As filed with the Securities and Exchange Commission on August 17, 1999.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ACTIVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2606438
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------------
Robert A. Kotick
Chairman of the Board and Chief Executive Officer
ACTIVISION, INC.
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------------------
Copies To:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Proposed
Title of Maximum Proposed
Class of Amount Offering Maximum Amount of
Securities to to be Price Per Offering Registration
be Registered Registered Share (1) Price (1) Fee
- -------------- ---------- --------- ---------- -------------
Common Stock,
$.000001 par value 204,448 shares $13.0625 $2,670,602 $743
(1) Estimated solely for purposes of calculating the registration fee
pursuant to the provisions of Rule 457(c) under the Securities Act of
1933, as amended, based on the average of the reported last high and low
sales prices on the Nasdaq National Market on August 10, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED August 17, 1999
204,448 Shares
ACTIVISION, INC.
Common Stock
----------------------
The stockholders of Activision, Inc. listed in this prospectus under the
section entitled "Selling Stockholders" are offering and selling up to
204,448 shares of Activision's common stock under this prospectus.
All of the selling stockholders acquired their shares of Activision
common stock in connection with Activision's acquisition on June 29, 1999 of
Elsinore Multimedia, Inc., a Florida based software development company. The
selling stockholders were all of the stockholders of Elsinore.
Activision will not receive any of the proceeds from the sale of shares
being offered by the selling stockholders.
Activision's common stock is traded in the NASDAQ National Market System
under the symbol "ATVI." On August 10, 1999, the last sale price for the
common stock as reported on the NASDAQ National Market System was $12.875 per
share.
No underwriting is being used in connection with this offering of common
stock. The shares of common stock are being offered without underwriting
discounts. The expenses of this registration will be paid by Activision.
Normal brokerage commissions, discounts and fees will be payable by the
selling stockholders.
For a discussion of certain matters that should be considered by
prospective investors, see "Risk Factors" starting on page 2 of this
Prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the shares of common
stock offered or sold under this prospectus or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
Activision may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
The date of this Prospectus is , 1999.
RISK FACTORS
Before purchasing any of the shares of Common Stock being offered,
prospective investors should carefully consider the following factors in
addition to the other information contained in this Prospectus or
incorporated by reference into it.
We caution you to be aware of the speculative nature of "forward-looking
statements" made by, or on behalf of, our employees and representatives. Such
statements:
. are defined by the Private Securities Litigation Reform Act of 1995;
. may be oral or written;
. do not include recitations of historical facts;
. can be identified by the use of forward-looking terminology (e.g. "may,"
"expect," "anticipate," "estimate" or "continue") or the negative of
such terminology.
We further caution you that there are numerous risks and uncertainties
that could cause actual events or results to differ materially from those
referred to in such forward-looking statements. The discussion below
highlights some of the more important risks identified by management, but you
should not assume them to be the only factors that could affect future
performance. We caution that we do not have a policy of updating or revising
forward-looking statements and therefore silence by management over time does
not mean that actual events are occurring as anticipated in such forward-
looking statements.
Fluctuations in our quarterly net revenues and operating results make future
predictions uncertain.
Our quarterly operating results have varied in the past and can be
expected to vary in the future. These variations are caused by a number of
different factors, many of which are beyond our control. Such factors
include:
. demand for our products;
. the size and rate of growth of the interactive entertainment and leisure
markets;
. development and promotional expenses relating to the introduction of new
products;
. changes in computer operating systems and video game platforms;
. product returns;
. the timing of orders from major customers;
. delays in product shipments;
. the level of price competition;
. the timing of product introductions by Activision and its competitors;
. product life cycles;
. product defects and other quality problems;
. the level of our international revenues; and
. personnel changes.
As a result of the above-mentioned factors, revenues and operating results
for any future quarter cannot be predicted with any significant degree of
accuracy. Thus, Activision advises that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied
upon as indications of future performance.
Our business has experienced, and is expected to continue to experience,
significant seasonality. Typically, our net revenues are significantly
higher during the fourth calendar quarter because of increased demand for
consumer software during the year-end holiday buying season. Net revenues
and net income in other calendar quarters are generally lower and vary
significantly as a result of new product introductions and other factors.
Our revenues and our competitive position could be negatively
affected if our new products are not successful or timely introduced.
Our future success depends in part on the timely introduction of
successful new products as well as sequels or enhancements of existing
products. These products are necessary to replace declining revenues from
older products. A significant delay in the release of products or the
failure of new products to replace declining revenues from older products
could materially and negatively affect our business, operating results and
financial condition. In addition, competitive factors in the entertainment
and leisure software industry create the need for higher quality, distinctive
products with increasingly sophisticated effects. This in turn makes it
difficult to produce and release such products on a timely basis and results
in higher development, acquisition and marketing costs. The seasonality of
Activision's business further highlights this problem. Moreover, because a
large portion of a product's revenue generally is associated with initial
shipments, the delay of a product introduction expected near the end of a
fiscal quarter may have a material negative effect on operating results for
that quarter. Activision does not assure that new products will be
introduced on schedule, or at all, or that they will achieve market
acceptance or generate significant revenues.
We rely in part on external developers, over whom we have less control than
internal staff.
Although we intend to continue to rely in part on products that are
developed by our own employees, over the last several fiscal years the
percentage of products published by Activision that are developed by
independent third party developers has increased significantly. Also,
occasionally we use independent contractors for certain aspects of our
internal product development and production. Naturally, we have less control
over the timing and the quality of work of these independent contractors and
third party developers, as compared to our own employees. A delay in the work
performed by independent contractors and third party developers may result in
delays in the release of products. In addition, if our independent
contractors and third party developers produce poor quality work, there is a
greater chance that our products will not be successful.
In addition, our future success will depend, in significant part, on our
continued ability to maintain relationships and obtain development agreements
on favorable terms with skilled independent contractors and third party
developers. We cannot assure you that we will be able to establish or
maintain relationships with independent contractors and third party
developers.
Failure of our new products to achieve or sustain market
acceptance may have a material negative effect on our business.
The market for entertainment and leisure systems and software has been
characterized by shifts in consumer preferences and short product life
cycles. Consumer preferences for entertainment and leisure software products
are difficult to predict and few products achieve sustained market
acceptance. We cannot assure that our newly introduced products will achieve
any significant degree of market acceptance, nor can we assure that any such
market acceptance will continue for any significant period of time. Finally,
we cannot assure that product life cycles will be sufficient to permit us to
recover our development, marketing and other related costs. In addition, if
market acceptance is not achieved, we could be forced to accept substantial
product returns to maintain relationships with retailers. Failure of new
products to achieve or sustain market acceptance or product returns in excess
of our expectations would have a material negative effect on our business,
operating results and financial condition.
We depend on a limited number of hit products to produce a large
portion of our revenues. The failure of any of these products to
achieve anticipated results may negatively affect our business.
A significant portion of our revenues are derived from a relatively
small number of products we release each year. In addition, many of these
products have substantial production or acquisition costs and marketing
budgets. For example, during fiscal 1998, one product accounted for
approximately 10.2% of Activision's consolidated net revenues. All other
products were individually less than 10% of Activision's consolidated net
revenues. During fiscal 1999, no single product accounted for greater than
10% of Activision's consolidated net revenues. However, we expect that a
limited number of products will continue to produce a disproportionate amount
of our revenues. Due to this dependence on a limited number of products, the
failure of one or more of these products to achieve anticipated results may
have a material negative effect on Activision's business, operating results
and financial results.
Another key component of our business strategy is publishing titles that
have franchise value, so that sequels, enhancements and add-on products can
be released over time. Focusing on franchise properties, if successful, both
extends the life of the product in the market and results in dependence on a
limited number of titles for our revenues. We make no assurance that existing
franchise titles will continue to be as successful as they have been in the
past. Also, new products that we believe will have potential value as
franchise properties may not achieve market acceptance and therefore may not
become a basis for future releases.
Significant competition in our industry could negatively affect our business.
The interactive entertainment and leisure software industries are highly
competitive. Competition in these industries is largely based on:
. product quality and features;
. compatibility of products with popular platforms;
. company or product line brand name recognition;
. access to distribution channels;
. effectiveness of marketing campaign;
. reliability and ease of use;
. price; and
. technical support.
The level of financial resources of a publisher has also become a
competitive factor in these industries. This is mainly due to the substantial
cost of product development and marketing required to support best-selling
titles. In addition, competitors with broad product lines and popular titles
typically have greater influence with distributors. Thus, distributors and
other customers may be willing to promote titles with less consumer appeal in
return for access to such competitor's most popular titles.
Activision's competitors range from small companies with limited
resources to large companies with substantially greater financial, technical
and marketing resources than those of Activision. Activision's competitors
currently include:
. Acclaim;
. Eidos
. Electronic Arts;
. GT Interactive;
. Hasbro;
. Havas;
. Infogrames;
. LucasArts;
. Microsoft;
. Nintendo;
. Sega; and
. Sony, among many others.
Increased competition may result in price reductions, increased
production costs and reduced profit margins. Prolonged price competition or
reduced demand would have a material negative effect on our business,
operating results and financial condition. We make no assurances that we will
be able to compete successfully against current or future competitors. We
also warn that competitive pressures facing Activision may have a material
negative effect on our business, operating results and financial condition.
There also exists intense competition among entertainment and leisure
software producers over the limited amount of "shelf space" available at
retail stores and the promotional support that can be obtained from these
retailers. As the number of interactive entertainment and leisure products
has increased, the competition for shelf space has intensified. This has
resulted in greater power for retailers and distributors in negotiating terms
of sale, including price discounts and product return policies. Our products
constitute a relatively small percentage of a retailer's sales volume. Thus,
there are no assurances that retailers will continue to purchase Activision's
products or promote Activision's products with adequate levels of shelf space
and promotional support.
Our dependence on certain principal distributors and retailers
exposes us to risks of retailers' business failures and product returns.
Retailers in the computer industry have from time to time experienced
significant fluctuations in their businesses and there have been a number of
business failures among these retailers. The loss of, or significant
reduction in sales attributable to, any of our principal distributors or
retailers could materially negatively effect our business, operating results
and financial condition.
Certain mass market retailers have established an exclusive buying
relationship with an intermediary whereby the retailers will buy our products
only from the intermediary. Where this is the case, the price or other terms
on which we may sell to these retailers may be negatively effected by the
terms imposed by the intermediary. Further, if the terms imposed by the
intermediary are unacceptable to us, we may be unable to sell to certain
retailers at all.
Customer sales are typically made on credit, with terms that vary
depending upon the customer and the nature of the product. We do not hold
collateral to secure payment, but we do have insurance to protect against any
bankruptcy, insolvency, or liquidation of our customers. This insurance,
however, contains a significant deductible as well as a co-payment
obligation, and the policy does not cover all instances of customer non-
payment. In addition, we maintain a reserve for uncollectible receivables
that we believe to be adequate, but it may not be sufficient in every
circumstance. Thus, a payment default by a significant customer could have a
material negative effect on our business, operating results and financial
condition.
We are also exposed to the risk of product returns from retailers and
other wholesale purchasers. Although we provide reserves for returns that we
believe are adequate, and although limits are placed on certain product
returns, we may be forced to accept substantial product returns to maintain
our relationships with retailers and our access to distribution channels.
Product returns that exceed our reserves could have a material negative
effect on our business, operating results and financial condition.
Our business may be negatively affected if we are unable to anticipate and
respond timely and effectively to rapidly changing technology and industry
standards.
The consumer software industry is undergoing rapid changes, including
evolving industry standards, frequent new platform introductions and changes
in consumer requirements and preferences. The introduction of new
technologies, including new console systems such as Sega's Dreamcast and
Sony's PlayStation 2, new technologies that support multi-player games, and
new media formats such as on-line delivery and digital video disks, could
cause our previously released products to become obsolete or unmarketable.
The development cycle for products using new technology may be significantly
longer than our current development cycle for products using existing
technology and may require us to invest resources in products that may not
become profitable. We cannot assure that our future mix of products will keep
pace with technological changes or satisfy evolving consumer preferences. We
also cannot assure that we will be successful in developing and marketing
products for any future operating system or format. Failure to develop and
introduce new products and product enhancements in a timely fashion could
result in significant product returns and inventory obsolescence, which in
turn could have a material negative effect on our business, operating results
and financial condition.
We have substantial indebtedness that exposes us to certain risks.
As of June 30, 1999, we had outstanding $60,000,000 of 6 3/4%
convertible subordinated notes due 2005. In June 1999, we obtained a term
loan and revolving credit facility composed of a $25 million term loan and up
to $100 million of revolving credit loans and letters of credit. The proceeds
of the term loan, which is due in June 2002, were used to complete the
acquisition of Expert Software, Inc. and to pay expenses associated with the
acquisition and the financing transaction. The revolving credit facility
will be used for working capital and general corporate purposes.
The term loan and the revolving credit facility are secured by a pledge
of substantially all of the assets of Activision and of its US subsidiaries.
The credit facility contains various financial and other promises with which
we and our subsidiaries must comply. If we were to default under the terms
of the credit facility, either as a result of a failure to pay principal or
interest when due or as a result of a breach of a financial or other promise,
the lenders could stop providing funds and letters of credit to us.
Additionally, the lenders could declare an event of default and foreclose on
the collateral. This could also result in an acceleration of the convertible
subordinated notes. A default by Activision under the revolving credit and
term loan facility would materially negatively effect Activision's business
and could result in Activision declaring bankruptcy.
Our operations and those of our key suppliers and service providers may be
subject to year 2000 issues which could affect our business or that of our
suppliers.
The year 2000 date issue arises from the fact that many computer systems
and applications currently use only two digits to identify the year in date
fields. As a result, date-sensitive systems may recognize the year 2000 as
1900, or may not recognize the year 2000 at all. This could result in either
miscalculations or system failures. If our internal computer and embedded
systems do not correctly recognize date information when the year changes to
2000, there could be an adverse impact on our operations. We have begun to
prepare our internal computer and embedded systems for the year 2000 and are
currently implementing changes to ease potential year 2000 problems. As a
result, we have purchased software programs that have been independently
developed by third parties which will test year 2000 compliance for the
majority of our systems.
All of our products currently being shipped have been tested for year
2000 compliance and have passed these tests. In addition, all products
currently in development are being tested as part of the normal quality
assurance testing process and are scheduled to be released fully year 2000
compliant. However, if the computer system on which a consumer uses our
products is not year 2000 compliant, it could affect the consumer's ability
to use some of our products.
Our contingency plans include adding network operating systems to back-
up our current network server and developing back-up plans for
telecommunications with external offices and customers. In addition, we have
a staffing plan to handle orders manually should there be a failure of
electronic data interchange connections with its customers and suppliers.
Management believes that the items mentioned above constitute our greatest
risk of exposure and that the plans developed by us will be adequate for
handling these items.
We have also taken steps to verify that the products and services of our
critical suppliers are year 2000 compliant. In response to a questionnaire
we distributed, all of our critical suppliers and trading partners have
confirmed our expectation that they will continue to be able to provide
services and products through the change to 2000.
We have completed year 2000 compliance testing on substantially all of
our critical systems. Any corresponding changes are anticipated to be
completed by August 1999. The testing and modification process has cost us
less than $100,000 thus far. We do not expect the total cost of our year
2000 compliance plan to exceed $200,000. The total estimated cost does not
include potential costs related to any systems used by our customers, any
third party claims, or the costs of the replacement of internal software and
hardware which occurs in the normal course of our business. The overall cost
of our year 2000 compliance plan is a minor portion of our total information
technology budget and is not expected to materially delay the implementation
of any other unrelated projects that we have planned to undertake. In some
instances, the installation schedule of new software and hardware in the
normal course of business has been accelerated to afford a solution to year
2000 compatibility issues. The total cost estimate for our year 2000
compliance plan may change as the projects progress.
The above-mentioned year 2000 issues should not have a material negative
impact on our financial condition or results of operations. However, the
specific extent to which we may be affected by such matters is not certain.
In addition, we make no assurances that the failure by a supplier or another
third party to ensure year 2000 compatibility would not have a material
negative effect on us.
The impact of the EURO conversion on our operations will not be significant.
On January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the "euro" as their common currency. From January 1,
1999 through January 1, 2002 the participating countries will be able to use
their sovereign currencies or the euro. Beginning January 1, 2002, the
participating countries will issue new euro-denominated bills and coins for
use in cash transactions. No later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the sovereign
currencies, so that the sovereign currencies will no longer be legal tender
for any transactions, making conversion to the euro complete.
After conducting an internal analysis, we have determined that the
impact of the conversion will not be significant to our overall operations.
Our wholly owned subsidiaries operating in participating countries
represented 24.1% and 22.1% of Activision's consolidated net revenues for the
fiscal years ended March 31, 1999 and 1998, respectively.
We may not be able to protect our proprietary rights and may infringe on the
proprietary rights of others.
We hold copyrights on the products, manuals, advertising and other
materials we own. We also maintain trademark rights in the Activision name,
the Activision logo, and the names of the products we own. We regard our
software as proprietary and rely primarily on a combination of trademark,
copyright and trade secret laws, employee and third-party nondisclosure
agreements, and other methods to protect our proprietary rights. Unauthorized
copying commonly occurs within the software industry. If a significant
amount of unauthorized copying of our products were to occur, our business,
operating results and financial condition could be negatively effected.
There can be no assurance that third parties will not assert
infringement claims against us in the future with respect to current or
future products. As is common in the industry, we sometimes receive notices
from third parties claiming infringement of intellectual property rights of
such parties. We investigate these claims and respond as we deem
appropriate. Any claims or litigation, with or without merit, could be
costly and could result in a diversion of management's attention, which could
have a material negative effect on our business, operating results and
financial condition. Negative determinations in such claims or litigation
could also have a material negative effect on our business, operating results
and financial condition.
Software piracy (the unauthorized use of its products) exists and will
likely remain a persistent problem. Activision is unable to determine the
extent to which piracy of its software products exists. In selling our
products, we rely primarily on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. Further, we enter into transactions in countries where
intellectual property laws are not well developed or are poorly enforced.
Thus, legal protections of our intellectual property rights may be
ineffective in those countries.
Our failure to retain or failure to hire qualified key personnel
could have a material negative effect on our business.
Our success depends to a significant extent on the performance and
continued service of our senior management and certain key employees.
Competition for highly skilled employees with technical, management,
marketing, sales, product development and other specialized training is
intense, and we may not be successful in attracting and retaining such
personnel. As a result, we may experience increased costs to attract and
retain skilled employees. There is no guarantee that key employees will not
leave Activision or compete against Activision, despite the fact such
employees have entered into term employment agreements. Our failure to
attract or retain qualified employees could have a material negative effect
on our business, operating results and financial condition.
Our significant international operations subjects us to certain economic and
political risks which could materially negatively effect our business.
In the past three years our international revenues have accounted for a
significant portion of our total revenues. International sales and licenses
accounted for 65% of our total revenues in the fiscal year 1997, 71% of our
total revenues in the fiscal year 1998, and 66% of our total revenues in the
fiscal year 1999. We expect that international revenues will continue to
account for a significant portion of our total revenues in the future. We
intend to continue to expand our direct and indirect sales, marketing and
localization activities worldwide. This expansion will require significant
management time and attention and financial resources in order to develop
adequate international sales and support channels. However, in addition to
the possibility that we may not be able to maintain or increase international
market demand for our products, international sales are subject to certain
inherent risks, including:
. the impact of possible recessionary environments in economies outside
the United States;
. the costs of transferring and localizing products for foreign markets;
. longer receivable collection periods and greater difficulty in
collecting accounts receivable;
. unexpected changes in regulatory requirements, tariffs and other
barriers;
. difficulties and costs of staffing and managing foreign operations; and
. political and economic instability.
There can be no assurance that we will be able to sustain or increase
our international revenues or that the foregoing factors will not have a
material negative effect on our future international revenues and,
consequently, on our business, operating results and financial condition.
Presently, we do not engage in currency hedging activities. Although exposure
to currency fluctuations to date has been insignificant, fluctuations in
currency exchange rates may in the future have a material negative impact on
revenues from international sales and licensing and thus our business,
operating results and financial condition.
Our products may contain errors or defects, which may result in a loss of or
delay in market acceptance of the products.
The type of products we offer frequently contains errors or defects.
Despite extensive product testing, in the past we have released products with
defects and have discovered errors in our products after their introduction.
In particular, personal computer ("PC") hardware is characterized by a wide
variety of non-standard peripherals (such as sound cards and graphics cards)
and configurations that make pre-release testing for programming or
compatibility errors very difficult and time-consuming. Despite testing by
Activision, errors could nonetheless be found in new products after
commercial shipments begin. This may result in a loss of or delay in market
acceptance, which could have a material negative effect on our business,
operating results and financial condition.
We may be at a competitive disadvantage if we are unable to
successfully integrate our recently acquired subsidiaries
or find suitable additional acquisition opportunities.
We are currently integrating the operations of our recently acquired
subsidiaries, Head Games, CD Contact, Expert Software, Inc. ("Expert") and
Elsinore Multimedia, Inc. with our previously existing operations. This
process, as well as the process of managing these significant new operations,
requires substantial management time and effort and diverts the attention of
management from other matters. In addition, there is a risk of loss of key
employees, customers and vendors of the recently acquired operations as well
as existing operations as this process is implemented. There is a risk we may
not be successful in integrating these operations.
Consistent with our strategy of enhancing our distribution and product
development capabilities, we intend to continue to pursue acquisitions of
companies, properties and other assets that can be purchased or licensed on
acceptable terms and which we believe can be operated or exploited
profitably. Some of these transactions could be material in size and scope.
While we will continually be searching for additional acquisition
opportunities, we may not be successful in identifying suitable acquisitions.
We may not be able to consummate potential acquisitions or an acquisition may
not enhance our business or be maximizing to our earnings. As the interactive
entertainment and leisure businesses continue to consolidate, we face
significant competition in seeking and consummating acquisition
opportunities. Future acquisitions could also divert substantial management
time and result in short term reductions in earnings or special transaction
or other charges. In addition, future acquisitions may be difficult to
integrate with existing operations or assets.
In the future, we may issue additional shares of common stock in
connection with one or more acquisitions, which may dilute our existing
shareholders. Our shareholders may not have the opportunity to review, vote,
or evaluate future acquisitions.
Failure to maintain our distribution relationships with certain
key vendors could have a material negative effect on us.
Our CD Contact subsidiary performs software distribution services in
Belgium, The Netherlands and Luxembourg. Our CentreSoft subsidiary performs
software distribution services in the United Kingdom and, via export, in
other European territories. Each of CD Contact and CentreSoft performs these
services for a variety of entertainment software publishers, many of whom are
competitors of ours. These services are generally performed under limited
term contracts, some of which provide for cancellation in the event of a
change of control. Despite our reasonable efforts to retain these vendors,
we may not be successful in this regard. The cancellation or non-renewal of
one or more of these contracts could have a material negative effect on our
business, operating results and financial condition. Three of CD Contact's
vendors accounted for 50%, 11% and 11%, respectively, of CD Contact's net
revenues in fiscal year 1999. The net revenues from these vendors represent
6%, 1% and 1%, respectively, of our consolidated net revenues. Two of
CentreSoft's vendors accounted for 30% and 11%, respectively, of CentreSoft's
net revenues in fiscal year 1999. The net revenues from these vendors
represented 11% and 4%, respectively, of our consolidated net revenues. All
other vendors contributed less than 10% individually to the respective
subsidiary's net revenues.
THE COMPANY
Activision, Inc. is a leading international publisher, developer and
distributor of interactive entertainment and leisure products. The Company's
products span a wide range of product genres (including action, adventure,
strategy and simulation) and target markets (including game enthusiasts,
value buyers and children). In addition to its genre and market diversity,
Activision publishes, develops and distributes products for a variety of game
platforms, including personal computers ("PCs"), the Sony PlayStation console
system and the Nintendo 64 console system.
Activision's objective is to be a worldwide leader in the development,
publishing and distribution of quality interactive entertainment and leisure
products that deliver, at each point of the value spectrum, a highly
satisfying experience. The Company's strategy includes the following
elements:
Create and maintain a balanced and diversified portfolio of operations.
The Company has assembled a large diversified portfolio of development,
publishing and distribution operations and relationships which are
complementary and, at the same time, reduce the Company's risk of
concentration on any one developer, brand, platform, customer or market. The
Company has focused historically on the development and publishing of premium
games which provide the most sophisticated game play and entertainment
experience at the top price point. While the Company will continue to take
advantage of its expertise in this area, it has recently diversified its
business operations and product and audience mix, and plans on continuing
such diversification in the future. For example, the Company acquired
several separate companies in the last two years in order to establish the
distribution business. Additionally, the Company believes that its recent
acquisition of Expert Software Inc., along with the Company's acquisition in
June 1998 of Head Games, positions the Company as a leading publisher of
"value" products for the PC, which are characterized by less sophisticated
game play and lower price points. Further, the Company publishes and
distributes titles that run on a variety of platforms (PC, Sony PlayStation
and Nintendo 64). This diversification significantly reduces the risk of
downturn or underperformance in any of the Company's individual operations.
Create and maintain strong brands. The Company focuses its development
and publishing activities principally on titles that are, or have the
potential to become, franchise properties with sustainable consumer appeal
and brand recognition. These titles can thereby serve as the basis for
sequels, prequels, mission packs and other add-ons and related new titles
that can be released over an extended period of time. The Company believes
that the publishing and distribution of products based in large part on
franchise properties enhances revenue predictability and the probability of
high unit volume sales and operating profits. In addition, the Company has
entered into a series of strategic partnerships with the owners of
intellectual property pursuant to which the Company has acquired the rights
to publish titles based on franchises such as Star Trek, various Disney films
such as Toy Story 2, A Bug's Life and Tarzan, and Spiderman.
Focus on on-time delivery. The success of the Company's publishing
business is dependent, in significant part, on its ability to develop games
that will generate high unit volume sales that can be completed in accordance
with planned budgets and schedules. In order to increase its ability to
achieve this objective, the Company's publishing units have implemented a
formal control process for the development of the Company's products. This
process includes three key elements: (i) in-depth reviews are conducted for
each project at five intervals during the development process by a team that
includes several of the Company's highest ranking operating managers; (ii)
each project is led by a small team which is heavily incentivized to deliver
a high-quality product, on-schedule and within budqet; and (iii) day-to-day
progress is monitored by a dedicated process manager in order to insure that
issues, if any, are promptly identified and addressed in a timely manner.
Leverage infrastructure and organization. The Company is continually
striving to reduce its risk and increase its operating leverage and
efficiency through the variabilization of expenses. For example, the Company
has significantly increased its product making capabilities by allocating a
larger portion of its product development investments to experienced
independent development companies. These companies generally are small firms
focused on a particular product type, run and owned by individuals willing to
take development risk by accepting payments based on the completion of fixed
performance milestones in exchange for a royalty on the revenue stream of the
game after the Company recoups its development costs. The Company has also
broadly instituted objective-based reward programs that provide incentives to
management and staff to produce results that meet the Company's financial
objectives.
Grow through continued strategic acquisitions. The interactive
entertainment and leisure industries are consolidating, and the Company
believes that success in these industries will be driven in part by the
ability to take advantage of scale. Specifically, smaller companies are more
capital constrained, enjoy less predictability of revenues and cashflow, lack
product diversity and must spread fixed costs over a smaller revenue base.
Several industry leaders are emerging that combine the entrepreneurial and
creative spirit of the industries with professional management, the ability
to access the capital markets and the ability to maintain favorable
relationships with strategic developers, property owners, and retailers.
Through seven completed acquisitions since 1997, the Company believes that it
has successfully diversified its operations, its channels of distribution and
its library of titles and has emerged as one of the industry's leaders.
The Company's principal executive offices are located at 3100 Ocean Park
Blvd., Santa Monica, California 90405, and its telephone number is (310) 255-
2000. The Company also maintains offices in the United Kingdom, France,
Germany, Japan, Australia, Belgium, The Netherlands, Madison, Wisconsin, St.
Paul, Minnesota and Hollywood and Coral Gables, Florida. The Company's World
Wide Web home page is located at http://www.activision.com.
USE OF PROCEEDS
All net proceeds from the sale of the Activision shares of common stock
will go to the stockholders who offer and sell their shares. Accordingly,
the Company will not receive any of the proceeds from the sale of the common
stock being offered hereby for the account of the selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of Activision common stock by the selling
stockholders as of July 26, 1999, and the number of shares of common stock
being offered by this prospectus.
Name and Number of
Address of Beneficial Ownership of Common Stock Shares of
Selling Prior to the Offering Common Stock
Stockholder Number of Shares Percentage of Class(1) Being Offered
- ----------- ----------------- ---------------------- -------------
Jill G. Mark 122,669 * 122,669
6595 SW 102nd Street
Miami, FL 33156
Robert N. Herrick 81,779 * 81,779
700 Mockingbird Lane
Plantation, FL 33324
All Selling Stockholders
as a group 204,448 * 204,448
____________
* Less than 1%.
(1) Percentages are based on 23,531,091 shares of common stock that were
issued and outstanding as of July 26, 1999.
The Company entered into a share exchange agreement (the "Acquisition
Agreement"), dated as of June 29, 1999, with Jill G. Mark and Robert N.
Herrick. These individuals were the sole stockholders of Elsinore. Pursuant
to the Acquisition Agreement, these individuals transferred all of their
shares of Elsinore to the Company in exchange for 204,448 shares of the
Company's common stock.
In order to ensure that the representations, warranties and covenants
made by the former Elsinore stockholders under the Acquisition Agreement are
not breached, and in order to provide a source of indemnification to the
Company pursuant to such agreement, each of the former Elsinore stockholders
deposited in escrow pursuant to a warranty escrow agreement ten percent (10%)
of the total number of shares of Common Stock issued to such stockholder in
connection with the transaction, an aggregate of 20,445 shares of Common
Stock, to be held until the earlier of (i) June 29, 2000, (ii) the date on
which the first audited results of the combined enterprises' financial
statements is completed or (iii) the date set forth in a joint written
direction executed by the Company and the former Elsinore stockholders.
In addition, prior to the acquisition of Elsinore by Activision,
Elsinore was party to various licensing and distribution agreements with Head
Games Publishing, Inc., a wholly owned subsidiary of Activision. Other than
such contracts, and the fact that the selling stockholders are employees of
Elsinore, which became a wholly owned subsidiary of the Company in June, 1999
pursuant to the Acquisition Agreement, none of the selling stockholders has
had a material relationship with the Company within the past three years.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 55,000,000
shares of capital stock, $.000001 par value, consisting of 50,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock. As of July 26,
1999, approximately 23,531,091 shares of Common Stock were outstanding.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election. Subject to
preferences which may be applicable to any outstanding shares of preferred
stock, holders of Common Stock are entitled to such distributions as may be
declared from time to time by directors of the Company out of funds legally
available therefor. The Company has not paid, and has no current plans to
pay, dividends on its Common Stock. The Company intends to retain all
earnings for use in its business.
Holders of Common Stock have no conversion, redemption or preemptive
rights to subscribe to any securities of the Company. All outstanding shares
of Common Stock are fully paid and nonassessable. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, holders
of Common Stock will be entitled to share ratably in the assets of the
Company remaining after provision for payment of liabilities to creditors and
preferences applicable to outstanding shares of preferred stock.
The rights, preferences and privileges of holders of Common Stock are
subject to the rights of the holders of any outstanding shares of preferred
stock. At present, no shares of preferred stock are outstanding. As of July
26, 1999, the Company had approximately 5,000 stockholders of record,
excluding banks, brokers and depository companies that are stockholders of
record for the account of beneficial owners.
The transfer agent for the Common Stock of the Company is Continental
Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The Common Stock may be sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise, at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The shares may be sold from time to time in one or more of the
following transactions, without limitation: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by
such broker or dealer or for its account pursuant to the Prospectus, as
supplemented, (c) an exchange distribution in accordance with the rules of
such exchange, and (d) ordinary brokerage transactions and transactions in
which the broker solicits purchasers. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus, as supplemented. From time
to time the Selling Stockholders may engage in short sales, short sales
against the box, puts and calls and other transactions in securities of the
Company or derivatives thereof, and may sell and deliver the shares in
connection therewith.
From time to time Selling Stockholders may pledge their shares pursuant
to the margin provisions of their respective customer agreements with their
respective brokers. Upon a default by a Selling Stockholder, the broker may
offer and sell the pledged shares of Common Stock from time to time as
described above.
All expenses of registration of the Common Stock (other than commissions
and discounts of underwriters, dealers or agents), estimated to be
approximately $15,750, shall be borne by the Company. As and when the
Company is required to update this Prospectus, it may incur additional
expenses in excess of this estimated amount.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock
offered hereby have been passed upon for the Company by Robinson Silverman
Pearce Aronsohn & Berman LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company and its subsidiaries as of March 31, 1999 and 1998 and for
each of the years in the three year period ended March 31, 1999, have been
incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at its offices at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, New York,
New York 10048 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can be
obtained by mail from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates,
and can also be obtained electronically through the SEC's Electronic Data
Gathering, Analysis and Retrieval system at the SEC's Web site
(http://www.sec.gov). The Company's Common Stock is listed on the Nasdaq
National Market and copies of such reports and other information can also be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the SEC a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the SEC. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof, which may be inspected and copied at the public reference
facilities of the SEC referred to above. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the full text
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company furnishes stockholders with annual reports containing
audited financial statements and with proxy material for its annual meetings
complying with the proxy requirements of the Exchange Act.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents which have been filed by the Company with the
SEC are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended March
31, 1999, which contains audited consolidated balance sheets of the Company
and subsidiaries as of March 31, 1999 and 1998, and related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three year period ended March 31, 1999.
2. Proxy Statement dated August 16, 1999, as filed with the SEC on July
29, 1999.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1999.
4. The Company's Current Reports on Form 8-K filed with the Commission
on April 29, 1999 and July 12, 1999.
5. Description of the Company's Common Stock contained in the Company's
Registration Statement on Form S-3, Registration No. 333-46425.
6. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since March 31, 1999.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in and to
be a part of this Prospectus from the date of filing of such reports and
documents.
Any statement contained herein or in a document which is incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement in any subsequently filed
document that is also deemed to be incorporated by reference herein modifies
or supersedes such prior statement.
This Prospectus incorporates documents by reference which are not
presented or delivered herewith. These documents are available upon written
or oral request from the Company, without charge, to each person to whom a
copy of this Prospectus has been delivered, other than exhibits to those
documents. Requests should be directed to the Office of the Secretary,
Activision, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405
(telephone (310) 255-2000).
-------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
Prospectus, and if given or made, such information or representations must
not be relied upon as having been authorized by the Company or the Selling
Stockholders. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that the
information herein is correct as of any time subsequent to its date. This
Prospectus does not constitute an offer of solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer of solicitation is not qualified to do so
or to anyone to whom it is unlawful to make such offer or solicitation.
-----------------------------
TABLE OF CONTENTS
Page
----
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Documents Incorporated by Reference. . . . . . . . . . . . . . . . . . . . 14
---------------------
---------------------
---------------------
204,448 Shares
ACTIVISION, INC.
Common Stock
----------
PROSPECTUS
----------
_____________, 1999
--------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Company in
connection with the offering of the Common Stock being registered. All the
amounts shown are estimates except the Securities and Exchange Commission
(the "Commission") registration fee.
Item Amount
---- ------
Registration Fee - Securities and Exchange Commission...... $ 743
Legal Fees and Expenses.................................... 7,500
Accounting Fees and Expenses............................... 5,000
Miscellaneous.............................................. 2,500
-----
TOTAL....................................... $15,743
=======
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL"), paragraph
B of Article SIXTH of the Company's Amended and Restated Certificate of
Incorporation and paragraph 5 of Article VII of the Company's By-laws provide
for the indemnification of the Company's directors and officers in a variety
of circumstances, which may include liabilities under the Securities Act of
1933, as amended (the "Securities Act").
Paragraph B of Article SIXTH of the Amended and Restated Certificate of
Incorporation provides mandatory indemnification rights to any officer or
director of the Company who, by reason of the fact that he or she is an
officer or director of the Company, is involved in a legal proceeding of any
nature. Such indemnification rights shall include reimbursement for expenses
incurred by such officer or director in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
Paragraph 5 of Article VII of the Company's By-laws currently provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
Paragraph A of Article SIXTH of the Amended and Restated Certificate of
Incorporation contains a provision which eliminates the personal liability of
a director to the Company and its stockholders for certain breaches of his or
her fiduciary duty of care as a director. This provision does not, however,
eliminate or limit the personal liability of a director (i) for any breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under the Delaware statutory provision
making directors personally liable, under a negligence standard, for unlawful
dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
This provision offers persons who serve on the Board of Directors of the
Company protection against awards of monetary damages resulting from
negligent (except as indicated above) and "grossly" negligent actions taken
in the performance of their duty of care, including grossly negligent
business decisions made in connection with takeover proposals for the
Company. As a result of this provision, the ability of the Company or a
stockholder thereof to successfully prosecute an action against a director
for a breach of his duty of care has been limited. However, the provision
does not affect the availability of equitable remedies such as an injunction
or rescission based upon a director's breach of his duty of care.
It is currently unclear as a matter of law what impact these provisions
will have regarding securities law violations. The Commission takes the
position that indemnification of directors, officers and controlling persons
against liabilities arising under the Securities Act is against public policy
as expressed in the Securities Act and therefore is unenforceable.
Item 16. Exhibits
(a) Exhibits:
4.1 Share Exchange Agreement dated as of June 29, 1999, among the
Company, Jill G. Mark and Robert N. Herrick.
5.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP as
to the legality of securities being registered.
23.1 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP
(included as part of Exhibit 5.1).
23.2 Consent of KPMG LLP.
24.1 Power of attorney (included on signature page).
Item 17. Undertakings
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by
the Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Company hereby further undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The Company hereby further undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent
or given, the latest annual report to security holders that is incorporated
by reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the Prospectus, to deliver, or cause to
be delivered to each person to whom the Prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Los Angeles, State of California, on
August 16, 1999.
ACTIVISION, INC.
By: /s/ Robert A. Kotick
------------------------------
Robert A. Kotick, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert A. Kotick and Brian G. Kelly,
and each or any of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective documents in connection therewith), with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- -----
/s/ Robert A. Kotick Chairman, Chief Executive Officer August 16, 1999
- -------------------- (Principal Executive Officer)
(Robert A. Kotick) and Director
/s/ Brian G. Kelley Co-Chairman and Director August 16, 1999
- --------------------
(Brian G. Kelly)
/s/ Barry J. Plaga Chief Financial Officer August 16, 1999
- -------------------- (Principal Financial and
(Barry J. Plaga) Accounting Officer)
/s/ Harold A. Brown Director August 16, 1999
- --------------------
(Harold A. Brown)
/s/ Barbara S. Isgur Director August 16, 1999
- --------------------
(Barbara S. Isgur)
/s/ Steven T. Mayer Director August 16, 1999
- --------------------
(Steven T. Mayer)
/s/ Robert J. Morgado Director August 16, 1999
- --------------------
(Robert J. Morgado)
EXHIBIT INDEX
Page Number in Signed
Exhibit No. Description Registration Statement
----------- ----------- ----------------------
4.1 Share Exchange Agreement dated as of
June 29, 1999, among Activision, Inc.,
Jill G. Mark and Robert N. Herrick.
5.1 Opinion of Robinson Silverman Pearce
Aronsohn & Berman LLP as to the legality
of securities being registered.
23.1 Consent of Robinson Silverman Pearce
Aronsohn & Berman LLP (included as
part of Exhibit 5.1).
23.2 Consent of KPMG LLP.
24.1 Power of attorney (included on
signature page).
---------------------------------------------------------------------------
SHARE EXCHANGE AGREEMENT
among
JILL G. MARK and ROBERT N. HERRICK,
as the Shareholders,
and
ACTIVISION, INC.
dated as of June 29, 1999
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I TERMS OF PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . .1
1.1. Sale of the Elsinore Shares.. . . . . . . . . . . . . . . . . . .1
1.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. . . . . . . .2
2.1. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2. Authorization, Validity and Effect of Agreement.. . . . . . . . .2
2.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4. No Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . .3
2.5. Other Interests. . . . . . . . . . . . . . . . . . . . . . . . .3
2.6. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.7. Investment Intent.. . . . . . . . . . . . . . . . . . . . . . . .3
2.8. Financial Statements; Undisclosed Liabilities.. . . . . . . . . .4
2.9. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.10. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . .4
2.11. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.12. Books and Records . . . . . . . . . . . . . . . . . . . . . . . .7
2.13. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . .8
2.15. No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.16. Related Party Transactions. . . . . . . . . . . . . . . . . . . .9
2.17. Contracts and Commitments . . . . . . . . . . . . . . . . . . . .9
2.18. Employee Matters and Benefit Plans. . . . . . . . . . . . . . . 10
2.19. Intellectual Property . . . . . . . . . . . . . . . . . . . . . 13
2.20. Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.22. Relationships with Suppliers, Licensors and Customers . . . . . 16
2.23. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.24. Cash Balance. . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.25. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.26. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACTIVISION. . . . . . . . 17
3.1. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2. Corporate Power and Authority; Effect of Agreement. . . . . . . 17
3.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5. SEC Documents.. . . . . . . . . . . . . . . . . . . . . . . . . 18
3.6. No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.7. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.8. Stock Transfer Taxes or Stamps. . . . . . . . . . . . . . . . . 19
3.9. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 20
4.1. Conditions to the Shareholders' Performance.. . . . . . . . . . 20
4.2. Conditions to Activision's Performance. . . . . . . . . . . . . 20
ARTICLE V COVENANTS AND OTHER AGREEMENTS. . . . . . . . . . . . . . . . . 21
5.1. Restrictions on Sale of Activision Shares . . . . . . . . . . . 21
5.2. Share Hold Back . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3. Registration of Activision Shares . . . . . . . . . . . . . . . 22
5.4. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 23
5.5. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7. Elsinore Employees. . . . . . . . . . . . . . . . . . . . . . . 24
5.8. NASDAQ Listing. . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI SURVIVAL AND INDEMNIFICATION. . . . . . . . . . . . . . . . . . 24
6.1. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2. Indemnification by the Shareholders . . . . . . . . . . . . . . 25
6.3. Indemnification Procedures. . . . . . . . . . . . . . . . . . . 25
6.4. Limitation of Liability . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 26
7.1. Assignment; Binding Effect; Benefit . . . . . . . . . . . . . . 26
7.2. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 26
7.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.6. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.7. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.8. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.9. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.10. No Party Deemed Drafter . . . . . . . . . . . . . . . . . . . . 28
7.11. Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.12. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.13. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14. Specific Performance. . . . . . . . . . . . . . . . . . . . . . 29
7.15. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT, dated as of June 29, 1999, by and among
JILL G. MARK and ROBERT N. HERRICK (collectively the "Shareholders"), and
ACTIVISION, INC., a Delaware corporation ("Activision").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Shareholders own all of the issued and outstanding
shares of capital stock, $.10 par value per share (the "Elsinore Shares"), of
Elsinore Multimedia, Inc., a Florida corporation ("Elsinore"), constituting
all of the issued and outstanding capital stock of Elsinore; and
WHEREAS, upon the terms and subject to the conditions set forth
in this Agreement, the Shareholders desire to sell to Activision, and
Activision desires to purchase from the Shareholders, all of the Elsinore
Shares (the "Purchase").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
1.1 Sale of the Elsinore Shares.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, on the Closing Date (as defined in Section 1.2), the
Shareholders shall sell to Activision, and Activision shall purchase from the
Shareholders, the Elsinore Shares, constituting all of the issued and
outstanding capital stock of Elsinore, for the Purchase Price specified in
Section 1.3.
(b) At the Closing, the Shareholders shall deliver to
Activision, against payment of the Purchase Price, certificates representing
the Elsinore Shares accompanied by stock powers duly endorsed to Activision,
free and clear of all Encumbrances (as defined in Section 2.02(b)).
1.2 The Closing. The closing of the purchase and sale of the
Elsinore Shares (the "Closing") shall take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New
York, New York, on or, as soon as practicable after, the date hereof, but not
later than June 30, 1999, or on such other date as the parties may mutually
agree (the "Closing Date").
1.3 Purchase Price.
(a) The aggregate purchase price payable to the Shareholders
in exchange for the sale of the Elsinore Shares shall be 204,448 shares of
common stock, $.000001 par value per share, of Activision (the "Activision
Common Stock"). Each Shareholder shall be entitled to receive a number of
such shares of Activision Common Stock in proportion to his or her respective
shareholdings of Elsinore as of the Closing Date as set forth on Schedule 2.3
hereto. The shares of Activision Common Stock to be issued in connection
with the Closing are sometimes referred to as the "Activision Shares."
(b) No fractional shares of Activision Common Stock shall be
issued pursuant to this Agreement. In lieu of the issuance of any fractional
shares of Activision Common Stock pursuant to this Agreement, the number of
shares of Activision Common Stock issuable to a Shareholder shall be rounded
to the nearest whole share.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders severally and not jointly hereby represent and
warrant to Activision as follows:
2.1 Organization. Elsinore is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
Elsinore has all requisite corporate power and authority to carry on its
business as it is now being conducted and to own or lease and to operate its
properties. Elsinore is not qualified to transact business as a foreign
corporation in any jurisdiction, and neither the nature of the property owned
or leased by it nor the nature of the business conducted by it makes any such
qualification necessary, other than such failures which do not and would not,
in the aggregate, have a Material Adverse Effect. For purposes of this
Agreement, "Material Adverse Effect" shall mean a material adverse effect on
the business, assets, financial condition or results of operations of
Elsinore. True and complete copies of the Articles of Incorporation and
Bylaws of Elsinore have previously been delivered or made available to
Activision.
2.2 Authorization, Validity and Effect of Agreement. The
Shareholders have the legal capacity and the power to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the
Shareholders and the consummation of the transactions contemplated hereby
have been duly authorized by the Shareholders and no other action on the part
of the Shareholders is necessary to authorize the execution, delivery and
performance of this Agreement by the Shareholders and the consummation of the
transactions contemplated hereby. On the Closing Date, each of the
Shareholders shall possess full authority and power to transfer to Activision
all Elsinore Shares beneficially owned by him or her, free and clear of all
Encumbrances (as defined in Section 2.3(b)) in exchange for Activision Common
Stock. This Agreement has been duly and validly executed and delivered by
the Shareholders and constitutes the valid and binding obligation of the
Shareholders, enforceable against the Shareholders in accordance with its
terms.
2.3 Capitalization.
(a) The authorized capital stock of Elsinore consists of
1,000 shares of the same class and series, $.10 par value per share, 850
shares of which are issued and outstanding. All of the Elsinore Shares are
duly authorized, validly issued, fully paid and nonassessable and are owned
of record and beneficially by the Shareholders. Schedule 2.3 hereto sets
forth the ownership of Elsinore Shares by each of the Shareholders. There
are outstanding no securities convertible into, exchangeable for, or carrying
the right to acquire, equity securities of Elsinore, and no subscriptions,
warrants, options, calls, rights (pre-emptive (other than as set forth in the
Articles of Incorporation of Elsinore) or other) or other arrangements or
commitments obligating Elsinore to issue or dispose of any of its equity
securities or any ownership interest therein.
(b) The Shareholders have good and valid title to the
Elsinore Shares, free and clear of all liens, security interests, pledges,
mortgages, rights of first refusal, options, proxies, voting trusts or other
encumbrances ("Encumbrances"). At the Closing, the sale and delivery of the
Elsinore Shares to Activision pursuant to Article I hereof will vest in
Activision good and valid title to the Elsinore Shares, free and clear of all
Encumbrances (other than Encumbrances created or suffered by Activision.
2.4 No Subsidiaries. Elsinore does not have any direct or
indirect Subsidiaries. For purposes of this Agreement, "Subsidiary" when
used with respect to any party shall mean any corporation, partnership, joint
venture, business trust or other entity, of which such party or a Subsidiary
of such party, directly or indirectly, owns or controls at least a majority
of the securities or other interests having by their terms ordinary voting
power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization.
2.5 Other Interests. Elsinore does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business trust or other entity
(other than investments in short-term investment securities).
2.6 No Violation. The execution, delivery and performance by the
Shareholders of this Agreement do not and the consummation by the
Shareholders of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, conflict with or
violate (i) any provision of law, rule or regulation to which the
Shareholders or Elsinore are subject, (ii) any order, judgment, injunction or
decree binding upon or applicable to the Shareholders or Elsinore or binding
upon the assets or properties of the Shareholders or Elsinore, (iii) any
provision of the organizational documents or the By-laws or Articles of
Incorporation of Elsinore, or (iv) other than the consents and filings
provided for in this Agreement, require any consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority which has not been obtained or made.
2.7 Investment Intent. The Activision Common Stock to be issued
to the Shareholders in connection with this Agreement is being acquired by
each Shareholder for his own account, for investment purposes only and not
with a view to the distribution of such shares or with any present intention
of distributing any of such shares within the meaning of the Securities Act
of 1933, as amended (the "Securities Act") or reselling in violation of any
other applicable securities laws, it being understood that the shares of
Activision Common Stock to be issued in to the Shareholders under this
Agreement have not been registered under the Securities Act, and therefore
cannot be sold unless registered under the Securities Act or unless an
exemption from registration is available, and only subject to further
restrictions under the provisions of Sections 5.1 and 5.2 and the Warranty
Escrow Agreement (as defined in Section 5.2). Each of the Shareholders will
execute and deliver to Activision at or prior to the Closing an investment
letter to that effect, the form of which is attached as Exhibit A to this
Agreement.
2.8 Financial Statements; Undisclosed Liabilities.
(a) The Shareholders have delivered to Activision an
unaudited balance sheet of Elsinore as of December 31, 1998 and as of
December 31, 1997, and the related statements of income and expense for the
years then ended, and an unaudited balance sheet as of March 31, 1999
(collectively, the "Financial Statements"; the Financial Statements as of and
for the year ended December 31, 1998, the "1998 Financial Statements").
(b) The Financial Statements, including the notes thereto,
have been prepared in accordance with sound accounting principles
consistently followed throughout the periods indicated. The Financial
Statements are correct and complete in all material respects and fairly
present the financial position and the results of operations of Elsinore as
of the respective dates thereof and for the respective periods indicated.
The assets of Elsinore are fairly valued on the Financial Statements.
(c) Except as disclosed, reflected or reserved against in the
1998 Financial Statements or on Schedule 2.8(c) hereto, Elsinore does not
have any liabilities, commitments or obligations (secured or unsecured and
whether accrued, absolute, contingent or otherwise and whether due or to
become due) which are not reflected on the 1998 Financial Statements, other
than any liabilities, commitments or obligations incurred after the date of
the 1998 Financial Statements in the ordinary course of business.
2.9 Litigation. Except as set forth in Schedule 2.9 hereto, there
are (i) no continuing orders, injunctions or decrees of any court, arbitrator
or governmental authority to which Elsinore or the Shareholders is a party or
by which any of their respective properties or assets are bound or, to the
Shareholders' knowledge, likely to be affected and (ii) no actions, suits or
proceedings pending against Elsinore or the Shareholders or to which any of
their respective properties or assets are subject or, to the knowledge of the
Shareholders, threatened against Elsinore or the Shareholders or to which any
of their respective properties or assets are subject, at law or in equity,
that in each such case could, individually or in the aggregate, have a
Material Adverse Effect.
2.10 Absence of Certain Changes. Except as set forth in Schedule
2.10 hereto, since December 31, 1998, Elsinore has conducted its business
only in the ordinary course of such business and consistent with past
practices and there has not been any:
(a) material adverse change in the financial condition,
properties, assets (including intangible assets), businesses, operations or
results of operations of Elsinore;
(b) amendment or change in the Articles of Incorporation or
Bylaws of Elsinore;
(c) incurrence, creation or assumption by Elsinore of (i) any
mortgage, deed of trust, security interest, pledge, lien, title retention
device, collateral assignment, claim, charge, restriction or other
encumbrance of any kind on any of the assets or properties of Elsinore; or
(ii) any obligation or liability of any indebtedness for borrowed money;
(d) issuance or sale of any debt or equity securities of
Elsinore, or the issuance or grant of any options, warrants or other rights
to acquire from Elsinore, directly or indirectly, any debt or equity
securities of Elsinore;
(e) payment or discharge by Elsinore of any security
interest, lien, claim, or encumbrance of any kind on any asset or property of
Elsinore, or the payment or discharge of any liability that was not either
shown or reflected on the 1998 Financial Statements or incurred in the
ordinary course of Elsinore's business after December 31, 1998 in an amount
in excess of $10,000 for any single liability to a particular creditor;
(f) purchase, license, sale, assignment or other disposition
or transfer, or any agreement or other arrangement for the purchase, license,
sale, assignment or other disposition or transfer, of any of the assets,
properties or goodwill of Elsinore other than a license or sale of any
product or products of Elsinore made in the ordinary course of Elsinore's
business;
(g) damage, destruction or loss of any property or asset,
whether or not covered by insurance, having (or likely with the passage of
time to have) a Material Adverse Effect;
(h) declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital stock of
Elsinore, any split, combination or recapitalization of the capital stock of
Elsinore or any direct or indirect redemption, purchase or other acquisition
of the capital stock of Elsinore or any change in any rights, preferences,
privileges or restrictions of any outstanding security of Elsinore;
(i) increase in the compensation payable or to become payable
to any of the officers, directors, or employees of Elsinore, or any bonus or
pension, insurance or other benefit payment or arrangement (including without
limitation stock awards, stock option grants, stock appreciation rights or
stock option grants) made to or with any of such officers, employees or
agents;
(j) obligation or liability incurred by Elsinore to any of
its officers, directors or stockholders except for normal and customary
compensation and expense allowances payable to officers in the ordinary
course of Elsinore's business consistent with past practice;
(k) making by Elsinore of any loan, advance or capital
contribution to, or any investment in, any officer, director or stockholder
of Elsinore or any firm or business enterprise in which any such person had a
direct or indirect material interest at the time of such loan, advance,
capital contribution or investment;
(l) entering into, amendment of, relinquishment, termination
or non-renewal by Elsinore of any contract, lease, transaction, commitment or
other right or obligation other than in the ordinary course of its business
or any written or oral indication or assertion by the other party thereto of
any material problems with Elsinore's services or performance under such
contract, lease, transaction, commitment or other right or obligation or of
such other party's demand to amend, terminate or not renew any such contract,
lease, transaction, commitment or other right or obligation;
(m) material change in the manner in which Elsinore extends
discounts, credits or warranties to customers or otherwise deals with its
customers;
(n) entering into by Elsinore of any transaction, contract or
agreement that by its terms requires or contemplates a required minimum
current and/or future financial commitment, expenses (inclusive of overhead
expenses) or obligation on the part of Elsinore involving in excess of
$10,000 (provided that the amount of such financial commitments and expenses
for all such transactions, contracts or agreements does not exceed $50,000 in
the aggregate) or that is not entered into in the ordinary course of
Elsinore's business, or the conduct of any business or operations by Elsinore
that is other than in the ordinary course of Elsinore's business; or
(o) license, transfer or grant of a right under any Elsinore
Intellectual Property (as defined in Section 2.19 below), other than those
licensed, transferred or granted in the ordinary course of business
consistent with its past practices.
2.11 Taxes. Except as set forth in Schedule 2.11 hereto or where
such failure would not have, in the aggregate, a Material Adverse Effect:
(a) Elsinore has paid or caused to be paid all federal,
state, local, foreign, and other taxes, and all deficiencies, or other
additions to tax, interest, fines and penalties (collectively, "Taxes"), owed
or accrued by it and due and payable through the date hereof (including any
Taxes payable pursuant to Treasury Regulation Section 1.1502-6 (and any
similar state, local or foreign provision)).
(b) Elsinore has timely filed all federal, state, local and
foreign tax returns (collectively "Tax Returns") required to be filed by it
through the date hereof, and all such returns accurately set forth the amount
of any Taxes relating to the applicable period.
(c) Elsinore has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other party.
(d) The 1998 Financial Statements reflect adequate reserves
for Taxes payable by Elsinore for all taxable periods and portions thereof
through the date of such financial statements.
(e) Since the date of the 1998 Financial Statements, Elsinore
has made sufficient accrual for Taxes in accordance with sound accounting
principles with respect to periods for which Tax Returns have not been filed.
(f) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment of, Taxes due from
Elsinore for any taxable period and there have been no deficiencies proposed,
assessed or asserted for such Taxes.
(g) There are no closing agreements that could affect Taxes
of Elsinore for periods after the Effective Time pursuant to Section 7121 of
the Internal Revenue Code of 1986, as amended (the "Code") or any similar
provision under state, local or foreign tax laws.
(h) No audit or other proceedings by any court, governmental
or regulatory authority or similar authority has occurred, been asserted or
is pending and Elsinore has not received notice that any such audit or
proceeding may be commenced.
(i) No election has been made or filed by or with respect to,
and no consent to the application of, Section 341(f)(2) of the Code has been
made by or with respect to, Elsinore or any of its properties or assets.
(j) Elsinore has not agreed to, or filed application for, or
is required, to make any changes or adjustment to its accounting methods.
(k) There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of Elsinore.
2.12 Books and Records.
(a) The books of account and other financial records of
Elsinore are true, complete and correct in all material respects, have been
maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in
the 1998 Financial Statements.
(b) The minute books and other records of Elsinore that have
been, or will be prior to the Closing, made available to Activision, contain
accurate records of all meetings and accurately reflect all other action of
the shareholders and Board of Directors and any committees of the Board of
Directors of Elsinore.
2.13 Properties.
(a) Elsinore does not own any real property, nor has it ever
owned any real property. Schedule 2.13(a) hereto sets forth a list of all
real property currently, or at any time in the past five (5) years, leased by
Elsinore, and, with respect to all real property currently leased by
Elsinore, a copy of each lease and each amendment thereto has been made
available to Activision prior to the Closing Date. All such current leases
are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not any existing material default or
event of default under any such lease (or event which with notice or lapse of
time, or both, would constitute such a material default) by Elsinore or, to
the Shareholders' knowledge, the landlord.
(b) Elsinore has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any liens, except as reflected in the
1998 Financial Statements or in Schedule 2.13(b) hereto and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.14 Environmental Matters. Except as set forth in Schedule
2.14 hereto, Elsinore is not in violation of any laws, regulations, judgments
or consent decrees relating to hazardous substances or hazardous waste
(collectively, "Environmental Laws") which violation could reasonably be
expected to result in a Material Adverse Effect. Except as set forth in
Schedule 2.14 hereto, neither Elsinore, nor, to the knowledge of the
Shareholders, any third party, has used, released, discharged, generated,
manufactured, produced, stored, or disposed of in, on, or under or about its
owned or leased property or other assets, or transported thereto or
therefrom, any hazardous substances or hazardous wastes, including asbestos,
lead and petroleum, during the period of Elsinore's ownership or lease of
such property in a manner that could reasonably be expected to subject
Elsinore to a material liability under the Environmental Laws. Elsinore has
not received written notice from any governmental authority that any property
owned or leased by Elsinore is in violation of any Environmental Laws. There
is no pending civil, criminal or administrative suit or other legal
proceeding against Elsinore with respect to any Environmental Laws. Elsinore
has provided Activision complete copies of all environmental reports,
assessments and studies in Elsinore's possession and control with respect to
properties owned or leased by Elsinore. As used in this Agreement, the terms
"hazardous substances" and "hazardous wastes" shall have the meanings set
forth in the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, and the regulations thereunder; the Resource Conservation
and Recovery Act, as amended, and the regulations thereunder; the Federal
Clean Water Act, as amended, and the regulations thereunder; the Clean Air
Act, 42 U.S.C. Sections 7401 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001 et seq.; the
Occupational Safety and Health Act of 1970; the Hazardous Materials
Transportation Act, as amended by the Hazardous Materials Transportation
Authorization Act of 1994, 49 U.S.C. Sections 5101 et seq.; the Toxic
Substances Control Act, 15 U.S.C. Sections 2601 et seq.; the Oil Pollution
Act of 1990, 33 U.S.C. Sections 2701 et seq.; as each of these may be amended
from time to time; and any and state or local analogues to any of these
statutes.
2.15 No Brokers. Neither Elsinore nor the Shareholders has
entered into any contract, arrangement or understanding with any person or
firm that may result in the obligation of such entity or Activision to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. Neither Elsinore nor
the Shareholders is aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
2.16 Related Party Transactions. Except for the employment
arrangements described in Schedule 2.16 hereto, Elsinore is not a party to
any transactions, loans or other arrangements or understandings with its
shareholders, directors and/or officers (or any member of their respective
immediate families) that are in effect as of the date of this Agreement
and/or are currently proposed to be carried out in the future. Schedule 2.16
hereto identifies and describes the interest or interests, if any, in any
property, real or personal, tangible or intangible, used in or pertaining to
the business of Elsinore, now held by any shareholder, director and/or
officer of Elsinore.
2.17 Contracts and Commitments.
(a) Except as set forth in Schedule 2.17(a) hereto, Elsinore
does not have, nor is Elsinore party to or bound by:
(i) any consulting or sales agreement, contract or
commitment under which any firm or other organization provides services to
Elsinore;
(ii) any fidelity or surety bond or completion bond;
(iii) any agreement of indemnification or guaranty;
(iv) any agreement, contract, commitment, transaction or
series of transactions for any purpose other than in the ordinary course of
Elsinore's business relating to capital expenditures or commitments or
long-term obligations in excess of $10,000;
(v) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of Elsinore's business;
(vi) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating
to the borrowing of money or extension of credit, including guaranties
referred to in clause (iii) hereof;
(vii) any purchase order or contract for the purchase of
inventory or other materials involving $10,000 or more;
(viii) any distribution, joint marketing or development
agreement;
(ix) any assignment, license or other agreement with
respect to any form of intangible property; or
(x) any other agreement, contract or commitment that
involves $10,000 or more or is not cancelable without penalty in excess of
$10,000 within thirty (30) days (collectively, any of (i) through (x) above
shall be known as "Contracts").
(b) Except as would not in the aggregate have a Material
Adverse Effect, all such Contracts are valid and binding on Elsinore and are
in full force and effect and enforceable against Elsinore in accordance with
their respective terms. Except as disclosed in Schedule 2.17(b) hereto, no
approval or consent of, or notice to any Person the failure of which to
obtain would have a Material Adverse Effect is needed in order that such
Contracts shall continue in full force and effect in accordance with its
terms without penalty, acceleration or rights of early termination following
the consummation of the Purchase. Except to the extent any of the following
would not in the aggregate have a Material Adverse Effect, Elsinore is not in
violation of, breach of or default under any such Contract nor, to the
Shareholders' knowledge, is any other party to any such Contract. Except as
set forth in Schedule 2.17(b) hereto, Elsinore is not in violation or breach
of or default under any such Contract (including leases of real property)
relating to non-competition, indebtedness, guarantees of indebtedness of any
other person, employment, or collective bargaining.
2.18 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.18(a)(i) below (which definition shall
apply only to this Section 2.18), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person under common
control with or otherwise required to be aggregated with Elsinore as set
forth in Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(ii) "Employee" shall mean any current, former or retired
employee, officer, or director of Elsinore or any Affiliate:
(iii) "Employee Agreement" shall refer to any material
management, employment, severance, consulting, relocation, repatriation,
expiration, visas, work permit or similar agreement or contract between
Elsinore or any Affiliate and any Employee or consultant that is not an
Employee Plan;
(iv) "Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan" within the meaning of Section 3(3) of ERISA (as defined above),
which is or has been maintained, contributed to, or required to be
contributed to, by Elsinore or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which Elsinore or any
Affiliate has or may have any material liability contingent or otherwise;
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in
Sections 3(37) and 4001(a)(3) of ERISA; and
(viii) "Pension Plan" shall refer to each Elsinore
Employee Plan which is an "employee pension benefit plan," within the meaning
of Section 3(2) of ERISA.
(b) Employee Plans and Agreements. Schedule 2.18(b) hereto
contains an accurate and complete list of each Employee Plan (including for
each such plan a description of any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement of the
value of any of the benefits of which will be calculated on the basis of any
transactions contemplated by this Agreement) and each Employee Agreement of
Elsinore. Except as set forth in Schedule 2.18(b) hereto, neither Elsinore
nor any of its Affiliates has any announced plan or commitment, whether
legally binding or not, to establish any new Employee Plan or Employee
Agreement, to modify any Employee Plan or Employee Agreement (except to the
extent required by law or to conform any such Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as
previously disclosed to Elsinore in writing, or as required by this
Agreement), or to enter into any Employee Plan or Employee Agreement, nor
does it have any intention or commitment to do any of the foregoing.
(c) Documents. Elsinore has provided to Activision correct
and complete copies of all material documents embodying or relating to each
Employee Plan and each Employee Agreement including: (i) all amendments
thereto and written interpretations thereof; (ii) the most recent annual
actuarial valuations, if any, prepared for each Employee Plan; (iii) the
three most recent annual reports (Series 5500 and all schedules thereto), if
any, required under ERISA or the Code in connection with each Employee Plan
or related trust; (iv) if the Employee Plan is funded, the most recent annual
and periodic accounting of Employee Plan assets; (v) the most recent summary
plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each Employee
Plan; (vi) all IRS determination letters and rulings relating to Employee
Plans and copies of all applications and correspondence to or from the IRS or
the Department of Labor ("DOL") with respect to any Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Employee
Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to Elsinore; and (viii) all registration
statements and prospectuses prepared in connection with each Employee Plan.
(d) Employee Plan Compliance. (i) Except as set forth in
Schedule 2.18(d) hereto, Elsinore and each of its Affiliates has performed in
all material respects all obligations required to be performed by them under
each Employee Plan, and each Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA and the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406
of ERISA for which no class or statutory exemption is available, has occurred
with respect to any Employee Plan; (iii) there are no material actions, suits
or claims pending or, to the knowledge of the Shareholders, threatened or
anticipated (other than routine claims for benefits) against any Employee
Plan or against the assets of any Employee Plan; (iv) such Employee Plan can
be amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without material liability to Elsinore or any of
its Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (v) there are no audits, inquiries or
proceedings pending or, to the knowledge of the Shareholders, threatened by
the IRS or DOL with respect to any Employee Plan; (vi) Elsinore is not
subject to any penalty or tax with respect to any Employee Plan under Section
402(i) of ERISA or Section 4975 through 4980 of the Code; and (vii) all
contributions, including any top heavy contributions, required to be made
prior to the Closing by Elsinore or any ERISA Affiliate to any Employee Plan
have been made or shall be made on or before the Closing Date.
(e) Pension Plans. Neither Elsinore nor any of its
Affiliates currently maintain, sponsor, participate in or contribute to, nor
have they ever maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Elsinore or any of
its Affiliates contributed to or been requested or obligated to contribute to
any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.18(g) hereto or as required by local, state or federal law, no
Employee Plan or any other employment agreement or arrangement to which
Elsinore is a party provides, or is required to provide, life insurance,
medical or other employee benefits to any Employee upon his or her retirement
or termination of employment for any reason, and Elsinore has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment.
(h) Effect of Transaction. The execution of this Agreement
and the consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Employee Plan, Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee, except as set forth in Schedule 2.18(h) hereto.
(i) Employment Matters. Elsinore (i) is in compliance in all
respects with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees except as would not have a Material Adverse Effect; (ii) has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries, and other payments to Employees; (iii) is not liable for any
arrears of wages of any taxes or any penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. Except as set forth on Schedule 2.18(j) hereto,
no work stoppage or labor strike against Elsinore is pending or, to the
knowledge of the Shareholders, threatened. Elsinore is not involved in or,
to the knowledge of the Shareholders, threatened with, any labor dispute,
grievance, administrative proceeding or litigation relating to labor, safety,
employment practices or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect. Elsinore
has not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly have a Material Adverse Effect. Neither Elsinore nor
any of its Affiliates has ever been a party to any agreement with any labor
organization or union, and none of the Employees are represented by any labor
organization or union, nor have any Employees threatened to organize or join
a union or filed a petition for representation with the National Labor
Relations Board.
(k) Bonus and Severance Payments. Schedule 2.18(k) hereto
sets forth (i) the aggregate amounts of bonus and severance payments that
could be payable to employees of Elsinore under existing Employee Agreements
or Employee Plans on account of the transactions contemplated by this
Agreement (without regard to termination of employment), and (ii) the
aggregate amounts of severance obligations that could be payable to employees
of Elsinore under existing Employee Agreements and Employee Plans on account
of terminations of employment following the Closing Date, separately stating
the amounts that are payable by reason of a termination following a change of
control of Elsinore.
2.19 Intellectual Property.
(a) For the purposes of this Agreement, the following terms
have the following definitions:
(i) "Intellectual Property" shall mean any or all of
the following and all rights in, arising out of, or associated therewith:
(a) all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, customer
lists, proprietary processes and formulae, all source and object code,
algorithms, architectures, structures, display screens, layouts, inventions,
development tools and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda and
records; (c) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the world;
(d) all industrial designs and any registrations and applications therefor
throughout the world; (e) all trade names, logos, common law trademarks and
service marks, trademark and service mark registrations and applications
therefor throughout the world; (f) all proprietary databases and data
collections and all rights therein throughout the world; and (g) any
equivalent rights to any of the foregoing anywhere in the world.
(ii) "Elsinore Intellectual Property" shall mean that
Intellectual Property owned by, licensed to, or used by Elsinore.
(iii) "Elsinore Registered Intellectual Property" means
those United States, international and foreign: (a) patents and patent
applications (including provisional applications); (b) registered trademarks
and service marks, applications to register trademarks or service marks,
intent-to-use applications, or other registrations or applications related to
trademarks or service marks; and (c) registered copyrights and applications
for copyright registration. All of the foregoing are listed in Schedule
2.19(a)(iii) hereto.
(b) Schedule 2.19(b) hereto lists all non-routine proceedings
or actions known to the Shareholders before any court, tribunal (including
the United States Patent and Trademark Office ("PTO") or equivalent authority
anywhere in the world) related to any Elsinore Intellectual Property. No
Elsinore Intellectual Property is the subject of any non-routine proceeding
or outstanding decree, order, judgment, agreement, or stipulation restricting
in any manner the use, transfer, or licensing thereof by Elsinore, or which
may affect the validity, use or enforceability of such Elsinore Intellectual
Property.
(c) With respect to each item of Elsinore Registered
Intellectual Property, necessary registration, maintenance and renewal fees
in connection with such Elsinore Registered Intellectual Property have been
made and all necessary documents and certificates in connection with such
Elsinore Registered Intellectual Property have been filed with the relevant
patent, trademark or copyright authorities in the United States or abroad for
the purposes of maintaining such Elsinore Registered Intellectual Property.
(d) Elsinore has the right to use, market, distribute, sell
or license all Elsinore Intellectual Property used in its business as
presently conducted and as it is expected to be conducted as of the Closing
Date, including without limitation, all Intellectual Property used or to be
used in the Elsinore Products (as defined below), and such rights to use,
market, distribute, sell or license are sufficient for such conduct of their
respective businesses.
(e) Neither the manufacture, development, publication,
marketing, license, sale, distribution or use intended by Elsinore of any
software products currently being licensed, produced or sold by Elsinore or
currently under development or consideration by Elsinore (the "Elsinore
Products") violates any license or agreement between Elsinore and any third
party or infringes any Intellectual Property right, moral right or right of
publicity or privacy of any other party, and there is no pending or, to the
knowledge of the Shareholders, threatened claim or litigation contesting the
validity, ownership or right to use, market, distribute, sell, license or
dispose of any Elsinore Intellectual Property nor, to the knowledge of the
Shareholders, is there any basis for any such claim under applicable law, nor
has Elsinore received any notice asserting that any Elsinore Intellectual
Property or the proposed use, marketing, distribution, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the knowledge of the Shareholders, is there any basis for any
such assertion under applicable law. Schedule 2.19(e) hereto sets forth a
list of all Elsinore Products.
(f) Elsinore has timely and satisfactorily complied with
their respective milestone delivery requirements under all material
agreements pursuant to which Elsinore has agreed to program, design or
develop on behalf of a third party, whether for original use or for porting
or conversion (for use on a different hardware platform or in a different
language), any software products or any part thereof, except where the
failure to so comply could not reasonably be expected to have a Material
Adverse Effect.
(g) Except as set forth in Schedule 2.19(g) hereto, to the
extent that any work, invention, or material has been developed or created by
a third party for Elsinore, Elsinore has a written agreement with such third
party with respect thereto and Elsinore thereby has obtained ownership of,
and is the exclusive owner of, or has a valid license to use, all Elsinore
Intellectual Property in such work, material or invention by operation of law
or by valid assignment or by agreement, as the case may be.
(h) Schedule 2.19(h) hereto lists all material contracts,
licenses and agreements to which Elsinore is a party that are currently in
effect (i) with respect to Elsinore Intellectual Property licensed or offered
to any third party; or (ii) pursuant to which a third party has licensed or
transferred any Intellectual Property to Elsinore. Except as set forth in
Schedule 2.19(h) hereto, Elsinore has not transferred ownership of, or
granted any exclusive license with respect to, any Elsinore Intellectual
Property, to any third party.
(i) Except as set forth in Schedule 2.19(i) hereto, the
contracts, licenses and agreements listed in Section 2.19(h) are in full
force and effect. The consummation of the transactions contemplated by this
Agreement will not violate or result in the breach, modification,
cancellation, termination, or suspension of such contracts, licenses and
agreements listed in Section 2.19(h) and will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any
rights of Elsinore to any Elsinore Intellectual Property or impair the right
of Elsinore after the Closing Date to use, market, distribute, sell or
license any Elsinore Intellectual Property or portion thereof. Elsinore is
in material compliance with, and has not materially breached any term of any
of such contracts, licenses and agreements listed in Section 2.19(h) and, to
the knowledge of the Shareholders, all other parties to such contracts,
licenses and agreements listed in Section 2.19(h) are in compliance with, and
have not breached any term of, such contracts, licenses and agreements.
Except as set forth in Schedule 2.19(i) hereto, following the Closing Date,
Elsinore will be permitted to exercise all of Elsinore's rights under the
contracts, licenses and agreements listed in Section 2.19(h) to the same
extent Elsinore would have been able to had the transactions contemplated by
this Agreement not occurred and without the payment of any additional funds
other than ongoing fees, royalties or payments which Elsinore would otherwise
be required to pay.
(j) Schedule 2.19(j) hereto lists all contracts, licenses and
agreements between Elsinore and any third party wherein or whereby Elsinore
has agreed to, or assumed, other than in the ordinary course of business, any
obligation or duty to warrant, indemnify, hold harmless or otherwise assume
or incur any obligation or liability with respect to the infringement or
misappropriation by Elsinore or such third party of the Intellectual Property
of any third party.
(k) Except as set forth in Schedule 2.19(k) hereto, (a)
Elsinore has not received any notice or claim (whether written, oral or
otherwise) challenging Elsinore's ownership or rights in the Elsinore
Intellectual Property or claiming that any other person or entity has any
legal or beneficial ownership with respect thereto; (b) all the Elsinore
Intellectual Property rights owned by Elsinore and embodied in its products
are legally valid and enforceable without any material qualification,
limitation or restriction on their use, and Elsinore has not received any
notice or claim (whether written or oral) challenging the validity or
enforceability of any of the Elsinore Intellectual Property rights; and (c)
to the Shareholders' knowledge, no third party is infringing or
misappropriating any part of the Elsinore Intellectual Property.
(l) Elsinore has taken reasonable and practicable measures
designed to protect its rights in its confidential information and trade
secrets or any trade secrets or confidential information of third parties
provided to Elsinore. None of Elsinore or, to the Shareholders' knowledge,
employees or consultants of Elsinore, has permitted any such confidential
information or trade secrets to be used, divulged or appropriated for the
benefit of Persons to the material detriment of Elsinore.
(m) Schedule 2.19(m) hereto sets forth a list of all Internet
domain names used by Elsinore in its business (collectively, the "Domain
Names"). Elsinore has, and after the Closing Date will have, a valid
registration and all material rights (free of any material restriction) in
and to the Domain Names, including, without limitation, all rights necessary
to continue to conduct Elsinore's business as it is currently conducted.
2.20 Consents. Except as set forth in Schedule 2.20 hereto, no
consent, approval or authorization of, or exemption by, or filing with, any
governmental authority or any third party is required to be obtained or made
by the Shareholders in connection with the execution, delivery and
performance by the Shareholders of this Agreement or the taking by the
Shareholders of any other action contemplated hereby.
2.21 Insurance. Except as set forth in Schedule 2.21 hereto,
Elsinore maintains, and has maintained or caused to be maintained, without
interruption, during its existence, policies or binders of insurance covering
such risk, and events, including personal injury, property damage, and
general liability in amounts Elsinore reasonably believes adequate for its
business and operations, and its current insurance policies will not
terminate due to the consummation of the transactions contemplated under this
Agreement. Elsinore has provided Activision prior to the Closing Date with
true, complete and correct copies of all insurance policies maintained
currently by Elsinore and all such policies are listed on Schedule 2.21
hereto.
2.22 Relationships with Suppliers, Licensors and Customers. No
current distributor, customer of Elsinore or supplier to Elsinore has
notified Elsinore of an intention to terminate or substantially alter its
existing business relationship with Elsinore, nor has any licensor under a
license agreement with Elsinore notified Elsinore of an intention to
terminate or substantially alter Elsinore's rights under such license, which
termination or alteration would have a Material Adverse Effect.
2.23 Bank Accounts. Schedule 2.23 hereto contains (a) a true and
complete list of names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which Elsinore has an
account or safe deposit box or maintains a banking, custodial, trading,
trust, or other similar relationship, (b) a true and complete list and
description of each such account, box and relationship, (c) a list of all
signatories for each such account and box and (d) a list of all compensating
balances required with respect to each such account.
2.24 Cash Balance. As of the date of this Agreement, Elsinore has
not less than $168,000 in cash in its bank account(s) described in Section
2.23.
2.25 Tax Treatment. Neither of the Shareholders has any plan or
intention to take any action or engage in any activities that would preclude
the treatment of the Purchase as a reorganization under the Section 368 of
the Code.
2.26 Disclosure. No representation, warranty, statement or
information made or furnished by the Shareholders, including but not limited
to those contained in this Agreement, the Schedules hereto and each other
instrument furnished or to be furnished to Activision pursuant hereto or in
connection with the transactions contemplated hereby, contains or shall
contain any statement of a material fact that was untrue when made or omits
or shall omit any material fact necessary to make the information contained
in such representation, statement or information not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACTIVISION
Activision hereby represents and warrants to the Shareholders as
follows:
3.1 Organization. Activision is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to carry on its
business as it is now being conducted, and to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby and
thereby.
3.2 Corporate Power and Authority; Effect of Agreement. The
execution, delivery and performance by Activision of this Agreement and the
consummation by Activision of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Activision.
No vote of the Activision stockholders is required to approve the issuance
of the Activision Common Stock as contemplated by this Agreement. This
Agreement has been duly and validly executed and delivered by Activision and
constitutes the valid and binding obligation of Activision, enforceable
against Activision in accordance with its terms.
3.3 Capitalization. (a) The authorized capital stock of Activision
consists of 50,000,000 shares of Activision Common Stock and 5,000,000
shares of preferred stock, $.000001 par value (the "Activision Preferred
Shares"). As of June 25, 1999, there are 22,874,111 shares of Activision
Common Stock issued and outstanding and no Activision Preferred Shares issued
and outstanding. All such outstanding shares of Activision are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. The Activision Common Stock is the only class of voting stock of
Activision outstanding and is entitled to full voting rights. Except as
described in the Activision SEC Reports (as defined in Section 3.5),
Activision has no outstanding bonds, debentures, notes or other obligations
the holders of which have or upon the happening of certain events would have
the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Activision on
any matter. Except as described in the Activision SEC Reports and in other
filings made by Activision with the SEC, there are no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements, stock appreciation rights or similar derivative securities or
instruments or commitments which obligate Activision to issue, transfer or
sell any Shares of Activision Common Stock or make any payments in lieu
thereof other than options granted to employees, directors and consultants
after the date of the most recent SEC Report.
(b) The Activision Shares to be issued pursuant to this Agreement
will, upon issuance in accordance with this Agreement, be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any nature.
3.4 No Violation. The execution, delivery and performance by
Activision of this Agreement and the consummation by Activision of the
transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, conflict with or violate (i) any
provision of law, rule or regulation to which Activision is subject, (ii) any
order, judgment, injunction or decree binding upon or applicable to
Activision or binding upon the assets or properties of Activision, (iii)
violate any provision of the Certificate of Incorporation or the Bylaws of
Activision; except, in each case, for violations which in the aggregate would
not materially hinder or impair the consummation of the transactions
contemplated hereby, or (iv) other than the filings provided for in this
Agreement, require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority which
has not been obtained or made, except where the failure to obtain any such
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority would not have a Material
Adverse Effect on Activision and its Subsidiaries taken as a whole.
3.5 SEC Documents. Since March 31, 1998, Activision has timely
filed with the Securities and Exchange Commission ("SEC") all forms, reports
and documents required to be filed by Activision since March 31, 1998 under
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder (the "Securities Laws"), including,
without limitation, (i) all Annual Reports on form 10-K, (ii) all Quarterly
Reports on form 10-Q, (iii) all proxy statements relating to meetings of
stockholders (whether annual or special), (iv) all Current Reports on form 8-
K and (v) all other reports, schedules, registration statements and other
documents, each as amended (collectively, the "Activision SEC Reports"), all
of which were prepared in compliance in all material respects with the
applicable requirements of the Exchange Act and the Securities Act. As of
their respective dates the Activision SEC Reports (i) complied as to form in
all material respects with the applicable requirements of the Securities Laws
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets of
Activision included in or incorporated by reference into the Activision SEC
Reports (including the related notes and schedules) fairly presents the
consolidated financial position of Activision and its consolidated
subsidiaries as of its date and each of the consolidated statements of
operations, cash flows and shareholders' equity included in or incorporated
by reference into the Activision SEC Reports (including any related notes and
schedules) fairly presents the results of operations, cash flows and
shareholders' equity, as the case may be, of Activision and its consolidated
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein and except, in the case of the
unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
3.6 No Brokers. Activision has not entered into any contract,
arrangement or understanding with any person or firm that may result in the
obligation of Activision or Elsinore to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby. Activision is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
3.7 Tax Treatment. Activision does not have any plan or intention
to take any action or engage in any activities that would preclude the
treatment of the Purchase as a reorganization under the Section 368 of the
Code.
3.8 Stock Transfer Taxes or Stamps. The sale of the Elsinore
Shares and the delivery of certificates representing the Elsinore Shares to
Activision will not give rise to the payment of transfer taxes or the
necessity of affixing transfer stamps thereto in reliance upon Section 201.04
of the Florida Statutes, Chapter 201, 1998, which was repealed by Chapter 87-
102, 1987, effective June 30, 1987.
3.9 Disclosure. No representation, warranty, statement or
information made or furnished by Activision, including but not limited to
those contained in this Agreement, the Schedules hereto and each other
instrument furnished or to be furnished to the Shareholders pursuant hereto
or in connection with the transactions contemplated hereby, contains or shall
contain any statement of a material fact that was untrue when made or omits
or shall omit any material fact necessary to make the information contained
in such representation, statement or information not misleading.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 Conditions to the Shareholders' Performance. The obligation
of the Shareholders to consummate and effect the Purchase shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions,
unless waived by the Shareholders:
(a) Activision shall have performed all obligations and
complied with all terms, conditions, agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Closing Date, and the Shareholders shall have received a certificate, dated
the Closing Date, signed on behalf of Activision by the Chief Executive
Officer, Co-Chairman or the President of Activision to the foregoing effect.
(b) No statute, rule or regulation or injunction or order of
any court or administrative agency of competent jurisdiction shall be in
effect as of the Closing Date which prohibits Activision from consummating
the Purchase.
(c) Activision shall have executed and delivered employment
agreements, non-competition agreements and proprietary information agreements
with each of the Shareholders in forms approved by Activision.
(d) Activision and Escrow Agent shall have executed and
delivered the Warranty Escrow Agreement substantially in the form of Exhibit
B attached hereto.
(e) At the Closing, Activision shall deliver, or cause to be
delivered, certificates representing Activision Common Stock issued in the
names of the Shareholders in accordance with their respective interests and
bearing restrictive legends under the Securities Act, subject to the
provisions of Sections 5.1 and 5.2 of this Agreement (and the Warranty Escrow
Agreement) which require that certificates (accompanied by appropriate stock
powers) for Activision Common Stock be issued to the Shareholders in such
denominations as required to meet the requirements of the Warranty Escrow
Agreement and deposited with the Escrow Agent.
4.2 Conditions to Activision's Performance. The obligation of
Activision to consummate and effect the Purchase shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions,
unless waived by Activision:
(a) The Shareholders shall have performed all obligations and
complied with all terms, conditions, agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Activision shall have received a certificate, dated the
Closing Date, signed by the Shareholders to the foregoing effect.
(b) No statute, rule or regulation or injunction or order of
any court or administrative agency of competent jurisdiction shall be in
effect as of the Closing Date which prohibits the Shareholders from
consummating the Purchase.
(c) Each of the Shareholders and up to four (4) additional
key employees of Elsinore to be designated by Activision shall have executed
and delivered employment agreements and proprietary information agreements in
forms approved by Activision and each of the Shareholders shall have executed
and delivered a non-competition agreement in form approved by Activision.
(h) Activision shall have received from each of the
Shareholders an executed copy of an Investment Letter substantially in the
form of Exhibit A attached hereto.
(e) The Shareholders shall have delivered to Activision all
consents required as described in Schedule 2.20.
(f) The Shareholders shall have executed and delivered the
Warranty Escrow Agreement substantially in the form of Exhibit B attached
hereto.
(g) The Shareholders' Agreement, dated December 4, 1996,
shall have been terminated.
(h) At the Closing, each of the Shareholders shall deliver,
or cause to be delivered, a certificate or certificates representing the
Elsinore Shares outstanding as of the Closing Date in good form and in each
case accompanied by duly executed stock powers endorsed to Activision, free
and clear of all Encumbrances and fully paid and nonassessable.
ARTICLE V
COVENANTS AND OTHER AGREEMENTS
5.1 Restrictions on Sale of Activision Shares. The Shareholders
acknowledge and agree that Activision Shares will be issued to the
Shareholders without registration under the Securities Act, based upon the
"private offering exemption", in reliance upon appropriate written
representations from the Shareholders (as set forth in their respective
Investment Letters attached hereto as Exhibit A); further evidenced by
restrictive legends on the certificates representing Activision Shares and
"stop transfer" instructions to Activision's transfer agent. Activision
Shares will be "restricted securities" within the meaning of the Securities
Act and related rules and regulations.
5.2 Share Hold Back. In order to insure that the representations,
warranties and covenants made by the Shareholders under this Agreement are
not breached, and in order to provide a nonexclusive source of
indemnification of Activision pursuant to Article 6, the Shareholders agree
that the certificates representing 10% of the total number of Activision
Shares issued to each Shareholder in connection with the transactions
contemplated by this Agreement shall be deposited in an Escrow Account (the
"Escrow Account") pursuant to a Warranty Escrow Agreement in the form
attached hereto as Exhibit B (the "Warranty Escrow Agreement") on the date of
the Closing to provide a source from which Activision can be reimbursed for
any amounts due under Article 6 hereof. Such Activision Shares shall be held
in the Escrow Account during such period of time as set forth in the Warranty
Escrow Agreement (the "Hold Period"). Any dividends and distributions with
respect to such Activision Shares while held in the Escrow Account also shall
be retained in the Escrow Account until the expiration of the Hold Period for
the account of the Shareholders. Any offsets or deductions made from
Activision Shares held in the Escrow Account on account of any breach of this
Agreement shall be made on the last business day of the Hold Period, or at
such other time as set forth in the Escrow Agreement, and shall be based upon
the Activision Per Share Market Value. All Activision Shares subject to such
offset or deduction shall be canceled by Activision, and the remaining
Activision Shares, together with any dividends paid or distributions made
with respect to such Activision Shares that have not been canceled, shall be
then delivered to the Shareholders in accordance with their respective
interests. Notwithstanding the foregoing, Activision Shares held in the
Escrow Account pursuant to the provisions of this Section 5.2 shall not be
deemed the sole source of recourse by Activision for indemnification under
this Agreement, and the Shareholders shall remain severally liable in
accordance with Article 6.
5.3 Registration of Activision Shares.
(a) Registration on Form S-3. Activision agrees to use its
commercially reasonable efforts to file with the SEC, as soon as practicable
after the Closing Date but no later than sixty (60) days after the Closing
Date, a registration statement on Form S-3, or on such other form which may
be mutually acceptable to the parties, registering under the Securities Act,
pursuant to Rule 415 under the Securities Act ("Rule 415") (if available),
the offer and sale in the future of all of the Activision Shares issued by
Activision pursuant to this Agreement. If reasonably necessary Activision
shall also maintain a "blue sky" registration in Florida or any other state
where a Shareholder resides or any other state agreed to by Activision;
provided, however, that Activision shall not be required to (i) qualify
generally to do business in any jurisdiction where it is not then so
qualified or (ii) take any action which would subject it to general service
of process or to taxation in any jurisdiction where it is not then so
subject. Activision further agrees to (a) use its commercially reasonable
efforts to cause such registration statement to be declared effective by the
SEC as soon as practicable, (b) maintain the effectiveness of such
registration or successor registration statement filed by Activision for the
purpose of registering the shares of Activision Common Stock (such
registration statements being collectively referred to as the "Registration
Statement") until Activision Shares are eligible to be resold without
restriction on disposition pursuant to the Securities Act and its related
rules and regulations, (c) update the prospectus included in the Registration
Statement (the "Prospectus") from time to time as may be necessary to assure
that the Prospectus does not make any untrue statement of a material fact or
omit to state a material fact necessary in order to make the Prospectus not
misleading, and (d) provide such number of copies of the Registration
Statement and the Prospectus (as so updated) to the Shareholders as they may
reasonably request in order to facilitate the public sale or other
disposition of Activision Shares covered by such Registration Statement.
(b) Costs and Expenses. Activision shall bear the costs
incurred for its legal counsel, accounting and all other costs and expenses,
excluding costs for legal counsel for the Shareholders and brokers'
commissions and underwriters' fees, which may be incurred in connection with
the preparation and filing of the Registration Statement pursuant to Section
5.3(a).
(c) Cooperation and Indemnification. (i) The Shareholders,
agree that they will provide all required cooperation and furnish all
necessary information and enter into such agreements customarily required of
selling stockholders in connection with the preparation of the Registration
Statement filed under the terms of this Section 5.3, and the Shareholders
will represent and warrant the accuracy and completeness of all written
information so furnished for inclusion in the Registration Statement and will
indemnify and hold Activision, and its directors, officers, shareholders, and
underwriters harmless from and against any liability, loss or damage
(including costs and reasonable attorneys' fees), incurred by or sustained
by, or asserted against, any of them, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in the
information provided by the Shareholders or based on any omission (or alleged
omission) to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(ii) Activision shall indemnify and hold the Shareholders
harmless from and against any liability, loss or damage (including costs and
reasonable attorneys' fees) incurred by or sustained by, or asserted against,
any of them, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in the Registration Statement,
or based on any omission (or alleged omission) to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent such untrue statement of material fact (or
alleged untrue statement) or omission (or alleged omission) related to
information supplied by either of the Shareholders for inclusion in the
Registration Statement.
5.4 Further Assurances. If, at any time or from time to time
after the Closing, any further action is necessary or desirable to carry out
the purposes of this Agreement, (i) each party hereto shall, at the request
of the other party and at such other party's expense, execute and deliver any
further instruments or documents and take all such further action as such
other party may reasonably request in order to effectuate the consummation of
the Purchase and (ii) the Shareholders shall, at the request of Activision
and at Activision's expense, cooperate with Activision in order to afford
Activision the benefit of all insurance policies covering Elsinore for
periods prior to the Closing Date.
5.5 Confidentiality. Following the Closing, the Shareholders
shall keep confidential all information concerning the business, operations,
properties, assets and financial affairs of Elsinore and may disclose such
information only upon receipt of prior written consent from Activision, as
required by law, or if such disclosure is required (a) in connection with the
Shareholders's filing of any state or federal income tax returns, or (b) by
order of any judicial or administrative authority; provided, however, the
Shareholders shall not be required to keep confidential information that (x)
is or becomes generally available to the public other than as a result of
disclosure by the Shareholders, (y) is or becomes available to the
Shareholders on a nonconfidential basis from a source other than Activision
or (z) the Shareholders or any of their affiliates is required to disclose
pursuant to applicable law, rule, regulation or subpoena.
5.6 Publicity. Activision and the Shareholders shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated
herein and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may be required by law or the rules of the applicable
stock exchange if it has used its reasonable best efforts to consult with the
other party and to obtain such party's consent but has been unable to do so
in a timely manner.
5.7 Elsinore Employees. As soon as possible after the Closing
Date, Activision shall provide the employees of Elsinore (the "Elsinore
Employees") with the same 401(k) plan, health, dental, stock option plan,
stock purchase plan, life insurance, vacation, disability plan, dependent
care plan, travel accident plan, accidental death and dismemberment plan,
education reimbursement plan and other benefits, if any, as Activision then
generally provides to its employees. With respect to the provision of such
benefits to Elsinore Employees, all prior service of the Elsinore Employees
with Elsinore shall be recognized under such plans for purposes of
eligibility and vesting, and all prior service of the Elsinore Employees with
Elsinore shall be recognized for purposes of determining such employee's
rights to benefits to the extent such benefits are permitted under such plans
or applicable law after the Closing Date (whether they are employed by
Activision or remain employed by Elsinore). Neither Activision nor Elsinore
shall treat any Elsinore Employee as a "new" employee after the Closing Date
for purposes of any exclusion under any plan of Activision or Elsinore, as
the case may be, pursuant to which such employee is entitled to receive
benefits. Further, effective as of the Closing, Activision agrees that the
base salaries of the Elsinore Employees shall be as set forth on Schedule 5.7
hereto and Activison acknowledges that it has no plans to adjust such
salaries downward. Activision further agrees that it will not adjust the
salaries set forth on Schedule 5.7 downward for a period of one year after
the Closing Date.
5.8 NASDAQ Listing. Within ten (10) days after the Closing Date,
Activision shall cause the Activision Shares to be listed, subject to
official notice of issuance, on NASDAQ.
5.9 Tax Treatment. No party shall take any action either prior to
or after the Closing Date that could reasonably be expected to cause the
Purchase to fail to qualify as a "reorganization" under Section 368 of the
Code.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival. Except as otherwise set forth in this Section 6.1,
the representations and warranties made in this Agreement or in any
agreement, certificate or other document executed at or prior to the Closing
in connection herewith (each an "Ancillary Document") shall survive until the
earlier to occur of (i) June 29, 2000 or (ii) the date upon which
Activision's auditors complete their first audit of financial statements
containing combined operations of Activision's and Elsinore's businesses (the
"Survival Date"); provided that the representations and warranties made by
the Shareholders in Section 2.3(b) shall survive until the expiration of the
applicable statute of limitations. No investigation by Activision or on
Activision's behalf heretofore or hereafter conducted shall affect the
representations, warranties or covenants of the Shareholders set forth in
this Agreement.
6.2 Indemnification by the Shareholders. To the fullest extent
permitted by law, the Shareholders shall, severally and not jointly, defend,
indemnify and hold harmless Activision, and all officers, directors and
stockholders of Activision, and its heirs, personal and legal
representatives, guardians, successors and assigns ("Activision Indemnified
Parties"), from and against any and all claims, losses, liabilities, taxes,
interest, fines, penalties, suits, actions, proceedings, demands, damages,
costs and expenses (including reasonable attorneys', accountants' and
experts' fees and court costs) of every kind and nature (collectively,
"Losses") arising out of or resulting from any breach by the Shareholders of
any representation, warranty, agreement or covenant made by them in this
Agreement. The Shareholders' liability to indemnify any Activision
Indemnified Parties shall be in proportion to his or her respective
shareholdings of Elsinore as of the Closing Date as set forth on Schedule 2.3
hereto.
6.3 Indemnification Procedures. Promptly after receipt by an
Activision Indemnified Party under this Section of notice of the commencement
of any action or the incurrence of any Loss, such Activision Indemnified
Party will, if a claim in respect of such action is to be made against any
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement of such action. Upon receipt of such notice the
indemnifying party or parties shall have the right to assume and control the
defense of such action with counsel of its choice, subject to the approval of
the Activision Indemnified Party, which approval shall not be unreasonably
withheld. The Activision Indemnified Parties shall have the right to
participate in the defense of any action and to be represented by counsel of
its or their own selection in connection with such action and to be kept
fully and completely informed by the indemnifying party and its counsel as to
the status of the action at all stages of the proceedings in such action, all
at the Activision Indemnified Parties' cost and expense. The Activision
Indemnified Party shall cooperate with the indemnifying party in any defense
which the indemnifying party assumes. Activision shall be entitled to settle
any action solely for monetary damages with respect to which it controls the
defense. Elsinore shall be entitled to settle any action solely for monetary
damages with respect to which it controls the defense, subject to the prior
consent of Activision which consent shall not be unreasonably withheld. The
failure to notify an indemnifying party promptly of the commencement of any
such action will not relieve him or it of any liability that he may have to
any Activision Indemnified Party.
6.4 Limitation of Liability. For purposes of this Article 6:
(a) The Shareholders shall not have any liability to
indemnify the Activision Indemnified Parties in respect of Losses incurred by
Activision unless and until the aggregate amount of Losses exceeds Fifty
Thousand Dollars ($50,000), at which time the Shareholders shall be liable to
indemnify Activision for the full amount of such Losses; provided that
recovery by the Activision Indemnified Parties from the Shareholders in
respect of such Losses shall be limited to an aggregate amount of Two Million
Twenty-Five Thousand Dollars ($2,025,000). The Shareholders' liability under
Section 6.1 and this Section 6.4(a) shall be several, not joint, and shall be
in proportion to their respective shareholdings of Elsinore as of the Closing
Date as set forth on Schedule 2.3 hereto. Any of the Shareholders shall have
the option, exercisable on notice to Activision, to settle any claim for
indemnification by Activision by delivery to Activision of (i) a number of
shares of Activision Common Stock equal to such Shareholder's allocable
portion of the Losses for which such Shareholder is liable divided by the
Activision Per Share Market Value (subject to adjustment for any stock
splits, reverse splits, recapitalizations or similar transactions occurring
after the Closing), or (ii) cash, or (iii) any combination of the foregoing.
If a Shareholder elects to settle any claims through the delivery of
Activision Common Stock, such Shareholder shall deliver to Activision
certificates for such shares together with stock powers, duly executed with
medallion signature guarantees, and such other documents and instruments as
Activision shall reasonably request.
(b) Claim for Indemnification. No claim for indemnification
will be valid unless made on or prior to the Survival Date, after which date
the obligation to indemnify shall terminate with respect to any claim except
those which were specifically identified in a notice given prior to the
Survival Date.
ARTICLE VII
MISCELLANEOUS
7.1 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned
by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties; provided, however,
(i) the Shareholders may assign to any transferee of Activision Shares their
respective rights pursuant to Section 5.3 hereof, and (ii) Activision may
assign its rights, interests or obligations hereunder to any affiliate
provided that Activision remains obligated hereunder and such assignment does
not alter the rights, interests or obligations of the Shareholders hereunder.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. No assignment permitted under this Agreement shall
relieve any such assignor of any of his or its obligations under this
Agreement and any assignee shall assume in writing all of the undertakings of
assignor under this Agreement. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective heirs, surviving corporations, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
7.2 Entire Agreement. This Agreement (including the Schedules
annexed hereto), and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
7.3 Notices. Any notice required to be given hereunder shall be
in writing and shall be sent by facsimile transmission (confirmed by any of
the methods that follow), courier service (with proof of service), hand
delivery or certified or registered mail ( return receipt requested and
first-class postage prepaid) and addressed as follows:
If to the Shareholders: Elsinore Multimedia Inc.
2700 N. 29th Avenue, Suite 308
Hollywood, Florida 33020
Attn: Jill G. Mark
Tel.: (954) 922-1176
Fax: (954) 922-8661
With a copy to: Ross Rosenberg, Esq.
9100 South Dadeland Boulevard,
Suite 910
Miami, Florida 33156
Tel.: (305) 670-1010
Fax: (305) 670-0228
If to Activision: Activision, Inc.
3100 Ocean Park boulevard
Santa Monica, California 90405
Attn: Executive Vice President,
Business Affairs & General
Counsel
Tel.: (310) 255-2204
Fax: (310) 255-2152
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attn: Kenneth L. Henderson, Esq.
Tel.: (212) 541-2275
Fax: (212) 541-1357
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
received.
7.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the parties hereto.
7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to its rules of conflict of laws.
7.6 Arbitration. If a dispute arises out of or relates to this
Agreement or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties agree that such dispute shall be settled by
arbitration in accordance with the then existing commercial rules of the
American Arbitration Association before a single arbitrator in Chicago,
Illinois, and the parties hereto agree that any judgment, settlement or award
rendered by such arbitrator shall be a final and binding determination as to
such matter or matters and may be entered in any court having jurisdiction
thereof. Each party shall be responsible for its own legal and arbitration
costs and expenses.
7.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the
parties hereto. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
7.8 Headings. All of the Section and Article headings in this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
7.9 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
7.10 No Party Deemed Drafter. The parties agree that no one party
shall be deemed to be the drafter of this Agreement and that in the event
this Agreement is ever construed by a court of law or equity, such court
shall not construe this Agreement or any provision of this Agreement against
any party as the drafter of the Agreement. The parties, and each of them,
acknowledge that all parties have contributed substantially and materially to
the preparation of this Agreement.
7.11 Incorporation. The Schedules and Exhibits hereto and referred
to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
7.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
7.13 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all
genders.
7.14 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist, and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, without the posting of any bond whatsoever in addition to
any other remedy at law or equity.
7.15 Expenses. Except as otherwise provided herein, Elsinore, the
Shareholders and Activision, respectively, shall pay all costs and expenses
incurred by them or it or on their or its behalf in connection with this
Agreement and the transactions contemplated hereby, including, without
limiting the generality of the foregoing, fees and expenses of its own
financial consultants, accountants and counsel.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
/s/Jill G. Mark
------------------------------------
Jill G. Mark
/s/Robert N. Herrick
------------------------------------
Robert N. Herrick
ACTIVISION, INC.
By:/s/Brian G. Kelly
------------------------------------
Name: Brian G. Kelly
Title: Co-Chairman
[Signature Page to Share Exchange Agreement]
Exhibit A
LETTER OF INVESTMENT REPRESENTATIONS
The undersigned, ____________________ ("Purchaser"), hereby makes
the following representations and warranties to Activision, Inc. (the
"Company") in connection with his/her acquisition of ___________ shares of
the Company's Common Stock, $.000001 par value (the "Securities").
Purchaser hereby represents and warrants that:
1. Purchaser has such knowledge and experience in financial and
business matters that Purchaser is capable of evaluating the merits and risks
of the acquisition of the Securities and, by reason of Purchaser's financial
and business experience (either alone or together with any purchaser
representative), Purchaser has the capacity to protect Purchaser's interest
in connection with the acquisition of the Securities. Purchaser is
financially able to bear the economic risk of his investment in the
Securities.
2. Purchaser has received and reviewed all information Purchaser
considers necessary or appropriate for deciding whether to acquire the
Securities. Purchaser has had an opportunity to ask questions and receive
answers from the Company and its officers and employees regarding the terms
and conditions of the acquisition of the Securities and regarding the
business, financial affairs and other aspects of the Company, and has further
had the opportunity to obtain any information (to the extent the Company
possesses or can acquire such information without unreasonable effort or
expense) which Purchaser deems necessary to evaluate the investment and to
verify the accuracy of information otherwise provided to Purchaser.
3. Purchaser acknowledges that the Securities have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
qualified under the California Corporate Securities Law of 1968, as amended,
or the Florida Securities and Investor Protection Act in reliance, in part,
on the representations and warranties of Purchaser set forth in this
document. Such Securities are being acquired by Purchaser for investment
purposes for Purchaser's own account only and not for resale or with a view
to the distribution of all or any part of such Securities. No other person
will have any direct or indirect beneficial interest in the Securities.
4. Purchaser understands that the Securities are and will be
"restricted securities" under the United States securities laws in that such
securities will be acquired from the Company in a transaction not involving a
public offering, and that such securities may be resold without registration
under the Act only in compliance with the Act and understands the resale
limitations imposed by the Act and is familiar with the applicable securities
laws and regulations, as presently in effect, and the conditions which must
be met for resale of "restricted securities."
5. Purchaser understands that the certificates evidencing the
Securities will bear the legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO AN APPLICABLE EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
Executed this ____ day of ______________, 1999.
By:_________________________
[Signature Page to Letter of Investment Representations]
<PAGE>
Exhibit B
WARRANTY ESCROW AGREEMENT
THIS WARRANTY ESCROW AGREEMENT, dated as of June 29, 1999 ("Escrow
Agreement"), among (i) ACTIVISION, INC., a Delaware corporation
("Activision"); (ii) JILL G. MARK and ROBERT N. HERRICK (collectively, the
"Shareholders" and individually, a "Shareholder"); and (iii) CITY NATIONAL
BANK, a National Banking Association, as Escrow Agent ("Escrow Agent").
BACKGROUND
A. The Shareholders own all of the issued and outstanding shares of
capital stock, $.10 par value per share (the "Elsinore Shares"), of Elsinore
Multimedia, Inc., a Florida corporation ("Elsinore"). Concurrently with the
execution of this Agreement, Activision and the Shareholders are entering
into a Share Exchange Agreement (the "Exchange Agreement") pursuant to which
the Shareholders will sell to Activison all of the Elsinore Shares in
exchange for a number of shares of common stock (the "Activision Shares"),
$.000001 par value per share, of Activision ("Activision Common Stock"), as
specified in the Exchange Agreement.
B. Section 5.2 of the Exchange Agreement provides that Activision
shall deposit an aggregate of ten percent (10%) of the Activision Shares
issued to the Shareholders (the "Escrow Shares"), and the Shareholders are to
deposit stock powers with respect to the Escrow Shares (the "Stock Powers"),
into escrow to be held by Escrow Agent in order to provide a source for
indemnification of Activision by the Shareholders in the event any of the
representations, warranties, covenants or agreements made by the Shareholders
under the Exchange Agreement are breached.
C. Escrow Agent has agreed to accept, hold, and disburse the Escrow
Shares, the Stock Powers and other property that may be deposited in escrow,
in accordance with the terms of this Escrow Agreement.
D. In order to establish the escrow and to effect the provisions of
Section 5.2 of the Exchange Agreement, the parties have entered into this
Escrow Agreement.
STATEMENT OF AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, for themselves,
their successors and assigns, hereby agree as follows:
1. Definitions. The following terms shall have the following meanings
when used herein:
"Claim" shall mean a claim for indemnification asserted by
Activision pursuant to the Exchange Agreement .
"Claim Notice" shall mean a notice given by Activision to the
Shareholders and the Escrow Agent under the Exchange Agreement asserting a
Claim and setting forth an estimate of the amount of such Claim, a copy of
which notice shall be given to Escrow Agent.
"Escrow Property" shall mean the Escrow Shares, the Stock Powers
and any dividends or distributions thereon and any other property or
securities into which the Escrow Shares may be converted or which the Escrow
Agent may receive pursuant to Section 4 on account of the Escrow Shares.
"Finally Resolved" as used in this Agreement shall mean the
following with respect to any Claim made by Activision:
(i) If the Claim is not disputed, the amount of the Claim;
(ii) If the Claim is resolved prior to a dispute, the amount of
the Claim as set forth in a Joint Written Direction;
(iii) If the Claim is disputed in whole or in part by the
Shareholders but is subsequently resolved, compromised or settled, the amount
of the Claim as set forth in a Joint Written Direction; or
(iv) If the Claim results in arbitration or litigation between
Activision and the Shareholders, the entry of final judgment by the
arbitrator or by the court having jurisdiction over such matter and the
expiration of all periods for appeal by any of the parties.
"Hold Period" shall mean the period commencing on the date of this
Agreement and ending on the earlier to occur of (i) June 29, 2000, (ii) the
date on which Activision's auditors complete their first audit of financial
statements containing combined operations of Activision's and Elsinore's
businesses or (iii) the date set forth in a Joint Written Direction.
"Joint Written Direction" shall mean a written direction executed
by a duly authorized representative of Activision and each Shareholder that
directs Escrow Agent to release all or a portion of the Escrow Property or to
take or refrain from taking an action pursuant to this Escrow Agreement.
"Shareholder Objection Notice" shall mean a written notification
given by the Shareholders or either of them to Activision and the Escrow
Agent which shall set forth the basis upon which such party disputes any
matter with respect to a Claim described in a Claim Notice.
2. Appointment of and Acceptance by Escrow Agent. Activision and the
Shareholders hereby appoint Escrow Agent to serve as escrow agent hereunder.
Escrow Agent hereby accepts such appointment and, upon receipt of the Escrow
Shares and Stock Powers in accordance with Section 3 below, agrees to hold,
invest, disburse and release the Escrow Property in accordance with this
Escrow Agreement.
3. Creation of Escrow. On the date of this Agreement, (i) Activision
shall deposit with the Escrow Agent certificates for the Escrow Shares, the
certificate numbers, registered owners and denominations of which are listed
on Exhibit 1 to this Agreement, and (ii) the Shareholders shall deposit with
the Escrow Agent the Stock Powers, substantially in the form of Exhibit 2, in
blank, duly executed by the Shareholders with signatures medallion
guaranteed. The Shareholders shall deposit in escrow at least two Stock
Powers for each certificate representing Escrow Shares.
4. Certain Matters Relating to the Escrow Shares.
(a) Voting Rights. The Shareholders shall have the right to vote
the Escrow Shares owned by them of record with respect to any matter
submitted to a vote of the holders of Activision Common Stock.
(b) Dividends and Distributions. In the case that during the term
of this Agreement the Escrow Agent or the Shareholders shall receive or shall
have credited to it or them, as the case may be, as a dividend or other
distribution upon or on account of any of the Escrow Shares any (i) cash
dividends paid by Activision; (ii) stock dividends in the form of additional
shares of Activision Common Stock or other securities of Activision; or (iii)
any other funds or any property through a distribution by Activision to its
stockholders or a capital transaction affecting the Activision Common Stock,
the Escrow Agent shall hold, or in the event any of such funds or property
are received by the Shareholders, the Shareholders shall promptly deposit
with the Escrow Agent for the Escrow Agent to hold, such cash or other
securities or property, in escrow as part of the Escrow Property in
accordance with this Escrow Agreement. If at any time during the term of
this Escrow Agreement Activision shall offer to its shareholders a choice
between receiving a stock dividend or a cash dividend, the Shareholders shall
make the determination as to which type of dividend shall be received by them
with respect to the Escrow Shares and shall notify Activision and the Escrow
Agent accordingly. The Escrow Agent shall receive a prior written notice of
any dividends or distributions payable to the Shareholders upon or on account
of any of the Escrow Shares.
(c) Tax Treatment. Activision and the Shareholders agree that,
for United States Federal income tax purposes, the Shareholders will be
treated as the sole owners of the Escrow Shares.
5. Disbursements of Escrow Property.
(a) Joint Written Direction. Escrow Agent shall release the
Escrow Property, at any time and from time to time, in whole or in part, in
accordance with a Joint Written Direction.
(b) Claim. (i) Pursuant to the terms and conditions of the
Exchange Agreement , Activision may deliver to the Shareholders, with a copy
to Escrow Agent, at any time prior to the expiration of the Hold Period a
Claim Notice in accordance with the notice provisions of this Escrow
Agreement.
(ii) Upon receipt of any Claim Notice, Escrow Agent shall, within
two (2) business days, make entries or notations in the account records
relating to the Escrow Property, indicating that property in the amount
of the Claim is reserved to satisfy a Claim, and identifying the date of
such Claim Notice.
(iii) A Shareholder may deliver to Activision, with a copy to
Escrow Agent, a Shareholder Objection Notice, within 30 days of delivery
of a Claim Notice.
(iv) If a Shareholder Objection Notice is not delivered to
Activision and Escrow Agent within such 30 day-period, then upon the
written direction of Activision to Escrow Agent, with a copy to the
Shareholders, the Escrow Agent shall deliver to Activision a number of
Escrow Shares and other Escrow Property equal in value to the Claim.
(v) If a Shareholder Objection Notice is timely given, then the
Escrow Agent shall continue to hold all Escrow Property until the Claim
is Finally Resolved.
(c) Expiration of Escrow Period. Upon the expiration of the Hold
Period, Escrow Agent shall: (i) retain Escrow Property with a value
sufficient to pay in full all Claims, if any, that have not been Finally
Resolved at such time, until such Claims have been Finally Resolved; and (ii)
deliver the balance of the Escrow Property to the Shareholders in accordance
with their interests. The parties agree that the Escrow Agent shall receive a
prior written notice of the termination of the Hold Period.
(d) Priorities; Valuations; Releases from the Escrow Property.
For determining the value of Escrow Property at any time, whether (i) for
purposes of determining the number of Escrow Shares to be released to
Activision pursuant to Section 5(b)(iv), (ii) for purposes determining the
number of Escrow Shares to be released to Activision on account of any Claim
that is Finally Resolved, and (iii) for purposes determining the number of
Escrow Shares to be retained by Escrow Agent at the expiration of the Hold
Period pursuant to Section 5(c), the value of Escrow Shares shall be based
upon the Activision Per Share Market Value as defined in the Exchange
Agreement. The parties agree that following the consummation of the share
exchange, the Escrow Agent shall receive a written notice setting forth the
Activision Per Share Market Value.
(e) Release of Stock Powers. Whenever the Escrow Agent releases
Escrow Shares to Activision, it shall also release to Activision Stock Powers
associated with the released Escrow Shares. Whenever the Escrow Agent is
required to continue to hold Escrow Shares, it shall continue to hold
sufficient Stock Powers with respect to such Escrow Shares to administer the
Escrow Property under the terms of this Agreement.
(f) Cancellation of Escrow Shares. All Escrow Shares released to
Activision shall be canceled.
(g) Any cash, securities or other property received by Escrow
Agent pursuant to Section 4(b) on account of the Escrow Shares shall be held
together with the Escrow Shares on account of which such cash, securities or
other property was distributed, and whenever any Escrow Shares are released
to Activision or to the Shareholders, the other cash, security or other
property associated with such released Escrow Shares shall also be released.
The fair market value of all such other cash, securities and other property
shall be taken into account when determining the value of Escrow Property to
be released to a party pursuant to this Escrow Agreement.
(h) The parties acknowledge that the Escrow Property is owned of
record by, and, assuming there are no Claims, will ultimately be distributed
to each Shareholder in the amount set forth next to such Shareholder's name
on Exhibit 1 hereto. Whenever any Escrow Property is released to Activision,
it shall be released from the Escrow Property held of record by each
Shareholder in proportion to such Shareholder's percentage interest of Escrow
Shares as set forth on Exhibit 1.
6. Deposit Into Court. If, at any time, there shall exist any dispute
between Activision and the Shareholders with respect to the holding or
disposition of any portion of the Escrow Property or any other obligations of
Escrow Agent hereunder, or if at any time Escrow Agent is unable to
determine, to Escrow Agent's sole satisfaction, the proper disposition of any
portion of the Escrow Property or Escrow Agent's proper actions with respect
to its obligations hereunder, or if the parties have not within 30 days of
the furnishing by Escrow Agent of a notice of resignation pursuant to Section
8 of this Agreement, appointed a successor Escrow Agent to act hereunder,
then Escrow Agent may, in its sole discretion, take either or both of the
following actions:
(a) suspend the performance of any of its obligations under this
Escrow Agreement until such dispute or uncertainty shall be resolved to
the sole satisfaction of Escrow Agent or until a successor Escrow Agent
shall have been appointed (as the case may be); provided however, that
Escrow Agent shall continue to invest any cash in the Escrow Property in
accordance with Section 7 of this Agreement; and/or
(b) petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in Los Angeles
County, California, for instructions with respect to such dispute or
uncertainty, and pay and deposit into such court all funds, securities
and other property held by it as part of the Escrow Property for holding
and disposition in accordance with the instructions of such court.
Escrow Agent shall have no liability to Activision or the Shareholders, or
any other person, with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result
of any delay in the disbursement of funds held in the Escrow Funds or any
delay in or with respect to any other action required or requested of Escrow
Agent, other than as a result of the gross negligence or willful misconduct
of Escrow Agent.
7. Investment of Funds.
(a) Within two (2) business days following the receipt of any
funds held as part of the Escrow Property, Escrow Agent shall invest such
funds (i) in money market accounts issued by any bank, bank and trust
company, or national banking association (including Escrow Agent and its
affiliates) or (ii) otherwise pursuant to a Joint Written Direction (subject
to applicable minimum investments), Activision to not unreasonably withhold
consent to any reasonable investment the Shareholders may wish to make. Upon
the maturity thereof, Escrow Agent shall invest such monies in an interest-
bearing money market account or accounts at a nationally recognized
commercial bank (including Escrow Agent or its affiliates) or otherwise as
the parties shall direct by Joint Written Direction (subject to applicable
minimum investments).
(b) Notwithstanding anything to the contrary contained herein,
Escrow Agent may, without notice to the parties, sell or liquidate any of the
foregoing investments at any time if the proceeds of such investment are
required for any release of funds permitted or required hereunder, and Escrow
Agent shall not be liable or responsible for any loss, cost or penalty
resulting from any such sale or liquidation. With respect to any funds
received by Escrow Agent for deposit into the Escrow Property or any Joint
Written Direction received by Escrow Agent with respect to investment of any
funds after twelve o'clock, p.m., Los Angeles time, Escrow Agent shall not be
required to invest such funds or to effect such investment instruction until
the next day upon which banks in Los Angeles are open for business.
8. Resignation and Removal of Escrow Agent. Escrow Agent may resign
from the performance of its duties hereunder at any time by giving not less
than 20 days' prior written notice to the parties, or may be removed, with or
without cause, by the parties, acting jointly by furnishing a Joint Written
Direction to Escrow Agent, at any time by the giving of 10 days' prior
written notice to Escrow Agent. Such resignation or removal shall take
effect upon the appointment of a successor escrow agent as provided below or
as otherwise agreed by Activision, the Shareholders and Escrow Agent. Upon
any such notice of resignation or removal, Activision and the Shareholders
jointly shall appoint a successor Escrow Agent hereunder, which shall be a
commercial bank, trust company or other financial institution with offices in
the United States with a combined capital and surplus in excess of
$100,000,000. Upon the acceptance in writing of any appointment as Escrow
Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken
as Escrow Agent hereunder prior to such succession. After any retiring
Escrow Agent's resignation or removal, the provisions of this Escrow
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Escrow Agent under this Escrow Agreement. In the
event that a successor escrow agent is not so appointed, then Escrow Agent
may relinquish its custody of the Escrow Property by delivering the Escrow
Property to (a) any bank or trust company in the County of Los Angeles, State
of California, which is willing to act as escrow agent thereunder in place
and instead of Escrow Agent, or (b) the clerk or other proper officer of a
court of competent jurisdiction as may be permitted by law within the County
of Los Angeles, State of California. The fee of any such bank or trust
company or court officer shall be borne one-half by Activision and one-half
by the Shareholders. Upon such delivery, Escrow Agent shall be discharged
from its duties and obligations under this Escrow Agreement, but shall not be
discharged from any liability for actions taken as Escrow Agent hereunder
prior to such delivery.
9. Liability of Escrow Agent.
(a) Escrow Agent shall have no liability or obligation with
respect to the Escrow Property except for Escrow Agent's willful misconduct
or gross negligence. Escrow Agent's sole responsibility shall be for the
safekeeping, investment, and disbursement of the Escrow Property in
accordance with the terms of this Escrow Agreement. Escrow Agent shall have
no implied duties or obligations and shall not be charged with knowledge or
notice of any fact or circumstance not specifically set forth herein. Escrow
Agent may rely upon any instrument, not only as to its due execution,
validity and effectiveness, but also as to the truth and accuracy of any
information contained therein, which Escrow Agent shall in good faith believe
to be genuine, to have been signed or presented by the person or parties
purporting to sign the same and to conform to the provisions of this Escrow
Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any proceeding in
connection with the Escrow Property, any account in which Escrow Property is
deposited, this Escrow Agreement or the Exchange Agreement , or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute or question
as to the construction of any of the provisions of this Agreement or of any
other agreement or of its duties hereunder, and shall incur no liability and
shall be fully indemnified from any liability whatsoever in acting in
accordance with the opinion or instruction of such counsel. Activision and
the Shareholders, jointly and severally, shall promptly pay, upon demand, the
reasonable fees and expenses of any such counsel.
(b) The Escrow Agent is authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to the
Escrow Property, without determination by the Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Property is at any
time attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property
shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by any court affecting such
property or any part of such proceeds, then and in any such event, the Escrow
Agent is authorized, in its sole discretion, to rely upon and comply with any
such order, writ, judgment or decree which it is advised by legal counsel
selected by it is binding upon it without the need for appeal or other
action; and if the Escrow Agent complies with any such order, writ, judgment
or decree, it shall not be liable to any of the parties or to any other
person or entity by reason of such compliance even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set
aside or vacated. Escrow Agent shall give prompt written notice to
Activision and the Shareholders of its compliance with any such order, writ,
judgment or decree.
10. Indemnification of Escrow Agent. From and at all times after the
date of this Escrow Agreement, Activision and the Shareholders shall, to the
fullest extent permitted by law and to the extent provided herein, indemnify
and hold harmless Escrow Agent and each director, officer, employee,
attorney, agent and affiliate of Escrow Agent (collectively, the "Indemnified
Parties") against any and all actions, claims (whether or not valid), losses,
damages, liabilities, costs and expenses of any kind or nature whatsoever
(including without limitation reasonable attorneys' fees, costs and expenses)
incurred by or asserted against any of the Indemnified Parties from and after
the date of this Agreement, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person
(including, without limitation, Activision or a Shareholder), whether
threatened or initiated, asserting a claim for any legal or equitable remedy
against any person under any statute or regulation (including, but not
limited to, any federal or state securities laws, or under any common law or
equitable cause or otherwise), arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
this Escrow Agreement or any transactions contemplated herein, whether or not
any such Indemnified Party is a party to any such action, proceeding, suit or
the target of any such inquiry or investigation; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for any
liability finally determined by a court of competent jurisdiction, subject to
no further appeal, to have resulted from the gross negligence or willful
misconduct of such Indemnified Party. If any such action or claim shall be
brought or asserted against any Indemnified Party, such Indemnified Party
shall promptly notify Activision and the Shareholders in writing, and
Activision and the Shareholders shall assume the defense of such action or
claim, including the employment of counsel and the payment of all expenses.
Such Indemnified Party shall, in its sole discretion, have the right to
employ separate counsel (who may be selected by such Indemnified Party in its
sole discretion) in any such action and to participate in the defense of such
action, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that Activision and/or the Shareholders shall be
required to pay such fees and expenses if (a) Activision and/or the
Shareholders agree to pay such fees and expenses, or (b) Activision and/or
the Shareholders shall fail to assume the defense of such action or
proceeding or shall fail, in the reasonable discretion of such Indemnified
Party, to employ counsel satisfactory to the Indemnified Party in any such
action or proceeding, (c) Activision and/or the Shareholders are the
plaintiff in any such action or proceeding or (d) the named parties to any
such action or proceeding (including any impleaded parties) include both
Indemnified Party and Activision and/or the Shareholders, and Indemnified
Party shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to Activision or the Shareholders; provided, however, in the case
of clause (d) Activision and the Shareholders shall only be responsible for
any fees of the Indemnified Party arising from additional or different legal
defenses available to it. Activision and the Shareholders shall be liable to
pay fees and expenses of counsel pursuant to the preceding sentence, except
that any obligation to pay under clause (a) shall apply only to the party so
agreeing. All such fees and expenses payable by Activision and/or the
Shareholders pursuant to the foregoing sentence shall be paid from time to
time as incurred, both in advance of and after the final disposition of such
action or claim. All of the foregoing losses, damages, costs and expenses of
the Indemnified Parties shall be payable by Activision and the Shareholders
upon demand by such Indemnified Party. The obligations of Activision and
the Shareholders under this Section 10 shall survive any termination of this
Escrow Agreement and the resignation or removal of Escrow Agent.
The parties agree that neither the payment by Activision or the
Shareholders of any claim by Escrow Agent for indemnification hereunder nor
the disbursement of any amounts to Escrow Agent from the Escrow Property in
respect of a claim by Escrow Agent for indemnification shall impair, limit,
modify, or affect, as between Activision and the Shareholders, the respective
rights and obligations of Activision, on the one hand, and the Shareholders,
on the other hand, under the Exchange Agreement .
The obligations of Activision and the Shareholders under this
Section 10 shall be several and not joint, and unless otherwise allocated
pursuant to Section 23 of this Escrow Agreement, shall be allocated one-half
to Activision and one-half to the Shareholders severally in accordance with
their pro rata interests in Elsinore upon the closing of the transactions
contemplated by the Exchange Agreement.
11. Fees and Expenses of Escrow Agent. Activision shall compensate
Escrow Agent for its services hereunder in accordance with Exhibit 3 attached
to this Agreement and, in addition, shall reimburse Escrow Agent for all of
its reasonable and actual out-of-pocket expenses, including travel expenses,
telephone and facsimile transmission costs, postage (including express mail
and overnight delivery charges), copying charges and the like. All of the
compensation and reimbursement obligations set forth in this Section 11 shall
be payable by Activision upon demand by Escrow Agent. The obligations of
Activision under this Section 11 shall survive any termination of this Escrow
Agreement and the resignation or removal of Escrow Agent.
12. Consent to Jurisdiction and Venue. In the event that any party
commences a lawsuit or other proceeding relating to or arising from this
Escrow Agreement, the parties agree that the United States District Court
sitting in Los Angeles, California shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the California State courts
sitting in Los Angeles County, California shall have sole and exclusive
jurisdiction. Any of these courts shall be proper venue for any such lawsuit
or judicial proceeding and the parties waive any objection to such venue.
The parties consent to and agree to submit to the jurisdiction of any of the
courts specified herein and agree to accept service or process to vest
personal jurisdiction over them in any of these courts.
13. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been validly served, given or
delivered upon receipt if delivered by hand, by overnight courier or by
facsimile, and addressed to the party to be notified as follows:
To Escrow Agent: City National Bank
Attention: Sue Behning
Trust Department
Suite 600
400 North Roxbury Drive
Beverly Hills, California 90210
Tel.: (310) 888-6283
Fax: (310) 888-6288
To the Shareholders: Elsinore Multimedia, Inc.
2700 N. 29th Avenue, Suite 308
Hollywood, Florida 33020
Attn: Jill G. Mark and Robert N. Herrick
Tel.: (954) 922-1176
Fax: (954) 922-8661
In each case with a copy to: Ross Rosenberg, Esq.
9100 South Dadeland Boulevard, Suite 910
Miami, Florida 33156
Tel.: (305) 670-1010
Fax: (305) 670-0228
To Activision: 3100 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Executive Vice President,
Business Affairs and General Counsel
Tel.: (310) 255-2204
Fax: (310) 255-2152
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Tel.: (212) 541-2275
Fax: (212) 541-1357
or to such other address as each party may designate for itself by like
notice.
14. Amendment or Waiver. This Escrow Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties and Escrow
Agent. No delay or omission by any party in exercising any right with
respect to this Agreement shall operate as a waiver. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or
remedy on any future occasion.
15. Severability. To the extent any provision of this Escrow Agreement
is prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Escrow Agreement.
16. Governing Law. This Escrow Agreement has been executed and
delivered by the parties in California, and shall be governed by and
construed in accordance with the internal laws (and not laws pertaining to
conflicts or choice of law) of the State of California in all respects,
including all matters of validity, construction and performance of this
Agreement. All parties consent to the exercise of personal jurisdiction over
them in California and agree that any lawsuit or arbitration arising out of
or relating to this Agreement shall be brought exclusively in a court of
competent subject matter jurisdiction located within the County of Los
Angeles, State of California.
17. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties relating to the holding, investment,
disbursement and release of the Escrow Property and sets forth in their
entirety the obligations and duties of Escrow Agent with respect to the
Escrow Property.
18. Binding Effect. All of the terms of this Escrow Agreement, as
amended from time to time, shall be binding upon, inure to the benefit of and
be enforceable by the respective heirs, successors and assigns of Activision,
the Shareholders and Escrow Agent.
19. Execution in Counterparts. This Escrow Agreement and any Joint
Written Direction may be executed in two or more counterparts, which when so
executed shall constitute one and the same agreement or direction.
20. Termination. Upon the first to occur of the disbursement or
release of all Escrow Property pursuant to Joint Written Directions or the
disbursement or release of all Escrow Property into court pursuant to Section
6 of this Agreement, this Escrow Agreement shall terminate and Escrow Agent
shall have no further obligation or liability whatsoever with respect to this
Escrow Agreement or the Escrow Property.
21. Dealings. The Escrow Agent and any stockholder, director, officer
or employee of the Escrow Agent may buy, sell, and deal in any of the
securities of the Activision and become pecuniarily interested in any
transaction in which the Activision or the Shareholders may be interested,
and contract and lend money to the Activision or the Shareholders and
otherwise act as fully and freely as though it were not Escrow Agent under
this Escrow Agreement. Nothing herein shall preclude the Escrow Agent from
acting in any other capacity for the Activision or the Shareholders or for
any other entity.
22. Construction. When used herein the masculine includes the feminine
and neuter and the singular includes the plural and vice versa.
23. Attorneys' Fees. Should an action be instituted by any of the
parties to this Agreement in any court of law or equity pertaining to the
enforcement of any of the provisions of this Agreement, the prevailing party
shall be entitled to recover, in addition to any judgment or decree rendered
in such action, all court costs and reasonable attorneys' fees and expenses.
24. No Party Deemed Drafter. The parties agree that no one party shall
be deemed to be the drafter of this Agreement and that in the event this
Agreement is ever construed by a court of law or equity, such court shall not
construe this Agreement or any provision of this Agreement against any party
as the drafter of the Agreement. The parties, and each of them, acknowledge
that all parties have contributed substantially and materially to the
preparation of this Agreement.
25. Equitable Relief. The parties agrees that any material breach or
attempted or threatened breach of this Agreement could result in irreparable
injury to Activision for which there would be no adequate remedy at law and
consents to injunctive relief without limiting the applicability of any other
remedies.
26. Exhibits. The Exhibits attached to this Agreement are incorporated
by reference into this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement
to be executed under seal as of the date first above written.
ACTIVISION, INC.
By:
-----------------------
Name: Brian G. Kelly
Title: Co-Chairman
By:
---------------------------
Jill G. Mark
By:
-----------------------
Robert N. Herrick
CITY NATIONAL BANK
By:__________________________________
Name:
Title:
[Signature Page to Warranty Escrow Agreement]
EXHIBIT 1
ESCROW SHARES
Number of Shares
Shareholder Represented by Certificate Certificate Number
- ----------- -------------------------- ------------------
Jill G. Mark 12,267 AV12958
6595 SW 102nd Street
Miami, Florida 33156
Robert N. Herrick 8,178 AV12960
700 Mockingbird Lane
Plantation, Florida 33324
EXHIBIT 2
STOCK POWER SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________(______________) shares of the Common Stock,
$.000001 par value, of Activision, Inc. standing in his/her/its name on the
books of said Corporation, represented by Certificate No. ___, and does
hereby irrevocably constitute and appoint _______ as Attorney to transfer the
said shares of said __________________ Stock on the books of the said
Corporation, with full powers of substitution in the premises.
Dated: ___________________, 1999
______________________________________
(Signature)
______________________________________
(Printed or Typed Name)
EXHIBIT 3
FEES PAYABLE TO ESCROW AGENT
ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 541-2000
FACSIMILE: (212) 541-4630
August 17, 1999
Activision, Inc.
3100 Ocean Park Blvd.
Santa Monica, CA 90405
Re: Activision, Inc.
Registration Statement on Form S-3
-----------------------------------
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (the
"Registration Statement") to be filed by Activision, Inc., a Delaware
corporation (the "Company"), on or about the date hereof with the Securities
and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended, with respect to 204,448 shares of the
Company's common stock, par value $.000001 per share (the "Common Stock")
held by certain of the Company's stockholders.
We are familiar with the Amended and Restated Certificate of
Incorporation, as amended, and the By-laws of the Company and have examined
originals or copies, certified or otherwise identified to our satisfaction,
of such other documents, evidence of corporate action, certificates and other
instruments, and have made such other investigations of law and fact, as we
have deemed necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
(a) The Company has been duly incorporated and is validly existing
under the laws of the State of Delaware.
(b) The 204,448 shares of Common Stock being registered for the
account of certain of the Company's stockholders have been duly authorized
and are validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name wherever appearing in
such Registration Statement, including the Prospectus consisting a part
thereof, and any amendment thereto. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act, or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Robinson Silverman Pearce
Aronsohn & Berman LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Activision, Inc.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Los Angeles, California
August 13, 1999
