<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCLAIM ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL 38-2698904
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
ONE ACCLAIM PLAZA
GLEN COVE, NEW YORK 11542-2708
(516) 656-5000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Copy to:
<TABLE>
<S> <C>
GREGORY E. FISCHBACH
CHIEF EXECUTIVE OFFICER
ACCLAIM ENTERTAINMENT, INC.
ONE ACCLAIM PLAZA ERIC M. LERNER, ESQ.
GLEN COVE, NEW YORK 11542-2708 ROSENMAN & COLIN
(516) 656-5000 575 MADISON AVENUE
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) NEW YORK, NEW YORK 10022
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.02 per
share............................ 2,684,973 shares $7.625 $20,472,920 $7,060
</TABLE>
(1) Reflects the maximum number of shares of Acclaim Common Stock issuable in
connection with the Merger based on 3,614,038 shares of Lazer-Tron Common
Stock outstanding as of April 25, 1995 (assuming the exercise immediately
prior to the Merger of options to purchase 36,000 shares of Lazer-Tron
Common Stock issued pursuant to the Lazer-Tron 1994 Directors Stock Option
Plan outstanding as of April 25, 1995 and the purchase from Lazer-Tron of
7,414 shares of Lazer-Tron Common Stock pursuant to the Lazer-Tron 1994
Employee Stock Purchase Plan) and 581,233 shares of Lazer-Tron Common Stock
issuable upon exercise of Lazer-Tron Warrants to purchase Lazer-Tron Common
Stock outstanding as of April 25, 1995. This Registration Statement also
includes such indeterminate number of shares of Acclaim Common Stock
issuable in connection with certain anti-dilution provisions of certain of
such Lazer-Tron Warrants.
(2) Estimated, solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1), based on the average of the bid and asked
prices of the common stock of Lazer-Tron Corporation as reported on The
Nasdaq National Market on April 25, 1995.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
HEADING IN
ITEM NUMBER AND CAPTION PROSPECTUS
- ----------------------------------------------------------------------------- ------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus................................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front Cover Page; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and
Other Information.................................................... Outside Front Cover Page; Summary;
Risk Factors
4. Terms of the Transaction............................................... Summary; The Merger
5. Pro Forma Financial Information........................................ *
6. Material Contacts With the Company Being Acquired...................... Summary; The Merger; Background of
the Merger
7. Additional Information Required for Reoffering by Persons and Parties
Deemed to be Underwriters............................................ *
8. Interests of Named Experts and Counsel................................. Legal Opinions; Experts
9. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... *
10. Information With Respect to S-3 Registrants............................ Summary; Available Information;
Additional Information; Acclaim
Selected Consolidated Financial
Data; Information Concerning
Acclaim
11. Incorporation of Certain Information by Reference...................... Available Information; Additional
Information
12. Information With Respect to S-2 or S-3 Registrants..................... *
13. Incorporation of Certain Information by Reference...................... *
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants............................................... *
15. Information With Respect to S-3 Companies.............................. *
16. Information With Respect to S-2 or S-3 Companies....................... *
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
17. Information With Respect to Companies Other Than
S-2 or S-3 Companies................................................. Summary; Lazer-Tron Selected
Financial Data; Risk Factors;
Business of Lazer-Tron;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations of
Lazer-Tron; Security Ownership of
Certain Beneficial Owners and
Management of Lazer-Tron;
Financial Statements of Lazer-Tron
18. Information if Proxies, Consents or Authorizations Are
to be Solicited...................................................... Summary; Special Meeting; The
Merger; Security Ownership of
Certain Beneficial Owners and
Management of Lazer-Tron;
Information Concerning Acclaim
19. Information if Proxies, Consents or Authorizations Are Not
to be Solicited, or in an Exchange Offer............................. *
</TABLE>
- ------------------
* Omitted from Prospectus because item is inapplicable or answer is in the
negative.
ii
<PAGE>
LAZER-TRON CORPORATION
4430 Willow Road
Pleasanton, California 94588
June __, 1995
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of Lazer-Tron
Corporation, a California corporation ("Lazer-Tron"), will be held at 9:00 a.m.,
local time, on June 30, 1995 at the Sheraton Inn located at 5115 Hopyard Road,
Pleasanton, California.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt (a) the Agreement and Plan of Merger, dated as of
March 22, 1995 (the "Merger Agreement"), between Lazer-Tron, Acclaim
Entertainment, Inc., a Delaware corporation ("Acclaim") and Acclaim Arcade
Holdings, Inc., a Delaware corporation and a recently formed, wholly-owned
subsidiary of Acclaim (the "Subsidiary"), and (b) the merger of the Subsidiary
with and into Lazer-Tron pursuant to the Merger Agreement (the "Merger"),
whereby Lazer-Tron will survive the Merger and become a wholly-owned subsidiary
of Acclaim. Pursuant to the Merger, each issued and outstanding share of
Lazer-Tron's Common Stock will be converted into the right to receive: (i) if
the average of the closing sale price of a share of Acclaim's Common Stock for
the twenty business days preceding the second business day prior to the
effective time of the Merger (the "Acclaim Common Stock Price") is equal to or
greater than $12.50 and less than $16.00, then that number of shares of
Acclaim's Common Stock which is equal to $8.00 divided by the Acclaim Common
Stock Price; (ii) if the Acclaim Common Stock Price is equal to or greater than
$16.00 and less than or equal to $20.00, then 1/2 of a share of Acclaim's Common
Stock; or (iii) if the Acclaim Common Stock Price is greater than $20.00, then
that number of shares of Acclaim's Common Stock which is equal to $10.00 divided
by the Acclaim Common Stock Price.
Additionally, pursuant to the Merger (a) each outstanding option to
purchase Lazer-Tron's Common Stock under Lazer-Tron's 1989 Stock Option Plan and
(b) each outstanding warrant will be exercisable subsequent to the Merger for
that number of shares of Acclaim Common Stock and, as applicable, other warrants
determined pursuant to the conversion ratio described above.
If the requisite approvals of Lazer-Tron's shareholders are received, the
Merger is expected to be consummated on or before July 15, 1995.
After careful consideration, your Board of Directors has unanimously
approved the Merger Agreement and the Merger and has concluded that they are in
the best interests of Lazer-Tron and its shareholders. Your Board of Directors
has unanimously recommended that Lazer-Tron's shareholders approve the Merger
Agreement and the Merger.
If the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Prospectus/Proxy Statement relating to the actions to
be taken by Lazer-Tron's shareholders at the Special Meeting and a proxy. The
Prospectus/Proxy Statement more fully describes the proposed Merger and includes
information about Lazer-Tron and Acclaim.
All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Special Meeting, you may vote in person if you wish, even though you
have previously turned in your proxy. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
Norman B. Petermeier
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE>
LAZER-TRON CORPORATION
4430 Willow Road
Pleasanton, California 94588
_______________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
______________________________________________________
To Our Shareholders:
A Special Meeting of Shareholders (the "Special Meeting") of Lazer-Tron
Corporation, a California corporation ("Lazer-Tron"), will be held at 9:00 a.m.,
local time, on June 30, 1995 at the Sheraton Inn located at 5115 Hopyard Road,
Pleasanton, California, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt (a) the
Agreement and Plan of Merger, dated as of March 22, 1995 (the "Merger
Agreement"), between Lazer-Tron, Acclaim Entertainment, Inc., a Delaware
corporation ("Acclaim") and Acclaim Arcade Holdings, Inc., a Delaware
corporation and a recently formed, wholly-owned subsidiary of Acclaim (the
"Subsidiary"), and (b) the merger of the Subsidiary with and into Lazer-Tron
pursuant to the Merger Agreement (the "Merger"), whereby, among other things,
Lazer-Tron will survive the Merger and become a wholly-owned subsidiary of
Acclaim and each issued and outstanding share of Lazer-Tron's Common Stock will
be converted into the right to receive: (i) if the average of the closing sale
price of a share of Acclaim's Common Stock for the twenty business days
preceding the second business day prior to the effective time of the Merger (the
"Acclaim Common Stock Price") is equal to or greater than $12.50 and less than
$16.00, then that number of shares of Acclaim's Common Stock which is equal to
$8.00 divided by the Acclaim Common Stock Price; (ii) if the Acclaim Common
Stock Price is equal to or greater than $16.00 and less than or equal to $20.00,
then 1/2 of a share of Acclaim's Common Stock; or (iii) if the Acclaim Common
Stock Price is greater than $20.00, then that number of shares of Acclaim's
Common Stock which is equal to $10.00 divided by the Acclaim Common Stock Price.
Additionally (a) each outstanding option to purchase Lazer-Tron's Common
Stock under Lazer-Tron's 1989 Stock Option Plan and (b) each outstanding warrant
will be exercisable subsequent to the Merger for that number of shares of
Acclaim Common Stock and, as applicable, other warrants determined pursuant to
the conversion ratio described above.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Prospectus/Proxy Statement accompanying this Notice.
Only shareholders of record of Lazer-Tron's Common Stock at the close of
business on May 24, 1995 are entitled to notice of, and will be entitled to vote
at, the Special Meeting or any adjournment thereof. Approval of the Merger
Agreement and the Merger will require the affirmative vote of the holders of a
majority of the outstanding shares of Lazer-Tron Common Stock entitled to vote
thereon.
BY ORDER OF THE BOARD OF DIRECTORS
Norman B. Petermeier
Chairman of the Board of Directors and
Chief Executive Officer
Pleasanton, California
June __, 1995
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
<PAGE>
PROSPECTUS/PROXY STATEMENT
______________________________________
PROSPECTUS
ACCLAIM ENTERTAINMENT, INC.
Up to 2,684,973 Shares of Common Stock
______________________________________
PROXY STATEMENT
LAZER-TRON CORPORATION
Special Meeting of Shareholders
To Be Held on June 30, 1995
______________________________________
Acclaim Entertainment, Inc. ("Acclaim", and together with its subsidiaries,
the "Company") has entered into an Agreement and a Plan of Merger (the "Merger
Agreement"), dated as of March 22, 1995, with Lazer-Tron Corporation
("Lazer-Tron"), pursuant to which Acclaim agreed to acquire Lazer-Tron through
the merger (the "Merger") of Acclaim Arcade Holdings, Inc. (the "Subsidiary"), a
wholly-owned subsidiary of Acclaim, with and into Lazer-Tron on the terms
described herein. In exchange for all of the issued and outstanding shares of
common stock, no par value per share (the "Lazer-Tron Common Stock"), of
Lazer-Tron (after giving effect to the exercise immediately prior to the Merger
of options to purchase 36,000 shares of Lazer-Tron Common Stock issued pursuant
to the 1994 Directors Stock Option Plan outstanding as of April 25, 1995 and the
purchase from Lazer-Tron of 7,414 shares of Lazer-Tron Common Stock pursuant to
the Lazer-Tron 1994 Employee Stock Purchase Plan), the shareholders of
Lazer-Tron (the "Lazer-Tron Shareholders") will receive an aggregate of up to
2,312,984 shares of common stock, par value $0.02 per share, of Acclaim (the
"Acclaim Common Stock"). As a result of the Merger, all other outstanding
options ("Lazer-Tron Stock Options") and warrants (the "Lazer-Tron Warrants") of
Lazer-Tron will be exercisable following the Merger for up to 624,880 shares of
Acclaim Common Stock, as more fully described herein. The exchange of
Lazer-Tron Common Stock for Acclaim Common Stock and the right of holders of
Lazer-Tron Stock Options and Lazer-Tron Warrants to receive Acclaim Common Stock
are collectively referred to herein as the "Merger Consideration". The
consummation of the Merger is subject to a number of conditions. See "The
Merger." The Merger is not being submitted to a vote of the stockholders of
Acclaim and no proxies are being solicited in respect thereof.
This Prospectus/Proxy Statement covers the issuance by Acclaim to the
Lazer-Tron Shareholders and holders of Lazer-Tron Warrants of up to 2,684,973
shares of Acclaim Common Stock in payment of the Merger Consideration. Holders
of Lazer-Tron Stock Options will receive, upon exercise thereof, shares of
Acclaim Common Stock issuable pursuant to the Acclaim 1988 Stock Option Plan,
which shares have previously been registered under the Securities Act of 1933,
as amended, on Form S-8. Acclaim will not receive any proceeds from the resale
by the Lazer-Tron Shareholders or holders of Lazer-Tron Stock Options or
Lazer-Tron Warrants of any securities received pursuant to this Prospectus/Proxy
Statement.
This Prospectus/Proxy Statement constitutes (a) the Proxy Statement of
Lazer-Tron relating to the solicitation of proxies by Lazer-Tron for use at the
Special Meeting of Shareholders of Lazer-Tron, scheduled to be held on June 30,
1995 (the "Special Meeting") and (b) the Prospectus of Acclaim filed as part of
the Registration Statement. All information concerning Acclaim and its
subsidiaries in this Prospectus/Proxy Statement has been supplied by Acclaim and
is its sole responsibility. All information concerning Lazer-Tron in this
Prospectus/Proxy Statement has been supplied by Lazer-Tron and is its sole
responsibility.
The Acclaim Common Stock and the Lazer-Tron Common Stock are both traded on
The Nasdaq National Market under the symbol "AKLM" and "LZTN", respectively. On
June __, 1995, the last reported sale price of the Acclaim Common Stock was
$_____ per share and the Lazer-Tron Common Stock was $_____ per share.
This Prospectus/Proxy Statement and the accompanying form of proxy are
first being mailed to Lazer-Tron Shareholders on or about June __, 1995.
See "Risk Factors" for a description of certain material risk factors to be
considered by Lazer-Tron Shareholders before voting on the Merger Agreement.
____________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________________________________
The date of this Prospectus/Proxy Statement is _________ __, 1995.
<PAGE>
AVAILABLE INFORMATION
Acclaim and Lazer-Tron are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th floor, New York, New York 10048, Room 1400, 75 Park Place, New York, New
York 10007, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
ADDITIONAL INFORMATION
Acclaim has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the registration of the securities offered
hereby. This Prospectus/Proxy Statement does not contain all the information
set forth in the Registration Statement. Statements contained herein concerning
the contents of any documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. The Registration Statement, as well as items of information
omitted from this Prospectus/Proxy Statement but contained in the Registration
Statement, and reports and other information filed by Acclaim, may be inspected
without charge at the public reference facilities referred to above and copies
of all or any part thereof may be obtained from the Commission upon request and
payment of the prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, or portions thereof, filed by Acclaim with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Proxy Statement:
(a) Annual Report on Form 10-K for the fiscal year ended August 31,
1994, filed on November 28, 1994 (File No. 0-16986);
(b) Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1994, filed on January 13, 1995 (File No. 0-16986);
(c) Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1995, filed on April 10, 1995 (File No. 0-16986);
(d) Current Report on Form 8-K, filed on March 31, 1995 (File No.
0-16986);
(e) Proxy Statement relating to the Annual Meeting of Stockholders
of Acclaim held on January 31, 1995, filed on January 3, 1995 (File No.
0-16986); and
(f) The information in respect of Acclaim Common Stock under the
caption "Description of Registrant's Securities to be Registered" contained
in the Registration Statement on Form 8-A, filed on June 8, 1988 (File No.
0-16986), as amended by the Current Report on Form 8-K, filed on August 25,
1989 (File No. 33-9460-C), relating to the one-for-two reverse stock split
effected by Acclaim.
All documents subsequently filed by Acclaim pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment hereto indicating that all securities offered hereby
2
<PAGE>
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in this Prospectus/Proxy Statement and
to be a part of this Prospectus/Proxy Statement from the respective dates of
filings of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.
This Prospectus/Proxy Statement incorporates documents by reference which
are not presented herein or delivered herewith. These documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) are available upon written or oral request from Acclaim
Entertainment, Inc., One Acclaim Plaza, Glen Cove, New York 11542-2708,
Attention: Sandy DeGennaro, Vice President, Finance, telephone number: (516)
656-5000. In order to ensure timely delivery of the documents, any request
should be made by June __, 1995.
____________________________________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS/PROXY STATEMENT IN CONNECTION WITH THE SOLICITATIONS MADE HEREBY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY ACCLAIM OR LAZER-TRON. THIS PROSPECTUS/PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY, OR A SOLICITATION OF A PROXY, TO ANY
PERSON OR BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/PROXY
STATEMENT RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EITHER ACCLAIM OR LAZER-TRON SINCE
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
3
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Special Meeting of Shareholders. . . . . . . . . . . . . . 7
Record Date. . . . . . . . . . . . . . . . . . . . . . . . 7
The Merger . . . . . . . . . . . . . . . . . . . . . . . . 7
Lazer-Tron Stock Options and Lazer-Tron Warrants . . . . . 8
Opinion of Financial Advisor . . . . . . . . . . . . . . . 8
Shareholder Approval . . . . . . . . . . . . . . . . . . . 9
Rights of Dissenting Shareholders. . . . . . . . . . . . . 9
Effective Date of the Merger . . . . . . . . . . . . . . . 9
Interests of Certain Persons in the Merger . . . . . . . . 10
Federal Tax Consequences of the Merger . . . . . . . . . . 10
Accounting Treatment . . . . . . . . . . . . . . . . . . . 10
Regulatory Approvals . . . . . . . . . . . . . . . . . . . 10
Employment Agreements. . . . . . . . . . . . . . . . . . . 10
Representations, Warranties and Covenants. . . . . . . . . 11
Conditions to the Merger . . . . . . . . . . . . . . . . . 11
Termination of the Merger Agreement. . . . . . . . . . . . 11
Amendment of the Merger Agreement. . . . . . . . . . . . . 11
No Solicitation. . . . . . . . . . . . . . . . . . . . . . 11
Break-up Fee . . . . . . . . . . . . . . . . . . . . . . . 11
Stock Option Agreement . . . . . . . . . . . . . . . . . . 12
Business of the Companies. . . . . . . . . . . . . . . . . 12
Market Prices Of Acclaim Common Stock And Lazer-Tron
Common Stock . . . . . . . . . . . . . . . . . . . . . . 13
Comparative Per Share Data . . . . . . . . . . . . . . . . 14
ACCLAIM SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . 15
LAZER-TRON SELECTED FINANCIAL DATA . . . . . . . . . . . . . . 16
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 17
THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . 22
Date, Time and Place of the Special Meeting. . . . . . . . 22
Record Date and Outstanding Shares . . . . . . . . . . . . 22
Voting of Proxies. . . . . . . . . . . . . . . . . . . . . 22
Vote Required and Voting Intentions of Certain
Shareholders . . . . . . . . . . . . . . . . . . . . . . 22
Solicitation of Proxies and Expenses . . . . . . . . . . . 22
Appraisal and Dissenters' Rights . . . . . . . . . . . . . 23
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background of the Merger . . . . . . . . . . . . . . . . . 25
Acclaim's Reasons for the Merger . . . . . . . . . . . . . 25
Lazer-Tron's Reasons for the Merger. . . . . . . . . . . . 25
Effective Date . . . . . . . . . . . . . . . . . . . . . . 27
Merger Consideration . . . . . . . . . . . . . . . . . . . 27
Lazer-Tron Stock Options and Warrants. . . . . . . . . . . 28
4
<PAGE>
Page
----
Interests of Certain Persons in the Merger . . . . . . . . 28
Opinion of Financial Advisor . . . . . . . . . . . . . . . 29
Representations and Warranties . . . . . . . . . . . . . . 30
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 31
Conditions to the Merger . . . . . . . . . . . . . . . . . 31
Indemnification. . . . . . . . . . . . . . . . . . . . . . 33
Certain U.S. Federal Income Tax Matters. . . . . . . . . . 34
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 36
Accounting Treatment . . . . . . . . . . . . . . . . . . . 36
Regulatory Approvals . . . . . . . . . . . . . . . . . . . 37
Termination of the Merger Agreement. . . . . . . . . . . . 37
Amendment of the Merger Agreement. . . . . . . . . . . . . 38
No Solicitation. . . . . . . . . . . . . . . . . . . . . . 38
Break-up Fee . . . . . . . . . . . . . . . . . . . . . . . 38
Stock Option Agreement . . . . . . . . . . . . . . . . . . 38
Affiliates Agreements. . . . . . . . . . . . . . . . . . . 39
Employment Agreements. . . . . . . . . . . . . . . . . . . 39
Employee Option Agreements . . . . . . . . . . . . . . . . 40
Severance Agreements . . . . . . . . . . . . . . . . . . . 40
Articles of Incorporation and By-laws. . . . . . . . . . . 41
Directors and Executive Officers of the Surviving
Corporation . . . . . . . . . . . . . . . . . . . . . . . 41
Affiliates' Restrictions on Sale of Acclaim Common Stock . 41
Vote Required; Recommendation. . . . . . . . . . . . . . . 41
MARKET FOR ACCLAIM AND LAZER-TRON COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . 42
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF LAZER-TRON . . . . . . . . . . . . . . . . . 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LAZER-TRON. . 46
BUSINESS OF LAZER-TRON . . . . . . . . . . . . . . . . . . . . 51
DESCRIPTION OF LAZER-TRON CAPITAL STOCK. . . . . . . . . . . . 59
INFORMATION CONCERNING ACCLAIM . . . . . . . . . . . . . . . . 61
5
<PAGE>
Page
----
COMPARISON OF RIGHTS OF HOLDERS OF ACCLAIM
COMMON STOCK AND HOLDERS OF CAPITAL STOCK OF LAZER-TRON. . . . 66
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . 73
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 73
FINANCIAL STATEMENTS OF LAZER-TRON . . . . . . . . . . . . . . F-1
EXHIBIT 99.A - Agreement and Plan of Merger . . . . . . . . . A-1
EXHIBIT 99.B - Chapter 13 - Dissenters' Rights under the
California General Corporation Law . . . . . B-1
EXHIBIT 99.C - Fairness Opinion of Van Kasper & Company. . . . C-1
6
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere herein or incorporated by reference in this Prospectus/Proxy
Statement and the exhibits hereto. Shareholders of Lazer-Tron are urged to read
this Prospectus/Proxy Statement and the exhibits hereto in their entirety.
Special Meeting of Shareholders
A special meeting (the "Special Meeting") of shareholders of Lazer-Tron
Corporation, a California corporation ("Lazer-Tron") will be held at the
Sheraton Inn located at 5115 Hopyard Road, Pleasanton, California, on June 30,
1995, at 9:00 a.m. local time, for the purpose of considering and voting upon
the Agreement and Plan of Merger dated as of March 22, 1995 (the "Merger
Agreement") providing for the merger with and into Lazer-Tron (the "Merger") of
a wholly-owned subsidiary (the "Subsidiary") of Acclaim Entertainment, Inc.
("Acclaim") formed for such purpose. Certain directors, officers, affiliates
and shareholders of Lazer-Tron holding approximately 1,007,047 shares, or an
aggregate of approximately 28.3% of the total shares outstanding as of the
Record Date (defined below), of the common stock, no par value per share, of
Lazer-Tron (the "Lazer-Tron Common Stock") have agreed to vote such shares in
favor of the Merger.
Record Date
The close of business on May 24, 1995 has been fixed as the record date (the
"Record Date") for the determination of the shareholders of Lazer-Tron entitled
to notice of and to vote at the Special Meeting. As of the Record Date, there
were outstanding and entitled to vote ___________ shares of Lazer-Tron Common
Stock, each of which will be entitled to one vote on each matter to be acted
upon at the Special Meeting. See "The Special Meeting -- Record Date and
Outstanding Shares."
The Merger
At the Effective Time (as defined below), the Subsidiary will merge with and
into Lazer-Tron, and Lazer-Tron will be the surviving corporation (the
"Surviving Corporation") and a wholly-owned subsidiary of Acclaim. Each share
of Lazer-Tron Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares, if any, held by shareholders who have
exercised dissenters' rights under Section 1300 et seq. of the California
General Corporation Law (the "CGCL")) shall, by reason of the Merger and without
any action by the holder thereof, be converted into the right to receive the
following consideration:
(a) if the average of the closing sale price of a share of Acclaim
Common Stock on The Nasdaq National Market (as reported in the Wall Street
Journal) for the 20 business days immediately preceding the second business
day prior to the Closing Date (the "Acclaim Common Stock Price") shall be at
least $12.50 but less than $16.00, that number of shares of Acclaim Common
Stock equal to the product (rounded up to the nearest one thousandth) of (i)
one (1) and (ii) a fraction, the numerator of which is $8.00 and the
denominator of which is the Acclaim Common Stock Price;
(b) if the Acclaim Common Stock Price shall be at least $16.00 and not
more than $20.00, one half (1/2) of a share of Acclaim Common Stock; or
(c) if the Acclaim Common Stock Price shall be more than $20.00, that
number of shares of Acclaim Common Stock equal to the product (rounded up to
the nearest one thousandth) of (i) one (1) and
7
<PAGE>
(ii) a fraction, the numerator of which is $10.00 and the denominator of
which is the Acclaim Common Stock Price.
If the Acclaim Common Stock Price shall be less than $12.50, each of Acclaim
and Lazer-Tron, at its sole option, shall have the right to give notice of its
election to terminate the Merger Agreement. See "The Merger -- Termination of
the Merger Agreement."
No certificate representing fractional shares of Acclaim Common Stock shall
be issued upon the surrender for exchange of a certificate of Lazer-Tron Common
Stock, and such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of Acclaim. Acclaim shall pay cash in
lieu of fractional shares of Acclaim Common Stock to be received in the Merger.
Assuming the maximum number of shares of Acclaim Common Stock are issuable
pursuant to the Merger (but without giving effect to shares of Acclaim Common
Stock issuable upon exercise of Lazer-Tron Stock Options and Lazer-Tron
Warrants), Lazer-Tron's shareholders ("Lazer-Tron Shareholders") will own an
aggregate of approximately 4.9% of the total outstanding shares of Acclaim
Common Stock after consummation of the Merger.
Lazer-Tron Stock Options and Lazer-Tron Warrants
At the Effective Time, each outstanding option to purchase Lazer-Tron Common
Stock (a "Lazer-Tron Stock Option") granted under the Lazer-Tron 1989 Stock
Option Plan (the "Employee Option Plan") (the Employee Option Plan together with
the Lazer-Tron 1994 Directors Stock Option Plan (the "Directors Option Plan")
are collectively referred to herein as, the "Lazer-Tron Stock Option Plans") and
each outstanding warrant (the "Lazer-Tron Warrants"), whether vested or
unvested, shall, by virtue of the Merger and without any further action on the
part of any holder thereof, have the right to receive that number of shares of
Acclaim Common Stock as the holder of such Lazer-Tron Stock Option or Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such Lazer-Tron Stock Option or Lazer-Tron Warrant in full immediately
prior to the Effective Time. Currently outstanding Lazer-Tron Stock Options
issued under the Directors Option Plan accelerate as to vesting and become
immediately exercisable in full as a result of the Merger and whether or not
exercised holders of such options will receive at the Effective Time such number
of shares of Acclaim Common Stock as would have been issuable if such options
had been exercised immediately prior to the Merger. Holders of Lazer-Tron Stock
Options will receive, upon exercise thereof, that number of shares of Acclaim
Common Stock, as determined above, issuable pursuant to the Acclaim 1988 Stock
Option Plan, which have previously been registered under the Securities Act on
Form S-8. In addition, each holder of the Sales Agent Warrants, which are
exercisable for shares of Lazer-Tron Common Stock and additional warrants (the
"Underlying Warrants") to purchase additional shares of Lazer-Tron Common Stock,
will have the right to receive that number of shares of Acclaim Common Stock as
the holder of such Sales Agent Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised the Sales Agent Warrants (and
the Underlying Warrants) in full immediately prior to the Effective Time.
The exercise of outstanding Lazer-Tron Warrants and the issuance of shares
of Acclaim Common Stock upon such exercise are registered pursuant to the
Registration Statement of which this Prospectus/Proxy Statement forms a part,
which registration will be kept current following consummation of the Merger
throughout the exercise period of the Lazer-Tron Warrants.
Opinion of Financial Advisor
Van Kasper & Company ("Van Kasper") has been retained by Lazer-Tron to act
as financial advisor in connection with the Merger and related matters. Van
Kasper has delivered to Lazer-Tron's Board of Directors its written opinion,
dated March 14, 1995, to the effect that, as of such date and based upon the
matters described therein, the consideration to be received in the Merger by
Lazer-Tron Shareholders is fair to such Lazer-Tron
8
<PAGE>
Shareholders from a financial point of view. Reference is made to the full text
of such opinion, a copy of which is reprinted herein in its entirety as Exhibit
C hereto. Lazer-Tron Shareholders are urged to read the opinion in its
entirety. See "The Merger -- Opinion of Financial Advisor."
Shareholder Approval
Approval of the Merger Agreement and the Merger by the Lazer-Tron
Shareholders requires the affirmative vote of a majority of the shares entitled
to vote at the Special Meeting. See "The Merger -- Vote Required;
Recommendation." Certain directors, officers, affiliates and shareholders of
Lazer-Tron holding approximately 1,007,047 shares of Lazer-Tron Common Stock (an
aggregate of approximately 28.3% of the total shares outstanding as of the
Record Date) have agreed to vote such shares in favor of the Merger.
The directors and executive officers of Lazer-Tron and their affiliates hold
approximately [26.4%] of the total outstanding shares of Lazer-Tron Common Stock
entitled to vote at the Special Meeting, after giving effect to exercise of
options held by such persons which are exercisable within sixty days of the date
hereof. In addition, the parents of Matthew F. and Bryan M. Kelly (each of whom
is an officer and director of Lazer-Tron) beneficially hold approximately 6.0%
of the total outstanding shares of Lazer-Tron Common Stock entitled to vote at
the Special Meeting. As a result, the current officers, directors and
affiliated shareholders of Lazer-Tron will have significant influence over the
shareholder vote on the Merger Agreement and the Merger.
The Board of Directors of Lazer-Tron has unanimously approved the Merger
Agreement and the Merger and has determined that the Merger is in the best
interests of Lazer-Tron and its shareholders. The Board of Directors of
Lazer-Tron unanimously recommends approval of the Merger Agreement and the
Merger by the Lazer-Tron Shareholders. The primary factors considered and
relied upon by the Board of Directors of Lazer-Tron in reaching its
recommendations are referred to in "The Merger -- Lazer-Tron's Reasons for the
Merger."
Rights of Dissenting Shareholders
If demands for payment under Chapter 13 of the CGCL are filed with respect
to 5% or more of the outstanding shares of Lazer-Tron Common Stock, the holders
of which vote against the Merger, then such holders shall be entitled to
exercise dissenters' rights to the extent available under Chapter 13 of the
CGCL. In addition, any shares of Lazer-Tron Common Stock whose transfer is
restricted by law or regulation or by Lazer-Tron and that are voted against the
Merger shall be entitled to exercise dissenters' rights to the extent available
under Chapter 13 of the CGCL. If and to the extent dissenters' rights are
available under and have been properly demanded in accordance with the
provisions of Chapter 13 of the CGCL ("Dissenting Shares"), such Dissenting
Shares will not be converted into the right to receive the Merger Consideration
and the holders thereof shall have only such rights as are provided in Chapter
13 of the CGCL. Additionally, it is a condition to consummation of the Merger
that Dissenting Shares and/or shares of common stock of Lazer-Tron capable of
becoming Dissenting Shares will not constitute in excess of 10% of the
Lazer-Tron Common Stock. See "The Special Meeting -- Appraisal and Dissenters'
Rights" and "The Merger -- Conditions to the Merger."
Effective Date of the Merger
If approved by the Lazer-Tron Shareholders, the Merger will become effective
on the later of the date the Merger Agreement, or an appropriate certificate of
merger, is filed with each of the Secretary of State of the States of Delaware
and California (the "Effective Time"). See "The Merger -- Effective Date."
9
<PAGE>
Interests of Certain Persons in the Merger
On or before the Effective Time, certain management personnel of Lazer-Tron
will enter into (i) employment and non-competition agreements with the Surviving
Corporation, (ii) employee option agreements with Acclaim and/or (iii) severance
agreements with Lazer-Tron. Each of Roger Smith, Dr. Morton Grosser and Robert
Pryt, directors of Lazer-Tron, have been granted options to purchase 7,000
shares of Lazer-Tron Common Stock at $7.50 per share and 5,000 shares of
Lazer-Tron Common Stock at $12.75 per share, of which 4,500 were vested and
exercisable as of March 31, 1995, all of which are exercisable at $7.50 per
share. As a result of the Merger, all of such options accelerate and become
immediately exercisable. Lazer-Tron has agreed to pay Mr. Smith $100 per hour
for services rendered to Lazer-Tron in connection with the negotiation of the
Merger Agreement and consummation of the Merger. Acclaim has agreed, if the
Merger is consummated, (i) to provide certain benefits to Lazer-Tron employees
and (ii) that the Surviving Corporation will honor all rights to indemnification
in favor of Lazer-Tron's officers and directors and maintain directors' and
officers' liability insurance coverage for a period of six years following the
Effective Time. Lazer-Tron has paid Van Kasper, the underwriter of Lazer-Tron's
initial public offering and holder of Lazer-Tron Warrants to purchase 55,000
shares of Lazer-Tron Common Stock, a fee of $85,000 for acting as Lazer-Tron's
financial advisor in connection with the Merger and rendering its opinion as to
the fairness of the Merger from a financial point of view. See "The Merger --
Interests of Certain Persons in the Merger."
Federal Tax Consequences of the Merger
The Merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For a
discussion of the federal income tax consequences of the Merger and certain
other transactions contemplated in connection therewith, see "The Merger --
Certain U.S. Federal Income Tax Matters."
Accounting Treatment
The Merger is intended to be accounted for as a pooling of interests, which
accounting treatment is also a condition to Acclaim's obligation to consummate
the Merger. In this regard, Dissenting Shares and/or shares of Lazer-Tron
Common Stock capable of becoming Dissenting Shares cannot constitute in excess
of 10% of the Lazer-Tron Common Stock outstanding in order for the Merger to be
treated as a pooling of interests. Certain affiliates of Lazer-Tron and Acclaim
have entered into agreements restricting the sale or other disposition of their
shares of capital stock of Lazer-Tron and Acclaim, as the case may be, prior to
the Merger and the resale or other disposition of shares of Acclaim Common
Stock, including those received in the Merger, in order to meet the requirements
for accounting for the Merger as a pooling of interests. See "The Merger --
Accounting Treatment" and "-- Affiliate Agreements."
Regulatory Approvals
No further federal or state regulatory requirements must be complied with in
order to consummate the Merger. See "The Merger -- Regulatory Approvals".
Employment Agreements
Norman B. Petermeier, Bryan M. Kelly and Matthew F. Kelly have each agreed
to enter into an employment and non-competition agreement with the Surviving
Corporation. See "The Merger -- Employment Agreements."
10
<PAGE>
Representations, Warranties and Covenants
Pursuant to the Merger Agreement, Lazer-Tron and Acclaim each have made
certain representations, warranties and covenants customary in transactions of
this type. See "The Merger -- Representations and Warranties" and
"--Covenants."
Conditions to the Merger
The obligations of each of Acclaim and Lazer-Tron to consummate the Merger
are subject to certain conditions customary in transactions of this type,
including, among others, (i) the approval of the Merger Agreement by the
Lazer-Tron Shareholders; (ii) obtaining all required consents; and (iii) the
receipt of certain opinions of counsel and accountants' letters. See "The
Merger -- Conditions to the Merger."
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time by mutual consent of
Acclaim and Lazer-Tron or by either party if, among other conditions, (i) the
Acclaim Common Stock Price is less than $12.50; (ii) the Merger is not
consummated by July 31, 1995 (or, in certain circumstances, either August 15,
1995 or August 31, 1995); (iii) the Lazer-Tron Shareholders do not approve the
Merger; (iv) in certain circumstances, Lazer-Tron's Board of Directors accepts,
approves or recommends to the Lazer-Tron Shareholders an Acquisition Transaction
(hereinafter defined) or amends, withholds or withdraws its recommendation of
the Merger to the Lazer-Tron Shareholders; or (v) the conditions to such party's
obligations become impossible to satisfy or are not satisfied, other than as a
result of its own acts or omissions in violation of the Merger Agreement. The
Merger Agreement may also be terminated at any time by Acclaim if there has been
a material breach by Lazer-Tron of the Merger Agreement. The Merger Agreement
may also be terminated at any time by Lazer-Tron if there has been a material
breach by Acclaim of the Merger Agreement. See "The Merger -- Termination of
the Merger Agreement."
Amendment of the Merger Agreement
The Merger Agreement may be amended by Lazer-Tron or Acclaim at any time
before or after approval of the Merger Agreement by the Lazer-Tron Shareholders,
but, after any such approval, no amendment may be made which by law requires
further approval by such shareholders without obtaining such approval. See "The
Merger -- Amendment of the Merger Agreement."
No Solicitation
Lazer-Tron has agreed to cease any existing discussions with any third
parties conducted prior to the date of the Merger Agreement with respect to any
Acquisition Transaction. Lazer-Tron, subject to certain exceptions, has agreed
not to solicit, initiate or encourage any persons concerning any Acquisition
Transaction. In the event Lazer-Tron receives a proposal relating to an
Acquisition Transaction, Lazer-Tron's Board of Directors is not prevented,
pursuant to its fiduciary duties, from approving such proposal or recommending
such Acquisition Transaction to Lazer-Tron Shareholders and, in such case,
Lazer-Tron's Board of Directors may amend, withhold or withdraw its
recommendation of the Merger, which actions may result in the payment to Acclaim
of the Break-up Fee described herein and the exercisability of the stock option
granted to Acclaim as described below. See "The Merger -- No Solicitation."
Break-up Fee
In the event that (i) Lazer-Tron or Lazer-Tron's Board of Directors
exercises its rights described under "The Merger No Solicitation" in connection
with an Acquisition Transaction and (ii) as a result, the Merger is not
11
<PAGE>
consummated or the Merger Agreement is terminated, then Lazer-Tron must pay to
Acclaim: (x) $200,000 and (y) if such Acquisition Transaction is consummated
within one year, a sum equal to 5% of the value (less the $200,000 payment) of
the aggregate consideration actually received in connection with such
Acquisition Transaction. See "The Merger -- Break-up Fee."
Stock Option Agreement
Pursuant to the terms of the Merger Agreement, Lazer-Tron has granted to
Acclaim an option to purchase up to 250,000 shares of Lazer-Tron Common Stock at
an exercise price of $8.00 per share, which option may only be exercised in the
event, and only during the two year period following the occurrence of such
event, and the Merger is not consummated, in certain circumstances, (i) of a
suit or proceeding to enjoin, prevent, restrain, set aside or invalidate the
Merger Agreement or the Merger or seeking damages from or to impose obligations
upon Lazer-Tron or Acclaim or (ii) Lazer-Tron's Board of Directors considers,
responds to or provides information regarding Lazer-Tron in connection with, or
is approached by a third party with respect to, an Acquisition Transaction. See
"The Merger -- Stock Option Agreement."
Business of the Companies
Acclaim
Acclaim, together with its subsidiaries (Acclaim and its subsidiaries are
collectively referred to herein as the "Company"), is an entertainment publisher
which engages in or plans to engage in (i) the publication of interactive
entertainment software ("Software") for use with interactive entertainment
hardware platforms; (ii) the development and publication of comic books, which
commenced in July 1994 through the acquisition of Acclaim Comics, Inc., formerly
Voyager Communications Inc.; (iii) the marketing of its motion capture
technology and studio services, which commenced in the first quarter of fiscal
1995; (iv) the distribution of coin-operated arcade games, which is anticipated
to commence in fiscal 1996 (and, with respect to redemption games, will commence
upon the consummation of the Merger); (v) the distribution of Software for
affiliated labels, which commenced in the first quarter of fiscal 1995; and (vi)
the electronic distribution of interactive entertainment through the partnership
established in October 1994 between a subsidiary of Acclaim and a subsidiary of
Tele-Communications, Inc. To date, the Company's principal business has been as
a leading publisher of Software for dedicated interactive entertainment hardware
platforms ("Entertainment Platforms"). The Company is currently engaged in two
industry segments: the development and publication of Software and the
development and publication of comic books.
A Delaware corporation, the Company was founded in 1987 and has overseas
operations in Japan, Canada, France, Germany, Spain and the United Kingdom. The
Company's executive offices are located at One Acclaim Plaza, Glen Cove, New
York 11542-2708 and its telephone number is (516) 656-5000.
For additional information regarding Acclaim and the interactive
entertainment industry, see "Information Concerning Acclaim."
Lazer-Tron
Lazer-Tron designs, develops, manufactures and markets coin- and
token-operated redemption games for use by family entertainment centers and
other entertainment venues, including shopping malls, free standing arcades and
amusement and theme parks. Redemption games award a player tickets based on the
player's skill level in playing the game. The tickets may be redeemed for
prizes or merchandise. Lazer-Tron currently offers 19 ticket and 2 non-ticket
redemption coin- or token-operated games. See "Business of Lazer-Tron."
12
<PAGE>
Lazer-Tron is a California corporation, incorporated in 1988. The term
"Lazer-Tron" refers to Lazer-Tron Corporation and its subsidiary, Lazer-Tron
Limited. Lazer-Tron's executive offices are located at 4430 Willow Road,
Pleasanton, California 94588 and its telephone number is (510) 460-0873.
Market Prices Of Acclaim Common Stock And Lazer-Tron Common Stock
On March 6, 1995, the last trading date prior to the date a letter of intent
relating to the proposed Merger was publicly announced, the closing price per
share of Acclaim Common Stock and Lazer-Tron Common Stock, as reported by The
Nasdaq National Market, was approximately $15.13 and $7.88, respectively. See
"Market For Acclaim and Lazer-Tron Common Equity and Related Shareholder
Matters."
13
<PAGE>
Comparative Per Share Data
The following table sets forth for the periods indicated book value and
earnings per share on a historical basis for the Acclaim Common Stock and the
Lazer-Tron Common Stock. Neither Acclaim nor Lazer-Tron has paid any cash
dividends since inception.
<TABLE>
<CAPTION>
Six Months Fiscal Year Ended August 31,
Ended ----------------------------
Acclaim February 28, 1995 1994 1993 1992
- ------- ----------------- ----- ----- -----
<S> <C> <C> <C> <C>
Before Merger:
Net income per share....... $ .62 $1.00 $ .63 $ .37
Book value per share....... 6.22 3.89 2.16 1.71
<CAPTION>
Six Months Fiscal Year Ended June 30,
Ended ---------------------------
Lazer-Tron March 31, 1995 1994 1993 1992
- ---------- -------------- ----- ----- -----
<S> <C> <C> <C> <C>
Before Merger:
Net income per share....... $ .02 $ .59 $ .25 $ .05
Book value per share....... 3.12 3.82 .94 .08
<CAPTION>
Six Months Fiscal Year Ended August 31,
Ended ----------------------------
February 28, 1995 1994 1993 1992
----------------- ----- ----- -----
<S> <C> <C> <C> <C>
Pro Forma Combined
After Merger:
Equivalent net income per
share.................... $ .59 $ .99 $ .62 $ .35
Equivalent book value per
share.................... 6.15 3.97 2.13 1.64
</TABLE>
- ------------
(1) Pro forma amounts are calculated based on the assumption that the Merger
Consideration will be paid in shares of Acclaim Common Stock for all
outstanding shares of Lazer-Tron Common Stock and reflect the dilutive
effect of outstanding Lazer-Tron Options and Lazer-Tron Warrants, which
would result in the issuance of approximately 2,583,000 equivalent shares
of Acclaim Common Stock.
14
<PAGE>
ACCLAIM SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share information)
The following tables should be read in conjunction with the financial
statements of Acclaim and the notes thereto appearing in Acclaim's Form 10-K for
the fiscal year ended August 31, 1994 and the related "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing therein
and the financial statements of Acclaim appearing in Acclaim's Form 10-Q for the
fiscal quarter ended February 28, 1995 and the related "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
therein. The selected financial data has been derived from the financial
statements of Acclaim, which (other than as of and for the six months ended
February 28, 1994 and 1995) have been audited by Grant Thornton LLP for the
fiscal years ended August 31, 1991 through 1994 and by other auditors for the
fiscal year ended August 31, 1990. The results of operations for the six months
ended February 28, 1995 are not necessarily indicative of the results of
operations for the full fiscal year.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended August 31, February 28,
------------------------------------------------ ------------------
1990(1) 1991 1992(2) 1993 1994(3) 1994 1995(4)
------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues....................... $141,470 $122,136 $214,628 $327,091 $480,756 $242,891 $318,377
Cost of revenues................... 75,377 76,423 114,114 170,748 220,744 107,285 146,592
Gross profit....................... 66,093 45,713 100,514 156,343 260,012 135,606 171,785
Selling, advertising, general
and administrative expenses....... 40,493 46,989 68,642 104,986 176,725 93,631 116,665
Operating interest................. 2,550 3,628 1,583 1,183 1,979 1,072 1,912
Depreciation and amortization...... 763 2,394 3,197 3,227 3,838 1,681 3,572
Earnings (loss) from operations.... 22,287 (7,298) 27,092 46,947 77,470 39,222 49,636
Other income (expense), net........ 830 (444) (3,255) 1,138 (475) (33) 289
Earnings (loss) before income taxes 23,117 (7,742) 23,837 48,085 76,995 39,189 49,925
Net earnings (loss)................ 14,232 (5,839) 13,846 28,185 45,055 22,974 29,225
Net earnings (loss) per common
share and common equivalent share $0.51 $(0.21) $0.37 $0.63 $1.00 $0.51 $0.62
</TABLE>
____________
(1) Includes results of operations of LJN Toys Ltd. from April 20, 1990.
(2) Includes results of operations of Arena Entertainment Inc. from January 4,
1992.
(3) Includes results of operations of Acclaim Comics, Inc. from July 29, 1994.
(4) Includes results of operations of Iguana Entertainment, Inc. from
January 5, 1995.
<TABLE>
<CAPTION>
At August 31, At February 28,
----------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................... $ 30,211 $ 16,654 $ 51,402 $ 80,564 $131,820 $112,488 $181,232
Total assets....................... 76,063 75,608 129,179 206,771 335,878 209,317 426,055
Current portion of long-term debt.. 87 4,087 87 87 1,538 87 40,196
Long-term liabilities.............. 5,850 3,030 3,380 2,538 41,754 2,610 1,710
Stockholders' equity............... 39,299 32,667 64,706 96,867 175,243 129,192 295,050
</TABLE>
15
<PAGE>
LAZER-TRON SELECTED FINANCIAL DATA
(In thousands, except per share information)
The selected financial data set forth below, with respect to Lazer-Tron's
statements of income for the years ended June 30, 1992, 1993 and 1994 and with
respect to Lazer-Tron's balance sheets at June 30, 1993 and 1994, is derived
from financial statements of Lazer-Tron that have been audited by Ernst & Young
LLP, independent auditors. The selected financial data, with respect to
Lazer-Tron's statements of income for the nine months ended March 31, 1994 and
1995, and with respect to Lazer-Tron's balance sheet at March 31, 1995, is
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting only of normal recurring accruals, that
Lazer-Tron considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the nine
months ended March 31, 1995 are not necessarily indicative of the results that
may be expected for the entire year ending June 30, 1995. The data should be
read in conjunction with the financial statements of Lazer-Tron, related notes
and other information included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months
June 30, Ended March 31,
----------------------- ---------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................... $2,922 $7,215 $15,377 $10,288 $9,900
Cost of sales....................... 2,189 5,099 10,208 6,917 6,631
------ ------ ------- ------- ------
Gross profit....................... 733 2,116 5,169 3,371 3,269
Operating expenses:
Research and development........... 88 181 452 330 1,005
Selling, general and
administrative.................... 444 982 1,947 1,297 1,582
------ ------ ------- ------- ------
Total operating expenses.......... 532 1,163 2,399 1,627 2,587
------ ------ ------- ------- ------
Operating income.................... 201 953 2,770 1,744 682
Merger costs........................ -- -- -- -- (249)
Interest income (expense), net...... (40) (33) 51 15 288
------ ------ ------- ------- ------
Income before income taxes.......... 161 920 2,821 1,759 721
Provision for income taxes.......... 22 252 1,128 705 320
------ ------ ------- ------- ------
Net income........................... $ 139 $ 668 $ 1,693 $ 1,054 $ 401
------ ------ ------- ------- ------
------ ------ ------- ------- ------
Net income per share(1) $ 0.05 $ 0.25 $ 0.59 $ 0.38 $ 0.10
------ ------ ------- ------- ------
------ ------ ------- ------- ------
Number of shares used in computing
per share amounts(1)................ 2,648 2,670 2,888 2,785 4,036
------ ------ ------- ------- ------
------ ------ ------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
At June 30, At March 31,
----------------- ------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments.............. $1,822 $ 7,255 $ 7,893
Working capital...................... 2,341 10,727 12,112
Total assets......................... 3,941 13,291 13,844
Long-term debt....................... -- -- --
Total shareholders' equity........... 2,516 11,033 12,580
</TABLE>
- ------------
(1) For a description of the computation of the net income per share and the
number of shares used in computing per share amounts, see Note 1 of Notes
to Financial Statements.
16
<PAGE>
RISK FACTORS
Investors in Lazer-Tron or Acclaim should carefully consider the following
factors, among others, relating to Lazer-Tron and its business.
Investment in Acclaim. In the event that the Merger is consummated, each
Lazer-Tron Shareholder who becomes a stockholder of Acclaim will be exposed to
different investment considerations by reason of that shareholder's ownership of
Acclaim Common Stock rather than Lazer-Tron Common Stock. Lazer-Tron designs,
develops, manufacturers and markets coin- and token-operated redemption games
for use by entertainment venues, whereas Acclaim's principal business has been
as a leading publisher of software for dedicated interactive entertainment
hardware platforms. Acclaim anticipates that the interactive entertainment
industry will undergo significant changes in both the short- and long-term
future due, in large part, to the introduction of the next generation of
Entertainment Platforms incorporating 32- and 64-bit processors, as well as the
success of personal computer/compact disk/multimedia hardware systems ("PC CD
Systems"), the development of remote and electronic delivery systems and the
entry and participation of new companies in the industry. Accordingly, each
Lazer-Tron Shareholder should consider these different businesses in considering
whether to vote for the Merger Agreement and the Merger at the Special Meeting.
See "Business of Lazer-Tron" and "Information Concerning Acclaim."
Rights as Holders of Acclaim Common Stock. Upon consummation of the Merger,
the former shareholders of Lazer-Tron, which is a corporation organized under
the CGCL, will become stockholders of Acclaim, a corporation organized under the
DGCL. After the Effective Time, the rights of the Lazer-Tron Shareholders who
become stockholders of Acclaim will no longer be governed by Lazer-Tron's
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
and the CGCL, but instead will be governed by Acclaim's Certificate of
Incorporation and Bylaws and the DGCL. See "Comparison of Rights of Holders of
Acclaim Common Stock and Holders of Capital Stock of Lazer-Tron" for a summary
comparison of certain differences between the rights of Lazer-Tron Shareholders
and the rights of Acclaim stockholders.
Dilution of Voting Power. Each former shareholder of Lazer-Tron will own a
significantly smaller percentage of the outstanding shares of Acclaim Common
Stock immediately following the Effective Time than the percentage of the
outstanding shares of Lazer-Tron Common Stock which that shareholder owned
immediately prior to the Effective Time. Consequently, the Merger will cause an
immediate dilution of each such Lazer-Tron Shareholder's voting power relative
to the outstanding shares of Acclaim. Lazer-Tron Shareholders will own in the
aggregate approximately 4.9% of the total outstanding Acclaim Common Stock
immediately following consummation of the Merger.
Recent Market Developments. Lazer-Tron's net sales and net income for its
last two quarters ended December 31, 1994 and March 31, 1995 are below
Lazer-Tron's net sales and net income levels for the comparable quarters in the
immediately previous year, due in part to a general softness in demand for new
game sales to arcade/family entertainment centers. According to industry trade
magazines, owner-operators of family entertainment centers and other
entertainment venues ("Operators") are experiencing a decline in revenue, due in
part to the absence of a recent "hit" video game which helps draw customers to
the arcade. In addition, during recent periods, the redemption game segment of
the coin-operated game market has experienced slower expansion of the number of
new family entertainment center and arcade locations, an increasing
consolidation of business at the Operator and distributor levels, as well as
increased competition among existing and new game manufacturers. Large
companies such as Sega, Namco, Sony, Blockbuster and Cineplex Odeon movie
theaters have announced plans to enter, or expand their presence within, the
location-based entertainment business. Certain of these companies offer their
own games which may create greater competition among game suppliers, as well as
affect the ability of small Operators to compete. In addition, the historical
growth in the redemption game market has attracted new competitors to the
market. Although these competitors were initially small closely held companies,
recently large game manufacturers such as Time Warner Interactive (which
includes Atari), Sega, Data East, Konami, Sammy, Electronic Arts and Mattel have
entered or announced their intention to enter, or to expand their presence
within, the coin-operated redemption game market. While Lazer-Tron believes
these recent market developments could adversely affect its business, Management
believes that the
17
<PAGE>
Merger, and the advantages of being allied with Acclaim, may assist Lazer-Tron
in meeting the challenges of these competitors. See "Business of Lazer-Tron
Competition", "the Merger-Lazer-Tron's Reasons for the Merger" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Lazer-Tron."
Dependence on New Products. Historically, Lazer-Tron has derived most of
its revenue from an arcade game within the first few years of its introduction.
Accordingly, to maintain or increase its net sales, Lazer-Tron must successfully
develop and market new products at an increasingly rapid pace to replace
declining revenues from older games. For fiscal 1993, sales of Spin-to-Win,
initially shipped in August 1992, accounted for approximately 60% of
Lazer-Tron's net sales; in fiscal 1994, sales of the Spin-to-Win series
(includes Spin-to-Win, Jungle Rama and Spin A 21) and two games initially
shipped in 1994, Ribbit Racin and Aftershock, accounted for approximately 70% of
Lazer-Tron's total net sales; and for the first nine months of fiscal 1995,
sales of the Spin-to-Win series, Aftershock, Ribbit Racin and three games
initially shipped in fiscal 1994, Pirate's Gold and Pogger (single and four
player), accounted for approximately 70% of Lazer-Tron's total net sales.
Creation of a successful game is subject to a number of variables which are
difficult to predict. For a new game to be successful, it should involve a
novel concept, incorporate newer technologies, incline the consumer to play the
game multiple times and should be easy for a variety of age groups to play, yet
be difficult to master. Consumer preferences and acceptance of games is highly
subjective and can depend in part upon current trends in the entertainment
marketplace, the availability of alternative games and other sources of
entertainment. If Lazer-Tron is not successful in introducing new products
which gain market acceptance, Lazer-Tron's business and operating results would
be adversely affected. See "Business of Lazer-Tron -- Products," "--Product
Development" and "--Customers and Backlog."
Technological Change; Increasing Cost and Complexity of Product Development;
Product Delays. Lazer-Tron believes that a key factor in its ability to
successfully introduce new games in the future will be its ability to continue
to incorporate newer technologies into its games. The length of time required
to develop Lazer-Tron's games has typically ranged from eight to twelve months.
However, as new games become increasingly complex and sophisticated, longer and
more costly development cycles may be expected. Increased product development
expenditures may result in greater financial risks to Lazer-Tron and impact
quarterly operating results if the games are not successful or are introduced to
the market on a delayed basis. In the past, Lazer-Tron has experienced delays
in the introduction of new games and these delays may occur in the future. If
new games are not introduced when planned, Lazer-Tron's business and operating
results could be adversely affected. See "Business of Lazer-Tron -- Product
Development" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Lazer-Tron."
Potential Quarterly Fluctuations. Lazer-Tron's operating results are
subject to quarterly fluctuations due to a variety of factors, including
seasonal customer demand, timing of new product introductions, competitive
pressures and general economic conditions. Family entertainment centers and
other entertainment venues experience seasonal fluctuations in customer
patronage and revenues, with revenues typically the highest when schools are not
in session and during periods of peak shopping mall activity. Accordingly,
industry-wide sales of games to the arcade marketplace have historically been
subject to seasonal fluctuations, with significant concentrations of orders and
shipments occurring prior to summer (fourth fiscal quarter) and, to a lesser
extent, prior to Christmas (second fiscal quarter). These seasonal factors have
adversely impacted Lazer-Tron's first and third fiscal quarter operating
results, and Lazer-Tron expects these factors to continue to have this impact.
In addition, Lazer-Tron has significantly increased its investment in research
and development, and if such efforts do not result in increased revenues,
operating results will be further adversely affected. Lazer-Tron's expenses are
based, in part, on anticipated future revenue. A significant portion of
Lazer-Tron's marketing, administrative and development expenses does not vary in
relation to revenues. Accordingly, if revenues fluctuate or are below
expectations, Lazer-Tron's business and operating results would be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Lazer-Tron."
Competition. Lazer-Tron's current games compete with other redemption
games, as well as with video, sports and other electronic games, for acceptance
and floor space at family entertainment centers and other entertainment venues.
Demand for Lazer-Tron's products may be adversely affected by the increasing
number
18
<PAGE>
of competitive games available to Operators. Competition has also
increased in the redemption game market in recent periods, as existing
competitors and new competitors have entered the redemption game market.
Lazer-Tron's games also compete with arcade video games which typically offer
graphics, animation and other features different than those incorporated in
Lazer-Tron's products. Further, competitors may seek to develop games which
resemble or emulate Lazer-Tron's games, which could adversely impact sales.
Lazer-Tron's competitors include both domestic and foreign companies, some of
which have substantially greater financial, technical and marketing resources
than those of Lazer-Tron. See "Business of Lazer-Tron -- Competition."
Competing Entertainment Alternatives. Lazer-Tron's games, and the family
entertainment centers and other entertainment venues which purchase its games,
compete with other forms of entertainment, both within and outside of the home.
The out-of-the-home entertainment industry is experiencing significant change
due to technological developments, the demand for family entertainment and
shifting consumer preferences. Numerous out-of-the-home entertainment
alternatives are being developed, and additional offerings are expected to be
created in response to these developments that are or may be directly
competitive with Lazer-Tron's games and the redemption industry generally.
There can be no assurance that Lazer-Tron's games or the redemption game
industry will continue to compete effectively, or that new developments in
out-of-the-home entertainment will not result in changes in consumer preferences
that will make Lazer-Tron's games less attractive to consumers.
Similarly, alternative forms of in-the-home entertainment are greatly
expanding and are expected to change significantly with the advent of such
offerings as interactive television and use of multi-media entertainment on
computers. New product offerings for in-the-home use can affect where consumers
elect to spend their entertainment time and money. To the extent consumers
elect in-the-home entertainment over out-of-the-home entertainment, Lazer-Tron's
market opportunities and its operating results could be adversely affected.
Risks of Entry to Arcade Video Game Market. Lazer-Tron is seeking to d
evelop redemption video games and, possibly, other types of arcade video games,
which strategy involves significant risks. Lazer-Tron has not previously
developed video game products, which involve complex and technologically
sophisticated development of high-quality video graphics and sound. In order to
develop video games, Lazer-Tron has hired additional engineers, including those
with video game experience. The time, potential delays and cost to develop
these games are expected to be similar to or greater than for Lazer-Tron's prior
products. If Lazer-Tron elects to address the arcade video game market,
Lazer-Tron will face significant new challenges, including intense competition
from large companies with established market positions in the video games
marketplace. In addition, the market for arcade video games is undergoing rapid
technological changes, with new platforms, standards and technologies being
introduced which could impact any products Lazer-Tron might develop. There can
be no assurance that Lazer-Tron will be able successfully to develop video games
for the redemption market or the general arcade video game market. See
"Business of Lazer-Tron -- Product Development" and "-- Competition."
Dependence upon Distributors. Substantially allof Lazer-Tron's net sales
are derived from sales to approximately 30 domestic distributors, 19 foreign
distributors and several major family entertainment center and arcade
Operators. In fiscal 1993, Nickels and Dimes, Incorporated, the Operator of the
"Tilt" and "Gold Rush" chains of family entertainment centers, accounted for
approximately 11% of net sales; for fiscal 1994 and the first nine months of
fiscal 1995, no single customer accounted for more than 10% of net sales. Loss
of any of Lazer-Tron's major distributors or major Operators, or a significant
decrease in product shipments to, or an inability to collect amounts due from,
any of these customers, could have an adverse effect on Lazer-Tron's business
and operating results. In addition, Lazer-Tron believes the distribution
business for the coin-operated game industry is undergoing a consolidation
resulting in fewer distributors, which may have the effect of decreasing demand
for new games and increasing pricing pressure on game manufacturers. See
"Business of Lazer-Tron -- Marketing and Distribution" and "--Customers and
Backlog."
Dependence on Key Personnel. Lazer-Tron's ability tocreate, develop and
market its games, and to manage its growth, has been highly dependent upon three
of its executives -- Norman B. Petermeier, President and Chief Executive
Officer; Matthew F. Kelly, Vice President of Marketing; and Bryan M. Kelly,
Vice President
19
<PAGE>
of Engineering. Lazer-Tron's success also depends on its ability to
attract and retain additional key technical, management and other personnel.
The game industry is characterized by a high level of employee mobility and
aggressive recruiting of skilled personnel, in particular, engineers. There can
be no assurance that Lazer-Tron will be successful in attracting and retaining
key personnel. The loss of the services of any of its key executives or the
failure to attract and retain other key personnel could have an adverse effect
on Lazer-Tron's business. See "Business of Lazer-Tron -- Employees".
Management of Business. Lazer-Tron's recent status as a public company,
expansion of its research and development and sales efforts and recent rapid
growth in the number of its employees has placed substantial burdens on its
management resources and controls. Lazer-Tron's ability to manage its business
effectively will require it to continue to implement and improve its
operational, financial and management information systems and controls, and to
train, motivate and manage its employees. Lazer-Tron's failure to manage its
business effectively could have an adverse effect on Lazer-Tron's business and
operating results.
Governmental Regulation. The games produced by Lazer-Tron are intended to
be games of skill or predominantly of skill. To the extent that Lazer-Tron's
games are deemed to be games of chance or not predominantly of skill under
federal or California law or the law of any other jurisdiction in which the
games are located, they would be regulated by gambling or similar laws of that
jurisdiction and could be banned. In addition, local municipalities and
governments often regulate the types of games that can be played and the
location of arcades in their jurisdiction. Where appropriate, Lazer-Tron seeks
a legal opinion to the effect that a game is a game of skill. On occasion local
authorities have prohibited the installation of certain of Lazer-Tron's games.
Lazer-Tron believes that these occurrences have not materially adversely
affected the business of Lazer-Tron; however, there can be no assurance that
similar events in the future would not have an adverse effect on Lazer-Tron's
business or operating results.
International Sales. In fiscal 1993, 1994, and the first nine months of
fiscal 1995, international sales, principally to distributors in the Far East,
accounted for approximately 24%, 21% and 31% respectively, of Lazer-Tron's net
sales. Lazer-Tron anticipates that international sales may continue to account
for a significant portion of Lazer-Tron's net sales. Lazer-Tron's international
business is subject to special risks, including fluctuating exchange rates,
changes in export controls, tariffs and other regulatory requirements, in
addition to currency controls and political and economic risks. International
sales are denominated in United States dollars and most are backed by letters of
credit, which reduces the risks attendant with such sales. See "Business of
Lazer-Tron -- Customers and Backlog."
Patent and Proprietary Rights. While Lazer-Tron has actively sought patent
protection in the United States on its games where available, it has not to date
obtained patent protection outside of the United States, nor can there be any
assurances that any existing or future patent will provide meaningful protection
from competition. Lazer-Tron may be unable, for financial or other reasons, to
enforce its rights under any patent that it has obtained or may obtain in the
future. In the past, Lazer-Tron has settled a claim that one of its games
violated patents of another party, resulting in the payment of royalties. In
addition, a complaint has recently been filed against Lazer-Tron alleging
trademark infringement. There can be no assurance that in the future
Lazer-Tron's products will not be claimed to violate or infringe patents,
tradenames or marks or other proprietary rights of others which will require
Lazer-Tron to enter into royalty arrangements or result in costly litigation
which might be resolved adversely to Lazer-Tron. See "Business of Lazer-Tron
- -- Patents, Proprietary Rights and Licenses" and "--Legal Proceedings."
Risk of Product Liability; Availability of Insurance. The design,
development and manufacture of Lazer-Tron's games involve an inherent risk of
product liability claims and associated adverse publicity. Although Lazer-Tron
currently maintains product liability insurance in the amount of $1,000,000,
there can be no assurance that the coverage limits of Lazer-Tron's insurance
policy will be adequate. There also can be no assurance that Lazer-Tron will be
able to maintain product liability insurance on acceptable terms or with
adequate coverage against potential liabilities. A successful claim brought
against Lazer-Tron in excess of Lazer-Tron's insurance coverage could have an
adverse effect upon Lazer-Tron's business and its financial condition.
20
<PAGE>
Volatility of Stock Price. The public trading market for Lazer-Tron Common
Stock was first established after Lazer-Tron's initial public offering in May
1994. Between the date of Lazer-Tron's initial public offering and April 15,
1995, the market price of Lazer-Tron Common Stock has traded at a high of $15.75
per share and a low of $7.00 per share. See "Market For Acclaim and Lazer-Tron
Common Equity and Related Shareholder Matters." Future announcements concerning
Lazer-Tron or its competitors, including quarterly results, technological
innovations, new product introductions, governmental regulation, litigation or
changes in earnings estimates published by analysts, may cause the market price
of Lazer-Tron Common Stock to fluctuate substantially. The stock market has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market price for many emerging growth companies and
which often have been unrelated to the operating performance or prospects of
these companies. These fluctuations, as well as general economic, political and
market conditions, such as recessions or international currency fluctuations,
may adversely affect the market price of Lazer-Tron's Common Stock. There can
be no assurance that the market price of Lazer-Tron Common Stock will not
decline below its present market price. In addition, the trading volume of
Lazer-Tron's Common Stock has been relatively low (averaging approximately
16,000 shares per day for the three months ended February 28, 1995).
Accordingly, relatively modest volumes of sales or purchases of Lazer-Tron
Common Stock have, and in the future could cause, fluctuations in Lazer-Tron's
stock price, affecting the ability of shareholders to effectively buy or sell
Lazer-Tron's Common Stock.
Shares Issuable Pursuant to Options and Warrants. As of March 31, 1995,
Lazer-Tron has outstanding warrants to purchase 581,233 shares of Lazer-Tron
Common Stock at a weighted average exercise price of approximately $4.99 per
share. See "Description of Lazer-Tron Capital Stock -- Lazer-Tron Warrants."
In addition, as of March 31, 1995, there are outstanding options to purchase up
to 438,425 shares of Lazer-Tron Common Stock at a weighted average exercise
price of approximately $4.95 per share under the Lazer-Tron Stock Option Plans.
As long as these warrants and options are outstanding, the holders thereof are
given the opportunity to profit from a rise in the market price of Lazer-Tron
Common Stock without assuming the risks of ownership. Exercise of these options
and warrants might dilute the net book value per share of Lazer-Tron Common
Stock. The existence of the warrants and options may also adversely affect the
terms on which Lazer-Tron can obtain additional equity financing. Moreover, the
holders are likely to exercise their warrants and options at times when
Lazer-Tron would otherwise be able to obtain capital on terms more favorable
than could be obtained through the exercise of the warrants and options.
Control by Officers and Directors. Officers and directors of Lazer-Tron, as
a group, beneficially owned as of March 31, 1995 approximately 26.7% of the
outstanding Lazer-Tron Common Stock, giving effect to the exercise of all
outstanding options held by these persons which are exercisable within sixty
days of March 31, 1995. In addition, as of March 31, 1995, the parents of
Matthew F. and Bryan M. Kelly beneficially held approximately 6.0% of the
outstanding Lazer-Tron Common Stock. As a result, the current officers and
directors and affiliated shareholders of Lazer-Tron have significant influence
over the affairs of Lazer-Tron requiring shareholder approval. See "The
Security Ownership of Certain Beneficial Owners and Management of Lazer-Tron."
21
<PAGE>
THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
The Special Meeting will be held on June 30, 1995 at 9:00 a.m., local time,
at the Sheraton Inn located at 5115 Hopyard Road, Pleasanton, California.
Record Date and Outstanding Shares
Only holders of record of Lazer-Tron Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Special
Meeting. As of the close of business on the Record Date, there were
_________________ shares of Lazer-Tron Common Stock outstanding and entitled to
vote, held of record by approximately ____ shareholders (although Lazer-Tron has
been informed that there are in excess of __________ beneficial owners). A
majority of these shares, present in person or represented by proxy, will
constitute a quorum for the transaction of business. Proxies marked to abstain
from voting on a proposal and broker non-votes will be included in determining
the presence of a quorum. Each Lazer-Tron shareholder is entitled to one vote
for each share of Lazer-Tron Common Stock held as of the Record Date.
Voting of Proxies
The Lazer-Tron proxy accompanying this Prospectus/Proxy Statement is
solicited on behalf of the Board of Directors of Lazer-Tron for use at the
Special Meeting. Lazer-Tron Shareholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail or deliver it to Lazer-Tron. All proxies that are properly
executed and returned, and that are not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the Merger Agreements and the Merger.
Lazer-Tron's Board of Directors does not presently intend to bring any business
before the Special Meeting other than the proposal referred to in this
Prospectus/Proxy Statement and specified in the notice of the Special Meeting.
So far as is known to Lazer-Tron's Board of Directors, no other matters are to
be brought before the Special Meeting. As to any business that may properly
come before the Special Meeting, however, it is intended that proxies, in the
form enclosed, will be voted in respect thereof in accordance with the judgment
of the persons voting such proxies. A Lazer-Tron Shareholder who has given a
proxy may revoke it at any time before it is exercised at the Special Meeting,
by (i) delivering to the Secretary of Lazer-Tron (by any means, including
facsimile) a written notice, bearing a date later than the proxy, stating that
the proxy is revoked, (ii) signing and so delivering prior to the vote at the
Special Meeting a proxy relating to the same shares and bearing a later date or
(iii) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not, by itself, revoke a proxy).
Vote Required and Voting Intentions of Certain Shareholders
Approval by Lazer-Tron Shareholders of the Merger Agreement and the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of Lazer-Tron Common Stock entitled to vote. Proxies marked to abstain
from voting and broker non-votes will have the same effect as votes against
approval of the Merger Agreements and the Merger. Certain executive officers,
directors, affiliates and shareholders of Lazer-Tron, who on the Record Date
together beneficially owned (exclusive of options and warrants) a total of
1,007,047 outstanding shares of Lazer-Tron Common Stock (constituting
approximately 28.3% of the Lazer-Tron Common Stock then outstanding), have
agreed to vote for approval and adoption of the Merger Agreements and the Merger
and the transactions contemplated thereby.
Solicitation of Proxies and Expenses
Lazer-Tron and Acclaim will equally share all expenses incurred in
connection with the printing and mailing of this Prospectus/Proxy Statement, and
Lazer-Tron will bear all other costs to solicit proxies in the
22
<PAGE>
enclosed form from its shareholders. In addition to solicitation by mail, the
directors, officers and employees of Lazer-Tron may solicit proxies from
shareholders by telephone, facsimile, telegram, letter or in person. Following
the original mailing of the proxies and other soliciting materials, Lazer-Tron
will request brokers, custodians, nominees and other record holders to forward
copies of the proxy and other soliciting materials to persons for whom they hold
shares of Lazer-Tron Common Stock and to request authority for the exercise of
proxies. In such cases, Lazer-Tron, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
Appraisal and Dissenters' Rights
If the Merger Agreement is approved by the required vote of Lazer-Tron
shareholders and is not abandoned or terminated, each holder of Lazer-Tron
Common Stock who voted against the Merger may, by complying with Sections 1300
through 1312 of the California Law, be entitled to dissenters' rights as
described therein, provided that (i) such holder's shares of Lazer-Tron Common
Stock are subject to restriction on transfer imposed by Lazer-Tron or by law or
regulation or (ii) demands for payment pursuant to such dissenters' rights are
filed with respect to 5% or more of the outstanding shares of Lazer-Tron Common
Stock on or before the date of the Special Meeting. Acclaim's obligation to
consummate the Merger is conditioned on the fact that the holders of no more
than 10% of the outstanding shares of Lazer-Tron Common Stock are entitled to
exercise dissenters' rights. The record holders of the shares of Lazer-Tron
Common Stock which are eligible to, and do, exercise their dissenters' rights
with respect to the Merger are referred to herein as "Dissenting Shareholders,"
and the shares of stock with respect to which they may exercise dissenters'
rights are referred to herein as "Dissenting Shares." If a Lazer-Tron
shareholder has a beneficial interest in shares of Lazer-Tron Common Stock that
are held of record in the name of another person, such as a broker or nominee,
and such shareholder desires to perfect whatever dissenters' rights such
beneficial shareholder may have, such beneficial shareholder must act promptly
to cause the holder of record timely and properly to follow the steps summarized
below.
The following discussion is not a complete statement of the California Law
relating to dissenters' rights, and is qualified in its entirety by reference to
Sections 1300 through 1312 of the California Law attached to this
Prospectus/Proxy Statement as Exhibit B and incorporated herein by reference.
This discussion and Section 1300 through 1312 of the California Law should be
reviewed carefully by any shareholder who wishes to exercise statutory
dissenters' rights or wishes to preserve the right to do so, since failure to
comply with the required procedures will result in the loss of such rights.
Shares of Lazer-Tron Common Stock must satisfy each of the following r
equirements to qualify as Dissenting Shares under the California Law: (i) such
shares of Lazer-Tron Common Stock must have been outstanding on the record date
for the determination of the holders of Lazer-Tron Common Stock entitled to vote
on the Merger; (ii) such shares of Lazer-Tron Common Stock must have been voted
against the Merger; (iii) the holder of such shares of Lazer-Tron Common Stock
must make a written demand that Lazer-Tron repurchase shares of Lazer-Tron
Common Stock at fair market value and such demand must be received by either
Lazer-Tron or Lazer-Tron's transfer agent no later than the date of the Special
Meeting; and (iv) the holder of such shares of Lazer-Tron Common Stock must
submit certificates for endorsement (as described below). A vote by proxy or in
person against the Merger does not in and of itself constitute a demand for
appraisal under the California Law. In addition, in order for such shares of
Lazer-Tron Common Stock to qualify as Dissenting Shares, (i) demands for payment
must have been filed with respect to 5% or more of the outstanding shares of
Lazer-Tron Common Stock on or before the Special Meeting or (ii) such shares of
Lazer-Tron Common Stock must be subject to restriction on transfer imposed by
Lazer-Tron or by any law or regulation.
Pursuant to Sections 1300 through 1312 of the California Law, Dissenting
Shareholders may require Lazer-Tron to repurchase their Dissenting Shares at a
price equal to the fair market value of such shares determined as of the day
before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation in consequence of the Merger, but adjusted for any
stock split, reverse stock split or stock
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dividend which becomes effective thereafter. On March 6, 1995, the last full
day of trading prior to the public announcement of the letter of intent relating
to the Merger, the closing price per share of Lazer-Tron Common Stock was $7.88.
The demand of a Dissenting Shareholder must be made in writing upon
Lazer-Tron no later than the date of the Special Meeting and is required by law
to state the number and class of Dissenting Shares held of record by the
Dissenting Shareholder which the Dissenting Shareholder demands that Lazer-Tron
purchase, and to contain a statement of what the Dissenting Shareholder claims
to be the fair market value of the Dissenting Shares as of the day before the
first announcement of the Merger. The statement of fair market value in such
demand by the Dissenting Shareholder constitutes an offer by the Dissenting
Shareholder to sell the Dissenting Shares at such price.
If there are any Dissenting Shareholders, then within 10 days following
approval of the Merger by Lazer-Tron Shareholders, Lazer-Tron is required to
mail to each holder of Dissenting Shares a notice of the approval of the Merger,
a statement of the price determined by Lazer-Tron to represent the fair market
value of Dissenting Shares (which shall constitute an offer by Lazer-Tron to
purchase such Dissenting Shares at such stated price), and a description of the
procedures to be followed for such shareholders to exercise their rights as
Dissenting Shareholders.
Within 30 days after the date on which the notice of the approval of the
Merger by the outstanding shares was mailed to a Dissenting Shareholder, that
shareholder who wishes to be paid the full value of his or her Dissenting Shares
must submit to Lazer-Tron or its transfer agent certificates representing any
Dissenting Shares which the Dissenting Shareholder demands Lazer-Tron purchase,
so that such Dissenting Shares may either be stamped or endorsed with the
statement that the shares are Dissenting Shares or exchanged for certificates of
appropriate denomination so stamped or endorsed.
If, upon a Dissenting Shareholder's surrender of the certificates
representing that Dissenting Shareholder's Dissenting Shares, Lazer-Tron and the
Dissenting Shareholder agree that such shares are Dissenting Shares and agree
upon the price to be paid for such shares, then the agreed price is required by
law to be paid to the Dissenting Shareholder within the later of 30 days after
the date of such agreement or 30 days after any statutory or contractual
conditions to the consummation of the Merger are satisfied, unless provided
otherwise by agreement.
If Lazer-Tron and a Dissenting Shareholder disagree as to whether such
Dissenting Shareholder's proposed Dissenting Shares are entitled to be
classified as Dissenting Shares or as to the fair market value of such shares,
then such Dissenting Shareholder has the right to bring an action in California
Superior Court, within six months after the date on which the notice of the
approval of the Merger by Lazer-Tron Shareholders was mailed to the Dissenting
Shareholder, to resolve such dispute. In such action, the court will determine
whether the shares of Lazer-Tron Common Stock held by such Dissenting
Shareholder are Dissenting Shares, the fair market value of such shares, or
both. The California Law provides, among other things, that a Dissenting
Shareholder may not withdraw a demand for payment of the fair market value of
Dissenting Shares unless Lazer-Tron consents to such request for withdrawal.
Prior to the Effective Time, Lazer-Tron shall give Acclaim prompt notice of
any written demands for appraisal or withdrawals of demands for appraisal
received by Lazer-Tron and, except with the prior written consent of Acclaim,
shall not settle or offer to settle any such demands.
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THE MERGER
General
The Merger Agreement provides for a business combination between Acclaim and
Lazer-Tron in which Holdings, a recently formed wholly-owned subsidiary of
Acclaim would be merged with and into Lazer-Tron, with Lazer-Tron being the
surviving corporation. The holders of Lazer-Tron Common Stock would be issued
shares of Acclaim Common Stock in a transaction intended to qualify as a
pooling-of-interests for accounting purposes and as a tax-free reorganization
for federal income tax purposes. As a result of the Merger, Lazer-Tron would
become a wholly-owned subsidiary of Acclaim and the Lazer-Tron Shareholders
would become stockholders of Acclaim (as more fully described below). The
discussion in the Prospectus/Proxy Statement of the Merger and the description
of the Merger's principal terms are subject to and qualified in their entirety
by reference to the Merger Agreement, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A and which is incorporated herein by
reference.
Background of the Merger
Acclaim has attempted for some time to diversify and expand its operations.
Lazer-Tron was first contacted in September 1994 by an executive of Acclaim. At
that time, representatives of Acclaim conducted preliminary discussions with
Lazer-Tron regarding a possible transaction, and in early November 1994 Acclaim
proposed acquiring Lazer-Tron at a price of approximately $31.5 million (which
amount reflected Lazer-Tron's market capitalization in September 1994 when the
first discussions were had). Subsequently, the public trading price of
Lazer-Tron's common stock increased significantly and negotiations were
terminated. In February 1995, Acclaim again contacted Lazer-Tron to commence
negotiations and additional discussions and preliminary due diligence was
conducted in early March 1995. Negotiations were successful and, subject to
satisfactory completion of due diligence and legal review and preparation of
definitive documentation, on March 7, 1995 a letter of intent was executed;
additional negotiations were then conducted and on March 22, 1995 the Merger
Agreement was executed. The Merger Consideration was determined by Acclaim and
Lazer-Tron in arm's length negotiations. In negotiating the Merger
Consideration, Acclaim, among other things, reviewed Lazer-Tron's historical
financial statements, reviewed the potential for growth in Lazer-Tron's
business, the expansion of its business through licensing properties and the use
of advanced technologies in product development.
Acclaim's Reasons for the Merger
The Merger is being proposed in order to achieve the ownership by Acclaim of
Lazer-Tron. Acclaim has recently established coin-op operations and believes
that Lazer-Tron will broaden Acclaim's offerings in the coin-op segment and will
present Acclaim with further opportunities to expand its product offerings and
exploit new successful properties across its growing entertainment business.
Acclaim also believes that certain synergies exist between the two companies,
particularly in manufacturing and sales organization, credit and collection
procedures and marketing to a similar customer base.
Lazer-Tron's Reasons for the Merger
The Board of Directors of Lazer-Tron consideredthat Lazer-Tron, as a
subsidiary of a larger, more diversified company such as Acclaim, would have the
potential to realize improved operating and financial performance compared to
Lazer-Tron continuing to operate as an independent entity. The Board of
Directors of Lazer-Tron has identified certain benefits for Lazer-Tron
Shareholders and potential benefits that it believes will contribute to the
success of Lazer-Tron following the Merger. These potential benefits
principally include the following:
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o Providing Lazer-Tron Shareholders with Acclaim stock, where
Lazer-Tron's Board believes the Acclaim stock may provide Lazer-Tron
Shareholders with a greater possibility for long-term appreciation and liquidity
than could be realized from Lazer-Tron Common Stock if Lazer-Tron remains as a
stand-alone entity.
o The potential to increase the ability of Lazer-Tron to effectively
compete in the coin-operated game market, particularly as the market becomes
more competitive with new market entrants.
o The availability of greater resources from Acclaim for product
development, marketing and distribution.
o The potential ability to increase international revenues through
Acclaim's broad international distribution and marketing network.
o The potential ability of Lazer-Tron and Acclaim to offercomplementary
products and increase the breadth of products offered. Lazer-Tron games may be
able to be expanded into additional entertainment markets currently or proposed
to be addressed by Acclaim, such as video or interactive television.
o The ability of Acclaim and Lazer-Tron to share technology and increase
research and development capacity to improve each other's games and develop new
games.
o The opportunity to expand Lazer-Tron's customer base with the
credibility and established reputation of Acclaim.
In the course of its deliberations, the Board of Directors of Lazer-Tron
reviewed a number of additional factors relevant to the Merger. In particular,
the Lazer-Tron Board considered, among other things: (i) information concerning
Acclaim's and Lazer-Tron's respective businesses, prospects, financial
conditions, historical financial performance, operations and product mix,
including possible future product releases; (ii) comparisons of trading prices
and volumes of the two companies' stocks; (iii) an analysis of analyst coverage
of the two companies; (iv) an evaluation of the prospects of Lazer-Tron on a
stand-alone basis; (v) an analysis of various adjustments that would be made in
the Merger Consideration at various assumed prices of Acclaim Common Stock and
the effect of applying the Merger Consideration at the assumed prices; (vi) the
compatibility of the management and businesses of Acclaim and Lazer-Tron; (vii)
a financial presentation by Van Kasper, including the opinion of Van Kasper that
the Merger Consideration was fair from a financial point of view to the
shareholders of Lazer-Tron; and (viii) reports from management and legal
advisors on specific terms of the relevant agreements and other matters. For a
discussion of many of the foregoing factors, see "-- Opinion of Financial
Advisor" below.
The Board of Directors of Lazer-Tron also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, among
other things: (i) characteristics of the interactive entertainment industry in
which Acclaim is engaged, including the rapid technological change experienced
in the industry, and the changing of platforms in the industry from 16 bit
platforms to 32- and 64-bit platforms and the advent of other competing
technologies such as PC-CD ROM; (ii) that 16-bit software sales appeared to peak
in 1994 and the expectations of Acclaim, as well as industry analysts, that it
will continue to decline in calendar 1995; (iii) the dependence of Acclaim on 16
bit cartridge platforms and the ongoing and expected transitions in those and
other platforms; (iv) the need for Acclaim to continually develop "hit"
entertainment products to maintain revenue growth and business momentum; (v) the
possibility that the business combination with Acclaim might adversely affect
Lazer-Tron's relationship with distributors, customers or other third parties;
(vi) the possibility of management disruption associated with the Merger and the
risk that, despite the efforts of Lazer-Tron and Acclaim, key technical and
management personnel of Lazer-Tron might not continue with Lazer-Tron; (vii) the
risk that the benefits sought to be achieved by the Merger will not be achieved;
(vi) the risks of the interactive software industry in general and Acclaim in
particular; and (vii) the other risks described above under Lazer-Tron's "Risk
Factors" and "Information Concerning Acclaim."
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In view of the wide variety of factors considered by the Board of Directors
of Lazer-Tron, the Board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered. After
taking into consideration the factors set forth above, the Board of Directors of
Lazer-Tron determined that the Merger was fair to, and in the best interests of,
Lazer-Tron and its shareholders and that Lazer-Tron should proceed with the
Merger at this time.
Effective Date
The Merger will become effective upon completion of the later of the filings
by the Delaware Secretary of State and the California Secretary of State of the
Merger Agreement or an appropriate certificate of merger, as provided by
applicable law. Such filings will be made concurrently with the closing (the
"Closing"), which is anticipated to be held as promptly as practicable after the
approval of the Merger Agreement by the Lazer-Tron Shareholders at the Special
Meeting and the satisfaction or waiver of each of the other conditions to the
Merger, but in no event later than five days thereafter (unless the parties
shall otherwise agree). See "--Conditions to the Merger."
Merger Consideration
The Merger Consideration was determined by Acclaim and Lazer-Tron in arm's
length negotiations. In negotiating the Merger Consideration, Acclaim, among
other things, reviewed Lazer-Tron's historical financial statements, reviewed
the potential for growth in Lazer-Tron's business, the expansion of its business
through licensing properties and the use of advanced technologies in product
development.
At the Effective Time, each share of Lazer-Tron Common Stock issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive the following consideration:
(a) if the average of the closing sale price of a share of Acclaim
Common Stock on the Nasdaq Stock Market's National Market System (as
reported in the Wall Street Journal) for the 20 business days immediately
preceding the second business day prior to the Closing Date (the "Acclaim
Common Stock Price") shall be at least $12.50 but less than $16.00, that
number of shares of Acclaim Common Stock equal to the product (rounded up to
the nearest one thousandth) of (i) one (1) and (ii) a fraction, the
numerator of which is $8.00 and the denominator of which is the Acclaim
Common Stock Price;
(b) if the Acclaim Common Stock Price shall be at least $16.00 and not
more than $20.00, one-half (1/2) of a share of Acclaim Common Stock; or
(c) if the Acclaim Common Stock Price shall be more than $20.00,that
number of shares of Acclaim Common Stock equal to the product (rounded up to
the nearest one thousandth) of (i) one (1) and (ii) a fraction, the
numerator of which is $10.00 and the denominator of which is the Acclaim
Common Stock Price.
If the Acclaim Common Stock Price shall be less than $12.50, each of Acclaim
and Lazer-Tron, at its sole option, shall have the right to give notice of its
election to terminate the Merger Agreement. See "--Termination of the Merger
Agreement."
No fractional shares of Acclaim Common Stock will be issued to Lazer-Tron
Shareholders in connection with the Merger. In lieu of any such fractional
share, the Exchange Agent shall pay to each Lazer-Tron Shareholder who otherwise
would be entitled to receive a fractional share of Acclaim Common Stock an
amount of cash determined by multiplying (i) the Acclaim Common Stock Price by
(ii) the fraction of a share of Acclaim Common Stock to which such holder would
otherwise be entitled.
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Lazer-Tron Stock Options and Warrants
At the Effective Time, each holder of Lazer-Tron Stock Options granted under
the Lazer-Tron Stock Option Plans and Lazer-Tron Warrants, whether vested or
unvested, shall, by virtue of the Merger and without any further action on the
part of any holder thereof, have the right to receive that number of shares of
Acclaim Common Stock as the holder of such Lazer-Tron Stock Options or
Lazer-Tron Warrants would have been entitled to receive pursuant to the Merger
had such holder exercised such Lazer-Tron Stock Options or Lazer-Tron Warrants
in full immediately prior to the Effective Time. The exercise price per share
for such shares of Acclaim Common Stock will be equal to (x) the aggregate
exercise price for Lazer-Tron Common Stock purchasable pursuant to such
Lazer-Tron Stock Option or Lazer-Tron Warrant divided by (y) the number of
shares of Acclaim Common Stock deemed directly purchasable pursuant to such
Lazer-Tron Stock Option or Lazer-Tron Warrant as a result of the Merger.
Currently outstanding Lazer-Tron Stock Options issued under the Directors Option
Plan become immediately exercisable as a result of the Merger. In addition,
holders of the Sales Agent Warrants, which are exercisable for shares of
Lazer-Tron Common Stock and the Underlying Warrants to purchase additional
shares of Lazer-Tron Common Stock, will have the right to receive that number of
shares of Acclaim Common Stock as the holders of such Sales Agent Warrants would
have been entitled to receive pursuant to the Merger had such holders exercised
the Sales Agent Warrants (and the Underlying Warrants) in full immediately prior
to the Effective Time. Holders of Lazer-Tron Stock Options will receive, upon
exercise thereof, that number of shares of Acclaim Common Stock, as determined
above, issuable pursuant to the Acclaim 1988 Stock Option Plan, which have
previously been registered under the Securities Act on Form S-8.
If the foregoing calculation results in a Lazer-Tron Stock Option or
Lazer-Tron Warrant (or would result in an Underlying Warrant) being exercisable
for a fraction of a share of Acclaim Common Stock, then the number of shares of
Acclaim Common Stock subject to such Lazer-Tron Stock Option or Lazer-Tron
Warrant (or Underlying Warrant) will be rounded down to the nearest whole number
of shares with no cash being paid for such fractional share. Continuous
employment or service with Lazer-Tron will be credited to an optionee for
purposes of determining the number of shares of Acclaim Common Stock subject to
exercise under a Lazer-Tron Stock Option.
The exercise of outstanding Lazer-Tron Warrants and issuance of shares of
Acclaim Common Stock upon such exercise are registered pursuant to the
Registration Statement of which this Prospectus/Proxy Statement forms a part,
which registration will be kept current following consummation of the Merger
throughout the exercise period of the Lazer-Tron Warrants.
Prior to the Effective Time, but in any event no later than July 1, 1995,
the 1994 Employee Stock Purchase Plan (the "Employee Purchase Plan") will be
terminated (subject to consummation of the Merger) and all funds held in
applicable employees' accounts under the Employee Purchase Plan will be applied
to purchase shares of Lazer-Tron Common Stock at a price per share and upon
terms determined in accordance with the Employee Purchase Plan. All such shares
of Lazer-Tron Common Stock issued under the Employee Purchase Plan shall be
exchanged for Acclaim Common Stock pursuant to the Merger. It is anticipated
that approximately 7,414 shares of Lazer-Tron Common Stock will be purchased
under the Employee Purchase Plan for the offering period thereunder ending June
30, 1995.
Interests of Certain Persons in the Merger
On or before the Effective Time, Norman B. Petermeier, Bryan Kelly and
Matthew Kelly will enter into employment and non-competition agreements with the
Surviving Corporation and stock option agreements with Acclaim. In addition,
certain other management personnel of Lazer-Tron have already entered into
severance agreements with Lazer-Tron providing for a severance payment equal to
six months salary if their employment is terminated under certain circumstances
within one year of consummation of the Merger. See "--Affiliate Agreements,"
"-- Employment Agreements" and --"Employee Option Agreements."
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Under the Directors Option Plan, non-employee directors Roger Smith, Dr.
Morton Grosser and Robert Pryt each have been granted options to purchase 7,000
shares of Lazer-Tron Common Stock at $7.50 per share and 5,000 shares of
Lazer-Tron Common Stock at $12.75 per share. As of March 31, 1995, 4,500 of
such shares were vested and exercisable, all of which are exercisable at $7.50
per share. As a result of the Merger, all of such options accelerate and become
fully exercisable.
Acclaim has agreed to indemnify the officers and directors of Lazer-Tron
against certain damages that may be incurred by such persons by reason of the
Merger Agreement or the transactions contemplated thereby and to otherwise cause
the Surviving Corporation to maintain for six years its existing indemnification
arrangements with such persons and maintain directors' and officers' liability
insurance coverage. In the event the Surviving Corporation is unable to
maintain such directors' and officers' liability insurance, Acclaim has agreed
to insure such coverage (up to $1 million). See "--Covenant", "--Conditions to
the Merger" and "--Indemnification."
Under an agreement between Lazer-Tron and Roger Smith, who is currently a
director of Lazer-Tron, Mr. Smith has agreed to provide assistance to Lazer-Tron
in the negotiation of the Merger and the Merger Agreement and related matters.
Pursuant to that agreement, Lazer-Tron is paying Mr. Smith $100 per hour for
those services, and a total of $13,250 is payable to Mr. Smith as of March 31,
1995.
Pursuant to a letter agreement, dated March 8, 1995, between Lazer-Tron and
Van Kasper, the underwriter of Lazer-Tron's initial public offering and the
holder of Warrants to purchase 55,000 shares of Lazer-Tron Common Stock at an
exercise price of $9.60 per share, Lazer-Tron paid Van Kasper a fee of $85,000
for acting as Lazer-Tron's financial advisor in connection with the Merger and
rendering its opinion as to the fairness of the Merger from a financial point of
view, which fairness opinion is attached hereto as Exhibit C.
Opinion of Financial Advisor
Lazer-Tron retained Van Kasper to act as its financial advisor in connection
with the Merger. Van Kasper was selected by Lazer-Tron's Board of Directors to
act as Lazer-Tron's financial advisor based on Van Kasper's qualifications,
experience, expertise and reputation, as well as Van Kasper's investment banking
relationship and familiarity with Lazer-Tron. Van Kasper is a well recognized
investment banking and advisory firm. As part of its investment banking
business, Van Kasper is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
Van Kasper has rendered to Lazer-Tron's Board of Directors its written
opinion dated March 14, 1995 that, as of such date, the Merger was fair from a
financial point of view to the shareholders of Lazer-Tron. Van Kasper did not
determine or make any recommendation with respect to the amount of consideration
to be paid in connection with the Merger.
The full text of the opinion of Van Kasper, which sets forth assumptions
made, matters considered and limitations on the review undertaken, is attached
as Exhibit C to this Prospectus/Proxy Statement. Lazer-Tron Shareholders are
urged to read the opinion carefully and in its entirety. Van Kasper's opinion
is directed only to the fairness of the Merger from a financial point of view to
the shareholders of Lazer-Tron and does not constitute a recommendation to any
shareholder of Lazer-Tron as to how such shareholder should vote at the Special
Meeting. The opinion of Van Kasper is subject to certain conditions and
limitations set forth therein, and the summary of that opinion set forth in this
Prospectus/Proxy Statement is qualified in its entirety by reference to the full
text of such opinion.
In connection with Van Kasper's opinion, Van Kasper reviewed drafts of the
Merger Agreement. In Van Kasper's review it assumed, with Lazer-Tron's
permission, that the documents to be prepared, used and
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signed by the parties to formally effect the Merger, including the agreements
effecting the Merger between the Subsidiary and Lazer-Tron and the proxy or
other disclosure material to be delivered to the shareholders of Lazer-Tron to
elicit any necessary consents to the Merger, would effect the Merger on the
terms set forth in the Merger Agreement without material alteration.
Van Kasper reviewed such relevant financial and other information that was
publicly available or furnished to it by Lazer-Tron and Acclaim, including
information provided during discussions with each company. In addition, Van
Kasper compared certain financial and securities data of Lazer-Tron and Acclaim
with that of various other companies whose securities are publicly traded,
reviewed recent merger and acquisition transactions of companies Van Kasper
determined to be similar and conducted such other financial analysis as it
determined, based upon its judgment as investment bankers, to be appropriate for
purposes of its opinion. Van Kasper also took into account the views of the
management and certain shareholders of Lazer-Tron as to the prospects of
Lazer-Tron if the Merger is not effected. Furthermore, Van Kasper did not
negotiate the Merger, provide any legal advice or advise Lazer-Tron with respect
to alternatives to the Merger. Although Van Kasper performed a valuation of
Lazer-Tron and Acclaim using a number of commonly accepted methodologies, Van
Kasper did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Lazer-Tron or Acclaim.
In rendering its opinion, Van Kasper relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise communicated
to Van Kasper by Lazer-Tron or Acclaim. Lazer-Tron provided to Van Kasper
certain financial projections of Lazer-Tron and Van Kasper reviewed those
projections in light of discussions it had conducted with analysts and other
industry sources, and made certain adjustments where it determined it was
appropriate to do so. Independent of the foregoing, Van Kasper assumed that the
projections were reasonably prepared, based upon assumptions reflecting the best
currently available estimates and good faith judgments of management as to the
future performance of Lazer-Tron and that the management of Lazer-Tron did not
have any information or beliefs that would make the projections misleading. Van
Kasper did not have the benefit of reviewing Acclaim's financial projections
since it is the policy of Acclaim not to disseminate such information to third
parties.
Van Kasper makes a market in Lazer-Tron Common Stock. Van Kasper and its
affiliates have provided financial advisory and financing services to Lazer-Tron
since March 1994, including services rendered in connection with Lazer-Tron's
initial public offering of common stock in May 1994, and has received customary
fees in connection with these services, including, in consideration of its
services in connection with the initial public offering, warrants to purchase
55,000 shares of Lazer-Tron Common Stock at an exercise price of $9.60, which
warrants expire on May 26, 1999.
Pursuant to a letter agreement dated March 8, 1995, between Lazer-Tron and
Van Kasper, Lazer-Tron paid Van Kasper a fee of $85,000 for acting as
Lazer-Tron's financial advisor in connection with the Merger and rendering its
opinion as to the fairness of the Merger from a financial point of view.
Lazer-Tron also agreed to reimburse Van Kasper for its out-of-pocket expenses
and to indemnify Van Kasper and its directors, officers, agents, employees and
controlling persons against certain liabilities and expenses related to Van
Kasper's engagement.
Representations and Warranties
Pursuant to the Merger Agreement, Lazer-Tron has made certain
representations and warranties to Acclaim and the Subsidiary with respect to,
among other things, Lazer-Tron's organization, capitalization, authority to
consummate the Merger and the transactions contemplated under the Merger
Agreement, obtaining consents needed in connection with the consummation of the
Merger and related transactions, ownership of assets (including certain
intellectual property rights), contractual and other commitments, liabilities,
legal proceedings, financial statements and financial condition, compliance with
applicable law including filing and
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reporting obligations as a public company, pooling matters, tax matters and
other representations customary in transactions of this type.
Acclaim and the Subsidiary have made certain representations and warranties
to Lazer-Tron with respect to, among other things, their organization,
capitalization, authority to consummate the Merger and the transactions
contemplated under the Merger Agreement, obtaining consents needed in connection
with the consummation of the Merger and related transactions, legal proceedings,
compliance with applicable law, including filing and reporting obligations as a
public company, the intended operation of the Surviving Corporation prior to and
following the Merger and other representations customary in transactions of this
type.
Covenants
Pursuant to the Merger Agreement, Lazer-Tron is subject to certain covenants
with respect to actions to be taken during the period of time between the date
of the Merger Agreement and the earlier of the Effective Time or the termination
of the Merger Agreement, including, among other things, actions regarding the
operation of its business in the ordinary course, dividend and stock
distributions, capitalization, and actions which may adversely affect the
accounting treatment of the Merger as a pooling or that would adversely affect
the treatment of the Merger as a tax free reorganization and other covenants
customary in transactions of this type. In addition Lazer-Tron agreed to use
its best efforts to cause any person who becomes an affiliate of Lazer-Tron
subsequent to the date of the Merger Agreement to execute an Affiliate's
Agreement.
Pursuant to the Merger Agreement, Acclaim is subject to certain covenants
with respect to actions to be taken during the period of time between the date
of the Merger Agreement and the earlier of the Effective Time or the termination
of the Merger Agreement, including, among other things, actions regarding the
operation of its business in the ordinary course, the operation of the Surviving
Corporation following the Merger, assumption of Lazer-Tron's obligations in
respect of the Warrants (subject to Acclaim's right to renegotiate certain
provisions of the Underwriter's Warrants and Sales Agent Warrants) and actions
which may adversely affect the accounting treatment of the Merger as a pooling
or that would adversely affect the treatment of the Merger as a tax free
reorganization and other covenants customary in transactions of this type.
Acclaim also has agreed, if the Merger is consummated, to use its best
efforts to cause the Acclaim Common Stock to be issued in the Merger and the
shares of Acclaim Common Stock issued upon exercise of Lazer-Tron Stock Options
or Warrants, to be quoted on The Nasdaq National Market or listed on such
securities exchange as Acclaim Common Stock is then listed; to provide certain
benefits to Lazer-Tron's employees; to cause the Surviving Corporation to honor
all rights to indemnification in favor of Lazer-Tron's present or former
officers and directors for a period of six years following the Effective Time;
to cause the Surviving Corporation to maintain directors' and officers'
liability insurance coverage comparable to that presently maintained by
Lazer-Tron (not to exceed $1 million) or, if the Surviving Corporation cannot
maintain such insurance, to provide comparable indemnity (not to exceed $1
million), for a period of six years following the Effective Time; and to cause
the Surviving Corporation to pay certain accrued and unpaid employee bonuses
relating to Lazer-Tron's fiscal year ended June 30, 1995.
Conditions to the Merger
The obligations of Acclaim and the Subsidiary to consummate the Merger are
subject to certain conditions customary in transactions of this type, including,
among others, the following:
(i) the Merger Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
Lazer-Tron Common Stock in accordance with applicable law, and Dissenting Shares
and/or shares of common stock of Lazer-Tron capable of becoming Dissenting
Shares after the Closing shall not constitute in excess of 10% of the shares
eligible to vote for such approval and adoption;
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(ii) all Lazer-Tron Stock Option Plans and employee cash
bonus or cash incentive performance plans shall have been terminated;
(iii) all waivers, consents, approvals, authorizations or
orders (including the consent of certain third parties) required by Lazer-Tron
for any of the transactions contemplated by the Merger Agreement shall have been
obtained;
(iv) each of Messrs. Norman B. Petermeier, Matthew F. Kelly
and Bryan M. Kelly shall have entered into an employment and non-competition
agreement with the Surviving Corporation, the form of which has previously been
agreed to;
(v) the Acclaim Common Stock Price shall not be less than
$12.50;
(vi) Acclaim shall have received certain certificates,
opinions of counsel and accountants' letters;
(vii) Acclaim shall have received from Lazer-Tron no later
than five days prior to the Closing or the tenth day of the month during which
the Closing occurs, a closing balance sheet reflecting certain minimum amounts
with respect to Lazer-Tron's working capital and net worth, and shall have
notified Lazer-Tron of its acceptance of Lazer-Tron's calculations;
(viii) certain agreements between Lazer-Tron andeach of its
existing affiliates relating to the treatment of the Merger as a pooling shall
have been entered into and shall be in full force and effect as of the Closing
Date;
(ix) the holders of the Lazer-Tron Stock Options and
Lazer-Tron Warrants and registration rights will have consented to certain
changes therein reasonably requested by Acclaim;
(x) completion of Acclaim's due diligence of Lazer-Tron's
operations and financial condition to the satisfaction of Acclaim and its
counsel;
(xi) no court, agency or other governmental authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent the performance of certain of Acclaim's obligations under the Merger
Agreement;
(xii) Acclaim shall have received a letter from Grant Thornton
LLP with respect to Acclaim and a letter from Ernst & Young LLP with respect to
Lazer-Tron to the effect that Lazer-Tron and Acclaim may participate in a
transaction such as the Merger in a manner so as to permit the Merger to qualify
as a pooling of interests, provided that Acclaim may not exercise its rights to
terminate the Merger Agreement as a result of the failure of this condition if
the reason that such letters cannot be delivered is solely as a result of the
actions or omissions of Acclaim or its affiliates; and
(xiii) there shall not have been instituted by any third party
certain suits or proceedings to enjoin, prevent, set aside, restrain or
invalidate the Merger Agreement or the transactions thereby contemplated or
seeking damages from or to impose obligations upon Lazer-Tron or its directors
or officers or Acclaim by reason of the Merger Agreement or the transactions
thereby contemplated.
The obligation ofLazer-Tron to consummate the Merger is subject to certain
conditions customary in transactions of this type, including, among others, the
following:
(i) the Merger Agreement shall have been approved and
adopted by the shareholders of Lazer-Tron at the Special Meeting;
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(ii) each of Messrs. Norman B. Petermeier, Matthew F. Kelly
and Bryan M. Kelly shall have entered into an employment and non-competition
agreement with the Surviving Corporation, the form of which has previously been
agreed to;
(iii) the Acclaim Common Stock Price shall not be less than
$12.50;
(iv) all waivers, consents, approvals, authorizations or
orders (including the consent of certain third parties) required by Acclaim for
any of the transactions contemplated by the Merger Agreement shall have been
obtained;
(v) no court, agency or other governmental authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent the performance of certain of Lazer-Tron's obligations under the Merger
Agreement;
(vi) Lazer-Tron shall have received certain certificates,
opinions of counsel and accountants' letters; and
(vii) there shall not have been instituted by any third party
certain suits or proceedings to enjoin or prevent the Merger or seek damages
from or to impose obligations upon Lazer-Tron or its directors or officers by
reason of the Merger Agreement or the transactions contemplated thereby, as to
any of which Acclaim has not agreed to provide indemnity. In the event any
third party institutes any such suit or proceeding and Acclaim nevertheless
determines to consummate the Merger, Acclaim will indemnify Lazer-Tron, its
officers and directors against any damages arising in connection with such claim
or proceeding.
Any of Lazer-Tron's or Acclaim's and the Subsidiary's conditions to Closing
may be waived in whole or in part at or prior to the Closing by Lazer-Tron or
Acclaim, respectively, without approval of the shareholders of either company.
Neither Lazer-Tron nor Acclaim currently intends to waive any such conditions to
Closing.
Indemnification
Lazer-Tron has agreed to indemnify Acclaim, the Subsidiary and their
respective directors, officers, employees and agents (the "Acclaim Parties")
against any damages which each may incur by reason of (i) certain breaches by
Lazer-Tron, Lazer-Tron's affiliates, the Kelly Family Trust and the 1992 Kelly
Family Trust, Bryan M. Kelly, Matthew F. Kelly or Norman B. Petermeier of
representations, warranties, covenants and agreements of Lazer-Tron as described
in the Merger Agreement or related affiliates agreements or other agreements
entered into by such persons, as applicable, as contemplated by the Merger
Agreement, (ii) the failure of such persons to perform any of their obligations
required under the Merger Agreement or any such related agreements, or (iii)
third party allegations which, if true, would constitute a breach by any of such
persons of any representation, warranty or covenant contained in the Merger
Agreement, as applicable. Lazer-Tron's obligations and liabilities under this
indemnity are subject to the limitations described below in "-No Break-up Fee."
Acclaim has agreed to indemnify Lazer-Tron, its directors, officers, emplo
yees and agents (the "Lazer-Tron Parties") against any damages which each may
incur by reason of (i) certain breaches by Acclaim or the Subsidiary of their
representations, warranties, covenants and agreements as described in the Merger
Agreement or related agreements contemplated thereby, (ii) the failure of
Acclaim or the Subsidiary to perform any of their obligations required under the
Merger Agreement or any such related agreements or (iii) third party allegations
which, if true, would constitute a breach by Acclaim or the Subsidiary of any
representation, warranty or covenant contained in the Merger Agreement.
The foregoing indemnities are only applicable in the event the Merger is not
consummated as a result of such breaches or claims, inasmuch as such
representations, warranties, covenants and agreements do not survive the
Closing; provided that such representations, warranties, covenants and
agreements of Lazer-Tron do
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survive the Closing for a limited period of time in connection with the
"termination for cause" provision of the employment agreements between the
Surviving Corporation and certain members of Lazer-Tron's Management. See
"-Employment Agreements." Neither the Acclaim Parties nor the Lazer-Tron
Parties shall be entitled to be indemnified unless the aggregate of all losses
incurred by the Acclaim Parties or the Lazer-Tron Parties, as the case may be,
exceeds $150,000. Notwithstanding the foregoing, (i) Acclaim shall be entitled
to be indemnified on a dollar-for-dollar basis from and against all losses if
the Lazer-Tron Parties or Lazer-Tron shall have acted in bad faith or shall have
engaged in willful misconduct and (ii) Lazer-Tron shall be entitled to be
indemnified on a dollar-for-dollar basis from and against all losses if Acclaim
shall have acted in bad faith or shall have engaged in willful misconduct.
Certain U.S. Federal Income Tax Matters
The following is a discussion of certain U.S. federal income tax
consequences of the Merger that are generally applicable to Acclaim, the
Subsidiary, Lazer-Tron, and Lazer-Tron shareholders. This discussion is based
on currently existing provisions of the Code, existing regulations thereunder
(including final, temporary or proposed), and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences described herein.
The following discussion is intended only as a summary of certain principal
U.S. federal income tax consequences of the Merger and does not purport to be a
complete analysis or listing of all of the potential tax effects relevant to a
decision on whether to vote in favor of approval and adoption of the Merger
Agreement and the Merger. In particular, this discussion does not deal with all
U.S. federal income tax considerations that may be relevant to particular
Lazer-Tron shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, or who acquired
their shares in connection with stock warrants, stock option or stock purchase
plans, or in other compensatory transactions. The discussion also does not
address the effects of the Merger on holders of Lazer-Tron Options or Lazer-Tron
Warrants. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger), including without
limitation transactions in which Lazer-Tron Common Stock is acquired or Acclaim
Common Stock is disposed of.
ACCORDINGLY, LAZER-TRON SHAREHOLDERS AND OTHERS AFFECTED BY THE MERGER
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES TO THEM.
The Merger has been structured with the intent that it be tax free to
Acclaim, Lazer-Tron and their respective shareholders for U.S. federal income
tax purposes. Fenwick & West, counsel to Lazer-Tron, will render an opinion
that the Merger, if consummated on the terms described in this Joint
Prospectus/Proxy Statement, will constitute a reorganization under Section
368(a) of the Code (a "Reorganization"). The tax opinion referenced above shall
be collectively referred to as the "Tax Opinion." The Tax Opinion will be based
on and will be subject to certain assumptions and limitations as well as
representations received from Acclaim, the Subsidiary and Lazer-Tron, discussed
below. An opinion of counsel only represents counsel's best legal judgment, and
has no binding effect or official status of any kind, and no assurance can be
given that contrary positions may not be taken by the Internal Revenue Service
(the "IRS") or a court considering the issues. Neither Lazer-Tron nor Acclaim
has requested or will request a ruling from the IRS with regard to any of the
U.S. federal income tax consequences of the Merger.
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Tax Consequences Generally Applicable to Acclaim, the Subsidiary,
Lazer-Tron, and Lazer-Tron Shareholders
Subject to the limitations, qualifications and assumptions referred to
herein, the following U.S. federal income tax consequences will result from the
Merger:
(a) The Merger will constitute a Reorganization if carried out in the manner
set forth in the Merger Agreement, and the agreements referred to therein. In
such event, no gain or loss will be recognized by holders of Lazer-Tron Common
Stock upon exchange of such shares solely for Acclaim Common Stock in the
Merger, except for cash received in lieu of a fractional share of Acclaim Common
Stock. Cash payments received by holders of Lazer-Tron Common Stock in lieu of
a fractional share of Acclaim Common Stock would be treated as if such
fractional share of Acclaim Common Stock had been issued in the Merger and then
redeemed by Acclaim. A Lazer-Tron Shareholder receiving such cash will
recognize gain or loss, upon such payment, measured by the difference (if any)
between the amount of cash received and the shareholder's adjusted tax basis in
such fractional share. A Dissenting Shareholder receiving cash would be treated
as if the Dissenting Shareholder had sold his or her Lazer-Tron Common Stock to
Acclaim for cash. A Dissenting Shareholder receiving such cash will recognize
gain or loss, upon such payment, measured by the difference (if any) between the
amount of cash received and the shareholder's basis in such Dissenting Shares.
Such gain or loss generally would be treated as capital gain or capital loss for
each such shareholder if he or she held his or her Lazer-Tron Common Stock as a
capital asset at the time of the Merger.
(b) The aggregate tax basis of the Acclaim Common Stock received by
Lazer-Tron Shareholders in the Merger (including any fractional share of Acclaim
Common Stock not actually received) will be the same as the aggregate tax basis
of the Lazer-Tron Common Stock surrendered in exchange for the Acclaim Common
Stock (including any fractional shares of Acclaim Common Stock not actually
received). The aggregate tax basis of the whole shares of Acclaim Common Stock
actually received by Lazer-Tron Shareholders will be the total aggregate basis
described in the immediately preceding sentence, reduced by the basis allocable
to fractional shares.
(c) The holding period of the Acclaim Common Stock received by each
Lazer-Tron shareholder in the Merger will include the period for which the
Lazer-Tron Common Stock surrendered in exchange therefor were considered to be
held, provided that the Lazer-Tron Common Stock so surrendered is held as a
capital asset at the time of the Merger.
(d) No gain or loss will be recognized by Acclaim, the Subsidiary, or
Lazer-Tron in connection with the Merger.
Limitations on Opinion and Discussion
The discussion of certain U.S. federal income tax consequences presented
above and the Tax Opinion which will be delivered by Lazer-Tron's counsel will
be subject to certain assumptions and will be based on the accuracy of the
representations in the Merger Agreement, exhibits thereto, and the agreements
and documents referred to therein. Among the principal assumptions upon which
the above tax discussion and Tax Opinion will be based include that the Merger
will be consummated pursuant to the Merger Agreement, that Lazer-Tron after the
Merger will have retained substantially all of its assets, that Lazer-Tron will
continue its business as a wholly-owned subsidiary of Acclaim, that not more
than twenty percent (20%) of the total consideration received by Lazer-Tron
shareholders in exchange for their Lazer-Tron Common Stock will be other than
Acclaim Common Stock in the Merger and that all the significant historic
shareholders of Lazer-Tron have not disposed of Lazer-Tron Common Stock in
contemplation of the Merger and do not have any plan or intention, existing at
or prior to the time of the Merger, to dispose of the Acclaim Common Stock to be
received in the Merger such that they would not have a significant continuing
equity interest in Lazer-Tron after the Merger by virtue of their ownership of
Acclaim Common Stock.
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A successful IRS challenge to the status of the Merger as a Reorganization
would result in Lazer-Tron shareholders being treated as if they sold their
Lazer-Tron Common Stock in a taxable transaction. In such event, each
Lazer-Tron shareholder would be required to recognize all of his or her realized
gain or loss with respect to the disposition of each of his or her shares of
Lazer-Tron Common Stock equal to the difference between the Lazer-Tron
shareholder's basis in such shares and the fair market value, as of the date the
Merger becomes effective, of the Acclaim Common Stock received in exchange
therefor (plus any cash received for fractional shares). Such gain or loss
generally would be treated as capital gain or capital loss for each such
shareholder if he or she held his or her Lazer-Tron Common Stock as a capital
asset at the time of the Merger. In such event, a Lazer-Tron shareholder's
aggregate basis in the Acclaim Common Stock so received would equal their fair
market value as of the Effective Time of the Merger, and the Lazer-Tron
shareholder's holding period for such Acclaim Common Stock would begin the day
after the Merger. Dissenting Shareholders will be treated as described above.
Even if the Merger qualifies as a Reorganization, a recipient of Acclaim
Common Stock at the time of the Merger would recognize gain to the extent that
such shares were considered to be received in exchange for services or property
(other than solely in exchange for Lazer-Tron Common Stock). Gain would also
have to be recognized to the extent that a Lazer-Tron shareholder was treated as
receiving (directly or indirectly) consideration other than Acclaim Common Stock
in exchange for Lazer-Tron Common Stock. All or a portion of such gain amounts
may be taxable as ordinary income.
Expenses
Each of Acclaim, on the one hand, and Lazer-Tron, on the other hand, will
bear their respective expenses related to the Merger Agreement and the
transactions contemplated thereby, except that expenses incurred in connection
with the printing and mailing of the Prospectus/Proxy Statement and the
Registration Statement on Form S-4 shall be shared equally by Lazer-Tron and
Acclaim.
Pursuant to a letter agreement, dated March 8, 1995, between Lazer-Tron and
Van Kasper, Lazer-Tron paid Van Kasper a fee of $85,000 for acting as
Lazer-Tron's financial advisor in connection with the Merger and rendering its
opinion as to the fairness of the Merger from a financial point of view. Total
transaction costs and other direct costs, including legal and accounting
expenses, associated with the Merger to be incurred by Lazer-Tron and Acclaim
are anticipated to total approximately $1,000,000.
Accounting Treatment
The acquisition of Lazer-Tron by Acclaim through the Merger is intended to
be accounted for by Acclaim as a pooling of interests. Under this method of
accounting, the assets and liabilities of Lazer-Tron and Acclaim will be
combined based on the respective carrying values of the accounts in the
historical financial statements of each entity. Results of operations of
Acclaim will include income of Lazer-Tron and Acclaim for the entire fiscal
period in which the combination occurs and the historical results of operations
of the separate companies for years prior to the Merger will be combined and
reported as the results of operations of Acclaim.
To support the treatment of the Merger as a pooling of interests, the
affiliates of Lazer-Tron have entered into agreements imposing certain resale
limitations on their Lazer-Tron Common Stock prior to the consummation of the
Merger and their Acclaim Common Stock following consummation of the Merger.
Certain affiliates of Acclaim have entered into similar agreements. See
"--Affiliate Agreements."
Acclaim's obligation to consummate the Merger is conditioned upon the
receipt by Acclaim of letters from Ernst & Young LLP and Grant Thornton LLP
confirming that the Merger will qualify for pooling of interests accounting
treatment.
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Regulatory Approvals
The Merger may not be consummated until notifications have been given and
certain information has been furnished to the Federal Trade Commission and the
Antitrust Division of the U.S. Justice Department under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The required
notifications and information were provided and the applicable waiting period
under the HSR Act has expired. No further federal or state regulatory
requirements must be complied with in order to consummate the Merger.
Termination of the Merger Agreement
The Merger Agreement may be terminated:
(i) at any time by mutual consent of Acclaim and Lazer-Tron;
(ii) by either Acclaim or Lazer-Tron if the Acclaim Common
Stock Price is less than $12.50;
(iii) by either Acclaim or Lazer-Tron if the Merger is not
consummated on or before July 31, 1995 (unless the failure to consummate the
Merger by such date is due to a breach of a representation or warranty or of a
covenant by such party seeking to terminate the Merger Agreement); provided
however, that (a) in the event the Closing Balance Sheet is dated as of July 31,
1995, such consummation date shall automatically be extended to August 15, 1995
and (b) in the event the Closing Balance Sheet is dated as of July 31, 1995 and
Acclaim disputes the calculations therein, such consummation date will be
automatically extended to August 31, 1995;
(iv) by either Acclaim or Lazer-Tron if (a) approval of the
Merger by the Lazer-Tron Shareholders is not obtained, (b) Lazer-Tron's Board of
Directors in the exercise of its fiduciary duties, accepts, approves or
recommends to the Lazer-Tron Shareholders an Acquisition Transaction (as
hereinafter defined) or similar transaction involving a third party or any of
its subsidiaries or divisions, or (c) the Lazer-Tron Board of Directors in the
exercise of its fiduciary duties, amends, withholds or withdraws its
recommendation to Lazer-Tron Shareholders to vote in favor of the Merger
Agreement;
(v) by Acclaim if there has been a material violation or
breach by Lazer-Tron or any party to a Lazer-Tron Affiliate's Agreement (as
hereinafter defined) of any representation, warranty or any agreement or certain
covenants contained in the Merger Agreement or such Lazer-Tron Affiliate's
Agreement or any failed condition to Acclaim's obligations under the Merger
Agreement;
(vi) by Lazer-Tron if there has been a material violation or
breach by Acclaim of any representation, warranty or any agreement or covenant
contained in the Merger Agreement or any failed condition to Lazer-Tron's
obligations under the Merger Agreement; or
(vii) by either Lazer-Tron or Acclaim, if (a) the conditions
to such party's obligations have become impossible to satisfy or have not been
satisfied, other than as a result of its own acts or omissions in violation of
its obligations under the Merger Agreement or (b) any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Merger has become final and nonappealable.
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Amendment of the Merger Agreement
The Merger Agreement may be amended by Lazer-Tron or Acclaim and the
Subsidiary at any time before or after approval of the Merger Agreement by the
Lazer-Tron Shareholders, but, after any such approval, no amendment shall be
made which by law requires further approval by such shareholders without such
further approval.
No Solicitation
Lazer-Tron has agreed to cease any existing discussions or negotiations with
any third parties conducted prior to the date of the Merger Agreement with
respect to any merger, business combination, sale of a significant amount of
assets outside of the ordinary course of business, sale of shares of capital
stock outside of the ordinary course of business or similar transaction
involving such party or any of its subsidiaries or divisions (an "Acquisition
Transaction"). Lazer-Tron has agreed not to, and to use its best efforts to
ensure that none of its affiliates, officers, directors, representatives, agents
or affiliates, directly or indirectly, solicit, initiate or encourage (including
by way of furnishing information) any person, entity or group concerning any
Acquisition Transaction (other than the transactions contemplated by the Merger
Agreement); provided, however, that (i) Lazer-Tron's Board of Directors is not
precluded, pursuant to its fiduciary duties as determined by Lazer-Tron's Board
of Directors after consultation with outside legal counsel, from entering into,
or causing Lazer-Tron's officers, representatives, agents or affiliates from
entering into, negotiations with or furnishing information to a third party
which has initiated contact with Lazer-Tron, from passing on to Lazer-Tron
Shareholders information regarding any such third party proposal or inquiry
consistent with such fiduciary duties, or otherwise fulfilling such fiduciary
duties and (ii) Lazer-Tron may participate in negotiations with or furnish
information to a third party which has initiated contact with Lazer-Tron with
respect to an Acquisition Transaction consistent with the fiduciary obligations
of its Board of Directors. In the event Lazer-Tron receives a proposal relating
to an Acquisition Transaction, Lazer-Tron's Board of Directors is not prevented
from approving such proposal or recommending such Acquisition Transaction to
Lazer-Tron's Shareholders if Lazer-Tron's Board of Directors determines in good
faith that failure to take such action would result in a breach of its fiduciary
duties as determined by Lazer-Tron's Board of Directors after consultation with
outside counsel and, in such case, Lazer-Tron's Board of Directors may amend,
withhold or withdraw its recommendation of the Merger. However, the taking of
such action, including amending, withholding or withdrawing its recommendation
regarding the Merger, in connection with an Acquisition Transaction will not
relieve Lazer-Tron of its obligations described below under "Break-Up Fee" and
"Stock Option Agreement."
Break-up Fee
In the event that (i)Lazer-Tron or Lazer-Tron's Board of Directors exercises
its rights, as described above under "No Solicitation" in connection with an
Acquisition Transaction and (ii) as a result, the Merger is not consummated or
the Merger Agreement is terminated, then Lazer-Tron must: (x) pay to Acclaim
two hundred thousand dollars ($200,000), and (y) if such Acquisition Transaction
is consummated within one year, then Lazer-Tron must pay to Acclaim a sum equal
to 5% of the value (less such $200,000) of the aggregate consideration actually
received in connection with such Acquisition Transaction, calculated in a manner
consistent with the valuation of such consideration in connection with such
Acquisition Transaction, which amounts will be Acclaim's sole remedy in those
circumstances so long as Lazer-Tron is not in breach of the Merger Agreement as
a result of the willful action or inaction of Lazer-Tron or its officers,
directors, employees and agents.
Stock Option Agreement
Pursuant to the terms of the Merger Agreement, Lazer-Tron and Acclaim
entered into a Stock Option Agreement dated March 22, 1995. Pursuant to such
Stock Option Agreement, Lazer-Tron granted to Acclaim an option to purchase up
to 250,000 shares of Lazer-Tron Common Stock at an exercise price of $8.00 per
share, which option may only be exercised in the event, and only during the two
year period following the occurrence
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of such event, that (i) a suit or proceeding is instituted to enjoin, prevent,
restrain, set aside or invalidate the Merger Agreement or the transactions
contemplated thereby or seeking damages from or to impose obligations upon
Lazer-Tron or Acclaim by reason of the Merger Agreement or the transactions
contemplated thereby and/or any order, decree or judgment with respect to the
foregoing is issued and, as a result, Acclaim elects not to consummate the
Merger or (ii) Lazer-Tron's Board of Directors considers, responds to or
provides information regarding Lazer-Tron in connection with, or is approached
by a third party with respect to, an Acquisition Transaction and, as a result,
Lazer-Tron's Board of Directors withdraws or modifies in any way adverse to
Acclaim its recommendation to Lazer-Tron's Shareholders that they vote to
approve the Merger Agreement and/or Lazer-Tron enters into negotiations relating
to an Acquisition Transaction and, as a result, the Merger is not consummated or
the Merger Agreement is terminated.
Affiliates Agreements
Acclaim intends to register the shares of Acclaim Common Stock to be issued
in the Merger under the Securities Act by a Registration Statement on Form S-4,
thereby allowing such securities to be traded without restriction by all former
holders of capital stock of Lazer-Tron not deemed to be "affiliates" (as such
term is defined for purposes of Rule 145 under the Securities Act) of Lazer-Tron
at the time the Merger Agreement is submitted for a vote to Lazer-Tron
Shareholders.
Pursuant to the terms of the Lazer-Tron affiliate's agreements entered into
on March 22, 1995 (the "Lazer-Tron Affiliate's Agreements") between certain
beneficial owners of Lazer-Tron Common Stock (the "Lazer-Tron Affiliates"),
Acclaim and Lazer-Tron, each Lazer-Tron Affiliate has agreed (a) not to dispose
of any shares of capital stock of Lazer-Tron owned by such Lazer-Tron Affiliate
during the period beginning March 22, 1995 and ending 30 days prior to the
Effective Time and (b) not to dispose of or reduce his risk relative to any
shares of capital stock of Lazer-Tron owned by such Lazer-Tron Affiliate or
shares of Acclaim Common Stock acquired by such Lazer-Tron Affiliate in the
Merger during the period beginning 30 days prior to the Effective Time and
continuing until such time as financial results covering at least 30 days of
combined operations of Acclaim and Lazer-Tron after the Effective Time have been
filed with the Commission or publicly reported by Acclaim. In addition, certain
of the Lazer-Tron Affiliates holding as of the Record Date approximately 28.3%
of the outstanding shares of Lazer-Tron Common Stock have agreed to vote their
shares in favor of the Merger Agreement and the transactions contemplated
thereby at the Special Meeting.
Certain beneficial owners of Acclaim Common Stock (the "Acclaim Affiliates")
have entered into affiliate's agreements dated March 22, 1995 (the "Acclaim
Affiliate's Agreements") with Acclaim, pursuant to which each such Acclaim
Affiliate has agreed not to dispose of or reduce his risk relative to shares of
Acclaim Common Stock during the period commencing on March 22, 1995 until such
time as financial results covering at least 30 days of combined operations of
Acclaim and Lazer-Tron after the Effective Time have been filed with the
Commission or publicly reported by Acclaim.
Employment Agreements
It is a condition to the consummation of the Merger that employment
agreements (the "Employment Agreements") between the Surviving Corporation and
each of Norman B. Petermeier, Matthew F. Kelly and Bryan M. Kelly (the
"Employees") be entered into at the Effective Time.
Pursuant to the Employment Agreements, Norman B. Petermeier will serve as
President of the Surviving Corporation and receive an annual base salary of
$150,000, Matthew F. Kelly will serve as Vice President of Marketing of the
Surviving Corporation and receive an annual base salary of $125,000 and Bryan M.
Kelly will serve as Vice President of Engineering of the Surviving Corporation
and receive an annual base salary of $125,000. Each of the Employees is also
entitled to a bonus in an amount up to 50% of his base salary, determined in the
discretion of the Board of Directors of the Surviving Corporation based solely
upon the achievement by the Surviving Corporation of specific objectives set
forth in the Surviving Corporation's business
39
<PAGE>
plan for such fiscal year and such individual's contribution to the Surviving
Corporation's and Acclaim's financial performance and profitability. Each
Employee is also entitled to certain benefits including an automobile allowance,
life insurance, reimbursement of certain expenses and participation in other
Acclaim employee benefit plans. Employees shall also be indemnified by the
Surviving Corporation to the fullest extent permitted by California law.
Each Employee will agree, to the extent permitted by law, not to compete
with the business of the Surviving Corporation, Acclaim, or any affiliate
thereof in any geographic area where such businesses operate for a period
terminating on the earlier of (i) the first anniversary of the termination of
the initial term of employment, (ii) the first anniversary of the termination of
employment, and (iii) the fifth anniversary of the date of the Employment
Agreement. Each Employment Agreement will also prohibit the Employee until the
earlier of (i) the first anniversary of the termination of the initial term of
employment or (ii) the first anniversary of the termination of the Employee's
employment, to the extent permitted by law, from soliciting, persuading or
attempting to persuade any employee of the Surviving Corporation, Acclaim or any
affiliate thereof to leave the Surviving Corporation's or Acclaim's employ.
Under the Employment Agreement, the Employee can be terminated for "cause,"
which includes, among other things, any breach by Lazer-Tron of any
representation or warranty (except certain financial representations and
warranties and breaches of representations and warranties of which Acclaim had
knowledge as of the date of the Employment Agreement) made by Lazer-Tron under
the Merger Agreement. Such representations and warranties will survive for a
period of one year following the Effective Date (except for certain financial
representations and warranties, which shall survive until such time as an audit
report relating to the combined audited financial statements of Acclaim and
Lazer-Tron for a period subsequent to the consummation of the Merger is
issued). If the Surviving Corporation terminates any Employee without cause, or
if such Employee resigns as a result of a material reduction of such Employee's
duties or working conditions or a reduction in such Employee's compensation,
such Employee will be entitled to cash payments in an aggregate amount equal to
the Employee's then current annual base salary and bonus, if any, paid to the
Employee for the most recent fiscal year, certain employee benefits and a cash
payment in an amount equal to his annual base salary and bonus that have
actually accrued with respect to the Employee to the date of termination.
Employee Option Agreements
On March 22, 1995, each of the Employees entered into separate agreements
(the "Option Agreements") with Acclaim whereby each Employee will be granted
stock options (the "Employee Options") to purchase 40,000 shares, in the case of
Norman Petermeier, and 30,000 shares, in the cases of Matthew and Bryan Kelly,
of Acclaim Common Stock concurrently with the Closing and upon the execution of
such Employee's Employment Agreement. The Employee Options will have an option
price equal to the closing sale price of Acclaim Common Stock on the date of the
Closing (as reported on The Nasdaq National Market) and will expire on the tenth
anniversary of the Closing Date. The Employee Options will also be subject to
and governed by all of the terms of Acclaim's 1988 Stock Option Plan, as
amended, including the provisions with respect to acceleration and early
termination, except to the extent modified by the Option Agreements.
Severance Agreements
On March 22, 1995 Lazer-Tron entered into severance agreements (the
"Severance Agreements") with each of Suzanne Bouldoukian, Jeffrey Allen, Ronald
Carrara and Patrick Boudreau providing for a severance payment in an amount
equal to six months of such terminated employee's base salary as at the date of
the Severance Agreement if, within one year from the date of the Severance
Agreement, such employee is terminated without cause or a material adverse
change occurs in the circumstances of such employee's employment.
40
<PAGE>
Articles of Incorporation and By-laws
The Articles of Incorporation of Lazer-Tron and the By-laws of Lazer-Tron,
each as in effect immediately prior to the effective date of the Merger, will
remain in effect as the Articles of Incorporation and By-laws of the Surviving
Corporation after the Merger, and thereafter may be amended in accordance with
their respective terms and applicable law.
Directors and Executive Officers of the Surviving Corporation
At the Effective Time, the Board of Directors of the Surviving Corporation
shall consist of Messrs. Gregory E. Fischbach, James Scoroposki, Robert Holmes,
Anthony R. Williams and Norman B. Petermeier and the officers of the Surviving
Corporation shall be the existing officers of Lazer-Tron, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation.
Affiliates' Restrictions on Sale of Acclaim Common Stock
The shares of Acclaim Common Stock to be issued in the Merger will have been
registered under the Securities Act by a Registration Statement on Form S-4,
thereby allowing those shares to be traded without restriction by all former
holders of Lazer-Tron Common Stock (i) who are not deemed to be "affiliates" (as
defined for purposes of Rule 145 under the Securities Act) of Lazer-Tron at the
time of the Special Meeting and (ii) who do not become "affiliates" of Acclaim
after the Merger.
Consequently, each of the "affiliates" of Lazer-Tron has been advised that
such affiliate may not be permitted under current law to make any public sale of
any Acclaim Common Stock received upon consummation of the Merger except under
certain circumstances, including where such sale is permitted pursuant to Rule
145 under the Securities Act. See "--Affiliate Agreements". In general, Rule
145, as currently in effect, imposes restrictions on the manner in which such
affiliates may make resales of Acclaim Common Stock and also on the number of
shares of Acclaim Common Stock that such affiliates and others (including
persons with whom the affiliates act in concert) may sell within any three-month
period. These restrictions will generally apply for at least a period of two
years after the Merger (or longer if the person is an affiliate of Acclaim).
Vote Required; Recommendation
Approval of the Merger Agreement by the shareholders of Lazer-Tron requires
the affirmative vote of a majority of the outstanding shares of Lazer-Tron
Common Stock entitled to vote at the Special Meeting. Certain directors,
officers and affiliates of Lazer-Tron holding an aggregate of 1,007,047 shares
of Lazer-Tron Common Stock have agreed to vote such shares in favor of the
Merger. Such shares comprise an aggregate of approximately 28.3% of the shares
of Lazer-Tron Common Stock outstanding as of the Record Date. It is a condition
precedent to the obligations of Acclaim to consummate the Merger that Dissenting
Shares and/or shares of common stock of Lazer-Tron capable of becoming
Dissenting Shares after the Closing shall not constitute in excess of 10% of the
shares eligible to vote for such approval and adoption.
THE BOARD OF DIRECTORS OF LAZER-TRON HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF LAZER-TRON AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
RECOMMENDED A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENTS AND
THE MERGER.
41
<PAGE>
MARKET FOR ACCLAIM AND LAZER-TRON COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The Acclaim Common Stock and the Lazer-Tron Common Stock are traded on the
Nasdaq Stock Market's National Market System. On June __, 1995, the closing
sale prices for the Acclaim Common Stock and the Lazer-Tron Common Stock were
$_____ per share and $_____ per share, respectively. As of such date, there
were approximately _______ holders of record of the Acclaim Common Stock and 216
holders of record of the Lazer-Tron Common Stock.
The following table sets forth the range of high and low sales prices for
the Acclaim Common Stock and the Lazer-Tron Common Stock for each of the periods
indicated:
<TABLE>
<CAPTION>
Price(1)
------------------
Period High Low
------ ---- ---
<S> <C> <C>
ACCLAIM
- -------
Fiscal Year 1993
First Quarter $10.42 $ 6.25
Second Quarter 15.17 10.17
Third Quarter 17.83 11.00
Fourth Quarter 26.63 15.67
Fiscal Year 1994
First Quarter 31.38 21.75
Second Quarter 25.63 19.63
Third Quarter 27.13 13.25
Fourth Quarter 19.25 14.25
Fiscal Year 1995
First Quarter 20.63 15.63
Second Quarter 15.63 13.44
</TABLE>
(1) All common share information has been restated to reflect the three-for-two
stock split in the form of a 50% stock dividend distributed on August 23,
1993.
<TABLE>
<S> <C> <C>
LAZER-TRON
- ----------
Fiscal Year 1994
Fourth Quarter (from
May 26, 1994)(1) $ 8.25 $ 8.00
Fiscal Year 1995
First Quarter 10.88 8.00
Second Quarter 15.75 8.75
Third Quarter 10.00 7.00
</TABLE>
(1) Prior to May 26, 1994, there was no public market for Lazer-Tron Common
Stock.
42
<PAGE>
DIVIDEND POLICY
Neither Acclaim nor Lazer-Tron have paid any cash dividends since inception
and have no present intention to declare or pay cash dividends in the
foreseeable future. Certain covenants contained in the loan documents of
Acclaim and Lazer-Tron contain restrictions on the payment of dividends by
Acclaim and Lazer-Tron, respectively. Acclaim intends to retain any earnings
which it may realize in the foreseeable future to finance its operations.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF LAZER-TRON
The following table sets forth certain information, as of March 31, 1995,
with respect to the beneficial ownership of Lazer-Tron Common Stock by (i) each
person (including any "group") known by Lazer-Tron to be the beneficial owner of
more than 5% of Lazer-Tron Common Stock, (ii) each director, (iii) each named
executive officer and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Nature
of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership(1) Class
------------------- ------------ ----------
<S> <C> <C>
Bob K. Pryt (2) . . . . . . . . . . . . . . . . 323,136 8.9%
BKP Partners, L.P. (3) . . . . . . . . . . . . 298,636 8.3
Bryan M. Kelly (4) . . . . . . . . . . . . . . 226,180 6.3
Matthew F. Kelly (5) . . . . . . . . . . . . . 220,650 6.1
Andrew McCormick Kelly (6) . . . . . . . . . . 213,400 6.0
Genevieve D. Kelly (6) . . . . . . . . . . . . 213,400 6.0
Robert K. Williams, III (7) . . . . . . . . . . 205,750 5.8
Charles N. Mathewson (8) . . . . . . . . . . . 187,629 5.2
Norman B. Petermeier (9) . . . . . . . . . . . 156,034 4.3
Ronald M. Carrara (10) . . . . . . . . . . . . 4,666 *
Roger V. Smith (11) . . . . . . . . . . . . . . 6,500 *
Dr. Morton Grosser (12) . . . . . . . . . . . . 4,500 *
All directors and executive officers
as a group (10 persons) (13) . . . . . . . . . 990,651 26.4
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
(2) Includes the shares held by BKP Partners, L.P. ("BKP") and the shares
subject to a Sales Agent Warrant held by BKP identified in footnote (3)
and 4,500 shares subject to options exercisable within 60 days of March 31,
1995. Mr. Pryt is a director of Lazer-Tron. Mr. Pryt's address is
provided in footnote (3). The number of shares shown as beneficially owned
is based on the Schedule 13D for May 26, 1994 filed by Mr. Pryt and BKP.
44
<PAGE>
(3) Represents 254,799 shares held by BKP and 43,837 shares subject to a Sales
Agent Warrant exercisable within 60 days of March 31, 1995 held by BKP.
Mr. Pryt is the Managing General Partner of BKP. The address of BKP and
Mr. Pryt is One Sansome Street, Suite 3900, San Francisco, California
94104. The number of shares shown as beneficially owned is based on the
Schedule 13D for May 26, 1994 filed by Mr. Pryt and BKP.
(4) Includes 24,550 shares subject to options exercisable within 60 days of
March 31, 1995. Bryan M. Kelly is Vice President of Engineering and a
director of Lazer-Tron. His address is 4430 Willow Road, Pleasanton,
California 94588.
(5) Includes 24,950 shares subject to options exercisable within 60 days of
March 31, 1995. Matthew F. Kelly is Vice President of Marketing and a
director of Lazer-Tron. His address is 4430 Willow Road, Pleasanton,
California 94588.
(6) Represents 175,000 shares held by the Kelly Family Trust for Mark Kelly,
of which Genevieve D. Kelly is trustee and 38,400 shares held by the Kelly
Family 1992 Trust, of which Andrew McCormick Kelly and Genevieve D. Kelly
are trustees. Andrew McCormick Kelly and Genevieve D. Kelly are husband
and wife. Their address is 2470 Pioneer Drive, Reno, Nevada 89509.
(7) Includes shares held by Mr. Williams' IRA accounts, 6,000 shares subject to
options exercisable within 60 days of March 31, 1995 and 4,750 shares
subject to a Sales Agent Warrant exercisable within 60 days of March 31,
1995. His address is 153 Kingswood Circle, Danville, California 94506.
The number of shares shown as beneficially owned is based on the Schedule
13D for May 26, 1994 filed by Mr. Williams.
(8) Represents 167,000 shares held by the Charles N. Mathewson Trust and 20,629
shares subject to a Sales Agent Warrant exercisable within 60 days of March
31, 1995 held by the Charles N. Mathewson Trust. His address is c/o
International Game Technology, 5270 Neil Road, Reno, Nevada 89502. The
number of shares shown as beneficially owned is based on the Schedule 13D
for July 13, 1994 filed by Mr. Mathewson.
(9) Includes 34,516 shares subject to options exercisable within 60 days of
March 31, 1995. Mr. Petermeier is President, Chief Executive Officer and
Chairman of the Board of Directors of Lazer-Tron.
(10) Represents shares subject to options exercisable within 60 days of March
31, 1995. Mr. Carrara is Vice President of Sales of Lazer-Tron.
(11) Includes 4,500 shares subject to options exercisable within 60 days of
March 31, 1995. Mr. Smith is a director of Lazer-Tron.
(12) Represents shares subject to options exercisable within 60 days of March
31, 1995. Dr. Grosser is a director of Lazer-Tron.
(13) Includes the shares subject to options and the Sales Agent Warrant
described in footnotes (2), (4), (5) and (9)-(12), 1,820 additional shares
and 47,165 additional shares subject to options exercisable within 60 days
of March 31, 1995.
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LAZER-TRON
Overview
Lazer-Tron, which was incorporated in 1988, designs, develops, manufactures
and markets coin- and token-operated redemption games for use by family
entertainment centers and other entertainment venues, including shopping malls
and free-standing arcades and amusement and theme parks. The coin-operated
amusement industry includes video games, pinball games, table and sports games
and redemption games. Redemption games typically award a player ticket based on
the player's skill level in playing the game. The tickets may be redeemed for
prizes and merchandise available at the facility offering the redemption games
("Operators"). In recent years the redemption game market experienced increased
popularity primarily due to the expansion of the family entertainment facilities
and arcades offering prize counters. Lazer-Tron entered the redemption game
market as the growth of that market was accelerating and established a strong
position in the redemption market as a manufacturer of innovative, high-quality
and technologically-advanced games.
During recent periods, the coin-operated game market has experienced a
general softness in demand due in part to a slowing of expansion in the number
of new arcade/family entertainment center locations, consolidation of business
at the Operator and distributor levels, as well as increased competition from
existing game manufacturers and new entrants. Lazer-Tron is attempting to
mitigate these shifts in the marketplace by expanding sales into foreign markets
and diversifying into non-ticket redemption games (such as the one-player
Pogger, initially shipped in February 1995), as well as other coin-operated
games such as sports and table games currently in development. However, these
efforts are expected to take time to generate benefits, if any. In addition,
long-term growth in the coin-operated game market depends greatly on the
Operators ability to properly manage their businesses, which includes proper
equipment maintenance and successful promotion, presentation and marketing of
their merchandise.
In addition to the changes occurring in the coin-operated business, the
demand for redemption games is seasonal. Historically, the majority of
deliveries in the industry take place prior to summer time (Lazer-Tron's fourth
fiscal quarter) and to a lesser extent, prior to the Christmas holiday season
(Lazer-Tron's second fiscal quarter) -- when family entertainment centers and
other entertainment venues typically expect their largest volumes of business
(due primarily to the timing of school holidays and family vacations).
Lazer-Tron believes that it will continue to experience the effects of these
seasonality factors, which may adversely affect results for its first fiscal
quarter and, particularly, its third fiscal quarter. In addition, a significant
portion of Lazer-Tron's expenses are relatively fixed, and if sales decrease for
any reason in a single quarter, gross profits and operating results for that
quarter could be adversely affected.
As a result of competition and ever-changing customer preferences, it can be
expected that a majority of the net sales realizable from a game will generally
be recognized within the first few years following its introduction. From the
viewpoint of the Operator, a game must provide an attractive rate of return by
possessing the proper level of "play appeal" and promote repeat business so
players will return to try to win more tickets for bigger and better prizes.
Accordingly, it is necessary for Lazer-Tron to continue to successfully develop
and market new products as replacements for older redemption games generating
decreasing levels of revenue. As a result of Lazer-Tron's increased pace of
product introductions, research and development expenses have increased
substantially.
Lazer-Tron has and will continue to experience pressure to increase its
salaries and related employee benefits in order to recruit and retain qualified
personnel, in particular engineers and administrative staff. Historically,
Lazer-Tron's salary structure has been generally below market. Lazer-Tron s
growth through fiscal 1994 necessitated, and will continue to require,
expenditures to implement and increase the effectiveness of its administrative ,
accounting and manufacturing controls, procedures and information systems. In
addition, Lazer-Tron has incurred incremental professional and other expenses
associated with its status as a public company.
46
<PAGE>
Results of Operations
General
The following table sets forth for the periods indicated the percentage of
net sales represented by each item reflected on Lazer-Tron's statements of
income:
<TABLE>
<CAPTION>
Percentage of Net Percentage of
Sales Net Sales
--------------------- ---------------
Year Ended Nine Months
June 30, Ended March 31,
--------------------- ---------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . 74.9 70.7 66.4 67.2 67.0
----- ----- ----- ----- -----
Gross profit . . . . 25.1 29.3 33.6 32.8 33.0
Operating expenses:
Research and development 3.0 2.5 2.9 3.2 10.1
Selling, general and
administrative . . . . . 15.2 13.6 12.7 12.6 16.0
----- ----- ----- ----- -----
Total operating
expenses . . . . . . 18.2 16.1 15.6 15.8 26.1
----- ----- ----- ----- -----
Operating income . . . . . 6.9 13.2 18.0 17.0 6.9
Merger costs . . . . . . . - - - - (2.5)
Interest income (expense),
net . . . . . . . . . . (1.4) (0.5) 0.3 0.1 2.9
----- ----- ----- ----- -----
Income before income taxes 5.5 12.7 18.3 17.1 7.3
Provision for income taxes 0.7 3.5 7.3 6.9 3.2
----- ----- ----- ----- -----
Net income . . . . . . . . 4.8% 9.2% 11.0% 10.2% 4.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
Net Sales
Net sales increased 147% from $2,922,000 in fiscal 1992 to $7,215,000 in
fiscal 1993 and increased 113% to $15,377,000 in fiscal 1994. The growth in
sales was principally the result of the increased number of product offerings
introduced by Lazer-Tron. Net sales decreased 4% from $10,288,000 in the first
nine months of fiscal 1994 to $9,900,000 in the same period for 1995. Sales in
the first nine months of fiscal 1995 were impacted by a general softness in
arcade/family entertainment center demand for new games and the entrance of new
competitors. Further, results were affected by the timing and acceptance of new
product introductions. The second and third quarters of fiscal 1994 benefited
from strong demand for Aftershock, which was initially shipped in July 1993 and
Ribbit Racin, Lazer-Tron's strongest selling game ever, which was initially
shipped in October 1993. While Lazer-Tron has initially shipped five new games
in September 1994 and four in the third quarter of fiscal 1995, the Company
believes that sales of these games were adversely affected by (i) the slow down
in the industry and (ii) introduction of games later in the year as compared to
the timing of new game introductions in prior years. Other revenue contained in
net sales -- generated from customer service and royalties, was $376,000,
$173,000, $97,000, $109,000 and $259,000 in fiscal 1992, 1993 and 1994 and for
the first nine months of fiscal 1994 and fiscal 1995, respectively.
Lazer-Tron's pace of new product introductions has increased, with nine
games initially shipped during the first nine months of fiscal 1995, as compared
to four games in the first nine months of fiscal 1994, six games in all of
fiscal 1994, five games in fiscal 1993 and one game in fiscal 1992. As a result
of the variety of games offered for sale, Lazer-Tron believes it is now less
dependent upon sales of any one game during a fiscal period.
47
<PAGE>
For example, during fiscal 1992 four games were available, with one, Bank-It,
representing approximately 50% of net sales. As further illustration, during
fiscal 1993 the Spin-to-Win series represented approximately 70% of game sales,
whereas in fiscal 1994 the Spin-to-Win series and two games introduced in 1994,
Ribbit Racin and Aftershock, represented approximately 70% of the game sales.
Finally, for the first nine months of fiscal 1995, the Spin-to-Win series,
Ribbit Racin, Aftershock and three games initially shipped in 1995, Pirate's
Gold and Pogger (single- and four-player) represented approximately 70% of total
game sales. Lazer-Tron intends to discontinue manufacturing three of its older
games -- Haunted House, Shuttle Launch and Vine Climb -- during fiscal year
1995; however, they will continue to be available on a special order basis.
In an effort to offset seasonality in the U.S. and in order to expand into
new markets, Lazer-Tron is continuing to develop distributor relationships in
Europe, South America, Vietnam, South Africa, the Middle East and China, among
others. Due to prior efforts in these and other international markets, foreign
sales grew from $138,000 to $1,765,000 to $3,240,000 in fiscal 1992, 1993 and
1994, respectively, and from $2,250,000 to $3,100,000 in the first nine months
of fiscal 1994 and 1995, respectively.
Gross Profit
Gross profit increased 189% from $733,000 in fiscal 1992 to $2,116,000 in
fiscal 1993. The improvement in gross profit margin from 25.1% of sales in
fiscal 1992 to 29.3% in fiscal 1993 was primarily due to increased manufacturing
and purchasing efficiencies gained as a result of increased sales volume.
Lazer-Tron also realized a higher sales price on the Super Bank-It product sold
in fiscal 1993 than on the Bank-It sold in fiscal 1992. Gross profit increased
144% from $2,116,000 in fiscal 1993 to $5,169,000 in 1994. The improvement in
gross profit margin from 29.3% of sales in fiscal 1993 to 33.6% in 1994 was
primarily due to Lazer-Tron's continued ability to realize increased
manufacturing and purchasing efficiencies as a result of increased sales and the
consolidation of all operations into one building in May 1993. Gross profit
decreased 3% from $3,371,000 in the first nine months of fiscal 1994 to
$3,269,000 in the same period for fiscal 1995 due to the decline in net sales.
However, the gross profit margin remained steady for the first nine months of
fiscal 1994 and 1995 at 32.8% and 33.0% of sales, respectively.
The mix of games sold in fiscal 1994 and the first nine months of fiscal
1994 and 1995 positively impacted the gross profit margin since more of the
higher margin games, such as Ribbit Racin and Spin-to-Win series, were sold.
These favorable trends offset higher royalty expenses incurred by Lazer-Tron in
fiscal 1994 as compared to fiscal 1993. However, royalty expense as a percent
of sales dropped from approximately 5% in fiscal 1993 (an increase from
approximately 3% in fiscal 1992), to 4% for the first nine months of fiscal 1994
and to approximately 3% in fiscal 1994 and the first nine months of 1995; this
trend was a result of the reduction in the number of games sold in the product
mix that are subject to royalty agreements.
While Lazer-Tron games tend to be priced slightly higher than competitive
products, to date product pricing pressure appears to be a result of the
earnings and return on investment potential derived from a game by an Operator.
Due to increasing competition, Lazer-Tron may need to reduce prices in the
future, which could adversely affect gross profit margins.
Research and Development (R&D)
R & D expenses increased 106% from $88,000 in fiscal 1992 to $181,000 in
fiscal 1993, increased 150% to $452,000 in fiscal 1994 and increased 205% from
$330,000 in the first nine months of fiscal 1994 to $1,005,000 in the same
period for fiscal 1995. R&D expenses, as a percentage of net sales, decreased
from 3.0% in fiscal 1992 to 2.5% in fiscal 1993, increased to 2.9% in 1994 and
increased from 3.2% for the first nine months of fiscal 1994 to 10.1% in the
same period for fiscal 1995. R & D costs, including payroll and related,
temporary labor, consulting fees, prototype materials and supplies, are expensed
as incurred. The growth in R&D costs was primarily due to acceleration of game
development, leading to increased personnel requirements and prototype material
costs. For example, at March 31, 1994 Lazer-Tron had ten permanent engineers as
compared to 16 at
48
<PAGE>
March 31, 1995. In addition, during the first nine months of fiscal 1995,
Lazer-Tron established an in-house sound studio and hired its initial video
development team. R&D expenses are expected to increase on a per game basis and
overall as Lazer-Tron continues to increase the pace of product introductions
and begins development of video ticket redemption and other leading edge video
games.
Selling, General and Administrative (SG&A)
SG&A expenses increased 121% from $444,000 in fiscal 1992 to $982,000 in
fiscal 1993, increased 98% to $1,947,000 in fiscal 1994 and increased 22% from
$1,297,000 in the first nine months of fiscal 1994 to $1,582,000 in the same
period for fiscal 1995. SG&A expenses decreased as a percentage of net sales
from 15.2% in fiscal 1992 to 13.6% in fiscal 1993 and to 12.7% in fiscal 1994
and increased as a percentage of net sales from 12.6% for the first nine months
of fiscal 1994 to 16.0% in the same period in 1995. The increases in SG&A
expenses for all periods is primarily attributable to: (i) attendance at more
national and international trade shows, including expanded visibility at each
show; (ii) efforts in developing international distributor relationships; (iii)
expanded business development activities; and (iv) adjustments in salaries
towards market levels. In addition, during May 1993, Lazer-Tron moved into its
new facility, increasing rent and other occupancy expenses during fiscal 1994
and the first nine months of fiscal 1995, as compared to fiscal 1992 and 1993.
Furthermore, Lazer-Tron has incurred significant additional costs during fiscal
1995 related to being a public company. SG&A expenses are expected to continue
to increase as the Company expands into new arenas.
Merger Costs
On March 22, 1995, Lazer-Tron entered into the Merger Agreement with
Acclaim and the Subsidiary. The parties intend that the merger, if consummated,
will be a tax-free transaction, that it will be accounted for as a pooling of
interests and that it will result in Lazer-Tron being a wholly-owned subsidiary
of Acclaim. Through the first nine months of 1995, Lazer-Tron incurred merger
costs (comprised primarily of legal, financial advisor and accounting fees) of
approximately $249,000. The Company expects to incur additional merger-related
costs prior to closing, and such costs could be material to the Company's
results for its fourth fiscal quarter.
Interest Income (Expense), Net
Lazer-Tron had minimal interest-earning cash balances in fiscal 1992 and
1993. Interest income of $51,000 was generated in 1994 from interest-earning
short-term investments. As a result of the repayment of certain borrowings from
shareholders and from a bank, interest expense decreased from approximately
$40,000 in fiscal 1992 and $33,000 in 1993 to a negligible amount in 1994.
Lazer-Tron had minimal interest-earning cash balances for the first nine
months of fiscal 1994. Interest income for the first nine months of fiscal 1995
was generated by U.S. Treasury Bills and money market investments. Interest
income increased for the first nine months of fiscal 1995 as compared to 1994
due to earnings on the proceeds from the initial public offering on May 26,
1994, proceeds from the exercise of the related underwriter over-allotment
option on July 15, 1994 and proceeds from other miscellaneous stock
transactions.
Tax Rates
For the first nine months of fiscal 1995, Lazer-Tron's provision for income
taxes has been computed based on a projected effective tax rate of 35% applied
to the Company's pre-tax earnings from ongoing operations. The tax effect of
the costs related to the proposed merger with Acclaim are separately accounted
for in the quarter in which the expenditures are incurred. It is expected that
the Company will not realize any tax benefit with respect to the majority of
merger-related expenditures.
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Lazer-Tron's effective tax rate in fiscal 1992, 1993 and 1994 was 13%, 27%
and 40%, respectively. The tax rates in fiscal 1992 and 1993 were lower
primarily due to the tax benefit associated with the utilization of net
operating tax loss carryforwards. The projected effective tax rate of 35% in
fiscal 1995 (before merger costs) is expected to be favorably impacted by the
benefits associated with increased use of the foreign sales corporation and
research and development credits.
Net Income Per Share
Lazer-Tron's net income per share was calculated at June 30, 1992, 1993 and
1994 using a weighted average number of shares outstanding of 2,648,000,
2,670,000 and 2,888,000, respectively. Lazer-Tron's net income per share for
the first nine months of fiscal 1994 and 1995 was calculated using a weighted
average number of shares outstanding of 2,785,000 and 4,036,000, respectively,
reflecting an increase of 45% for the first nine months of fiscal 1995 compared
with the first nine months of 1994; this increase is due to the May 26, 1994
initial public offering and exercise of the overallotment option in July 1994.
Subsequent net income per share calculations, as compared to fiscal 1994, will
continue to be impacted by the shares issued in the initial public offering.
Liquidity and Capital Resources
Lazer-Tron had total assets of $13,291,000 at June 30, 1994 and $13,844,000
at March 31, 1995. In connection with Lazer-Tron's initial public offering in
May 1994, it received $859,000 in July 1994 representing the proceeds (net of
expenses) from the underwriter's exercise of the over-allotment option of
119,430 shares of its Common Stock. As of March 31, 1995, Lazer-Tron's unused
sources of funds included $7,893,000 in cash and cash equivalents. Lazer-Tron
has its cash equivalent balance invested primarily in 90-day U.S. Treasury
Bills. In addition, Lazer-Tron has a $2,000,000 unsecured working capital
revolving credit facility calculated as a percentage of eligible accounts
receivable. Borrowings under the credit facility bear interest at prime plus 1%.
Lazer-Tron had no outstanding borrowings under this line of credit as of March
31, 1995.
As compared to June 30, 1994, Lazer-Tron's cash position improved by
$840,000 during the first nine months of fiscal 1995. This is a result of
proceeds from the sale of Lazer-Tron stock of $1,146,000 and the maturity of a
short-term investment of $202,000, offset by $268,000 expended for working
capital requirements and $240,000 expended for equipment acquisitions (primarily
R&D).
Cash requirements are expected to continue to increase in order to fund:
(i) personnel and salary costs; (ii) research and development costs; (iii)
investment in additional technical equipment; and (iv) working capital
requirements.
Lazer-Tron believes that the cash generated from operations, cash presently
on hand, and the availability of the credit facility, will be sufficient to meet
Lazer-Tron's cash needs through the third quarter of fiscal 1996. Beyond that,
Lazer-Tron may require additional equity or debt financing to address its
working capital or capital equipment needs.
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BUSINESS OF LAZER-TRON
General
Lazer-Tron, which was incorporated in 1988, designs, develops, manufactures
and markets coin- and token-operated redemption games for use by family
entertainment centers and other entertainment venues, including shopping malls
and free-standing arcades and amusement and theme parks. The coin-operated
amusement industry includes video games, pinball games, table and sports games
and redemption games. Redemption games typically award a player tickets based
on the player's skill level in playing the game. The tickets may be redeemed
for prizes or merchandise.
The redemption game market has experienced increased popularity in recent
years as families sought out-of-the-home entertainment for the entire family,
such as that offered at family entertainment centers and other entertainment
venues. Lazer-Tron believes that the increased popularity of redemption games
has been affected by the growth in the number of family entertainment centers
and other entertainment venues, advances in the technology used in the games,
the increased demand for wholesome family-oriented entertainment and the marked
improvement in quality of redemption merchandise and merchandising techniques.
Lazer-Tron believes that families have been drawn to family entertainment
centers and other entertainment venues that offer redemption games because the
customers are offered an attraction not available in the home and they can
acquire quality merchandise with the tickets earned from playing the games.
From the viewpoint of the Operator, redemption games can provide an attractive
rate of return and tend to promote repeat business, as players try to win more
tickets for bigger and better prizes.
However, during recent periods,the coin-operated game market has
experienced a general softness in demand due in part to a slowing of expansion
in the number of new arcade/family entertainment center locations, consolidation
of business at the Operator and distributor levels, increased competition from
existing game manufacturers and new entrants and the absence of "hit" video
games which draw traffic into arcades and entertainment center locations,
thereby increasing demand for redemption games. See "Risk Factors."
Products
Lazer-Tron's goal is to offer games that appeal to a wide age group, are
simple, fun, durable and well "themed." Lazer-Tron's games utilize advanced
technologies, including microprocessors, opto-electronic and electro-mechanical
devices to enhance the look, feel, sound and play of its games. For example,
Lazer-Tron was among the first in the redemption game market to combine digital
sound effects, sensing technologies, lighting and mechanical events to provide
interaction with each event occurring during the game. By synchronizing sound
effects to actions of a player, such as by "announcing" that a player tossed the
wrong colored ball into a target in Awesome Toss 'Em, Lazer-Tron strives to
provide a high level of player interaction. To add to the enjoyment of a game,
Lazer-Tron seeks to develop games that are highly visual through the use of
appealing themes, artwork, decals and cabinetry, in addition to lights and
sound.
Lazer-Tron currently offers 21 games, in addition to the Bonus Jackpot
Display, a programmable feature which links multiple games in order to provide
an increasing ticket jackpot that can be won by the players of any of the linked
games. Lazer-Tron's best selling games in fiscal 1994 were the Spin-to-Win
series, Ribbit Racin, and Aftershock, and for the first nine months of fiscal
1995 were the Spin-to-Win series (includes Spin-to-Win, Jungle Rama and Spin A
21), Ribbit Racin, Aftershock, Pirate's Gold and Pogger. In order to expand
into new markets, Lazer-Tron has introduced games such as the Pogger series and
Ring Toss which can be placed in non-redemption venues, such as bowling alleys,
malls, pizza parlors and movie theaters.
A representative example of the Company's games is Aftershock, an exciting
interactive coin-sliding game that includes a colorful, high-quality graphic
depiction of San Francisco, complete with flashing lights and digital
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sound. Upon depositing a coin or arcade token (generally 25 cents, or a
multiple thereof) into the game, the game's playfield vibrates, in a whimsical
emulation of an earthquake, and a mock "Richter Scale" displays a "magnitude
one" tremor. The player, verbally encouraged by the game, tips the downward
sloping playfield to the left or right through physical movement of a large
T-bar to guide the coin (including, for example, guiding the coin across the
Golden Gate Bridge) into the high point target holes worth up to 60 tickets.
The game is designed so that every coin will result in at least a one-ticket
win. The average per-coin play time is approximately 8 seconds. Dropping
successive coins in the game increases the Richter Scale, as well as the level
of tickets awarded; when the Richter Scale registers "magnitude five" the player
is afforded the opportunity to win a bonus jackpot. Multiple Aftershock games
may also be interconnected by adding a progressive Bonus Jackpot Display
feature.
Typically if a game achieves market acceptance it generates the majority of
its revenue in the first few years of sales, but may continue to generate
revenue over a number of years. However, the pace of new game introductions has
increased, which could result in shorter product life cycles. Lazer-Tron's pace
of new product introductions has increased, with nine games initially shipped
during the first nine months of fiscal 1995, as compared to six in fiscal 1994
and five in fiscal 1993. As a result of the variety of its product offerings,
Lazer-Tron believes it is now less dependent upon sales of any one game during a
fiscal period. For example, Spin-To-Win, which was initially shipped in August
1992, generated the most revenue for fiscal 1993, while in fiscal 1994, the
Spin-To-Win series and two games initially shipped in fiscal 1994, Ribbit Racin
and After Shock, represented approximately 70% of total game sales. For the
first nine months of fiscal 1995, the Spin-To-Win series, Ribbit Racin,
Aftershock, and three games initially shipped in fiscal 1995, Pirate's Gold and
Pogger (single and four players), represented approximately 70% of total game
sales.
The following is a list of all of the products which are currently being
offered by Lazer-Tron:
<TABLE>
<CAPTION>
Initial
Shipment
Product Name Date Type of Game
- ------------ -------- ------------
<S> <C> <C>
Haunted House* November A coin or operator controlled six, nine or
1988 twelve player "laser" gun shooting gallery
that allows players to compete in a high-
speed shooting contest.
Shuttle Launch/Vine February A two player or larger carnival style "laser"
Climb* 1990/ gun race competition.
February
1993
Bank-It**/Super Bank- December The player flips coins or tokens into
It**/Super Bank-It 1991/ varying-prize stationary and moving baskets.
II September The player can also win tickets if the coin
1992/ falls off the pusher play field.
September
1994
Spin-to-Win August 1992 By rolling balls into slots, the player moves
or "spins" a fortune-type wheel to attempt to
win tickets.
Jungle Rama December A children's jungle-themed version of the
1992 Spin-to-Win game.
Slugger's Alley May 1993 An interactive baseball batting simulator
which announces the outcome of the players'
hits.
Aftershock July 1993 A coin sliding game with a tilting, vibrating
play field themed after a San Francisco
earthquake.
Spin A 21 September A blackjack-themed version of the Spin-to-Win
1993 game.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Initial
Shipment
Product Name Date Type of Game
- ------------ -------- ------------
<S> <C> <C>
Ribbit Racin October A two player or larger whack-em and smack-em
1993 mallet game where players smack randomly
flashing frog faces to race their frogs
toward the finish.
Awesome Toss 'Em October A ball toss game featuring Lazer-Tron's color
1993 recognition technology. Tickets are awarded
based on the number of balls thrown into
matching color baskets.
Shake, Rattle & Roll May 1994 A ball accelerates on a rapidly-spinning
turntable until released by the player, who
can further direct the ball toward targets by
tilting the play field.
Wild Thing May 1994 A multi-featured baseball-themed pinball
shooting game, where tickets are won based in
part upon the speed with which the player can
complete the game.
Bonus Jackpot August 1992 A progressive jackpot feature used with
Display multiple Spin-to-Win, Jungle Rama, Spin A 21,
Aftershock, Shake, Rattle & Roll, The Wave,
Pirate's Gold and Wheelin-N-Dealin games.
The Flintstones September A colored ball toss game that makes Fred and
1994 Barney race, with the winner declared as the
first player to the top.
Pogger - (4 player) September A 4 player rotary merchandiser in which
1994 players attempt to win POGs , milkcaps or
slammers.
The Wave September An exciting baseball themed coin-sliding game
1994 that allows a player to guide their coin down
the baseball playfield into target holes.
Pirate's Gold September A fast paced coin drop game where players
1994 navigate their coin through the pins into the
target holes or the treasure chest.
Wheelin-N-Dealin January Players attempt to stop the dual spinning
1995 hands on the desires slots while avoiding the
bankrupt slots.
Pogger - (single February Depending on the configuration, a rotary
player) 1995 merchandiser that allows the player to win
POGs , milkcaps, slammers or candy.
Swamp Stomp March 1995 A two player foot stomping game where players
race their characters across the tricky
alligator's back to reach the treasure.
Ring Toss March 1995 A fully automated midway ring-toss version of
the all-time classic as players try to toss
the rings onto soda bottles. Lazer-Tron's
new patent pending object version systems
will detect if the rings are on the bottles.
</TABLE>
- ------------
* To be discontinued in 1995, except for special orders.
** No longer offered, however the Company provides conversion kits to upgrade
to Super Bank-It II.
In developing its games, Lazer-Tron recognizes the need to balance skill
and fun of the player with the revenue generating objectives of the Operator.
To address an Operator's need to appeal to a variety of players, Lazer-Tron
develops games targeted for different age groups. For example, games such as
Ribbit Racin, Jungle Rama, Swamp Stomp, Pogger and Flintstones are designed to
appeal to children, while Spin-To-Win, Spin A 21,
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Wheelin-N-Dealin and Pirate's Gold are more adult-oriented. Redemption game
arcades are a combination of fun game offerings and merchandising. Successful
Operators recognize the need to tailor the skill level of their games and the
ticket payback rate to their customers. Lazer-Tron's games include features
which enable the Operator to change play dynamics to fit his customer base.
Certain games, such as Aftershock, can be adjusted for different skill levels by
changing the vibration of the play field. All games allow the Operator to vary
the number of tickets that are awarded to the player.
Product Development
Lazer-Tron has historically focused on new redemption games. Lazer-Tron
utilizes advanced technologies which may have been developed for other markets
(such as its use of color recognition chips in Awesome Toss 'Em and the use of
high speed charged coupled scanning devices and digital signal processors in
Ring Toss) and seeks to apply these technologies to redemption games. In
addition, Lazer-Tron seeks to utilize its experience in the development of
redemption games to (i) develop other coin-operated games, such as table and
sports games, and (ii) develop games that utilize video technology for
redemption arcade games.
Lazer-Tron conceptualizes games internally, and, when appropriate, licenses
game concepts from third parties. Once a concept for a game is formalized into
a design, the development of a product consists of implementing the design
through development of required electronics, artwork, sound/voice effects and
product cabinets. Most of the development work is done by Lazer-Tron or by
outside contractors at Lazer-Tron's direction. In certain instances, Lazer-Tron
engages independent artists or designers to assist with artwork. Lazer-Tron
recently constructed its own sound studio in order to provide sound and sound
effects for its games. Lazer-Tron's products require varying degrees of
development time depending upon game design, type of game activities and general
complexity of the product. The typical length of development has historically
ranged from eight to twelve months after the initial creation of a product
idea. As games become more complex, development time and cost have increased.
Lazer-Tron licensed the initial concepts for Bank-It series, Spin-to-Win
series, Aftershock, The Wave and Pogger from third parties. In each case, based
upon the licensed concept, Lazer-Tron designed and developed the final product.
Lazer-Tron owns all intellectual property and product rights to all other
licensed product concepts. Lazer-Tron pays royalties calculated as a percentage
of sales at rates generally ranging from 3% to 8%, depending on the nature of
the product, the volume of sales and the extent of development performed by the
licensor and other factors. In addition, Lazer-Tron has licensed the Flintstone
name, characters and music for its Flintstones game and music for its Wild Thing
game. The license for Wild Thing is an exclusive license which terminates in
1997.
In fiscal 1993 and 1994 and the first nine months of fiscal 1995,
Lazer-Tron's research and development expenditures were approximately $181,000,
$452,000 and $1,005,000, respectively. Lazer-Tron's engineering staff currently
consists of its Vice President of Engineering, fifteen permanent engineers (most
of whom have been hired within the last 12 months) and one temporary engineer.
Lazer-Tron also uses several consultants and outside graphic design groups.
Lazer-Tron has substantially increased its engineering and development staff
during the last twelve months (including engineers with video experience) in
order to devote additional resources to developing new products. However, there
can be no assurance that Lazer-Tron will be able to develop and introduce new
games on schedule or that such new games will achieve market acceptance.
Marketing and Distribution
Lazer-Tron's products are sold predominantly on a non-exclusive basis to
distributors. Lazer-Tron utilizes approximately 30 distributors in the United
States, in addition to 19 international distributors in countries such as
Argentina, Australia, Brazil, Canada, England (covering the European Economic
Community, as well as all of Eastern Europe), Taiwan, Singapore, Hong Kong and
Mexico. Sales to distributors accounted for a substantial majority of
Lazer-Tron's net sales in fiscal 1993 and 1994 and the first nine months of
1995. As is
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customary in the industry, Lazer-Tron does not have contracts with the majority
of its distributors. Typically, a distributor will order five or fewer units of
a new game in order to sample and test the games. Future orders are based upon
game test results and expected demand. Although distributors are generally not
offered price protection or return privileges and revenue is recognized by
Lazer-Tron upon shipment, Lazer-Tron maintains reserves for potential credit
losses and returns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Lazer-Tron."
The primary method for marketing Lazer-Tron's products to Operators and
distributors is at industry trade shows and through advertisements in industry
trade magazines. Lazer-Tron generally has a booth at each trade show to
demonstrate its products. In addition, many of Lazer-Tron's distributors
actively market Lazer-Tron's games to Operators through their own sales forces
and distributor open house events.
Customers and Backlog
For the first nine months of fiscal 1995 and fiscal 1994, no customer
accounted for 10% or more of net sales. For fiscal 1993, Nickels and Dimes,
Incorporated was the largest customer, accounting for approximately 11% of net
sales.
International sales, principally to distributors in the Far East, were
approximately $1,765,000 and $3,240,000 for fiscal 1993 and 1994, respectively,
and $2,250,000 and $3,100,000 for the first nine months of fiscal 1994 and 1995,
respectively. To sell its games internationally, it is sometimes necessary to
customize the game to the particular country, including changes to artwork,
targets, language or music to fit the target region's culture. Lazer-Tron
believes these changes can generally be implemented relatively inexpensively and
quickly.
As of March 31, 1995, backlog, consisting of orders accepted by Lazer-Tron
for shipment typically within 90 days, was approximately $1,300,000 as compared
to approximately $1,700,000 as of March 31, 1994. Approximately 33% of the
March 31, 1995 backlog consists of orders for Ring Toss. While orders are not
typically subject to cancellation, there can be no assurance that all orders in
backlog will be shipped. Backlog may not be indicative of future expected
sales.
Production and Manufacturing
Lazer-Tron's products are manufactured at its facilities in Pleasanton,
California. The manufacturing process consists principally of the purchasing,
assembly, testing and system integration of component parts and subassemblies
manufactured by others into a finished game. Lazer-Tron subcontracts the
production of printed circuit boards to its specifications. Electronic
components, many of which are common to several of Lazer-Tron's games, are
purchased and kitted by Lazer-Tron and sent to an outside vendor for board
stuffing and soldering. Lazer-Tron conducts testing of component parts, printed
circuit boards, subassemblies and final products prior to shipment.
To date, Lazer-Tron has not encountered any material difficulties or delays
in manufacture or assembly of its products. All of Lazer-Tron's material
components are available from multiple sources. During fiscal 1995, Lazer-Tron
developed second sources for finished game cabinets, artwork and decals and
certain electronic components that were previously sole-sourced. Any disruption
of Lazer-Tron's relationships with its key sole source suppliers or
manufacturers or other limitations on the availability of these parts could have
an adverse affect on Lazer-Tron's business and operating results.
Lazer-Tron generally offers a limited three month warranty on products
sold. Lazer-Tron's games have certain self diagnostic capabilities that allow
distributors and Operators to troubleshoot and repair the games in the field.
Lazer-Tron believes in strong customer support and provides free over-the-phone
troubleshooting advice, in addition to a parts swap program where Lazer-Tron
will, for a fixed fee, send new printed circuit boards or other parts to an
Operator in advance of receipt of the exchanged defective part.
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<PAGE>
Competition
Competition in the coin-operated amusement games market is intense and is
based primarily on an evaluation by the Operator as to the earnings potential,
profitability, quality and longevity of the game. The strength of a company's
product offerings, product quality and reliability, customer support, reputation
and its sales and distribution network are also factors impacting competition.
Lazer-Tron believes it competes favorably in each of these areas and, in
particular, believes it has achieved a good reputation for developing quality
and innovative games. However, as consumers' tastes for higher technology
interactive products increase, there can be no assurance that Lazer-Tron's
current or future products will remain competitive.
Competition for Lazer-Tron's games comes from other manufacturers of arcade
redemption games and from manufacturers of other electronic or video games.
Lazer-Tron's current competitors for arcade and amusement park redemption games
are both domestic and foreign businesses. Lazer-Tron's games also compete with
video games, which offer greater sophistication of graphics, animation and other
features than Lazer-Tron's games. Video game manufacturers include large public
domestic and international companies, which have significantly greater financial
resources, technical capabilities, distribution channels and broader recognition
than Lazer-Tron. Each of the coin-operated game manufacturers competes for
player acceptance of the games and for floor space in the arcades and other
family entertainment venues. A key factor in the industry is to be able to
create products which attract the player and generate repeat plays. Player
appeal of a game is a highly subjective quality related to the interaction of
the player and the game and is a function of design, hardware, software and play
features, in addition to the visual and sound effects.
According to industry-trade magazines, Operators are experiencing a decline
in revenue due in part to the absence of a recent "hit" video game which helps
draw customers to the arcade. In addition, during recent periods, the
redemption game segment of the coin-operated game market has experienced slower
expansion of the number of new family entertainment center and arcade locations,
an increasing consolidation of business at the Operator and distributor levels,
as well as increased competition among existing and new game manufacturers.
Lazer-Tron believes the distribution business for the coin-operated game
industry is undergoing consolidation, resulting in fewer distributors which may
have the effect of increasing pricing pressure on game manufacturers. Further,
large companies such as Sega, Namco, Sony, Block Buster and Cineplex Odeon movie
theaters have announced plans to enter, or to expand their presence within, the
location-based entertainment business. Certain of these companies offer their
own games which may create greater competition among game suppliers, as well as
affecting the ability of small Operators to compete. The historical growth in
the redemption game market has attracted new competitors (generally small
closely held companies) to the market. However, large companies, such as Time
Warner Interactive (which includes Atari), Sega, Data East, Konami, Sammy,
Electronic Arts and Mattel have recently entered or announced their intention to
enter, or to expand their presence within, the coin-operated redemption game
market.
Lazer-Tron's games also face competition from other forms of entertainment,
both within and outside of the home. There can be no assurance that
Lazer-Tron's games or the redemption industry will be able to compete
effectively in the future with new forms of in-the-home and out-of-the home
entertainment.
Patents, Proprietary Rights and Licenses
Lazer-Tron has actively sought patent protection in the United States on
its products where available. Games that are "hits" are often emulated and
Lazer-Tron believes by patenting its games it may be able to better protect its
competitive position. Lazer-Tron has received five United States patents with
lives of 17 years. Lazer-Tron's first patent covers the use of optical encoded
multiple frequencies of light in interactive game products. This technology is
utilized in the Haunted House game. Lazer-Tron received a United States patent
in 1994 relating to the combination of games and a progressive bonus apparatus
used with multiple games, such as the Bonus Jackpot Display. Other Lazer-Tron
patents include a patent relating to a ball roll-down game with a spinning wheel
and a patent relating to the velocity and direction of a ball used in Slugger's
Alley. Lazer-Tron
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<PAGE>
has eight United States patent applications pending, including applications with
respect to the vibrating playfield of Aftershock and the color recognition of
Awesome Toss 'Em. To date, due in part to cost considerations, Lazer-Tron has
not pursued obtaining patents outside of the United States and currently has one
foreign pending patent application. Lazer-Tron also has registered trademarks
on its Bank-It, Super Bank-It, Aftershock and Slugger's Alley games. Where
appropriate, Lazer-Tron also may seek copyright protection on its software, game
play, graphics design, technical manuals and schematics.
Lazer-Tron has obtained from a privately-held arcade Operator certain
product concept rights in connection with the development of its Bank-It series,
Spin-to-Win series, Aftershock and The Wave products, and obtained product
concept rights to develop Pogger from another third party. Lazer-Tron is the
exclusive owner of all the products it develops based upon the product concept
and pays royalties generally ranging from 3% to 8% of revenue generated from the
products. In addition, Lazer-Tron has licensed the Flintstone name, characters
and music for the Flintstones game and the music for its Wild Thing game. For
fiscal 1993 and 1994 and the first nine months of fiscal 1995, Lazer-Tron
incurred royalty expense of approximately $358,000, $450,000 and $279,000,
respectively.
Lazer-Tron believes that factors such as the creative abilities and
experience of its engineering personnel will be more significant to its future
success than its current proprietary rights and patents. Lazer-Tron has from
time to time been notified that it may be infringing certain intellectual
property rights of others. Further, there can be no assurance that in the
future Lazer-Tron's products will not be claimed to violate or infringe patents,
trademarks or marks or other proprietary rights held by other parties, which
claims could adversely affect Lazer-Tron. See "-Legal Proceedings" for a
discussion of a complaint recently filed against Lazer-Tron alleging trademark
infringement.
Government Regulation
The games produced by Lazer-Tron are intended to be games of skill or
predominantly of skill, as opposed to games of chance. Games of skill or
predominantly of skill are generally not subject to any special laws or
regulatory controls. On the other hand, the manufacture, shipping, installation
and operation of gambling devices and other games which are intended to be used
primarily in connection with gambling are subject to regulation under federal,
state and local laws. For example, California law generally prohibits the
manufacture or sale of games of chance. In addition, local municipalities and
governments often regulate the types of games that can be played and the
location of arcades within their jurisdictions. The determination of whether a
particular game is a game of skill or a game of chance is somewhat subjective,
and on occasion local authorities have prohibited the installation of certain of
Lazer-Tron's games, or have required that Lazer-Tron modify certain features of
one or more of its games. In those cases where Lazer-Tron has considered it to
be appropriate, Lazer-Tron has sought, and may in the future seek, an opinion
that a game is a game of skill. While to date Lazer-Tron believes that these
laws have not materially impacted its business, there can be no assurance that
the application of these laws will not have an adverse effect in the future on
Lazer-Tron's business or operating results.
Employees
As of March 31, 1995, Lazer-Tron had 79 full-time employees, of whom 10
were in administration, 16 were in engineering and development, 5 were in
marketing and sales, and 48 were in manufacturing and testing. Lazer-Tron also
utilizes the services of several consultants, in addition to temporary employees
(approximately 55 as of March 31, 1994), principally in manufacturing and
testing. Lazer-Tron believes that its success depends in part on its ability to
attract and retain qualified employees. Lazer-Tron believes that its relations
with its employees are good. The employees and Lazer-Tron are not parties to
any collective bargaining agreements.
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Property
Lazer-Tron maintains its principal facilities at 4430 Willow Road,
Pleasanton, California 94588, where it leases approximately 33,440 square feet
of office, engineering and manufacturing space. The lease expires in May 2001
and contains one five-year option to renew at fair market value rentals.
Lazer-Tron leases the space for an aggregate lease payment (including common
area maintenance, property tax and insurance costs) of approximately $26,000 per
month in 1994, with escalations in subsequent years. Lazer-Tron also leases a
sales office near Chicago, Illinois for $925 per month. See Note 4 of Notes to
Financial Statements.
Legal Proceedings
In December 1994, Lasertron, Inc., a Massachusetts corporation, filed a
complaint in the United States District Court, District of Massachusetts,
alleging Lazer-Tron's infringing use of the mark "Lazer-Tron" under federal and
state laws. Lasertron, Inc., a manufacturer and seller of fiberoptic components
for telecommunications systems, is claiming that the use of the mark
"Lazer-Tron" is confusingly similar to its federally registered trademark
Lasertron. Lasertron, Inc. sought injunctive relief to, among other things,
prevent Lazer-Tron from using the designation "Lazer-Tron" or the corporate name
"Lazer-Tron, Inc." and an unspecified amount in damages. Lazer-Tron answered
the complaint denying the allegations in late December 1994. Laser-Tron, Inc.
filed a motion for preliminary injunction in early March 1995, which motion was
not heard due to the parties entering into settlement negotiations. As of March
31, 1995, the parties were engaged in settlement negotiations and as of April
24, the parties are negotiating the terms of a settlement agreement. As of
March 31, 1995, the parties were engaged in settlement negotiations.
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DESCRIPTION OF LAZER-TRON CAPITAL STOCK
The authorized capital stock of Lazer-Tron consists of 10,000,000 shares of
Lazer-Tron Common Stock and 1,000,000 shares of Lazer-Tron Preferred Stock, in
each case without par value. As of March 31, 1995, there were 3,563,341
outstanding shares of Lazer-Tron Common Stock held of record by approximately
216 shareholders, outstanding warrants to purchase 581,233 shares of Lazer-Tron
Common Stock and outstanding options to purchase 438,425 shares of Lazer-Tron
Common Stock.
Lazer-Tron Common Stock
Each shareholder is entitled to one vote for each share of Lazer-Tron
Common Stock held on all matters. Cumulative voting is currently not permitted
by Lazer-Tron's Articles of Incorporation, which means that the holders of a
majority of the shares voted can elect all of the directors then standing for
election. The holders of Lazer-Tron Common Stock have no preemptive or other
rights to subscribe for additional shares. All outstanding shares of Lazer-Tron
Common Stock are validly issued, fully paid and nonassessable. Subject to
preferences that may be applicable to holders of any Lazer-Tron Preferred Stock
then outstanding, holders of Lazer-Tron Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation, dissolution or winding up of Lazer-Tron,
the assets legally available for distribution to shareholders are distributable
ratably among the holders of the Lazer-Tron Common Stock at that time
outstanding, subject to prior distribution rights of creditors of Lazer-Tron and
to the preferential rights of any shares of Lazer-Tron Preferred Stock then
outstanding.
Lazer-Tron Preferred Stock
Lazer-Tron's Board of Directors has the authority, without further action
by Lazer-Tron's shareholders, to issue up to 1,000,000 shares of Lazer-Tron
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series. The issuance of Lazer-Tron Preferred Stock could adversely
affect the voting power of holders of Lazer-Tron Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control of Lazer-Tron. Lazer-Tron has no present plan to issue any shares of
Lazer-Tron Preferred Stock.
Lazer-Tron Warrants
As of March 31, 1995, 667,166 warrants to purchase an aggregate of 333,583
shares of Lazer-Tron Common Stock (the "Lazer-Tron Private Placement Warrants")
were outstanding. Two Lazer-Tron Private Placement Warrants entitle the holder
thereof to purchase one share of Lazer-Tron Common Stock for $5.00 per share, as
adjusted for certain events. Lazer-Tron Private Placement Warrants are only
exercisable during specified periods, during which time Lazer-Tron must
undertake efforts to register or qualify the sale of the underlying Lazer-Tron
Common Stock pursuant to federal and state securities laws, or to obtain an
exemption therefrom. The Lazer-Tron Private Placement Warrants expire on April
30, 1996, subject to certain rights of Lazer-Tron to accelerate or delay such
expiration. The exercise period of the Lazer-Tron Private Placement Warrants
may be shortened in connection with certain mergers or after the exercise of
fifty percent (50%) of the Lazer-Tron Private Placement Warrants upon notice by
Lazer-Tron to the Lazer-Tron Private Placement Warrant holders. Lazer-Tron also
has the right to call the Lazer-Tron Private Placement Warrants for redemption
at any time on 45 days prior written notice (the "Notice of Redemption") at a
redemption price of $0.05 per Lazer-Tron Private Placement Warrant if: (i) the
closing bid price of Lazer-Tron Common Stock exceeds the Lazer-Tron Private
Placement Warrant exercise price by at least 20% during a period of at least 20
of the 30 trading days immediately preceding the Notice of Redemption; (ii)
Lazer-Tron has in effect a current registration statement covering the
Lazer-Tron Common Stock issuable upon exercise of the Lazer-Tron Private
Placement Warrants; and (iii) the expiration of the forty-five (45) day notice
period is within a window period.
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As of March 31, 1995, 128,433 Sales Agent Warrants to purchase an aggregate
of 192,650 shares (after giving effect to exercise of the warrants issuable upon
exercise of the Sales Agent Warrants as described below) of Lazer-Tron Common
Stock were outstanding. The Sales Agent Warrants were originally issued to an
investment banking firm and its affiliates in connection with their services as
a placement agent for an offering of Lazer-Tron Common Stock and Lazer-Tron
Private Placement Warrants by Lazer-Tron in 1993. Each Sales Agent Warrant is
exercisable at any time and entitles the holder to purchase a Unit at an
exercise price of $3.00 per Unit. Each Unit consists of one share of Lazer-Tron
Common Stock and one Private Placement Warrant. Two Private Placement Warrants
entitle the holder to purchase one share of Lazer-Tron Common Stock at an
exercise price of $5.00 per share. The Sales Agent Warrants expire on June 25,
1998.
In connection with its initial public offering of Common Stock in May 1994,
Lazer-Tron issued to Van Kasper, the underwriter of the offering, a warrant to
purchase 55,000 shares of Lazer-Tron Common Stock at an exercise price of $9.60
per share (the "Underwriter's Warrant"). The Underwriter's Warrant has certain
antidilution provisions and expires in May 1999.
On March 22, 1995, pursuant to the terms ofthe Merger Agreement, Lazer-Tron
and Acclaim entered into the Stock Option Agreement. Pursuant to the Stock
Option Agreement, Lazer-Tron granted to Acclaim an option to purchase up to
250,000 shares of Lazer-Tron Common Stock at an exercise price of $8.00 per
share, which option may only be exercised in certain events. See "The Merger
Stock Option Agreement."
Registration Rights
Certain holders ofshares of Lazer-Tron Common Stock originally issued in
1993 along with the Private Placement Warrants, as well as all Private Placement
Warrant holders, are entitled to certain rights with respect to the registration
of such securities, as well as shares of Lazer-Tron Common Stock underlying the
Private Placement Warrants, under the Securities Act. Under the terms of the
Registration Rights Agreement between Lazer-Tron and such holders, holders of
registration rights are entitled to one demand registration of the Lazer-Tron
Common Stock and Private Placement Warrants and/or Lazer-Tron Common Stock
underlying outstanding Private Placement Warrants at any time commencing 90 days
after Lazer-Tron's first registered offering to the general public of its
securities for its own account. Such demand must be initiated by holders of at
least 50% of the securities and is subject to certain limitations relating to,
among other things, the size of the offering due to marketing limitations, as
determined by the managing underwriter of such offering. Additionally, if
Lazer-Tron proposes to register any of its securities under the Securities Act
subsequent to that offering, these holders are entitled to notice of such
registration and are entitled to include shares of their Lazer-Tron Common Stock
therein, provided, among other conditions, that the underwriters of any offering
have the right to limit the number of shares included in such registration.
Lazer-Tron has also granted certain registration rights to the holders of
the Underwriter's Warrants.
Transfer Agent and Registrar
The Transfer Agent and Registrar for Lazer-Tron Common Stock is First
Interstate Bank of California, San Francisco, California. Its telephone number
is (415) 773-7801.
Listing
Lazer-Tron Common Stock is listed on The Nasdaq National Market under the
symbol LZTN.
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INFORMATION CONCERNING ACCLAIM
General
The Company is an entertainment publisher which engages in or plans to
engage in (i) the publication of interactive entertainment software for use with
interactive entertainment hardware platforms; (ii) the development and
publication of comic books, which commenced in July 1994 through the acquisition
of Acclaim Comics, Inc., formerly Voyager Communications Inc.; (iii) the
marketing of its motion capture technology and studio services, which commenced
in the first quarter of fiscal 1995; (iv) the distribution of coin-operated
arcade games, which is anticipated to commence in fiscal 1996 (and, with respect
to redemption games, will commence upon the consummation of the Merger); (v) the
distribution of Software for affiliated labels, which commenced in the first
quarter of fiscal 1995; and (vi) the electronic distribution of interactive
entertainment through the partnership established in October 1994 between a
subsidiary of the Company and a subsidiary of Tele-Communications, Inc. To
date, the Company's principal business has been as a leading publisher of
Software for dedicated interactive entertainment hardware platforms
("Entertainment Platforms").
The Company had net revenues of $214.6 million, $327.1 million, $480.8
million and $318.4 million for the fiscal years ended August 31, 1992, 1993 and
1994, and for the six months ended February 28, 1995, respectively, and net
income of $13.8 million, $28.1 million, $45.1 million and $29.2 million for the
fiscal years ended August 31, 1992, 1993 and 1994, for the six months ended
February 28, 1995, respectively.
Products
The Company attempts to produce families of high quality products and
address a wide range of interactive entertainment categories, such as puzzle,
sports, action/adventure and fantasy, based on the Company's Properties. The
Company intends to continue its strategy for maximizing the revenue generated
from each of its Properties by publishing Software titles for use on multiple
hardware platforms and creating successive Software products using the same
Properties in order to form the basis for families of products which can
capitalize upon the exposure and name recognition associated with the
Properties. For example, the Company has released at least one product each
year based on World Wrestling Federation ("WWF") characters since 1988 resulting
in a total of 17 products to date. A similar strategy has been utilized with
The Simpsons and NBA Properties. The Company's strategy is to continue to use
recognizable personalties and icons, generally obtained through licenses from
the owners of these intellectual properties, to market its Software. To date,
the Company has obtained licenses from a variety of sources for properties such
as The Simpsons (television), Terminator II (motion picture), NFL Quarterback
Club, World Wrestling Federation (sports), Mortal Kombat (arcade games), and
Spiderman (comics).
Marketing
The Company attempts to release Software simultaneously across a series of
hardware platforms. As the Company releases families of titles for multiple
platforms, it is able to take advantage of cross-merchandising opportunities and
benefit from marketing economies of scale. Promotional activities can become
more efficiently focused on the particular intellectual property theme available
in several configurations for multiple hardware systems. The Company markets
its Software primarily to mass merchandise companies, large retail toy store
chains, department stores and specialty stores. The Software is also sold, to a
lesser extent, to wholesale distributors. The target customers for the
Company's products are primarily males aged 11 to 21. In selecting an existing
game or a new concept for development and distribution, the Company's management
seeks products it believes will appeal to the imagination of its target
customers and develops a packaging concept and advertising strategy consistent
with the product's theme to attract that customer. The Company supports its
products with advertisements, both on television and in print, promotions and
public relations. For its major multi-platform releases, the Company creates
marketing events through pre-release promotions and point-of-sale materials.
These events are similar to promotional concepts utilized in the film and record
industries.
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Acclaim Comics has created a superhero and action/adventure comic book
series based on characters who co-exist in the "VALIANT" Universe. The
"VALIANT" Universe concept permits Acclaim Comics to use the popularity of its
characters to introduce a new character in an existing comic or to develop more
fully an existing but relatively unknown character.
Distribution and Operations
The Company distributes its Software through independent sales
representatives in the United States to reach over 20,000 store locations. The
Company also distributes its Software products directly to retail in France,
Germany, Spain and the United Kingdom utilizing independent sales
representatives. For Software sales in the other European markets, the Company
uses national distributors. The Company also sells and distributes directly in
Japan and Canada. The Company's Software is available in over 50 countries and
in over 50,000 stores worldwide.
The Company's comic books are distributed through independent distributors
to the comic book direct market, which consists of comic book specialty stores
and mail order comic book dealers, in the United States.
The Company seeks to manage its operations to achieve a relatively low
fixed-cost structure and provide maximum operational flexibility. The Company's
strategic alliances with independent developments teams for Software products,
its use of subcontractors to manufacture its Software products, its royalty
based compensation of comic book artists and its use of independent sales
representatives contribute to increasing the Company's variable costs and
minimizing its fixed overhead. Similarly, the Company utilizes the services of
outside warehouse and distribution facilities on a territory-by-territory
basis. However, as the Company continues to grow, it may become cost efficient
or strategically advantageous for the Company to perform some or all of these
functions itself. Accordingly, in January 1995, the Company completed the
acquisition of Iguana Entertainment, Incorporated ("Igauana"), a developer of
software products. The Company maintains a computer network, which allows for
the electronic transmission of information among its various offices and
utilizes electronic data interchange with its major domestic customers.
In June 1993, the Company launched Acclaim Distribution, Inc. ("ADI"), a
wholly-owned subsidiary to handle distribution of its labels as well as
affiliated labels. The Company commenced shipping products for its first
affiliated label, Digital Pictures, Inc. ("Digital Pictures"), in the first
quarter of fiscal 1995.
Technology
The engineering staff within the Company's Advanced Technologies Group
("ATG") provides technical support and programming tools to enhance game play
and product quality. With the advancement of CD-ROM technology, ATG's
activities have expanded to include the development of a new animation creation
process and designing tools for use in programming Software for CD-ROM or
cartridge-based platforms utilizing 32- or 64-bit processors. In September
1994, the Company completed the construction of its "motion capture" studio for
the application of its animation technology. In addition to the use of this
technology in its own Software, the Company is marketing its motion capture
technology and selling its studio services for use in other entertainment
media. For example, in December 1994, Warner Bros. utilized the Company's
motion capture technology and studio services to create certain of the special
effects for the motion picture Batman Forever, which is expected to be
released in the summer of 1995. No assurance can be given that the Company will
be successful in marketing its technology and selling its studio services and,
even if it were successful, that revenues generated therefrom will be material.
In July 1994, the Company established Acclaim Coin-Operated Entertainment,
Inc., a wholly-owned subsidiary based in California, for the creation and
distribution of stand-alone coin-operated games. The subsidiary is currently in
the start-up phase and anticipates shipping its first game, Batman Forever, in
fiscal 1996. It is the Company's current intention to release, commencing in
fiscal 1996, between three to four coin-operated
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games per year. The successful creation and marketing of such games will be
dependent, in large part, on the Company's ability to hire and retain developers
for the creation of, and to license or create properties for use in,
coin-operated games which achieve widespread market acceptance. There can be no
assurance that the Company will be successful in creating and marketing
coin-operated games or that any revenues derived by the Company from the sale of
such games will be material.
On October 19, 1994, Acclaim Cable Holdings, Inc., a wholly-owned
subsidiary of the Company, entered into a Partnership Agreement (the
"Partnership Agreement") with TCI GameCo Ventures, Inc., an indirect
wholly-owned subsidiary of TCI, for the creation of a Delaware limited
partnership (the "Joint Venture"), the interests in which are indirectly held
65% by the Company and 35% by TCI. The principal purposes of the Joint Venture
are to develop and acquire (including by purchase or license), entertainment
software for interactive networks, as well as to promote a standard for
broadband network gaming to be incorporated into advanced set-top boxes.
Interactive Entertainment Industry
The interactive entertainment industry is characterized by rapid
technological change, resulting in hardware platform and related Software
product cycles. No single hardware platform or system has achieved long-term
dominance. The Company's strategy is to publish Software for the hardware
platforms that currently dominate the market and to develop Software for the
hardware platforms that the Company believes will become dominant in the future,
rather than to be the first Software publisher for an emerging hardware
platform; in order to promote its strategic relationships, however, the Company
may from time to time publish Software for a hardware platform before it attains
mass market appeal. The Company's revenues have traditionally been derived from
sales of Software for the then dominant platforms. Accordingly, the Company's
revenues are subject to fluctuation during transition periods when new hardware
platforms have been introduced but none has achieved mass market acceptance or
become dominant.
From inception through fiscal 1991, substantially all of the Company's
revenues were derived from sales of Software for the 8-bit Nintendo
Entertainment System ("NES"). Although the Company commenced the publication of
Software for Game Boy, the portable system marketed by Nintendo Co., Ltd.
(Japan) (Nintendo along with its subsidiary, Nintendo of America, Inc., are
collectively hereinafter referred to as "Nintendo"), in fiscal 1990, for the
Super Nintendo Entertainment System ("SNES") in fiscal 1991 and for Genesis and
Game Gear, the 16-bit dedicated and portable hardware systems, respectively,
marketed by Sega Enterprises Ltd. ("Sega") in fiscal 1992, the Company did not
derive significant revenues from the sale of portable or 16-bit Software until
fiscal 1992. The 16-bit systems are more sophisticated than the 8-bit systems,
producing faster and more complex images with more lifelike animation and better
sound effects and, by 1993, had replaced the 8-bit Entertainment Platform as the
dominant Entertainment Platform. In fiscal 1994, most of the Company's revenues
were derived from sales of Software for the 16-bit SNES and Genesis systems.
The Company anticipates that most of its revenues in fiscal 1995 will be derived
from sales of Software for the 16-bit Entertainment Platforms.
The Company anticipates that the interactive entertainment industry will
undergo significant changes in both the short- and long-term future due, in
large part, to the introduction of the next generation of Entertainment
Platforms incorporating 32- and 64-bit processors, as well as the success of PC
CD Systems, the development of remote and electronic delivery systems and the
entry and participation of new companies in the industry. The new hardware
platforms may use read-only memory ("ROM") cartridges, compact disk ("CD"),
flash memory and/or other technologies as the dominant software storage device.
Additional CD platforms, including personal computer systems for which Software
products are published, are currently marketed by Philips, Sega, Commodore,
Apple, IBM, IBM-compatible manufacturers and The 3DO Company. Atari launched
Jaguar, its 64-bit cartridge-based system, in November 1993 and Sega launched
32X, its 32-bit cartridge-based attachment for its 16-bit Genesis system, in
November 1994. Sega and Sony launched their 32-bit CD-based
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systems in Japan in November 1994. Nintendo, Sega and Sony Corporation have
announced plans to release new 32- or 64-bit CD-based or ROM cartridge-based
systems in the U.S. later this calendar year.
The Company believes that sales of new 16-bit hardware systems peaked in
calendar 1993. Based on historical industry cycles, management believes that
16-bit Software sales peaked in calendar 1994 (the year following the peak year
for hardware sales). The Company as well as industry analysts anticipate, based
on Software sales information for calendar year 1994 and the continuing decline
in 16-bit hardware sales, that the market for 16-bit Software will decline in
calendar 1995.
Although the Company believes that hardware incorporating 32- and 64-bit
processors will become the dominant Entertainment Platforms in the interactive
entertainment industry over the next few years, the Company is unable to predict
which, if any, of the newly introduced or announced platforms will achieve
commercial success or the timing thereof or their impact on the industry. The
Company intends to develop and/or publish Software for the systems that it
perceives as having the potential to achieve mass market acceptance; in order to
promote its strategic relationships, however, the Company may from time to time
publish Software for a hardware platform before it attains mass market appeal.
No assurance can be given that the Company will correctly identify the systems
with such potential or be successful in publishing Software for such platforms
and systems. The uncertainty associated with the transition from 16-bit
cartridge-based Entertainment Platforms to the next generation Entertainment
Platforms decreases the Company's ability to predict with any certainty its
results of operations and profitability during this transition phase.
Historically, management believed that the floppy and personal computer
market was characterized by (i) numerous hardware and software
incompatibilities; (ii) high price points for multimedia PC hardware; (iii) a
large number of software titles; and (iv) technological limitations of the
hardware systems for gaming as compared to the Entertainment Platforms.
Accordingly, the Company participated in this category through distribution
agreements which, in the opinion of management, provided the greatest return on
the investment of time and effort needed to service a fragmented market.
However, based on management's belief that this category now has sufficient mass
market penetration to warrant publishing Software directly, and due to
technological advancements incorporated in the newer PC CD Systems and the
higher gross margins realized by publishers of Software for this category, in
the second quarter of fiscal 1995, the Company commenced marketing Software for
PC CD Systems.
The Company commenced the development and sale of Software for the Sega CD
system in fiscal 1994 and for Sega's 32X in the second quarter of fiscal 1995.
The Company has announced that it is developing Software for Sega's Saturn
system, Nintendo's Ultra 64 system and Sony's CD-based PSX, "formerly known as
Play Station". However, management believes that the installed base of the new
generation of Entertainment Platforms will not rival the current installed base
of 16-bit Entertainment Platforms in the near-term. As a result, the sales
growth of Software for these new Entertainment Platforms and PC CD Systems may
not offset the decline in sales of Software for the 16-bit Entertainment
Platforms in this calendar year and, as a result, overall industry growth rates
may decline in the near-term.
Based on the decline of the 16-bit hardware market and the related slowdown
in retail sell-through of 16-bit Software on an industry-wide basis, management
believes that retailers, in order to reduce inventory levels, may reduce
purchases of the Company's 16-bit Software in the next several fiscal quarters
as compared to prior fiscal quarters. Any such reduction in retail purchasing,
to the extent not offset by growth in Software sales for the new Entertainment
Platforms and PC CD Systems, would decrease the Company's rate of growth as
discussed below. As retail sell-through of 16-bit Software continues to slow
down, this may result in a build up of retail inventory which, in turn, may
force the Company to liquidate excess inventory levels at retail by offering
price protection and other concessions to its customers in future periods. As
the transition to the next generation of Entertainment Platforms continues and
as new Entertainment Platforms achieve market acceptance, the risk of returns of
the Company's 16-bit Software titles has increased and will continue to
increase. Although management believes that it has adequate reserves for such
concessions and returns, no assurance can be given
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that future price protection, returns and other similar concessions will not
exceed such reserves. In addition, the Company has incurred and expects to
continue to incur higher marketing expenses in connection with the sale of
16-bit Software, which higher expenses may adversely affect the Company's
profitability.
Due in part to the decline of the market for Softwarefor 16-bit
Entertainment Platforms in 1995 and the related transition to the next
generation of Entertainment Platforms, the Company believes that it will
experience a lower rate of growth in fiscal 1995 and fiscal 1996 as compared to
fiscal 1994, and a materially lower rate of growth, if any, in the third and
fourth quarters of fiscal 1995 as compared to the first and second quarters of
fiscal 1995.
The release of individual "hit" Software titles or families of titles can
significantly affect revenues. Historically, "hit" titles or families of titles
have accounted for significant portions of the Company's gross revenues during
particular periods. In prior periods, the Simpsons family of titles and the WWF
family of titles have accounted for significant portions of the Company's gross
revenues. Continuing this historic pattern, in the quarter ended February 28,
1994, the NBA Jam family of titles accounted for a significant portion of the
Company's gross revenues and in the quarter ended February 28, 1995, the NBA Jam
Tournament Edition family of titles accounted for a significant portion of the
Company's gross revenues. In the six months ended February 28, 1994, each of
the Mortal Kombat and NBA Jam family of titles accounted for a significant
portion of the Company's gross revenues and in the six months ended February 28,
1995, each of the Mortal Kombat II and NBA Jam Tournament Edition family of
titles accounted for a significant portion of the Company's gross revenues.
The timing of the release of Software titles can cause quarterly revenue
and earnings fluctuations. A significant portion of the Company's revenues in
any quarter are generally derived from Software titles or families of titles
first shipped in that quarter. Product development schedules are difficult to
predict due in large part to the difficulty of scheduling accurately the
creative process and, with respect to Software for new hardware platforms, the
use of new development tools for new platforms and the learning process
associated with development for new technologies including the Company's own
motion capture and related technologies. As the industry trend toward more
sophisticated Entertainment Platforms continues, the related Software products
frequently include more original, creative content and are more complex to
develop and, accordingly, cause additional development and scheduling risk. As
a result, the Company's quarterly results of operations are difficult to predict
and the failure to meet product development schedules or even minor delays in
product deliveries could cause a shortfall in shipments in any given quarter,
which could cause the results of operations and net income for such quarter to
fall significantly below anticipated levels.
The Company's ability to sustain its current results of operations and
profitability and to generate sales growth in the future will be dependent in
large part on (i) the Company's ability to identify, develop and publish "hit"
Software titles for the hardware platforms that are viable in the mass market,
(ii) the growth of the interactive entertainment Software market and (iii) the
Company's ability to develop and generate revenues from its other entertainment
operations. In addition, the Company has incurred and expects to continue to
incur increased research and development as well as general and administrative
expenses in connection with the start-up of its new business operations (for
e.g., coin-operated games). If the Company is not successful in generating
revenues from these new businesses, its profitability will be adversely
affected.
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COMPARISON OF RIGHTS OF HOLDERS OF ACCLAIM
COMMON STOCK AND HOLDERS OF CAPITAL STOCK OF LAZER-TRON
Upon consummation of the Merger, the former shareholders of Lazer-Tron,
which is a corporation organized under the CGCL, will become stockholders of
Acclaim, a corporation governed by the DGCL. The rights of Acclaim's
stockholders are governed by its Certificate of Incorporation (the "Acclaim
Certificate"), its Bylaws (the "Acclaim Bylaws") and the DGCL. The rights of
Lazer-Tron's shareholders are governed by its Amended and Restated Articles of
Incorporation (the "Lazer-Tron Articles"), its Amended and Restated Bylaws (the
"Lazer-Tron Bylaws") and the CGCL. After the Effective Time, the rights of the
Lazer-Tron shareholders who become Acclaim stockholders will be governed by the
Acclaim Certificate, Acclaim Bylaws and DGCL. The following is a summary
comparison of certain differences between the rights of Lazer-Tron shareholders
under the CGCL, the Lazer-Tron Articles and the Lazer-Tron Bylaws and the rights
of Acclaim stockholders under the DGCL, the Acclaim Certificate and the Acclaim
Bylaws. This summary does not purport to be complete and is qualified in its
entirety by reference to the corporate statutes of California and Delaware and
the corporate charters and bylaws of Lazer-Tron and Acclaim.
Size of the Board of Directors. The Acclaim Bylaws provide for a Board of
Directors of from three to eight members, with the exact number to be determined
by resolution of the Board of Directors. The exact number of directors is
currently set at eight members. The Acclaim Certificate authorizes the Board of
Directors to make, alter, or repeal the Acclaim Bylaws. The Lazer-Tron Bylaws
provide for a Board of Directors of from four to seven members, with the exact
number to be determined by resolution of the Board of Directors. The exact
number of directors is currently set at six members. Until the Lazer-Tron
shareholders amend the Lazer-Tron Bylaws to provide otherwise, the Lazer-Tron
Bylaws permit the Board of Directors to vary the number of directors within the
minimum and maximum authorized numbers of directors specified above. Under the
CGCL, although changes in the number of directors must in general be approved by
a majority of the outstanding shares, the Board of Directors may fix the exact
number of directors within a stated range set forth in the articles of
incorporation or bylaws, if that stated range has been approved by the
shareholders. The DGCL law permits the Board of Directors alone to change the
authorized number, or the range, of directors by amendment to the bylaws, unless
the directors are not authorized to amend the bylaws or the number of directors
is fixed in the certificate of incorporation (in which case a change in the
number of directors may be made only by amendment to the certificate of
incorporation following approval of such change by the stockholders).
Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A shareholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the shareholder may choose. Without cumulative voting, the holders of a
majority of the shares present at an annual meeting or any special meeting held
to elect directors would have the power to elect all the directors to be elected
at that meeting, and no person could be elected without the support of holders
of a majority of the shares voting at such meeting.
Under the DGCL, cumulative voting in the election of directors is not
mandatory. The Acclaim Certificate does not provide for cumulative voting.
Under the CGCL, cumulative voting in the election of directors is a right
available to all shareholders of California corporations unless (i) (A) shares
of the corporation are listed on the New York or American Stock Exchanges or (B)
the corporation has at least 800 holders of its equity securities as of the
record date of the corporation's most recent annual shareholders' meeting and
the corporation has outstanding securities designated as qualified for trading
on the Nasdaq National Market System and (ii) that corporation's articles of
incorporation or bylaws specifically eliminate cumulative voting. The
Lazer-Tron Articles provide that cumulative voting is eliminated if the other
conditions to the elimination of cumulative voting described above are
satisfied.
Classified Board of Directors. A classified board is one in which a
certain number, but not all, of the directors are elected on a rotating basis
each year. The CGCL permits a classified board only for corporations
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with shares listed on the New York or American Stock Exchanges or qualified for
trading on the Nasdaq National Market System. The DGCL permits, but does not
require, a classified board of directors, with staggered terms under which the
directors are elected for terms of two or three years. As discussed above, this
method of electing directors makes a change in the composition of the board of
directors, and a potential change in control of a corporation, a lengthier and
more difficult process. Neither the Lazer-Tron Articles and Bylaws nor the
Acclaim Certificate and Bylaws currently provide for a classified board of
directors.
Power to Call Special Shareholders' Meetings. Under the CGCL, a special
meeting of shareholders may be called by the board of directors, the chairman of
the board, the president, the holders of shares entitled to cast not less than
ten percent of the votes at such meeting or such additional persons as are
authorized by the articles of incorporation or the bylaws. Under the DGCL, a
special meeting of stockholders may be called by the board of directors or by
any other person authorized to do so in the certificate of incorporation or the
bylaws. The Acclaim Bylaws provide that a majority of the board of directors,
the president or holders of a majority of the outstanding capital stock entitled
to vote may call a special meeting of stockholders. Therefore, a substantially
greater number of Acclaim stockholders must consent to the call of a special
meeting of stockholders.
Shareholder Approval of Certain Business Combinations. Section 203
("Section 203") of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (a) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (b) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding from the 85% calculation shares owned by
directors who are also officers of the target corporation and shares held by
employee stock plans which do not permit employees to decide confidentially
whether to accept a tender or exchange offer); or (c) on or after the date such
person becomes an interested stockholder, the board approves the business
combination and it is also approved at a stockholder meeting by sixty-six and
two-thirds percent (66 %) of the voting stock not owned by the interested
stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, are quoted on an
interdealer quotation system such as The Nasdaq Stock Market (as is Acclaim) or
are held of record by more than 2,000 stockholders. A Delaware corporation may
elect not to be governed by Section 203 by a provision in its original
certificate of incorporation or an amendment thereto
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or to the bylaws, which amendment must be approved by majority stockholder vote
and may not be further amended by the board of directors. Acclaim has not
elected, and does not intend to elect, not to be governed by Section 203.
Acclaim believes that so long as the constitutionality of Section 203 is
upheld, Section 203 will encourage any potential acquiror to negotiate with
Acclaim's Board of Directors. Section 203 also has the effect of limiting the
ability of a potential acquiror to make a two-tiered bid for Acclaim in which
all stockholders would not be treated equally. Section 203 should also
discourage certain potential acquirors unwilling to comply with its provisions.
The CGCL does not contain a comparable business combinations provision.
However, the CGCL does provide that, with respect to a merger, except (i) where
the terms and conditions and the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations,
(ii) in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), or (iii) where all of the shareholders of
the applicable class of the target corporation consent, if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, then the nonredeemable common stock of
the target corporation may be converted only into nonredeemable common stock of
the surviving corporation or its parent corporation. The effect of this
provision is to prohibit a cash-out merger of minority shareholders, except
where the majority shareholder already owns 90% or more of the voting power of
the target corporation and could, therefore, effect a short-form merger to
accomplish such a cash-out of minority shareholders.
In addition, the CGCL requires that, in connection with certain
transactions between a corporation whose shares are held of record by 100 or
more persons and an "interested party," such interested party must deliver a
written opinion as to the fairness of the consideration to the shareholders of
the corporation. An "interested party" for purposes of this CGCL provision
means a person who is a party to the transaction and (i) directly or indirectly
controls the corporation, (ii) is an officer or director of the corporation or
(iii) is an entity in which a material financial interest is held by any
director or executive officer of the corporation.
Removal of Directors. Under the CGCL, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, no individual director may
be removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting. Under the DGCL, in the case of a Delaware corporation having cumulative
voting, if less than the entire board is to be removed, a director may not be
removed without cause unless the number of shares voted against such removal
would not be sufficient to elect the director under cumulative voting. In
addition, a director of a corporation with a classified board of directors may
be removed only for cause, unless the certificate of incorporation otherwise
provides. However, under the DGCL, a director of a corporation that does not
have a classified board of directors or cumulative voting, such as Acclaim, may
be removed with or without cause with the approval of a majority of the
outstanding shares entitled to vote.
Filling Vacancies on the Board of Directors. Under the CGCL, unless
provided otherwise in the articles or bylaws (the Lazer-Tron Articles and ByLaws
do not provide otherwise), any vacancy on the board of directors other than one
created by removal of a director may be filled (i) by the board or (ii) if the
number of directors is less than a quorum, (a) by the unanimous written consent
of the directors then in office, (b) by the affirmative vote of a majority of
the directors at a meeting held pursuant to notice or waivers of notice or (c)
by a sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
Lazer-Tron Articles and Bylaws do not provide such authority to Lazer-Tron's
Board of Directors. Under the DGCL, vacancies and newly created directorships
may be filled by a majority of the directors then in office (even though less
than a quorum) unless (i) otherwise provided in the certificate of incorporation
or bylaws of the corporation
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(the Acclaim Certificate and Bylaws do not provide otherwise) or (ii) the
certificate of incorporation directs that a particular class is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director, may fill such vacancy.
Loans to Directors, Officers and Employees. Under the CGCL, any loan or
guaranty by a corporation to or for the benefit of a director or officer of the
corporation or its parent requires approval of the shareholders owning a
majority of the outstanding shares of the corporation (excluding shares owned by
the interested person). In addition, under the CGCL, shareholders of any
corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone (excluding any interested director) to
approve loans or guaranties to or on behalf of officers (whether or not such
officers are directors) if the board determines that any such loan or guaranty
may reasonably be expected to benefit the corporation. The Lazer-Tron Bylaws do
contain this provision. Under the DGCL, a corporation may make loans to,
guarantee the obligations of or otherwise assist its officers or other employees
and those of its subsidiaries (including directors who are also officers or
employees) when such action, in the judgment of the directors, may reasonably be
expected to benefit the corporation.
Indemnification and Limitation of Liability. There are certain differences
between the laws of California and Delaware respecting indemnification and
limitation of liability. The laws of both states permit corporations to adopt a
provision in their articles of incorporation eliminating the liability of a
director to the corporation or its shareholders for monetary damages for breach
of the director's fiduciary duty of care. The Lazer-Tron Articles eliminate the
liability of directors for monetary damages to the corporation to the fullest
extent permissible under California law. The CGCL does not permit the
elimination of monetary liability where such liability is based on: (a)
intentional misconduct or knowing and culpable violation of law; (b) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (c) receipt of an improper personal benefit; (d) acts
or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders; (f) interested transactions between
the corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
The Acclaim Certificate eliminates the personal liability of directors for
monetary damages to the corporation for breach of fiduciary duty, except for
liability for (a) breaches of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of unlawful
dividends or unlawful stock repurchases or redemptions; or (d) transactions from
which the director received an improper personal benefit. These exceptions
mirror current provisions of the DGCL. Such limitation of liability provision
may also not limit a director's liability for violation of, or otherwise relieve
Acclaim or its directors from the necessity of complying with, federal or state
securities laws, or affect the availability of non-monetary remedies such as
injunctive relief or rescission.
The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made without court approval in respect of amounts paid in settling or
otherwise disposing of a pending action or expenses incurred in defending a
pending action which is settled or otherwise disposed of without court approval.
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Indemnification is permitted by the CGCL only for acts taken in good faith
and believed to be in the best interest of the corporation and its shareholders,
as determined by a majority vote of a disinterested quorum of the directors,
independent legal counsel (if a quorum of independent directors is not
obtainable), a majority vote of a quorum of the shareholders (excluding shares
owned by the indemnified party) or the court handling the action.
The CGCL requires indemnification when the individual has successfully
defended the action on the merits (as opposed to the DGCL which requires
indemnification relating to a successful defense on the merits or otherwise).
The DGCL generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by court order, by a majority vote of the disinterested directors
even though less than a quorum, by independent legal counsel or by a majority
vote of a quorum of the stockholders that the person seeking indemnification
acted in good faith and in a manner reasonably believed to be in or (in contrast
to California law) not opposed to the best interests of the corporation.
Without such court approval, however, no indemnification may be made in respect
of any derivative action in which such person is adjudged liable for negligence
or misconduct in the performance of his duty to the corporation. The DGCL
requires indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action in excess of that specifically authorized by statute.
The Lazer-Tron Articles authorize Lazer-Tron to provide indemnification of
agents, which include directors and officers, through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by the CGCL,
subject only to the applicable limits set forth in the CGCL described above with
respect to actions for breach of duty to Lazer-Tron and its shareholders.
Lazer-Tron provides indemnification to the fullest extent permitted by the CGCL
pursuant to its Bylaws to all officers and directors of Lazer-Tron and pursuant
to Indemnification Agreements with all executive officers and directors of
Lazer-Tron.
The DGCL provides that the indemnification provided by statute shall not be
deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Inspection of Shareholders List. Both the CGCL and the DGCL allow any
shareholder to inspect the shareholders' list for a purpose reasonably related
to such person's interest as a shareholder. The CGCL provides, in addition, for
an absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of 5% or more of a corporation's voting shares or
shareholders holding an aggregate of 1% or more of such shares who have filed a
Schedule 14B with the Commission relating to the election of directors.
Delaware law does not provide for any such absolute right of inspection, and no
such right is granted under the Acclaim Certificate or Bylaws. Lack of access
to shareholder records, even though unrelated to the shareholder's interest as a
shareholder, could result in impairment of the shareholder's ability to
coordinate opposition to management proposals, including proposals with respect
to a change in control of the corporation.
Shareholder Voting. Both the CGCL and the DGCL generally require that a
majority of the shareholders of both acquiring and target corporations approve
statutory mergers. Delaware law does not require a stockholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise in
its certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the corporation
outstanding before the merger is an identical outstanding or treasury share of
the surviving corporation after the merger and (c) the number of shares to be
issued by the surviving corporation in the merger does not exceed 20% of the
shares of the corporation outstanding immediately prior to the merger. The CGCL
contains a similar exception to its voting requirements for reorganizations
where shareholders or the corporation itself, or both, immediately prior to the
reorganization
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will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity.
Both the CGCL and the DGCL also require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the voting
shares of the corporation transferring such assets.
With certain exceptions, the CGCL requires that mergers, reorganizations,
certain sales of assets and similar transactions be approved by a majority vote
of each class of shares outstanding. In contrast, the DGCL generally does not
require class voting, except in certain transactions involving an amendment to
the certificate of incorporation which adversely affects a specific class of
shares. Should Acclaim authorize and issue shares of a new class of capital
stock, the holders thereof would vote with the holders of the Common Stock on
proposals not adversely affecting the Common Stock or unless otherwise provided
in its Certificate of Incorporation. In such event the holders of Common Stock
if in the minority, would be unable to control the outcome of a vote, and, if in
the majority, would be able to control the outcome of such a vote.
The CGCL also provides that, except in certain circumstances, when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. The DGCL has no
comparable provision, and the stockholders of Acclaim might, therefore, be
deprived of an opportunity to consider such other proposal.
Shareholder Derivative Suits. The CGCL provides that a shareholder
bringing a derivative action on behalf of the corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under the DGCL, a stockholder may only bring a derivative action
on behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. The CGCL also provides
that the corporation or the defendant in a derivative suit may make a motion to
the court for an order requiring the plaintiff shareholder to furnish a security
bond. Delaware does not have a similar bonding requirement.
Appraisal Rights. Under both the CGCL and the DGCL, a shareholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under Delaware law, such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such stockholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares, or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
The CGCL does in general afford appraisal rights in sale of assets
reorganizations. Shareholders of a California corporation with shares listed
on a national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have such appraisal rights.
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Stockholder Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, stockholders of a Delaware corporation may take
action without a meeting, without prior notice, and without a vote, upon the
written consent of stockholders having not less than the minimum number of votes
that would be necessary to authorize the proposed action at a meeting at which
all shares entitled to vote were present and voted. Acclaim's Certificate of
Incorporation does not prohibit the stockholders from taking action by written
consent. The Lazer-Tron Bylaws also permit shareholder action by written
consent. However, the CGCL provides that certain actions by written consent may
only be taken upon notice of the action to all shareholders prior to the
consummation of the action authorized by such approval, and directors may be
elected by written consent only if the consent is unanimous.
Amendment or Repeal of the Certificate of Incorporation and Bylaws. Under
the DGCL, unless the certificate of incorporation or bylaws otherwise provide,
amendments of the certificate of incorporation generally require the approval of
the holders of a majority of the outstanding shares entitled to vote thereon.
If such amendment would increase or decrease the number of authorized shares of
any class or series or the par value of such shares or would adversely affect
the shares of such class or series, a majority of the outstanding shares of such
class or series would have to approve the amendment. Acclaim's certificate of
incorporation may be amended, altered, changed, or repealed as permitted by
statute. Acclaim's Bylaws provide that they may be amended, altered, or
repealed by the Board of Directors or the stockholders.
The CGCL provides that generally articles of incorporation may be amended
by a majority of the outstanding shares; provided, that a majority of the
outstanding shares of a class generally must approve that amendment if it would
(i) increase or decrease the number of authorized shares of that class, (ii)
effect an exchange, reclassification or cancellation of any part of the shares
of that class, (iii) effect an exchange of any part of the shares of another
class into shares of that class, (iv) change the rights, preferences, privileges
or restrictions of the shares of that class, (v) create a new class having
rights, preferences or privileges prior to the shares of that class or increase
the rights, preferences or privileges or the number of authorized shares of any
class having rights, preferences or privileges prior to the shares of that class
or (vi) cancel accrued but unpaid dividends on the shares of that class.
Consistent with the provisions of the CGCL, the Lazer-Tron Bylaws provide that
they may be amended by a majority of the outstanding shares or, except for
provisions regarding the number of directors, by the Board of Directors.
Dissolution. Under the DGCL, a dissolution must be approved by
stockholders holding 100% of the total voting power or the dissolution must be
initiated by the board of directors and approved by the holders of a majority of
the outstanding voting shares of the corporation. Under the CGCL, shareholders
holding 50% or more of the total voting power may authorize a corporation's
dissolution, and this right may not be modified by its articles of
incorporation.
Dividends. Subject to any restrictions contained in a corporation's
certificate of incorporation, the DGCL generally provides that a corporation may
declare and pay dividends out of surplus (defined as net assets minus stated
capital) or, when no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The Acclaim
Certificate contains no restrictions on the declaration or payment of dividends.
The CGCL provides that a corporation may make a distribution to its
shareholders if: (i) the retained earnings of the corporation immediately prior
to the distribution equals or exceeds the amount of the proposed distribution;
(ii) immediately after giving effect to the distribution, (a) the sum of the
assets of the corporation (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1 1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and (b) the current assets of the corporation would be at
least equal to its current liabilities or, if the average of the earnings of the
corporation before taxes on income and before interest expense for the two
preceding fiscal years
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was less than the average of the interest expense of the corporation for such
fiscal years, at least equal to 1 1/4 times its current liabilities; and (iii)
the corporation making the distribution is not, or as a result of the
distribution would not be, likely to be unable to meet its liabilities (except
those whose payment is otherwise adequately provided for) as they mature.
Neither the Lazer-Tron Articles nor the Lazer-Tron Bylaws contain any presently
applicable restrictions on the declaration or payment of dividends.
Preemptive Rights. Stockholders of a Delaware corporation have only such
preemptive rights as may be provided in its certificate of incorporation. The
Acclaim Certificate does not grant any preemptive rights to its stockholders.
Shareholders of a California corporation have such preemptive rights as may be
provided in the corporation's articles of incorporation. The Lazer-Tron
Articles do not grant any preemptive rights to the Lazer-Tron Shareholders.
LEGAL OPINIONS
The validity of the securities offered hereby will be passed upon by
Rosenman & Colin, New York, New York. Certain legal matters relating to the
Merger, including certain federal income tax matters, will be passed upon for
Lazer-Tron by Fenwick & West, Palo Alto, California.
EXPERTS
The financial statements and schedules of Acclaim for the years ended
August 31, 1994, 1993 and 1992 incorporated in this Prospectus/Proxy Statement
by reference to the Form 10-K have been so incorporated in reliance on the
report of Grant Thornton LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing.
The financial statements of Lazer-Tron at June 30, 1994, and for each of
the two years in the period ended June 30, 1994 appearing in this Prospectus/
Proxy Statement and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
Van Kasper has rendered to Lazer-Tron's Board of Directors its written
opinion dated March 14, 1995 that, as of such date, the Merger was fair from a
financial point of view to the shareholders of Lazer-Tron. The full text of the
opinion of Van Kasper, which sets forth assumptions made, matters considered and
limitations on the review undertaken, is attached as Exhibit C to this
Prospectus/Proxy Statement.
MISCELLANEOUS
The Board of Directors of Lazer-Tron does not intend to present and knows
of no others who intend to present at the Special Meeting any matter or business
other than that set forth in the accompanying Notice of Special Meeting of
Shareholders. If other matters are properly brought before the Special Meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote any proxies on such matters in accordance with their judgment.
Acclaim and Lazer-Tron will equally bear the cost of printing, filing and
mailing the enclosed form of proxy, this Prospectus/Proxy Statement, the related
Registration Statement on Form S-4 and the registration fee for such
Registration Statement. Acclaim and Lazer-Tron will bear their own costs with
respect to preparing and assembling the enclosed form of proxy, this
Prospectus/Proxy Statement and other material which may be sent to Lazer-Tron's
shareholders in connection with this solicitation. Officers and regular
employees of Lazer-
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Tron may solicit proxies by mail, telephone, telegraph and personal interview,
for which no additional compensation will be paid. Lazer-Tron may reimburse
persons holding shares in their names or in the names of nominees for their
reasonable expenses in sending proxies and proxy material to their principals.
By order of the Board of Directors of Lazer-Tron,
Matthew F. Kelly
Secretary
Pleasanton, California
June __, 1995
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LAZER-TRON CORPORATION
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Balance Sheets -- June 30, 1994 and (unaudited) March 31, 1995............................................. F-3
Statements of Income -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months ended March 31,
1994 and 1995............................................................................................ F-4
Statements of Shareholders' Equity -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months
ended March 31, 1995..................................................................................... F-5
Statements of Cash Flows -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months ended March
31, 1994 and 1995........................................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Lazer-Tron Corporation
We have audited the accompanying balance sheet of Lazer-Tron Corporation as
of June 30, 1994, and the related statements of income, shareholders equity, and
cash flows for each of the two years in the period ended June 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lazer-Tron Corporation at
June 30, 1994, and the results of its operations and its cash flows for each of
the two years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
July 27, 1994
F-2
<PAGE>
LAZER-TRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------- -----------
1994 1995
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 7,053 $ 7,893
Short-term investments.................................................................. 202 --
Accounts receivable, net of allowance for doubtful accounts of $30 at June 30, 1994 and
$62 at March 31, 1995................................................................ 3,595 3,025
Inventories............................................................................. 1,824 2,082
Prepaid expenses and other current assets............................................... 68 136
Deferred tax assets..................................................................... 243 240
-------- ---------
Total current assets............................................................... 12,985 13,376
Property and equipment:
Machinery and equipment................................................................. 310 538
Furniture and fixtures.................................................................. 67 78
Leasehold improvements.................................................................. 35 35
-------- ---------
412 651
Less accumulated depreciation and amortization.......................................... 150 224
-------- ---------
262 427
Other assets.............................................................................. 44 41
-------- ---------
$ 13,291 $13,844
======== =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable........................................................................ $ 1,649 $ 759
Accrued compensation and related costs.................................................. 114 171
Accrued royalties.................................................................... 124 136
Income taxes payable.................................................................... 135 --
Other accrued liabilities............................................................... 226 142
Customer deposits....................................................................... 10 56
-------- ---------
Total current liabilities.......................................................... 2,258 1,264
Commitments
Shareholders equity:
Preferred Stock, no par value:
Authorized shares--1,000,000
Issued and outstanding shares--none
Common Stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--3,323,583 at June 30, 1994
and 3,563,341 at March 31, 1995.................................................... 9,234 10,380
Retained earnings....................................................................... 1,799 2,200
-------- ---------
Total shareholders equity.......................................................... 11,033 12,580
-------- ---------
$ 13,291 $13,844
======== =========
</TABLE>
See accompanying Notes.
F-3
<PAGE>
LAZER-TRON CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
----------------- -----------------
1993 1994 1994 1995
------ ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................................... $7,215 $15,377 $10,288 $9,900
Cost of sales........................................................... 5,099 10,208 6,917 6,631
------ ------- ------- ------
Gross profit....................................................... 2,116 5,169 3,371 3,269
Operating expenses:
Research and development.............................................. 181 452 330 1,005
Selling, general and administrative................................... 982 1,947 1,297 1,582
------ ------- ------- ------
Total operating expenses........................................... 1,163 2,399 1,627 2,587
------ ------- ------- ------
Operating income........................................................ 953 2,770 1,744 682
Merger costs............................................................ -- -- -- (249)
Interest income (expense), net.......................................... (33) 51 15 288
------ ------- ------- ------
Income before income taxes.............................................. 920 2,821 1,759 721
Provision for income taxes.............................................. 252 1,128 705 320
------ ------- ------- ------
Net income.............................................................. $ 668 $ 1,693 $ 1,054 $ 401
====== ======= ======= ======
Net income per share.................................................... $ 0.25 $ 0.59 $ 0.38 $ 0.10
======= ======= ======= ======
Number of shares used in computing per share amounts.................... 2,670 2,888 2,785 4,036
====== ======= ======= ======
</TABLE>
See accompanying Notes.
F-4
<PAGE>
LAZER-TRON CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TOTAL
------------------------ (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
------ ------- ------ ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1992.................................... 1,621 $ 770 $ (562) $ 208
Sale of Common Stock
(net offering costs of $360)........................... 645 1,574 -- 1,574
Shares issued in exchange for note payable................ 22 66 -- 66
Net income................................................ -- -- 668 668
------ ------- ------ -------
Balance at June 30, 1993.................................... 2,288 2,410 106 2,516
Sale of Common Stock
(net of offering costs of $795)........................ 1,035 6,822 -- 6,822
Exercise of stock options................................. 1 2 -- 2
Net income................................................ -- -- 1,693 1,693
------ ------- ------ -------
Balance at June 30, 1994.................................... 3,324 9,234 1,799 11,033
Sale of Common Stock
(net of offering costs of $20) (unaudited)............. 119 859 -- 859
Sale of Common Stock under Employee Stock Purchase Plan
(unaudited)............................................ 5 34 -- 34
Exercise of stock options and warrants (unaudited)........ 115 253 -- 253
Net income (unaudited).................................... -- -- 401 401
------ ------- ------ -------
Balance at March 31, 1995 (unaudited)....................... 3,563 $10,380 $2,200 $12,580
====== ======= ====== =======
</TABLE>
See accompanying Notes.
F-5
<PAGE>
LAZER-TRON CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
JUNE 30, ENDED MARCH 31,
----------------- -----------------
1993 1994 1994 1995
------ ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 668 $ 1,693 $ 1,054 $ 401
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 42 48 41 74
Provision for doubtful accounts..................................... 27 (7) 43 32
Deferred taxes...................................................... (128) (131) (3) 3
Loss on disposal of equipment....................................... 1 -- -- --
Changes in operating assets and liabilities:
Accounts receivable............................................... (676) (2,565) (1,409) 538
Inventories....................................................... (363) (1,062) (904) (258)
Prepaid expenses and other current assets......................... (53) (15) (192) (68)
Other assets...................................................... (23) -- 4 3
Accounts payable and accrued liabilities.......................... 434 1,168 622 (905)
Income taxes payable.............................................. 368 (254) (389) (135)
Customer deposits................................................. 91 (81) (80) 46
------ ------- ------- ------
Net cash provided by (used in) operating activities...................... 388 (1,206) (1,213) (269)
------ ------- ------- ------
INVESTING ACTIVITIES
Purchases of short-term investments...................................... -- (800) (800) --
Maturities of short-term investments..................................... -- 598 598 202
Acquisition of property and equipment.................................... (103) (185) (103) (239)
------ ------- ------- ------
Net cash used in investing activities.................................... (103) (387) (305) (37)
------ ------- ------- ------
FINANCING ACTIVITIES
Proceeds from borrowings under line of credit............................ 200 -- -- --
Payments on line of credit............................................... (200) -- -- --
Payments on notes payable................................................ (79) -- -- --
Proceeds from issuance of Common Stock, net of offering costs............ 1,574 6,822 -- 859
Proceeds from exercise of stock options and warrants..................... -- 2 -- 253
Proceeds from issuance of Common Stock under Employee Stock Purchase
Plan................................................................... -- -- -- 34
------ ------- ------- ------
Net cash provided by financing activities................................ 1,495 6,824 -- 1,146
------ ------- ------- ------
Net increase (decrease) in cash and cash equivalents..................... 1,780 5,231 (1,518) 840
Cash and cash equivalents at beginning of period......................... 42 1,822 1,822 7,053
------ ------- ------- ------
Cash and cash equivalents at end of period............................... $1,822 $ 7,053 $ 304 $7,893
====== ======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................................ $ 25 $ -- $ -- $ --
Income taxes paid........................................................ $ 22 $ 1,513 $ 1,193 $ 452
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Conversion of accrued royalties into a note payable for $60.............. $ 60 $ -- $ -- $ --
Conversion of $66 note payable into 22 shares of Common Stock
and warrants........................................................... $ 66 $ -- $ -- $ --
</TABLE>
See accompanying Notes
F-6
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Lazer-Tron Corporation (the 'Company') was incorporated under the laws of
the state of California on July 19, 1988. The principal business activity of the
Company is the design, development, manufacture, and sale of
technologically-advanced coin- or token-operated redemption games for use by
family entertainment centers and other entertainment venues, including shopping
malls and free-standing arcades and amusement and theme parks.
Basis of Presentation
On January 12, 1994, the Company established a foreign sales corporation,
Lazer-Tron Limited. The financial statements include the accounts of the Company
and Lazer-Tron Limited. No significant intercompany transactions occurred
through March 31, 1995.
Interim Financial Information
The financial statements and related notes as of March 31, 1995 and for the
nine months ended March 31, 1994 and 1995 are unaudited but include all
adjustments (consisting solely of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the interim period. The results of
operations for the nine-month period ended March 31, 1995 are not necessarily
indicative of the operating results to be expected for the full fiscal year.
Revenue Recognition
Revenues are recognized upon product shipment. Net sales consist of product
sales, less discounts and estimated allowances for returns.
Cash Equivalents and Short-Term Investments
Cash equivalents are highly liquid investments with maturities of three
months or less at the date of purchase. The majority of cash equivalents
represent 30-day Treasury Bills. Short-term investments consist of commercial
paper with maturities of more than three months. All cash investments are
carried at amortized cost, which approximates market.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, (FAS 115) 'Accounting for Certain
Investments in Debt and Equity Securities,' effective for fiscal years beginning
after December 15, 1993. Under the new rules, debt securities that the Company
has both positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the positive
intent and ability to hold to maturity and all marketable equity securities are
classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as
available-for-sale are reported as part of equity, while unrealized holding
gains and losses on securities classified as trading are reported in earnings.
The Company adopted FAS 115 on July 1, 1994, and all debt securities are
classified as held-to-maturity. The adoption of FAS 115 had no material impact
on the Company's financial position or its operating results during fiscal 1995.
F-7
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost (first-in, first-out method), or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of two to five years.
Leasehold improvements are amortized over the lesser of the remaining lease term
or their estimated useful lives.
Income Taxes
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 (FAS 109), 'Accounting for
Income Taxes.' Under the liability method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. As
permitted under the new rules, the Company has elected to apply the new standard
retroactively to all years. There was no material impact resulting from the
adoption of FAS 109 in any year.
Net Income Per Share
Net income per share is based upon the weighted average number of
outstanding shares of Common Stock and dilutive common equivalent shares from
the exercise of stock options and warrants (using the treasury stock method).
Prior to the Company's initial public offering, the weighted average common
shares outstanding included those prescribed by the Securities and Exchange
Commission and Staff Accounting Bulletins.
Reclassifications
Certain prior year balances have been reclassified to conform to the March
31, 1995 presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
-------- ---------
1994 1995
-------- ---------
<S> <C> <C>
Raw materials........................................................... $ 919 $ 1,082
Work-in-progress........................................................ 583 585
Finished goods.......................................................... 322 415
-------- ---------
$1,824 $ 2,082
======== =========
</TABLE>
3. BANK LINE OF CREDIT
At March 31, 1995, the Company had an unsecured line of credit agreement
with a bank, which provided for borrowings of up to $2,000,000 for general
working capital purposes through October 1, 1995. Borrowings under the agreement
bear interest at the bank s prime rate plus one percent (10% in total at March
31, 1995) and are based upon a percentage of eligible accounts receivable. This
facility requires the Company comply with certain financial covenants, as well
as obtain bank approval prior to declaration of dividends. While the Company
currently complies with each of the financial covenants, violation of any of the
covenants in the future would
F-8
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
3. BANK LINE OF CREDIT--(CONTINUED)
require the facility be secured by all of the Company's assets. There were no
amounts outstanding under this line of credit at March 31, 1995.
4. COMMITMENTS
Facility Lease
The Company leases its office and warehouse facilities under an operating
lease that expires in May 2001 with one five-year option to renew at fair market
value. In addition, the Company leases office space for a sales representative
in Illinois that expires in May 1995. Future minimum lease payments at March 31,
1995 are as follows (in thousands):
<TABLE>
<S> <C>
1995 (remaining three months)........................................................ $ 77
1996................................................................................. 307
1997................................................................................. 319
1998................................................................................. 332
1999................................................................................. 347
Thereafter........................................................................... 314
------
$1,696
======
</TABLE>
Rent expense was approximately $111,000 and $309,000 for the years ended
June 30, 1993 and 1994, respectively, and $210,000 and $240,000 for the nine
months ended March 31, 1994 and 1995, respectively.
Royalty Agreements
The Company has intellectual property and proprietary rights to various
redemption games subject to royalty agreements. Under these agreements, the
Company is obligated to pay royalties ranging from 3% to 7% of net sales.
Royalty expense incurred from the sales of these games was approximately
$358,000 and $450,000 for the years ended June 30, 1993 and 1994, respectively,
and $396,000 and $279,000 for the nine months ended March 31, 1994 and 1995,
respectively.
5. SHAREHOLDERS' EQUITY
Initial Public Offering
In May 1994, the Company completed an initial public offering (the
'Offering') in which it sold 1,035,000 shares of Common Stock at $8.00 per
share. The Offering raised net proceeds of approximately $6,822,000. Pursuant to
the Offering, the Company issued warrants to the underwriter which entitles the
underwriter to purchase 55,000 shares of Common Stock at $9.60 per share through
May 1999. As of March 31, 1995 no warrants had been exercised.
On July 15, 1994, the Company received an additional $879,000, exclusive of
offering costs, from the underwriters who purchased 119,430 shares of Common
Stock pursuant to the over-allotment provisions of the Offering.
1989 Stock Option Plan
Under the Company's stock option plan (the 'Option Plan'), the Board of
Directors may grant incentive and nonqualified options to employees, directors
and consultants to purchase up to 625,000 shares of Common Stock. The maximum
number of shares that may be issued to any one optionee is 150,000. The Option
Plan
F-9
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY--(CONTINUED)
expires in August 1999. The Option Plan can also be terminated by the Board of
Directors at any time without shareholder approval.
Nonqualified stock options may be granted to employees, directors and
consultants. Incentive stock options may be granted to employees only. The
exercise price of the nonqualified and incentive stock options granted may not
be less than 85% and 100%, respectively, of the Common Stock's fair market value
at the date of grant (110% of fair market value for options issued to owners of
10% or more of the outstanding voting stock). Fair market value is determined by
the Board of Directors. Options typically expire ten years from the date of
grant (five years for options issued to owners of 10% or more of the voting
stock) and vest at the discretion of the Board of Directors, generally over a
four-year period.
Activity under the Option Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ---------------------------
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES SHARE
----------- --------- --------------
<S> <C> <C> <C>
Balance at June 30, 1993................................................. 7,650 292,350 $1.70-$ 3.00
Increase in authorized shares.......................................... 325,000 --
Options granted........................................................ (118,850) 118,850 $3.00-$ 8.00
Options canceled....................................................... 5,500 (5,500) $3.00
Options exercised...................................................... -- (500) $3.00
---------- ---------
Balance at June 30, 1994................................................. 219,300 405,200 $1.70-$ 8.00
Options granted........................................................ (119,750) 119,750 $9.12-$11.75
Options canceled....................................................... 7,663 (7,663) $3.00-$11.75
Options exercised...................................................... -- (114,862) $2.00-$ 5.00
Balance at March 31, 1995................................................ 107,213 402,425 $1.70-$11.75
========== =========
</TABLE>
Options to purchase 68,954, 188,704 and 192,333 shares were exercisable at
June 30, 1993, June 30, 1994, and March 31, 1995, respectively.
1994 Directors Stock Option Plan
In March 1994, the Company's Board of Directors adopted, and in April 1994,
the shareholders approved, the 1994 Directors Stock Option Plan (the 'Directors
Plan') to provide for the grant of options to purchase shares of Common Stock to
nonemployee directors. The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the Directors Plan is 85,000. The
maximum number of shares that may be issued to any one non-employee Director is
30,000. Upon becoming a non-employee Director, there is an initial grant of
7,000 shares, of which 2,000 of the shares immediately vest; the remaining 5,000
will vest at 50% every anniversary date, so long as the Director remains on the
Board. In addition, on the date of each Annual Shareholder Meeting, non-employee
Directors will be granted an additional option for 5,000 shares, vesting over
F-10
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY--(CONTINUED)
a two-year term. IN THE EVENT OF A CHANGE IN CONTROL, OPTIONS GRANTED UNDER THE
PLAN BECOME IMMEDIATELY EXERCISABLE. Activity under the Directors Plan is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ---------------------------
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES SHARE
---------- --------- --------------
<S> <C> <C> <C>
Balance at June 30, 1993................................................. -- --
Options authorized..................................................... 85,000 --
Options granted........................................................ (21,000) 21,000 $ 7.50
---------- ---------
Balance at June 30, 1994................................................. 64,000 21,000
Options granted........................................................ (15,000) 15,000 $12.75
---------- ---------
Balance at March 31, 1995................................................ 49,000 36,000 $ 7.50-$12.75
========== =========
</TABLE>
Options to purchase 6,000 and 13,500 shares were exercisable at June 30,
1994 and March 31, 1995, respectively.
1994 Employee Stock Purchase Plan
In March 1994, the Company's Board of Directors adopted, and in April 1994,
the shareholders approved the 1994 Employee Stock Purchase Plan (the 'Stock
Purchase Plan') to permit eligible employees to acquire shares of the Company's
Common Stock through payroll deductions. A total of 50,000 shares of Common
Stock are authorized for issuance under the Stock Purchase Plan. Offerings under
the Stock Purchase Plan commence on July 1, 1994. The purchase price for the
Company's Common Stock purchased under the Stock Purchase Plan is eighty-five
percent of the lesser of the fair market value of the shares on the first day of
the offering period (July 1 or January 1) or the last day of the offering period
(June 30 or December 31). On December 31, 1994, 4,966 shares were purchased at
$6.80 per share.
Private Equity Offering
In May 1993, the Company completed a private equity offering in which it
sold 644,666 units ('Units') at $3.00 per Unit. The private offering raised net
proceeds of approximately $1,574,000. In addition, a noteholder exchanged a
$66,000 note payable from the Company for 22,000 Units. Each Unit consists of
one share of Common Stock and one Common Stock purchase warrant ('Warrants').
Two Warrants entitle the holder to purchase one share of Common Stock, at an
exercise price of $5.00 per share, during specified periods through April 1996.
Pursuant to the offering, the Company issued warrants to the sales agent (the
'Sales Agent Warrants') which entitles the sales agent to purchase 128,933 Units
at $3.00 per Unit through June 1998. During the first nine months of fiscal
1995, 500 Sales Agent Warrants were exercised. The exercise of the remaining
Sales Agent Warrants and all Warrants would result in the issuance of 526,233
shares of Common Stock for proceeds of approximately $2,374,300.
Shares Reserved
At March 31, 1995, the Company has reserved for future issuance 1,220,905
shares of Common Stock pursuant to the terms of its stock option plans, stock
purchase plan and all warrants.
In March 1994, the Company's Board of Directors authorized, and in April
1994, the shareholders approved an amendment and restatement of the Company's
Articles of Incorporation, to increase the number of authorized shares of Common
Stock to 10,000,000 shares and to provide for the issuance of up to 1,000,000
shares of undesignated Preferred Stock. Through March 31, 1995, no shares of
Preferred Stock have been issued.
F-11
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
6. EMPLOYEE BENEFIT PLAN
The Company has an employee salary deferral plan (the '401k Plan') that
covers substantially all full-time employees who are twenty-one years of age or
older. Company-approved contributions to the 401k Plan are determined quarterly
at the discretion of the Board of Directors. Company contributions vest evenly
over four years and are fully vested after four years of service. Employee
contributions are fully vested at all times. Company contributions were
approximately $9,000 and $27,000 for the years ended June 30, 1993 and 1994,
respectively, and $20,000 and $28,800 for the nine months ended March 31, 1994
and 1995, respectively.
7. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1993 1994
------------------- -------------------
<S> <C> <C>
Current:
Federal............................................................. $ 280 $ 1,011
State............................................................... 100 248
------ -------
380 1,259
Deferred:
Federal............................................................. (128) (90)
State............................................................... -- (41)
------ -------
(128) (131)
------ -------
$ 252 $ 1,128
====== =======
</TABLE>
The provision for income taxes reconciles to the amount computed by
applying the federal statutory rate to income before provision for income taxes
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1993 1994
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Federal statutory rate........................................... $ 313 34% $ 959 34%
State taxes, net of federal benefit.............................. 65 7 136 5
Other............................................................ -- -- 33 1
Benefit of operating loss carryforwards.......................... (126) (14) -- --
------ ----- ------ -----
$ 252 27% $1,128 40%
====== ===== ====== =====
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets as of June 30, 1994, are as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable allowances........................................................ $ 88
Inventory reserves and valuation...................................................... 24
Book over tax depreciation and amortization........................................... 16
Nondeductible accruals................................................................ 61
State income taxes.................................................................... 70
----
259
Valuation allowance................................................................... --
----
Net deferred tax assets............................................................... $259
====
</TABLE>
F-12
<PAGE>
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
7. INCOME TAXES--(CONTINUED)
The valuation allowance decreased by $180,000 and $46,000 for the years
ended June 30, 1993 and 1994, respectively.
At June 30, 1994, the Company had fully utilized all California net
operating loss carryforwards of approximately $350,000.
For the nine months ended March 31, 1995, income taxes have been provided
based upon an estimated annualized effective rate of 35% applied to the
Company's pre-tax book income from its ongoing operations. The tax effect of the
merger-related expenditures, which are anticipated to be largely nondeductible
for tax purposes, are accounted for separately in the quarter in which the
expenditures are incurred. ACCORDINGLY, THE NET EFFECTIVE TAX RATE FOR THE NINE
MONTHS ENDED MARCH 31, 1995 IS 44%.
8. GEOGRAPHIC INFORMATION
International sales, principally to customers in the Far East, were
approximately $1,765,000 and $3,240,000 for the years ended June 30, 1993 and
1994, respectively, and $2,250,000 and $3,100,000 for the nine months ended
March 31, 1994 and 1995, respectively.
9. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company's cash investments consist principally of
investments in 30-day Treasury Bills and treasury money market funds placed with
high-credit quality financial institutions. The Company currently markets its
products through a variety of domestic and international distributors. The
Company performs ongoing credit evaluations of its customers financial condition
and generally does not require collateral. The Company maintains reserves for
potential credit losses and returns.
For the year ended June 30, 1993 one customer accounted for 11% of net
sales. For the year ended June 30, 1994 and the nine months ended March 31, 1994
and 1995, no single customer accounted for more than 10% of sales.
10. SUBSEQUENT EVENT
On March 22, 1995, the Company entered into an Agreement and Plan of Merger
(Agreement) with Acclaim Entertainment, Inc. (Acclaim) and Acclaim Arcade
Holdings, Inc. The parties intend that the merger, if consummated, will be a
tax-free transaction, that it will be accounted for as a pooling of interests
and that it will result in the Company being a wholly-owned subsidiary of
Acclaim. In accordance with the terms of the Agreement, Acclaim was granted an
option to purchase up to 250,000 shares of the Company's Common Stock at an
exercise price of $8.00 per share. The option may be exercised only if the
merger is terminated under certain specific circumstances and would then be
exercisable for a two year period following such occurrence. In addition, if the
merger is not consummated because the Company's Board of Directors exercises its
fiduciary duties in connection with another Acquisition Transaction, a break-up
fee of $200,000 would be payable to Acclaim, and, if such Acquisition
Transaction were to be consummated within one year, the Company must pay Acclaim
5% of the value of the aggregate consideration received in connection with such
Acquisition Transaction, less the $200,000 fee. Through March 31, 1995, the
Company had incurred merger costs (comprised primarily of legal, financial
advisor and accounting fees) of approximately $249,000.
F-13
<PAGE>
LAZER-TRON CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
JUNE 30, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LAZER-TRON CORPORATION.
The undersigned hereby appoints Norman B. Petermeier and Mathew F. Kelly, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, no par value of Lazer-Tron Corporation ('Lazer-Tron'), held of
record by the undersigned on May 24, 1995 at the Special Meeting of Shareholders
of Lazer-Tron to be held at the Sheraton Inn located at 5115 Hopyard Road,
Pleasanton, California on June 30, 1995, at 9:00 a.m. Pacific Standard Time, and
at any adjournments or postponements thereof.
1. Approval of the Merger Agreement and the Merger, as described in the
accompanying Prospectus/Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements of the Special Meeting.
The Board of Directors recommends that you vote FOR the proposals.
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof to the
extent authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act
of 1934, as amended.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LAZER-TRON
CORPORATION.
_______________________________________
Print Shareholder's name
_______________________________________
Signatures of Shareholders or
Authorized Signatory
_______________________________________
Dated: ___________________________ 1995
Please sign exactly as your name
appears on your stock certificate. If
shares of stock stand of record in the
names of two or more persons or in the
name of husband and wife, whether as
joint tenants or otherwise, both or all
of such persons should sign the proxy.
If shares of stock are held of record
by a corporation, the proxy should be
executed by the president or vice
president and the secretary or
assistant secretary. Executors,
administrators or other fiduciaries who
execute the above proxy for a deceased
shareholder should give their full
title. Please date the proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that any person
may be indemnified against all expenses and liabilities to the fullest extent
permitted by the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of Delaware, the law of the
state in which the Registrant is incorporated, empowers a corporation within
certain limitations to indemnify any person against expenses, including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any suit or proceeding to which he
is a party by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, as long as he acted in
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the corporation. With respect to any criminal
proceeding, he must have had no reasonable cause to believe his conduct was
unlawful.
The Registrant also has in effect directors' and officers' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------------------
<S> <C>
2 -- Agreement and Plan of Merger, dated as of March 22, 1995 by and among Acclaim Entertainment, Inc.,
Acclaim Arcade Holdings, Inc. and Lazer-Tron Corporation (1)
4 -- Specimen form of Acclaim Entertainment, Inc. Common Stock Certificate (2)
5 -- Opinion of Rosenman & Colin *
8 -- Opinion of Fenwick & West *
23(a) -- Consent of Grant Thornton LLP
23(b) -- Consent of Ernst & Young LLP
23(c) -- Consent of Rosenman & Colin (included in Exhibit 5) *
23(d) -- Consent of Fenwick & West (included in Exhibit 8) *
23(e) -- Consent of Van Kasper *
24 -- Power of Attorney (included on page II-4)
</TABLE>
- ------------------
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated
March 31, 1995.
(2) Incorporated by reference to Annual Report on Form 10-K for the year ended
August 31, 1989, filed November 8, 1989, as amended (File No. 0-16986).
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the 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;
II-1
<PAGE>
(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;
(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.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 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.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed 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.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of
responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(9) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant 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 Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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
Registrant 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 Act, and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF NASSAU
AND STATE OF NEW YORK ON APRIL 26, 1995.
ACCLAIM ENTERTAINMENT, INC.
By: GREGORY E. FISCHBACH
Gregory E. Fischbach
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gregory E. Fischbach and James Scoroposki, and
each or either of them, his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place, and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all the exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite or necessary to be done
in and about the premises as fully, to all intents and purposes, as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
GREGORY E. FISCHBACH Co-Chairman; Chief Executive Officer; On April 26, 1995
- ------------------------------------------ Director
Gregory E. Fischbach
JAMES SCOROPOSKI Co-Chairman; Senior Executive Vice On April 26, 1995
- ------------------------------------------ President; Treasurer; Secretary; Director
James Scoroposki
ROBERT HOLMES President; Chief Operating Officer; General On April 26, 1995
- ------------------------------------------ Manager; Director
Robert Holmes
BERNARD J. FISCHBACH Director On April 26, 1995
- ------------------------------------------
Bernard J. Fischbach
MICHAEL TANNEN Director On April 26, 1994
- ------------------------------------------
Michael Tannen
ROBERT H. GROMAN Director On April 26, 1995
- ------------------------------------------
Robert H. Groman
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
JAMES SCIBELLI Director On April 26, 1995
- ------------------------------------------
James Scibelli
Director On , 1995
- ------------------------------------------
Bruce Ravenel
ANTHONY R. WILLIAMS Executive Vice President; Chief Financial On April 26, 1995
- ------------------------------------------ and Accounting Officer
Anthony R. Williams
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------
<S> <C>
2 -- Agreement and Plan of Merger, dated as of March 22, 1995, by and among Acclaim
Entertainment, Inc., Acclaim Arcade Holdings, Inc. and Lazer-Tron Corporation(1)
4 -- Specimen form of Acclaim Entertainment, Inc. Common Stock Certificate(2)
5 -- Opinion of Rosenman & Colin*
8 -- Opinion of Fenwick & West*
23(a) -- Consent of Grant Thornton LLP
23(b) -- Consent of Ernst & Young LLP
23(c) -- Consent of Rosenman & Colin (included in Exhibit 5)*
23(d) -- Consent of Fenwick & West (included in Exhibit 8)*
23(e) -- Consent of Van Kasper*
24 -- Power of Attorney
</TABLE>
- ------------------
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated
March 31, 1995.
(2) Incorporated by reference to Annual Report on Form 10-K for the year ended
August 31, 1989, filed November 8, 1989, as amended (File No. 0-16986).
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 20, 1994, accompanying the consolidated
financial statements and schedules of Acclaim Entertainment, Inc. and
subsidiaries included in the Annual Report on Form 10-K for the year ended
August 31, 1994, which is incorporated by reference in the Registration
Statement and Prospectus on Form S-4. We consent to the incorporation by
reference in the Registration Statement and Prospectus of the aforementioned
report and to the use of our name as it appears under the captions "Acclaim
Selected Consolidated Financial Data" and "Experts."
GRANT THORNTON LLP
New York, New York
April 25, 1995
Exhibit 23(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Lazer-Tron Selected
Financial Data" and "Experts" and to the use of our report dated July 27, 1994
included in the Proxy Statement of Lazer-Tron Corporation which is made a part
of the Registration Statement on Form S-4 and related Prospectus of Acclaim
Entertainment, Inc. for the registration of Acclaim Entertainment, Inc.'s common
stock to be issued in connection with the merger of Acclaim Entertainment, Inc.
and Lazer-Tron Corporation.
ERNST & YOUNG LLP
San Jose, California
April 24, 1995
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 22, 1995, by and among
Lazer-Tron Corporation ("Lazer"), a California corporation, Acclaim
Entertainment, Inc. ("Acclaim"), a Delaware corporation, and Acclaim Arcade
Holdings, Inc. ("Holdings"), a Delaware corporation organized solely for the
purpose of consummating the transactions contemplated hereby and a wholly owned
subsidiary of Acclaim.
WHEREAS, the Board of Directors of each of Lazer and Acclaim have
determined that it is in the best interests of their respective companies and
stockholders to consummate the business combination transaction provided for
herein and in the Agreement of Merger required to be filed under California law
(the "California Certificate") in form and substance reasonably satisfactory to
Acclaim and Lazer pursuant to which Holdings will, subject to the terms and
conditions set forth herein, merge with and into Lazer (the "Merger") so that
Lazer will be the surviving entity and a wholly owned subsidiary of Acclaim.
Upon the effectiveness of the Merger, all the outstanding capital stock of
Lazer will be converted into common stock of Acclaim subject to Section 2.05
hereof, and Acclaim will substitute comparable obligations of Acclaim for all
obligations relating to the outstanding options and warrants to purchase
securities of Lazer, as provided in this Agreement and the California
Certificate and the applicable provisions of the Delaware General Corporation
Law (the "DGCL") and the California General Corporation Law (the "CGCL");
WHEREAS, the Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended (the "Code"), by virtue of the provisions of Section
368(a)(2)(E) of the Code and it is a condition to Acclaim's and Holdings'
obligations hereunder that the Merger be treated as a "pooling of interests"
("Pooling") for accounting purposes; and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
The Merger
Section 1.01 The Merger. (a) Upon the terms and subject to the
conditions hereof and in accordance with Section 252 of the DGCL and Sections
1103 and 1108 of the CGCL, as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article VI and Article
VII hereof, but in no event later than five days thereafter (unless the parties
shall otherwise agree) a closing (the "Closing") of the Merger shall take place
at the offices of Rosenman & Colin, 575 Madison Avenue, New York, New York, or
such other place and at such time as the parties shall agree in writing (the
"Closing Date").
(b) Concurrently with the Closing, (i) a certificate of merger
(the "Certificate of Merger"), in form and substance reasonably satisfactory to
Acclaim and Lazer, providing for the merger of Holdings with and into Lazer
shall be duly prepared, executed and filed by Lazer, as the surviving
corporation (the "Surviving Corporation"), with the Delaware Secretary of State
in accordance with the relevant provisions of the DGCL and (ii) the appropriate
officers of Lazer, Acclaim and Holdings shall execute and acknowledge the
California Certificate and it shall be filed with the California Secretary of
State in accordance with the CGCL, and the Merger shall become effective upon
completion of the latest of such filings as are required under the DGCL and the
CGCL. The date and time the Merger becomes effective is referred to herein as
the "Effective Time".
Section 1.02 Effects of the Merger. (a) The Merger shall have the
effects set forth in the DGCL and the CGCL and as hereinafter set forth.
Following the Merger, the Surviving Corporation shall (i) continue its
corporate existence under the laws of the State of California, (ii) be a wholly
owned subsidiary of Acclaim, (iii) retain its name "Lazer-Tron Corporation",
and (iv) succeed to all rights, assets, liabilities and obligations of Lazer
and Holdings in accordance with the DGCL and the CGCL. At the Effective Time,
pursuant to Section 1107 of the CGCL, the separate existence of Holdings shall
cease and the Surviving Corporation shall succeed, without other transfer, to
all the rights and property of each of Holdings and Lazer (sometimes
hereinafter referred to collectively as the "Constituent Corporations") and
shall be subject to all the debts and liabilities of each in the same manner as
if the Surviving Corporation had itself incurred them. All rights of creditors
and all liens upon the property of each of the Constituent Corporations shall
be preserved unimpaired, provided that such liens upon property of Holdings
shall be limited to the property affected thereby immediately prior to the time
the Merger is effective. Any action or proceeding pending by or against
Holdings may be prosecuted to judgment, which shall bind the Surviving
Corporation, or the Surviving Corporation may be proceeded against or
substituted in its place.
(b) At the Effective Time each share of common stock of Holdings issued
and outstanding, immediately prior to the Effective Time shall by reason of the
Merger and without any action by the holder thereof be converted into one
validly issued, fully paid and non-assessable share of common stock of the
Surviving Corporation.
Section 1.03 Merger Consideration. (a) At the Effective Time, each
share of common stock, no par value, of Lazer (the "Lazer Common Stock") issued
and outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the
right to receive the following consideration (the "Merger Consideration"):
(i) if the average of the closing sale price of a share of common
stock, par value $0.02 per share, of Acclaim (the "Acclaim Common Stock")
on the Nasdaq Stock Market's National Market System (as reported in the
Wall Street Journal) for the 20 business days immediately preceding the
second business day prior to the Closing Date (the "Acclaim Common Stock
Price") shall be at least $12.50 but less than $16.00, that number of
shares of Acclaim Common Stock equal to the product (rounded up to the
nearest one thousandth) of (i) one (1) and (ii) a fraction, the numerator
of which is $8.00 and the denominator of which is the Acclaim Common Stock
Price;
(ii) if the Acclaim Common Stock Price shall be at least $16.00 and
not more than $20.00, one half (1/2) of a share of Acclaim Common Stock;
or
(iii) if the Acclaim Common Stock Price shall be more than $20.00,
that number of shares of Acclaim Common Stock equal to the product
(rounded up to the nearest one thousandth) of (i) one (1) and (ii) a
fraction, the numerator of which is $10.00 and the denominator of which is
the Acclaim Common Stock Price.
(b) The issuance of the Acclaim Common Stock to be delivered to the
holders of the Lazer Common Stock (the "Lazer Stockholders") in connection with
the Merger shall be registered by Acclaim under the Securities Act of 1933, as
amended (the "1933 Act"), on a registration statement on Form S-4 (the "S-4")
which shall have been declared effective by the Securities and Exchange
Commission (the "SEC") at or prior to the Effective Time.
(c) No fractional shares of Acclaim Common Stock shall be issued or
delivered to a Lazer Stockholder in payment of the Merger Consideration; cash
shall be paid in lieu of any such fractional shares pursuant to Section 2.02
hereof. The fractional shares of Acclaim Common Stock to be received by each
Lazer Stockholder will be aggregated so that no Lazer Stockholder will receive
cash in an amount equal to or greater than the value of one full share of
Acclaim Common Stock.
(d) Dissenting Shares (hereinafter defined) shall not be converted into
the right to receive the Merger Consideration and the holders thereof shall
have only such rights as are provided under Chapter 13 of the CGCL unless and
until the holders of any Dissenting Shares (the "Dissenting Shareholders")
withdraw their demand for purchase of the Dissenting Shares in accordance with
Chapter 13 of the CGCL or such Dissenting Shares or the Dissenting Shareholders
otherwise lose their status as Dissenting Shares or Dissenting Shareholders
under Section 1309 of the CGCL.
(e) Notwithstanding the foregoing provisions of this Section 1.03, if the
Acclaim Common Stock Price shall be less than $12.50, each of Acclaim and
Lazer, at its sole option, shall have the right to give notice pursuant to
Section 8.01 hereof of its election to terminate this Agreement.
Section 1.04 Directors and Officers; Articles of Incorporation; By-laws.
At the Effective Time, the Board of Directors of the Surviving Corporation
shall consist of Messrs. Gregory E. Fischbach, James Scoroposki, Robert Holmes,
Anthony R. Williams and Norman B. Petermeier and the officers of the Surviving
Corporation shall be the existing officers of Lazer, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation. The Articles of Incorporation and By-laws of Lazer at the
Effective Time shall be the Articles of Incorporation and By-laws of the
Surviving Corporation after the Effective Time, and thereafter may be amended
in accordance with their respective terms and applicable law.
Section 1.05 Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders thereof, and
subject to Section 2.02, each issued and outstanding share of Lazer Common
Stock (including shares issued pursuant to the 1994 Employee Stock Purchase
Plan (the "Employee Purchase Plan") as provided in Section 1.06) other than
Dissenting Shares, if any, shall be converted into the right to receive a
fraction (rounded up to the nearest one-thousandth of a share) of a fully paid
and nonassessable share of Acclaim Common Stock, determined in accordance with
Section 1.03 hereof.
Section 1.06 Stock Plans and Warrants. (a) At the Effective Time, each
outstanding option to purchase Lazer Common Stock (a "Stock Option") granted
under the Lazer's 1989 Stock Option Plan (the "Employee Option Plan",
collectively with the Director Stock Option Plan (the "Director Option Plan"),
the "Lazer Stock Option Plans") and each outstanding warrant (the "Warrants")
described on Schedule 3.02 hereto, whether vested or unvested, shall, by virtue
of the Merger and without any further action on the part of any holder thereof,
be deemed substituted with an option or warrant (hereinafter referred to as an
"Acclaim Option or Warrant"), as applicable, on substantially the same terms
and conditions as were applicable under such Stock Option or Warrant, to
acquire that number of shares of Acclaim Common Stock (and with respect to the
Sales Agent Warrants (as hereinafter defined) listed on Schedule 3.02 which are
exercisable for Lazer Common Stock and a warrant to buy one-half of a share of
Lazer Common Stock (the "Underlying Warrant"), in addition to such number of
shares of Acclaim Common Stock, that number of warrants to purchase shares of
Acclaim Common Stock (herein referred to as the "Underlying Acclaim Warrant")
as the holder of such Stock Option or Warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such Stock Option or
Warrant in full immediately prior to the Effective Time (without taking into
account whether or not such Stock Option or Warrant was in fact exercisable),
and the exercise price per share for such shares of Acclaim Common Stock shall
be equal to (x) the aggregate exercise price for Lazer Common Stock purchasable
pursuant to such substituted Stock Option or Warrant (and with respect to the
Sales Agent Warrants, the aggregate exercise price to acquire the Lazer Common
Stock and Underlying Acclaim Warrant) divided by (y) the number of shares of
Acclaim Common Stock deemed directly purchasable pursuant to such Stock Option
or Warrant; and, with respect to any Underlying Acclaim Warrant the exercise
price for the Acclaim Common Stock purchasable upon exercise of any Underlying
Acclaim Warrant shall be determined in the same manner as set forth above with
respect to any other Stock Option or Warrant as though the Underlying Warrants
were outstanding immediately prior to the Closing Date. Immediately prior to
the Effective Time, each outstanding right to acquire Lazer Common Stock
("Lazer Stock Purchase Rights") issued pursuant to the Employee Purchase Plan
shall be exercised or deemed exercised (such deemed exercise shall nevertheless
require application of the funds held in the applicable employee's account
under the Employee Purchase Plan) to purchase shares of Lazer Common Stock at
an exercise price per share determined in accordance with the formula set forth
in the Employee Purchase Plan and for that number of shares of Lazer Common
Stock and upon the terms and conditions determined in accordance with the terms
of the Employee Purchase Plan. After such exercise or deemed exercise of all
outstanding Lazer Stock Purchase Rights, but in any event no later than July 1,
1995, including without limitation with respect to rights outstanding on the
date hereof and/or outstanding through June 30, 1994, the Employee Purchase
Plan and any other unexercised rights shall be terminated (unless the closing
shall occur prior to said date in which event the Employee Purchase Plan and
all such rights shall terminate as of the date two business days prior to such
Closing Date) provided, that the Closing subsequently occurs. All such shares
of Lazer Common Stock issued upon the exercise or deemed exercise of Lazer
Stock Purchase Rights under the Employee Purchase Plan shall be converted into
the right to receive Acclaim Common Stock as provided in Sections 1.03 or 1.05.
If the foregoing calculation results in a substituted Acclaim Option or Warrant
(or would result in an Underlying Acclaim Warrant) being exercisable for a
fraction of a share of Acclaim Common Stock, then the number of shares of
Acclaim Common Stock subject to such Acclaim Option or Warrant (or underlying
Acclaim Warrant) will be rounded down to the nearest whole number of shares
with no cash being paid for such fractional share. The exercise price of such
Acclaim Option or Warrant (or underlying Acclaim Warrant) shall be rounded to
the nearest whole cent. In the case of any Stock Option to which Section 421
of the Code applies by reason of its qualification under any of Sections 422-
423 of the Code ("statutory stock options"), the option price, the number of
shares purchasable pursuant to such Stock Option and the terms and conditions
of exercise thereof shall comply with Section 424(a) of the Code. Continuous
employment or service with Lazer will be credited to an optionee for purposes
of determining the number of shares of Acclaim Common Stock subject to exercise
under a converted Stock Option. Stock Options under the Director Option Plan
shall by the terms thereof accelerate and thereafter terminate concurrently
with or immediately prior to the Effective Time.
(b) As soon as practicable after the Effective Time, Acclaim shall
deliver to each holder of an outstanding Stock Option or Warrant an appropriate
notice setting forth such holder's rights pursuant thereto and such Stock
Option or Warrant shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 1.06 after giving effect
to the Merger). Acclaim shall comply with the terms of all such Stock Options
and Warrants and use it best efforts to ensure, to the extent required by, and
subject to the provisions of, any such Lazer Stock Plan that Stock Options
which qualified as qualified stock options prior to the Effective Time continue
to qualify as qualified stock options after the Effective Time. Acclaim shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of Acclaim Common Stock for delivery pursuant to the terms set forth
in this Section 1.06. Acclaim shall use reasonable efforts to cause the
Acclaim Common Stock to be issued pursuant to exercise of the substituted
Options and Warrants to be issued under Acclaim's existing stock option plans
or otherwise with respect to not more than 10,000 non-qualified stock options
and, if not already registered, to register such Acclaim Common Stock issuable
pursuant to such plans or otherwise, as applicable, as soon as reasonably
practicable following the Effective Time on a registration statement on Form S-
8 or other applicable form.
(c) If necessary to effect the adjustments contemplated by this Section
1.06, Lazer will use its reasonable efforts to obtain the consent of each
holder of a Stock Option or Warrant.
Section 1.07 Tax Free Reorganization. The parties intend to adopt this
Agreement and the Merger as a tax-free plan of reorganization under Section
368(a)(1)(A) of the Code by virtue of the provisions of Section 368(a)(2)(E) of
the Code. The Acclaim Common Stock issued in the Merger will be issued solely
in exchange for the Lazer Stock, and no other transaction other than the Merger
and as provided in this Agreement is intended to be an adjustment to the
consideration paid for the Lazer Stock. Except for cash paid in lieu of
fractional shares and dissenters rights, no consideration that could constitute
"other property" within the meaning of Section 356(a) of the Code is being
transferred by Acclaim for the Lazer Common Stock in the Merger. The parties
shall not take a position on any tax return inconsistent with this Section 1.07
unless otherwise required by law.
Section 1.08 Pooling of Interests. The parties acknowledge that it is a
condition of Acclaim's and Holdings' obligations hereunder that the Merger be
treated as a Pooling for accounting purposes under and in accordance with the
applicable provisions of GAAP, including without limitation Opinion No. 16 of
the Accounting Principles Board ("APB 16"). The affiliates of Lazer shall
execute and deliver to Acclaim Affiliates Agreements (as defined below) as
contemplated by Section 6.20 below, to ensure compliance by such affiliates
with the restrictions required to allow such accounting treatment to be
utilized.
ARTICLE II
Exchange of Shares
Section 2.01 Surrender of Certificates. Prior to the Effective Time,
Acclaim shall make available to American Securities Transfer, Inc., or a bank
reasonably acceptable to Lazer (the "Exchange Agent"), in trust for the benefit
of the holders of Lazer Common Stock for exchange in accordance with this
Article II, certificates representing the aggregate number of shares of Acclaim
Common Stock issuable pursuant to Section 1.05. Promptly after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented Lazer
Common Stock (the "Certificates") a letter of transmittal and instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing Acclaim Common Stock and cash in lieu of fractional shares, if
applicable. Upon surrender of a Certificate to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each share of Lazer Common Stock formerly represented by such Certificate, and
the Certificate so surrendered shall forthwith be canceled. Until surrendered
as contemplated by this Article II, from and after the Effective Time each
Certificate shall be deemed to represent only the right to receive the Merger
Consideration for each share of Lazer Common Stock formerly represented by such
Certificate, and shall not evidence any interest in, or any right to exercise
the rights of a stockholder of, Acclaim. If a certificate representing Acclaim
Common Stock is to be issued or a cash payment in lieu of fractional share
interests is to be made to a person other than the one in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition to such issuance or payment that such Certificate be properly
endorsed (or accompanied by an appropriate instrument of transfer) and
accompanied by evidence that any applicable stock transfer taxes have been paid
or provided for.
Section 2.02 No Fractional Shares. No certificate or scrip representing
fractional shares of Acclaim Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Acclaim.
The fractional shares of Acclaim Common Stock to be received by each Lazer
Stockholder will be aggregated so that no Lazer Stockholder will receive cash
in an amount equal to or greater than the value of one full share of Acclaim
Common Stock. In lieu of any such fractional share, the Exchange Agent shall
pay to each Lazer Stockholder who otherwise would be entitled to receive a
fractional share of Acclaim Common Stock an amount of cash determined by
multiplying (i) the Acclaim Common Stock Price by (ii) the fraction of a share
of Acclaim Common Stock to which such holder would otherwise be entitled.
Acclaim shall make available to the Exchange Agent sufficient funds as and when
necessary to enable the Exchange Agent to make the cash payments contemplated
hereby. In no event shall interest be paid or accrued on any such cash
payments. The transfer of cash to Lazer Stockholders in lieu of fractional
shares of Acclaim Common Stock, if any, is solely for the purpose of avoiding
the expense and inconvenience to Acclaim of accounting for fractional shares
and does not represent separately bargained for consideration.
Section 2.03 No Dividends. No dividends or other distributions declared
or made after the Effective Time with respect to Acclaim Common Stock with a
record date after the Effective Time shall be paid to the holder of any
Certificate with respect to the Acclaim Common Stock represented thereby until
the holder of record of such Certificate shall surrender such Certificate and
comply with all requirements necessary to avoid "backup withholding" under
Section 3406 of the Code. Dividends or other distributions with a record date
after the Effective Time payable in respect of Acclaim Common Stock held by the
Exchange Agent shall be held in trust for the benefit of such holders of
Certificates. Following surrender of any previously unsurrendered Certificate
and compliance with such requirements under Section 3406 of the Code, there
shall be paid to the record holder of the certificates representing whole
shares of Acclaim Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Acclaim Common Stock and (ii) at the date of
payment of any dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender, the amount of such dividends or other distributions payable with
respect to such whole shares of Acclaim Common Stock.
Section 2.04 Return to Acclaim. Any shares of Acclaim Common Stock and
any cash in lieu of fractional share interests made available to the Exchange
Agent and not exchanged for Certificates within six months after the Effective
Time and any dividends and distributions held by the Exchange Agent for payment
or delivery to the holders of unsurrendered Certificates representing Lazer
Common Stock and unclaimed at the end of such six-month period shall be
redelivered or repaid by the Exchange Agent to Acclaim, after which time any
holder of Certificates who has not theretofore delivered or surrendered such
Certificates to the Exchange Agent, subject to applicable law, shall look as a
general creditor only to Acclaim for payment of the Merger Consideration, cash
in lieu of fractional share interests, and any such dividends or distributions.
Notwithstanding the foregoing, none of the Exchange Agent, the Surviving
Corporation or any other party hereto shall be liable to a holder of Lazer
Common Stock for any Merger Consideration, cash in lieu of fractional share
interests or dividends or distributions delivered to a public official pursuant
to applicable escheat laws.
Section 2.05 Dissenting Shares. If demands for payment under Chapter 13
of the CGCL are filed with respect to 5% or more of the outstanding shares of
the Lazer Stock, the holders of which vote against the Merger, then such
holders shall be entitled to exercise dissenters' rights to the extent
available under Chapter 13 of the CGCL with respect to the shares for which
such demand has been filed in accordance with Chapter 13 of the CGCL. In
addition, any shares of Lazer Common Stock whose transfer is restricted by law
or regulation or by Lazer and that are voted against the Merger shall be
entitled to exercise dissenters' rights to the extent available under Chapter
13 of the CGCL. If and to the extent dissenters' rights are available under
the CGCL to holders of Lazer Common Stock in connection with the Merger, who
have voted against the Merger and with respect to which dissenters' rights
shall have been properly demanded in accordance with the provisions of Chapter
13 of the CGCL ("Dissenting Shares"), such Dissenting Shares shall not be
converted into the right to receive the Merger Consideration and the holders
thereof shall have only such rights as are provided in such Chapter 13 of the
CGCL unless and until the holder of any such Dissenting Shares withdraws his
demand for such purchase of such Dissenting Shares or such Dissenting Shares or
holders otherwise lose their status as Dissenting Shares or shareholders,
respectively, under Section 1309 of the CGCL or otherwise loses his right to
such appraisal. If a holder of Dissenting Shares shall properly withdraw his
demand for purchase of such Dissenting Shares or such Dissenting Shares or
holders of Dissenting Shares shall otherwise lose their status as Dissenting
Shares or shareholders, respectively, under Section 1309 of the CGCL, then, as
of the Effective Time or the occurrence of such event, whichever last occurs,
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall
be converted into and represent the right to receive the Merger Consideration.
Prior to the Effective Time, Lazer shall give Acclaim prompt notice of any
written demands for appraisal or withdrawals of demands for appraisal received
by Lazer and, except with the prior written consent of Acclaim, shall not
settle or offer to settle any such demands.
Section 2.06 No Further Transfer. Following the Effective Time, there
shall be no further registration of transfers on the stock transfer books of
the Surviving Corporation of the Lazer Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged for the Merger Consideration as provided in
this Article II.
ARTICLE III
Representations and Warranties of Lazer
Lazer represents and warrants to Acclaim and Holdings as follows:
Section 3.01 Organization and Good Standing. Each of Lazer and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each of Lazer
and its subsidiaries is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, in the aggregate,
have a Material Adverse Effect. "Material Adverse Effect" means, with respect
to Lazer, any event that could have a material adverse effect on the business,
assets, results of operations or financial condition of and its subsidiaries
taken as a whole; provided that a Material Adverse Effect shall not include any
effect that results from general economic conditions affecting the video and
coin-operated arcade game market. Lazer has heretofore delivered to Acclaim
accurate and complete copies of the Articles of Incorporation and By-laws of
and its subsidiaries, as currently in effect.
Section 3.02 Capitalization. (a) As of the date hereof the authorized
capital stock of consists of 10,000,000 shares of Common Stock of which
3,554,852 shares were issued and outstanding as of February 28, 1995 and
1,000,000 shares of preferred stock, no par value (" Preferred Stock") of which
there were no shares outstanding as of February 28, 1995. An aggregate of
518,127 shares of Common Stock were reserved and authorized for issuance
pursuant to the Employee Option Plan, of which options to purchase a total of
413,414 shares of Common Stock were outstanding as of February 28, 1995. An
aggregate of 85,000 shares of Common Stock were reserved and authorized for
issuance pursuant to the Director Option Plan, of which options to purchase a
total of 36,000 shares of Common Stock were outstanding as of February 28,
1995. An aggregate of 45,034 shares of Common Stock were reserved and
authorized for issuance pursuant to the Employee Purchase Plan. An aggregate
of 667,166 shares of Common Stock were reserved and authorized for issuance
pursuant to redeemable warrants ("Redeemable Warrants") outstanding as of
February 28, 1995. An aggregate of 192,646 shares of Common Stock were
reserved and authorized for issuance pursuant to sales agent warrants as set
forth on Schedule 3.02 (the "Sales Agent Warrants") outstanding as of
February 28, 1995. An aggregate of 55,000 shares of Common Stock were
reserved and authorized for issuance pursuant to a warrant held by Van Kasper &
Co. (the "Underwriter Warrant"). All of the issued and outstanding shares of
Lazer Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. All prior sales of Lazer's securities have
been made in compliance with or under an exemption from the registration
requirements of the 1933 Act and applicable state securities laws, and no
shareholders of Lazer have any rescission rights with respect to any Lazer
securities. Except as referred to above or reflected in Schedule 3.02(a), Lazer
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character to or by which Lazer
is a party or is bound which, directly or indirectly, obligate Lazer to issue,
deliver or sell any shares of Lazer Common Stock or Lazer Preferred Stock or any
other equity security of Lazer or any securities representing the right to
purchase or otherwise receive any shares of Lazer Common Stock or any other
equity security of Lazer. The names of the optionees and warrantholders holding
Stock Options and Warrants, the date of grant of each Stock Option or Warrant to
purchase Lazer Common Stock granted and outstanding as of February 28, 1995, the
number of shares of Lazer Common Stock subject to each such Stock Option or
Warrant, the expiration date of each such Stock Option or Warrant, and the price
at which each such Stock Option or Warrant may be exercised under Lazer's Stock
Option Plans are set forth in Schedule 3.02(a). Assuming the conversion of
Stock Options and Warrants under Section 1.06 hereof, at the Effective Time
there will not be any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character by which Lazer or any of its
subsidiaries will be bound calling for the sale or issuance by Lazer of any
shares of the capital stock of Lazer or any of its subsidiaries. No vesting
restrictions of any Stock Options (except with respect to 36,000 Stock Options
outstanding under the Director Option Plan) or Warrants will, as a consequence
of the Merger, lapse so as to accelerate the vesting of any such Stock Options
or Warrants and the Board of Directors of Lazer has not and will not have, as of
the Closing Date, taken any action to permit such acceleration and will take any
action necessary to prevent such acceleration.
(b) Schedule 3.02(b) sets forth a true and correct list of all of Lazer's
subsidiaries as of the date of this Agreement. Except as set forth on Schedule
3.02(b), Lazer owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of Lazer's subsidiaries, free and clear of all
Liens (as defined below) whatsoever, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. None of
Lazer's subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
sale or issuance by such subsidiary of any shares of capital stock or any other
equity security of such subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of such subsidiary.
(c) All existing option agreements subject to the Lazer Stock Option
Plans and all existing Warrants set forth on Schedule 3.02(a) hereof are in
form and substance substantially the same as the forms of option agreements and
warrant agreements previously provided to Acclaim or as filed with the Lazer
SEC Reports, as applicable and each conforms to the expressly enumerated
provisions of the Lazer Stock Option Plans or such Warrant Agreement, as
applicable, under which each was issued including without limitation as to
exercise and vesting and the Lazer Board of Directors has not taken (except
with respect to 36,000 options outstanding under the Director Option Plan) and
will not take any action pursuant to the Lazer Stock Option Plans or such
Warrant Agreements or otherwise which would permit the acceleration of the
exercisability of any Options or Warrants whether in connection with the Merger
or the transactions contemplated hereby or otherwise.
Section 3.03 Authority Relating to this Agreement. Lazer has full
corporate power and authority to execute and deliver this Agreement and all
other documents hereby contemplated and, subject to obtaining requisite
shareholder approval, to consummate the transactions contemplated hereby and to
take all other actions required to be taken by it pursuant to the provisions
hereof. The execution and delivery of this Agreement by Lazer and the
consummation by Lazer of the transactions contemplated hereby have been duly
and validly authorized and approved by the Board of Directors of Lazer and no
other corporate proceedings on the part of Lazer are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than,
with respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the outstanding shares of Lazer Common Stock in
accordance with the CGCL and Lazer's Articles of Incorporation and Bylaws).
This Agreement has been duly and validly executed and delivered by Lazer and
constitutes a valid and binding agreement of Lazer, enforceable against Lazer,
in accordance with its terms, except as such enforcement may be limited by
bankruptcy and other laws affecting the enforceability of creditors' rights
generally or laws governing the availability of specific performance or other
equitable remedies, or restrictions on the enforcement of securities
indemnification and contribution provisions imposed by public policy.
Section 3.04 Consents and Approvals; No Violations. Except for
applicable requirements of the 1933 Act, Securities Exchange Act of 1934, as
amended (the "1934 Act"), state Blue Sky laws, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the filing and
recordation of the Certificate of Merger, as required by the DGCL, the
California Certificate as required by the CGCL, appropriate documents with the
relevant authorities of States in which Lazer is qualified to do business, and
such filings, authorizations, orders and approvals as may be required under
State "control share acquisition", "antitrust" or other similar statutes or
regulations, and such filings, authorizations, orders and approvals as may be
required under foreign laws and NASD Bylaws, or as set forth in Schedule 3.04
hereto, no filing with, and no permit, authorization, consent or approval of,
any public body or authority, including courts of competent jurisdiction,
domestic or foreign ("Governmental Entity"), or of any third party, is
necessary for the entering into and/or consummation by Lazer of the
transactions contemplated by this Agreement. Except as set forth in Schedule
3.04, subject to obtaining requisite shareholder approval, neither the
execution and delivery of this Agreement by Lazer nor the consummation by Lazer
of the transactions contemplated hereby nor compliance by Lazer with any of the
provisions hereof will (i) constitute any violation or breach of any provision
of the Articles of Incorporation or By-laws of Lazer or its subsidiaries,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or result in the creation of any
lien) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, agreement or other instrument or
obligation to which Lazer or its subsidiaries is a party or by which either
they or their properties or assets may be bound or (iii) other than filings and
consents under the 1933 Act, 1934 Act, the HSR Act or as otherwise set forth on
Schedule 3.04, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Lazer, its subsidiaries or any of their properties or
assets, except in the case of subclause (ii) or (iii) of this sentence for
violations, breaches, defaults, rights which arose or liens which would not, in
the aggregate, have a Material Adverse Effect and which would not prevent or
materially delay the consummation of the transactions contemplated hereby.
Section 3.05 Public Reports. Except as disclosed in Schedule 3.05
hereto, Lazer has and at the Effective Time will have filed all required forms,
reports and documents with the SEC since the effectiveness of the registration
statement relating to its initial public offering in May 1994 (collectively,
the "Lazer SEC Reports"), all of which forms, reports and documents have and
shall have complied in all material respects with all applicable requirements
of the 1933 Act and the 1934 Act. Except as disclosed in Schedule 3.05, as of
their respective dates of filing in final or definitive form (or, if amended or
superseded by a subsequent filing, then on the date of such subsequent filing),
none of the Lazer SEC Reports, including, without limitation, any financial
statements or schedules included therein, contained or shall contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Each of the
balance sheets (including the related notes) included in the Lazer SEC Reports
fairly presents and shall present the consolidated financial position of Lazer
and its subsidiaries as of the respective dates thereof, and the other related
financial statements (including the related notes) included therein fairly
presented the consolidated results of operations and changes in financial
position of Lazer and its subsidiaries for the respective periods indicated,
except, in the case of interim financial statements, for year-end audit
adjustments, consisting only of normal recurring accruals. Each of the
financial statements (including the related notes) included in the Lazer SEC
Reports has been and shall have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as otherwise noted therein or, in the case of the unaudited
financial statements, as permitted by the applicable rules and regulations of
the SEC.
Section 3.06 Absence of Certain Changes. Except as contemplated herein
or set forth in Schedule 3.06, since December 31, 1994 neither Lazer nor its
subsidiaries (i) has taken any of the actions set forth in Sections 5.01(a)
through 5.01(c) and/or 5.01(e) through 5.01(l) or agreed to take any of such
actions, (ii) suffered a Material Adverse Effect or (iii) entered into any
transaction, or conducted its business or operations, other than in the
ordinary course of business and consistent with past practice.
Section 3.07 No Undisclosed Liabilities. Except as and to the extent
provided in Lazer's unaudited balance sheet as at December 31, 1994 and the
notes thereto (the "Lazer Balance Sheet"), neither Lazer nor its subsidiaries
had at December 31, 1994 any liabilities absolute, accrued, unaccrued,
contingent or otherwise required by GAAP to be reflected on a consolidated
balance sheet of Lazer and its subsidiaries in excess of $50,000 in the
aggregate. Except as and to the extent set forth in Schedule 3.07, since
December 31, 1994 neither Lazer nor its subsidiaries has incurred any
liabilities (absolute, accrued, contingent or otherwise) which are, in the
aggregate, material to the business, operations or financial condition of Lazer
and its subsidiaries taken as a whole, except liabilities (i) adequately
provided for in the Lazer Balance Sheet, (ii) incurred since December 31, 1994
in the ordinary course of business, (iii) consistent with past practice or
(iv) incurred in connection with this Agreement.
Section 3.08 No Default. Except as set forth in Schedule 3.08, neither
Lazer nor any of its subsidiaries is in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (i) its Articles
of Incorporation or its By-laws, (ii) any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which Lazer
or any of its subsidiaries is a party or by which they or any of their
properties or assets may be bound or (iii) any order, writ, injunction, decree,
statute, rule or regulation applicable to Lazer or any of its subsidiaries,
except in the case of subclause (ii) or (iii) of this sentence for defaults or
violations which would not, in the aggregate, have a Material Adverse Effect
and which would not prevent or materially delay the consummation of the
transactions contemplated hereby.
Section 3.09 Litigation. Except as set forth in Schedule 3.09 or in the
Lazer SEC Reports, there is no suit, action or proceeding pending or, to the
knowledge of Lazer, any investigation pending or any suit, action, proceeding
or investigation threatened against, involving or affecting Lazer or its
officers and directors in such capacities, any of its subsidiaries, or any of
its or their respective properties or rights seeking equitable relief or
claiming damages in excess of $250,000, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding against Lazer or its officers
and directors in such capacities, or any of its subsidiaries, which does or
might reasonably be expected to (i) result in the modification, termination,
suspension, impairment or reformation of any contract to which Lazer or any of
its subsidiaries is a party, which modification, termination, suspension,
impairment or reformation would have a Material Adverse Effect; (ii) materially
adversely affect the manner in which Lazer conducts its business; (iii) affect
the ability of Lazer or Acclaim to consummate any of the transactions
contemplated hereby; or (iv) have a Material Adverse Effect. Except as set
forth in Schedule 3.09, there is no suit, action or proceeding pending by Lazer
against any third party.
Section 3.10 Compliance with Applicable Law. The businesses of Lazer and
its subsidiaries are not being conducted in violation of any applicable law,
ordinance, rule, regulation, decree or order of any Governmental Entity, except
for violations which, in the aggregate, do not and would not reasonably be
expected to have a Material Adverse Effect. Lazer and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Lazer Permits"), except for failures to hold such Lazer
Permits which would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect. Lazer and its subsidiaries are in compliance with the
terms of the Lazer Permits, except where the failure so to comply would not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 3.11 Taxes. Lazer and each of its subsidiaries have duly and
timely filed all material federal, state, local and foreign tax returns
required to be filed by it, and except for Taxes (as hereinafter defined) not
in excess of $100,000, Lazer has duly and timely paid, caused to be paid or
made adequate provision for the payment of all Taxes required to be paid in
respect of the periods covered by such returns, except such as are being
contested in good faith by appropriate proceedings or otherwise and/or as
described on Schedule 3.11 hereto, and has made adequate provision for payment
of all Taxes anticipated to be payable in respect of all periods since the
periods covered by such returns. Except as disclosed in Schedule 3.11 and
except for taxes not in excess of $100,000, Lazer and each of its subsidiaries
have fully collected, withheld and/or paid over all Taxes required to be
collected, withheld and/or paid over to a taxing authority. Except as
disclosed in Schedule 3.11, all deficiencies and assessments asserted as a
result of any examinations or other audits by federal, state, local or foreign
taxing authorities have been paid, fully settled or adequately provided for in
the financial statements contained in the Lazer SEC Reports, and no issue or
claim has been asserted for Taxes by any taxing authority for any prior period,
the adverse determination of which would result in a deficiency which would
have a Material Adverse Effect, other than those heretofore paid or provided
for. Except as set forth in Schedule 3.11, there are no outstanding agreements
or waivers extending the statutory period of limitation applicable to any
federal, state, local or foreign tax return of Lazer or its subsidiaries.
Except as set forth in Schedule 3.11, neither Lazer nor any of its subsidiaries
has filed any consent under Section 341(f) of the Code (or any corresponding
provision of state, local or foreign tax law), is a party to any agreement,
contract or arrangement providing for the allocation or sharing of any Taxes or
providing for a contractual or other obligation to indemnify or reimburse any
other person or entity with respect to any Taxes, or is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payment" within the meaning
of Section 280G of the Code. Neither the Merger nor any other transaction
contemplated by this Agreement will result in any payment or series of payments
by Lazer, Acclaim or any subsidiaries of either that will constitute a
parachute payment within the meaning of Section 280G of the Code. For purposes
of this Agreement, "Taxes" shall mean any and all taxes, fees, levies, duties,
charges or other assessments imposed by any federal, state, county, local or
foreign government, taxing authority, subdivision or agency thereof, including
interest, penalties, additions to tax or additional amounts relating thereto.
Section 3.12 Employee Benefit Plans; ERISA. (a) The name of each plan,
program, arrangement, agreement or commitment sponsored or maintained by or on
behalf of Lazer or any ERISA Affiliate or to which Lazer or any ERISA Affiliate
makes or is obligated to make contributions or to which Lazer or any ERISA
Affiliate made or was obligated to make contributions during the five (5) year
period ending on the date hereof, which is a pension, profit sharing, savings,
thrift or other retirement plan (including, without limitation, each "employee
pension benefit plan" as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), deferred compensation,
stock purchase, stock option, performance share, bonus or other incentive plan,
severance pay plan, policy or procedure, life, health, disability or accident
insurance plan (including, without limitation, each "employee welfare benefit
plan" as defined in Section 3(1) of ERISA) or vacation or other employee
benefit plan, program, arrangement, agreement or commitment, whether or not
written (all of the foregoing being hereinafter referred to individually as a
"Plan" and collectively as the "Plans"), is set forth on Schedule 3.12(a)
hereto. Except as set forth in Schedule 3.12(a), Lazer and each of its ERISA
Affiliates have complied with all of the provisions of each such Plan and all
applicable provisions of ERISA and the Code, have administered each such Plan
(including the payment of benefits thereunder) in accordance with the
provisions of each such Plan and all applicable provisions of ERISA and the
Code and have timely made all required contributions thereto.
(b) Copies of the two most recent annual reports (Form 5500, including,
if applicable, Schedule B thereto) prepared in connection with each Plan with
respect to which such a report is required have been delivered to Acclaim. All
Plans which individually or collectively would constitute an "employee pension
benefit plan," as defined in Section 3(2) of ERISA (collectively, the "Lazer
Pension Plans"), are identified as such in Schedule 3.12(b). All contributions
due from Lazer or any ERISA Affiliate with respect to any of the Plans have
been made as required under ERISA or have been accrued on Lazer's or any such
ERISA Affiliate's financial statements as of March 31, 1995. Each Plan has
been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including,
without limitation, ERISA and the Code, which are applicable to such Plans,
except as would not have a Material Adverse Effect.
(c) No Lazer Pension Plan constitutes, or has since the enactment of
ERISA constituted, a "multiemployer plan," as defined in Section 3(37) or
4001(a)(3) of ERISA. Lazer or any ERISA Affiliate does not maintain or
contribute to and during the last five years has not maintained or contributed
to a Lazer Pension Plan which is subject to the provisions of Title IV of ERISA
and does not have any liability with respect to any Lazer Pension Plan which is
subject to the provisions of Title IV of ERISA. No Lazer Pension Plans are
subject to Title IV of ERISA. No "prohibited transaction", as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to
any Plan which is covered by Title I of ERISA, which would result in any
material liability to Lazer and its ERISA Affiliates taken as a whole,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Plan has or will make Lazer or any
officer or director of Lazer subject to any material liability under Title I of
ERISA or liable for any material Tax or penalty pursuant to Section 4972, 4975,
4976 or 4979 of the Code or Section 502 of ERISA.
(d) With respect to each Lazer Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a "Lazer 401(a) Plan"), either (A)
a favorable determination letter has been received from the (Internal Revenue
Service) (the "IRS") as to such qualification under the Code as in effect
immediately after the Tax Reform Act of 1986 or (B) an application for a
favorable determination letter is pending or will be duly filed with the IRS
prior to the expiration of the time within which retroactive amendment relating
back to the effective date of such plan may be made under Section 401(b) of the
Code and regulations or IRS pronouncements thereunder, and there is no reason
to believe that any favorable determination letter will not be received and
that no amendments will be required in order to receive the same which will
result in a material cost increase thereto. Lazer has delivered to Acclaim or
its counsel a complete and correct copy of the most recent IRS determination
letter with respect to each Lazer 401(a) Plan.
(e) Lazer or, if applicable, any ERISA Affiliate, is entitled to cease
its participation in each Plan referred to in this Section 3.12 without
default, penalty, premium or any additional cost to Lazer in excess of $100,000
in the aggregate and each such Plan, by its provisions, permits Lazer or, if
applicable, any ERISA Affiliate, to amend or terminate, in whole or in part,
each Plan referred to in this Section 3.12 without default, penalty, premium or
any additional cost to Lazer in excess of $100,000.
(f) The consummation of the transactions contemplated by this Agreement
will not, except as disclosed in Schedule 3.12(f) hereto, result in or entitle
any employee or former employee (or any other person) of Lazer or any ERISA
Affiliate (including any such person who becomes an employee of Acclaim or
Holdings) to severance pay, or any other payment becoming due from Lazer or any
ERISA Affiliate.
(g) Except as set forth in Schedule 3.12(g) hereto, with respect to each
Plan which is an "employee welfare benefit plan" within the meaning of Section
3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III
of Subchapter B of Chapter 1 of the Code are satisfied if benefits under such
Welfare Plan are intended to qualify for tax-favored treatment; and (ii) each
such Welfare Plan which is a group health plan within the meaning of Section
4980B of the Code is in compliance with the applicable requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA.
(h) There are no leased employees within the meaning of Section 414(n) of
the Code who perform services for Lazer or any ERISA Affiliate.
(i) No Plan is funded by a trust described in Section 501(c)(9) of the
Code.
(j) Lazer is not a member of an affiliated service group within the
meaning of Section 414(m) of the Code.
(k) Schedule 3.12(k) hereto sets forth the aggregate of the annual
employer contributions and other direct expenses (which expenses are equal to
or in excess of $9,000 with respect to any Plan) paid by Lazer in connection
with each Plan for each of the last three plan years of such Plan.
(l) Except as set forth in Schedule 3.12(l), all reports and other
information required under ERISA or any other applicable law or regulation to
be filed by Lazer or any ERISA Affiliate, or, with respect to a Plan, the
administrator (as defined in Section 3(16) of ERISA) thereof or any other
person on or prior to the date hereof or on or prior to the Closing Date with
the relevant Governmental Body and/or distributed or made available to any Plan
participant and beneficiary (including "alternate payees", as defined in
Section 206(d)(3)(K) of ERISA), as the case may be, have been timely filed,
distributed or made available in accordance with ERISA or such other applicable
law or regulation, as the case may be, and all such reports and other
information are, and at the Closing Date will be, as the case may be, true and
correct in all material respects as of the date given and no penalties under
ERISA or any other applicable law or regulation are and at the Closing Date
will be owed to any Plan participant and/or beneficiary and/or any Governmental
Body with respect to the failure to file any such reports or to distribute or
make available any such reports or other information.
(m) None of the Plans is under investigation or audit by either the
United States Department of Labor or the Internal Revenue Service.
(n) None of the Plans provides any benefits including, without
limitation, life insurance or medical benefits (whether or not insured) with
respect to any current or former employee of Lazer or any ERISA Affiliate
beyond their retirement or other termination of service other than (i) coverage
mandated by Sections 601-608 of ERISA or any other applicable law or
(ii) disability benefits under any Welfare Plan that have been fully provided
for by insurance or otherwise.
(o) There has been delivered to Acclaim with respect to each Plan set
forth in Schedule 3.12(a) a copy of the Plan, and where required, a copy of the
summary plan description, together with each Summary of Material Modifications
required under ERISA with respect to such Plan and all material employee
communications relating to such Plan.
(p) For purposes of this Section 3.12, the term "ERISA Affiliate" shall
mean all members of a controlled group of corporations and all trades and
businesses (whether or not incorporated) under common control and all other
entities which, together with Lazer are treated as a single employer under any
or all of Section 414(b), (c), (m), (n) or (o) of the Code at any time during
the period of ten (10) years ending on the Closing Date. Lazer has no ERISA
Affiliates other than Lazer Tron Limited.
Section 3.13 Intellectual Property. Schedule 3.13 hereto is a complete
list of the trademarks, trade names, patents, copyrights, fictitious business
names, service marks and pending applications therefor that are owned by Lazer
and a complete list of the trademarks, trade names, patents, copyrights,
fictitious business names, service marks and pending applications therefor that
are used by Lazer or which Lazer has the right or license to use. The
trademarks, trade names, patents, copyrights, fictitious business names,
service marks and pending applications appearing on Schedule 3.13 hereto,
together with any other trademarks, trade names, patents, copyrights,
fictitious business names and service marks owned, used or licensed by Lazer,
are collectively herein referred to as the "Proprietary Rights". Prior to
using a name for any game held out for sale or lease, Lazer performs a search
under both United States and common law seeking to determine whether, based on
such search, it is reasonable to use such name or mark in the manner in which
Lazer believes its intended use will not infringe any other third parties'
rights therein, whether statutory or common law rights of such third parties
(including, without limitation, trademark and the rights of privacy and
publicity). Except as disclosed on Schedule 3.13, Lazer owns and/or has the
right or license to use each of the Proprietary Rights for the categories of
goods and services to the extent that each such Proprietary Right is currently
being used. Except as disclosed on Schedule 3.13 hereto, (i) Lazer is not
bound by or a party to any options, licenses, or material agreements of any
kind with respect to the Proprietary Rights and (ii) has not assigned, licensed
or in any manner encumbered or materially impaired any rights in the
Proprietary Rights. As used solely in this Section 3.13, "material" or
"materially" refers to a state of facts which, if present, would restrict,
impair, diminish or adversely affect Lazer's ability to use any or all of the
Proprietary Rights in the manner presently used by Lazer or would result in the
loss of a significant economic benefit presently received or receivable by
Lazer from or in respect of such Proprietary Right. To Lazer's knowledge, the
Proprietary Rights owned or used by Lazer are free and clear of all mortgages,
charges, pledges, liens, security interests, claims or encumbrances
(hereinafter "Liens"), of any kind or nature. Except as disclosed on Schedule
3.09 hereto, no Proprietary Right owned or used by Lazer to Lazer's knowledge
infringes or violates any personal, property, statutory or common law or any
other rights of any third parties (including, without limitation, copyright,
trademark and the rights of privacy and publicity) and no claim alleging any
such infringement or violation has been received by Lazer. Except as disclosed
in Schedule 3.09 hereto, no unresolved claims or notices to Lazer's knowledge
have been asserted or given during the past three years by any person
challenging the use by Lazer of any of the Proprietary Rights or challenging or
questioning the validity, enforceability or effectiveness of or the title of
Lazer or any of its subsidiaries to any of the Proprietary Rights or any
agreement relating thereto nor is there any action, suit, investigation or
proceeding by or before any court or other governmental entity reasonably
likely to materially adversely affect the validity or enforceability of or
impair the title or right of Lazer or any of its subsidiaries to use any of the
Proprietary Rights owned or used by Lazer or any of its subsidiaries. Except
as disclosed on Schedule 3.09 or 3.13 hereto, (i) Lazer has not been informed
of any claims or suits pending or threatened against Lazer that relate to the
business of Lazer claiming an infringement by Lazer of any patents, licenses,
trademarks, service marks or trade names of others and Lazer has not to Lazer's
knowledge infringed any Proprietary Rights of any third party under any
personal, property, statutory or common law or any other rights of third
parties, and (ii) Lazer has not commenced any claims or suits or threatened any
claims or suits relating to Lazer's business, claiming an infringement by a
third party of any patents, licenses, trademarks, service marks or trade names
of Lazer and, to Lazer's knowledge, no third party is infringing any of Lazer's
Proprietary Rights. All such Proprietary Rights are not breached or terminated
as a result of the Merger and the transactions contemplated hereby.
Section 3.14 Pooling Matters. Except as set forth in Schedule 3.14,
neither Lazer nor any of its affiliates has taken or agreed to take, nor will
any of them take, any action (other than any action taken or agreed to be
taken as expressly provided herein or as requested in writing by Acclaim in
connection with the transactions contemplated hereby) that would adversely
affect the ability of Acclaim to account for the business combination to be
effected by the Merger as a Pooling under and in accordance with the applicable
provisions of GAAP including without limitation APB 16.
Section 3.15 Change in Control. Except as set forth in Schedule 3.15,
neither Lazer nor any of its subsidiaries is a party to any contract, agreement
or understanding which contains a "change in control," "potential change in
control" or similar provision.
Section 3.16 Employees and Other Matters. Schedule 3.16 hereto is a
correct and complete list of (i) the directors and officers of Lazer and
independent contractors regularly employed by Lazer and not otherwise
identified in the Schedules hereto, together with a statement of the full
amount payable by way of salary, bonuses perquisites and other direct or
indirect compensation to each such person; (ii) the name of each bank in which
Lazer has an account or safety deposit box; and (iii) the names of all persons,
if any, holding currently effective powers of attorney from Lazer and a summary
statement of the terms thereof. With respect to each officer and director
listed in Schedule 3.16 hereto, a copy of any existing employment contract has
been made available to Acclaim.
Section 3.17 Labor Disputes. (a) Lazer is not a party to any collective
bargaining agreements, whether or not expired. There are no labor unions or
other organizations representing or, to Lazer's knowledge, purporting to
represent or attempting to represent any employee of Lazer.
(b) Lazer has not violated any provision of federal or state law or any
governmental rule or regulation, or any order, ruling, decree, judgment or
arbitration award of any court, arbitrator or any government agency regarding
the terms and conditions of employment of employees, former employees or,
without limitation, laws, rules, regulations, orders, rulings, decrees,
judgments and awards relating to discrimination (including, without limitation,
discrimination on the basis of age, sex, race or religion), fair labor
standards and occupational health and safety, wrongful discharge or violation
of the person rights of employees, former employees or prospective employees or
state temporary disability laws, rules or regulations, except where such
failure would not have a Material Adverse Effect.
(c) There is no unfair labor practice charge or complaint pending or, to
Lazer's knowledge, threatened against Lazer before the National Labor Relations
Board or any State Labor Relations Board. There are no claims of
discrimination of any kind pending or, to Lazer's knowledge, threatened against
Lazer before any Governmental Body.
(d) There is no labor strike or dispute, slowdown, work stoppage,
lockout, disturbance, grievance, litigation or claim relating to labor matters
involving any employees, including, without limitation, violation of any
federal, state or local labor, safety or employment laws (domestic or foreign),
charges of unfair labor practices or discrimination complaints, pending or
threatened against Lazer.
(e) To Lazer's knowledge, Lazer does not have any liability to any or all
of its employees arising as a result of the Worker Adjustment and Retraining
Notification Act (29 U.S.C. Section 2101 et seq.).
Section 3.18 Contracts. (a) Schedule 3.18 hereto contains a complete
and correct list of all contracts, arrangements and agreements as in effect on
the date hereof (the "Contracts") to which Lazer is a party, including
evidences of indebtedness, whether written or oral, purchase or sale agreements
(other than purchase and sales orders entered into in the ordinary course),
agency or advertising contracts, agreements with employees, sales
representatives and distributors, and agreements with factors, banks or other
lending institutions, (other than the Contracts listed in Schedules 3.16, 3.19
and 3.22 hereto), except for any Contracts which are not reasonably expected to
involve an expenditure of more than $25,000 individually or more than $100,000
in the aggregate from the date of this Agreement. A true and complete copy of
each written Contract has heretofore been made available to Acclaim. Except as
specifically identified on Schedule 3.18, Lazer has performed all of its
material obligations required to be performed by it, has paid all advances and
royalties required to be paid by it and is not in default in any material
respect under any Contract, and no event has occurred thereunder in each case
which, with the lapse of time or the giving of notice or both, would constitute
such a default and to Lazer's knowledge no other party to any Contract is in
default in any material respect thereunder. Each of the Contracts listed in
Schedule 3.18 hereto constitutes a valid, binding, enforceable and legal
obligation of Lazer in accordance with its terms, except as such enforcement
may be limited by bankruptcy and other laws affecting the enforceability of
creditors' rights generally or laws governing the availability of specific
performance or other equitable remedies, or other restriction on the
enforcement of securities indemnification and contribution provisions imposed
by public policy. Lazer has not received notice that any other party to any of
the Contracts is, and to the best of Lazer's knowledge none of the other
parties to such contracts is, in material default thereunder.
(b) Except as set forth on Schedule 3.18(b) hereto, none of the
Contracts' terms requires the consent or waiver of a third party in connection
with the transactions contemplated hereby.
Section 3.19 Suppliers and Customers. Schedule 3.19 hereto is a complete
and accurate list of all agreements, understandings and commitments in
existence as of the date of this Agreement with all suppliers of Lazer each of
which individually accounted for 5% or more of Lazer's invoiced amount from its
vendors and a complete and accurate list of all agreements, understandings and
commitments with all customers of Lazer each of which individually accounted
for 5% or more of Lazer's net sales, respectively, during the immediately
preceding fiscal year of Lazer ended June 30, 1994, and for the eight months
ended February 28, 1995, respectively.
Section 3.20 Accounts Receivable. All accounts receivable reflected in
the Lazer Balance Sheet and on the books of Lazer at the date hereof do, and on
the date of the Closing Balance Sheet (as hereinafter defined) shall, represent
receivables which, net of reserves therein reflected (which reserves are in
accordance with the requirements of GAAP), are at December 31, 1994, the date
hereof and at the date of the Closing Balance Sheet, fully collectible and
subject to no counterclaims or set-offs.
Section 3.21 Financial Statements and Condition. (a) The audited
balance sheets of Lazer as of June 30, 1993 and 1994, and related statements of
operations, cash flows and shareholders' equity, including the notes thereto,
have been certified by Lazer's independent certified public accountants and
delivered to Acclaim. The Lazer Balance Sheet and the related financial
statements have been delivered to Acclaim. Such financial statements present
fairly, in all material respects, the financial position of Lazer as of June
30, 1992, 1993 and 1994 and December 31, 1994, respectively, and the results of
Lazer's operations, cash flows and shareholders' equity for each of the three
years in the three year period ended June 30, 1994 and the six month period
ended December 31, 1994, respectively, all in conformity with GAAP applied on a
consistent basis, except that the unaudited financial statements may not
include all notes required under GAAP.
(b) As of December 31, 1994, the Net Worth and Working Capital of Lazer
were $12,709,000 and $12,258,000, respectively, and Net Sales for the six month
period ended December 31, 1994 was $7,200,000. As at, or for the period ended
on, the last day of the month immediately preceding the month in which the
Closing Date occurs, as applicable, Net Worth, Working Capital and Net Sales
(calculated on a pro forma basis without deduction of any transaction expenses
and fees incurred by Lazer in connection with the Merger and the transactions
contemplated thereby up to an aggregate of $750,000) shall be as follows:
(i) as at, and with respect to Net Sales for the eleven months
ended May 31, 1995, at least $12,800,000, $12,400,000 and $12,900,000,
respectively if the Closing Date occurs in June 1995;
(ii) as at, and with respect to Net Sales for the twelve months
ended June 30, 1995, at least $12,900,000, $12,500,000 and $14,400,000,
respectively if the Closing Date occurs in July 1995; and
(iii) as at, and with respect to Net Sales for the thirteen months
ended July 31, 1995, at least $12,900,000, $12,500,000 and $15,400,000,
respectively if the Closing Date occurs in August 1995 or thereafter.
For purposes of this section, "Net Worth" means the net book value of Total
Assets less Total Liabilities in each case in the manner calculated in the
December Balance Sheet. "Working Capital" means Current Assets less Current
Liabilities in each case in the manner calculated in the December Balance
Sheet.
Section 3.22 Real Property; Leases. (a) Schedule 3.22(a) hereto
identifies and describes each item of real property leased by Lazer or in which
Lazer has an interest (the "Leased Property"). Lazer does not own any real
property.
(b) Except as set forth in Schedule 3.22(b) hereto, each Leased Property
is subject to a lease agreement constituting valid, binding and enforceable
obligations of Lazer in accordance with its terms, except as such enforcement
may be limited by bankruptcy and other laws affecting the enforceability of
creditors' rights generally or laws governing the availability of specific
performance or other equitable remedies, or restrictions on the enforcement of
securities indemnification and contribution provisions imposed by public
policy. A true and complete copy of each such lease agreement has been made
available to Acclaim. Lazer has performed all material obligations required to
be performed by each such lease agreement, and no material default exists under
any provision thereof, nor has any event occurred thereunder which, with the
lapse of time or the giving of notice or both, would constitute a material
default by Lazer thereunder.
Section 3.23 Environmental Matters. (a) Except as set forth in Schedule
3.23(a) hereto (or in such cases which would not reasonably be expected to have
a Material Adverse Effect), (i) Lazer has obtained or caused to be obtained and
continues to maintain or cause the maintenance of permits, licenses, consents
and approvals (the "Environmental Approvals") necessary for conducting the
business of Lazer which are required under Environmental Laws (as defined
below), and (ii) Lazer has not operated in violation of any Environmental Law
or the terms of any Environmental Approval.
(b) To Lazer's knowledge, except as set forth in Schedule 3.23(b) hereto
(or in such cases which would not reasonably be expected to have a Material
Adverse Effect), (i) Lazer has not used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances (as defined
in Section 101 of CERCLA (as defined below)) except in the manner which
complies with Environmental Laws; (ii) to the knowledge of Lazer, after due
inquiry, no prior owner, occupant, tenant or user of the Leased Property or any
Facility (as defined in Section 101 of CERCLA) has ever used, stored,
generated, discharged, emitted, transported, disposed of or treated Hazardous
Substances, at, on or from the Leased Property or any Facility except in
compliance with all Environmental Laws; (iii) to the knowledge of Lazer, after
due inquiry, there is not, and there has not been, any release or threat of
release (as those terms are defined in Section 101 of CERCLA) of any Hazardous
Substances at, or from the Leased Property or any Facility, nor is there or has
there been any Environmental Condition (as defined below) relating to the
Leased Property or any Facility.
(c) Except as set forth on Schedule 3.23(c) hereto, Lazer has not
received written notice of any pending or threatened investigation, claims,
enforcement proceedings, citizen suits or other actions instituted by any
private party, employee or Governmental Body arising out of the conduct or the
operations of Lazer, in connection with any Environmental Laws, or as a result
of any Environmental Condition at the Leased Property or any Facility.
For purposes of this Agreement, "Environmental Condition" shall mean any
condition with respect to the Environment on or off the Leased Property or any
Facility, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order, or liability to or against
Lazer or Acclaim by any third party (including, without limitation, any
government entity), including, without limitation, any condition resulting from
the operation of Lazer's business and/or the operation of the business of any
other property owner or operator in the vicinity of the Leased Property or any
Facility and/or any activity or operation formerly conducted by any person or
entity on or off the Leased Property or any Facility.
For purposes of this Agreement, "Environmental Laws" shall mean (a) the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended ("CERCLA"),
the Federal Clean Water Act, as amended, or any other federal, state, or local
law, regulation, ordinance, rule, guideline or by-law regulating Hazardous
Substances or the Environment, whether existing as of the date hereof,
previously enforced, or subsequently enacted; (b) any present or previously
enforced law, ordinance, regulation, rule, guideline or by-law of any federal,
state, local, administrative agency, or any other governmental or quasi-
governmental entity or authority that asserts or may assert jurisdiction over
the Leased Property or any Facility or the operations or activity at the Leased
Property or any Facility, that regulates the presence, release, threat of
release, use, handling, manufacturing, generation, production, storage,
treatment, processing, transportation or disposal of any Hazardous Substances,
including, but not limited to (i) requiring any permit, license, approval,
consent or authorization, or the renewal thereof; (ii) regulating the amount,
form, manner of storage, transport and/or disposal of Hazardous Substances; or
(iii) requiring any reporting, inspection report, business plan, notification,
or any other dissemination of or access to information regarding Hazardous
Substances, including warnings or notices to tenants, subtenants, employees,
occupants, invitees or consumers.
Section 3.24 Personal Property and Inventories. (a) Except as set forth
in Schedule 3.24(a) hereto and except for Liens (i) for any current taxes or
assessments not yet delinquent, (ii) reflected on the Lazer Balance Sheet,
(iii) which do not materially detract from the value, or interfere with the
present use of, Lazer's personal property or (iv) created by statute of
carriers, warehousemen, mechanics, laborers and materialmen incurred in the
ordinary course of business for sums not yet due, Lazer has good and marketable
title, free and clear of all Liens, to all of the personal property reflected
on the Lazer Balance Sheet and all personal property acquired since that date,
except such personal property as has been disposed of in the ordinary course of
business since such date.
(b) All inventories reflected on the Lazer Balance Sheet other than those
previously sold are, and all inventories reflected on the Closing Balance Sheet
(as hereinafter defined) shall be, as of the respective dates thereof,
merchantable, containing no amount of obsolete or damaged goods which have not
been written down or reserved in conformity with GAAP. Such inventories are
located at the location(s) set forth in Schedule 3.24(b) hereto.
(c) The inventory reflected on the Lazer Balance Sheet shall be the
inventory owned by Lazer as of the Closing Date, except for inventory items
acquired, distributed or disposed of in the ordinary course of business.
(d) Cash appearing on the Lazer Balance Sheet is at the date hereof, and
until the Closing Date shall be, invested in investment grade money market
accounts and short term federal government securities other than amounts held
in checking and payroll accounts in accordance and in amounts consistent with
past practice.
Section 3.25 Insurance. (a) Lazer has adequate insurance coverage for
the assets and operations of its business which is of the type and in the
amounts customarily carried by persons conducting businesses similar to that of
Lazer; (b) Schedule 3.25 hereto is a complete and correct list of all policies
of insurance carried by Lazer or pursuant to which Lazer is a named beneficiary
or pursuant to which the business or properties of Lazer are insured and true
and complete copies of which have been provided to Acclaim; (c) on the date
hereof, all of such policies are in full force and effect; (d) all premiums due
and payable in respect of such policies have been paid in full; and (e) there
exists no default or other circumstance which would create the substantial
likelihood of the cancellation or non-renewal of any such policy. Lazer has
notified such insurers of any claim know to Lazer which it believes is covered
by any such insurance policy and has provided Acclaim with a copy of such
claim.
Section 3.26 [Intentionally omitted]
Section 3.27 Affiliates. (a) Schedule 3.27(a) sets forth as of the date
hereof the names of each Principal set forth on Schedule 1A, each officer and
director of Lazer and each "affiliate" (as such term is defined in the 1933
Act) of Lazer as set forth on Schedule 1C (each a "Lazer Affiliate" and
collectively the "Lazer Affiliates"). Concurrently with the execution hereof,
each Lazer Affiliate has entered into an agreement in the form attached as
Exhibit A hereto as applicable (the "Lazer Affiliate Agreements").
(b) Other than the persons listed on Schedule 3.27(a) and other than any
person who becomes a 10% shareholder of Lazer subsequent to the date hereof
(other than the Kelly Family Trust or 1992 Kelly Family Trust, or any person so
listed on Schedule 3.27(a)), there shall not be as of the Closing Date, any
other persons who could be included as Lazer Affiliates as defined in
Section 3.27(a) who shall not have entered into a Lazer Affiliate Agreement.
(c) Neither Lazer nor any of the Lazer Affiliates has taken or agreed to
take, nor will any of them take any action (other than any action taken or
agreed to be taken as expressly provided herein or as requested in writing by
Acclaim in connection with the transactions contemplated hereby) that would
already affect the ability of Acclaim to account for the business combination
to be effected by the Merger as a Pooling under and in accordance with the
applicable provisions of GAAP including, without limitation, APB 16.
Section 3.28 Indemnification. Except as set forth on Schedule 3.28 no
indemnification or similar arrangements exist provided by Lazer for officers or
directors of Lazer except as provided by applicable California statute, the
Certificate of Incorporation or the By-laws of Lazer.
Section 3.29 Brokers or Finders. Except as set forth on Schedule 3.29
Lazer, its subsidiaries and its affiliates, represent that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
payable by Lazer or any of its affiliates or subsidiaries in connection with
any of the transactions contemplated by this Agreement.
ARTICLE IV
Representations and Warranties of Acclaim and Holdings
Acclaim and Holdings, jointly and severally, represent and warrant to
Lazer that:
Section 4.01 Organization and Good Standing. Each of Acclaim and
Holdings 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 own, operate or lease all of its properties and assets and
carry on its business as it is now being conducted.
Section 4.02 Foreign Qualification. Acclaim is duly licensed or
qualified to do business as a foreign corporation and is in good standing in
the State of New York. The property and assets owned, operated or leased by
Acclaim or the nature or conduct of its business as it is now being conducted
do not make qualification or licensing necessary in any other jurisdiction
except for those jurisdictions where Acclaim's failure to become so qualified
or licensed and in good standing would not affect materially and adversely the
business, assets or financial condition of Acclaim.
Section 4.03 Capitalization of Acclaim and Holdings. (a) At the date
hereof, the authorized capital stock of Acclaim consists of (i) 100,000,000
shares of Acclaim Common Stock and (ii) 1,000,000 shares of Preferred Stock,
par value $.01 per share (the "Acclaim Preferred Stock"), of which 200,000
shares have been designated "Series A Preferred Stock." As of the close of
business on February 28, 1995: (i) 44,487,046 shares of Acclaim Common Stock
were issued and outstanding, 15,065,573 shares of Acclaim Common Stock were
reserved for issuance upon exercise of outstanding stock options and warrants
and under the Acclaim 1988 Stock Option Plan, 272,727 shares of Acclaim Common
Stock were held by Acclaim in its treasury and no shares of Acclaim Common
Stock were held by any subsidiary of Acclaim; and (ii) no shares of Acclaim
Preferred Stock were issued or outstanding or held by Acclaim in its treasury
or by any subsidiary of Acclaim. All of the issued and outstanding shares of
Holdings are owned by Acclaim and there are not any outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements of any character to or by which Holdings is a party or is bound.
Except as set forth in the Acclaim SEC Reports (as hereinafter defined) or in
this Section 4.03, there are not as of the date hereof any outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or any
other agreements of any character to or by which Acclaim or any of its
subsidiaries is a party or is bound which, directly or indirectly, obligate
Acclaim or any of it subsidiaries to issue, deliver or sell or cause to be
issued, delivered or sold any shares of Acclaim Common Stock or Acclaim
Preferred Stock or any other capital stock or equity interest of Acclaim or any
securities convertible into, or exercisable or exchangeable for, or evidencing
the right to subscribe for any such shares or interests or obligating Acclaim
or any of its subsidiaries to grant, extend or enter into any such
subscription, option, warrant, call or right. All of the issued and
outstanding shares of capital stock of Acclaim and each corporate subsidiary of
Acclaim have been duly authorized and are validly issued, fully paid and
nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof.
Section 4.04 Authority Relative to Agreement. Each of Acclaim and
Holdings has the corporate power and authority to execute and deliver this
Agreement and all other documents hereby contemplated, and to consummate,
subject to Article VI hereof, the transactions hereby and thereby contemplated
and to take all other actions required to be taken by it pursuant to the
provisions hereof and thereof. The execution, delivery and, subject to Article
VI hereof, performance of this Agreement and all other documents hereby
contemplated to be executed by Acclaim and Holdings and, subject to Article VI
hereof, the consummation by Acclaim and Holdings of the transactions hereby
contemplated have been, duly and validly authorized by any and all necessary
corporate action of Acclaim and Holdings. This Agreement and all other
documents hereby contemplated to be executed by Acclaim and Holdings constitute
legal, valid and binding obligations of Acclaim and Holdings, respectively,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy and other laws affecting the
enforceability of creditors' rights generally or laws governing the
availability of specific performance or other equitable remedies, or
restrictions on the enforcement of securities indemnification and contribution
provisions imposed by public policy. The issuance by Acclaim of shares of
Acclaim Common Stock in payment of the Merger Consideration for the Merger does
not require any further corporate action and will not be subject to preemptive
rights or other preferential rights of any present or future stockholders of
Acclaim and, at the Effective Time, the shares of Acclaim Common Stock, if any,
to be issued to Lazer in connection with the Merger will be duly authorized,
validly issued, fully paid and non-assessable with no personal liability
attaching to the ownership thereof. The options and warrants to be substituted
by Acclaim for the Stock Options and Warrants (and the warrants received upon
exercise of the Sales Agent Warrants) pursuant to Section 1.06 hereof have been
duly authorized and when issued and delivered in connection with the Merger
will have been duly issued and delivered and will constitute valid and legally
binding obligations of Acclaim enforceable in accordance with their terms. The
shares of Acclaim Common Stock issuable upon exercise of the options and
warrants so substituted (and upon exercise of the warrants received upon
exercise of the Sales Agent Warrants) have been reserved and authorized for
issuance and, when issued in accordance with the terms of such options and
warrants, will be duly authorized, validly issued, fully paid and non-
assessable and free of preemptive rights, with no personal liability attaching
to the ownership thereof.
Section 4.05 No Violation of Other Instruments or Obligations. Neither
the execution and delivery by Acclaim and Holdings of this Agreement and all
other documents hereby or thereby contemplated nor the consummation by Acclaim
and Holdings of the transactions hereby and thereby contemplated nor compliance
by Acclaim and Holdings with any of the provisions hereof shall (i) constitute
any violation or breach of the respective Certificates of Incorporation or
By-laws of Acclaim or Holdings; (ii) except as listed in Schedule 4.05 hereto,
constitute (with or without due notice or lapse of time or both) a default
under or a violation or breach of, or result in acceleration of any obligation
or give rise to any right of termination, cancellation or result in the
creation of any lien under, any provision of any contract, lease, mortgage or
other instrument or obligation to which either Acclaim or Holdings is a party
or by which either of its properties or assets may be bound, which default,
breach or acceleration has not been waived; (iii) violate any judgment, order,
writ, injunction, decree, statute, rule or regulation affecting Acclaim or any
of its assets or Holdings or any of its assets; (iv) except as listed in
Schedule 4.05 hereto, result in the creation of any Lien on any of the assets
or properties of Acclaim or Holdings; or (v) result in the termination of any
license, franchise, lease or permit to which Acclaim or Holdings is a party or
by which each is bound, except in the case of those items specified in clause
(ii), (iii), (iv) or (v) above, which would not, individually or in the
aggregate, limit or delay either Acclaim's or Holdings' ability to consummate
the transactions hereby contemplated or have a Material Adverse Effect on
either Acclaim or Holdings. "Material Adverse Effect" means, with respect to
Acclaim and Holdings, any event that could have a material adverse effect on
the business, assets, results of operations or financial condition of Acclaim
and its consolidated subsidiaries, treated in the aggregate including without
limitation the termination or suspension of Acclaim's relationship with either
Nintendo of America, Inc. or Sega Enterprises Ltd.; provided that a Material
Adverse Effect shall not include any effect that results from general economic
conditions affecting the comic book, the interactive entertainment, software
distribution, publishing or development; or video game industries within which
Acclaim conducts its business.
Section 4.06 Consents and Approvals. Except for applicable requirements
of the 1933 Act, the 1934 Act, state Blue Sky laws, the HSR Act, the filing and
recordation of the Certificate of Merger, as required by the DGCL, the
California Certificate as required by the CGCL, appropriate documents with the
relevant authorities of States in which Acclaim or Holdings is qualified to do
business, and such filings, authorizations, orders and approvals as may be
required under State "control share acquisition", "antitrust" or other similar
states or regulations, and such filings, authorizations, orders and approvals
as may be required under foreign laws and NASD Bylaws, or as set forth in
Schedule 4.06 hereto, no filing with, and no permit, authorization, consent or
approval of, any Government Entity, or of any third party, is necessary for the
entering into and/or consummation by Acclaim or Holdings of the transactions
contemplated by this Agreement.
Section 4.07 Public Reports. Acclaim has and, at the Effective Time will
have, filed all required forms, reports and documents with the SEC since August
31, 1992, (collectively, the "Acclaim SEC Reports") all of which have and shall
have complied in all material respects with all applicable requirements of the
1933 Act and 1934 Act, and Acclaim is current in all of its required filings
under the 1934 Act. Except as disclosed in Schedule 4.07, as of their
respective dates of filing in final or definitive form (or, if amended or
superseded by a subsequent filing, then on the date of such subsequent filing),
none of the Acclaim SEC Reports, including, without limitation, any financial
statements or schedules included therein, contained or shall have contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Each of the balance sheets (including the related notes) included in the
Acclaim SEC Reports fairly presents the consolidated financial position of
Acclaim and its subsidiaries as of the respective dates thereof, and the other
related financial statements (including the related notes) included therein
fairly presented the consolidated results of operations and changes in
financial position of Acclaim and its subsidiaries for the respective periods
indicated, except, in the case of interim financial statements, for year-end
audit adjustments, consisting only of normal recurring accruals. Each of the
financial statements (including the related notes) included in the Acclaim SEC
Reports has been prepared in accordance with GAAP consistently applied during
the periods involved, except as otherwise noted therein.
Section 4.08 No Material Adverse Effect. Except as disclosed in Schedule
4.08 or as otherwise permitted hereunder, since November 30, 1994, there has
not occurred any event which has resulted in the occurrence of (a) any Material
Adverse Effect on Acclaim or Holdings, or (b) any damage, destruction or loss,
whether or not covered by insurance, which would have a Material Adverse Effect
on Acclaim or Holdings.
Section 4.09 Holdings. Holdings will not conduct any business or have
any liabilities other than those hereunder nor will it have any operating
assets except as contemplated hereby and Acclaim will have good and valid title
to all of the issued and outstanding shares of Holdings.
Section 4.10 Finder's Fees. Acclaim, Holdings and their respective
affiliates and subsidiaries have not incurred any liability for finder's or
brokerage fees or agent's commissions in connection with this Agreement or the
transactions hereby contemplated.
Section 4.11 No Undisclosed Liabilities. Except as and to the extent
provided in Acclaim's unaudited balance sheet as at November 30, 1994 and the
notes thereto (the "Acclaim Balance Sheet"), neither Acclaim nor its
subsidiaries had at November 30, 1994 any liabilities, absolute, accrued,
unaccrued contingent or otherwise, which were in the aggregate, material to the
business, operations or financial condition of Acclaim and its subsidiaries
taken as a whole, and which were required by GAAP to be reflected on a
consolidated balance sheet of Acclaim and its subsidiaries. Except as and to
the extent set forth in Schedule 4.11, as of the date hereof since November 30,
1994 neither Acclaim nor its subsidiaries has incurred any liabilities
(absolute, accrued, contingent or otherwise) which are, in the aggregate,
material to the business, operations or financial condition of Acclaim and its
subsidiaries taken as a whole, except liabilities (i) adequately provided for
in the Acclaim Balance Sheet, (ii) incurred since November 30, 1994 in the
ordinary course of business, (iii) consistent with past practice or
(iv) incurred in connection with this Agreement.
Section 4.12 No Default. Except as set forth in Schedule 4.12, neither
Acclaim nor any of its subsidiaries is in default or violation (and no event
has occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (i) its
Certificate of Incorporation or its By-laws, (ii) any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which Acclaim or any of its subsidiaries is a party or by which they or any of
their properties or assets may be bound or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to Acclaim or any of its
subsidiaries, except in the case of subclause (ii) or (iii) for defaults or
violations which would not, in the aggregate, have a Material Adverse Effect
and which would not prevent or materially delay the consummation of the
transactions contemplated hereby.
Section 4.13 Litigation. Except as set forth in Schedule 4.13 or in the
Acclaim SEC Reports, there is no suit, action or proceeding pending or, to the
knowledge of Acclaim, any investigation pending or any suit, action, proceeding
or investigation threatened against, involving or affecting Acclaim or its
officers and directors in such capacities, any of its subsidiaries, or any of
its or their respective properties or rights seeking equitable relief, nor is
there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Acclaim or its officers and directors in such capacities,
or any of its subsidiaries, which does or might reasonably be expected to
(i) result in the modification, termination, suspension, impairment or
reformation of any contract to which Acclaim or any of its subsidiaries is a
party, which modification, termination, suspension, impairment or reformation
would have a Material Adverse Effect; (ii) materially adversely affect the
manner in which Acclaim conducts its business; (iii) adversely affect the
ability of Lazer or Acclaim to consummate any of the transactions contemplated
hereby; or (iv) have a Material Adverse Effect.
Section 4.14 Compliance with Applicable Law. To Acclaim's knowledge, the
business of Acclaim and its subsidiaries are not being conducted in violation
of any applicable law, ordinance, rule, regulation, decree or order of any
Governmental Entity, except for violations which, in the aggregate, do not and
would not reasonably be expected to have a Material Adverse Effect. Acclaim
and its subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Acclaim Permits"), except for failures to
hold such Acclaim Permits which would not, in the aggregate, have a Material
Adverse Effect. Acclaim and its subsidiaries are in compliance with the terms
of the Acclaim Permits, except where the failure so to comply would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 4.15 [Intentionally Omitted.]
Section 4.16 Operation of the Surviving Corporation. Immediately
following the Effective Time, the Surviving Corporation will continue to
operate the prior Lazer business as a separate subsidiary of Acclaim. Acclaim
represents that it has no current plans or intentions following the Effective
Time to (i) materially change the operations or location of operations of Lazer
as conducted immediately prior to the Effective Time, (ii) cause the Surviving
Corporation to sell, transfer or otherwise dispose of any of its assets, except
for dispositions made in the ordinary course of business or for the payment of
expenses incurred by the Surviving Corporation in the Merger, (iii) liquidate
the Surviving Corporation, (iv) merge the Surviving Corporation with or into
another corporation, including Acclaim or its affiliates, (v) sell, distribute
or otherwise dispose of the Common Stock of the Surviving Corporation,
(vi) issue additional shares of stock (or rights to acquire shares of stock) of
the Surviving Corporation that would result in Acclaim losing control of the
Surviving Corporation within the meaning of Section 368(c) of the Code, or
(vii) reacquire any of its Common Stock issued in the Merger.
Section 4.17 Lazer Stock. As of the date hereof, neither Acclaim nor
Holdings is the beneficial owner of Lazer Common Stock or except as provided
herein has any rights to acquire Lazer Common Stock.
ARTICLE V
Covenants
Section 5.01 Lazer Pre-Closing Obligations. Except as expressly
contemplated by this Agreement (including any actions that are permitted to be
taken under Section 5.03) or as set forth in Schedule 5.01 attached hereto,
during the period from the date of this Agreement and continuing until the
earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, (x) Lazer and its subsidiaries will each carry on
their respective businesses in the regular and ordinary course, consistent with
past practice, and use their best efforts to preserve intact their present
business organizations, keep available the services of their present officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, contractors, distributors and others having business
dealings with them and (y) without limiting the generality of the foregoing,
neither Lazer nor any of its subsidiaries will:
(a) (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
Lazer may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) amend the terms of,
repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, or propose to do any of the foregoing
except as expressly permitted hereby;
(b) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights), except as required
pursuant to the agreements and instruments outstanding on the date hereof
and which have been disclosed in writing to Acclaim (provided that no
additional issuances of options will be made under the Lazer Stock Option
Plans without the consent of Acclaim, and no additional sales of Lazer
Common Stock will be made under the Employee Purchase Plan except for
issuances under the Employee Purchase Plan for the offering period ending
June 30, 1995), or amend in any material respect any of the terms of any
such securities or agreements outstanding on the date hereof except as
expressly permitted hereby, or permit the acceleration of any Options
(other than Options under the Director Option Plan) or Warrants by the
lapsing of any vesting restrictions as a result of the Merger or otherwise
in connection with any of such securities;
(c) amend or propose to amend its charter or by-laws;
(d) acquire, sell, lease, encumber, transfer or dispose of any
assets in excess of $100,000 in any instance or $500,000 in the aggregate,
or make any capital expenditures in excess of $100,000 in any instance or
over $250,000 in the aggregate, except in each case pursuant to
obligations in effect on the date hereof and sales of inventory in the
ordinary course of business and which have been disclosed in writing to
Acclaim, or enter into any contract, commitment, agreement or transaction
other than in the ordinary course of business (unless such contract,
commitment, agreement or transaction is for less than $25,000 and
consistent with past practice and in any event enter into any contract,
commitment, agreement or transaction in excess of $100,000) other than
purchase orders for materials and supplies in the ordinary course of
business. In no event shall Lazer make, other than after consultation
with, and approval of, Acclaim (which approval shall be deemed given if
Acclaim does not give written notice of its objection within three
business days after such consultation), any business decision or enter
into any transaction which might reasonably be expected to have a
significant financial or operational effect on Lazer or its operations;
(e) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of Lazer or any of its subsidiaries or
guarantee (or become liable for) any debt of others or make any loans,
advances or capital contributions or mortgage, pledge or otherwise
encumber any material assets or create or suffer any material Lien
thereupon, other than in the ordinary course of business consistent with
past practice and, in any event, not in excess of $25,000 in any instance
or $100,000 in the aggregate;
(f) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course
of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto) of Lazer
and its consolidated subsidiaries or incurred in the ordinary course of
business consistent with past practice, and in any event not in excess of
$100,000 in any instance or $150,000 in the aggregate, or settle any
lawsuits relating to intellectual property;
(g) change any of the accounting principles or practices used by it
in the preparation of the quarterly report on Form 10-QSB for the quarter
ended December 31, 1994 (except as required by GAAP);
(h) except as required by law or this Agreement, (i) enter into,
adopt, amend or terminate any Plan or any agreement, arrangement or policy
between itself and one or more of its directors or executive officers
including, without limitation, the Executive Bonus Program or
(ii) increase in any manner the compensation or fringe benefits of any
director, officer or employee of Lazer or pay any benefit to any officer,
director or employee not required by any Plan or arrangement between
itself and that officer, director or employee as in effect as of the date
hereof, except in the case of non-officer employees of Lazer for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits
or compensation expense to Lazer and its subsidiaries taken as a whole, or
enter into any contract, agreement, commitment or arrangement to do any of
the foregoing;
(i) other than in the ordinary and regular course of Lazer's
business, retain at the Closing Date, or agreed to retain, subsequent to
the Closing Date, any person for the purpose of providing services to
Lazer, except with Acclaim's prior written consent, which consent shall
not be unreasonably withheld;
(j) cancel, modify or change any of the insurance policies listed in
Schedule 3.26 hereto prior to the Effective Time without the express
written consent of Acclaim, which consent shall not be unreasonably
withheld, except to extend the maturity dates thereof;
(k) take any action, or omit to take any action, that would have an
adverse effect on the Pooling and/or that would impede, frustrate or lend
to the failure of the condition set forth in Section 6.19 hereof; or
(l) (A) agree to take any of the foregoing actions or (B) take or
agree to take any action or omit to take any action that would or is
reasonably likely to result in any of Lazer's representations and
warranties set forth in this Agreement being untrue or result in any of
the conditions to the Merger set forth in Article VI not being satisfied.
Section 5.02 Acclaim Pre-Closing Obligations. Except as expressly
contemplated by this Agreement or as set forth in Schedule 5.02 attached
hereto, during the period from the date of this Agreement and continuing until
the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, Acclaim and its subsidiaries will each carry on
their respective businesses in the regular and ordinary course, consistent with
past practice, and use their best efforts to preserve intact their present
business organizations, keep available the services of their present officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, contractors, distributors and others having business
dealings with them.
Section 5.03 No Solicitations. Lazer will immediately cease any existing
discussions or negotiations with any third parties conducted prior to the date
hereof with respect to any merger, business combination, sale of a significant
amount of assets outside of the ordinary course of business, sale of shares of
capital stock outside of the ordinary course of business or similar transaction
involving such party or any of its subsidiaries or divisions (an "Acquisition
Transaction"). Neither Lazer nor any of its subsidiaries shall, and Lazer
shall use its best efforts to ensure that none of its affiliates, officers,
directors, representatives, agents or affiliates shall, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) any
person, entity or group (including any set forth in the first sentence of this
Section 5.03) concerning any Acquisition Transaction (other than the
transactions contemplated by this Agreement); provided, however, that (i)
nothing in this Agreement shall preclude Lazer's Board of Directors, pursuant
to its fiduciary duties as determined by Lazer's Board of Directors after
consultation with outside legal counsel of Lazer, from entering into, or
causing Lazer's officers, representatives, agents or affiliates from entering
into, negotiations with or furnishing information to a third party which has
initiated contact with Lazer, from passing on to Lazer's shareholders
information regarding any such third party proposal or inquiry consistent with
such fiduciary duties, or otherwise fulfilling such fiduciary duties, and (ii)
Lazer may participate in negotiations with or furnish information to a third
party which has initiated contact with Lazer with respect to an Acquisition
Transaction consistent with the fiduciary obligations of its Board of
Directors. Lazer shall advise Acclaim within 24 hours of receipt of any such
inquiries or proposals regarding an Acquisition Transaction, including the
terms thereof. In the event Lazer receives a proposal relating to an
Acquisition Transaction, nothing contained in this Agreement shall prevent
Lazer's Board of Directors from approving such proposal or recommending such
Acquisition Transaction to Lazer's Stockholders if Lazer's Board of Directors
determines in good faith that failure to take such action would result in a
breach of its fiduciary duties as determined by Lazer's Board of Directors
after consultation with Lazer's outside legal counsel, and in such case the
Board of Directors of Lazer may amend, withhold or withdraw its recommendation
regarding the Merger. However, the taking of such action in connection with an
Acquisition Transaction as contemplated in the preceding sentence will not
relieve Lazer of its obligations under and as contemplated by Section 5.14 and
Section 5.15 hereunder. Nothing in this Agreement shall prevent Lazer or its
Board of Directors from complying with the provisions of the 1934 Act and the
rules and regulations thereunder.
Section 5.04 Access to Information. (a) Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which it is
subject (from which it shall use reasonable efforts to be released), Lazer
shall (and shall cause each of its subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of Acclaim ("Acclaim
Representatives"), reasonable access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, Lazer shall (and shall cause
each of its subsidiaries to) furnish promptly to Acclaim all information
concerning its business, properties and personnel as Acclaim may reasonably
request. Acclaim Representatives shall be permitted to make copies of and
extracts from, the accounts, minute books, other records, books of account,
other books, deeds, leases, title documents, insurance policies, licenses,
contracts, commitments, sales orders, purchase orders, tax returns, records and
files of Lazer, and such other information relating to Lazer as Acclaim shall
request. Acclaim Representatives shall be permitted to discuss the affairs,
finances and accounts of Lazer with the officers, employees, distributors,
sales representatives, licensees, licensors, suppliers, customers, insurance
agents, actuaries, auditors and counsel of Lazer upon prior request and as to
distributors, sales representatives, licensees, licensors, suppliers,
customers, insurance agents, actuaries, only upon consent. The foregoing
covenant shall include allowing Acclaim to conduct a Phase I environmental
audit of the Lazer offices and facilities located in Pleasanton, California, at
Acclaim's cost and expense.
(b) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which it is subject (from which it shall use
reasonable efforts to be released), Acclaim shall (and shall cause each of its
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of Lazer ("Lazer Representatives"), reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, Acclaim shall (and shall cause each of its subsidiaries to) furnish
promptly to Lazer all information concerning its business, properties and
personnel as Lazer may reasonably request. Lazer Representatives shall be
permitted to make copies of and extracts from, the accounts, minute books,
other records, books of account, other books, deeds, leases, title documents,
insurance policies, licenses, contracts, commitments, sales orders, purchase
orders, tax returns, records and files of Acclaim, and such other information
relating to Acclaim as Lazer shall request. Lazer Representatives shall be
permitted to discuss the affairs, finances and accounts of Acclaim with the
officers, employees, distributors, sales representatives, licensees, licensors,
suppliers, customers, insurance agents, actuaries, auditors and counsel of
Acclaim upon prior request and as to distributors, sales representatives,
licensees, licensors, suppliers, customers, insurance agents, actuaries, only
upon consent.
(c) Lazer and Acclaim and any such Lazer Representatives or Acclaim
Representatives, as applicable, shall keep such information confidential in
accordance with the terms of the confidentiality agreement, dated March 6, 1995
(the "Confidentiality Agreement"), between Lazer and Acclaim.
Section 5.05 Lazer Stockholder Meeting. Lazer will take all action
necessary in accordance with California law, Lazer's Articles of Incorporation,
as amended, its By-laws and the requirements of the Nasdaq Stock Market to
convene a meeting of its stockholders (the "Lazer Stockholders Meeting") as
promptly as practicable following effectiveness of the registration statement
on Form S-4 filed by Acclaim in connection with the issuance of Acclaim Common
Stock pursuant to the transactions contemplated hereby (the "S-4") and the
clearance by the SEC of the proxy statement included in the S-4 and relating to
the Lazer Stockholders Meeting (the "Proxy Statement") to consider and vote
upon the Merger and the transactions contemplated hereby. The Lazer Board
shall, subject to its fiduciary obligations as herein provided recommend that
the stockholders of Lazer vote in favor of the Merger and the transactions
contemplated hereby and cause Lazer to use its best efforts to solicit from its
stockholders proxies in favor of such approval.
Section 5.06 Proxy Statement. (a) Lazer shall prepare (and Acclaim
shall assist where appropriate) and file with the SEC, as promptly as
practicable upon execution of this Agreement, the Proxy Statement and a form of
proxy for use at the Lazer Stockholders Meeting relating to the vote of Lazer's
stockholders with respect to the Merger and the transactions contemplated by
this Agreement (together with any amendments or supplements thereto, in each
case in the form or forms mailed to Lazer's stockholders). Each of Lazer and
Acclaim (if appropriate) will use its reasonable efforts to have, or cause, the
Proxy Statement to be cleared by the SEC as promptly as practicable and Lazer
shall cause the Proxy Statement to be mailed to stockholders of Lazer at the
earliest possible date. Acclaim and Holdings shall promptly furnish to Lazer
such information regarding each of Acclaim and Holdings and their respective
officers and directors as may be reasonably requested by Lazer for inclusion in
the Proxy Statement.
(b) Lazer covenants that none of the information concerning Lazer or any
of its affiliates, directors, officers, employees, agents or representatives
which is included or incorporated by reference in the Proxy Statement will, at
the time the Proxy Statement or any amendment or supplement thereto is filed
with the SEC, at the time of mailing of the Proxy Statement or any amendment or
supplement thereto to Lazer's stockholders or at the time of the Lazer
Stockholders Meeting, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Lazer covenants that the Proxy Statement shall comply as to form
in all material respects with the applicable provisions of the 1934 Act and the
rules and regulations thereunder, except that no representation is made by
Lazer with respect to statements made therein based on information supplied by
Acclaim or Holdings in writing for inclusion or incorporation by reference
therein or with respect to omitted information regarding Acclaim or Holdings so
required to be included therein.
(c) Acclaim covenants that none of the information supplied or to be
supplied to Acclaim or any of its affiliates, directors, officers, employees,
agents or representatives in writing specifically for inclusion in the Proxy
Statement will, at the time the Proxy Statement or any amendment or supplement
thereto is filed with the SEC, at the time of mailing of the Proxy Statement or
any amendment or supplement thereto to Lazer's stockholders or at the time of
the Lazer Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 5.07 Registration on Form S-4. (a) The Acclaim Common Stock to
be issued in the Merger shall be registered under the 1933 Act on the S-4. As
promptly as practicable after the date of this Agreement, Acclaim shall
prepare, with the assistance of Lazer, as appropriate (including, but not
limited to, preparation by Lazer and its counsel of applicable disclosure in
the Proxy Statement and the S-4 relating to tax consequences of the Merger on
Lazer Stockholders and submission of any required tax opinions addressed to
Lazer), and file with the SEC the S-4, together with the Prospectus/Proxy
Statement to be included therein and any other documents required by the 1933
Act or the 1934 Act in connection with the Merger. Each of Acclaim and Lazer
shall use its best efforts to respond promptly to any comments of the SEC and
to have the S-4 declared effective under the 1933 Act as promptly as
practicable after such filing. Acclaim shall also take any action required to
be taken under any applicable state securities or "blue sky" laws and
regulations of the NASDAQ Stock Market in connection with the issuance of the
Acclaim Common Stock in connection with the Merger. Lazer shall promptly
furnish to Acclaim all information concerning Lazer and the Lazer Stockholders
as may be reasonably required in connection with any action contemplated by
this Section 5.07. Each of Acclaim and Lazer will notify the other promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the S-4 or the
Prospectus/Proxy Statement or for additional information and will supply the
other with copies of all correspondence with the SEC or its staff with respect
to the S-4 or the Prospectus/Proxy Statement. Whenever any event occurs which
should be set forth in an amendment or supplement to the S-4 or the
Prospectus/Proxy Statement, Acclaim or Lazer, as the case may be, shall
promptly inform the other of such occurrence and cooperate in filing with the
SEC or its staff, and/or mailing to stockholders of Acclaim and Lazer, such
amendment or supplement.
(b) Lazer covenants that none of the information supplied in writing by
Lazer for inclusion or incorporation by reference in the S-4 to be filed with
the SEC in connection with the issuance of Acclaim Common Stock pursuant to the
transactions contemplated hereby will, at the time the S-4 is filed with the
SEC and at the time it becomes effective under the 1933 Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading. The S-4 together with
the prospectus/proxy statement included therein (the "Prospectus/Proxy
Statement"), will comply in all material respects with the provisions of the
1933 Act and the 1934 Act, as the case may be, and the rules and regulations
thereunder, except that no representation is made by Lazer with respect to
statements made therein based on information supplied by Acclaim or Holdings in
writing for inclusion or incorporation by reference therein or with respect to
omitted information regarding Acclaim or Holdings so required to be included
therein.
(c) Acclaim covenants that none of the information supplied in writing by
Acclaim or Holdings for inclusion or incorporation by reference in the S-4
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the 1933 Act, contain any untrue statement of a material fact
or omit to state any 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. Acclaim covenants that the S-4 and the
Prospectus/Proxy Statement will comply in all material respects with the
provisions of the 1933 Act and the 1934 Act, as the case may be, and the rules
and regulations thereunder, except that no representation is made by Acclaim
with respect to statements made therein based on information supplied by Lazer
in writing for inclusion or incorporation by reference therein or with respect
to omitted information regarding Lazer so required to be included therein.
Section 5.08 Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the prompt preparation and filing with the
SEC of the S-4 in compliance with the 1933 Act and the Proxy Statement of Lazer
in compliance with Section 14 of the 1934 Act, (ii) such actions as may be
required to have the S-4 declared effective under the 1933 Act and to have the
Proxy Statement cleared by the staff of the SEC, in each case as promptly as
practicable, including by consulting with each other as to, and responding
promptly to, any comments of the SEC staff with respect thereto, (iii) in the
case of Acclaim, such actions as may be required to be taken under applicable
state securities or Blue Sky laws in connection with the issuance of Acclaim
Common Stock contemplated hereby, (iv) the prompt preparation and filing of all
applicable forms required to be filed under the HSR Act and the prompt
compliance with any requests from the Federal Trade Commission or United States
Department of Justice for additional information, (v) the preparation and
filing of all other forms, registrations and notices required to be filed to
consummate the transactions contemplated hereby and the taking of such actions
as are necessary to obtain any requisite approvals, consents, orders,
exemptions, or waivers by any public or private third party, (vi) such actions
as may be required to cause, prior to the Effective Time, the Acclaim Common
Stock to be issued pursuant hereto, to be listed on the NASDAQ National Market
System (subject to official notice of issuance), and (vii) such actions as may
be reasonable to cause, concurrently with the Effective Time, the delisting of
Lazer's securities from the NASDAQ Stock Market and the deregistration of
Lazer's securities under the 1934 Act; provided, however, that in order to
obtain any consent, approval, waiver, license, permit, authorization,
registration, qualification or other permission or action referred to in clause
(v) of this sentence, no party shall be required to (x) pay any consideration,
to divest itself of any of, or otherwise rearrange the composition of, its
assets or to agree to any conditions or requirements which are materially
adverse or burdensome or (y) amend, or agree to amend, in any material respect
any Contract. Each party shall promptly consult with the other and provide any
necessary information with respect to and provide the other (or its counsel)
with copies of, all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
Section 5.09 Letters of Accountants. Each of Lazer and Acclaim shall use
its respective best efforts to cause to be delivered to the other, letters from
their respective independent public accountants to each such party, dated a
date within two business days before the date on which the S-4 shall become
effective and addressed to the other, in form and substance reasonably
satisfactory to the other and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements similar to the S-4. Acclaim shall have provided Ernst
& Young LLP and Lazer shall have provided Grant Thornton, LLP, a letter
acknowledging that its review process applied to the information contained in
the S-4 relating to Lazer or Acclaim, as the case may be, will be substantially
consistent with the procedures that it would perform if the placement of
securities pursuant to the S-4 were being underwritten pursuant to the 1933
Act. Such letter shall also indicate Acclaim or Lazer, as the case may be, is
knowledgeable with respect to the due diligence review process that would be
performed if this placement of securities were being underwritten in connection
with a registered offering pursuant to the 1933 Act.
Section 5.10 Affiliates. (a) Lazer shall immediately advise Acclaim if
any such person listed on Schedule 3.27(b). should cease to be Affiliate and/or
of any person who becomes a Lazer Affiliate after the date hereof and on or
prior to the Closing Date. Lazer shall use its best efforts to cause each
person who becomes a Lazer Affiliate after the date hereof to deliver to
Acclaim at or prior to 31 days (or as promptly as practicable after such person
becomes a Lazer Affiliate if sooner) prior to the Effective Time a Lazer
Affiliate Agreement to the effect contemplated by Exhibit A hereto.
Section 5.11 Indemnification of Managers. (a) Acclaim and Holdings each
agree that all rights to indemnification existing on the date hereof in favor
of the present or former officers and directors of Lazer (the "Managers") with
respect to actions taken in their capacity as Managers prior to or at the
Effective Time as provided in Lazer's Articles of Incorporation, By-laws or
written indemnity agreements which have been previously provided to Acclaim
prior to the date hereof and which shall not be amended, modified or
supplemented after the date hereof and prior to the Effective Time, shall
survive the Merger and the Surviving Corporation shall assume, honor and be
bound by the terms of such indemnity agreements, Articles of Incorporation and
By-laws with respect to their actions and omissions in such capacity taken
prior to the Effective Time, whether or not such persons continue in their
positions with the Surviving Corporation following the Effective Time, and
shall continue in full force and effect for a period of six (6) years following
the Effective Time, and all such rights in any such agreement, Articles of
Incorporation and By-laws in effect as of the date hereof between Lazer or any
of its subsidiaries and any Manager shall survive the Merger and continue in
full force and effect in accordance with its terms as between such Managers and
the Surviving Corporation except as provided in Section 5.11(b) hereof.
(b) For the entire period from and after the Effective Time until at
least six years after the Effective Time, Acclaim shall cause the Surviving
Corporation to use its best efforts to maintain in effect directors' and
officers' liability insurance covering those persons who are currently covered
by Lazer's directors' and officers' liability insurance policy (a copy of which
has been heretofore delivered to Acclaim) of at least the same coverage and
amounts (not to exceed $1 million), containing terms that are no less
advantageous to such persons with respect to claims made after the Effective
Time arising from such person's actions or omissions in their capacity as
Managers occurring at or before the Effective Time than Lazer's policies in
effect immediately prior to the Effective Time. In the event the Surviving
Corporation is unable to maintain such directors' and officers' liability
insurance, Acclaim agrees that it will indemnify such persons currently covered
by Lazer's directors' and officers' liability insurance policy on the same or
similar terms and conditions and dollar limitations (not to exceed $1 million)
in force and effect under such policy immediately prior to the Effective Time.
(c) The provisions of this Section shall survive the Effective Time and
are intended to be for the benefit of, and shall be enforceable by, each
officer and director of Lazer and his or her heirs and representatives.
(d) In the event of a breach of any of the covenants set forth in 5.23,
Acclaim will assume all of the obligations of the Surviving Corporation under
this Section 5.11.
(e) In the event (i) any third party institutes any suit or proceeding of
the nature contemplated by Section 7.14 hereof (the "Claim Relating to the
Merger") and (ii) if at such time Acclaim has determined, notwithstanding any
such suit or proceeding, to consummate the Merger and to provide the indemnity
set forth in this Section 5.11(e), then, subject to the conditions set forth
below, Acclaim agrees to indemnify and hold harmless Lazer, its officers and
directors (each, a "Lazer Indemnified Party") from and against any and all
losses, liabilities, obligations, suits, proceedings, demands, judgments,
damages, claims, expenses and costs (including, without limitation, reasonable
fees, expenses and disbursements of counsel) as and when incurred, arising out
of, based upon, or in connection with the Claim Relating to the Merger on the
terms set forth in this Section 5.11(e). If any Claim Relating to the Merger
is brought against one or more Lazer Indemnified Parties in respect of which
indemnity may be sought against Lazer pursuant to this Section 5.11(e), such
Lazer Indemnified Party(ies) shall promptly and in any event within five days
notify Acclaim in writing of the institution of such Claim Relating to the
Merger and Acclaim shall promptly and in any event within 25 days notify Lazer
of Acclaim's intent to proceed to consummate the Merger and shall thereupon
assume the defense of such Claim Relating to the Merger, including the
employment of counsel (reasonably satisfactory to such Lazer Indemnified
Party(ies); it being acknowledged that Rosenman & Colin is satisfactory)
provided that the Lazer Indemnified Party(ies) shall have the right to employ
its or their own additional counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such Lazer Indemnified Party(ies)
unless (i) the employment of such counsel shall have been authorized in writing
by Acclaim in connection with the defense of such Claim Relating to the Merger
or (ii) Acclaim shall not have promptly employed counsel reasonably
satisfactory to such Lazer Indemnified Party(ies) to have charge of the defense
of such Claim Relating to the Merger or (iii) such Lazer Indemnified Party(ies)
shall have reasonably concluded that there may be one or more legal defenses
available to it or them or to other Lazer Indemnified Parties which are
different from or additional to those available to Acclaim, in any of which
events such fees and expenses of one such additional counsel shall be borne by
Acclaim as they are incurred by such Lazer Indemnified Party(ies) and Acclaim
shall not have the right to direct the defense of such Claim Relating to the
Merger on behalf of the Lazer Indemnified Party(ies) who have retained separate
counsel. Anything in this Section 5.11(e) to the contrary notwithstanding,
Acclaim shall not be liable for any settlement of any such Claim Relating to
the Merger effected without its prior written consent. Acclaim shall not,
without the prior written consent of each Lazer Indemnified Party that is not
released as described in this sentence, settle or compromise any Claim Relating
to the Merger, or permit a default or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened Claim Relating to the
Merger, in respect of which indemnity may be sought under this Section 5.11(e)
unless such settlement, compromise, consent, or termination includes an
unconditional release of such Lazer Indemnified Party from all liability in
respect of such Claim Relating to the Merger.
Section 5.12 No Breach of Representations and Warranties. Each of
Acclaim, Holdings, the Principals and Lazer agree that they will not take any
action which would cause or constitute a material breach, or would, if it had
been taken prior to the date hereof, have caused or constituted a material
breach of, any of the representations and warranties set forth in Article III
or IV hereof, as the case may be. Each of the parties hereto shall, in the
event of, or promptly after the occurrence of, or promptly after obtaining
knowledge of the occurrence of or the impending or threatened occurrence of,
any fact or event which would cause or constitute a Material Adverse Effect
with regard to Lazer or Acclaim or a breach of any of the representations and
warranties set forth in Article III or IV hereof, as the case may be, as of the
Closing Date, give detailed notice thereof to the other parties hereto; and
such notifying party shall use its or their best efforts to prevent or promptly
to remedy such breach.
Section 5.13 Consents; Notices. Lazer shall obtain and deliver to
Acclaim written consents, in form and substance satisfactory to Acclaim, to the
change in control of Lazer or assignments to the Surviving Corporation of the
Contracts set forth in Schedules 3.18(a) and 3.18(b) hereto and any other
consents required in connection with this Agreement or the transactions hereby
contemplated including without limitation those identified in a schedule
hereto. Lazer shall also deliver all notices to third parties required to be
delivered in connection with the execution of this Agreement and the
transactions hereby contemplated.
Section 5.14 Fees and Expenses. (a) Except as set forth in Section
5.14(b), (c) and (d), whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that expenses incurred in connection with the printing and mailing of the Proxy
Statement and the S-4 shall be shared equally by Lazer and Acclaim.
(b) Subject to Sections 5.14(c) and (d), in the event that Lazer shall
have breached any of its obligations representations, warranties or covenants
or prevents the satisfaction of Acclaim's conditions to the Merger, Acclaim
shall have the right to avail itself of all available remedies, whether at law
or equity, and Lazer shall, in addition to any damages or other relief granted
to Acclaim, to the extent Acclaim prevails on any claim or action, pay all
costs and expenses (including attorneys fees and expenses) incurred by Acclaim
in pursuit of such remedies. In the event that Acclaim shall have breached any
of its obligations representations, warranties or covenants or prevents the
satisfaction of Lazer's conditions to the Merger, Lazer shall have the right to
avail itself of all available remedies, whether at law or equity, and Acclaim
shall, in addition to any damages or other relief granted to Lazer, to the
extent Lazer prevails on any claim or action, pay all costs and expenses
(including attorneys fees and expenses) incurred by Lazer in pursuit of such
remedies.
(c) Provided that the circumstances contemplated by the first sentence of
Section 5.14(b) hereof shall not then be in existence as a result of or arising
from the willful action or inaction of Lazer, its officers, directors,
employees or agents, in the event Lazer or its Board of Directors shall have
exercised its right under Section 5.03 in connection with an Acquisition
Transaction, and as a result of any of the foregoing the Merger is not
consummated and/or this Agreement is terminated, then Lazer shall promptly, but
in no event later than one business day following the termination of this
Agreement, pay to Acclaim, in immediately available funds, the sum of Two
Hundred Thousand Dollars $200,000, which amount shall be Acclaim's sole remedy
hereunder in such circumstances.
(d) Provided that the circumstances contemplated by the first sentence of
Section 5.14(b) hereof shall not then be in existence as a result of or arising
from the willful action or inaction of Lazer, its officers, directors,
employees or agents, in the event Lazer or its Board of Directors shall have
exercised its rights under Section 5.03 in connection with an Acquisition
Transaction and as a result the Merger is not consummated or this Agreement is
terminated, and shall have consummated such Acquisition Transaction within one
year, then Lazer shall, or shall cause any other party succeeding to its
business or which is a party to such Acquisition Transaction, as a condition to
consummation of any such Acquisition Transaction, pay to Acclaim, in
immediately available funds, a sum in cash equal to 5% of the value (less any
amounts paid or payable to Acclaim pursuant to Section 5.03(c)), which amount
shall be Acclaim's sole remedy hereunder in such circumstances, of the
aggregate consideration actually received in connection with such Acquisition
Transaction by (i) Lazer's Stockholders, in the case that such Acquisition
Transaction is a merger, business combination, sale of shares of capital stock
outside the ordinary course of business or similar transaction, or (ii) Lazer,
in the case that such Acquisition Transaction is a sale of a significant amount
of Lazer's assets outside the ordinary course of business or similar
transactions, in each case at such times that such consideration is actually
distributed to Lazer Stockholders or Lazer, as applicable. The value of such
consideration shall be determined in a manner consistent with the manner by
which it is valued or determined in the agreements governing that Acquisition
Transaction.
(e) Notwithstanding any other provision of this Agreement, the provisions
of this Section 5.14 shall not be conditioned on the vote of the stockholders
of Lazer. This Section 5.14 shall survive the termination of the Merger or
this Agreement.
Section 5.15 The Option. Lazer hereby grants Acclaim an option (the
"Option") to purchase shares of Lazer Common Stock for $8.00 per share in cash
on the terms and conditions set forth in the Option Agreement attached as
Exhibit C hereto. Notwithstanding any other provision of this Agreement, the
grant of the Option under this Section 5.15 shall not be conditioned upon the
vote of the stockholders of Lazer. The Option shall survive the termination of
the Merger or this Agreement. Lazer further grants to Acclaim registration
rights relating to the Lazer Common Stock underlying the Option on
substantially the terms set forth in the registration rights agreement attached
as Exhibit C hereto.
Section 5.16 Pooling. Each of Acclaim and Lazer agree not to take any
action that would adversely affect the ability of Acclaim to treat the Merger
as a pooling of interests and each of Lazer and Acclaim agree to take such
action as may be reasonably required to negate the impact of any past or future
actions that would adversely impact the ability of Acclaim to treat the Merger
as a pooling of interests.
Section 5.17 Public Announcements. Acclaim and Lazer shall consult with
each other before issuing any press releases or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange or NASDAQ.
Section 5.18 Registration Right Agreements and Warrants. Acclaim agrees
as part of the Merger to assume all of Lazer's obligations in connection with
the registration rights granted by Lazer prior to the date hereof and described
on Schedule 5.18 with respect to any Lazer securities which had rights under
such agreements and were exchanged or substituted in the Merger, subject to
Acclaim's reasonable renegotiation with Van Kasper & Co. and with Cohig &
Associates, Inc. of their rights thereunder.
Section 5.19 NASDAQ Listing. As soon as practicable after the Effective
Time, Acclaim will use its best efforts (i) to cause the Acclaim Common Stock
to be issued in the Merger to be quoted on the Nasdaq Stock Market or listed on
such securities exchange as Acclaim Common Stock is then listed and (ii) to
cause the shares of Acclaim Common Stock issued upon exercise of substituted
Lazer Stock Options or Warrants to be quoted upon issuance on the Nasdaq Stock
Market or listed on such securities exchange as the Acclaim Common Stock is
then listed.
Section 5.20 Acclaim Employee Option Plans and Benefit Arrangements.
Acclaim shall use its best efforts to arrange that, as soon as practicable
after the Effective Time, all Acclaim benefit arrangements and Acclaim employee
plans (the "Acclaim Benefits") provide the same or a comparable benefit or plan
to each employee of Lazer as is provided to Acclaim's employees who are
similarly situated. The Acclaim Benefits shall give full credit for each
participant's period of service with Lazer prior to the Effective Time for all
purposes for which such service was recognized under the Plans prior to the
Effective Time and full credit for deductibles satisfied under the Plans toward
any deductibles for the same period following the Effective Time, and shall
waive any pre-existing condition limitation for any employee covered under the
Plans immediately prior to the Effective Time. From and after the Effective
Time, Acclaim and the Surviving Corporation shall provide all employees of
Lazer with the opportunity to participate in any employee stock option or other
incentive compensation plan of Acclaim on substantially the same terms and
subject to substantially the same conditions as are available to similarly
situated employees of Acclaim.
Section 5.21 Employment Agreements. Acclaim covenants and agrees that it
shall cause the Surviving Corporation to, concurrently with the Effective Time,
execute the employment agreements substantially in the form attached hereto as
Exhibit D.
Section 5.22 Closing Balance Sheet. No later than five days prior to the
Closing and in any event no later than the tenth day of the month within which
the Closing is anticipated to take place, Lazer shall furnish Acclaim with a
balance sheet dated as of the last day of the month immediately preceding the
month in which the Closing Date occurs and a Net Sales presentation for the
applicable period described in Section 3.21(b) ended with the date of such
balance sheet (together, the "Closing Balance Sheet"). The Closing Balance
Sheet shall be prepared in accordance with GAAP (without footnotes) and reflect
the applicable minimum amounts set forth in Section 3.21(b) hereof with respect
to Lazer's Working Capital, Net Worth and Net Sales, prepared on a pro forma
basis after deduction of expenses and fees incurred by Lazer in connection with
the Merger and transactions contemplated hereby up to an aggregate of $750,000.
Such Closing Balance Sheet shall be certified by the President and Chief
Financial Officer of Lazer in their respective capacity as such . Within three
days of its receipt of the Closing Balance Sheet, Acclaim shall notify Lazer in
writing (a "Dispute Notice") whether Acclaim in good faith accepts or rejects
the calculations set forth in the Closing Balance Sheet, and in the case of a
rejection thereof specifying the ground of such rejection in reasonable detail
(a "Dispute"). In the event of a Dispute, Lazer and Acclaim shall seek within
15 days from the date of Acclaim's Dispute Notice to resolve such Dispute to
the satisfaction of Acclaim and Acclaim's independent public accountants.
Section 5.23 Operation of the Surviving Corporation. So long as the
Surviving Corporation has any obligations under Section 5.11 hereof, Acclaim
shall not (i) take any affirmative action to materially adversely change the
operations of the Surviving Corporation; (ii) cause the Surviving Corporation
to sell, transfer or otherwise dispose of any of its assets other than
Proprietary Rights, except for (a) dispositions, pledges and transfers to
Acclaim's lenders or to bona fide third party lenders providing financing to
Lazer, in each case for collateral purposes, (b) dispositions made in the
ordinary course of business, (c) the payment of expenses incurred by the
Surviving Corporation other than Acclaim's or Lazer in the Merger or (d) unless
the Surviving Corporation shall have received, in the good faith determination
of its Board of Directors, fair value therefor; (iii) liquidate the Surviving
Corporation; (iv) merge the Surviving Corporation with or into another
corporation, including Acclaim or its Affiliates, unless such corporation
agrees to be bound by the provisions of Section 5.11 and this Section 5.23 and
such corporation has a net worth at least equal to Acclaim's as of the date
hereof or Acclaim agrees to guarantee such obligations; (v) sell, distribute or
otherwise dispose of the Common Stock of the Surviving Corporation, unless the
corporation receiving such Common Stock agrees to be bound by the provisions of
Section 5.11 and this Section 5.23 and such corporation has a net worth at
least equal to Acclaim's as of the date hereof or Acclaim agrees to guarantee
such obligations; (vi) issue additional shares of Common Stock (or rights to
purchase shares of Common Stock) of the Surviving Corporation that result in
Acclaim losing control of the Surviving Corporation unless the purchaser
thereof agrees to be bound by the provisions of Section 5.11 and this Section
5.23 and such corporation has a net worth at least equal to Acclaim's as of the
date hereof or Acclaim agrees to guarantee such obligations; or (vii) cause the
Surviving Corporation to make dividends, distributions or loans to Acclaim or
its Affiliates or enter into other transactions (other than transfers of
Proprietary Rights) on other than an arm's length basis.
Section 5.24 Each of Acclaim and Lazer agree to use its best efforts not
to take any actions that would adversely affect the ability of the Merger to be
treated as a tax free reorganization pursuant to the provisions of Section
368(a) of the Code and will provide appropriate factual statements to Lazer's
counsel with respect to matters pertaining to the treatment of the Merger as a
tax free reorganization under Section 368(a) of the Code.
Section 5.25 Intellectual Property. Lazer covenants that prior to using
a name for any game which is being held out for sale or lease, Lazer shall
perform a search under both U.S. and common law seeking to determine whether,
based on such search, it is reasonable to use such name or mark in the manner
in which Lazer believes its intended use will not infringe any other third
parties' rights therein, whether statutory or common law rights (including,
without limitation, trademark and the rights of privacy and publicity).
Section 5.26 Executive Bonus. Acclaim shall cause the Surviving
Corporation to pay to persons covered thereunder, not later than 120 days after
June 30, 1995, any accrued and unpaid bonus payable to such persons by the
Surviving Corporation in respect of the Surviving Corporation's fiscal year
ended June 30, 1995.
ARTICLE VI
Conditions to Acclaim's and Holding's Obligations
All obligations of Acclaim and Holdings under this Agreement are subject
to the fulfillment, at the Closing Date, of each of the following conditions,
any or all of which may be waived in whole or in part, at or prior to the
Closing Date, by Acclaim in its sole discretion:
Section 6.01 Representations and Warranties. The representations and
warranties contained in Article III hereof shall be true and correct at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date.
Section 6.02 Covenants. Lazer shall have performed and complied in all
material respects with all agreements and conditions on their part required by
this Agreement to be performed or complied with prior to or on the Closing
Date.
Section 6.03 Officer's Certificate. The Purchaser shall have received
(i) a certificate of the chief executive officer of Lazer, dated the Closing
Date, certifying to the fulfillment of the conditions specified in Sections
6.01 and 6.02 hereof and (ii) such other evidence with respect to the
fulfillment of any of said conditions as Acclaim may reasonably request.
Section 6.04 Opinion of Counsel. (a) Acclaim shall have received an
opinion of counsel for Lazer, dated the Closing Date, in form and substance
reasonably satisfactory to Acclaim and its counsel.
(b) Acclaim shall have received opinions of counsel for Lazer, dated the
date of the effective date of the S-4 and as of the Closing Date regarding the
tax free nature of the Merger as contemplated by Section 1.07 hereof in form
and substance reasonably satisfactory to Acclaim and its counsel.
Section 6.05 Consents. (a) Acclaim shall have received (in form and
substance satisfactory to Acclaim) all approvals set forth in Schedule 4.05 and
4.06 hereto from all governmental and regulatory authorities of the United
States and the several States and from any third party set forth in Schedule
4.05 and 4.06 hereto in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions hereby contemplated.
(b) Lazer shall have obtained all necessary consents and approvals to the
transactions contemplated hereby under the agreements listed on Schedule 3.04
and 3.18 hereto, which consents shall be in form and substance acceptable to
Acclaim.
Section 6.06 HSR Act. Lazer shall have made all pre-merger notification
filings required to be made by it under the HSR Act, all applicable waiting
periods thereunder shall have expired or been terminated without any request
from any appropriate governmental agency for additional information or, if
additional information has been requested, all applicable extended waiting
periods shall have expired.
Section 6.07 Legality. No change shall have occurred in any law, rule or
regulation which would prohibit or infringe the performance of Acclaim's
obligations under Article I hereof.
Section 6.08 Injunctions. (a) No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent the performance of Acclaim's obligations in Article I hereof.
(b) No statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents the consummation of the Merger and
shall be in effect.
Section 6.09 Closing Balance Sheet; Material Adverse Effect. Acclaim
shall have received from Lazer the Closing Balance Sheet in accordance with
Section 5.23 herein and reflecting the summary amounts set forth in Section
3.21(b) hereof with respect to Lazer's Working Capital and Net Worth and there
shall be no dispute with respect thereto. From the date hereof through and
including the Closing Date, Lazer shall not have suffered a Material Adverse
Effect.
Section 6.10 Resignations. Lazer shall have caused to be delivered to
Acclaim written resignations, effective as of the Closing Date, of each of the
directors and officers of Lazer and its subsidiaries specified in Schedule 6.10
hereof from all offices and directorships of Lazer and its subsidiaries.
Section 6.11 Employment Agreements. At the Effective Time, each of the
Principals shall have entered into an Employment Agreement with the Surviving
Corporation in the form attached as Exhibit D hereto, as applicable.
Section 6.12 Stockholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding Lazer Common Stock in accordance with applicable law and
Dissenting Shares and/or shares of common stock of Lazer capable of becoming
Dissenting Shares after the Closing shall not constitute in excess of 10% of
the shares eligible to vote for such approval and adoption.
Section 6.13 Due Diligence. Completion of Acclaim's due diligence of
Lazer's operations and financial condition to the satisfaction of Acclaim and
its counsel, including, without limitation, analysis and review of matters and
documents listed on Schedules to this Agreement and/or otherwise provided to
Acclaim prior to the date hereof and satisfaction with Environmental Conditions
relating to Lazer's offices and facilities located in Pleasanton, California.
Section 6.14 Benefit Plans; Stock Option Plans. Termination of all Lazer
Stock Option Plans and employee cash bonus or cash incentive performance plans
(including, without limitation, the Executive Bonus Plan, except for the
payments provided under Section 5.26 hereof) and receipt prior to the Closing
Date of all necessary consents from the holders of all outstanding Stock
Options and Warrants and registration rights with respect to changes therein
reasonably requested by Acclaim.
Section 6.15 Stock Price. If the Acclaim Common Stock Price shall be
less than $12.50.
Section 6.16 Merger. The Certificate of Merger and the California
Certificate shall have been executed and delivered by Lazer to Acclaim.
Section 6.17 Institution of Proceedings. There shall not have been
instituted by any third party any suit or proceeding to enjoin, prevent, set
aside, restrain or invalidate this Agreement or the transactions hereby
contemplated or seeking damages from or to impose obligations upon Lazer or its
directors or officers or Acclaim by reason of this Agreement or the
transactions hereby contemplated which, in Acclaim's good faith judgment, would
involve liabilities, expenses or lapse of time that would be materially adverse
to Acclaim's interests.
Section 6.18 Registration Statement. The S-4 shall have become effective
under the 1933 Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
Section 6.19 Accountants' Letters. (a) Acclaim shall have received a
letter from Grant Thornton LLP, Acclaim's independent public accountants, with
respect to Acclaim, and from Ernst & Young, LLP Lazer's independent public
accountants, with respect to Lazer, dated the date of the Proxy Statement, and
confirmed in writing at the Effective Date, to the effect that each of Lazer
and Acclaim, as applicable, may participate in a transaction such as the Merger
in a manner so as to permit the Merger to qualify as a Pooling, provided that
Acclaim may not exercise its rights to terminate this Agreement as a result of
the failure of the conditions provided in this Section 6.19 if the reason that
such letters cannot be delivered is solely as a result of the actions or
omissions of Acclaim or its affiliates.
(b) Acclaim shall have received a "cold comfort" letter from Ernst &
Young, LLP dated within two days prior to the effectiveness of the S-4 with
respect to the operations of Lazer in the form and substance of such letters
delivered by independent public accountants in connection with registration
statements on Form S-4 and reasonably satisfactory to Acclaim and its counsel.
Section 6.20 Lazer Affiliate Agreements. Each of the persons listed on
Schedules 3.27(a) shall have entered into a Lazer Affiliate Agreement, which
Lazer Affiliate Agreements, as of the Closing Date, (i) shall be in full force
and effect, (ii) shall be the legal, valid and binding obligation of the
signatory thereto, enforceable in accordance with its terms and not conflict
with any other agreement to which such person is a party and (iii) the
provisions of which shall not have been challenged or modified by any legal
proceeding or otherwise changed or amended without the prior written consent of
Acclaim.
Section 6.21 FIRPTA. Acclaim shall have received from Lazer an affidavit
meeting the requirements of Section 1445(b)(3) of the Code and the Treasury
Regulations promulgated thereunder.
ARTICLE VII
Conditions to Lazer's Obligations
All obligations of Lazer under this Agreement are subject to the
fulfillment, at the Closing Date, of each of the following conditions, any or
all of which may be waived in whole or in part, at or prior to the Closing Date
by Lazer in its sole discretion:
Section 7.01 Representations and Warranties. The representations and
warranties contained in Article IV hereof shall be true and correct at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date.
Section 7.02 Covenants. Acclaim and Holdings shall each have performed
and complied in all material respects with all agreements and conditions on
their respective parts required by this Agreement to be performed or complied
with prior to or on the Closing Date.
Section 7.03 Officer's Certificate. Lazer shall have received a
certificate of an executive officer of each of Acclaim and Holdings, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 7.01 and 7.02 hereof.
Section 7.04 Opinion of Counsel. Lazer shall have received an opinion of
counsel for Acclaim, dated the Closing Date, in form and substance reasonably
satisfactory to Lazer and its counsel.
Section 7.05 Consents. (a) All approvals set forth in Schedule 3.04
hereto from all Governmental Entities in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions hereby contemplated shall have been received.
(b) Acclaim shall have obtained all necessary consents and approvals to
the transactions contemplated hereby under the agreements listed on Schedule
4.05 and 4.06 hereto.
Section 7.06 HSR Act. Acclaim shall have made all pre-merger
notification filings required to be made by it under the HSR Act, all
applicable waiting periods thereunder shall have expired or been terminated
without any request from any appropriate governmental agency for additional
information or, if additional information has been requested, all applicable
extended waiting periods shall have expired.
Section 7.07 Legality. No change shall have occurred in any law, rule or
regulation which would prohibit the performance of Lazer's obligations under
Article I hereof.
Section 7.08 Injunctions. (a) No court, agency or other governmental
authority shall have issued any order, decree or judgment to set aside,
restrain, enjoin or prevent the performance of Lazer's obligations in Article I
hereof other than any of the foregoing, which is also covered by Section 7.14
hereof.
(b) No statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits,
restrains, sets aside, enjoins or prevents the consummation of the Merger and
shall be in effect other than any of the foregoing, which is also covered by
Section 7.14 hereof.
Section 7.09 Effectiveness of Registration Statement. The S-4, which
includes the Proxy Statement, shall have been declared effective under the 1933
Act and shall not be the subject of any stop order or proceedings seeking a
stop order.
Section 7.10 Employment Agreements. At the Effective Time, the Surviving
Corporation shall have entered into an Employment Agreement with each of the
Principals applicable in the form attached as Exhibit D hereto.
Section 7.11 Stockholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding Lazer Common Stock in accordance with applicable law.
Section 7.12 Merger. The Certificate of Merger at the California
Certificate shall have been executed and delivered by Acclaim to Lazer.
Section 7.13 Accountants' Letters. Lazer shall have received a "cold
comfort" letter from Grant Thornton, LLP, Acclaim's independent public
accountants, dated within two days prior to effectiveness of the S-4 in form
and substance of such letters delivered by independent public accountants in
connection with registration statements on Form S-4 and reasonably satisfactory
to Lazer and its counsel.
Section 7.14 Institution of Proceedings. Prior to the Effective Time,
there shall not have been instituted by any third party any suit or proceeding
to restrain, enjoin, prevent, set aside or invalidate this Agreement or the
transactions hereby contemplated or seeking damages from or to impose
obligations upon Lazer or its directors or officers by reason of this Agreement
or the transactions hereby contemplated which in Lazer's good faith judgment
would involve expenses, liabilities, or lapse of time that would be materially
adverse to Lazer's or to such person's interests, as to any of which Acclaim,
in its sole discretion, upon review and assessment thereof with Lazer and its
other advisers, Lazer's and Acclaim's counsel and such other review as Acclaim
reasonably requires (as to which Lazer will, and will cause its counsel and
advisers to, cooperate with Acclaim and its counsel with respect to such
review), has not agreed to indemnify Lazer and/or its directors and officers
pursuant to Section 5.11(e).
Section 7.15 Stock Price. If the Acclaim Common Stock Price shall be
less than $12.50.
ARTICLE VIII
Termination and Amendment
Section 8.01 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual consent of Lazer and Acclaim;
(b) by either Lazer or Acclaim, if the Merger shall not have been
consummated on or before July 31, 1995 (unless the failure to consummate
the Merger by such date shall be due to a breach of a representation and
warranty or of a covenant by such party and/or the action or failure to
act of the party seeking to terminate this Agreement); provided however,
that (i) in the event the Closing Balance Sheet shall be dated as of July
31, 1995, such consummation date shall automatically be extended to August
15, 1995 and (ii) in the event the Closing Balance Sheet shall be dated as
of July 31, 1995 and Acclaim shall dispute the calculations therein
pursuant to Section 5.22 hereof, such consummation date shall be
automatically extended to August 31, 1995.
(c) by either Lazer or Acclaim, if (i) the conditions to such
party's obligations shall have become impossible to satisfy or shall not
have been satisfied, other than as a result of its own acts or omissions
in violation of its obligation hereunder or (ii) any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable;
(d) by Acclaim, if (i) subject to Section 7.06 hereof, there has
been a material violation or breach by Lazer or any party to an
Affiliate's Agreement of any representation, warranty or any agreement
contained in this Agreement or therein, as applicable, or any failed
condition to Acclaim's obligations under Article VI hereof, (ii) if the
Acclaim Common Stock Price shall be less than $12.50 or (iii) Lazer has
breached its covenants under Section 5.04 hereof.
(e) by Lazer if (i) subject to Section 6.06 hereof, there has been a
material violation or breach by Acclaim of any representation, warranty or
any agreement contained in this Agreement or any failed condition to
Lazer's obligations under Article VII hereof, (ii) if the Acclaim Common
Stock Price shall be less than $12.50, or (iii) Acclaim has breached its
covenant under Section 5.04 hereof.
(f) by either party if approval of the Merger by the Lazer
Stockholders shall not have been obtained by reason of the failure to
obtain the required vote upon a vote taken at the Lazer Stockholders
Meeting or any adjournments thereof; provided however, that termination
pursuant to this Section 8.01(f) shall not relieve Lazer of any
obligations or consequences by reason of any breach of any representation,
warranty or covenant of Lazer or any other failed condition to Acclaim's
obligation under Article VI hereof.
(g) by either party if, in accordance with Section 5.03 Lazer's
Board of Directors accepts, approves or recommends to the Lazer
stockholders a proposal relating to an Acquisition Transaction or the
Lazer Board of Directors amends, withholds or withdraws its recommendation
of the Merger; provided, however, that termination by either party
pursuant to this Section 8.01(g) shall not relieve Lazer of its
obligations pursuant to Section 5.14, Section 5.15 and Article IX of this
Agreement.
Section 8.02 Effect of Termination. (a) Subject to subsection (b) of
this Section 8.02, in the event of the termination of this Agreement pursuant
to Section 8.01 hereof, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its
affiliates, directors, officers or stockholders, other than the provisions of
Sections 5.14, 5.15, Article IX and the Confidentiality Agreement. Nothing
contained in this Section 8.02 shall relieve any party from liability for any
wilful breach of this Agreement. The indemnification provisions set forth in
Article IX hereof shall survive any such termination of this Agreement as to
any party who shall be in breach of this Agreement as at any such date of
termination or at any earlier date of the termination of this Agreement
pursuant hereto if the non-breaching party shall have given the appropriate
notice under Article IX hereof prior to any such termination, unless the
survival of such provisions is specifically waived by the non-breaching party
or parties hereto.
(b) If Acclaim or Lazer shall have the right to terminate this Agreement
then the party which does not have the right to terminate will use its best
efforts to cure the condition giving rise to such right. If such party is
unable to cure the condition giving rise to such right, the other party may
exercise its right to terminate this Agreement or waive such right and proceed
to consummate the transactions contemplated hereby. The giving of notice
pursuant to Section 5.12 of this Agreement shall not act as a waiver of any
breach hereunder. Notwithstanding the exercise of the foregoing right to
terminate or waive, the aggrieved party shall have and may pursue its rights to
recover damages for breach of contract or any representation, warranty or
covenant giving rise to such right subject to the limitations of Section
5.14(c) and 5.14(d).
Section 8.03 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of Lazer, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.04 Extension; Waiver. At any time prior to the Effective Date,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE IX
Indemnification
Section 9.01 By Lazer. Lazer agrees to indemnify and hold harmless
Acclaim, Holdings and their respective directors, officers, employees and
agents (the "Acclaim Parties") against, and to reimburse the Acclaim Parties on
demand with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages, claims, expenses and costs
(including, without limitation, reasonable fees, expenses and disbursements of
counsel) (collectively, "Losses") which each may suffer, incur or pay, by
reason of (i) the breach by Lazer, Lazer's affiliates or the Kelly Family Trust
and the 1992 Kelly Family Trust, or the Principals of any representation,
warranty or covenant contained in this Agreement or in any agreement,
certificate or other document executed by the Principals or Lazer, Lazer's
affiliates or the Kelly Family Trust and the 1992 Kelly Family Trust, and
delivered to Acclaim or Holdings pursuant to the provisions of this Agreement;
(ii) the failure of the Principals, Lazer, Lazer's affiliates or the Kelly
Family Trust and the 1992 Kelly Family Trust to execute, deliver and perform
any agreement required by this Agreement or any agreement executed pursuant to
the provisions of this Agreement or entered into concurrently herewith as
referenced in Section 10.05 hereof; and/or (iii) the allegation in writing by
any third party of the existence of any liability, obligation, lease,
agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by the Principals, Lazer,
Lazer's affiliates or the Kelly Family Trust and the 1992 Kelly Family Trust of
any representation or warranty contained in this Agreement or in any agreement,
certificate or other document delivered by or on behalf of the Principals,
Lazer, Lazer's affiliates or the Kelly Family Trust and the 1992 Kelly Family
Trust to Acclaim pursuant to the provisions of this Agreement or of any
covenant made by the Principals, Lazer, Lazer's affiliates or the Kelly Family
Trust and the 1992 Kelly Family Trust herein or therein.
Section 9.02 By Acclaim. Acclaim agrees to indemnify and hold harmless
Lazer, its directors, officers, employees and agents (the "Lazer Parties")
against, and to reimburse the Lazer Parties on demand with respect to, any and
all Losses which each may suffer, incur or pay by reason of (i) the breach by
Acclaim or Holdings of any representation, warranty or covenant contained in
this Agreement or in any agreement, certificate or other document executed by
Acclaim or Holdings and delivered to Lazer pursuant to the provisions of this
Agreement; (ii) the failure of Acclaim or Holdings to perform any agreement
required by this Agreement or any agreement executed pursuant to the provisions
of this Agreement and/or (iii) the allegation in writing by any third party of
the existence of any liability, obligation, lease, agreement, contract, other
commitment or state of facts which, if such allegation were true, would
constitute a breach by Acclaim or Holdings of any representation or warranty
contained in this Agreement or in any agreement, certificate or other document
delivered by or on behalf of Acclaim or Holdings to Lazer pursuant to the
provisions of this Agreement or of any covenant made by Acclaim or Holdings
herein or therein.
Section 9.03 Limitations on Indemnification. (a) Neither the Acclaim
Parties, on the one hand, nor the Lazer Parties, on the other hand, shall be
entitled to be indemnified pursuant to Section 9.01 hereof or pursuant to
Section 9.02 hereof, as the case may be, unless and until the aggregate of all
Losses (other than those hereinafter referred to in the proviso to this
sentence) incurred by the Acclaim Parties or the Lazer Parties, as the case may
be, exceeds $150,000 and, upon exceeding such amount, the Acclaim Parties or
the Lazer Parties, as the case may be, shall be entitled to be indemnified for
all Losses (including all Losses below such $150,000 threshold on a dollar for
dollar basis); provided, however, that notwithstanding the foregoing,
(i) Acclaim shall be entitled to be indemnified on a dollar-for-dollar basis
from and against all Losses arising under Section 9.01 hereof if the Principals
or Lazer shall have acted in bad faith or shall have engaged in willful
misconduct in respect thereof and (ii) Lazer shall be entitled to be
indemnified on a dollar-for-dollar basis from and against all Losses arising
under Section 9.02 hereof if Acclaim shall have acted in bad faith or shall
have engaged in willful misconduct in respect thereof.
Section 9.04 Indemnification Procedure for Third Party Claims. The
Acclaim Parties, in the case of Section 9.01 hereof, and the Lazer Parties, in
the case of Section 9.02 hereof (hereinafter, the applicable party or parties
providing indemnity, the "Indemnifying Party" and the party or parties being
indemnified, the "Indemnified Party") agree to give the Indemnifying Party
prompt written notice of the allegation by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or
state of facts referred to in clause (iii) of Sections 9.01 and 9.02 hereof, as
applicable (any of such claims being referred to as a "Third Party Claim");
provided, however, that the Indemnified Party's failure to notify, or a delay
in notifying, the Indemnifying Party of any Third Party Claim (provided that
such Third Party Claim is a claim solely for monetary damages) shall relieve
the Indemnifying Party of its obligations under this Article IX only to the
extent, if any, that it is materially prejudiced by reason of any such delay or
failure. The Indemnifying Party shall be entitled, at his or its sole cost and
expense, to participate in and to control the contest, defense, settlement or
compromise of any Third Party Claim (provided that such Third Party Claim is a
claim solely for monetary damages) if the Indemnifying Party shall agree in
writing within 15 days after the receipt of notice of such claim that it is
required, pursuant to this Article IX, to indemnify the Indemnified Party for
the full amount of Losses arising in respect of such claim (the "Claim
Acknowledgement Procedure"), subject to Section 9.03 hereof. If the
Indemnifying Party shall assume the defense of a claim hereunder, the
Indemnified Party shall be kept informed with respect to, and shall have the
right to participate in, the contest, defense, settlement or compromise of any
such claim. If the Indemnifying Party does not assume the defense of a claim
within a reasonable time after notice thereof or, after assumption, does not
thereafter diligently pursue such defense or does not comply with the Claim
Acknowledgement Procedure, the Indemnified Party shall be entitled to defend,
settle or compromise such matter for the account and at the expense of the
Indemnifying Party. Notwithstanding the foregoing provisions of this Section
9.04, (i) the Indemnified Parties shall have the sole right to control the
contest, defense, settlement or compromise of any claim if such claim is not a
claim solely for monetary damages and (ii) Acclaim shall have the sole right to
control the contest, defense, settlement or compromise of any claim if, by
reason of such claim, the rights of Acclaim or in or to any of its non-cash
assets including, but not limited to, any character, publication or license
might be, in Acclaim's sole discretion, adversely affected. Unless (x) a Third
Party Claim shall have been instituted against an Indemnified Party and (y) the
Indemnifying Party, if it shall have the right pursuant to this Section 9.04 to
assume the defense thereof, shall not have assumed such defense after
notification thereof in accordance with the Claim Acknowledgement Procedure,
the Indemnified Party shall not settle or compromise such claim without the
prior written consent of the Indemnifying Party; provided, however, that the
Indemnifying Party shall not be so entitled to consent if the settlement or
compromise of any single such Third Party Claim shall be $25,000 or less. If
the Indemnifying Party shall not have the right, pursuant to this Section 9.04,
to assume the defense of a Third Party Claim because such claim is not a claim
solely for monetary damages, the Indemnifying Party shall receive 20 days'
prior written notice of the Indemnified Party's proposed settlement and shall
be entitled to consent only to the monetary portion, if any, of the settlement
or compromise of the Third Party Claim as to which the Indemnifying Party is
being asked to indemnify the Indemnified Party; provided, however, that the
Indemnifying Party shall not be so entitled to consent if the monetary portion
of the settlement or compromise of any single such Third Party Claim shall be
$25,000 or less. If the Indemnifying Party shall have the right, pursuant to
this Section 9.04, to assume the defense of a Third Party Claim because such
claim is a claim solely for monetary damages, the Indemnified Party shall
receive 20 days' prior written notice of the Indemnifying Party's proposed
settlement and shall be entitled to consent to any such settlement or
compromise which exceeds the amount available for indemnification under Section
9.03(b) or (c) hereof.
Section 9.05 Indemnification Procedure for Claims Between Lazer and
Acclaim. The Acclaim Parties, in the case of Section 9.01 hereof, and the
Lazer Parties, in the case of Section 9.02 hereof agree to give the
Indemnifying Party prompt written notice with respect to which the Indemnifying
Party may become obligated to hold harmless or indemnify the Indemnified Party.
The Indemnified Party shall promptly deliver to the Indemnifying Party a
written notice describing such matter giving rise to any indemnification
hereunder (a "Claim") in reasonable detail and specifying the estimated amount
of the Losses that may be incurred by the Indemnified Party in connection
therewith. If the Indemnifying Party objects in writing to hold harmless or
indemnify the Indemnified Party within five (5) business days following receipt
of such notice, then the Indemnified Party and the Indemnifying Party will
negotiate in good faith to resolve such Claim. If the parties do not resolve
such Claim within ten (10) business days after the Indemnifying Party has first
objected in writing, then the parties may pursue their respective available
remedies hereunder or otherwise.
Section 9.06 Limitations on Indemnity. (a) An Indemnified Party shall
act in good faith and in a commercially reasonable manner to mitigate any
Losses it may suffer.
(b) Notwithstanding any provision of this Article IX, Lazer's obligations
and liabilities hereunder are subject to the limitations set forth in Section
5.14(c) and 5.14(d) hereof.
ARTICLE X
Miscellaneous
Section 10.01 Survival of Representations and Warranties. All
statements, certifications, indemnifications, representations and warranties
made hereby by the parties to this Agreement and their respective covenants,
agreements and obligations to be performed pursuant to the terms hereof shall
not survive the Closing, provided, however, that for purposes of determining
"termination for cause" as defined in the Employment Agreements attached as
Exhibit D hereto notwithstanding any examination by or on behalf of any party
hereto and notwithstanding the consummation of the transactions hereby
contemplated, such covenants, agreements, representations and warranties,
certifications and obligations of Lazer shall survive the closing of the
transactions hereby contemplated for a period of one (1) year from the Closing
Date, except in the case of Sections 3.07, 3.20, 3.21 and 3.24 (such enumerated
representations of Lazer hereinafter referred to as the "Audit
Representations") which shall survive the Closing for a period ending with the
issuance of an audit report relating to the combined audited financial
statements of Acclaim and Lazer for a period subsequent to the Closing,
provided further, however, any representation or warranty or agreement made
hereunder and any indemnity under Article IX hereof shall survive for such
purpose the time at which it would otherwise terminate pursuant to this
sentence, if notice of the inaccuracy or breach thereof (in the case of a
representation or warranty or agreement) or the claim thereunder (in the case
of an indemnity) shall have been given to the party from whom indemnity may be
sought in respect thereof (or to the appropriate entity under the applicable
insurance policy) prior to one (1) year from the Closing Date (or such shorter
period in the case the "Audit Representations").
Section 10.02 Notices. All notices and other communications hereunder
shall be in writing (and shall be deemed given upon receipt) if delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or
by mail to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
1. if Lazer, to:
Lazer-Tron Corporation
4430 Willow Road
Pleasanton, CA 94588
Attention: Mr. Norman B. Petermeier
Facsimile No. (510) 460-0365
with a copy to:
Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Dennis R. DeBroeck, Esq.
Facsimile No. (415) 857-0361
and
2. if to Acclaim, to
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542-2708
Attention: Mr. Anthony R. Williams
Facsimile No.: (516) 656-2040
with a copy to
Rosenman & Colin
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
Facsimile No.: (212) 940-8776
Section 10.03 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Section 10.04 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
Section 10.05 Entire Agreement; Assignment. This Agreement, the side
letters dated the date hereof entered into concurrently with the execution
hereof (i.e. (i) the agreements of each of Norman Petermeier, Matthew Kelly and
Brian Kelly with respect to their employment agreements, (ii) the agreements of
the Kelly Family Trust and the 1992 Kelly Family Trust with respect to voting
for the Merger, and (iii) the agreement between Lazer and Acclaim regarding
breach of the foregoing agreements) and each of the exhibits hereto
(a) constitute the entire agreement and supersedes all prior agreements and
understandings including the Letter of Intent dated March 7, 1995, both written
and oral, among the parties with respect to the subject matter hereof other
than the Confidentiality Agreement, any provisions of which are inconsistent
with the transactions contemplated by this Agreement being waived hereby but
the provisions of which that are not inconsistent shall survive and (b) shall
not be assigned by operation of law or otherwise. The parties acknowledge that
neither party has any rights or obligations under the Letter of Intent.
Section 10.06 Governing Law and Consent to Jurisdiction. This Agreement
shall be governed and construed in accordance with the laws of the State of
Delaware without regard to any applicable principles of conflicts of law.
Section 10.07 Expenses. Except as otherwise set forth herein, each of
the parties hereto shall bear its own expenses associated with the negotiation
and execution of the Agreement and the consummation of the transactions
contemplated hereby including, without limitation, legal and accounting fees
and expenses.
Section 10.08 Costs of Enforcement. Except as otherwise set forth
herein, the prevailing party in any proceeding brought to enforce any provision
of the Agreement shall be entitled to recover the reasonable fees and costs of
its counsel, plus all other costs of such proceeding.
Section 10.09 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, in addition to any other remedy at law or equity.
Section 10.10 Publicity. Except as otherwise required by law or the
rules of the National Association of Securities Dealers, Inc., neither Lazer or
Acclaim shall, or shall permit any of its subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without prior written approval
of the other party, which approval shall not be unreasonably withheld.
Section 10.11 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement, except pursuant to Article IX hereof.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
ACCLAIM ENTERTAINMENT, INC. LAZER-TRON CORPORATION
By: /s/ Anthony R. Williams By: /s/ Norman B. Petermeier
Name: Anthony R. Williams Name: Norman B. Petermeier
Title: Executive Vice President Title: Chairman, CEO and President
ACCLAIM ARCADE HOLDINGS, INC.
By: /s/ Anthony R. Williams
Name: Anthony R. Williams
Title: Executive Vice President
EXHIBIT B
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
1300. Reorganization or short-form merger, dissenting shares; corporate
purchase at fair market value; definitions. (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301. Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents. (a) If, in the case of a reorganization, any
shareholders of a corporation have a right under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require
the corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
1302. Submission of share certificates for endorsement; uncertified
securities. Within 30 days after the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
1303. Payment of agreed price with interest; agreement fixing fair market
value; filing; time of payment. (a) If the corporation and the shareholder
agree that the shares are dissenting shares and agree upon the price of the
shares, the dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Any
agreements fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers. (a) If the corporation denies that the shares are
dissenting shares, or the corporation and the shareholder fail to agree upon the
fair market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. Report of appraisers; confirmation; determination by court;
judgment; payment; appeal; costs. (a) If the court appoints an appraiser or
appraisers, they shall proceed forthwith to determine the fair market value per
share. Within the time fixed by the court, the appraisers, or a majority of
them, shall make and file a report in the office of the clerk of the court.
Thereupon, on the motion of any party, the report shall be submitted to the
court and considered on such evidence as the court considers relevant. If the
court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of
Section 1301).
1306. Prevention of immediate payment; status as creditors; interest. To
the extent that the provisions of Chapter 5 prevent the payment to any holders
of dissenting shares of their fair market value, they shall become creditors of
the corporation for the amount thereof together with interest at the legal rate
on judgments until the date of payment, but subordinate to all other creditors
in any liquidation proceeding, such debt to be payable when permissible under
the provisions of Chapter 5.
1307. Dividends on dissenting shares. Cash dividends declared and paid by
the corporation upon the dissenting shares after the date of approval of the
reorganization by the outstanding shares (Section 152) and prior to payment for
the shares by the corporation shall be credited against the total amount to be
paid by the corporation therefor.
1308. Rights of dissenting shareholders pending valuation; withdrawal of
demand for payment. Except as expressly limited in this chapter, holders of
dissenting shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
1309. Termination of dissenting share and shareholder status. Dissenting
shares lose their status as dissenting shares and the holders thereof cease to
be dissenting shareholders and cease to be entitled to require the corporation
to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. Suspension of right to compensation or valuation proceedings;
litigation of shareholders' approval. If litigation is instituted to test the
sufficiency or regularity of the votes of the shareholders in authorizing a
reorganization, any proceedings under Sections 1304 and 1305 shall be suspended
until final determination of such litigation.
1311. Exempt shares. This chapter, except Section 1312, does not apply to
classes of shares whose terms and provisions specifically set forth the amount
to be paid in respect to such shares in the event of a reorganization or merger.
1312. Right of dissenting shareholder to attach, set aside or rescind
merger or reorganization; restraining order or injunction; conditions. (a) No
shareholder of a corporation who has a right under this chapter to demand
payment of cash for the shares held by the shareholder shall have any right at
law or in equity to attack the validity of the reorganization or short-form
merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
[LOGO]
VAN KASPER & COMPANY
INVESTMENT BANKERS
11661 SAN VICENTE BLVD., SUITE 709, LOS ANGELES, CALIFORNIA 90049
AS OF MARCH 14, 1995
Lazer-Tron Corporation
4430 Willow Road
Pleasanton, California 94588
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of Lazer-Tron Corporation, a
California corporation ("Lazer-Tron"), of a proposed reorganization and merger
(the "Transaction") among Lazer-Tron, Acclaim Entertainment, Inc., a Delaware
corporation ("Acclaim"), and Acclaim Arcade Holdings, Inc., a newly formed
Delaware corporation ("NEWCO") which is a wholly-owned subsidiary of Acclaim.
A summary of the structure of the Transaction is as follows:
1. NEWCO will merge with and into Lazer-Tron, leaving Lazer-Tron as the
surviving entity in the merger. Upon the effective time of the Merger,
shareholders of Lazter-Tron (other than those who validly hold "Dissenters
Shares" as defined in the Agreement referred to below) will receive one-half
share of Common Stock of Acclaim for each share of Common Stock, without par
value, of Lazer-Tron, subject to adjustment in accordance with the Agreement
if the market value of the Common Stock of Acclaim shall be less than $16
per share or shall exceed $20 per share.
2. Options and warrants to purchase Lazer-Tron Common Stock which are
outstanding at the effective time of the merger will be or substituted for
an identical Acclaim option or warrant to purchase the number of shares of
TELEPHONE: (310) 820-2970 FAX: (310) 820-5032
<PAGE>
Acclaim Common Stock that the holder thereof would have been entitled to
receive in the Transaction, had such option or warrant been exercised prior
to the effective date of the Transaction.
3. Following the merger of NEWCO into Lazer-Tron, Lazer-Tron as the
surviving entity to the merger, will be a wholly-owned subsidiary of
Acclaim. The Transaction is intended by the parties to be accounted for as
a "pooling" under generally accepted accounting principles.
In connection with our opinion, we have held extensive discussions with the
management of Lazer-Tron and certain members of the management of Acclaim, and
have reviewed a draft of the Agreement and Plan of Merger in the form provided
to us by Lazer-Tron (the "Agreement") among Lazer-Tron, Acclaim and NEWCO, which
we have been advised is a preliminary draft which will be substantially modified
in negotiations between the parties; certain publicly available documents for
each of Lazer-Tron and Acclaim; internal budgets and projects provided to us by
Lazer-Tron; certain marketing materials and press releases provided to us by
each of Lazer-Tron and Acclaim; publicly available data and information for
companies which we have determined to be comparable; and available research
reports for each of Lazer-Tron, Acclaim and other companies which we have
determined to be comparable. We note that Acclaim denied our request to be
shown its internally prepared forecasts.
In our review we have assumed, with your permission, that the documents to
be prepared, used and signed by the parties to formally effect the Transaction,
including the agreements effecting the merger between NEWCO and Lazer-Tron, and
the proxy or other disclosure material to be delivered to the shareholders of
Lazer-Tron to elicit any necessary consents to the Transaction, will effect the
Transaction on the terms set forth in the Agreement without material
alteration. We note that any material modification to the terms and conditions
of the Agreement from those set forth in the draft delivered to us could result
in a change in our opinion as set forth herein.
We have reviewed such relevant financial and other inforamtion that was
publicly available or furnished to us by Lazer-Tron and Acclaim, including
information provided during discussions with each company. In addition, we have
compared certain financial and securities data of Lazer-Tron and Acclaim with
that of various
<PAGE>
other companies whose securities are publicly traded, reviewed recent merger
and acquisition transactions of companies we determined to be similar, conducted
a premium-paid analysis, and conducted such other financial analysis as we have
determined, based upon our judgement as investment bankers, to be appropriate
for purposes of this opinion. We have also taken into account the views of the
management and certain shareholders of Lazer-Tron as to the prospects of
Lazer-Tron if the Transaction is not effected. We have not been requested to,
and did not, solicit third party indications of interest in acquiring all or any
part of Lazer-Tron or investing in Lazer-Tron. Furthermore, we have not
negotiated the Transaction, provided any legal advice or advised you with
respect to alternatives to the Transaction. Although we have performed a
valuation of Lazer-Tron and Acclaim using a number of commonly accepted
methodologies, we have not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Lazer-Tron or Acclaim.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness of all of the financial and other information
that was publicly available or furnished or otherwise communicated to us by
Lazer-Tron or Acclaim. With respect to financial projections of Lazer-Tron
provided to us, we have reviewed those projections in light of discussions we
have conducted with analysts and other industry sources. Independent of the
foregoing, we have assumed that the projections were reasonably prepared, based
upon assumptions reflecting the best currently available estimates and good
faith judgments of management as to the future performance of Lazer-Tron and
Acclaim and that neither the management of Lazer-Tron, nor the management of
Acclaim, has any information or beliefs that would make the projections
misleading.
Our opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and as they can be evaluated by us as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the per share consideration to be received by the shareholders
of Lazer-Tron in the Transaction is fair to the shareholders of Lazer-Tron from
a financial point of view.
Very truly yours,
/s/ VAN KASPER & COMPANY
VAN KASPER & COMPANY
