UNITED STATES SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1994
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number I-9281
ATARI CORPORATION
(Exact name as specified in its charter)
NEVADA 77-0034553
- - - ------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1196 Borregas Avenue, Sunnyvale, CA 94089
- - - -------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 745-2000
--------------
NONE
-----------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT OCTOBER 24, 1994
- - - ------------ --------------------------------------
Common Stock 58,895,902
<PAGE>
ATARI CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
September 30, 1994; December 31, 1993; and
September 30, 1993
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 4
QUARTER AND NINE MONTHS ENDED
September 30, 1994 and September 30, 1993
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 5
THE NINE MONTHS ENDED
September 30, 1994 and September 30, 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENT 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, Except Share and Per Share Amounts)
<TABLE>
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents (incl. $9,330
and $18,965 held as restricted
balances in Sept. 1994 and
Dec. 1993) $ 18,987 $ 23,059 $ 25,922
Marketable securities 8,180 7,680 7,680
Trade receivables (less allowances for
returns and doubtful accounts:
Sept.1994 $ 1,159; Dec. 1993 $1,048;
Sept. 1993 $5,237.) 6,223 5,929 4,769
Inventories (Note 2) 14,491 12,548 23,197
Other current assets 6,454 2,172 4,643
Total Current Assets 54,335 51,388 66,211
EQUIPMENT AND TOOLING - NET 1,200 1,020 1,231
REAL ESTATE HELD FOR SALE 10,816 20,924 22,639
OTHER ASSETS 718 1,501 1,487
TOTAL $ 67,069 $ 74,833 $ 91,568
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,415 $ 11,621 $ 7,354
Accrued liabilities 4,193 5,871 6,297
Total Current Liabilities $ 14,608 $ 17,492 $ 13,651
LONG-TERM OBLIGATIONS 43,454 52,987 53,550
SHAREHOLDERS' EQUITY
Common stock, $.01 par value -
authorized, 100,000,000
(shares outstanding:
Sept. 1994 58,852,802;
Dec. 1993 57,214,587,
Sept. 1993 57,143,892) (Note 3) 588 572 571
Additional paid-in capital 155,868 142,497 142,324
Notes receivable from sale of common
stock 0 (3) (19)
Accumulated deficit (146,127) (137,916) (115,344)
Unrealized gain on marketable
securities 290 --- ---
Accumulated translation adjustments (1,612) (796) (3,165)
Total shareholders' equity (Note 3) 9,007 4,354 24,367
TOTAL $ 67,069 $ 74,833 $ 91,568
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ATARI CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Quarter Ended Nine Months Ended
--------------- -----------------
Sept 30, Sept 30, Sept 30, Sept 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 7,173 $ 4,411 $ 23,523 $ 20,280
COST AND EXPENSES:
Cost of sales 5,957 12,891 19,685 24,752
Research and development 1,513 1,106 4,362 3,555
Marketing and distribution 2,174 1,033 5,809 4,967
General and administrative 1,722 1,596 5,119 6,249
Restructuring Charges --- 6,395 --- 6,395
Total Operating Expenses $11,366 $23,021 $34,975 $45,918
OPERATING INCOME (LOSS) $(4,193) $(18,610) $(11,452) $(25,638)
Exchange gain (loss) 337 816 1,189 (1,525)
Other income (expense), net 97 202 2,657 566
Interest income 443 549 1,107 1,774
Interest expense (570) (590) $ (1,712) $ (1,735)
INCOME (LOSS) BEFORE INCOME TAXES $ (3,886) $(17,633) $ (8,211) $(26,558)
CREDIT FOR INCOME TAXES --- --- --- 264
NET LOSS $ (3,886) $(17,633) $ (8,211) $(26,294)
EARNINGS (LOSS) PER COMMON AND
EQUIVALENT SHARE:
Net Loss $ (0.07) $ (0.31) $ (0.14) $ (0.46)
Weighted average number of shares
used in the computation 58,809 57,140 58,263 57,138
See notes to consolidated financial statements.
</TABLE>
<PAGE>
ATARI CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended
(in thousands) (Unaudited)
------------------------------
Sept. 30, Sept. 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used) by operations $(16,464) $(15,820)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities --- 2,525
Property purchases (606) (322)
Sale of real estate held for sale 9,481 ---
Decrease in other assets 477 559
Net cash provided by investing activities $ 9,352 $ 2,762
CASH FLOWS FROM FINANCING ACTIVITIES:
Reductions in long-term borrowings $ (9,533) $ (387)
Issuance(purchase) of common stock, net 13,386 9
Reduction in notes receivable from sale of
common stock 3 ---
Net cash provided (used) by financing activities $ 3,856 $ (378)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND EQUIVALENTS $ (816) $ 68
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS $ (4,072) $ (13,368)
CASH AND EQUIVALENTS:
Beginning of period $ 23,059 $ 39,290
End of period $ 18,978 $ 25,922
OTHER CASH FLOW INFORMATION FROM CONTINUING OPERATIONS:
Interest paid $ 2,289 $ 2,289
Income taxes (paid) recovered (438) (264)
</TABLE>
<PAGE>
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's 1993 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission.
The unaudited condensed financial statements included herein reflect all
adjustment (which include only normal, recurring adjustments), which are, in
the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily
indicative of the results to be expected for the full fiscal year.
The Company operates with 52/53 week fiscal calendar. All quarters covered
by this report have 13 weeks and for simplicity of presentation, the calendar
quarter date is used to represent the quarter end. The actual fiscal closing
date for the third quarter of 1994 and 1993 were October 1 and October 2
respectively.
Note 2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<S> <C> <C> <C>
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
------------------------------------
Finished goods $ 12,372 $ 10,354 $ 20,442
Raw materials 2,119 2,194 2,755
TOTAL $ 14,491 $ 12,548 $ 23,197
</TABLE>
Note 3. Subsequent Events
In September 1994 the Company reached a comprehensive agreement ("Agreement")
with Sega Enterprises, Ltd. ("Sega") concerning resolution of disputes,
equity investment, and patent and product licensing agreements. The results
of the Agreement are as follows: (i) Sega will acquire 4,705,883 shares of
newly issued Atari Corporation common stock at $8.50 per share for a total
investment of $40.0 million; (ii) Sega will pay the Company $50.0 million in
exchange for a license from Atari covering the past and future use of a
library of Atari patents issued between 1977 through 1984 (excluding patents
which exclusively claim elements of the Company's JAGUAR and LYNX products)
through the year 2001; and (iii) the Company and Sega agreed to cross-license
up to five (5) software game titles each year through the year 2001. Legal
fees and expenses associated with the Agreement are estimated to be
approximately $20 million. The Agreement is subject to regulatory approval
and the Company anticipates such approval in the fourth quarter 1994. After
legal fees and expenses as described above, upon approval, the Company will
realize a net cash payment of approximately $70 million.
<PAGE>
ATARI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Third Quarter 1994 compared with Third Quarter 1993:
GENERAL
Over the past years, the Company has undergone significant business changes.
The Company recognized in the fall of 1991 that the products it was currently
marketing in the computer and video game businesses were rapidly becoming
technically obsolete. Competitors in both the computer and the video game
markets continued to introduce products which were more powerful and more
fully featured than some of the Company's products. As a result of these
rapid technology changes, the Company, as well as the entire computer and
video game industries, experienced intense pricing and marketing pressure.
Due to intense competition from competition from competitors and shrinking
margins in computer products which represented a substantial portion of the
Company's revenues, the Company decided to discontinue these types of
products and refocus as an interactive media entertainment company.
The Company operations and product offerings during the reporting periods
have changed significantly. Product lines have been dropped and reduced,
subsidiaries have been closed, and distribution operations have been
consolidated. The resultant restructuring brought on by the these events is
substantially complete. In an effort to ensure its competitive advantage,
the Company developed a 64-bit system called the Atari JAGUAR The JAGUAR
was launched in the fourth quarter of 1993 and is the only 64-bit interactive
media entertainment system in the market today.
NET SALES
Net sales for the third quarter of 1994 were $7.2 million compared to $4.4
million in 1993, an increase of 64%. For the third quarter of 1994, sales of
JAGUAR multimedia video entertainment systems and related software
represented 81% of net sales; and sales of other video games and computers
represented 19% of net sales. In the third quarter of 1993, sales of video
games provided 25% of net sales and sales of computers provided 75% of net
sales. As of the close of third quarter 1994 seven titles were available for
the JAGUAR. The relative lack of software has resulted in sales that have
been lower than anticipated.
GROSS MARGIN
Gross margin for the third quarter of 1994 was $1.2 million or 17% as
compared to a negative margin of $8.5 million in the third quarter of 1993.
Margin for the period in 1994 reflects the sales of JAGUAR hardware units
with a limited software library to complement the unit. Gross margin for the
third quarter of 1993 was a negative $8.5 million which included the impact
of inventory write-downs of $7.5 million. The remaining negative margin for
the third quarter 1993 of $1.0 million was a result of selling certain older
computer and video game products at prices below their respective carrying
levels.
<PAGE>
OPERATING EXPENSES
Operating expenses for the period in 1994 reflect the Company's strategy of
investment in the JAGUAR system, expanding the software library and for the
development of the JAGUAR CD peripheral which is scheduled to ship during the
first quarter of 1995. Research and Development expense for the third quarter
1994 was $1.5 million. This was an increase of $0.4 million or 36% from the
third quarter of 1993 which totaled $1.1 million.
Marketing and Distribution expense was $2.2 million for third quarter 1994 as
compared to $1.0 million for the third quarter for 1993. This includes
advertising and promotional expense for the JAGUAR of $1.8 million in 1994,
an increase of $1.5 million from $0.3 million for the similar period in 1993.
The above expense increase was partially offset by headcount and facilities
cost reductions of $0.3 million for the same period 1993.
General and Administrative expense of approximately $1.7 million for the
third quarter of 1994 was equal to the third quarter 1993 expense of $1.7
million. This reflects a static headcount level after the restructuring
activity in 1993.
EXCHANGE GAINS/LOSSES
An improvement in foreign exchange rates relative to the dollar and lower
foreign assets exposure resulted in an exchange gain of $0.3 million for the
third quarter of 1994 as compared to a gain of $0.8 million in 1993.
INTEREST INCOME
Interest income in the third quarter of 1994 decreased to $0.4 million
compared to $0.5 million in 1993 as a result of lower cash balances.
INTEREST EXPENSE
Interest expense remained at $0.6 million in the third quarter of 1994
compared to $0.6 million in 1993. In both periods this primarily reflects
interest on the 5 1/4% convertible debentures.
TAX PROVISION
As the Company was in a loss position, no tax provision was required.
NET LOSS
For reasons detailed above relating to the operations of the Company, the
Company incurred an operating loss for the third quarter 1994 of $4.2 million
as compared to an operating loss of $18.6 million for third quarter 1993.
Non-operating income, primarily foreign exchange activity of $0.3 million in
third quarter 1994 and $0.8 million in third quarter 1993 resulted in a net
loss of $3.9 million in 1994 and $17.6 million in 1993.
<PAGE>
First Nine Months of 1994 compared with First Nine Months of 1993:
NET SALES
Net sales for the first nine months of 1994 were $23.5 million compared to
$20.3 million in 1993, a 16% increase in sales. During the first nine months
of 1994 approximately 77% of revenues were derived from sales of the JAGUAR
system and related software. In fiscal 1993, sales were primarily of
computers and related products.
GROSS MARGIN
Gross Margin for 1994 was $3.8 million or 16% as compared with a negative
margin of $4.4 in the same period 1993. The margin percent in 1994 reflects
the limited availability of higher margin JAGUAR software coupled with JAGUAR
system sales which are competitively priced to foster market penetration. For
1993, the margin reflects the Company's planned exit from various product
lines. Margin for 1993 included an inventory write-down of $7.5 million;
excluding this write down, gross margin for the period would have been $3.1
million.
OPERATING EXPENSES
The Company has substantially completed its restructuring of its North
American, Asian and European operations. The restructuring resulted in lower
payroll and facilities cost. These savings were partially offset by increased
promotional costs resulting from the Company's on-going marketing of JAGUAR.
Accordingly, General and Administrative expenses for the first nine months of
1994 were $5.1 million as compared with $6.2 for the first nine months of
1993. Marketing and distribution expenses for 1994 were $5.8 million versus
$5.0 million for 1993. Research and Development expenditures reflect the
continuing effort to produce additional software and the CD peripheral for the
JAGUAR. Research and Development expenses were $4.4 million and $3.6 million
for 1994 and 1993 respectfully.
EXCHANGE GAIN/LOSSES
A combination of fluctuation in exchange rates, a lower foreign assets
exposure, and greater sales from the U.S. resulted in an exchange gain of
$1.2 million for the first nine months of 1994 as compared to a loss of $1.6
million in 1993.
OTHER INCOME
For 1994, other income was $2.6 million as compared to $0.6 million in 1993.
A substantial portion of other income in 1994 represents a payment received
in the first quarter in a settlement of litigation.
INTEREST INCOME
Interest income for 1994 was $1.1 million versus $1.8 million for 1993,
reflecting the lower interest rates and cash balances during the period.
INTEREST EXPENSE
Interest expense for 1994 was $1.7 million as compared with $1.7 million in
1993, representing interest on the 5 1/4% Debentures.
<PAGE>
NET LOSS
Primarily for the reasons stated above, the Company incurred an operating
loss of $11.5 million in 1994 compared with a $25.6 million operating loss in
1993. The receipt of a litigation settlement in the first quarter 1994,
combined with a favorable currency exchange for the first nine month of 1994,
resulted in a net loss of $8.2 million for the nine months of 1994. In
addition to the operating loss of $25.6 million for the first nine months of
1993, the Company incurred a foreign exchange loss of $1.5 million. The
exchange loss was offset by other income items which resulted in a net loss
of $26.5 million for the nine months of 1993.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents decreased by $4.1 million from $23.1 million as of
December 31, 1993 to $19.0 million at September 30, 1994. The Company
utilized $16.5 million in operations for the nine months ending September 30,
1994. This includes a net loss of $8.2 million and increases in inventory
and receivables of $2.3 million. The Company made further investments in
software development contracts of $3.6 million. The annual debenture interest
payment of $2.3 million was made in the second quarter. Offsetting the
utilization of $16.5 million was an increase of $12.8 million from an
equity investment by Time Warner, Inc. in the second quarter 1994. Working
capital increased to $39.7 million from $33.9 million the nine month period
ending September 30, 1994. This is an increase of $5.9 million or 17%.
In September 1994 the Company reached a comprehensive agreement ("Agreement")
with Sega Enterprises, Ltd. ("Sega") concerning resolution of disputes,
equity investment, and patent and product licensing agreements. The results
of the Agreement are as follows: (i) Sega will acquire 4,705,883 shares of
newly issued Atari Corporation common stock at $8.50 per share for a total
investment of $40.0 million; (ii) Sega will pay the Company $50.0 million in
exchange for a license from Atari covering the past and future use of a
library of Atari patents issued between 1977 and 1984 (excluding patents which
exclusively claim elements of the Company's JAGUAR and LYNX products) through
the year 2001; and (iii) the Company and Sega agree to cross-license up to
five (5) software game titles each year through the year 2001. Legal fees and
expenses associated with the Agreement are estimated to be approximately $20
million. The Agreement is subject to regulatory approval and the Company
anticipates such approval in the fourth quarter 1994. After legal fees and
expenses as described above, upon approval, the Company will realize a net
cash payment of approximately $70 million.
The Company believes that its existing cash balances and the proceeds from
the Sega Agreement will be sufficient to meet anticipated working capital
requirements. The Company intends to increase expenditures in software
development, product manufacturing, and promotional activities related to
JAGUAR.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not aware of any other pending legal proceedings against the
Company and its consolidated subsidiaries other than routine litigation
incidental to their normal business.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Sega Stock Purchase Agreement
(b) Reports on Form 8-K None
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
ATARI CORPORATION
-------------------------------
(Registrant)
DATE: November 11, 1994 By /S/ August J. Liguori
AUGUST J. LIGUORI
Vice President, Finance
Chief Financial Officer,
Chief Accounting Officer
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into as
of September 26, 1994, by and between Atari Corporation (the "Company "), a
Nevada corporation, of 1196 Borregas Avenue, Sunnyvale, California 94089, and
Sega Holdings U.S.A., Inc. (the "Purchaser"), a Delaware corporation, c/o
Sega of America, Inc., 303 Twin Dolphin Drive, Suite 200, Redwood City,
California 94065.
Recitals
A. The Company desires to sell and Purchaser desires to purchase an
aggregate of 4,705,883 shares (the "Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), subject to the conditions and
for the consideration set forth herein.
B. The Company, Sega of America, Inc., Sega Enterprises, Ltd., Sega
Enterprises, Inc. (U.S.A.), and Sumitomo Bank of California have entered
into an Escrow Agreement dated as of October 24, 1994 (the "Escrow
Agreement"), which specifies the method by which the Shares will be paid
for and delivered.
NOW, THEREFORE, for and in consideration of the foregoing premises, the
mutual promises, agreements and covenants hereinafter set forth, and for
other good and valuable consideration, the receipt, adequacy and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of the Shares
Subject to the terms and conditions of this Agreement, at the Closing (as
hereinafter defined), the Company shall sell and deliver the Shares to the
Purchaser, and the Purchaser shall purchase the Shares from the Company at
a purchase price of $8.50 per Share (the aggregate consideration for the
Shares hereinafter referred to as the "Share Purchase Price"). The Shares
shall include all dividends and distributions referred to in Section 3, and
the Share Purchase Price shall not exceed $40,000,000.
2. The Closing
The closing of the sale of the Shares (the "Closing") will, subject to the
satisfaction or waiver of all conditions to the parties' obligations
hereunder, take place as specified in the Escrow Agreement, on such date as
the Escrow Agent (as defined therein) is authorized to release the Funds (as
defined therein) to the Company and deliver the Shares to Purchaser (the
"Closing Date"). Provided, however, that if the Closing has not occurred by
December 15, 1994 (and such date has not been extended as provided by Section
4.3 of the Master Agreement), this Agreement shall be of no further force and
effect.
3. Dividends and Distributions
(a) Atari will pay into the Escrow (as defined in the Escrow Agreement)
the equivalent value of any cash or other distribution (other than stock)
made with respect to its issued and outstanding shares of Common Stock that
Purchaser would have been entitled to receive had the Shares been issued as of
September 26, 1994.
(b) The Shares shall be appropriately adjusted for any stock dividend, any
subdivision or split of the outstanding common stock, any combination of the
outstanding common stock into a smaller number of shares, or any issuance of
capital stock in a recapitalization, reclassification of the outstanding
common stock of the Company, or a merger or consolidation of the Company
with or into another company, from September 26, 1994, through the Closing
Date.
<PAGE>
4. Representations and Warranties by the Purchaser
The Purchaser hereby represents and warrants to the Company as follows:
(a) Due Authorization. This Agreement and the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Purchaser. This Agreement has been duly executed and delivered
by the Purchaser, and constitutes the legal, valid and binding obligation of
the Purchaser, enforceable in accordance with its terms.
(b) No Violation. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, by the Purchaser
will (i) violate or result in any violation of or be in conflict with or
constitute a default under any term of the Certificate of Incorporation or
By-laws of the Purchaser or of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to the Purchaser,
or (ii) require that the Purchaser obtain the consent or authorization of, or
waiver by, or making a filing with, any governmental, administrative or
self-regulatory body or agency or any other person or entity, other than
(A) any such consent, authorization, waiver or filing which has been duly
and validly obtained or made prior to the date hereof and (B) a filing under
the Hart-Scott-Rodino Antitrust Improvements Act ("HSR Act") and compliance
with the provisions of such Act, or (iii) require the termination of any
waiting period under any statute, rule or governmental regulation applicable
to the Purchaser, other than the waiting period under the HSR Act.
(c) Investment Representation. The purchase of the Shares by the Purchaser
will be for investment purposes only and for the sole account of the
Purchaser and not with a view to the redistribution or resale of any or all
of the Shares. None of the Shares acquired pursuant to this Agreement will
be transferred except in a transaction registered or exempt from registration
under the Securities Act of 1933, as amended (the "'33 Act"). The Purchaser
acknowledges that the certificates for the Shares shall bear a legend with
respect to the transfer or resale of such securities substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933
and such shares may not be sold or transferred
unless such sale or transfer will be effected
in accordance with the registration requirements
of the Securities Act of 1933, as at the time
amended, or in conformity with the limitations
of Rule 144 promulgated under such Act or in
conformity with any other exemption from the
registration requirements of such Act which
may then be available with respect thereto."
(d) Brokers and Finders. The Purchaser has not dealt with any broker
or finder who would be entitled to any fee or commission, or to claim any
fee or commission, as a consequence of this Agreement or the transactions
contemplated hereby.
5. Representations. Warranties by the Company
The Company hereby represents and warrants to the Purchaser as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada, and is
duly qualified to do business and in good standing as a foreign corporation
in the jurisdictions where it is required to qualify to conduct its business
as presently conducted. The Company has the requisite corporate power and
authority to own its property and to carry on its business as now conducted.
<PAGE>
(b) Due Authorization. The Company has full power and authority to execute
and deliver this Agreement and, as of the Closing, will have full power and
authority to perform this Agreement and the transactions contemplated hereby
including, without limitation, the power and authority to issue and sell the
Shares. The Company has duly taken all corporate and other actions necessary
to authorize the execution and delivery of this Agreement and, as of the
Closing, will have duly taken all corporate and other actions necessary to
authorize the performance of this Agreement, including without limitation,
all actions necessary to authorize the issuance and sale of the Shares.
Without limitation to the foregoing, no approval by the holders of the
outstanding Shares of Common Stock of the Company is required in order for
the Company to sell and issue its Shares pursuant to this Agreement. This
Agreement has been duly executed and delivered by the Company and this
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
(c) No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby by the Company
will (i) violate or result in any violation of or be in conflict with or
constitute a default under any term of the Articles of Incorporation or
By-laws of the Company or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to the Company,
(ii) require that the Company obtain the consent or authorization of, or
waiver by, or make a filing with, any governmental, administrative or
self-regulatory body or agency or any other person or entity, other than (x)
any such consent, authorization, waiver or filing which has been duly and
validly obtained or made prior to the date hereof, (y) a filing under the HSR
Act and compliance with the provisions of such Act, and (z) approval for
listing of the Shares, upon official notice of issuance, on the American Stock
Exchange, or (iii) require the satisfaction or termination of any waiting
period under any statute, rule or governmental regulation applicable to the
Company, other than the waiting period under the HSR Act.
(d) Capitalization. Issuance of Shares. As of July 2, 1994, the
Company's authorized capital stock consisted of 100,000,000 shares of Common
Stock, par value $.01 per share, of which 58,796,662 shares were issued and
outstanding, all of which are duly authorized and have been validly issued
and are fully paid and non-assessable. Except as shown on Exhibit 5(d), the
Company has not issued any options, warrants or convertible or exchangeable
securities and is not a party to any other agreements which require, or upon
the passage of time, the payment of money or the occurrence of any other
event may require, the Company to issue or sell any of its Common Stock. The
sale and issuance of the Shares pursuant to this Agreement will not be an
event which causes an adjustment in any exercise or conversion price of any
outstanding options, warrants, or convertible or exchangeable securities.
Subsequent to July 2, 1994, there has not been, and prior to the Closing
Date and delivery of the Shares to be purchased hereunder by Purchaser
there will not be, any stock dividend or distribution, stock split,
recapitalization, recombination, or exchange or other similar event by the
Company generally relating to shares of its Common Stock. Upon delivery to
the Purchaser of the certificates evidencing the Shares against receipt of
the Share Purchase Price, the Shares will have been duly authorized, validly
issued, fully paid and non-assessable and will be free of preemptive or
similar rights, and no personal liability will attach to the ownership
thereof.
(e) Listing of Shares. Promptly after execution of this Agreement, the
Company will arrange for the Shares to be listed on the American Stock
Exchange, subject to official notification from the Company's transfer agent
regarding such issuance.
(f) SEC Reports and Financial Statements. The Company has furnished to
Purchaser true and complete copies of the following reports and financial
statements:
<PAGE>
(i) the Annual Report on Form 10-K of the Company for the fiscal year
ended December 31, 1993;
(ii) the Quarterly Reports on Form 10-Q of the Company for the fiscal
quarters ended March 31, 1994 and June 30, 1994; and
(iii) all Current Reports of the Company on Form 8-K filed after
January 1, 1994.
The Company has filed with the Securities and Exchange Commission ("SEC")
all reports ("SEC Reports") required to be filed by it under the Securities
Exchange Act of 1934, as amended (the "'34 Act"). All of the SEC Reports
filed by the Company comply in all material respects with the requirements of
the '34 Act. None of the SEC Reports contains, as of the respective dates
thereof, any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made.
The financial statements referred to above and all financial statements
contained in the SEC Reports have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
indicated ("GAAP"). Each balance sheet presents fairly in accordance with
GAAP the consolidated financial position of the Company as at the date of
such balance sheet, and each statement of operations and of cash flows
presents fairly in accordance with GAAP the consolidated results of operations
and the consolidated cash flows of the Company for the fiscal periods then
ended.
(g) Additional Reports. No event has occurred requiring, or which with
the passage of time will require, the filing of an SEC Report that has not
heretofore been filed and furnished by the Purchaser.
(h) Brokers and Finders. The Company has not dealt with any broker or
finder who would be entitled to any fee or commission, or to claim any fee
or commission, as a consequence of this Agreement or the transactions
contemplated hereby.
(i) Rule 144 Reporting. Until such time, if any, as the Purchaser is
able to sell all or any portion of the Shares pursuant to Rule 144(k) under the
'33 Act, the Company agrees to use its best efforts to file with the
Securities and Exchange Commission in a timely manner all reports and other
documents required of the Company under the Securities Exchange Act of 1934.
6. Pre-merger Notification
Promptly, and in any event not later than five days after execution of this
Agreement, the Company and Purchaser shall file or cause to be filed
notification and report forms with the Federal Trade Commission and the U.S.
Department of Justice under the HSR Act with respect to the Purchaser's
purchase of the Shares.
7. Registration
(a) Piggyback Registration. If at any time the Company determines to
register any of its Common Stock for its own account under the '33 Act,
other than a registration relating solely to employee benefit plans or to a
transaction under Rule 145 under the '33 Act, the Company shall promptly
give Purchaser written notice of such registration and shall, subject to the
limitations set forth herein, include in such registration and in any
underwriting involved therein any of the Shares that Purchaser requests be so
included in a written request given to the Company within 10 days following
the date of the Company's notice to Purchaser. If the Shares are to be
included in an underwriting, Purchaser agrees to enter into an underwriting
agreement and a related custody agreement and power of attorney in customary
form with the managing underwriters selected by the Company for such
underwriting. Notwithstanding the foregoing, if the Company and the managing
underwriters determine that inclusion of the Shares in the underwriting would
adversely affect such offering or the timing thereof, the Company and
managing underwriters may limit the number of Shares to be included in such
registration. The number of Shares to be included by Purchaser in any such
registration shall be reduced prior to the reduction of shares of Common
Stock for the account of any other shareholder of the Company requesting
inclusion of shares in the underwriting. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section
7(a) prior to the registration. If Purchaser includes any Shares in a
registration pursuant to this Section 7(a) and such Shares are actually
registered, it shall bear its pro rata share (based on the number of Shares
included and the total number of shares registered pursuant to such
registration) of all out-of-pocket direct expenses incurred by the Company
to effect such registration, including without limitation all registration,
qualification and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by the inclusion of the Shares in any
such registration ("Registration Expenses"), as well as all brokerage
commissions, underwriting discounts and similar expenses applicable to the
sale of its Shares ("Sellling Expenses").
(b) Request for Registration. At any time after one year from the date of
this Agreement, Purchaser may request that the Company register all or any
part of the Shares by filing a registration statement meeting the
requirements of the '33 Act. The Company shall not be obligated to so
register any of the Shares, but agrees to consider Purchaser's request in
good faith. In the event the Company agrees to register any of the Shares,
Purchaser agrees to bear all Registration Expenses and Selling Expenses.
(c) Information by Purchaser. Purchaser shall furnish to the Company
such information regarding Purchaser, the Shares and the distribution proposed
by Purchaser as the Company may request or as may be required in connection with
any registration, qualification or compliance pursuant to this Section 7.
(d) Indemnification. If Shares are sold pursuant to a registration
statement filed by the Company under the '33 Act, the Company will indemnify
the Purchaser, each of its officers and directors, and each person controlling
Purchaser within the meaning of Section 15 of the '33 Act, against all
liabilities arising from any untrue statement of material fact contained in
the registration statement or related prospectus or any omission to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that the Company shall not indemnify the Purchaser or such
related persons, and Purchaser shall indemnify the Company and its officers,
directors and controlling persons, with respect to any such untrue statement
or omission attributable to information furnished in writing by the
Purchaser or its related persons for use in connection with such registration
statement or prospectus.
Each party entitled to indemnification under this Section 7(d) (an
"indemnified party") shall give notice to the party required to provide
indemnification (an "indemnifying party") promptly after such indemnified
party has knowledge of any claim as to which indemnity may be sought, and
shall permit the indemnifying party to assume the defense of any such claim
or any litigation resulting therefrom. No indemnified party shall, except
with the consent of the indemnifying party (which consent shall not be
unreasonably withheld), consent to entry of any judgment or enter into any
settlement with respect to such claim or litigation.
<PAGE>
8. Conditions to Closing
(a) The obligation of the Company to sell, and the obligation of the
Purchaser to purchase, the Shares are subject to the satisfaction (or, to
the extent permitted by law, waiver) at or prior to the Closing Date of the
conditions that on the Closing Date:
(i) the waiting period under the HSR Act, including any extensions
thereof, shall have expired or terminated and neither the DOJ nor the FTC
shall have failed, or refused, to allow any Affiliation Agreement to be
consummated in accordance with its terms without modification and without
any changes to the business or operations of either Seller or Purchaser;
(ii) there shall be no effective injunction, writ or preliminary
restraining order or any order of any nature issued by a court or
governmental agency of competent jurisdiction directing that the
transactions contemplated hereby or any of them not be consummated as
herein provided, and prior to the Closing Date, no proceeding or lawsuit
with respect to the transactions contemplated hereby shall have been
commenced and be pending, or be threatened, by any governmental or
regulatory agency or third party; and
(iii) the Company shall have received approval from the American Stock
Exchange for the listing of the Shares to be issued hereunder.
(b) The obligations of the Purchaser to purchase the Shares are further
subject to the satisfaction of (or, to the extent permitted by law, waiver)
at or prior to the Closing Date of the following additional conditions:
(i) All representations and warranties of the Company herein shall be
true in all material respects as of the date when made and as of the Closing
Date; and
(ii) The Purchaser shall have received the opinion of counsel to the
Company to the same effect as the warranties of the Company set forth in
Section 5(a) through (e); and
(iii) The Purchaser shall have received a written confirmation from the
Chief Financial Officer of the Company to the effect that the warranties of
the Company set forth in Section 5(f) through (i) are true in all material
respects as of the Closing Date.
9. Parties in Interest
(a) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors, assigns and legal
representatives.
(b) This Agreement may not be assigned by either party hereto without
the prior written consent of the other party.
10. Specific Performance
The parties hereto acknowledge that the benefits to them under this Agreement
are unique, that they are willing to enter into this Agreement only upon
strict performance by each other of all of their obligations hereunder, and
that monetary damages would not afford adequate remedy for failure to
perform any such obligations hereunder. Accordingly, the parties hereby
consent to specific performance of their obligations hereunder and waive any
requirement for securing or posting of any bond in connection with the
obtaining of any injunctive or other equitable relief to enforce their rights
hereunder.
<PAGE>
11. Further Assurances
The parties shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this Agreement
and to consummate the transactions contemplated hereby. The parties, in
connection with entering into this Agreement, performing their obligations
hereunder, and taking any and all actions relating hereto, shall comply with
all applicable laws, obtain all required consents and approvals and make all
required filings with any government and promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this sentence.
12. Miscellaneous
(a) Entire Agreement. This document sets forth the entire Agreement
between the parties as to the subject matter hereof. This Agreement
supersedes all prior discussions, negotiations, agreements and understandings
between the parties on the subject matters set forth herein, which
discussions, negotiations, agreements and understandings shall be of no
further force or effect.
(b) Modification Waiver. This Agreement cannot be changed or
terminated orally and no waiver of compliance with any provision or condition
hereof and no consent provided for herein shall be effective unless evidenced
by an instrument in writing duly executed by the party hereto sought to be
charged with such waiver or consent. No waiver of any term or provision hereof
shall be construed as a further or continuing waiver of such term or provision
or any other term or provision.
(c) Governing Law. This Agreement, together with all rights and
obligations of the parties hereunder, shall be construed and enforced under
the internal laws of the State of California, excluding any conflicts of law
principles which might otherwise subject this Agreement to the laws of
another jurisdiction.
(d) Invalidity. If any clause or provision of this Agreement is
declared illegal, invalid or unenforceable under present or future laws
effective during the term hereof, the remainder of this Agreement shall not be
affected thereby and shall remain in force and effect.
(e) Notices. All notices, requests, consents, demands and other
communications required or permitted to be given hereunder shall be in
writing and shall be deemed effectively given upon (x) personal delivery,
(y) twenty-four hours after delivery to a courier service which guarantees
overnight delivery, or (z) upon receipt of confirmation after such notice is
telecopied, addressed as follows:
(i) if to the Purchaser:
Sega Holdings U.S.A., Inc.
c/o Sega of America, Inc.
255 Shoreline Drive, Suite 510
Redwood City, CA 941065
Attention: General Counsel
Telecopy No.: 415-802-3720
<PAGE>
(ii) if to the Company:
Atari Corporation
1196 Borregas Avenue
Sunnyvale, California 94089
Attention: General Counsel
Telecopy No.: (408) 745-8800
or to such other addresses as any party hereto shall have previously
designated by notice in writing to the other party hereto.
(f) Expenses. Each party hereto shall bear its own expenses in
connection with the entry into and effectuation of this Agreement.
(g) Attorneys' Fees. In the event of any dispute between the parties
arising under this Agreement, or with respect to this Agreement or to its
terms, the prevailing party in any court proceeding shall be entitled to an
award of its reasonable attorneys' fees and costs.
(h) Captions. Captions and paragraph headings used herein are for
convenience only and are not a part of this Agreement. They shall not be
used in construing the Agreement.
(I) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
ATARI CORPORATION
By /S/ Sam Tramiel
Sam Tramiel, President
SEGA HOLDINGS U.S.A., INC.
By: /S/ T. Utsunomiya
T. Utsunomiya, Secretary
<PAGE>
EXHIBIT 5 (D)
1. The Company has issued a 5-1/4% Convertible Subordinated Debenture due
2002. $43,454,000 of the bonds are outstanding and 2,664,255 shares of Common
Stock are issuable upon conversion under the terms of the Indenture. The
Company is currently considering the conversion of the outstanding debentures
into Common Stock which may require the issuance of additional Common Shares
as a result of lower conversion price.
2. As of July 2, 1994 the Company, under its 1986 Stock Option Plan as
amended, has an available pool of 2,771,589 share options of the Company's
Common Stock, of which 1,367,608 of these Stock Options have been granted
and are outstanding, in accordance with the terms and conditions of the Stock
Option Plan. The Company periodically grants these options based upon
employee's job performance and/or its hiring practices.
