIII hereof.
3.2.2 At the Closing, Buyer shall deliver or cause to be delivered to
Seller the following:
3.2.2.1 by wire transfer in immediately available funds to the
account designated by Seller, the Cash Payment as provided in Section 2.2
hereof;
3.2.2.2 the Interim Four Year Note;
3.2.2.3 the Interim Two Year Note;
3.2.2.4 the Four Year Security Agreement;
3.2.2.5 the Two Year Security Agreement;
3.2.2.6 the Indemnity Agreement;
3.2.2.7 the report of Ernst & Young LLP as provided for in
Section 2.3 hereof; and
3.2.2.8 each of the certificates and other documents
contemplated by Article VII hereof.
3.3 Termination. Notwithstanding anything to the contrary contained in
this Agreement other than this Section 3.3, this Agreement may be terminated at
any time as follows:
3.3.1 by mutual consent of Seller and Buyer;
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3.3.2 by either Seller or Buyer, if the transactions contemplated
hereby are not consummated on or before April 30, 1996 (or such later date the
parties hereto may agree upon in writing) by reason of the failure or inability
of the other party to fulfill or comply with the conditions it is obligated
hereunder to fulfill or comply with by or on the Closing Date, unless such
failure is the result of a breach of any obligation of the party seeking
termination hereunder.
3.3.3 If this Agreement is terminated by mutual consent or other than
by reason of a party's default, then neither party shall have a claim against
the other for damages as a result of the termination. A party rightfully
terminating this Agreement as a result of the other party's breach shall retain
any claim it may have for damages arising from such breach, including without
limitation any claims it may have for reimbursement of all costs and expenses
incurred in connection with or incident to its negotiations concerning the
possible acquisition of the Shares, its negotiation and preparation of this
Agreement, and/or its performance under and compliance with all agreements and
conditions contained herein on its part to be performed or complied with,
including the fees, expenses and disbursements of its counsel, accountants and
financial advisors.
ARTICLE IV
4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby, represents and warrants to Buyer the following:
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4.1 Organization of Seller and the Subsidiaries.
4.1.1 Each of Seller and the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation as set forth above and has all requisite power
and authority, corporate or otherwise, to own, lease, use and operate its
properties and assets at and in the places where such properties and assets are
now owned, operated or leased and to transact its business where it is now
conducted. Complete and correct copies of the Certificate of Incorporation of
the Company and all amendments thereto and of the By-laws and all amendments
thereto have been heretofore delivered to Buyer. The Company is duly qualified
to do business and is in good standing in each jurisdiction (all of which are
set forth on Schedule 4.1 of the Disclosure Schedule) where it owns, leases or
holds real property or conducts or operates its business or where the nature of
its activities requires such qualification except where the failure to so
qualify would not have a Material Adverse Effect. The Company has not taken any
action and has not failed to take any action, which action or failure would
preclude or prevent the Company after the Closing from conducting the Business
substantially in the manner heretofore conducted. Except for the Subsidiaries'
Shares the Company does not own any capital stock or any other equity interest
in any other Person.
4.1.2 Each of the Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, as set forth on Schedule
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4.1 of the Disclosure Schedule, and each has all requisite power and authority,
corporate or otherwise, to own, lease, use and operate its properties and assets
at and in the places where such properties and assets are now owned, operated or
leased and to transact its business where it is now conducted. Complete and
correct copies of the Certificate of Incorporation or equivalent of each
Subsidiary and all amendments thereto, and of the By-laws or equivalent
governing documents of each Subsidiary, and all amendments thereto, have been
heretofore delivered to Buyer. Each Subsidiary is duly qualified to do business
and is in good standing in each jurisdiction (all of which are set forth on
Schedule 4.1 of the Disclosure Schedule) where it owns, leases or holds real
property or conducts or operates its business where the nature of its activities
requires such qualification except where the failure to so qualify would not
have a material adverse effect on the business, assets or results of operations
of such Subsidiary. None of the Subsidiaries has taken any action or has failed
to take any action, which action or failure would preclude or prevent Buyer from
conducting the Business substantially in the manner heretofore conducted. None
of the Subsidiaries owns any capital stock or any other equity interest in any
other person.
4.2 Power and Authority.
4.2.1 Seller possesses the power and authority, corporate and
otherwise, to enter into this Agreement and the documents and instruments
contemplated hereby, to assume and
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perform its respective obligations hereunder and thereunder, and to comply with
the terms, conditions and provisions hereof.
4.2.2 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of Seller. This
Agreement and the Disclosure Schedule have been duly executed and delivered by
Seller and constitute valid and binding obligations of Seller, enforceable in
accordance with their terms.
4.2.3 Except as set forth on Schedule 4.2 of the Disclosure Schedule,
none of Seller, the Company or the Subsidiaries is subject to or bound by any
provision of
(i) its Articles or Certificate of Incorporation or By-laws or other
governing documents;
(ii) any law, statute, rule, regulation or judicial or
administrative decision;
(iii) any mortgage, deed of trust, lease, note, shareholders'
agreement, bond, indenture, license, permit, trust; or
(iv) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator;
that would prevent or be violated by, or under which there would be a default as
a result of, nor is the consent of any Person under any contract or agreement
which has not been obtained required for, the execution, delivery and
performance by Seller of this Agreement
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and the transactions contemplated hereby, other than notification pursuant to
the HSR Act.
4.3 Capitalization of the Company; Ownership.
4.3.1 Schedule 4.3 of the Disclosure Schedule sets forth all of the
authorized and outstanding capital stock of the Company. Seller owns 100% of
the Shares free and clear of any and all security interests, liens, pledges,
claims, charges, escrows, encumbrances, options, rights of first refusal,
mortgages, indentures, security agreements or other contracts (whether or not
relating in any way to credit or the borrowing of money) and Seller has the
unrestricted right to vote the Shares.
4.3.2 The Shares are duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding options, warrants or other rights of
any kind to acquire any additional shares of capital stock of the Company or
securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any such additional shares, nor is the
Company committed to issue any such option, warrant, right or security.
4.4 Capitalization of the Subsidiaries; Ownership.
4.4.1 Schedule 4.4 of the Disclosure Schedule sets forth all of the
authorized and outstanding capital stock of each of the Subsidiaries and
the name of each registered holder of the Subsidiaries' Shares. The
Company owns 100% of the Subsidiaries' Shares free and clear of any and all
security interests, liens, pledges, claims, charges, escrows, encumbrances,
options, rights of
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first refusal, mortgages, indentures, security agreements or other contracts
(whether or not relating in any way to credit or the borrowing of money) and the
Company has the unrestricted right to vote the Subsidiaries' Shares, except as
noted on Schedule 4.4 of the Disclosure Schedule.
4.4.2 The Subsidiaries' Shares are duly authorized, validly issued,
fully paid and non-assessable. There are no outstanding options, warrants or
other rights of any kind to acquire any additional shares of capital stock of
the Subsidiaries or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such additional
shares, nor is the Company or any Subsidiary committed to issue any such option,
warrant, right or security.
4.5 Government Approval. Except as contemplated by Section 6.4 hereof, no
action, approval, consent, authorization or other action including, but not
limited to, any action, approval, consent or authorization by or filing with any
governmental or quasi-governmental agency, commission, board, bureau or
instrumentality is necessary or required as to Seller, the Company or any
Subsidiary for the due execution, delivery or performance by Seller of this
Agreement or any document or instrument contemplated hereby.
4.6 Financial Statements.
4.6.1 Audited Financial Statements. Seller has heretofore furnished
Buyer with copies of audited consolidated financial statements of the
Company and the Subsidiaries for the
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fiscal year ended March 31, 1994 and, in accordance with Section 6.14 hereof,
shall furnish Buyer with copies of audited consolidated financial statements of
the Company and the Subsidiaries for the nine months and fiscal year ended
December 31, 1994 and December 31, 1995 (collectively, the "Audited Financial
Statements"), including balance sheets and statements of results of operations
and cash flows for the periods then ended. Each of the Audited Financial
Statements is or shall be prepared in accordance with the books and records of
the Company and the Subsidiaries as of the dates and for the periods indicated,
has been or will be prepared in conformity with U.S. GAAP, and fairly present or
when furnished to Buyer will fairly present, the consolidated financial position
of the Company and the Subsidiaries at such dates and the results of their
operations for the periods then ended. All of the operations of the Company and
the Subsidiaries, to the extent they existed at the relevant dates, are included
in the Audited Financial Statements.
4.6.2 Unaudited Financial Information. Seller has heretofore
furnished Buyer with copies of the December 31, 1995 Financial Statements.
Except as set forth on Schedule 4.6 to the Disclosure Schedule, the December 31,
1995 Financial Statements have been prepared from the books and records of the
Company and the Subsidiaries, have been prepared in accordance with U.S. GAAP,
and fairly present the financial condition of the Company and the Subsidiaries
as of such date.
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4.6.3 Interim Balance Sheet. The Interim Balance Sheet shall be
prepared in accordance with U.S. GAAP applied on a basis consistent with the
December 31, 1995 Financial Statements.
4.7 Absence of Certain Changes or Events. Between December 31, 1995, and
the date of this Agreement, except as noted on Schedule 4.7 of the Disclosure
Schedule, there have been no adverse changes in the condition (financial or
otherwise) of the assets, liabilities, earnings, properties, Business of the
Company and the Subsidiaries as a whole. Except as set forth on Schedule 4.7
hereto, since December 31, 1995 the Business has been conducted only in the
ordinary course and neither the Company nor any Subsidiary has:
4.7.1 sustained any damage, destruction or other casualty loss,
whether or not covered by insurance, in excess of US$25,000; or
4.7.2 made any increase in (i) the rate of compensation payable to or
to become payable by the Company or the Subsidiaries to any of its officers
directors, employees, salesmen, distributors or agents, or (ii) any bonus,
pension or other employee benefit plan, payment or arrangement made by the
Company or any of the Subsidiaries for or with any such persons except, in
each case, for increases in the ordinary course of business (which shall
include without limitation normal periodic performance reviews and related
compensation and benefit increases); or
4.7.3 incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due,
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except current liabilities incurred in the ordinary course of business
consistent with prior practice; or
4.7.4 mortgaged, pledged, granted any lien or other encumbrance or
charge on any property, business or assets, tangible or intangible; or
4.7.5 sold, transferred, leased to others or made any other
disposition of any assets, except for inventory sold in the ordinary course of
business; cancelled or compromised any substantial debt or claim, or waived or
released any right of substantial value; or
4.7.6 received any notice of termination of any material contract,
lease or other agreement;
4.7.7 transferred or granted any rights under, or made any settlement
regarding the breach or infringement of, any intellectual property, or modified
any existing rights with respect thereto;
4.7.8 failed to replenish its inventories and supplies in a normal and
customary manner consistent with its prior practice or made any purchase
commitment in excess of the normal, ordinary and usual requirements of the
Business or at any price in excess of the then current market price or upon
terms and conditions more onerous than those usual and customary in the
industry, or made any change in its selling, pricing, advertising or personnel
practices inconsistent with prior practice;
4.7.9 made any capital expenditures or capital additions or
improvements in excess of an aggregate of US$25,000;
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4.7.10 instituted, settled or agreed to settle any litigation, action
or proceeding before any court or governmental body other than in the ordinary
course of business consistent with past practices but not in any case involving
amounts in excess of US$50,000;
4.7.11 entered into any transaction, contract or commitment other than
in the ordinary course of business or paid or agreed to pay any legal,
accounting, brokerage, finder's fee, Taxes or other expenses in connection with,
or incurred any severance pay obligations by reason of, this Agreement or the
transactions contemplated hereby; or
4.7.12 effected any change in the accounting practices, procedures or
methods of the Company or any of the Subsidiaries.
4.8 Title In or Rights To Intellectual Property.
4.8.1 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the Subsidiaries owns all right,
title and interest in and to the copyrights reflected as owned by the Company
and/or the Subsidiaries on that Schedule.
4.8.2 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the Subsidiaries is the licensee of
the copyrights reflected as licensed to the Company and/or the Subsidiaries on
that Schedule effective as of the date reflected on that Schedule.
4.8.3 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the
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Subsidiaries owns all right, title and interest in and to the patents reflected
as owned by the Company and/or the Subsidiaries on that Schedule.
4.8.4 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the Subsidiaries is the licensee of
the patents reflected as licensed to the Company and/or the Subsidiaries on that
Schedule effective as of the date reflected on that Schedule.
4.8.5 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the Subsidiaries owns all right,
title and interest in and to the trademarks, service marks, trade names, logos
and designations reflected as owned by the Company and/or the Subsidiaries on
that Schedule.
4.8.6 Except as otherwise noted on Schedule 4.8 of the Disclosure
Schedule, the Company and/or one or more of the Subsidiaries is the licensee of
the trademarks, trade names, logos and designations reflected as licensed to the
Company and/or the Subsidiaries on that Schedule effective as of the date
reflected on that Schedule.
4.8.7 Except as noted on Schedule 4.8 of the Disclosure Schedule,
there is no action, suit, investigation or proceeding pending, or to the
knowledge of Seller threatened, relating to any claim or threat of infringement
of any patent, trademark, service mark, copyright or other technology of the
Company or any of the Subsidiaries. The operation of the Business as now
operated does
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not infringe upon any patents, trade secrets, copyrights, trademarks, service
marks, tradenames, packaging or promotional material owned by any other Person
and neither Seller, the Company or any Subsidiary has received any notice of
such.
4.8.8 All of the patents, trademarks, copyrights or other technology
necessary to conduct and operate the Business as heretofore conducted by the
Company and the Subsidiaries shall be owned or held by the Company and/or the
Subsidiaries at the time of the Closing, except for any patents, trademarks and
copyrights owned by TWIL and used in connection with the game "Pit Ball."
4.9 Title to Properties; Absence of Liens and Encumbrances. Each of the
Company and/or the Subsidiaries has good and valid title to all of its tangible
and intangible assets, real or personal (including leasehold interests) free and
clear of any liens, encumbrances, and defects, except for (i) such as are
reflected in the Audited Financial Statements or the December 31, 1995 Financial
Statements; (ii) liens for Taxes relating to real property not at the present
time due or delinquent or, if due or delinquent, the validity of which is being
contested in good faith in appropriate proceedings (all of such due and
delinquent Taxes being identified on Schedule 4.9 of the Disclosure Schedule);
(iii) the right reserved to or vested in any municipality or governmental or
other public authority by any statutory provision; (iv) easements, rights-of-
way, restrictions, covenants, conditions or rights against any of the real
property which do not interfere in any material respect with the operation of
the Business;
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(v) zoning and building by-laws and ordinances, municipal by-laws and
regulations and other restrictions as to the use of real property; or (vi) those
matters set forth on Schedule 4.9 of the Disclosure Schedule. Schedule 4.9 of
the Disclosure Schedule sets forth all real property owned or leased by the
Company or the Subsidiaries including a description of the use thereof and the
owner or lessee thereof. Except as set forth on Schedule 4.9 of the Disclosure
Schedule, all of the Company's and the Subsidiaries' assets are located in the
owned or leased facilities set forth on Schedule 4.9 of the Disclosure Schedule.
To the extent required, the Company or the Subsidiaries has legal and valid
occupancy permits and other required licenses or government approvals for each
of the properties and premises owned, leased, used or occupied by the Company,
the Subsidiaries or the Business. No improvement, fixture or equipment in or on
any such premises and properties to the extent owned or occupied by the Company,
the Subsidiaries or the Business, or the occupation or leasehold with respect
thereto, is in violation in any material respect of any law, including, without
limitation, any zoning, building, safety, health or Environmental Law and each
of such premises and properties is zoned for the purposes for which each of such
premises or properties is now used by the Company, the Subsidiaries or the
Business. None of such premises or properties has been condemned or otherwise
taken by any public authority, no condemnation or taking is pending or to the
knowledge of Seller threatened or contemplated, and none thereof is, to the
knowledge of Seller, subject to any claim,
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contract or law which might affect its use or value for the purposes now made of
it and each thereof is in good condition and repair, ordinary wear and tear
excepted.
4.10 Inventory. Except as set forth on Schedule 4.10 of the Disclosure
Schedule, all Inventory reflected on the December 31, 1995 Financial Statements
was and all Inventory reflected on the December 31, 1995 Audited Financial
Statements and the Certified Final Balance Sheet will be determined in
accordance with U.S. GAAP, stated at the lower of cost (based on the first-in,
first-out method) or market value. The Inventory conforms to customary trade
standards for marketable goods. Proper recognition has been given in the
December 31, 1995 Financial Statements and proper recognition will be given in
the Certified Final Balance Sheet to damaged, obsolete, slow-moving, irregular
or defective stock and to appropriate markdowns. Since the December 31, 1995
Financial Statements, there have been no changes in the Inventory except in the
ordinary course of business.
4.11 Accounts Receivable. Except as set forth on Schedule 4.11 of the
Disclosure Schedule, each account receivable reflected on the December 31, 1995
Financial Statements constitutes and each account receivable on the December 31,
1995 Audited Financial Statements or the Certified Final Balance Sheet will
constitute a bona fide receivable resulting from a bona fide sale or other
transaction with a customer or licensee in the ordinary course of business, the
amount of which was actually due on the date of such balance sheet, and Seller
has no reason to believe that the total
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amount of the receivables reflected on the Final Balance Sheet, net of
reserves, will not be collected in the ordinary course of business. The
books and records of the Company and the Subsidiaries state correctly the
balance due with respect to each account receivable. Each payment
reflected on such books and records as having been made on each such
account receivable was made by the respective account debtor and not
directly or indirectly by any director, officer, employee or agent of the
Company or the Subsidiaries unless such person is shown on said books and
records as such account debtor. Each document and instrument evidencing,
securing or relating to each account receivable, including, without
limitation, each insurance policy, certificate, bill or statement, is
correct and complete in all material respects, is genuine and valid. Each
account receivable, each document and instrument and each transaction
underlying or relating thereto conforms in all material respects,
including, without limitation, in respect of interest rates charges,
notices given and disclosures made, to the requirements and provisions of
each applicable law, rule, regulation or order relating to credit, consumer
credit, credit practices, credit advertising, credit reporting, retail
installment sales, credit cards, collections, usury, interest rates and
truth-in-lending, including, without limitation, the Federal Truth in
Lending Act, as amended and Regulation Z issued by the Board of Governors
of the Federal Reserve System thereunder. The reserves and allowances
reflected on the balance sheets included in the December 31, 1995 Audited
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Financial Statements and the Certified Final Balance Sheet have been or
will be established in conformity with the December 31, 1995 Financial
Statements.
4.12 Insurance. Schedule 4.12 of the Disclosure Schedule sets forth
a description of the insurance coverage, including, without limitation,
liability, burglary, theft, fidelity, life, fire, product liability,
worker's compensation, health and other forms of insurance of any kind held
by the Company and the Subsidiaries and a complete and correct list of any
pending claims under such insurance. Each such policy is valid,
outstanding and, to Seller's knowledge, is and will be in full force and
effect up to the Closing Date. There is no act or failure to act which has
or might cause any such policy to be cancelled or terminated; the Company
and the Subsidiaries have given each notice and presented each claim under
each such policy and taken any other required or appropriate action with
respect thereto in due and timely fashion; and each such policy is adequate
for the Business. No notice of cancellation or non-renewal with respect
to, or disallowance of any material claim under, any insurance policies or
binders of insurance has been received by the Company or any of its
Affiliates.
4.13 Customers and Suppliers. Schedule 4.13 of the Disclosure
Schedule is a complete and correct list of the names and addresses of the
ten largest customers and suppliers of the Company and the Subsidiaries
during fiscal year ended December 31, 1995, and the total sales to or
purchases from such customers or suppliers made
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by the Company or the Subsidiaries during such fiscal year. No supplier or
customer of the Company and the Subsidiaries representing in excess of five
percent of the Company and the Subsidiaries purchases or sales during the
last fiscal year has advised the Company or the Subsidiaries formally or
informally, that it intends to terminate, discontinue or substantially
reduce its business with the Company or the Subsidiaries by reason of the
transactions contemplated by this Agreement or otherwise.
4.14 Absence of Undisclosed Liabilities. Neither the Company nor any
of the Subsidiaries has any Liabilities or obligations of the type required
to be reflected on a balance sheet in accordance with U.S. GAAP, absolute,
accrued, contingent or otherwise and whether due or to become due, except
(a) as set forth on Schedule 4.14 of the Disclosure Schedule; (b) as and to
the extent disclosed or reserved against in the December 31, 1995 Financial
Statements; and (c) for Liabilities incurred after the date of the December
31, 1995 Financial Statements in the ordinary course of business and
consistent with this Agreement.
4.15 Taxes. The Company, the Subsidiaries, their respective
predecessors or any member of an affiliated group (within the meaning of
Section 1504 of the Code) or other combined group of which any of the
Company, the Subsidiaries or their respective predecessors is or has been a
member on or before the Closing Date have filed, or will file on or before
the Closing Date, with the appropriate governmental agencies (whether
foreign, federal, state, municipal or local or other governmental unit) all
tax returns and
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tax reports (the "Returns") required to be filed by the Company or the
Subsidiaries on or before the Closing Date with respect to any period
ending on or before the Closing Date. Except as set forth on Schedule 4.15
of the Disclosure Schedule, (i) the Returns are true, complete, and correct
in all respects, (ii) all taxes due or claimed to be due pursuant thereto
have been paid, and (iii) no deficiency for any tax has been proposed,
asserted, claimed or assessed against the Company or the Subsidiaries and
no delinquencies in the payment of any tax exist for which the Company or
the Subsidiaries could be liable that have not been reserved for in the
Certified Final Balance Sheet. All withholding, payroll, FICA or other
social security Taxes (or comparable Taxes under the law of any foreign
country) required to be withheld or paid prior to the Closing Date by the
Company or the Subsidiaries with respect to their employees will have been
withheld or paid prior to the Closing Date. Each of the Company and the
Subsidiaries have paid to the proper authorities all customs fees and
duties and similar or related charges required to be paid by it with
respect to the importation or exportation of goods into or from the United
States or any other country. Except as reflected on the Certified Final
Balance Sheet, there are no Taxes owed by the Subsidiaries. As of the
Closing Date, there will be no Tax sharing agreements or other arrangement
with respect to Taxes between the Company or the Subsidiaries on the one
hand and Seller or any of its other Affiliates on the other. Except as set
forth on Schedule 4.15 hereto, within the last five years no material
issues were raised
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(whether orally or in writing) by any taxing authority during any audit or
examination relating to Taxes of the Company or the Subsidiaries that might
apply to taxable periods following the Closing.
4.16 Litigation. Except as set forth on Schedule 4.16 of the
Disclosure Schedule, there are no and for three years prior to the Closing
Date there have not been any actions, claims, subpoenas demands, suits,
arbitrations or proceedings of any nature, civil, criminal regulatory or
otherwise pending or to the knowledge of the Seller, threatened, at law, in
equity or otherwise in, before or by any court, governmental agency or
authority or arbitration or mediation panel relating to the Company, the
Subsidiaries or the Business or against or relating to the transactions
contemplated by this Agreement. Except as disclosed on Schedule 4.16 of
the Disclosure Schedule or in the December 31, 1995 Financial Statements,
there are no unsatisfied judgments, or outstanding orders, injunctions,
decrees, stipulations, or awards (whether rendered by a court or
administrative agency or by arbitration) against the Company, the
Subsidiaries or the Business.
4.17 Compliance with Law. The Business is being conducted in
compliance in all material respects with all laws, ordinances and
regulations of any governmental entity applicable to the Company, the
Subsidiaries or the Business. All governmental approvals, permits and
licenses required by the Company or the Subsidiaries in connection with the
conduct of the Business have been obtained and
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are in full force and effect and are being complied with in all material
respects.
4.18 Contracts. Except only those contracts or agreements set forth
on Schedule 4.18 of the Disclosure Schedule (complete and correct copies of
which have been heretofore made available to Buyer) and purchase and sales
orders accepted in the ordinary course of business and involving less than
US$25,000 over their term, neither the Company nor the Subsidiaries is a
party to or has and the Business is not bound by any contract or agreement
of any kind or nature whatsoever, written or oral, formal or informal,
including, without limitation, any (i) sales, advertising, license,
franchise, distribution, dealer, agency, manufacturer's representative, or
similar agreement, or any other contract relating to the payment of a
commission; (ii) pension, profit-sharing, bonus, stock purchase, stock
option, retirement, severance, hospitalization, accident, insurance or
other similar plan, arrangement or agreement involving benefits to current
or former employees; (iii) contract or agreement for the employment of any
employee, game designer or consultant; (iv) collective bargaining agreement
or other contract with any labor union; (v) contract or agreement for
services, materials, supplies, merchandise, inventory or equipment
involving in excess of US$25,000; (vi) contract or agreement for the sale
or purchase of any of its services, products or assets involving in excess
of US$25,000; (vii) mortgage, indenture, promissory note, loan agreement,
guaranty or other contract or agreement for the
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borrowing of money or for a line or letter of credit; (viii) contract or
agreement with any Affiliate or any current or former director, officer or
employer of Seller, the Company or the Subsidiaries which will be in effect
on the Closing Date; (ix) contract or agreement with any government or
agency thereof; (x) contract pursuant to which its right to compete with
any entity or person in the conduct of its business anywhere in the world
is restrained or restricted for any reason or in any way; (xi) contract or
agreement guaranteeing the performance, liabilities or obligations of any
entity or person; (xii) contract or agreement for capital improvements or
expenditures or with any contractor or subcontractor for in excess of
US$25,000; (xiii) contract or agreement for charitable contributions; (xiv)
lease or other contract or agreement pursuant to which it is a lessee of or
holds or operates any real property, machinery, equipment, motor vehicles,
office furniture, fixtures or similar personal property owned by any third
party; or (xv) contract or agreement otherwise involving in excess of
US$25,000 in cash over its term (including any periods covered by any
options to renew by any party), whether or not in the ordinary course of
business. Except as set forth on Schedule 4.18 of the Disclosure Schedule,
each of the contracts and agreements referred to therein is valid and
existing, in full force and effect and to the knowledge of Seller no party
thereto is in default and no claim of default by any party has been made or
is now pending, and no event exists which, with or without the lapse of
time or the giving of notice,
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or both, would constitute a breach or default, cause acceleration of any
obligation, would permit the termination or excuse the performance by any
party thereto, or would otherwise adversely affect the Business or assets
of the Company or the Subsidiaries. Except as noted on Schedule 4.18 of
the Disclosure Schedule no consent or authorization is required under any
of the contracts and agreements listed thereon in order to continue such
contract or agreement in full force and effect following the sale of the
Shares to Buyer hereunder.
4.19 Brokers and Finders. Except for the firm of Wasserstein Perella
& Co., Inc., neither Seller nor any of its Affiliates has employed any
broker, finder, advisor, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to a
broker's, finder's, consultant's, investment banking or similar fee or
commission from Seller or its Affiliates in connection therewith or in
connection with the consummation thereof.
4.20 Collective Bargaining Agreements and Labor.
------------------------------------------
4.20.1 Except as set forth on Schedule 4.20 of the Disclosure
Schedule, there are no pending strikes, work stoppages, slowdowns,
lockouts, arbitrations or other labor disputes against the Company or the
Subsidiaries.
4.20.2 Except as set forth on Schedule 4.20 of the Disclosure
Schedule, the Company and the Subsidiaries are not a party to or bound by
any collective bargaining agreement, and there are no employment contracts
or incentive plans entered into by the
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Company or the Subsidiaries with any officers or employees of the Company
or the Subsidiaries or any severance policies maintained by the Company or
the Subsidiaries. Except as set forth on that Schedule, no trade union,
council of trade unions, employee bargaining agency or affiliated
bargaining agent (a) holds bargaining rights with respect to any employees
of the Company or the Subsidiaries by way of certification, interim
certification, voluntary recognition, designation or successor rights, or
(b) has applied to be certified as the bargaining agent of any of the
Company's or the Subsidiaries' employees.
4.20.3 Except as set forth on Schedule 4.20 of the Disclosure
Schedule, to the knowledge of Seller, there are no pending complaints,
charges or claims against the Company or the Subsidiaries filed with any
public or Governmental Authority, arbitrator or court based upon the
employment or termination of employment by the Company or the Subsidiaries
of any individual.
4.20.4 Except as set forth on Schedule 4.20 of the Disclosure
Schedule, the Company and the Subsidiaries are in compliance in all
material respects with all United States and foreign laws, regulations and
orders relating to the employment of labor, including all such laws,
regulations and orders relating to wages, hours, WARN Act, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax.
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4.21 Employees. Schedule 4.21 of the Disclosure Schedule sets forth
a complete and correct list of the names and current annual salary, bonus,
commission and perquisite arrangements, written or unwritten, for each
director, officer and employee of the Company and the Subsidiaries. Except
as set forth on Schedule 4.21 of the Disclosure Schedule, no current or
former director, officer or employee of the Company and the Subsidiaries or
any relative, associate or agent of such director, officer or employee has
any interest in any of the Company's or any of the Subsidiaries' assets, or
is a party, directly or indirectly, to any contract for employment or
otherwise or any lease or has entered into any transaction with the Company
or the Subsidiaries including, without limitation, any contract for the
furnishing of services, by, or rental of real or personal property from or
to, or requiring payments to, any such director, officer, employee,
relative, associate or agent. Except as set forth on Schedule 4.21 of the
Disclosure Schedule, no employee listed thereon has advised the Company or
the Subsidiaries that he or she intends to terminate his or her employment
relationship with the Company or the Subsidiaries.
4.22 ERISA.
-----
4.22.1 Schedule 4.22 of the Disclosure Schedule sets forth all
written "employee benefit plans", as defined in Section 3(3) of ERISA
(whether or not subject to ERISA), maintained by the Company or the
Subsidiaries or to which Seller or any of the Subsidiaries contributed or
are obligated to contribute thereunder
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for current or former employees of the Company or the Subsidiaries (the
"Plans"). Schedule 4.22 of the Disclosure Schedule separately identifies
each Plan which is a multiemployer plan, as defined in Section 3(37) of
ERISA ("Multiemployer Plan").
4.22.2 True, correct and complete copies of the following documents,
with respect to each of the Plans (other than the Multiemployer Plans),
have been made available or delivered to Buyer by the Company or the
Subsidiaries: (a) any plans and related trust documents, and amendments
thereto; (b) the most recent Forms 5500; (c) the last IRS determination
letter, if applicable; and (d) summary plan descriptions.
4.22.3 The Plans intended to qualify under Section 401 of the Code
and the trusts maintained pursuant thereto are exempt from federal income
taxation under Section 501 of the Code, and nothing has occurred with
respect to the operation of the Plans which could cause the loss of such
qualification or exemption or the imposition of any liability, penalty or
tax under ERISA or the Code.
4.22.4 The Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of the Code and ERISA
(including rules and regulations thereunder) and other applicable foreign,
federal and state laws and regulations.
4.22.5 No event has occurred, and no circumstance exists, in
connection with which the Company, any Subsidiary or any Plan, directly or
indirectly, could be subject to any liability under ERISA, the Code or any
other law, regulation or governmental
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order applicable to any Plan or under any agreement, instrument, statute,
rule of law or regulation pursuant to or under which the Company or any
Subsidiary has agreed to indemnify or is required to indemnify any person
against liability incurred under, or for a violation or failure to satisfy
the requirements of, any such statute, regulation or order.
4.22.6 With respect to each Plan, all payments due from the Company
or any Subsidiary have been made and all amounts properly accrued as
liabilities of the Company or any Subsidiary which have not been paid have
been properly recorded on the books of Seller, the Company or the
Subsidiaries and there are no actions, suits or claims pending (other than
routine claims for benefits) or to the knowledge of Seller, threatened with
respect to such Plan or against the assets of such Plan.
4.22.7 Except as set forth on Schedule 4.22 of the Disclosure
Schedule, no Plan which is subject to Section 302 of ERISA has any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived.
4.22.8 Except as set forth on Schedule 4.22 of the Disclosure
Schedule, the consummation of the transactions contemplated by this
Agreement will not create, accelerate the time of payment or vesting of, or
increase the amount of, compensation due to any person under any Plans.
4.22.9 With respect to each Plan for which financial statements are
required by ERISA or other applicable law, there has been no change in the
financial status of such Plan since the date
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as of which the most recent such statements were prepared other than
contributions and investments made in the ordinary course under such plans.
4.23 Environmental Matters.
---------------------
4.23.1 The Company and the Subsidiaries have obtained or applied for
all permits, licenses and other such authorizations required to be obtained
by them for the operation of their businesses under the Environmental Laws.
4.23.2 The Company and the Subsidiaries (i) are in compliance with
all terms and conditions of the permits, licenses and authorizations
required by Environmental Laws, and (ii) are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations, contained in the Environmental Laws.
4.23.3 There have been no past and there are no civil, criminal or
administrative actions, suits, hearings, proceedings, written notices of
violation, claims or demands pending or, to the knowledge of Seller,
threatened against the Company or any of the Subsidiaries under the
Environmental Laws.
4.23.4 There have been no releases of Hazardous Materials at, on or
under any property now or previously owned or leased by the Company or the
Subsidiaries while owned or leased by the Company or the Subsidiaries.
4.23.5 No property now or previously owned or leased by the Company
or the Subsidiaries is listed or proposed for listing (with respect to
owned property only) on the National Priorities
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List pursuant to CERCLA, on the Comprehensive Environmental Response
Compensation Liability Information System List ("CERCLIS") or on any
similar state or foreign list of sites requiring investigation or clean-up.
4.23.6 Except as set forth on Schedule 4.23 of the Disclosure
Schedule, there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Company or the Subsidiaries.
4.23.7 None of the Company or the Subsidiaries has directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the
National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims
against the Company or the Subsidiaries for any remedial work, damage to
natural resources or personal injury, including claims under CERCLA.
4.23.8 There are no polychlorinated biphenyls that require remedial
action or friable asbestos present at any property now or previously owned
or leased by the Company or the Subsidiaries.
4.23.9 To the knowledge of Seller, no conditions exist at, on or
under any property now or previously owned or leased by the Company or the
Subsidiaries which, with the passage of time, or
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the giving of notice or both, would give rise to liability under any
Environmental Law.
4.24 Information Concerning the Company and the Subsidiaries. Set
forth on Schedule 4.24 of the Disclosure Schedule is a full and complete
schedule of the corporate structure of the Company and the Subsidiaries
together with any and all names by which such Persons were formerly known
and any and all names under which such Persons have conducted business.
The Business is the only business now or heretofore conducted by the
Company and the Subsidiaries and neither the Company nor any Subsidiary is
a successor of any other business.
4.25 TWIL. No assets of TWIL are necessary to conduct and operate
the Business as heretofore conducted by the Company and the Subsidiaries
except the assets owned by TWIL and used in connection with the game "Pit
Ball."
4.26 Bank Accounts. Schedule 4.26 of the Disclosure Schedule sets
forth a complete list of all bank accounts of the Company and each
Subsidiary including location, account number, type of account and
authorized signatories thereto.
4.27 Officers and Directors. Schedule 4.27 of the Disclosure
Schedule sets forth a complete list of all officers and directors of the
Company and each Subsidiary.
4.28 Accuracy of Information. To the knowledge of Seller, the
representations and warranties made by Seller contained in this Agreement
or in any documents, instruments, certificates or schedules furnished
pursuant to this Agreement do not contain any
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untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they were made.
4.29 Disclaimer of Other Representations and Warranties; Knowledge;
--------------------------------------------------------------
Disclosure.
----------
4.29.1 Seller does not make, and has not made, any representations
or warranties relating to the Company or the Subsidiaries or the Business
or otherwise in connection with the transactions contemplated hereby other
than those expressly set out herein or in any document, certificate,
instrument or schedule executed or delivered pursuant hereto. Without
limiting the generality of the foregoing, Seller does not make, and shall
not be deemed to have made, any representations or warranties in the
confidential offering memorandum entitled "Project Future" relating to the
Business, notwithstanding that it was prepared by Seller with the
assistance of the firm of Wasserstein Perella & Co., Inc. and supplied to
Buyer prior to the date hereof (the "Offering Memorandum") or in any
presentation of the Business in connection with the transactions
contemplated hereby, and no statement contained in the Offering Memorandum
or made in any such presentation shall be deemed a representation or
warranty of Seller hereunder or otherwise. It is understood that any cost
estimates, projections or other predictions, any data, any financial
information or any memoranda or offering materials or presentations,
including but not limited to the Offering
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Memorandum, are not and shall not be deemed to be or include
representations or warranties of Seller. No other Person has been
authorized by Seller, the Company or any of the Subsidiaries to make any
representation or warranty relating to Seller, the Company, the
Subsidiaries, the Business or otherwise in connection with the transactions
contemplated hereby and, if made, such representation or warranty must not
be relied upon as having been authorized by Seller, the Company or any of
the Subsidiaries.
4.29.2 Whenever a representation or warranty made by Seller herein
refers to the knowledge of Seller, such knowledge shall be deemed to
consist only of the actual knowledge of the present or former directors and
officers of Seller or the Company and senior management level employees of
Seller and the Company, in each case during their tenure in such position.
4.29.3 Notwithstanding any provision of this Agreement or any
Schedule of the Disclosure Schedule to the contrary, any information
disclosed in one Schedule of the Disclosure Schedule shall be deemed to be
disclosed in all Schedules of the Disclosure Schedule. Certain information
set forth in the Schedules of the Disclosure Schedule is included solely
for informational purposes and may not be required to be disclosed pursuant
to this Agreement. The disclosure of any information shall not be deemed
to constitute an acknowledgement that such information is required to be
disclosed in connection with the representations and warranties made by
Seller in this Agreement or is material, nor shall such information be
deemed to establish a standard of materiality.
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ARTICLE V
5. REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization and Authority of Buyer. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation as set forth above.
5.1.1 Buyer possesses the power and authority, corporate or
otherwise, to enter into this Agreement and the documents and instruments
contemplated hereby, to assume and perform its obligations hereunder, and
thereunder, and to comply with the terms, conditions and provisions hereof.
5.1.2 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action on the part of Buyer.
This Agreement and the Disclosure Schedule have been duly executed and
delivered by Buyer and constitute the valid and binding obligation of
Buyer, enforceable in according to their terms.
5.1.3 Except as set forth in Schedule 5.1 hereto, Buyer is not
subject to or bound by any provision of
(i) any articles or certificate of incorporation or by-laws;
(ii) any law, statute, rule, regulation or judicial or
administrative decision;
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(iii) any mortgage, deed of trust, lease, note,
shareholders' agreement, bond, indenture, license, permit, trust; or
(iv) any judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator;
that would prevent or be violated by, or under which there would be a
default as a result of, nor is the consent of any Person under any contract
or agreement which has not been obtained required for, the execution,
delivery and performance by Buyer of this Agreement and the transactions
contemplated hereby, other than notification pursuant to the HSR Act.
5.2 Government Approval. Except as contemplated by Section 6.4
hereof, no action, approval, consent or authorization, including, but not
limited to any action, approval, consent or authorization by or filing with
any governmental or quasi-governmental agency, commission, board, bureau or
instrumentality is necessary or required as to Buyer in order to constitute
this Agreement as a valid and binding obligation of Buyer.
5.3 Financial Ability to Perform. Sufficient funds and credit
arrangements are available to Buyer as of the date hereof, and will be
available at the Closing, to pay the Cash Payment.
5.4 Brokers and Intermediaries. Buyer has not employed any broker,
finder, advisor, consultant or intermediary in connection with the
transactions contemplated by this Agreement which would be entitled to a
broker's, finder's, advisor's, consultant's,
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investment banking or similar fee or commission from Buyer in connection
therewith or upon the consummation thereof.
5.5 Investment Intent Regarding the Shares and the Subsidiaries' Shares.
Buyer understands that the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"). Buyer further understands that the
Shares are characterized as "restricted securities" under the United States
securities laws in that they are being acquired from Seller in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain circumstances. Buyer is acquiring the Shares for its own account for
investment, without a view to, or for resale in connection with, the
distribution thereof in violation of federal or state securities laws and with
no present intention of distributing or reselling any part thereof. Buyer shall
not so distribute or resell any of the Shares or the Subsidiaries' Shares in
violation of any such law or any similar foreign law.
ARTICLE VI
6. CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND BUYER
6.1 Access and Information. Seller shall and shall cause the Company and
the Subsidiaries to permit Buyer and its representatives and agents after the
date of this Agreement and up to the Closing Date to have reasonable access
during normal business hours, upon reasonable advance notice, to the books,
records and employees of the Company and the Subsidiaries, for the
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purpose of verifying the representations and warranties of Seller hereunder,
provided that such access shall be conducted by Buyer and its representatives in
such a manner as not to interfere unreasonably with the Business or operation of
the Company or the Subsidiaries. In addition, Seller shall cause the Company and
the Subsidiaries to allow Buyer and its representatives and agents (including an
environmental consultant) after the date of this Agreement access, during normal
business hours and upon reasonable advance notice, to the properties of the
Company and the Subsidiaries and make available to Buyer during normal business
hours those employees of the Company or the Subsidiaries as shall be reasonably
available who have been involved in environmental compliance in order to allow
Buyer to investigate the facilities with respect to environmental matters. All
information provided to Buyer pursuant hereto shall be subject to the
Confidentiality Agreement.
6.2 Conduct of Business; Inter-company Accounts.
-------------------------------------------
6.2.1 Prior to the Closing, and except as otherwise contemplated by
this Agreement or consented to, approved of or instructed by Buyer, each of the
Company and the Subsidiaries shall:
6.2.1.1 carry on the Business in, and only in, the ordinary course,
in substantially the same manner as heretofore conducted, and use all reasonable
efforts (i) to preserve intact its present business organization; (ii) maintain
its properties in good operating condition and repair; (iii) keep available the
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services of its present officers and employees; and (iv) preserve its
relationship with customers, suppliers and others having business dealings with
it, to the end that its goodwill and going business shall be unimpaired
following the Closing;
6.2.1.2 not issue or sell any shares of their capital stock, or to
issue any options, warrants or other rights of any kind to acquire any such
shares or securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire, any such shares, or enter
into any agreement obligating it to do any of the foregoing;
6.2.1.3 pay accounts payable and other obligations as and when they
become due and payable in the ordinary course of business consistent with prior
practice;
6.2.1.4 perform in all respects all of their obligations under all
contracts and other agreements and instruments and comply in all respects with
all laws applicable to them;
6.2.1.5 not enter into or assume any agreement, contract or
instrument having a term of more than one year or involving more than US$25,000,
or enter into or permit any amendment, supplement, waiver or other modification
in respect thereof;
6.2.1.6 not grant (or commit to grant) any increase in the
compensation (including incentive or bonus compensation), other than periodic
salary increases in the ordinary course of business, of any employee or
institute, adopt or amend (or commit
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to institute, adopt or amend) any compensation or benefit plan, policy, program
or arrangement or collective bargaining agreement;
6.2.1.7 not take any action or omit to take any action, which action
or omission would result in a breach of any of the representations and
warranties set forth in Article IV;
6.2.1.8 not enter into any agreement or conduct business dealings
with any Affiliate of Seller (other than the Subsidiaries) except pursuant to
the WEA Distribution Agreement and the WIE License Agreement or in accordance
with the conduct of the Business in the ordinary course of business and
consistent with prior practices, none of which singly or in the aggregate is
material; and
6.2.1.9 not enter into any agreement, arrangement or incur any
obligation for the borrowing of money other than borrowings from Affiliates
constituting Inter-company Accounts.
6.2.2 From the date hereof through the Closing Date, Buyer and/or
Seller may make recommendations for termination of certain employees and/or
facilities of the Business or otherwise restructure the Company and the
Subsidiaries. Seller shall not permit the Company or any Subsidiary to make
such terminations or restructuring without the prior written consent of Buyer.
In the event of any proposed termination or restructuring event, Seller shall
cause the Company to prepare a report of the costs of such termination or
restructuring, including, without limitation, severance payments. Any
termination costs and expenses in excess of amounts calculated on the basis of
the severance policies and
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contracts disclosed in the Disclosure Schedule shall be specifically identified
for Buyer. Upon Buyer's approval of such termination or restructuring and
associated costs, Seller may cause the Company to effect such termination or
restructuring and incur the costs consistent with Buyer's approval. In such
event the minimum Working Capital required at Closing as set forth in Section
6.13 hereof shall be reduced to the extent that the Company or the Subsidiaries
make payments in respect of such termination or restructuring costs prior to the
Closing Date.
6.2.3 Seller and Buyer acknowledge that all Inter-company Accounts
between Seller and any Affiliate of Seller (other than the Company or the
Subsidiaries) on the one hand and the Company and the Subsidiaries on the other
may be settled prior to the Closing, and provided however, that no assets of the
Company or the Subsidiaries other than available cash may be used for purposes
of such settlement (with the Final Net Asset Value adjusted accordingly) and
provided further, that no funds are borrowed to be used for purposes of such
settlement. Any Inter-company Accounts of the Company or any Subsidiary to
Seller or any Affiliate of Seller (other than the Company or the Subsidiaries)
not discharged prior to the Closing shall be capitalized and deemed discharged
at the Closing.
6.2.4 Notwithstanding Section 6.23 hereof, Seller and Buyer
acknowledge that all loans due from the Company or any Subsidiary to any
Subsidiary, other than an obligation described in
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Code Section 956(c)(2)(C), shall be discharged by way of a dividend prior to the
Closing.
6.3 Environmental Report. Buyer shall have the right, at its own expense,
to conduct an environmental review to the extent it deems appropriate of any and
all of the premises currently owned or occupied by the Company, the Subsidiaries
or the Business. Buyer shall engage its independent environmental consultants as
soon as practical after the date hereof and use its reasonable best efforts to
complete such environmental reviews as promptly as practical but such report
must be completed and received on or before March 31, 1996.
6.4 Regulatory Filings/Hart-Scott-Rodino. Seller and Buyer shall furnish to
the other party hereto such necessary information and reasonable assistance as
such other party may reasonably request in connection with its preparation of
necessary filings or submissions to any governmental agency. Seller, and/or its
Affiliates and Buyer and/or its Affiliates, as appropriate, will file as soon as
reasonably practicable, but in any event within two weeks of the execution of
this Agreement, with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice notification and
report forms with respect to the sale and purchase of the Shares as contemplated
hereunder pursuant to the HSR Act and local law, as the case may be. The parties
shall also file such notification and report forms with all applicable
governmental and regulatory authorities and agencies in such foreign
jurisdiction, as may be necessary under
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local laws with respect to the sale and purchase of the Shares. Such
notification and report forms will comply as to form with all requirements
applicable thereto and all of the data and information reported in such forms
shall be true, correct and complete in all material respects. The parties shall
comply as promptly as practicable with all requests if any for additional
information and documentary materials unless, in the reasonable opinion of
counsel, such information or documentation, as the case may be, is not required
to be produced. Such additional information and documentation will comply as to
form with all requirements applicable thereto and will be true, correct and
complete in all material respects and shall be delivered sufficiently in advance
of the Closing Date to allow any period of time specified by law, and any
extensions thereof, to expire prior to the Closing Date. Each of Buyer and
Seller shall pay one-half of Buyer's filing fee under the HSR Act. Buyer and
Seller shall use commercially reasonable efforts to effect compliance with the
conditions specified in Sections 7.5 and 6.18 hereof.
6.5 Tax Matters. Except as provided in Section 6.51 hereof Seller shall
be liable for, shall pay and shall indemnify and hold Buyer, the Company and the
Subsidiaries harmless against all Taxes of the Company and the Subsidiaries for
any taxable period ending on or before the Closing Date including any Taxes from
the making of the Section 338(h)(10) Election.
6.5.1 Buyer shall cause the Company and the Subsidiaries to be liable
for, and to pay and indemnify and hold
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Seller harmless against (i) any and all Taxes of the Company or the Subsidiaries
for any taxable year or portion thereof commencing on or after the Closing Date;
(ii) any and all Taxes not incurred in the ordinary course of business
attributable to the acts or omissions of the Company or the Subsidiaries
occurring on the Closing Date but after the Closing; and (iii) any and all Taxes
accrued by the Company or the Subsidiaries as reflected on the Certified Final
Balance Sheet; provided that nothing in this Section 6.51 shall include any Tax
attributable to the making of the Section 338(h)(10) Election or a comparable
election under state, local or foreign law.
6.5.2 Any Taxes for a taxable period beginning before the Closing
Date and ending after the Closing Date with respect to the Company or the
Subsidiaries shall be apportioned between Seller and the Company based on the
actual operations of the Company and the Subsidiaries during the portion of such
period ending on the Closing Date, and the portion of such period beginning on
the date following the Closing Date, and each portion of such period shall be
deemed to be a taxable period.
6.5.3 Except as set forth in Section 6.51, Seller shall indemnify and
hold Buyer and the Company harmless with respect to any Tax imposed on Buyer,
the Company or the Subsidiaries under Subpart F of the Code with respect to the
Company or the Subsidiaries attributable to the portion of the taxable period of
the Company or the Subsidiaries which includes the Closing Date. The income
taxable under Subpart F of the Code
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of the Company or the Subsidiaries will be allocated to the periods up to and
including the Closing Date and to the period after the Closing Date by closing
the books of the Company or the Subsidiaries as of the end of the Closing Date.
6.5.4 Seller shall be entitled to all refunds (including without
limitation interest with respect thereto) of Income Taxes received by or on
behalf of the Company or the Subsidiaries relating to any Pre-Closing Period,
except to the extent such refunds are included in the Final Net Asset Value, and
Buyer shall pay, or shall cause the Company or the Subsidiaries to pay, to
Seller any such refund promptly after receipt thereof. At the request of Seller,
Buyer shall file, or shall cause the Company or the Subsidiaries to file, any
claims for such refunds. Notwithstanding the foregoing, Seller shall not be
entitled to any refund resulting from the filing of an amended Return after the
Closing to carry back any losses resulting from operations or transactions of
the Business after the Closing.
6.5.5 Notwithstanding anything to the contrary in this Agreement,
Seller shall have the right to represent the interests of the Company or the
Subsidiaries in any Tax audit or administrative or court proceeding relating to
Returns with respect to which Seller may be liable (in whole or in part) under
this Agreement (including without limitation any such proceedings relating to
the Business, income, properties or operations of the Company or the
Subsidiaries for Pre-Closing Periods). Buyer will cause the Company to cooperate
fully with Seller and its counsel in
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the defense against or compromise of any claim in any such proceeding at
Seller's sole cost and expense.
6.5.6 Buyer will cause the Company to promptly notify Seller in
writing upon receipt by the Company or any Affiliate of the Company of a written
notice of (i) any pending or threatened federal, state, local or foreign Tax
audits or assessments of the Company or the Subsidiaries, so long as any Pre-
Closing Period remains open; and (ii) any pending or threatened federal, state,
local or foreign Tax audits or assessments of Buyer or any affiliate of Buyer
which may affect the Tax liabilities of Seller, in each case for Pre-Closing
Periods only. Seller shall promptly notify Buyer in writing upon receipt by
Seller or any Affiliate of Seller of a written notice of any pending or
threatened federal, state, local or foreign Tax audits or assessments relating
to the income, properties or operations of the Company or the Subsidiaries, in
each case for Post-Closing Periods.
6.5.7 After the Closing Date, Buyer and Seller shall provide each
other, and Buyer shall cause the Company or the Subsidiaries to provide Seller,
with such cooperation and information relating to the Company or the
Subsidiaries as either party reasonably may request in filing any Return (or
amended Return) or refund claim, determining any Tax liability or a right to a
refund, conducting or defending any audit or other proceeding in respect of
Taxes or effectuating the terms of this Agreement. The parties shall retain, and
Buyer shall cause the Company or the Subsidiaries to retain, all Returns,
schedules, work papers and
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other material documents relating thereto, until the expiration of any relevant
statute of limitations (and, to the extent notified by any party, any extensions
thereof) and, unless such Returns and other documents are offered and delivered
to Seller or Buyer, as applicable, until the final determination of any Tax in
respect of such years. Any information obtained under this Section 6.5 shall be
kept confidential, except as may be otherwise necessary in connection with
filing any Return (or amended Return) or refund claim, determining any Tax
liability or a right to a refund, conducting or defending any audit or other
proceeding in respect of Taxes or otherwise effectuating the terms of this
Agreement. Notwithstanding the foregoing, neither Seller nor Buyer, nor any of
their Affiliates, shall be required unreasonably to prepare any document, or
determine any information not then in its possession, in response to a request
under this Section 6.5.
6.5.8 Notwithstanding any other provision of this Agreement to the
contrary, all transfer, gains, documentary, sales, use, registration, stamp,
value added or other similar Taxes payable by reason of the sale, transfer or
delivery of the Shares hereunder shall be borne equally by Buyer and Seller, and
Seller shall file all necessary Returns and other documentation with respect to
all such Taxes.
6.6 Affiliate Obligations.
6.6.1 After the Closing, Buyer shall not permit (i) the Company or
any of the Subsidiaries to renew, extend or increase the liability under or
assign any of the contracts or agreements set
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forth on Schedule 6.6 of the Disclosure Schedule with respect to which Seller or
any of its Affiliates have issued guarantees; (ii) sell, assign, transfer or
convey the Shares to a Person not an Affiliate of Buyer; or (iii) permit the
Company to sell, assign, transfer or convey all or substantially all of the
Company's assets; unless Seller or such Affiliate, as the case may be, is
released from all such guarantees. This provision shall not prevent Buyer from
subletting all or any portion of the premises subject to a real property lease.
6.7 Books and Records. Buyer will, and will cause the Company and the
Subsidiaries, to retain all books, records and other documents pertaining to the
Business in existence on the Closing Date and delivered to Buyer and to make the
same available after the Closing Date for inspection and copying by Seller or
any Affiliate of Seller at Seller's expense during the normal business hours of
the Company or the Subsidiaries, as applicable, upon reasonable request and upon
reasonable notice for the purpose of preparing Seller's financial statements or
as may be necessary to perform Seller's indemnification obligations hereunder.
No such books, records or documents shall be destroyed by Buyer, the Company or
the Subsidiaries without first advising Seller in writing and giving Seller a
reasonable opportunity to obtain possession thereof. Without limiting the
generality of the foregoing, Buyer will, and will cause the Company and the
Subsidiaries to, make available to Seller, the Affiliates of Seller and their
respective representatives, all information deemed
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necessary or desirable by Seller or such Affiliates in preparing their
respective financial statements and conducting any audits in connection
therewith.
6.8 Announcement. Hereafter, neither Seller or its Affiliates on the one
hand nor Buyer or its Affiliates on the other will issue any press release or
otherwise make any public statement with respect to this Agreement and the
transactions contemplated hereby without the prior consent of the other (which
consent shall not be unreasonably withheld), except as may be required by
applicable securities laws or stock exchange regulations.
6.9 Use of Names. Buyer agrees that it will, as promptly as practicable but
in any event within 60 days following the Closing Date, eliminate the names
"Time", "Time Warner", "Time Warner Interactive", and the initials "TWI" or
"TWi" (and any variants thereof) from the name of the Company and the
Subsidiaries and within 45 days following the Closing Date, cause the Company to
remove or obliterate all trade names, trademarks and logos related to such names
from all signs, purchase orders, invoices, sales orders, packaging stock,
inserts, labels, letterheads, shipping documents and other materials used by the
Company or the Subsidiaries. Notwithstanding anything herein to the contrary,
Buyer agrees that after the Closing Date it will neither use, nor permit the
Company and the Subsidiaries to use, (i) any purchase orders, invoices, sales
orders, letterheads or shipping documents existing on the date hereof, which
bear the name "Time", "Time Warner", "Time Warner Interactive", the initials
"TWI" or "TWi" or
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any logo related to such names (or any variants thereof) or any name or logo
confusingly similar thereto, without first obliterating or covering such name,
mark or logo, or (ii) any such materials not in existence on the Closing Date
which bear such name, mark or logo (or any variants thereof); provided, however,
that the Company and the Subsidiaries shall have the right to sell or dispose of
the entire existing inventory (including work in process) of product and
replacement parts already packaged and products and parts ordered from suppliers
as of the Closing Date, including, without limitation products and replacement
parts relating to coin-operated video arcade games, home video games and
personal computers, despite the use or inclusion of one or more of the marks
otherwise prohibited under this provision. At Seller's request, Buyer will cause
the Company to cooperate, and will cause each of the Subsidiaries to cooperate,
in taking all steps reasonably necessary in any jurisdiction to preserve for
Seller and, where appropriate, assign to Seller, all right, title and interest
in and to said names, the registration and usage thereof and the goodwill
associated therewith. Buyer will not, and will cause the Company and the
Subsidiaries not to, misappropriate, misrepresent or otherwise infringe, abuse
or diminish the value of said names.
6.10 Restrictive Covenants.
6.10.1 Non-Competition. For a period of five years following the
Closing Date, Seller and its Affiliates shall not, directly or indirectly, own,
manage, operate or control, whether as
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an owner, partner, investor, stockholder or otherwise any Person which is
engaged in the business of developing, manufacturing, marketing, licensing,
publishing or selling coin-operated video arcade games (the "Coin-op Business");
or for itself, or on behalf of any other Person, call on any supplier of Buyer
or be in contact in any way with any customer or supplier of Buyer for the
purpose of soliciting, diverting or taking away any supplier or customer of
Buyer. The licensing by Seller and its Affiliates of their intellectual
properties to a Person engaged in the Coin-op Business shall not be deemed a
breach of this covenant. The acquisition by Seller and/or its Affiliates of, or
investment in, any Person, entity or business 15% or less of whose annual
revenues are derived from or 15% or less of whose assets are employed in a Coin-
Op Business shall not constitute a breach of this covenant.
6.10.2 Non-Solicitation. If this Agreement is terminated, Buyer and
its Affiliates on the one hand and Seller and its Affiliates on the other hand
will not, for a period of three years thereafter, directly or indirectly,
solicit, encourage, entice or induce to terminate his or her employment with
such party, any Person who is an employee of the other party at the date hereof
or at any time hereafter that precedes such termination.
6.10.3 Affiliate Veto Power. If Seller or any Affiliate of Seller
has veto power over certain activities of a Person, such Person shall not be
deemed an Affiliate of Seller for the purposes of Sections 6.10.1 and 6.10.2
hereof unless such veto power, if
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exercised, would restrict or prevent such Person from engaging in activities
restricted under such Sections.
6.10.4 Rights and Remedies Upon Breach. If Buyer or its Affiliates on
the one hand or Seller or its Affiliates on the other hand breach, or threaten
to commit a breach of, any of the provisions relating to such parties of
Sections 6.10.1 or 6.10.2 hereof, the other party shall have the right and
remedy to have such covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of such
covenants would cause irreparable injury and that money damages would not
provide an adequate remedy. This right of specific performance is in addition
to, and not in lieu of, any other rights and remedies available to the parties
under law or in equity.
6.10.5 Severability of Covenant. The parties hereto acknowledge and
agree that the foregoing covenants in this Paragraph 6.10 are reasonable and
valid in geographical and temporal scope and in all other respects and that they
have received full and adequate consideration therefor. If any court determines
that any of such covenants, or any part thereof, is invalid or unenforceable,
the remainder of such covenants shall not thereby be affected and shall be given
full effect, without regard to the invalid portions. If any court determines
that any of the foregoing covenants, or any part thereof, is unenforceable
because of the duration or geographic scope of such provision, such court shall
have the power to reduce the duration or scope of such
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provision as the case may be, and, in its reduced form, such provision shall
then be enforceable.
6.11 Commercially Reasonable Efforts. Each of the parties hereto shall use
commercially reasonable efforts to fulfill or obtain the fulfillment of the
conditions of the Closing, including, without limitation, the execution and
delivery of all agreements contemplated hereunder to be so executed and
delivered.
6.12 Notice of Certain Information. Buyer or Seller, as appropriate, shall
promptly notify the other upon discovery of any information (and the basis
thereof) which would indicate that a condition to a parties obligation to
consummate the transactions contemplated by this Agreement will not be
satisfied.
6.13 Working Capital. Seller hereby guarantees that the amount of Working
Capital Assets (as hereafter defined) of the Company and the Subsidiaries
reflected on the Interim Balance Sheet and the Final Balance Sheet shall exceed
the amount of total liabilities reflected thereon by at least US$19,000,000. The
amount of such excess is hereafter referred to as "Working Capital." For
purposes of such calculation, such US$19,000,000 shall be reduced by the amount
of termination or restructuring costs actually paid by the Company or any
Subsidiary prior to the Closing Date as provided in Section 6.22 hereof and the
amount of total liabilities shall be determined without regard to any
termination or restructuring costs accrued as a result of terminations or
restructurings effected in accordance with Section 6.22 hereof but which remain
unpaid as of the Closing Date.
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"Working Capital Assets" shall mean the sum of (i) cash, (ii) accounts
receivable, (iii) Inventory and (iv) prepaid expenses to the extent such prepaid
expenses relate to expenses to be incurred by the Company or any Subsidiary on
or before December 31, 1996 or for which the Company or any Subsidiary is
entitled to receive a cash refund within sixty days following the Closing. In
the event of any deficiency in the amount of Working Capital reflected on either
the Interim Balance Sheet or the Final Balance Sheet, Seller shall promptly make
an additional cash capital contribution to the Company so as to reach the
minimum Working Capital level of US$19,000,000. Notwithstanding the above, in
the event the Interim Balance Sheet reflects a deficiency of Working Capital in
excess of US$8,000,000, provided Seller is not in default hereunder, Seller may
elect to terminate this Agreement by written notice of such election delivered
to Buyer together with the Interim Balance Sheet; such election shall be
effective as of the Closing Date unless Buyer, prior to the Closing Date, shall
have waived in writing Seller's guaranty of minimum Working Capital so as to
reduce such level to an amount which would require Seller to contribute only
US$8,000,000 to the Company to meet the minimum Working Capital necessary for
Closing. If Buyer shall not have waived such obligation prior to the Closing
Date, then this Agreement shall terminate effective as of the Closing Date
without further obligation hereunder except that Seller shall reimburse Buyer
and its Affiliates for all reasonable out-of-pocket expenses, including
attorneys' and accountants' fees and expenses incurred by
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Buyer or its Affiliates in connection with the negotiation and execution of this
Agreement and the preparation for Closing hereunder up to a maximum of
US$1,000,000. Such expense reimbursement shall be paid to Buyer (or such other
Person designated by Buyer) within ten business days of Buyer's written demand
therefor, delivered to Seller together with reasonable documentation of such
out-of pocket expenses. Buyer shall supply additional information regarding such
expenses as Seller shall, on a timely basis, reasonably request.
6.14 Audited Financial Statements. Seller acknowledges that it is an
essential part of this transaction that Buyer receive the Audited Financial
Statements for each of the nine months ended December 31, 1994 and the fiscal
year ended December 31, 1995 in form and content acceptable for filing by Buyer
on Form 8-K with the Securities and Exchange Commission in connection with the
transactions contemplated by this Agreement. Seller shall at its expense cause
such Audited Financial Statements to be prepared and certified by Ernst & Young
LLP without qualification and delivered to Buyer on or before the Closing Date.
6.15 Compliance With Gaming Laws. Buyer and/or its Affiliates are subject
to various gaming laws, regulations, rules and procedures of certain foreign and
domestic jurisdiction in which Buyer or its Affiliates conduct business (the
"Gaming Laws"). As soon as practical after the date hereof, Buyer or its
Affiliates shall advise the appropriate gaming authorities of or otherwise take
such action with respect to the transactions contemplated by
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this Agreement as it deems appropriate in connection with such Gaming Laws and
the maintenance of licenses thereunder by Buyer and its Affiliates. Seller shall
cause the Company and the Subsidiaries to promptly supply such information
regarding the Company and the Subsidiaries and the operation of the Business
reasonably requested by Buyer to respond to inquiries which may be made by any
gaming board, commission or authority including, without limitation, with
respect to litigation, indictments, criminal proceedings and the like of the
Company, the Subsidiaries or any of their officers, directors or employees.
Buyer and its Affiliates shall use their best reasonable efforts to promptly
respond to requests for information or resolve any objection made by any such
board, commission or authority with respect to the transactions contemplated by
this Agreement or the Business and Buyer shall promptly notify Seller of any
objection it may receive. Upon written request from Buyer, Buyer and Seller may
mutually agree to adjourn the Closing Date for one or more reasonable periods,
to enable Buyer or its Affiliates to (i) respond to or address requests by any
such commission, board or authority for information, objections or requests for
additional time to examine the transaction and (ii) comply with any Gaming Law.
If prior to March 31, 1996, Buyer or its Affiliates reasonably determines, with
advice of counsel, that as a result of the transactions contemplated by this
Agreement being consummated, it will not be in compliance with any applicable
Gaming Laws or the maintenance of any existing gaming licenses or the obtaining
of gaming licenses or
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permits by Buyer or any of its Affiliates will be jeopardized, then Buyer shall
have the right to terminate this Agreement without penalty by written notice of
its election to do so. Notwithstanding any provision of the foregoing to the
contrary, in the event that Buyer has not notified Seller of any request for
information or any objection raised by any gaming board, commission or authority
by March 15, 1996, and this Agreement is subsequently terminated pursuant to
this provision, Buyer shall reimburse Seller for its reasonable expenses,
including attorneys' and accountants' fees and expenses, incurred after March
15, 1996 in preparing for the Closing.
6.16 Code Section 338 Election. If timely requested in writing by Seller,
Buyer shall, at the time and in the manner requested by Seller, join with Seller
in making a Code Section 338(h)(10) (as amended) election with respect to the
purchase and sale of the Shares and, in connection therewith, (i) shall cause a
Department of Treasury Form 8023-A (or the successor form thereto) that has been
completed in accordance all applicable Treasury Regulations to be executed on
the Closing Date and deliver same to Seller, and (ii) take such other action as
Seller shall reasonably request including, without limitation, providing Seller
with any requested information, and making available and causing appropriate
persons to take any action on behalf of Seller, required for the making of a
Code Section 338(h)(10) election in accordance with all applicable Treasury
Regulations and Department Treasury Form 8023-A. For purposes of the Code
Section 338(h)(10) election, the
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parties shall determine and allocate the Modified Aggregate Deemed Sale Price
(as defined by the applicable Treasury regulations) ("MADSP") among the assets
of the Company and prepare any required forms in accordance with the procedures
set forth on Schedule 6.16 of the Disclosure Schedule. The Buyer and the Seller
agree to act in accordance with such allocations in any relevant income tax
return or similar filings. Seller shall pay any income Tax attributable to the
making of the Section 338(h)(10) election (and shall indemnify Buyer and the
Company against any adverse consequences arising out of any failure to pay such
income Tax) in accordance with the tax indemnification provisions set forth in
this Agreement. Seller will also pay any state, local or foreign Tax (and
indemnify Buyer and the Company against any adverse consequences arising out of
any failure to pay such Tax) attributable to an election under state, local or
foreign law similar to the election under Section 338(g) of the Code (or which
results from the making of an election under Section 338(g) of the Code) with
respect to the purchase and sale of the Shares hereunder where the state, local
or foreign tax jurisdiction (i) does not provide or recognize a Section
338(h)(10) election or (ii) does not apply its provisions corresponding to
Section 338(h)(10) of the Code to the purchase and sale of the Shares.
6.17 Buyer Cooperation. Buyer shall use all reasonable efforts, at Seller's
expense (except for the cost of services rendered by employees of Buyer or its
Affiliates) to cooperate with Seller in obtaining consents of any Persons
required under the
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documents and agreements set forth on Schedule 8.9 of the Disclosure Schedule.
6.18 Consents. An Affiliate of Buyer is a party to agreements with
(i)Panasonic Software Company and Interactive Media Division of Matsushita
Electric Industrial Co., Ltd. ("Panasonic"); and (ii) G.T. Interactive Software
Corp. ("GTI") which agreements conflict with the WEA Distribution Agreement, the
WIE License Agreement and certain other agreements to which the Company is a
party (the "Conflicting Agreements"). Accordingly, it is necessary for Buyer's
Affiliate to obtain the consents of Panasonic and GTI to the Company's
performance of its obligations under the Conflicting Agreements prior to the
Closing Date. Buyer shall use its best efforts to secure such consents prior to
March 7, 1996. Buyer shall immediately notify Seller if such consents have not
been obtained by Buyer prior to March 7, 1996 and shall advise Seller of
specific issues which require consent. Seller shall have ten business days to
cause the Company to modify, cancel, terminate or otherwise remedy the conflicts
the Conflicting Agreements have with the Panasonic and GTI agreements and Seller
and Buyer shall mutually consult and cooperate with each other to resolve the
conflicting issues. If such conflicts are not resolved within such ten business
days or if the consents of Panasonic and GTI are not obtained by such time,
Buyer shall then have the right to terminate this Agreement without penalty by
written notice of its election to do so.
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6.19 Public Announcement. Buyer, Seller and their Affiliates shall not make
any public disclosure or announcement regarding this Agreement or the
transactions contemplated hereby prior to such time as the consents referred to
in Section 6.18 hereof have been obtained by Buyer's Affiliate.
6.20 Disposition of TWIL. Prior to the Closing Date, Seller shall cause the
Company to dispose of all of the capital stock of TWIL by dividend made to
Seller or an Affiliate of Seller or otherwise. To the extent that the WEA
Distribution Agreement, the WEI License Agreement or any other contract or
agreement set forth on Schedule 4.18 of the Disclosure Schedule relate to the
game "Pit Ball" or provide or require the obligations thereunder to, in whole or
in part, be performed by TWIL, Seller shall or Seller shall cause TWIL to assume
and perform TWIL's obligations thereunder. Seller shall indemnify and hold
harmless Buyer and its Affiliates, in accordance with this Agreement, from any
Liabilities of TWIL and its business and from any Liabilities under any contract
or agreement to which the Company or any Subsidiary is a party insofar as such
contract or agreement relates to the game "Pit Ball." Buyer acknowledges that
the Company and the Subsidiaries shall have no rights in and to the game "Pit
Ball" after the Closing.
6.21 Assignments by TWIL. Prior to the Closing Date, if requested by Buyer,
Seller will cause TWIL to assign the International Nintendo Licenses to the
Company or to one of the Subsidiaries, as Buyer shall designate. In the event of
such
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assignment, Seller and the Company shall cooperate with Buyer in obtaining the
consent of Nintendo Co., Ltd. to such assignment.
ARTICLE VII
7. CONDITIONS PRECEDENT OF SELLER
The obligation of Seller to consummate the transactions described in
Article II hereof is subject to the fulfillment of each of the following
conditions prior to or at the Closing:
7.1 Representations and Warranties. The representations and warranties of
Buyer made hereunder shall be true in all material respects at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except to the extent that any representation or warranty is made as of a
specified date, in which case such representation or warranty shall be true in
all material respects as of such date.
7.2 Agreements. Buyer shall have performed and complied in all material
respects with all its undertakings and agreements required by this Agreement to
be performed or complied with by Buyer prior to or at the Closing.
7.3 Buyer Certificate; Payment.
--------------------------
7.3.1 Seller shall have been furnished with a certificate of an
authorized officer of Buyer, dated the Closing Date, certifying to the effect
that the conditions contained in Sections 7.1 and 7.2 hereof have been fulfilled
and confirming the acknowledgement set forth in Section 9.2 hereof.
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7.3.2 Seller shall have received confirmation of the receipt of the
Cash Payment to be made at Closing in respect of the Purchase Price in the
manner prescribed in Section 3.2.2.1 hereof, or such other means as Seller may
deem acceptable at the Closing.
7.3.3 The Company shall have duly executed and delivered to Seller the
Interim Four Year Note, the Interim Two Year Note and the Security Agreements
together with the documents and instruments contemplated thereby.
7.4 No Injunction. No injunction, restraining order or decree of any nature
of any court or governmental or regulatory authority shall exist against Buyer,
Seller, or any of their respective Affiliates, or any of the principals,
officers or directors of any of them, that restrains, prevents or materially
changes the transactions contemplated hereby.
7.5 Government Approval. All material consents, approvals and
authorizations of governmental and regulatory authorities, and all material
filings with and notifications of governmental authorities and regulatory
agencies or other entities which regulate the Seller, the Company, the
Subsidiaries or Buyer, necessary on the part of Seller or Buyer or their
respective Affiliates to the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, shall have been obtained
or effected (and all applicable waiting periods, if any, including any
extensions thereof, under any applicable law, statute, regulation or rule,
including but not limited to the HSR
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Act, if applicable, shall have expired or terminated, as applicable).
7.6 Miscellaneous Closing Deliveries. Seller shall have received each of
the following:
7.6.1 all documents, instruments and other closing deliveries;
7.6.2 such evidence as Seller may reasonably request, in order to
establish (i) the corporate power and authority of Buyer to consummate the
transactions contemplated by this Agreement and (ii) compliance with the
conditions of Closing set forth herein;
7.6.3 an opinion of counsel to Buyer reasonably acceptable to Seller
substantially in the form of Exhibit F to the Disclosure Schedule.
ARTICLE VIII
8. CONDITIONS PRECEDENT OF BUYER
The obligation of Buyer to consummate the transactions described in Article
II hereof is subject to the fulfillment of each of the following conditions
prior to or at the Closing:
8.1 Representations and Warranties. The representations and warranties of
Seller made hereunder shall be true in all material respects at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except to the extent that any representation or warranty is made as of a
specified date, in which case such representation or warranty shall be true in
all material respects as of such date.
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8.2 Agreements. Seller shall have performed and complied in all material
respects with all of its respective undertakings and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing.
8.3 Seller Certificate. Buyer shall have been furnished with a certificate
of an authorized officer of Seller, dated the Closing Date, certifying to the
effect that the conditions contained in Sections 8.1 and 8.2 hereof have been
fulfilled.
8.4 Interim Balance Sheet. Buyer shall have received the Interim Balance
Sheet, in form and in level of detail reasonably satisfactory to it together
with the Certificate and letter described in Section 2.3 hereof.
8.5 Environmental Reviews. Buyer shall have received results satisfactory
to Buyer of the environmental reviews it conducts on the premises owned or
occupied by the Company, the Subsidiaries or the Business, provided that any
such results of such reviews were obtained as required under Section 6.3 hereof.
The results of any such environmental review shall be deemed acceptable to Buyer
if (i) such review does not reveal a condition that constitutes a violation of
any Environmental Law or which absent remedial action, with or without the
passage of time, would become a violation of any Environmental Law or (ii) any
environmental condition which absent remedial action, with or without the
passage of time, would reasonably be expected to result in a material liability
or a violation of any Environmental Law is revealed in a written report
submitted by Buyer's independent environmental audit firm and has
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been provided to Seller and the written estimate by Buyer's independent
environmental audit firm with respect to the reasonable good faith cost to
remedy such environmental condition (a) (i) does not exceed US$25,000, or (ii)
exceeds US$25,000 but is less than $2,000,000 and Seller, at Seller's option,
deducts from the Purchase Price and reduces the Cash Payment by the amount of
such estimate in excess of US$25,000 and (b) the remedial or clean up action
determined by Buyer's independent environmental audit firm as necessary to
correct an environmental condition identified in such report is not reasonably
expected to result in or require any disruption in the operation of the Business
(whether by interruption or change of operations or otherwise) that would have a
material adverse impact on the Business.
8.6 No Injunction. No injunction, restraining order or decree of any court
or governmental or regulatory authority shall exist against Buyer, Seller or any
of their respective Affiliates, or any of the principals, officers or directors
of any of them, that restrains, prevents or materially changes the transactions
contemplated hereby.
8.7 Government Approval. All consents, approvals and authorizations of
governmental and regulatory authorities, and all filings with and notifications
of governmental authorities and regulatory agencies or other entities which
regulate the business of Seller or Buyer or their respective Affiliates,
necessary on the part of Seller or Buyer, or their respective Affiliates, to the
execution and delivery of this Agreement and the consummation of
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the transactions contemplated hereby, shall have been obtained or effected (and
all applicable waiting periods, if any, including any extensions thereof, under
any applicable law, statute, regulation or rule, including but not limited to
the HSR Act, if applicable, shall have expired or terminated, as applicable).
8.8 Financial Statements. Buyer shall have been furnished with copies of
the Audited Financial Statements for each of the 9 months ended December 31,
1994 and the fiscal year ended December 31, 1995 in form and content acceptable
for filing by Buyer on Form 8-K with the Securities and Exchange Commission in
connection with the transactions contemplated by this Agreement.
8.9 Consents. Consents of any Persons required under the documents and
agreements referred to in Section 4.18 hereof as a result of the sale and
transfer of the Shares to Buyer hereunder and to the sale and transfer of the
Shares to Buyer hereunder, all as set forth on Schedule 8.9 of the Disclosure
Schedule, shall have been obtained and delivered to Buyer and certificates of
the Persons designated by an asterisk on Schedule 8.9 of the Disclosure Schedule
shall have been obtained and delivered to Buyer confirming that each document or
agreement referred to in such certificate is in full force and effect and no
party thereto is in default and no claim of default by any party has been made
or is pending and there does not exist any event which with notice or the
passing of time, or both, would constitute a default or would excuse performance
by any party thereof. Such consents and certificates shall also have been
obtained and delivered to Buyer in respect of contracts
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entered into in the ordinary course of business between the date hereof and the
Closing Date.
8.10 Instruments of Transfer. Buyer shall have received a stock certificate
or stock certificates, evidencing the Shares, in each case endorsed in blank for
transfer or with separate stock powers sufficient to transfer all of Seller's
right, title and interest in and to the Shares to Buyer and to vest in Buyer
good and marketable title to the Shares in accordance with the terms of this
Agreement.
8.11 Books of Account. Buyer shall have received the Company's books of
account, records, leases, indentures, contracts, agreements, evidences of
indebtedness, securities, correspondence and other documents relating to the
Business including the minute books of the Company and the Subsidiaries. Unless
otherwise requested by Buyer, delivery of the foregoing shall not be effected by
physical delivery at the Closing but by surrendering possession of the premises
containing the foregoing to Buyer.
8.12 Resolutions.
8.12.1 Buyer shall have received a certificate of the Secretary of
Seller certifying the resolutions duly adopted by the board of directors of
Seller authorizing and approving the transfer of the Shares and performance by
Seller of its obligations hereunder and the other documents and instruments to
be executed and delivered in connection herewith and stating that such
resolutions have not been amended or revoked and are in full force and effect on
the Closing Date.
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8.13 Incumbency Certificates. Buyer shall have received a certificate of
the Secretary of Seller dated the Closing Date as to the incumbency and
signatures of each of their respective officers authorized to act with respect
to this Agreement and the documents and instruments to be executed in connection
herewith.
8.14 Certificates of Incorporation. Buyer shall have received the
Certificate of Incorporation (or other appropriate charter document) for each of
the Company and the Subsidiaries as issued and certified within five business
days prior to the Closing Date by the Secretary of State (or other appropriate
governmental authority) of their respective jurisdiction of incorporation.
8.15 By-laws. Buyer shall have received a Certificate of the Secretary for
each of the Company and the Subsidiaries certifying that the By-laws attached
thereto are true and complete and in full force and effect on the Closing Date.
8.16 Good Standing Certificates. Buyer shall have received long form
certificates of good standing (or the equivalent thereof) (i) for Seller, issued
by the Secretary of State of Delaware and (ii) to the extent available, for the
Company and the Subsidiaries issued by the Secretary of State (or other
appropriate governmental authority) of each of their respective jurisdictions of
incorporation and by each jurisdiction where they are qualified to do business,
dated and certified within five business days prior to the Closing and, to the
extent available, bring-down good standing telegrams dated the Closing Date.
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8.17 Resignations of Officers and Directors. Buyer shall have received the
resignations of the officers and directors of the Company and the Subsidiaries
effective on or prior to the Closing Date.
8.18 Disposition of TWIL. Seller shall have caused the Company to have
disposed of TWIL in accordance with Section 6.20 hereof.
8.19 WEA Distribution Agreement. The term of the WEA Distribution Agreement
shall have been terminated, all outstanding issues regarding the "Products" as
defined therein shall have been reasonably resolved pursuant to the terms of the
WEA Distribution Agreement or, if there is no pertinent provision therein, in
the customary fashion, and appropriate entries shall be made in the Company's
books and records with respect to the receivable due TWIC and any price
protection arrangements or reductions in the value of such Products.
8.20 WIE License Agreement. The WIE License Agreement shall have been
amended so as to provide that TWIC shall have no obligation to continue to
manufacture products in Ireland, and to make, if necessary, appropriate
recognition with respect to price if such products were previously manufactured
in Ireland and are thereafter manufactured in places other than Ireland or by
third parties.
8.21 Miscellaneous Closing Deliveries. Buyer shall have received each of
the following:
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8.21.1 all documents, instruments and other closing deliveries, including
without limitation, those specified in Section 3.2 hereof;
8.21.2 such additional evidence as Buyer may reasonably request, in order
to establish (i) the corporate power and authority of Seller to consummate the
transactions contemplated by this Agreement and (ii) compliance with the
conditions of closing set forth herein; and
8.21.3 opinions of counsel to Seller reasonably acceptable to Buyer
substantially in the form of Exhibits G and H to the Disclosure Schedule.
8.22 Further Documents. Buyer shall have received such further
certificates and documents as shall have been reasonably requested by Buyer.
ARTICLE IX
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; CERTAIN ACKNOWLEDGMENTS
9.1 Survival of Representations and Warranties of Seller.
Notwithstanding any right of Buyer and its representatives fully to investigate
the affairs of the Company and the Subsidiaries and the Business and
notwithstanding any knowledge of facts determined or determinable by Buyer and
its representatives pursuant to such investigation or right of investigation,
Buyer has the right to rely fully upon the representations, warranties,
covenants and agreements of Seller contained in this Agreement. All such
representations warranties, covenants and agreements shall survive
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the execution and delivery hereof except that the representations and
warranties set forth in (i) Sections 4.1, 4.5, 4.6, 4.7, 4.10, 4.11, 4.12,
4.13, 4.18, 4.19, 4.21 and 4.29 hereof shall survive for one and one-half
years after the Closing Date; (ii) Sections 4.2, 4.9 (excluding the first
two sentences thereof), 4.14, 4.16, 4.17, 4.20, 4.26, 4.27 and 4.28 hereof
shall survive for three years after the Closing Date; (iii) Sections 4.15
and 4.22 shall survive for a period equal to the applicable statute of
limitations with respect to the assertion of a claim for each such matter;
and (iv) Sections 4.82, 4.84 and 4.86 shall survive, with respect to each
of the license agreements referred to therein, for a period equal to one
year after the expiration of each such license; and thereafter, neither
Buyer nor any affiliate of Buyer shall be entitled to first assert a claim
against Seller by reason of any such representation or warranty being
untrue or incorrect when made.
9.2 Information. Buyer hereby acknowledges each of the following:
9.2.1 Buyer has received all materials relating to the Business of the
Company and the Subsidiaries which it has requested and has been afforded the
opportunity to obtain any additional information necessary to verify the
accuracy of any such information or of any representation or warranty made by
Seller hereunder or to otherwise evaluate the merits of the transactions
contemplated hereby;
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9.2.2 Seller and its representatives have answered to Buyer's all
inquiries that Buyer or its representatives have made concerning the Business or
otherwise relating to the transactions contemplated hereby; and
9.2.3 Buyer has not relied, in whole or in part, on any information
contained in the Offering Memorandum and Seller is making no representations or
warranties with respect to the Offering Memorandum.
ARTICLE X
10. INDEMNIFICATION
10.1 Indemnification of Buyer and its Affiliates by Seller. Seller shall
defend and promptly indemnify and hold harmless Buyer and its Affiliates,
successors and assigns from and against any and all (i) liabilities, losses,
costs or damages ("Loss"); and (ii) reasonable attorneys' and accountants' fees
and expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by Buyer and its Affiliates in connection with or arising
from:
10.1.1 any breach by Seller of any of its covenants or agreements in
this Agreement or in any agreement or instrument contemplated hereby;
10.1.2 any failure of Seller to perform any of its obligations in this
Agreement or any agreement or instrument contemplated hereby;
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10.1.3 any representation or warranty of Seller in this Agreement or
any agreement or instrument contemplated hereby being untrue or incorrect in any
respect;
10.1.4 any liability of Seller for any Tax for transactions or periods
on or prior to the Closing Date; and
10.1.5 the actual cost of any remedial or clean up action identified
in the report received by Buyer in excess of the sum of US$25,000 and the amount
deducted from the Purchase Price in accordance with Section 8.5 hereof;
10.1.6 all Liabilities of the Company and the Subsidiaries relating to
TWIL, including, without limitation, Liabilities arising out of the conduct of
TWIL's business or the game "Pit Ball" prior to and after the Closing Date; and
10.1.7 any Liability of the Company and the Subsidiaries except:
10.1.7.1 all liabilities and obligations of the Company and the
Subsidiaries which are reflected or reserved against on the December 31, 1995
Financial Statements and continue to exist on the Closing Date, but only to the
extent so reflected or reserved against;
10.1.7.2 all liabilities and obligations incurred or reserved for
by the Company or the Subsidiaries in the ordinary course of the Business and
consistent with the terms and provisions of this Agreement subsequent to
December 31, 1995 and prior to the Closing Date which continue to exist on the
Closing Date;
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10.1.7.3 Taxes accrued by the Company and the Subsidiaries as
reflected on the Certified Final Balance Sheet and allocated to Buyer pursuant
to Section 6.5 hereof;
10.1.7.4 all liabilities and obligations under the contracts
listed on Schedule 4.18 of the Disclosure Schedule and those to which the
Company or the Subsidiaries become a party in the ordinary course of business
and consistent with the terms and provisions of this Agreement subsequent to the
date of this Agreement and prior to the Closing Date, which are not performed or
discharged prior to the Closing Date;
10.1.7.5 all liabilities and obligations of the Company or the
Subsidiaries to their employees after the Closing Date for wages, salaries,
bonus, vacation, severance or other remuneration for services rendered to the
Company or the Subsidiaries prior to the Closing Date to the extent disclosed on
Schedule 10.1 of the Disclosure Schedule or reflected on the Final Balance
Sheet;
10.1.7.6 all liabilities and obligations of the Company or the
Subsidiaries for death or personal injury, other injury to persons, property
damage, loss or deprivation of rights resulting or arising from occurrences
after the Closing Date (whether based on statute, negligence, breach of
warranty, strict liability or any other theory) caused by or resulting from,
directly or indirectly, any defect or claimed defect in or with respect to any
product manufactured, sold or distributed by the Company or the Subsidiaries but
as to any product manufactured,
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sold or distributed by the Company or any Subsidiary prior to the Closing Date,
Buyer and the Company shall be indemnified for any liability for any punitive
damages; and
10.1.7.7 all Liabilities of the Company and the Subsidiaries arising
from the conduct of the Business after the Closing except as otherwise stated
herein.
10.2 Liabilities included in Indemnification. The Liabilities for
which Seller is required to indemnify Buyer and its Affiliates as provided in
Section 10.1.7 shall include, without limitation, the following Liabilities of
the Company and the Subsidiaries:
10.2.1 any Inter-company Accounts existing as of the Closing Date;
10.2.2 all Taxes now or hereafter owed by the Company or any of its
Affiliates including the Subsidiaries, and any Taxes arising from, relating to
or attributable to the Business relating to any period or portion of any period,
ending on or prior to the Closing Date (other than Taxes accrued and reflected
on the Final Balance Sheet and allocated to the Company pursuant to Section 6.5
hereof) and Taxes incurred by the Company or its Affiliates arising in
connection with the transactions contemplated by this Agreement except for such
Taxes identified in Section 6.5.8 hereof;
10.2.3 all Liabilities of the Company or the Subsidiaries to employees
of the Company or the Subsidiaries with respect to (x) wages, salaries, bonus,
vacation, severance or other remuneration; (y) pension, profit sharing, health,
medical and life insurance benefits or other employee benefits payable to any
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employees; (z) employee claims or employer-related claims, including, without
limitation post termination medical insurance, that are not disclosed in the
Disclosure Schedule or reserved for on the Final Balance Sheet, in each case
concerning or relating to time periods prior to the Closing Date;
10.2.4 all Liabilities of Seller or its Affiliates arising or incurred
in connection with the negotiation, preparation and execution of this Agreement
and the transactions contemplated hereby, including, without limitation, fees
and expenses of Seller's counsel, accountants, investment bankers and other
advisors;
10.2.5 all Liabilities of the Company or the Subsidiaries relating to
or arising out of (x) any failure prior to the Closing Date to comply with any
applicable Environmental Law or any failure prior to the Closing Date to procure
any permit, approval, identification number, license or other authorization
required under any Environmental Law ("Environmental Permit"); (y) any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, investigations,
proceeding, consent orders or consent agreements relating in any way to any
Environmental Law or any Environmental Permit and relating to any period prior
to the Closing Date; or (z) the alleged or actual release of any toxic or
hazardous waste, constituent or other substance into the environment during any
period prior to the Closing Date, whether or not attributable to actions or
failures to act by the Company, the
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Subsidiaries or any of their Affiliates or any predecessor of the foregoing with
respect to the operation of or properties utilized in connection with the
Business at any time prior to the Closing Date except those identified in the
written report provided to Seller of Buyer's independent environmental audit
firm and subject to the provisions of Section 8.5 hereof;
10.2.6 all Liabilities of the Company or the Subsidiaries for death or
personal injury, other injury to persons, property damage, loss or deprivation
of rights resulting from occurrences on or before the Closing Date (whether
based on statute, negligence, breach of warranty, strict liability or any other
theory) caused by or resulting from, directly or indirectly, any defect or
claimed defect in or with respect to any product manufactured, sold or
distributed in the Business except to the extent reserved for on the Final
Balance Sheet and only to the extent reserved, including the cost of defense.
10.3 Limitations on Indemnification by Seller. Seller's obligations to
indemnify Buyer or its Affiliates, successors or assigns under Section 10.1
hereof shall be limited and conditioned by the following:
10.3.1 to the extent Buyer's operation or conduct of the Company or
the Subsidiaries after the Closing or a failure to act, knowingly contributes to
or aggravates a Loss or Expense covered by Section 10.1 hereof, Seller's
obligation to indemnify thereunder shall be reduced by such contribution or
aggravation;
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10.3.2 Seller shall be required to indemnify and hold harmless under
Section 10.1.3 hereof, excluding representations and warranties contained in
Sections 4.3, 4.4, 4.8.1, 4.8.3, 4.8.5, the first two sentences of 4.9, 4.15,
4.22, 4.23 and 4.24 hereof, with respect to a Loss and/or Expense incurred by
Buyer or its affiliates, successors and assigns only to the extent that the
aggregate amount of such Losses and Expenses exceed US$625,000 (the "Seller's
Basket"), and then only for the excess over Seller's Basket, not exceeding, in
aggregate, an amount equal to 50% of the Purchase Price ("Seller's Cap").
Sellers' obligation to indemnify and hold harmless with respect to the
representations and warranties contained in Sections 4.3, 4.4, 4.8.1, 4.8.3,
4.8.5, the first two sentences of 4.9, 4.15, 4.22, 4.23 and 4.24 hereof is for
the full extent of any associated Losses or Expenses and is not subject to
Seller's Basket or Seller's Cap.
10.4 Indemnification of Seller by Buyer. Buyer shall defend and promptly
indemnify and hold harmless Seller and its Affiliates, successors and assigns
from and against any and all Losses and Expenses incurred by Seller and its
Affiliates in connection with or arising from:
10.4.1 any breach by Buyer of any of its covenants or agreements in
this Agreement or in any agreement or instrument contemplated hereby;
10.4.2 any failure of Buyer to perform any of its obligations in this
Agreement or any agreement or instrument contemplated hereby; and
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10.4.3 any representation or warranty of Buyer in this Agreement or
any agreement or instrument contemplated hereby being untrue or incorrect in any
respect.
10.5 Notice and Defense of Claims.
10.5.1 If a party to this Agreement believes that any of the persons
indemnified under this Article X has suffered or incurred any Loss or incurred
any Expense, such party shall so notify the other promptly in writing describing
such Loss or Expense, the amount thereof, if known, and the method of
computation of such Loss or Expense, all with reasonable particularity and
containing a reference to the provisions of this Agreement or other agreement,
instrument or certificate delivered pursuant hereto in respect of which such
Loss or Expense shall have occurred. If any action at law or suit in equity is
instituted by or against a third party with respect to which any of the
indemnified persons intends to claim any liability or expense as a Loss or
Expense under this Article X, any such indemnified person shall promptly notify
the indemnifying party of such action or suit.
10.5.2 The indemnifying party's obligation to indemnify the
indemnified party with respect to any asserted claim as to which the
indemnifying party's ability to defend has been prejudiced by the indemnified
party's failure to provide prompt notice of the claim shall not be affected by
such delay except to the extent that such delay increased the amount of the Loss
or Expense. The indemnifying party shall bear the burden of proof
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with respect to any claim that a delay in notification by the indemnified
party resulted in increased Losses or Expenses and the extent of such
increase.
10.5.3 The indemnifying party may, upon written notice to the
indemnified party within 30 calendar days of receipt of notice of the assertion
or pendency of a claim hereunder, assume the defense of any such claim, or any
discrete portion of a claim, if the indemnifying party acknowledges to the
indemnified party the indemnified party's right to indemnity pursuant hereto in
respect of the entirety of such claim, or the relevant portion thereof.
10.5.4 If the indemnifying party assumes the defense of any such
claim, the indemnifying party shall select nationally recognized counsel or
counsel reasonably acceptable to the indemnified party (including in-house tax
counsel of Seller or its Affiliates with respect to claims involving Tax matters
for which Buyer or its Affiliates is the indemnified party) to conduct the
defense of such claim, and shall take reasonable steps in the defense or
settlement thereof. If the indemnifying party shall have assumed the defense of
any claim in accordance with this Section 10.5, the indemnifying party shall be
authorized to consent to a settlement of, or the entry of any judgment arising
from, any such claim, without the prior written consent of the indemnified
party; provided however that the indemnifying party shall pay or cause to be
paid all amounts arising out of such settlement or judgment concurrently with
the effectiveness thereof; provided further that the indemnifying party shall
not be authorized to
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encumber any of the assets of the indemnified party or to agree to any
restriction that would apply to the indemnified party, or to its conduct of
business; provided further that if such settlement does not contain a complete
release of the indemnified party with respect to such claim, the indemnifying
party shall continue to be obligated to indemnify the indemnified party with
respect to such claim.
10.5.5 The indemnified party shall be entitled to participate in (but
not control) the defense of any such action, with its own counsel and at its own
expense. The indemnified party shall, and shall cause each of its affiliates,
officers, employees, consultants and agents, as applicable, to cooperate fully
with the indemnifying party in the defense of any claim pursuant to this Section
10.5.
10.5.6 If the indemnifying party does not assume the defense of any
claim resulting therefrom in accordance with the terms of this Section 10.5, the
indemnified party may defend against such claim in such manner as it may
reasonably deem appropriate, including settling such claim after giving notice
of same to the indemnifying party, on such terms as the indemnified party may
reasonably deem appropriate. The indemnifying party shall be bound by the terms
of any settlement so made by the indemnified party.
10.6 Characterization as Price Adjustment. The parties agree that any
payment made under this Section 10 shall be treated by the parties as an
adjustment to the Purchase Price. In the event that
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Buyer or its Affiliates are entitled to be indemnified by Seller for Losses and
Expenses arising under Section 10.1.3 hereof other than the representations and
warranties set forth in Sections 4.3, 4.4, 4.8.1, 4.8.3, 4.8.5, the first two
sentences of 4.9, 4.15, 4.22, 4.23 and 4.24 hereof, the amount of such Loss or
Expense first shall be offset against any amounts due under the Two Year Note or
the Four Year Note to the extent allocated to each such note as determined by
Buyer.
ARTICLE XI
11. MISCELLANEOUS
11.1 Further Assurances.
11.1.1 From time to time after the Closing, Seller will execute and
deliver, or cause to be executed and delivered, to Buyer such documents as Buyer
shall reasonably request in order to vest more effectively in Buyer good title
to the Shares, or to vest in the Company, good title to its assets, and from
time to time after the Closing, Buyer will execute and deliver, or cause to be
executed and delivered, such documents to Seller as Seller shall reasonably
request in order to consummate more effectively the transactions contemplated by
this Agreement.
11.2 Expenses. Each of the parties hereto shall pay the fees and expenses
of its respective counsel, accountants and other experts and shall pay all other
expenses incurred by it in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
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11.3 Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without reference to choice of
law principles, including all matters of construction, validity and performance.
11.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if signed by the respective
Person giving such notice or other communication (in the case of any corporation
the signature shall be by an authorized officer thereof) upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
If to Seller, to:
Warner Communications Inc.
75 Rockefeller Plaza
New York, NY 10019
Telecopier: (212) 323-3987
Attention: Chief Financial Officer
with copies to:
Gold, Farrell & Marks
41 Madison Avenue
New York, NY 10010-2201
Telecopier: (212) 481-1722
Attention: Charles R. Dickey, Esq.
If to Buyer to:
Williams Interactive Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (312) 961-1099
Attention: President
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
Telecopier: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
Such names and addresses may be changed from time to time by such notice.
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11.5 Entire Agreement. This Agreement (including the Disclosure Schedule,
each of which are a part hereof) the other documents and instruments
contemplated hereby and the Confidentiality Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein, supersedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting such subject matter, including but not limited to the Offering
Memorandum. There are no restrictions, promises, representations, warranties,
agreements or undertakings of any party hereto direct or implied with respect to
the transactions under this Agreement other than those set forth herein or made
hereunder.
11.6 Amendments. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
11.7 Headings; References. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. All references
herein to "Articles", "Sections", or "Schedules" shall be deemed to be
references to Articles or Sections hereof or Schedules of the Disclosure
Schedule unless otherwise indicated.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original.
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11.9 Parties in Interest; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors. Except as provided in or contemplated by Sections 6.6 and 6.10
hereof and Article X hereof (each of which shall confer upon the Persons
referred to therein for whose benefit it is intended the right to enforce such
Section or Article, as applicable), nothing in this Agreement, express or
implied, is intended to confer upon any Person not a party to this Agreement any
rights or remedies under or by reason of this Agreement. No party to this
Agreement may assign or delegate all or any portion of its rights, obligations
or liabilities under this Agreement without the prior written consent of the
other party to this Agreement.
11.10 Severability; Enforcement. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If it
is ever held that any restriction hereunder is too broad to permit enforcement
of such restriction to its fullest extent, each party agrees that a court of
competent jurisdiction may enforce such restriction to the maximum extent
permitted by law, and each party hereby consents and agrees that such scope may
be judicially modified accordingly in any proceeding brought to enforce such
restriction.
11.11 Jurisdiction. The parties hereto hereby irrevocably and
unconditionally submit to the exclusive jurisdiction of the state and federal
courts located in the Borough of Manhattan, The City of New York, for any
actions, suits, or proceedings arising out of or
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relating to this Agreement and the transactions contemplated hereby (and agree
not to commence any action, suit or proceeding relating thereto except in such
courts), and further agree that service of any process, summons, notice or
document by U.S. registered mail to the respective party's address set forth
above shall be effective service of process of any action, suit or proceeding
brought in any such court. The parties hereto hereby irrevocably and
unconditionally waive any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby, in such state or federal courts as aforesaid and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
11.12 Waiver. Any of the conditions to Closing set forth in this Agreement
may be waived at any time prior to or at the Closing hereunder by the party
entitled to the benefit thereof. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of or non-compliance with
any term of this Agreement shall be held to be a waiver of any other or
subsequent breach or non-compliance of the same or any other term of this
Agreement.
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IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as
of the date first written above.
WARNER COMMUNICATIONS INC.
By: /s/ Spencer B. Hays
--------------------
Name: Spencer B. Hays
Title: Vice President
WILLIAMS INTERACTIVE INC.
By: /s/ Neil D. Nicastro
---------------------
Name: Neil D. Nicastro
Title: President
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DISCLOSURE SCHEDULE OMITTED
<PAGE>
EXHIBIT 2(b)
WILLIAMS INTERACTIVE INC.
3401 NORTH CALIFORNIA AVENUE
CHICAGO, ILLINOIS 60618
March 29, 1996
Warner Communications Inc.
75 Rockefeller Plaza
New York, N.Y. 10019
Attention: Chief Financial Officer
Re: Stock Purchase Agreement, dated as of February 23, 1996,
between Warner Communications Inc., a Delaware corporation
and Williams Interactive Inc., a Delaware corporation
-----------------------------------------------------
Gentlemen:
Reference is made to the Stock Purchase Agreement, dated as of
February 23, 1996 (the "Agreement"), between Warner Communications Inc., a
Delaware corporation, and Williams Interactive Inc., a Delaware corporation.
Capitalized terms used herein and not otherwise defined shall have the same
meaning ascribed to such terms in the Agreement.
Buyer and Seller hereby agree that:
1. The identification in the written draft report dated March 26,
1996 of Dames & Moore, Buyer's independent environmental audit firm of any
matter related to (i) the former Atari Games Ireland Limited ("Atari Games
Ireland") facility located in Ardfinnan, Co. Tipperary, Ireland, (ii) Murray
Kitchens and (iii) the above ground diesel fuel storage tank located on the
present Atari Games Ireland facility situated approximately 1 km east of
Tipperary Town Co., Tipperary, Ireland including the ground thereunder or the
wall surrounding it, shall not be deemed matters identified in such report for
purposes of Section 10.2.5 of the Agreement and the existence of any such
references in the report shall not constitute the basis for any defense to any
claim for indemnification made by Buyer under Section 10.1 of the Agreement.
2. The Company or certain of the subsidiaries have heretofore
conducted a business known as the "Simulation Division." For purposes of the
indemnification provisions of Section 10.1 of the Agreement, Buyer and its
Affiliates, successors and assigns shall be entitled to be indemnified in
accordance with Section 10.1 of the Agreement with respect to all Losses and
Expenses arising from all Liabilities of the Simulation Division except to the
extent reserved against on the Interim Balance Sheet and/or the Final Balance
Sheet, whether existing at the Closing Date or arising thereafter. Such
Liabilities shall include, without limitation,
<PAGE>
Warner Communications -2- March 29, 1996
product warranty and product liability. Buyer's entitlement to indemnification
as set forth in this paragraph 2 with respect to costs and expenses incurred by
Buyer associated with the conduct of the Simulation Division after the Closing
shall be conditioned on Buyer having received Seller's prior approval of the
fact or amount of any out-of-pocket Loss or Expense (other than Losses or
Expenses covered by Paragraph 3 hereof) to be paid by Buyer and which Buyer
claims is subject to Seller's indemnification, and such Costs and Expenses shall
not include any allocation of Buyer's or the Company's general overhead costs or
expenses.
3. To the extent that the Company or the Subsidiaries incur, prior
to the Closing, severance or other employee termination costs and expenses with
respect to employees employed by the Simulation Division, the minimum Working
Capital required at Closing pursuant to Section 6.13 of the Agreement shall not
be reduced as provided for in Section 6.2.2 of the Agreement with respect to
such costs and expenses relating to Simulation Division employees. To the
extent that any employees employed solely in the Simulation Division remain
employees of the Company or the Subsidiaries as of the Closing Date, all
Liabilities to such employees for wages, severance and the like shall be the
sole responsibility of Seller and Buyer and its Affiliates shall be fully
indemnified with respect to such Liabilities in accordance with Section 10.1 of
the Agreement. Notwithstanding any other provision of this paragraph 3 to the
contrary, Seller's obligation to indemnify Buyer with respect to Liabilities of
the Company or the Subsidiaries for salary, wages or other compensation of
employees employed solely in the Simulation Division shall terminate thirty (30)
days after the Closing, after which time Seller shall not be obligated to pay or
indemnify Buyer for (i) any portion of the salary, wages or other compensation
of such employees, and/or (ii) any increment or additional amount of severance
or other termination costs associated with such employees occasioned by such
employees' continued employment by the Company or the Subsidiaries beyond thirty
(30) days after the Closing.
4. Notwithstanding any other provision of this agreement to the
contrary, on or before the expiration of thirty (30) days after the Closing, the
Company shall either (i) use all reasonable efforts to sell the assets used
exclusively by the Simulation Division (the "Simulation Division Assets"), or
the Simulation Division as a going concern, or (ii) shut down and commence the
liquidation of the Simulation Division and the Simulation Division Assets. From
and after the expiration of thirty (30) days after the Closing, Buyer shall not
be entitled to indemnification under the Stock Purchase Agreement or hereunder
from Seller concerning any Loss or Expense associated with Buyer's operation of
the Simulation Division after such thirty (30) day period, other than the
reasonable expenses associated with the sale of the Simulation Division Assets
or the Simulation Division as a going concern, or the shut-down and liquidation
of the Simulation Division and the Simulation Division Assets. Buyer shall, or
shall cause the Company to, pay promptly to Seller all net proceeds of the sale
of the Simulation Division Assets and/or the Simulation Division as a going
concern. In the event that the Company is unable to sell the Simulation
Division Assets or the Simulation Division as a going concern
<PAGE>
Warner Communications -3- March 29, 1996
within thirty (30) days following the Closing, Seller shall have the option, at
its sole election, to take title and ownership of all or any portion of the
Simulation Division Assets, and shall bear the costs of removing such assets
from the Buyer's premises.
5. The Final Balance Sheet shall not reflect any assets of the
Simulation Division except for the Simulation Division assets reflected on the
Interim Balance Sheet and only to the extent and in the amount assigned to such
assets as set forth on the Interim Balance Sheet.
6. Seller and Buyer hereby acknowledge that Seller has increased the
amount of its cash capital contribution to satisfy the Working Capital
requirement under Section 6.13 of the Stock Purchase Agreement by the sum of
$262,000.00, which sum shall be characterized and treated as an additional
reserve against the WEA account receivable on the Interim Balance Sheet, and
which shall be subject to adjustment and revision on the Final Balance Sheet.
7. Seller hereby waives as a condition to the Closing, the receipt
of the consent of Sony Computer Entertainment of America as provided in Section
8.9 and item 11 of Schedule 8.9 to the Agreement.
8. Buyer shall use its best reasonable efforts to track the sale or
other disposition of Inventory and receivables existing as of the Closing Date
through the delivery of the Certified Final Balance Sheet to enable Buyer and
Seller to reconcile such Inventory and receivables and the proceeds or
disposition thereof against the reserves established on the Interim and Final
Balance Sheets with respect thereto.
<PAGE>
Warner Communications -4- March 29, 1996
This letter shall constitute a supplement, clarification and amendment
to the Agreement.
Please acknowledge your agreement herewith by signing at the place
indicated below.
Very truly yours,
WILLIAMS INTERACTIVE INC.
By:/s/ Neil D. Nicastro
--------------------
Name: Neil D. Nicastro
Title: President
Agreed to and Accepted:
WARNER COMMUNICATIONS INC.
By:/s/Spencer B. Hays
------------------
Name: Spencer B. Hays
Title: Vice President
<PAGE>
EXHIBIT 2(c)
NON-NEGOTIABLE PROMISSORY NOTE
$_______________ New York, New York
Note A/[Interim/Final]Two Year Note [Closing Date]
[the fraction 10/28 times (Net Asset Value less $2 million)]
FOR VALUE RECEIVED, the undersigned, Williams Interactive Inc., a Delaware
corporation, its successors and assigns ("Payor" or "Buyer" ) promises to pay to
Warner Communications Inc. ("WCI" or "Seller"), its successors and assigns
("Payee"), at 75 Rockefeller Plaza, New York, New York 10019, or at such other
place as the holder of this Note shall specify, at the end of the Term as set
forth in paragraph 3 hereof, in such coin or currency of the United States of
America as at the time shall be legal tender for the payment of public and
private debts, the principal sum of [___] Million Dollars ($___) [equal to the
fraction of 10/28 times (Net Asset Value less $2 million)], and to pay, in like
manner and at the place of payment of the principal sum, interest accrued on
such principal sum (calculated on the basis of a 365 day year) at the rate set
forth in paragraph 2 below. Any capitalized terms not defined herein shall have
the meanings set forth in that certain stock purchase agreement dated February
23, 1996 between Seller and Buyer (the "Stock Purchase Agreement").
1. The Note. This Note is the [Interim/Final] Two Year Note ("Note A"),
referred to in the Stock Purchase Agreement, and is subject to the terms and
conditions of the Stock Purchase
<PAGE>
Agreement, including without limitation adjustment and set-off as provided
therein.
2. Interest Rate. Interest shall accrue on the outstanding principal during
the Term (as defined below) of this Note A at a rate equal to the lesser of (i)
minimum long-term applicable federal rate, as defined in Section 7872 of the
Internal Revenue Code of 1986 (as amended) and the Revenue Rulings relating
thereto, in effect from time to time during the Term hereof, as published from
time to time in the CCH Standard Federal Tax Reporter, or (ii) six percent (6%),
which interest shall be compounded quarterly on March 31, June 30, September 30
and December 31 of each year during the Term.
3. Term. Subject to the terms and provisions contained herein, Payor shall
pay in full the entire outstanding balance of principal and accrued interest
hereunder, and all other amounts which shall or may become payable under this
Note A, no later than March __, 1998 [two years from the Closing Date] (the
period between the date hereof and the earlier of (i) the date of full payment
of the entire principal and all accrued interest hereunder or (ii) March __,
1998 [two years from the Closing Date] shall be the "Term" hereof).
4. Security Agreement. This Note A, including the Interim Two Year Note and
the Final Two Year Note under the Stock Purchase Agreement, shall be secured by
that certain Security Agreement between Payor and Seller of even date herewith
relating to this Note A (the "Security Agreement"). The Security
-2-
<PAGE>
Agreement shall create a first priority security interest in the Shares of the
Company.
5. No Recourse. Notwithstanding any provision of this Note A to the
contrary, upon an Event of Default under this Note A during the Term hereof, or
upon the expiration of the Term hereof, Payee's sole remedy and recourse for
payment of any and all amounts owed or to be paid hereunder shall be those
rights granted to Payee under the Security Agreement. No recourse shall be had
against Payor or against any incorporator, shareholder, officer, director or
employee of Payor with respect to any of the obligations hereunder save for
those rights granted under the Security Agreement.
6. Prepayment. At the option of Payor, this Note may be prepaid in
whole at any time or in part from time to time without penalty or premium.
7. Events of Default. If any of the following conditions, events or acts
(each herein referred to as an "Event of Default") occurs for any reason
whatever, and whether such occurrence shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any governmental body or otherwise:
(a) Any representation or warranty made by Payor herein, in the
Security Agreement or in the Stock
-3-
<PAGE>
Purchase Agreement shall prove to have been false or misleading in any
material respect;
(b) Any default or failure to pay by Payor or the Company shall
occur, and remain uncured for ten (10) days following notice of such
default or failure to pay to Payor or the Company as the case may be,
in the payment of principal or any interest on this Note A or in
connection with the Interim or Final Four Year Note ("Note B") as and
when the same shall become due and payable (or, in the case of
additional amounts determined to be owed under Note B pursuant to the
Note B Security Agreement (as defined in paragraph 10(f) hereof) as a
result of any Audit Report (as defined under the Note B Security
Agreement), promptly after the Audit Report becomes binding and
conclusive), whether at the due date, by acceleration or otherwise;
(c) Any default shall occur and be continuing for a period of
thirty (30) days after notice thereof to Payor in the due observance
or performance of any covenant, agreement or condition of Payor
contained herein;
(d) If Payor shall create or establish, or permit or suffer the
creation or establishment, of a security interest in the Collateral
under the Security Agreement, or the Company creates or establishes,
or
-4-
<PAGE>
permits or suffers the creation or establishment, of a security
interest in the Collateral under the Note B Security Agreement;
(e) If Payor or the Company shall suspend or discontinue its
business for a period in excess of 60 days or without intention of
recommencing; shall make an assignment for the benefit of its
creditors or a composition with creditors; shall be unable, or admit
in writing its inability, to pay its debts as they mature; shall file
a petition in bankruptcy, shall become insolvent (however such
insolvency may be evidenced); shall be adjudicated bankrupt; shall
petition or apply to any tribunal for the appointment of any receiver,
liquidator, trustee or custodian of or for it or any substantial part
of its properties or other assets or shall commence any proceeding
relating to it under any bankruptcy, reorganization, arrangement,
readjustment of debt, receivership, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect; or
there shall be commenced against Payor or the Company any such
proceeding which shall remain undismissed for a period of sixty (60)
days or more, or an order, judgment or decree approving the petition
in any such proceeding shall be entered against Payor or the
-5-
<PAGE>
Company; or Payor or the Company shall by any act or failure to act indicate its
consent to, approval of or acquiescence in, any such proceeding or in the
appointment of any receiver, liquidator, trustee or custodian of or for it or
any substantial part of its properties or other assets, or shall suffer any such
appointment to continue undischarged or unstayed for a period of 90 days or
more; or Payor or the Company shall take any action for the purpose of effecting
any of the foregoing (collectively, a "Bankruptcy Event");
(f) The Company or any Subsidiary shall have transferred, conveyed or paid
by dividend or otherwise, to Buyer or any Affiliate of Buyer, any of the right,
title or interest of the Company and/or the Subsidiaries in and to any or all
tangible or intangible assets and property owned, held or maintained by the
Company and/or the Subsidiaries on the date of the execution of this Note A or
hereafter acquired by the Company or the Subsidiaries, including without
limitation all proceeds of any sale or disposition thereof in whatever form
(collectively, the "Assets") during the Term hereof, except that it shall not be
an Event of Default if there shall be no other Event of Default outstanding
hereunder and the Company or the Subsidiaries (A) pays (i) to Buyer or
Affiliates
-6-
<PAGE>
of Buyer amounts owed by the Company or the Subsidiaries to Buyer or Affiliates
of Buyer by reason of any Indebtedness of the Company or the Subsidiaries to
Buyer or Affiliates of Buyer, provided that such Indebtedness arises out of a
transaction in good faith in which the Company or the Subsidiaries receives the
benefits of the principal amount of the money or extension of credit
constituting the Indebtedness, and further provided that the rate of interest is
no more favorable to Buyer or Affiliates of Buyer than the terms of this Note A
("Affiliate Indebtedness"); (ii) to Buyer or Affiliates of Buyer amounts owed by
the Company or the Subsidiaries to Buyer or Affiliates of Buyer by reason of the
sale of goods or the providing of services or rights to the Company or the
Subsidiaries by Affiliates of Buyer, provided that the amount, price or rate
charged by Affiliates of Buyer for such goods, services and rights, and the
other terms and conditions of such arrangements, shall be no more favorable to
such Affiliates of Buyer than such as would be the result of arm's-length
transactions negotiated and concluded in good faith between independent and
unaffiliated persons, and further provided that such obligations arise only in
the ordinary course of business of the Company or the
-7-
<PAGE>
Subsidiaries for goods, services and rights reasonably necessary to the conduct
of its business ("Affiliate Obligations"); (iii) to Buyer or Affiliates of Buyer
amounts necessary to pay income taxes on or relating to the Business or
operations of the Company and the Subsidiaries as they become due, provided that
the amounts of taxes so paid be computed in good faith and as if Company and the
Subsidiaries were not affiliated with Buyer or Affiliates of Buyer ("Company
Taxes"); or (iv) to Buyer solely for the purpose of paying amounts due under
Note A, provided that Buyer acknowledges in writing that it shall use such funds
solely to pay amounts due under Note A; or (B) licenses, agreements or transfers
to Buyer or Affiliates of Buyer relating to Assets in connection with the
commercial exploitation of any products, services or intellectual property of
the Company or any Subsidiary, provided however that such license or transfer is
the result of transactions negotiated and concluded in good faith and at arm's
length and in the best interests of the Company and the Subsidiaries ("Affiliate
Licenses or Transfers");
(g) If the Company or the Subsidiaries shall sell, transfer, convey or
otherwise dispose of all or substantially all of the Assets, or if Payor's
-8-
<PAGE>
shareholder(s) or Payor sells all or substantially all of the capital stock of
Payor, the Company or the Subsidiaries, except that it shall not be an Event of
Default (A) if Payor transfers or assigns any or all of the Shares of the
Company to one or more Affiliates of Payor, provided that Payor gives reasonable
prior notice of the proposed transfer or assignment identifying the proposed
transferee or assignee, such proposed transferee or assignee confirms in writing
to Seller that it takes any such interest in the Shares subject to Seller's
rights in the Shares under this Note A and the Security Agreement, and Seller
consents thereto, which consent shall not be unreasonably withheld unless Seller
is not reasonably satisfied that such transfer or assignment will not materially
impair Seller's rights in the Shares hereunder or under the Security Agreement;
or (B) if Payor, the Company and/or the Subsidiaries (i) sell, transfer or
assign all or substantially all of the capital stock or assets of K.K. Time
Warner Interactive and/or Atari Games Ireland Limited, and (ii) do not sell,
transfer or assign all or substantially all of the capital stock or assets of
the Company and/or the Subsidiaries remaining after the sale, transfer or
assignment of K.K. Time Warner Interactive and/or Atari Games Ireland Limited;
-9-
<PAGE>
(h) If the Company or the Subsidiaries issues any additional Shares
of capital stock of the Company or the Subsidiaries, or any options,
warrants, convertible securities or other rights to acquire Shares of
capital stock of the Company or the Subsidiaries;
(i) If Buyer or any Affiliate of Buyer releases or sells any product,
game or merchandise developed in whole or in substantial part by any
persons who were employees of the Company or the Subsidiaries as of the
Closing Date, unless the entire net proceeds of such releases or sales are
paid or contributed to the Company;
Then, in any such event and at any time thereafter while such Event of Default
is continuing, the holder of this Note may, by written notice to Payor, declare
the principal of and accrued interest on this Note to be due and payable, both
as to principal and interest, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, notwithstanding
anything contained herein to the contrary.
8. Suits for Enforcement and Remedies. If any one or more Events of Default
shall occur and be continuing, the holder of this Note may proceed to protect
and enforce such holder's rights either by suit in equity or by action at a law,
or both, whether for the specific performance of any covenant, condition or
agreement contained in this Note or in aid of the exercise of
-10-
<PAGE>
any power granted in this Note, or proceed to enforce the payment of such Note
or to enforce any other legal or equitable right of the holder of this Note.
Notwithstanding the foregoing, Payor may satisfy its obligations under this Note
A and the Security Agreement at the end of the Term hereof or upon an Event of
Default by (a) paying to Seller all amounts of principal, accrued interest and
any other amounts owed or payable hereunder, or (b) by relinquishing to Seller
all Payor's right, title and interest in and to the Shares. In the event that
Payor elects to relinquish all right, title and interest in and to the Shares,
Payor hereby irrevocably waives any interest it may now or hereafter have in any
excess of the claimed or asserted value of the Shares over the amounts owed at
such time under this Note A and/or the Security Agreement.
9. Fees; Waivers, Etc.
------------------
(a) If the holder of this Note shall institute any action to enforce the
collection of principal of and/or interest on this Note, and shall prevail in
such action, there shall be immediately due and payable from Payor, in addition
to the then unpaid sum of this Note, all reasonable costs and expenses incurred
by Payee in connection therewith, including reasonable attorneys' fees and
disbursements.
(b) No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor
-11-
<PAGE>
shall any single or partial exercise of any right or remedy preclude any other
or further exercise thereof or the exercise of any other right or remedy.
(c) This Note may not be modified or discharged orally, but only in writing
duly executed by the Payor and the holder hereof.
(d) Payor hereby waives presentment, demand, notice of dishonor, protest
and notice of protest.
10. Miscellaneous.
-------------
(a) NOTICES. Except to the extent otherwise expressly provided herein, all
notices, requests, and demands provided for or permitted hereunder to be
effective shall be in writing (including facsimile communications) and shall be
personally delivered (including delivery by express mail or courier), sent by
mail (certified or registered, return receipt requested), or facsimile
transmission and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three business days
after being deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, when sent (provided that, in the case of a facsimile transmission,
the means employed to send the transmission has indicated that the transmission
was completed), and shall be sent as follows:
-12-
<PAGE>
If to Payor: c/o WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (312) 961-1099
Attention: President
Copy to: Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
Telecopier: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
If to Payee: Warner Communications Inc.
75 Rockefeller Plaza
New York, NY 10019
Telecopier: (212) 333-3987
Attention: General Counsel
Copy to: Gold, Farrell & Marks
41 Madison Avenue
New York, NY 10010
Telecopier: (212) 481-1722
Attention: Charles R. Dickey, Esq.
or to such other address as may be designated in the manner provided in this
subparagraph 10(a).
(b) If any payment hereunder falls due on a Saturday, Sunday or a
public holiday in New York City, such payment shall be payable on the next
succeeding business day.
(c) The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
(d) This Note and the obligations of Payor and the rights of any
holder hereof shall be governed by and construed in accordance with the internal
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
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<PAGE>
(e) As used herein, "Indebtedness" shall mean any liability for borrowed
money, or any other obligation incurred, created, assumed or guaranteed and
evidenced by a note, bond, debenture or similar instrument.
(f) As used herein, "Note B Security Agreement" shall mean that certain
security agreement between the Company and Seller of even date herewith and
relating to Note B.
WILLIAMS INTERACTIVE INC.
By:
---------------------------
Name:
Title:
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On March __, 1996 before me the undersigned authority personally came
[______], to me known who, by me duly sworn, did depose and say that s/he has a
place of business at 3401 North California Avenue, Chicago, IL, that s/he is the
[president] of WILLIAMS INTERACTIVE INC., the corporation described in and which
executed the foregoing Promissory Note, and that he executed the Promissory Note
on behalf of the corporation pursuant to proper authority of the corporation.
------------------------------
Notary Public
-15-
<PAGE>
EXHIBIT 2(d)
SECURITY AGREEMENT
(NOTE A)
THIS SECURITY AGREEMENT dated as of [Closing Date] by and between Williams
Interactive Inc., a Delaware corporation ("Buyer"), and Warner Communications
Inc., a Delaware corporation ("Seller" or "WCI"). Except as otherwise set forth
herein, capitalized terms used herein shall have the meanings set forth in that
certain Stock Purchase Agreement dated February 23, 1996 between Buyer and
Seller (the "Stock Purchase Agreement").
RECITALS
Buyer and Seller have entered into the Stock Purchase Agreement;
Pursuant to the Stock Purchase Agreement, Buyer is the maker of the Interim
Two Year Note and the Final Two Year Note, both of even date herewith ("Note A")
in the principal amount of [the fraction 10/28 times (Net Asset Value less
$2,000,000)] payable to Seller, its successors and assigns;
Pursuant to the Stock Purchase Agreement, the Company is the maker of the
Interim Four Year Note and the Final Four Year Note, both of even date herewith
("Note B") in the principal amount of [the fraction 18/28 times (Net Asset
Value less $2,000,000)] payable to Seller, its successors and assigns;
Buyer has agreed that its obligations under Note A shall be secured as
provided in this Security Agreement.
<PAGE>
NOW, THEREFORE, in order to secure the payment of the Secured Obligations
(as hereinafter defined) now or hereafter existing and in consideration of the
premises and the mutual agreements set forth herein, Buyer agrees as follows:
I. SECURITY INTEREST
-----------------
A. GRANT OF SECURITY INTEREST. To secure the due and punctual payment of
all obligations, indebtedness and liabilities, whether now existing or hereafter
arising, of Buyer to Seller under or in connection with Note A, including
without limitation the Interim Two Year Note, the Final Two Year Note, or any
adjustments or offsets to Note A, and to secure the due and punctual performance
of all the obligations of the Buyer contained in this Agreement (all such
obligations, together with the obligations, indebtedness and liabilities
referred to above, are called the "Secured Obligations"), the Buyer hereby
grants to Seller a security interest in all of the Buyer's right, title and
interest in and to all of the issued and outstanding Shares of the Company which
are the subject of and which Buyer is to acquire upon the consummation of the
transactions contemplated by the Stock Purchase Agreement (such right, title and
interest of the Buyer being the "Collateral").
II. DELIVERY AT CLOSING
-------------------
Buyer shall, at the time and place of the Closing and the execution and
delivery of this Agreement, deliver to Seller the stock certificates evidencing
the Shares, in each case
-2-
<PAGE>
endorsed in blank for transfer or with separate stock powers annexed sufficient
to transfer all of Buyer's right, title and interest in and to the Shares to
Seller in accordance with the terms of this Agreement, to hold as security for
the payment or satisfaction of the Secured Obligations. Seller shall re-deliver
to Buyer such Shares and stock powers promptly upon the receipt of payment in
full of all amounts of principal, accrued and unpaid interest, and any other
amounts owed or payable under Note A, and this Agreement.
III. REPRESENTATIONS AND WARRANTIES
------------------------------
REPRESENTATIONS AND WARRANTIES. The Buyer represents and warrants as
follows:
A. Buyer owns the Collateral free and clear of any lien, security
interest, charge, or encumbrance created by or through the Buyer;
B. This Agreement creates a valid security interest in the Collateral,
securing the payment and performance of the Secured Obligations
C. To the best knowledge of Buyer, the Shares constitute all of the issued
and outstanding Shares of capital stock of the Company, and the Company has not
issued or granted to any Person or entity any additional shares of capital stock
of the Company or the Subsidiaries or any options, warrants,
-3-
<PAGE>
convertible securities or other rights to acquire additional shares of capital
stock of the Company or the Subsidiaries.
IV. RESTRICTIONS ON PAYMENTS AND DIVIDENDS; AUDIT
---------------------------------------------
A. RESTRICTION. Buyer shall cause the Company and the Subsidiaries not
to, prior to the payment in full of all principal, interest, or other amounts
owed or payable under Note A, transfer, convey or pay, by dividend or otherwise,
to Buyer or any Affiliate of Buyer, any of the Assets (as defined in paragraph
7(f) of Note A), subject to the exceptions in the following subparagraph B.
B. EXCEPTIONS. Notwithstanding any provision of this Agreement to the
contrary, during the Term of Note A, and provided there has not occurred an
Event of Default under Note A or hereunder, Buyer, the Company and the
Subsidiaries may, from time to time, pay to Buyer or Affiliates of Buyer any
Affiliate Obligations, Affiliate Indebtedness and Company Taxes, as defined in
paragraph 7(f) of Note A, the Company and the Subsidiaries may engage in the
Affiliate Licenses and Transfers as defined in paragraph 7(f) of Note A, and the
Company and the Subsidiaries may pay to Buyer amounts necessary to pay the
obligations of Note A and/or Note B.
C. RIGHT TO CONDUCT AUDIT. Buyer shall, and shall cause the Company and
the Subsidiaries to, permit and entitle Seller, at any time up to the end of the
Term of Note A, to
-4-
<PAGE>
conduct an audit of the books and records of Buyer, the Company and/or the
Subsidiaries to determine whether the Assets have been applied and maintained as
required by Note A and this Agreement, and whether any of the Assets have been
or are being transferred, conveyed or paid, by dividend or otherwise except as
permitted under Note A or hereunder.
D. ACCESS. Buyer shall, and shall cause the Company and the Subsidiaries
to, provide Seller and Seller's auditors and representatives with access to all
books and records of Buyer, including without limitation those of the Company
and the Subsidiaries, upon reasonable advance notice and during normal business
hours, in connection with an audit.
E. AUDIT REPORT; ADDITIONAL PAYMENT. Seller shall cause its auditors and
representatives to prepare a written report of their findings in connection with
the audit (an "Audit Report"). Seller shall provide Buyer with a copy of the
Audit Report promptly upon its completion. Subject to the provisions of
subparagraph F below, in the event that any Audit Report reflects that Buyer,
the Company or the Subsidiaries has transferred, conveyed or paid any of the
Assets in any manner not specifically permitted under Note A or hereunder prior
to the payment in full of all principal, interest and other amounts due or
payable under Note A or hereunder (collectively the "Missing Assets"), Buyer
shall promptly pay to the Company the value reflected in the Audit Report of the
Missing Assets, together
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<PAGE>
with interest thereon at the rate of ten percent (10%) per annum from the date
of the transfer, conveyance or payment of the Missing Assets.
F. DISPUTES REGARDING THE AUDIT REPORT. The Audit Report shall be deemed
final, binding and conclusive on Buyer and Seller unless, within the twenty (20)
business days following Buyer's receipt of the Audit Report Buyer notifies
Seller of a dispute of the results or conclusions of the Audit Report. Buyer and
Seller shall negotiate in good faith for a period of ten (10) consecutive
business days in an effort to resolve any such disputes. If the parties are
unable to resolve such disputes within ten (10) business days, the parties shall
submit the disputes not so resolved to binding arbitration before the American
Arbitration Association, before a single arbitrator to be selected mutually by
Buyer and Seller.
G. AUDIT FEES. Seller shall bear the costs associated with the audit,
except (i) the non-prevailing party as determined by the arbitrator shall bear
the costs and expenses associated with an arbitration under subparagraph F
above; and (ii) in the event that the Audit Report reveals Missing Assets whose
value exceeds by more than ten percent (10%) the total value of the Assets at
the time as of which the audit was conducted, then Buyer shall pay the costs and
fees incurred by Seller in engaging outside or independent auditors or advisors
to conduct the audit and prepare the Audit Report.
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<PAGE>
H. PERIODIC REPORTS. Buyer shall cause the Company to provide Seller with
copies of the Company's internal monthly (to the extent that the Company
prepares the same for its internal use), quarterly and annual financial
statements, including without limitation its results of operations and cash
flow, whether audited or unaudited, promptly after the same have been completed,
certified by the Chief Financial Officer of the Company as being, to the best of
his or her knowledge, prepared from the books and records of the Company and the
Subsidiaries. accurate and complete. Buyer shall also cause the Company to
provide Seller with a statement to accompany such monthly, quarterly and annual
financial statements similarly certified setting forth in reasonable detail for
the subject period the following: (i) any amounts paid by the Company or the
Subsidiaries to Buyer or Affiliates of Buyer for or in respect of the purchase
or sale of goods or the providing of services to the Company; (ii) any amounts
paid by the Company or the Subsidiaries to Buyer or Affiliates of Buyer for or
in respect of manufacturing; (iii) any amounts paid by the Company or the
Subsidiaries to Buyer or Affiliates of Buyer in respect of any Indebtedness (as
defined in paragraph 10(e) of Note A) to Buyer or Affiliates of Buyer; and (iv)
any amounts paid or other property sold, conveyed or transferred by the Company
or the Subsidiaries to Buyer or Affiliates of Buyer for any other reason,
including without limitation by dividend.
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<PAGE>
V. COVENANTS
---------
A. FURTHER ASSURANCES. Buyer shall, from time to time, at the expense of
Seller, promptly execute and deliver all further instruments and documents,
including without limitation financing or continuation statements or amendments
thereto under the applicable Uniform Commercial Code or its equivalent in each
relevant jurisdiction, and cooperate with Seller and take all further action
that may be necessary or desirable as reasonably requested by Seller in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable Seller to exercise and enforce its rights and remedies
hereunder with respect to the Collateral.
B. MAINTENANCE OF COLLATERAL. Buyer shall, at its sole expense, when
required or upon failure to do so within ten days of notice effective hereunder
of such failure, maintain and preserve the Collateral including, without
limitation, taking the following actions:
1. timely paying, or causing the Company and the Subsidiaries to pay,
any and all filing fees, franchise and other taxes and/or any other amounts
due or which shall or may become due or payable in respect of the
Collateral;
2. timely filing or submitting, or causing the Company and the
Subsidiaries to file or submit all reports, statements, notices, tax
returns and other
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<PAGE>
documents required to be filed or submitted by the Company and/or the
Subsidiaries with or to any federal, state, provincial, local or
foreign government or governmental agency; or
3. taking all necessary action to prevent the Company and the
Subsidiaries from violating any statute, law, ordinance, rule or
regulation of any federal, state, provincial, local or foreign
government or governmental agency the violation of which shall or may
result in the revocation of the charter or certificate of
incorporation of the Company or the Subsidiaries.
C. TRANSFERS AND OTHER LIENS. The Buyer shall not (1) sell, assign (by
operation of law or otherwise), or otherwise dispose of any of the Collateral
except in accordance with paragraph 7(g) of Note A, or (2) create or suffer to
exist any lien, security interest, or other charge or encumbrance upon or with
respect to any of the Collateral to secure indebtedness of any person or entity,
except for the security interest created by this Agreement.
VI. REMEDIES
--------
A. REMEDIES. Upon a continuing Event of Default under Note A, Seller
may exercise the rights and remedies with respect to the Collateral provided in
this Agreement and under applicable law (including, without limitation, the
Uniform Commercial Code
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<PAGE>
of the applicable jurisdiction). Buyer hereby waives presentment, demand,
protest, or any notice (to the extent permitted by applicable law) of any kind
in connection with this Agreement or any Collateral. Buyer hereby irrevocably
constitutes and appoints Seller, with full power of substitution, as its true
and lawful attorney-in-fact, with full power and authority in the name of the
Buyer or in its own name, from time to time in the Seller's discretion, on and
after the occurrence of an Event of Default, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes hereof and, without limiting
the generality of the foregoing, hereby gives Seller the power and right on
behalf of Buyer, without notice or assent by Buyer, to the extent, and only to
the extent, that Buyer is permitted under applicable law to do the following:
1. to sell, transfer, assign, license or otherwise deal in or with the
Collateral or any part thereof; and
2. to do, at its option at any time or from time to time, all acts and
things which Seller deems necessary to protect or preserve the Collateral
or the security interest of Seller and to realize upon the Collateral.
Seller shall have the right and power to institute and maintain such suits and
proceedings as it may deem appropriate to protect
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<PAGE>
and enforce the rights vested in it by this Agreement, and Seller may, either
after entry or without entry, proceed by suit or suits at law or in equity to
enforce such rights and to foreclose upon the Collateral and to sell all or,
from time to time, any of the Collateral under the judgment or decree of a court
of competent jurisdiction.
B. Notwithstanding the foregoing, Buyer may satisfy its obligations
under Note A and this Security Agreement at the end of the Term of Note A or
upon an Event of Default thereunder by (a) paying to Seller all amounts of
principal, accrued interest and any other amounts owed or payable thereunder and
hereunder, or (b) by relinquishing to Seller all Buyer's right, title and
interest in and to the Shares. In the event that Buyer elects to relinquish all
right, title and interest in and to the Shares, Buyer hereby irrevocably waives
any interest it may have in any excess of the claimed or asserted value of the
Shares over the amounts owed at such time under Note A and/or this Security
Agreement.
C. WAIVER OF CERTAIN RIGHTS. Buyer, to the extent it may lawfully do
so, on behalf of itself and all who may claim through or under it, including,
without limitation, any and all subsequent creditors, vendees, assignees, and
lienors, expressly waives and releases any, every, and all rights to demand or
to have any marshalling of the Collateral upon any sale, whether made under any
power of sale granted hereunder, or pursuant to
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<PAGE>
judicial proceedings or upon any foreclosure or any enforcement of this
Agreement and consents and agrees that all the Collateral may at such sale be
offered and sold as an entirety.
D. LIMITATION BY LAW. All the provisions of this Article V are
intended to be subject to all applicable mandatory provisions of law which may
be controlling in the premises and to be limited to the extent necessary so that
they will not render this Agreement invalid, unenforceable in whole or in part,
or not entitled to be recorded, registered, or filed under the provisions of any
applicable law.
VII. MISCELLANEOUS
-------------
A. AMENDMENTS, SUPPLEMENTS AND WAIVERS. None of the terms or
provisions of this Agreement may be waived, amended, supplemented, or otherwise
modified except by written instrument executed by Seller and Buyer. This
Agreement shall be binding upon the successors and assigns of Buyer and shall
inure to the benefit of Seller and its successors and assigns.
B. CONDITIONS TO RELEASE. The Collateral shall be automatically
released on the date on which all of the Secured Obligations have been paid and
satisfied in full.
C. NOTICES. Except to the extent otherwise expressly provided herein,
all notices, requests, and demands provided for or permitted hereunder to be
effective shall be in writing (including facsimile communications) and shall be
personally delivered (including delivery by express mail or courier), sent
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<PAGE>
by mail (certified or registered, return receipt requested), or facsimile
transmission and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three business days
after being deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, when sent (provided that, in the case of a facsimile transmission,
the means employed to send the transmission has indicated that the transmission
was completed), and shall be sent as follows:
if to Buyer, the Company or the Subsidiaries, to
Williams Interactive Inc.
c/o WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (312) 961-1099
Attention: President
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
Telecopier: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
if to Seller, to:
Warner Communications Inc.
75 Rockefeller Plaza
New York, Ny 10019
Telecopier: (212) 333-3987
Attention: General Counsel
with a copy to:
Gold, Farrell & Marks
41 Madison Avenue
New York, NY 10010
Telecopier: (212) 481-1722
Attention: Charles R. Dickey, Esq.
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<PAGE>
or to such other addresses as Seller or Buyer may designate by notice hereunder.
D. HEADINGS. The headings used in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
E. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall not invalidate the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
F. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns, and nothing herein is intended or shall be construed to give any other
person any right, remedy or claim under, to or in respect of this Agreement or
the Collateral.
G. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except to the extent that the
perfection of Seller's security interest in any collateral is governed by the
laws of any other jurisdiction.
H. NO RECOURSE. Anything contained in this Agreement to the contrary
notwithstanding, no recourse shall be had against Buyer personally or against
any incorporator, shareholder,
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<PAGE>
officer, director or employee of Buyer with respect to any of the obligations,
covenants, agreements, representations or warranties of Buyer contained in this
Agreement, other than against the Collateral, it being understood that such
obligations, covenants, representations or warranties are enforceable only
against the Collateral. The provisions of this Paragraph shall survive the
termination of this Agreement.
I. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
WILLIAMS INTERACTIVE INC.
By:
---------------------------
Name:
Title:
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<PAGE>
WARNER COMMUNICATIONS INC.
By:
---------------------------
Name:
Title:
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<PAGE>
EXHIBIT 2(e)
NON-NEGOTIABLE PROMISSORY NOTE
Note B/[Interim/Final] Four Year Note New York, New York
$_______________________ [Closing Date]__, 1996
[the fraction 10/28 times (Net Asset Valve less $2 million)]
FOR VALUE RECEIVED, the undersigned, Atari Games Corporation, a California
corporation, its successors and assigns ("Payor" or the "Company") promises to
pay to Warner Communications Inc. ("WCI" or "Seller") its successors and assigns
("Payee"), at 75 Rockefeller Plaza, New York, New York 10019, or at such other
place as the holder of this Note shall specify, at the end of the Term as set
forth in paragraph 2 hereof, in such coin or currency of the United States of
America as at the time shall be legal tender for the payment of public and
private debts, the principal sum of [___] Million Dollars [equal to the fraction
of 18/28 times ($ Net Asset Value less $2 million)] ($___), payable as set forth
in paragraph 3 hereof, and to pay, in like manner and at the times and place of
such payments, interest on the unpaid principal balance of this Note (calculated
on the basis of a 365 day year) at the rate of seven percent (7%) per annum on
the outstanding principal. Any capitalized terms not defined herein shall have
the meanings set forth in that certain stock purchase agreement dated February
23, 1996 between Seller and Williams Interactive Inc. (the "Stock Purchase
Agreement").
1. The Note. This Note is the Interim Four Year Note ("Note B") referred to
in the Stock Purchase Agreement, and shall
<PAGE>
be subject to the terms and conditions of the Stock Purchase Agreement,
including without limitation adjustment and set-off as provided therein.
2. Term. Subject to the terms and provisions contained herein, Payor shall
pay the entire outstanding balance of principal and any accrued interest
thereon, together any other amounts owed or payable hereunder, no later than
March 29, 2000 (the period between the date hereof and the earlier of (i) the
date of full payment of the entire principal balance, all accrued interest
thereon and any other amounts owed and payable hereunder, and (ii) March 29,
2000 shall be the "Term" hereof). In the event that any amount of the principal
or any accrued interest thereon or any other amounts owed or payable hereunder
remain outstanding or unpaid at the end of the Term hereof, and provided that
Payor shall have paid to Seller not less than 50% of the principal of the Final
Four Year Note, Payor shall have the right to extend the Term for a single
period of three years, which period of extension shall constitute part of the
Term hereof. Payor may exercise its right to extend the Term by giving notice of
its exercise of such right to Payee prior to the expiration of the Term. The
terms and provisions hereof and the Security Agreement (as defined in paragraph
4 hereof) shall apply with equal force during any extension of the Term.
3. Preayment and Amortization.
--------------------------
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<PAGE>
(a) Payor shall prepay to Payee on the dates set forth herein an amount
equal to one-half the Gross Profit (as defined herein) for the period to which
each such payment relates. Payee shall apply the amount of each such prepayment
first to accrued but unpaid interest on the then-outstanding principal balance
hereunder, and shall apply the excess of such payment (if any) against the
outstanding principal balance hereunder.
(b) The Company shall render to Seller a consolidated accounting reflecting
the computation of Gross Profit in accordance with this Agreement on a semi-
annual basis, for the periods running from July 1 through December 31 ("First
Half Year") and from January 1 through June 30 ("Second Half Year") of each year
or portion thereof during the Term. The Company shall render the accounting to
Seller not more than forty-five days following the end of the First Half Year
period, not more than sixty days following the end of the Second Half Year
period, and not more than forty-five days following the end of the Term with
respect to any portion of the Term not covered by any previous accounting. The
Company shall pay and deliver to Seller simultaneously with the accounting its
payment in readily available funds in an amount equal to one-half the Gross
Profit reflected on the accounting. The accounting shall state in detail the
amount and sources of revenue and proceeds from Products and Intellectual
Property (as defined herein), the
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<PAGE>
Products and Intellectual Property generating such revenue and proceeds, the
nature of the transactions giving rise to such revenue and proceeds (e.g.,
sales, licenses, assignments or other transactions), and a detailed and itemized
description of all amounts deducted from revenue and proceeds of the Products
and Intellectual Property to arrive at Gross Profit.
(c) "Gross Profit", as used herein, shall mean the total revenue and
proceeds actually received in cash or credits, net of reasonable and customary
allowances for returns and price protection, by the Company, the Subsidiaries,
Buyer or its Affiliates (without duplication) in connection with the sale,
transfer or license of or other transaction involving any Products and/or
Intellectual Property, less only the following amounts ("Deductible Expenses"):
(i) applicable sales taxes; (ii) actual cost of materials directly attributable
to and used in the manufacture, packaging and shipment of the Products; (iii)
the actual cost (including fringe benefits) to the Company or the Subsidiaries
of labor directly employed in the manufacture, packaging and shipment of the
Products, but only to the extent so employed; (iv) license fees paid to
unaffiliated persons for the right to use specific copyrights, trademarks,
tradenames, logos, characters, names, likenesses or personae in connection with
any Product; (v) to the extent that manufacturing of Products is performed by
Affiliates of Buyer, the actual amount charged by such Affiliates of Buyer,
provided that such actual manufacturing
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<PAGE>
amounts charged are equal to or less than the lowest amounts charged by such
Affiliates of Buyer to its affiliated and unaffiliated customers; (vi) solely in
connection with Products constituting interactive electronic entertainment
products for use with, among other things, home video games for dedicated
cartridge systems and/or personal computers with or without CD-ROM platforms
("Consumer Products"), Deductible Expenses shall also include:
(v) sales commissions actually paid to Persons or entities not
employees or Affiliates of Buyer, the Company or the
Subsidiaries, to the extent such commissions relate to sales
of Consumer Products;
(w) costs of advertising and promotion (including preparation
and production) related directly and solely to Consumer
Products;
(x) costs or amounts of bona fide advertising and merchandising
allowances actually paid or granted to customers of the
Company or the Subsidiaries and relating solely to Consumer
Products;
(y) duty and freight paid solely for shipment of Consumer
Products only;
(z) insurance solely to the extent related to the shipment of
Consumer Products.
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<PAGE>
Deductible Expenses shall not, in connection with any Products, include any
amount constituting or representing an allocation of general overhead, or the
cost of development of any Products (whether such development was performed by
the Company, the Subsidiaries, Affiliates of Buyer, or Persons and entities not
Affiliates thereof).
(d) "Product" or "Products", as used herein, shall mean all Payor's or
the Subsidiaries' right, title and interest in and to the products and games
identified by title (or, for products and games currently under development,
working title) on Schedule A hereto which either (i) have been completed and
released for sale, distribution and/or license by the Company or the
Subsidiaries prior to the Closing; or (ii) were under development by the Company
or the Subsidiaries at the time of Closing.
(e) "Intellectual Property", as used herein, shall mean all Payor's
and the Subsidiaries' right, title and interest in and to copyrights, patents,
trademarks, logos, designations, tradenames, (in each case regardless whether
registered, applications for registration thereof are pending or unregistered),
rights or licenses to use the name, tradename, likeness, persona or other
attributes of any person or entity, trade secrets or inventions, including all
renewals and extensions of such right, title and interest, which are used
exclusively in connection with the Products.
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<PAGE>
4. Security Agreement. This Note B shall be secured by that certain
Security Agreement between Payor and Payee of even date herewith relating to
this Note B (the "Security Agreement"). The Security Agreement shall create a
security interest in the Products and the Intellectual Property, including
without limitation the proceeds of any sale or disposition of the Intellectual
Property.
5. No Recourse. Notwithstanding any provision of this Note B to the
contrary, upon an Event of Default under this Note B during the Term hereof, or
upon the expiration of the Term hereof (including any extension), Payee's sole
remedy and recourse for payment of any and all amounts owed or to be paid
hereunder shall be those rights granted to Payee under the Security Agreement.
No recourse shall be had against Payor or against any incorporator, shareholder,
officer, director or employee of Payor with respect to any of the obligations
hereunder save for those rights granted under the Security Agreement.
6. No Subordination. The Indebtedness (as defined in paragraph 11(e)
hereof) represented by this Note B is not, and shall not be, subordinated or
rendered junior in right of payment to any other Indebtedness of Payor to Buyer
or any Affiliate of Buyer.
7. Prepayment. In addition to the payments required under paragraph
3 hereof, at the option of Payor, Payor may
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<PAGE>
prepay this Note in whole at any time or in part from time to time without
penalty or premium.
8. Events of Default. If any of the following conditions, events or acts
(each herein referred to as an "Event of Default") occurs for any reason
whatever, and whether such occurrence shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any governmental body or otherwise:
(a) Any representation or warranty made by Payor or Buyer herein,
in the Security Agreement or in the Stock Purchase Agreement shall
prove to have been false or misleading in any material respect;
(b) Any default or failure to pay by Payor or Buyer shall occur,
and remain uncured for ten (10) days following notice of such default
or failure to pay given to Payor or Buyer, as the case may be, in the
payment of this Note B in accordance with its terms, or in connection
with the Interim or Final Two Year Note ("Note A") as and when the
same shall become due and payable (or, in the case of additional
amounts determined to be owed under the Security Agreement as a result
of any Audit Report (as defined under the Security Agreement),
promptly after the Audit Report
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<PAGE>
becomes final, binding and conclusive), whether at the due date, by
acceleration or otherwise;
(c) Any default shall occur and be continuing for a period of
thirty (30) days after notice thereof to Payor in the due observance
or performance of any covenant, agreement or condition of Payor or
Buyer contained herein, in the Security Agreement or in the Stock
Purchase Agreement;
(d) If Payor shall create or establish, or permit or suffer the
creation or establishment, of security interest in the Collateral
under the Security Agreement, or there shall be created or established
or permitted or suffered the creation or establishment of any security
interest in the Collateral under that certain security agreement of
even date herewith between Buyer and Seller relating to Note A ("Note
A Security Agreement");
(e) If Payor or the Buyer shall suspend or discontinue its
business for a period in excess of 60 days or without intention of
recommencing; shall make an assignment for the benefit of its
creditors or a composition with creditors; shall be unable, or admit
in writing its inability, to pay its debts as they mature; shall file
a petition in bankruptcy, shall become insolvent (however such
insolvency may be
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<PAGE>
evidenced); shall be adjudicated bankrupt; shall petition or apply to
any tribunal for the appointment of any receiver, liquidator, trustee
or custodian of or for it or any substantial part of its properties or
other assets or shall commence any proceeding relating to it under any
bankruptcy, reorganization, arrangement, readjustment of debt,
receivership, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or there shall be
commenced against Payor or the Buyer any such proceeding which shall
remain undismissed for a period of 60 days or more, or an order,
judgment or decree approving the petition in any such proceeding shall
be entered against Payor or Buyer; or Payor or Buyer shall by any act
or failure to act indicate its consent to, approval of or acquiescence
in, any such proceeding or in the appointment of any receiver,
liquidator, trustee or custodian of or for it or any substantial part
of its properties or other assets, or shall suffer any such
appointment to continue undischarged or unstayed for a period of 90
days or more; or Payor or Buyer shall take any action for the purpose
of effecting any of the foregoing;
(f) If Payor or the Subsidiaries shall have transferred,
conveyed or paid, by sale, disposition,
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<PAGE>
dividend or otherwise, to any Person or entity (including without
limitation Buyer or any Affiliate of Buyer), any of the right, title
or interest of Payor or the Subsidiaries in and to any of the Products
or the Intellectual Property, other than through (i) bona fide sales
of units or inventory of Products, or (ii) distribution or license
agreements negotiated and concluded at arm's length and in good faith
for the distribution and sale of units or inventory of Products or
other arm's-length and bona fide exploitation of the Products or
Intellectual Property;
(g) Payor shall have failed to render to Seller any accounting
when due hereunder, or shall have failed to pay to Seller any amounts
reflected as due and payable under any accounting rendered by Payor to
Seller hereunder, and such failure shall continue for a period of ten
(10) days following Seller's notice effective hereunder of such
failure;
(h) There shall have occurred an Underpayment Default under
Paragraph III (F) of the Security Agreement;
(i) If Payor, the Subsidiaries or Buyer shall sell, transfer,
convey or otherwise dispose of all or substantially all of the assets
or capital stock of Payor or the Subsidiaries, except that it shall
not be
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<PAGE>
an Event of Default (A) if, (i) during the Term of Note A, Buyer
transfers or assigns any or all of the Shares of the Company to one or
more Affiliates of Buyer as permitted under Note A, or (ii) after the
Term of Note A, Buyer transfers or assigns any or all of the Shares of
the Company to one or more Affiliates of Buyer; or (B) if Buyer,
Payor, and/or the Subsidiaries (i) sell, transfer or assign all or
substantially all of the capital stock or assets of K.K. Time Warner
Interactive and/or Atari Games Ireland Limited, and (ii) do not sell,
transfer or assign all or substantially all of the capital stock or
assets of the Company and/or the Subsidiaries remaining after the
sale, transfer or assignment of K.K. Time Warner Interactive and/or
Atari Games Ireland Limited; or
(j) if, at the end of the Term (including any extension), there
remains outstanding any amount of principal, any accrued interest
thereon, or any other amounts owed or payable hereunder;
Then, in any such event and at any time thereafter while such Event of Default
is continuing, the holder of this Note may, by written notice to Payor, declare
the principal of and accrued interest on this Note to be due and payable, both
as to principal and interest, without presentment, demand, protest or other
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<PAGE>
notice of any kind, all of which are hereby expressly waived, notwithstanding
anything contained herein to the contrary.
9. Suits for Enforcement and Remedies. If any one or more Events of
Default shall occur and be continuing, the holder of this Note may proceed to
protect and enforce such holder's rights either by suit in equity or by action
at a law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or proceed to enforce the payment of such Note or to
enforce any other legal or equitable right of the holder of this Note, including
without limitation any rights under the Security Agreement. Notwithstanding the
foregoing, Payor may satisfy its obligations under this Note B and the Security
Agreement at the end of the Term hereof or upon an Event of Default by (a)
paying to Seller the total then-outstanding principal balance hereunder,
together with accrued interest thereon and any other amounts owed or payable
hereunder, or (b) transferring, assigning, delivering and conveying to Seller
all Payor's and the Subsidiaries' right, title and interest in and to the
Products and the Intellectual Property, including without limitation all rights
to manufacture, distribute and sell the Products (except to the extent
distribution rights have been granted under bona fide and arm's length
distribution agreements, subject to which Seller shall take any such rights),
and transferring to Seller all inventory of such Products. In the
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<PAGE>
event that Payor elects to transfer, assign, deliver and convey all right, title
and interest in and to the Products and the Intellectual Property as described
above, Payor hereby irrevocably waives any interest it or the Subsidiaries may
have in any excess of the claimed or asserted value of the Products and the
Intellectual Property over the outstanding principal balance plus accrued
interest thereon and any other amounts owed or payable hereunder.
10. Fees; Waivers, Etc.
(a) If the holder of this Note shall institute any action to enforce
the collection of principal of and/or interest on this Note, and shall prevail
in such action, there shall be immediately due and payable from Payor, in
addition to the then unpaid sum of this Note, all reasonable costs and expenses
incurred by Payee in connection therewith, including reasonable attorneys' fees
and disbursements.
(b) No forbearance, indulgence, delay or failure to exercise any right
or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
(c) This Note may not be modified or discharged orally, but only in
writing duly executed by the Payor and the holder hereof.
-14-
<PAGE>
(d) Payor hereby waives presentment, demand, notice of dishonor,
protest and notice of protest.
11. Miscellaneous.
(a) NOTICES. Except to the extent otherwise expressly provided
herein, all notices, requests, and demands provided for or permitted hereunder
to be effective shall be in writing (including facsimile communications) and
shall be personally delivered (including delivery by express mail or courier),
sent by mail (certified or registered, return receipt requested), or facsimile
transmission and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three business days
after being deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, when sent (provided that, in the case of a facsimile transmission,
the means employed to send the transmission has indicated that the transmission
was completed), and shall be sent as follows:
If to Payor: c/o WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (312) 961-1099
Attention: President
-15-
<PAGE>
Copy to: Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
Telecopier: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
If to Payee: Warner Communications Inc.
75 Rockefeller Plaza
New York, NY 10019
Telecopier: (212) 333-3987
Attention: General Counsel
Copy to: Gold, Farrell & Marks
41 Madison Avenue
New York, NY 10010
Telecopier: (212) 481-1722
Attention: Charles R. Dickey, Esq.
or to such other address as may be designated in the manner provided in this
subparagraph 11(a).
(b) If any payment hereunder falls due on a Saturday, Sunday or a
public holiday in New York City, such payment shall be payable on the next
succeeding business day.
(c) The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
(d) This Note and the obligations of Payor and the rights of any
holder hereof shall be governed by and construed in accordance with the internal
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
(e) As used herein, "Indebtedness" shall mean any liability for
borrowed money, or any other obligation incurred,
-16-
<PAGE>
created, assumed or guaranteed and evidenced by a note, bond, debenture or
similar instrument.
ATARI GAMES CORPORATION
By:
------------------------------
Name:
Title:
-17-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On March [__], 1996 before me the undersigned authority personally
came [__________], to me known who, by me duly sworn, did depose and say that
s/he has a place of business at 3401 North California Avenue, Chicago, IL, that
s/he is the [chairman] of ATARI GAMES CORPORATION, the corporation described in
and which executed the foregoing Promissory Note, and that he executed the
Promissory Note on behalf of the corporation pursuant to proper authority of the
corporation.
______________________________
Notary Public
-18-
<PAGE>
SCHEDULE A OMITTED
<PAGE>
EXHIBIT 2(f)
SECURITY AGREEMENT
(NOTE B)
THIS SECURITY AGREEMENT dated as of March 29, 1996 by and between Atari
Games Corporation, a California corporation (the "Company"), which is a wholly
owned and subsidiary of Williams Interactive Inc., a Delaware Corporation (the
"Buyer"), and Warner Communications Inc., a Delaware corporation ("Seller" or
"WCI"). Except as otherwise set forth herein, capitalized terms used herein
shall have the meanings set forth in that certain Stock Purchase Agreement dated
February 23, 1996 between Buyer and Seller (the "Stock Purchase Agreement").
RECITALS
Buyer and Seller have entered into the Stock Purchase Agreement;
Pursuant to the Stock Purchase Agreement, the Company is the maker of the
Interim Four Year Note and the Final Four Year Note, both of even date herewith
("Note B"), in the principal amount of [the fraction of 18/28 times ($ Net Asset
Value less $2 million)], payable to Seller, its successors and assigns; Pursuant
to the Stock Purchase Agreement, the Company is the maker of the Interim Two
Year Note and the Final Two Year Note, both of even date herewith ("Note A") in
the principal amount of [the fraction of 10/28 times ($ Net Asset Value less $2
million)], payable to Seller, its successors and assigns;
The Company has agreed that its obligations under Note B shall be secured
as provided in this Security Agreement.
<PAGE>
NOW, THEREFORE, in order to secure the payment of the Secured Obligations
(as hereinafter defined) now or hereafter existing and in consideration of the
premises and the mutual agreements set forth herein, the Company agrees as
follows:
I. SECURITY INTEREST
-----------------
A. GRANT OF SECURITY INTEREST. To secure the due and punctual payment of
all obligations, indebtedness and liabilities, whether now existing or hereafter
arising, of the Company to Seller under or in connection with Note B, including
without limitation the Interim Four Year Note, the Final Four year Note, or any
adjustments or offsets to the principal balance under Note B or the terms of the
Stock Purchase Agreement, and to secure the due and punctual performance of all
the obligations of the Company contained in this Agreement (all such
obligations, together with the obligations, indebtedness and liabilities
referred to above, are called the "Secured Obligations"), the Company and the
Subsidiaries hereby grant to Seller a security interest in all of the Company's
and the Subsidiaries' right, title and interest in and to the Products and the
Intellectual Property, as those terms are defined below (such right, title and
interest of the Company and the Subsidiaries, including without limitation all
proceeds of any sale or disposition of the Intellectual Property, being the
"Collateral"), whether now owned or hereafter acquired.
-2-
<PAGE>
1. "Product" or "Products", as used herein, shall mean all the
Company's or the Subsidiaries' right, title and interest in and to the
products and games identified by title (or, for products and games
currently under development, working title) on Schedule A hereto which
either (i) have been completed and released for sale, distribution
and/or license by the Company or the Subsidiaries prior to the
Closing; or (ii) were under development by the Company or the
Subsidiaries at the time of Closing.
2. "Intellectual Property," as used herein, shall mean all the
Company's or the Subsidiaries' right, title and interest in and to the
copyrights, patents, trademarks, logos, designations, tradenames (in
each case regardless whether registered, applications for registration
thereof are pending or unregistered), rights or licenses to use the
name, tradename, likeness, persona or other attributes of any person
or entity, trade secrets or inventions used exclusively in connection
with the Products.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
REPRESENTATIONS AND WARRANTIES. The Company and the Subsidiaries
------------------------------
represent and warrant as follows:
A. The chief place of business and chief executive office of the
Company and the locations where the Company shall keep all its records
concerning the Collateral, shall be located at the offices maintained by the
Company as of the time of
-3-
<PAGE>
Closing in Milpitas, California, or at the offices of Affiliates of Buyer
located in Corsicana, Texas and/or Chicago, Illinois;
B. The Company owns the Collateral free and clear of any lien,
security interest, charge, or encumbrance created by or through the Company,
except for the security interest created by this Agreement; and
C. This Agreement creates a valid security interest in the
Collateral, securing the payment and performance of the Secured Obligations.
III. AUDIT PROVISIONS
----------------
A. RIGHT TO CONDUCT AUDITS. Seller shall be entitled, from time to
time during the Term of Note B and for a period of one year following such Term,
to conduct an audit of the Company's books and records to determine whether all
amounts of Gross Profit, as defined in Note B, have been properly computed,
reported and paid to Seller on the Company's accountings rendered to Seller
pursuant to Paragraph 3 of Note B.
B. LIMITATION ON AUDITS. Seller shall be entitled to conduct only
one audit pertaining to each accounting rendered by the Company to Seller.
Seller may, at its sole election, conduct an audit of more than one accounting
at any given time.
C. ACCESS. The Company shall provide Seller and Seller's auditors
and representatives with access to all books and records of the Company,
including without limitation those of
-4-
<PAGE>
the Subsidiaries, upon reasonable prior notice and during normal business hours,
in connection with each audit.
D. AUDIT REPORT; ADDITIONAL PAYMENT. Seller shall cause its auditors
and representatives to prepare a written report of their findings in connection
with each audit (an "Audit Report"). Seller shall provide the Company with a
copy of each Audit Report promptly upon its completion. Subject to the
provisions of subparagraph E below, in the event that any Audit Report reflects
that the Company has under-reported or underpaid the amount of Gross Profits due
and payable in respect of any one or more periods covered by one or more
accountings rendered by the Company to Seller, the Company shall promptly pay to
Seller the difference between the amount reflected as due and payable on the
Audit Report and the amounts previously paid by the Company to Seller in
connection with the periods which are the subject of the Audit Report, with
interest at the rate of ten percent (10%) measured from the date on which
payment was due to the date of payment in full. In the event that the Audit
Report reflects that the Company has overpaid the amount of Gross Profits due
and payable in respect of any one or more periods covered by one or more
accountings rendered by the Company to Seller, Seller shall credit the Company
in the amount of such excess payment, to be applied against any amounts of Gross
Profit due or payable in connection with future accountings to be rendered by
the Company
-5-
<PAGE>
to Seller hereunder, or if none, against the outstanding principal balance under
Note B.
E. DISPUTES REGARDING AUDIT REPORTS. Each Audit Report shall be
deemed final, binding and conclusive on the Company and Seller unless, within
twenty (20) business days of the Company's receipt of an Audit Report, the
Company notifies Seller of a dispute as to the results or conclusions of such
Audit Report. The Company and Seller shall negotiate in good faith for a
period of ten (10) business days in an effort to resolve any such disputes. If
the parties are unable to resolve such disputes within ten (10) business days,
the parties shall submit the disputes not so resolved to binding arbitration
before the American Arbitration Association, before a single arbitrator to be
selected mutually by the Company and Seller.
F. AUDIT FEES; UNDERPAYMENT DEFAULT.
--------------------------------
1. Seller shall bear the costs associated with each audit, except
(a) the non-prevailing party as determined by the arbitrator shall bear the
costs and expenses associated with any arbitration under subparagraph E above;
and (b) in the event that any Audit Report reveals that the Company has under-
reported and/or underpaid Gross Profits due and payable in any one or more
periods by more than the greater of (i) $50,000 and (ii) ten percent (10%) of
the amounts due in connection with the period(s) which is (are) the subject of
the Audit Report, then the Company shall pay the costs and fees incurred by
Seller in engaging
-6-
<PAGE>
outside or independent auditors or advisors to conduct the audit and prepare the
Audit Report.
2. It shall be an Event of Default under Note B and this
Agreement if (a) a final Audit Report reveals that the Company has under-
reported and/or underpaid Gross Profits due and payable in any one or more
periods by more than the greater of (i) $50,000 and (ii) ten percent (10%) of
the amounts due in connection with the period(s) which is (are) the subject of
the Audit Report, and (b) one or more previous final Audit Report(s) shall have
revealed that the Company under-reported and/or underpaid Gross Profits due and
payable in connection with the period(s) which were the subject of that previous
Audit Report by more than the greater of (i) $50,000 and (ii) ten percent of the
amounts due or payable in connection with the period(s) which was (were) the
subject of such prior Audit Report.
G. PERIODIC REPORTS. The Company shall provide Seller with copies
of its monthly (to the extent the Company prepares the same for its internal
use), quarterly and annual financial statements, including without limitation
its results of operations and cash flow, whether audited or unaudited, promptly
after the same have been completed, certified by the Chief Financial Officer of
the Company as being, to the best of his or her knowledge, prepared from the
books and records of the Company and the Subsidiaries. The Company shall
promptly cure any failure to deliver such periodic reports by providing such
-7-
<PAGE>
reports to Seller within 10 days of notice of the failure to so provide the
reports.
IV. COVENANTS
---------
A. FURTHER ASSURANCES. The Company shall, from time to time, at the
expense of Seller, promptly execute and deliver all further instruments and
documents, and cooperate with Seller and take all further action that may be
necessary or desirable as reasonably requested by Seller in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Seller to exercise and enforce its rights and remedies hereunder with
respect to any Collateral, including without limitation, the execution of
financing or continuation statements, or amendments thereto.
B. CHANGE OF OFFICE LOCATION. The Company shall notify Seller not
less than 30 days in advance of any change in the location at which it maintains
its records concerning the Collateral. The Company shall hold and preserve such
records and will permit representatives of Seller during normal business hours
and upon reasonable advance notice to inspect and make copies of abstracts from
such records.
C. MAINTENANCE OF COLLATERAL. The Company shall, at its sole
expense, maintain and preserve the Collateral including, without limitation,
taking the following actions:
1. timely filing all required applications for the preservation,
extension, renewal or continuation of
-8-
<PAGE>
the Company's rights in the Collateral to the extent provided for by
law or in the instruments through which the Company's rights in such
Collateral were granted;
2. timely paying any and all filing fees, license fees,
royalties, taxes and/or any other amounts due or which shall or may
become due or payable in respect of the Collateral;
3. take commercially reasonable steps to cause Persons or
entities engaging in activities which infringe any of the Intellectual
Property to halt or cease such activities and/or to account to the
Company for the reasonable value of the rights so infringed;
in each case subject to the good faith exercise of the business judgment of the
Company, provided that if the Company (including the Subsidiaries) elects not to
renew any registration pertaining to the Intellectual Property, or declines or
abandons prosecution of an application for registration pertaining to the
Intellectual Property, it shall promptly notify Seller of such election.
D. TRANSFERS AND OTHER LIENS. The Company shall not (1) sell, assign
(by operation of law or otherwise), or otherwise dispose of any of the
Collateral, other than through (i) bona fide sales of units or inventory of
Products, or (ii) distribution or license agreements negotiated and concluded at
arm's length and in good faith for the distribution and sale of units or
inventory of Products or the exploitation of the
-9-
<PAGE>
Products or Intellectual Property; or (2) create or suffer to exist any lien,
security interest, or other charge or encumbrance upon or with respect to any of
the Collateral.
V. REMEDIES
--------
A. REMEDIES. Upon an Event of Default under Note B, Seller may
exercise the rights and remedies provided in this Agreement and under applicable
law (including, without limitation, the Uniform Commercial Code of the
applicable jurisdiction). The Company hereby waives presentment, demand,
protest, or any notice (to the extent permitted by applicable law) of any kind
in connection with this Agreement or any Collateral. Seller shall have the
right and power to institute and maintain such suits and proceedings as it may
deem appropriate to protect and enforce the rights vested in it by this
Agreement, and Seller may, either after entry or without entry, proceed by suit
or suits at law or in equity to enforce such rights and to foreclose upon the
Collateral and to sell all or, from time to time, any of the Collateral under
the judgment or decree of a court of competent jurisdiction.
B. Notwithstanding the foregoing, the Company may satisfy its
obligations under Note B and this Agreement in full upon an Event of Default
under Note B or at the end of the Term thereof by (a) paying to Seller the total
then-outstanding principal balance, together with accrued interest thereon and
any
-10-
<PAGE>
other amounts owed or payable under Note B or hereunder, or (b) transferring,
assigning, delivering and conveying to Seller all the Company's and the
Subsidiaries' right, title and interest in and to the Products and the
Intellectual Property, including without limitation all rights to manufacture,
distribute and sell the Products (except to the extent distribution rights or
licenses have been granted under bona fide and arm's length distribution or
license agreements, subject to which Seller shall take any such rights), and
transferring to Seller all inventory of such Products subject to the terms of
any such distribution or license agreements. In the event that the Company
elects to transfer, assign, deliver and convey all such right, title and
interest in and to the Products and the Intellectual Property, the Company
hereby waives any interest it or the Subsidiaries may have in or to any excess
of the unclaimed or asserted value of the Products and the Intellectual Property
over the then-outstanding principal balance plus accrued interest thereon and
any other amounts owed or payable under Note B or hereunder.
C. WAIVER OF CERTAIN RIGHTS. The Company, to the extent it may
lawfully do so, on behalf of itself and all who may claim through or under it,
including, without limitation, any and all subsequent creditors, vendees,
assignees, and lienors, expressly waives and releases any, every, and all rights
to demand or to have any marshalling of the Collateral upon any sale, whether
made under any power of sale granted hereunder, or
-11-
<PAGE>
pursuant to judicial proceedings or upon any foreclosure or any enforcement of
this Agreement and consents and agrees that all the Collateral may at such sale
be offered and sold as an entirety.
D. LIMITATION BY LAW. All the provisions of this Article V are
intended to be subject to all applicable mandatory provisions of law which may
be controlling in the premises and to be limited to the extent necessary so that
they will not render this Agreement invalid, unenforceable in whole or in part,
or not entitled to be recorded, registered, or filed under the provisions of any
applicable law.
VI. MISCELLANEOUS
-------------
A. AMENDMENTS, SUPPLEMENTS AND WAIVERS. None of the terms or
provisions of this Agreement may be waived, amended, supplemented, or otherwise
modified except by written instrument executed by Seller and the Company. This
Agreement shall be binding upon the successors and assigns of the Company and
shall inure to the benefit of Seller and its successors and assigns.
B. CONDITIONS TO RELEASE. The Collateral shall be automatically
released on the date on which all of the Secured Obligations have been paid and
satisfied in full. Seller, at the Company's expense, shall deliver termination
statements with respect to all filings requiring such a statement to release any
lien or claim of security interest interposed by Seller hereunder.
-12-
<PAGE>
C. NOTICES. Except to the extent otherwise expressly provided
herein, all notices, requests, and demands provided for or permitted hereunder
to be effective shall be in writing (including facsimile communications) and
shall be personally delivered (including delivery by express mail or courier),
sent by mail (certified or registered, return receipt requested), or facsimile
transmission and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three business days
after being deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, when sent (provided that, in the case of a facsimile transmission,
the means employed to send the transmission has indicated that the transmission
was completed), and shall be sent as follows:
if to the Company, to
Atari Games Corporation
c/o WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
Telecopier: (312) 961-1099
Attention: President
with a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, NY 10036
Telecopier: (212) 730-1964
Attention: Jeffrey N. Siegel, Esq.
-13-
<PAGE>
if to Seller, to:
Warner Communications Inc.
75 Rockefeller Plaza
New York, Ny 10019
Telecopier: (212) 333-3987
Attention: General Counsel
with a copy to:
Gold, Farrell & Marks
41 Madison Avenue
New York, NY 10010
Telecopier: (212) 481-1722
Attention: Charles R. Dickey, Esq.
or to such other addresses as Seller or Buyer may designate by notice hereunder.
D. HEADINGS. The headings used in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
E. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall not invalidate the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
F. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns, and nothing herein is intended or shall be construed to give any other
person any right, remedy or claim under, to or in respect of this Agreement or
the Collateral.
-14-
<PAGE>
G. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, except to the extent that
the perfection of Seller's security interest in any collateral is governed by
the laws of any other jurisdiction.
H. NO RECOURSE. Anything contained in this Agreement to the contrary
notwithstanding, all payments to be made by the Company under this Agreement
shall be made by the Company solely from one-half the Gross Profits, as called
for and defined in Note B. No recourse shall be had against the Company
personally or against any incorporator, shareholder, officer, director or
employee of the Company with respect to any of the obligations, covenants,
agreements, representations or warranties of the Company contained in this
Agreement, other than against one-half the Gross Profits and/or the Collateral,
it being understood that such obligations, covenants, representations or
warranties are enforceable only against one-half the Gross Profits and the
Collateral. The provisions of this Paragraph shall survive the termination of
this Agreement.
I. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers
-15-
<PAGE>
thereunto duly authorized as of the day and year first above written.
ATARI GAMES CORPORATION
By:
---------------------------
Name:
Title:
WARNER COMMUNICATIONS INC.
By:
---------------------------
Name:
Title:
-16-
<PAGE>
SCHEDULE A OMITTED
<PAGE>
EXHIBIT 2(g)
INDEMNITY AGREEMENT
-------------------
INDEMNITY AGREEMENT, dated March 29, 1996, made by Atari Games Corporation,
a California corporation (the "Company"), in favor of Warner Communications
Inc., a Delaware corporation ("Seller"). Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to such terms in the Stock
Purchase Agreement, dated as of February 23, 1996 (the "Stock Purchase
Agreement") between Seller and Williams Interactive Inc., a Delaware corporation
("Buyer").
W I T N E S S E T H :
-------------------
WHEREAS, on the date hereof Buyer has purchased all of the outstanding
capital stock of the Company from Seller pursuant to the Stock Purchase
Agreement resulting in the Company becoming a wholly owned subsidiary of Buyer;
and
WHEREAS, in connection with the Stock Purchase Agreement, Buyer has agreed
to cause the Company to indemnify Seller and its Affiliates for certain Losses
and Expenses incurred by Seller or its Affiliates.
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the Company hereby agrees that subject to the terms of the
Stock Purchase Agreement, the Company will jointly and severally with Buyer,
defend and promptly indemnify and hold harmless Seller and its Affiliates, their
successors and assigns from and against any and all Losses and Expenses incurred
by Seller and its Affiliates arising from (i) the Liabilities of the Company or
the Subsidiaries set forth in Sections 10.1.7.1 through 10.1.7.7 of the Stock
Purchase Agreement and (ii) the failure of the Buyer to perform its obligations
under Section 10.4 of the Stock Purchase Agreement; all in accordance with and
subject to the terms of such indemnification as provided in Section 10 of the
Stock Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Indemnity Agreement
on the date first written above.
ATARI GAMES CORPORATION
By: /s/ Neil D. Nicastro
------------------------
Name: Neil D. Nicastro
Title: Chairman
<PAGE>
State of Illinois
County of Cook
On the 29 day of March in the year 1996 before me personally came Neil D.
Nicastro to me known, who, being by me duly sworn, did depose and say that he
resides in Lake Forest IL, that he is the Chairman of Atari Games Corporation,
the corporation described in and which executed the above instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
ATARI GAMES CORPORATION
By: /s/ Barbara M. Norman
------------------------------------
Name: Barbara M. Norman
Title: Vice President and Secretary
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements ((i)
Form S-8 No. 2-76082, (ii) Form S-8 No. 2-82186, (iii) Form S-3 No. 33-37187,
(iv) Form S-8 No. 33-48363, (v) Form S-8 No. 33-79146) of our report dated
March 22, 1996 with respect to the consolidated balance sheets of Atari Games
Corporation (dba Time Warner Interactive) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994 included in this Current Report on
Form 8-K dated March 29, 1996 of WMS Industries Inc.
ERNST & YOUNG LLP
Walnut Creek, California
April 11, 1996
<PAGE>
EXHIBIT 99(a)
[LETTERHEAD OF WMS INDUSTRIES INC.]
NEWS ANNOUNCEMENT
CONTACT:
Harold H. Bach, Jr. Will Tanous
WMS Industries Inc. Warner Music Group
312/961-1111 212/484-8067
Joseph N. Jaffoni
Jaffoni & Collins Incorporated
212/505-3015
FOR IMMEDIATE RELEASE
WMS INDUSTRIES TO ACQUIRE ATARI GAMES CORPORATION
Chicago, Illinois, March 5, 1996 - WMS Industries Inc. (NYSE:WMS) announced
today that one of its affiliates has entered into an agreement to acquire Atari
Games Corporation, an indirect, wholly-owned subsidiary of Time Warner Inc. The
purchase price was not disclosed.
Headquartered in Milpitas, California, Atari Games (which currently does
business under the name Time Warner Interactive) is a developer, manufacturer,
marketer, licensor and publisher of coin operated video arcade games under the
Atari(R) name and interactive electronic and game entertainment products for use
with home video games currently marketed under the Time Warner Interactive name.
Atari Games/Time Warner Interactive is a licensee and publisher for Nintendo,
SEGA, Sony, Jaguar and 3DO and personal computer CD-ROM platforms. Atari
Games/Time Warner Interactive distributes products worldwide to all major
outlets including mass-merchants, computer, toy and video specialty retailers
and mail-order catalogs. No rights to the names Time Warner or Time Warner
Interactive will be included in the transaction. Atari Games is not related to
Atari Corporation, the manufacturer of the Jaguar home game systems.
The acquisition is scheduled to close within the next two months.
-more-
<PAGE>
WMS Industries to Purchase Atari Games Corporation, 3/5/96 page 2
WMS Industries Inc. is engaged in the design, manufacture and sale of
coin-operated amusement games, home video games, video lottery terminals and
gaming devices, and the ownership and operation of hotels and casinos.
Time Warner Inc. will continue to develop, manufacture, distribute and publish
consumer interactive game entertainment products for use with the computer and
console platforms through subsidiaries and affiliates of its Warner Bros. and
Warner Music Divisions.
# # #
<PAGE>
EXHIBIT 99(b)
[LETTERHEAD OF WMS INDUSTRIES INC.]
NEWS ANNOUNCEMENT
CONTACT:
Harold H. Bach, Jr.
WMS Industries Inc.
312/961-1111
Joseph N. Jaffoni
Jaffoni & Collins Incorporated
212/505-3015
FOR IMMEDIATE RELEASE
WMS INDUSTRIES COMPLETES ACQUISITION OF
ATARI GAMES CORPORATION
Chicago, Illinois, April 1, 1996 - WMS Industries Inc. (NYSE:WMS) announced
today that on March 29, 1996 it completed the acquisition of Atari Games
Corporation, an indirect, wholly-owned subsidiary of Time Warner Inc.
(NYSE:TWX), for a minimum purchase price of approximately $9.8 million and a
maximum of $23.8 million based upon gross profit of the Atari business over the
next four years. The purchase consideration consists of $2 million in cash and
the balance in non-recourse notes. The acquisition substantially increases WMS'
pipeline of coin-operated arcade games and home video games and further
strengthens the Company's industry-leading design and engineering capabilities
with the addition of Atari game designers who will be based in Milpitas,
California. The additional arcade and home video game offerings provide WMS with
opportunities for design, engineering, manufacturing, and marketing efficiencies
and economies of scale which should enhance the operating performance of the
combined company.
Atari has been responsible for creating arcade and home video games such as
Pong, Asteroids, Primal Rage, Area 51, Centipede and Missile Command. WMS
expects to release home versions of Atari's extensive library titles in
"greatest hits" formats in addition to developing, marketing and distributing
new Atari games.
-more-
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WMS Industries Completes Purchase of Atari Games Corporation, 4/1/96 Page 2
Headquartered in Milpitas, California, Atari Games is a developer, manufacturer,
marketer, licensor and publisher of coin operated video arcade games under the
Atari(R) name and interactive electronic and game entertainment products for use
with home video games currently marketed under the Time Warner Interactive
name. Atari Games/Time Warner Interactive is a licensee and publisher for
Nintendo, SEGA, Sony, Jaguar and 3DO and personal computer CD-ROM platforms. No
rights to the names Time Warner or Time Warner Interactive are included in the
transaction. Atari Games is not related to Atari Corporation, the manufacturer
of the Jaguar home game systems.
WMS Industries Inc. is engaged in the design, manufacture and sale of
coin-operated amusement games, home video games, video lottery terminals and
gaming devices, and the ownership and operation of hotels and casinos.
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