UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission file number 0-16986
ACCLAIM ENTERTAINMENT, INC.
(Exact name of the registrant as specified in its charter)
Delaware 38-2698904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Acclaim Plaza, Glen Cove, New York 11542
(Address of principal executive offices)
(516) 656-5000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___
As at April 12, 1996 approximately 49,950,000 shares of Common Stock of the
registrant were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000s, except per share data)
February 29, August 31,
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $32,072 $44,749
Marketable equity securities 14,822 26,503
Accounts receivable - net 91,773 179,311
Inventories 18,902 16,015
Prepaid expenses 41,912 41,083
Other current assets 49,611 18,825
------ ------
TOTAL CURRENT ASSETS 249,092 326,486
------- -------
OTHER ASSETS
Fixed assets - net 38,570 33,970
Excess of cost over net assets acquired - net of
accumulated amortization of $10,921 and $9,091,
respectively 58,007 59,837
Other assets 27,404 33,186
------ ------
TOTAL ASSETS $373,073 $453,479
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $36,362 $49,072
Short-term borrowings 2,217 4,233
Accrued expenses 35,103 47,017
Income taxes payable 2,217 180
Current portion of long-term debt 6,196 25,196
Obligation under capital leases - current 314 333
--- ---
TOTAL CURRENT LIABILITIES 82,409 126,031
------ -------
LONG-TERM LIABILITIES
Obligation under capital leases - noncurrent 505 408
Other long-term liabilities 16,349 53
--- --
TOTAL LIABILITIES 99,263 126,492
------ -------
MINORITY INTEREST 1,356 1,628
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000 shares
authorized;
None issued ---- ----
Common stock, $0.02 par value; 100,000 shares
authorized;
49,934 and 46,281 shares issued and
outstanding, respectively 1,003 926
Additional paid in capital 176,280 168,785
Retained earnings 95,550 153,141
Treasury stock (1,626) (807)
Foreign currency translation adjustment (842) 811
Unrealized gain on marketable equity securities 2,089 2,503
----- -----
TOTAL STOCKHOLDERS' EQUITY 272,454 325,359
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $373,073 $453,479
-------- --------
See notes to consolidated financial statements.
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(in 000s, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29 February 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES $46,759 $161,273 $181,206 $325,577
COST OF REVENUES 34,438 73,456 110,302 151,121
------ ------ ------- -------
GROSS PROFIT 12,321 87,817 70,904 174,456
------ ------ ------ -------
OPERATING EXPENSES
Special cartridge video charge 51,168 ----- 51,168 -----
Selling, advertising, general and
administrative expenses 43,293 61,781 95,877 118,499
Operating interest 2,073 1,027 3,105 1,912
Depreciation and amortization 3,699 2,013 7,195 3,613
----- ----- ----- -----
TOTAL OPERATING EXPENSES 100,233 64,821 157,345 124,024
------- ------ ------- -------
(LOSS) EARNINGS FROM OPERATIONS (87,912) 22,996 (86,441) 50,432
-------- ------ -------- ------
OTHER INCOME (EXPENSE)
Interest income 1,147 398 1,978 832
Interest expense (525) (919) (1,117) (1,749)
Other (expense) income 4,511 1,158 3,677 1,383
----- ----- ----- -----
(LOSS) EARNINGS BEFORE INCOME TAXES (82,779) 23,633 (81,903) 50,898
(BENEFIT) PROVISION FOR INCOME TAXES (26,805) 9,780 (26,455) 21,085
------- ----- ------- ------
NET (LOSS) EARNINGS BEFORE
MINORITY INTEREST (55,974) 13,853 (55,448) 29,813
MINORITY INTEREST (203) ----- (272) -----
----- ----- ----- -----
NET (LOSS) EARNINGS $(55,771) $13,853 $(55,176) $29,813
--------- ------- -------- -------
NET (LOSS) EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $(1.12) $0.28 $(1.12) $0.61
------- ----- ------ -----
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 49,915 48,742 49,070 48,742
------ ------ ------ ------
</TABLE>
See notes to consolidated financial statements.
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(in 000s, except per share data)
<TABLE>
<CAPTION>
Preferred Stock (1) Common Stock
------------------------------ ----------------------------
Issued Issued Additional
Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance August 31, 1993 ---- ---- 37,259 $745 $38,377
------- ------- ------ ------ --------
Net Earnings ---- ---- ---- ---- ----
Issuances ---- ---- 971 19 14,981
Exercise of Stock Options ---- ---- 1,118 23 7,435
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 8,453
Foreign Currency Translation Gain ---- ---- ---- ---- ----
------- ------- ------ ------ --------
Balance August 31, 1994 ---- ---- 39,348 787 69,246
------- ------- ------ ------ --------
Net Earnings ---- ---- ---- ---- ----
Issuances ---- ---- 5,182 104 83,659
Exercise of Stock Options ---- ---- 628 13 4,170
Pooling of Interests with
Lazer-Tron ---- ---- 1,123 22 10,609
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 1,101
Foreign Currency Translation Gain ---- ---- ---- ---- ----
Unrealized Gain on
Marketable Equity Securities ---- ---- ---- ---- ----
------- ------- ------ ------ --------
Balance August 31, 1995 ---- ---- 46,281 926 168,785
------- ------- ------ ------ --------
Net Loss ---- ---- ---- ---- ----
Issuances of Common Stock
and Options ---- ---- 193 4 2,634
Exercise of Stock Options
and Warrants ---- ---- 445 9 3,452
Pooling of Interests with
Sculptured and Probe ---- ---- 3,015 64 (64)
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 1,473
Purchase of Treasury Stock ---- ---- ---- ---- ----
Foreign Currency Translation Loss ---- ---- ---- ---- ----
Unrealized Gain on
Marketable Equity Securities ---- ---- ---- ---- ----
------- ------- ------ ------ --------
Balance February 29, 1996 ---- ---- 49,934 $1,003 $176,280
------- ------- ------ ------ --------
</TABLE>
<TABLE>
<CAPTION>
Unrealized Foreign
Gain On Currency
Retained Treasury Marketable Translation
Earnings Stock Equity Securities Adjustment Total
-------- ----- ----------------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance August 31, 1993 $61,516 $(807) ---- $(2,964) $96,867
------- ------- ------ ----- --------
Net Earnings 45,055 ---- ---- ---- 45,055
Issuances ---- ---- ---- ---- 15,000
Exercise of Stock Options ---- ---- ---- ---- 7,458
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 8,453
Foreign Currency Translation Gain ---- ---- ---- 2,410 2,410
------- ------- ------ ----- --------
Balance August 31, 1994 106,571 (807) ---- (554) 175,243
------- ------- ------ ----- --------
Net Earnings 44,770 ---- ---- ---- 44,770
Issuances ---- ---- ---- ---- 83,763
Exercise of Stock Options ---- ---- ---- ---- 4,183
Pooling of Interests with
Lazer-Tron 1,800 ---- ---- ---- 12,431
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 1,101
Foreign Currency Translation Gain ---- ---- ---- 1,365 1,365
Unrealized Gain on
Marketable Equity Securities ---- ---- $2,503 ---- 2,503
------- ------- ------ ----- --------
Balance August 31, 1995 153,141 (807) 2,503 811 325,359
------- ------- ------ ----- --------
Net Loss (55,176) ---- ---- ---- (55,176)
Issuances of Common Stock
and Options ---- ---- ---- ---- 2,638
Exercise of Stock Options
and Warrants ---- ---- ---- ---- 3,461
Pooling of Interests with
Sculptured and Probe (2,415) ---- ---- ---- (2,415)
Tax Benefit from Exercise of
Stock Options ---- ---- ---- ---- 1,473
Purchase of Treasury Stock ---- (819) ---- ---- (819)
Foreign Currency Translation Loss ---- ---- ---- (1,653) (1,653)
Unrealized Gain on
Marketable Equity Securities ---- ---- (414) ---- (414)
------- ------- ------ ----- --------
Balance February 29, 1996 $95,550 $(1,626) $2,089 $(842) $272,454
------- ------- ------ ----- --------
</TABLE>
(1) The Company is authorized to issue 1,000 shares of preferred stock at a
par value of $0.01 per share, none of which shares is presently
issued and outstanding.
See notes to consolidated financial statements.
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in 000s, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
February 29 February 28,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Cash received from customers $338,409 $359,733
Cash paid to suppliers and employees (357,189) (334,044)
Interest received 1,978 832
Interest paid (4,222) (3,661)
Income taxes (paid) (262) (14,630)
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (21,286) 8,230
------- -------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Sale of marketable equity securities $14,643 12,694
Acquisition of subsidiaries, net 7,161 1,742
Acquisition of fixed assets, excluding capital leases (8,653) (18,860)
Acquisition of other assets (1,395) 2,431
Other investing activities 161 265
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 11,917 (1,728)
------- -------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 1,453 6,193
Repayment of short-term borrowings (3,798) (3,025)
Payment of mortgage --- (1,342)
Issuance of common stock 4 1,088
Exercise of stock options 3,461 1,002
Payment of obligation under capital leases (110) (153)
Payment of long-term debt (3,056) ---
Other financing activities 128 ---
Common stock purchased for treasury (819) ---
------- -------
NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES (2,737) 3,763
------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (571) 1,258
------- -------
NET (DECREASE) INCREASE IN CASH (12,677) 11,523
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44,749 34,676
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $32,072 $46,199
------- -------
</TABLE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Continued)
(in 000s, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
February 29, February 28,
1996 1995
---- ----
<S> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net (Loss) Earnings $(55,176) $29,813
-------- -------
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,195 3,613
Other non-cash charges 170 7
Gain on sale of marketable equity securities (3,690) (1,107)
Increase (Decrease) in provision for returns and discounts 106,166 (6,455)
Deferred income taxes (13,217) 2,117
Minority interest in net earnings of consolidated subsidiary (272) ---
Change in asses and liabilities:
(Increase) Decrease in accounts receivable (10,200) 33,275
(Increase) in inventories (2,441) (6,998)
Decrease (Increase) in prepaid expenses 241 (10,500)
(Increase) in other current assets (302) (88)
(Decrease) in trade accounts payable (12,793) (42,667)
(Decrease) Increase in accrued expenses (23,469) 2,883
(Decrease) Increase in income taxes payable (13,498) 4,337
-------- -------
Total adjustments 33,890 (21,583)
-------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $(21,286) $8,230
-------- -------
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In fiscal 1995, the Company purchased all of the capital stock of Iguana
Entertainment, Inc. for $5,513, net of cash received. In connection with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired $5,525
Cash paid for the capital stock (5,515)
-------
Liabilities assumed $10
-------
In fiscal 1995, the Company issued 4,349 shares of its common stock, valued at
$71,472, in exchange for 3,403 shares of Tele-Communications, Inc. Class A
common stock.
See notes to consolidated financial statements.
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Period Reporting - The data contained in these financial
statements are unaudited and are subject to year-end adjustments;
however, in the opinion of management, all known adjustments (which
consist only of normal recurring accruals) have been made to present
fairly the consolidated operating results for the unaudited periods.
Consolidated earnings for the three and six months ended February
28, 1995 were restated to reflect the acquisition of Lazer-Tron
Corporation on August 30, 1995, which was accounted for as a pooling
of interest.
2. Special Cartridge Video Charge - The Company recorded a charge of
approximately $51.2 million for the quarter ended February 29, 1996
consisting of provisions of $28.9 million, $20.1 million and $2.2
million, respectively, to adjust accounts receivable, inventories and
prepaid royalties at February 29, 1996 to their estimated net
realizable values. The charge results from the accelerated decline in
the portable and 16-bit cartridge market and management's decision
not to continue to support its products in that market.
3. Acquisitions - On October 9, 1995, the Company acquired Sculptured
Software, Inc. ("Sculptured") and on October 16, 1995, the Company
acquired Probe Entertainment Limited ("Probe"). Sculptured and Probe
are developers of interactive video games. Both acquisitions were
accounted for as poolings of interests and were effected through the
exchange of 2,745 shares of common stock of the Company for all the
issued and outstanding shares of Sculptured and Probe. The Company's
financial statements for the six months ended February 29, 1996
include the results of Sculptured and Probe. Prior period financial
statements were not restated as these acquisitions did not have a
material effect upon the Company's previously reported net income,
revenues, assets, stockholders' equity or earnings per share.
4. Accounts Receivable - Accounts receivable are comprised of the
following:
<TABLE>
<CAPTION>
February 29, 1996 August 31, 1995
----------------- ---------------
<S> <C> <C>
Receivables assigned to factor $111,521 $155,782
Less advances from factor 41,034 37,082
------- --------
Due from factor 70,487 118,700
Unfactored accounts receivable 40,835 33,093
Accounts receivable - foreign 20,726 41,743
Other receivables 10,064 5,410
Allowances for returns and discounts (50,339) (19,635)
------- --------
$91,773 $179,311
------- --------
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
Acclaim Entertainment, Inc. ("Acclaim"), together with its
subsidiaries (Acclaim and its subsidiaries are collectively
hereinafter referred to as the "Company"), is a mass market
entertainment company whose principal business is as a leading
publisher of interactive entertainment software ("Software") for use
with interactive entertainment hardware platforms ("Entertainment
Platforms"). The Company also engages in (i) the development and
publication of comic books, which commenced in July 1994 through the
acquisition of Acclaim Comics, Inc. ("Acclaim Comics"), formerly
Voyager Communications, Inc.; (ii) the distribution of Software for
affiliated labels, which commenced in the first quarter of fiscal
1995; (iii) the marketing of its motion capture technology and studio
services, which commenced in the first quarter of fiscal 1995 and (iv)
the distribution of coin-operated, location-based ticket redemption
games, which commenced in August 1995 through the acquisition of
Lazer-Tron Corporation ("Lazer-Tron"). The Company plans to engage in
the distribution of coin-operated video arcade games, commencing in
the third quarter of 1996, and the electronic distribution of Software
through the partnership (the "Joint Venture") established in October
1994 between a subsidiary of Acclaim and a subsidiary of
Tele-Communications, Inc.
("TCI"), commencing not earlier than during fiscal 1997.
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 develop
and/or publish Software for the hardware platforms that currently
dominate the market and to develop Software for the hardware platforms
that the Company perceives as having the potential to achieve mass
market acceptance, rather than to be the first Software publisher for
an emerging hardware platform. However, in order to promote its
strategic relationships, 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 mass market potential or be successful in publishing
Software for such platforms and systems.
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 and have been and, in
the future, could be materially adversely affected 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 and 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.
In 1993, Sega introduced the Sega CD, a compact disk player which
consisted of an attachment for its 16-bit Genesis system. Additional
compact disk ("CD") platforms, including personal computer systems for
which Software products are published, are currently marketed by
Philips, Commodore, Apple, IBM, IBM-compatible manufacturers and The
3DO Company ("3DO"). 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. Although the Company developed and sold Software for Sega's CD
system during fiscal 1994 and 1995 and for Sega's 32X system during
fiscal 1995, it did not derive significant revenues therefrom.
Sega and Sony Corporation ("Sony") launched 32-bit CD-based systems
in Japan in November 1994. Sega shipped limited quantities of its
Saturn system in the United States commencing in May 1995 and Sony
released its PlayStation system in the United States in September
1995. In fiscal 1995, the Company commenced the development and sale
of Software for Sega's Saturn and for Sony's PlayStation. Nintendo has
announced plans to release Ultra 64, its new 64-bit ROM
cartridge-based system, in Japan in the summer of 1996 and Matsushita
has announced plans to release M2, the 64-bit CD-based hardware system
licensed by it from 3DO by the end of 1996.
The Company believes that sales of new 16-bit hardware systems
peaked in calendar 1993 and that 16-bit Software sales peaked in
calendar 1994 (the year following the peak year for hardware sales),
have decreased substantially since that time and will continue to do
so.
The interactive entertainment industry is currently undergoing, and
management anticipates that in both the short- and long-term future it
will continue to undergo, significant changes due, in large part, to
(i) the introduction of the next generation of Entertainment Platforms
incorporating 32- and 64-bit processors, (ii) the success of personal
computer/compact disk/multimedia hardware systems ("Multimedia/PC
Systems"), (iii) the development of remote and electronic delivery
systems and (iv) the entry and participation of new companies in the
industry. The next generation hardware platforms are equipped with CD
and, to a lesser extent, read only memory ("ROM") cartridges and/or
other technologies as the dominant software storage device.
In the late 1980's and early 1990's, 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 Systems; (iii) a large number of Software titles and
(iv) consumer demographics that were different from those of the
Company's core customers. 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, by 1995, this category had sufficient mass
market penetration to warrant publishing Software directly and due to
technological advancements incorporated in the newer Multimedia/PC
Systems and the higher gross margins realized by publishers of
Software for this category, the Company commenced marketing Software
for Multimedia/PC Systems in fiscal 1995 and has expanded and intends
to continue to expand the number of Software titles for Multimedia/PC
Systems marketed by it in fiscal 1996.
The Company believes that hardware incorporating 32- and 64-bit
processors, including Multimedia/PC Systems, will become the dominant
hardware platforms in the interactive entertainment industry over the
next few years. The Company believes that Sega's Saturn and Sony's
PlayStation have both achieved commercial success in Japan and, based
on sales information, that the limited quantities of the PlayStation
shipped to date have achieved high retail sell-through in the United
States. However, there can be no assurance that either of these
platforms or any of the other newly introduced or announced platforms
will achieve commercial success similar to that of the SNES or Genesis
systems or the timing and impact of such success, if achieved, on the
industry.
Retail sales of the Company's cartridge Software during the second
fiscal quarter generally fell short of the Company's expectations.
Additionally, sales of the Company's Software continued to be
adversely impacted during the quarter and six months ended February
29, 1996 due to the continuing decline of the market for Software for
16-bit Entertainment Platforms and the related transition to
Multimedia/PC Systems and the next generation of Entertainment
Platforms. Management believes that the market for Software for 16-bit
Entertainment Platforms supported fewer front-line (full-priced)
titles during the period. The Company did not release as many "hit"
Software products during the quarter (and six months) ended February
29, 1996 as it had in comparable periods in the past. In addition, the
Company offered concessions (such as returns and allowances) to its
retailers at higher than anticipated levels in order to manage 16-bit
Software inventory levels. As a result of the foregoing, the Company's
revenues for the quarter ended February 29, 1996 were materially lower
than the comparable period in fiscal 1995 and the Company incurred a
net loss from operations (excluding the special cartridge video charge
discussed below) of $36.7 million, a net loss from operations
(including the special cartridge video charge) of $87.9 million and a
net loss (on an after-tax basis) of $55.8 million for the quarter
ended February 29, 1996.
In connection with its review of the Company's results of
operations for the quarter ended February 29, 1996, management noted,
among other things, that the 16-bit and portable Software markets not
only supported fewer front-line (full-priced) titles but that such
titles sold through a substantially lower number of units at retail
than in prior periods; that non-"hit" 16-bit titles were marketed at
mid- or budget prices by many of the Company's competitors during the
quarter; that retail sales of front-line 16-bit Software declined by
approximately 40% (in dollars and units) on an industry-wide basis in
the first two months of calendar 1996 and are anticipated to continue
to decline; that retail sales of budget-priced 16-bit Software titles
increased by approximately 25% (in dollars) and 20% (in units) on an
industry-wide basis in the first two months of calendar 1996 and are
anticipated to continue to increase; that budget prices for 16-bit and
portable Software titles are lower as compared to prior periods; that
sales of mid- and budget-priced 16-bit and portable cartridge Software
currently represent approximately 65% of the retail market on an
industry-wide basis; and that Software for Multimedia/PC Systems and
the next generation of Entertainment Platforms retails for $15 to $20
less than full priced 16-bit Software and management believes that
consumers perceive they are obtaining greater value for lower prices.
Management concluded that the life cycle of 16-bit Software product
has shortened and that the life-cycle of the 16-bit and portable
cartridge Entertainment Platforms is shortening and declining faster
than, for example, the 8-bit Entertainment Platform. Management also
noted that two front-line titles released by the Company in the second
quarter of fiscal 1996 (Revolution X and College Slam), which
management had anticipated to perform well at retail (based on the
Company's historical experience with comparable titles), did not
perform as anticipated. Management believes that the deterioration of
the 16-bit and portable hardware market will accelerate through the
remainder of calendar 1996, with the result that the saleable value of
Software product inventories for the 16-bit and portable Entertainment
Platforms will be eroded and the timely and full collection of
receivables relating thereto will be compromised as retailers monitor
inventory sell-through during the industry transition (which has
already impacted the Company's results for the first six months of
fiscal 1996). See "-- Results of Operations." As the market continues
to deteriorate, prices of 16-bit and portable Software titles continue
to fall and management believes that the cost of supporting that
market would continue to rise and the Company's net revenues and
income therefrom would continue to be materially adversely impacted.
Accordingly, management decided to discontinue support for the 16-bit
and portable cartridge markets and the Company recorded a special
charge of $51.2 million in the second quarter of fiscal 1996
consisting of write-offs and allowances to adjust accounts receivable,
inventories and prepaid royalties to their estimated net realizable
values. Management believes that, by exiting the 16-bit and portable
cartridge markets and focusing the Company's resources on the next
generation Entertainment Platforms and Multimedia/PC Systems, the
Company's results of operations and profitability will be positively
impacted in the future. However, due to, among other things, the
industry transition and related factors, there can be no assurance of
the Company's results of operations and profitability in future
periods.
As a result of the Company's acquisitions of three software
development companies in 1995 (two of which acquisitions were
completed in the fiscal quarter ended November 30, 1995), the
Company's fixed costs relating to the development of Software were
higher during the first two quarters of fiscal 1996 and will continue
to be higher in fiscal 1996 as compared to prior periods. However,
these costs will be offset, in part, by reduced royalties payable to
developers, a variable cost which was included in selling,
advertising, general and administrative expenses in prior periods. The
Company has also 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 coin-operated video
arcade operations. If the Company is not successful in generating
revenues from these new businesses, its profitability will be
adversely affected.
The release of individual "hit" Software products or families of
products can significantly affect revenues. Historically, "hit"
products or families of products (such as The Simpsons and WWF
families of titles) have accounted for significant portions of the
Company's gross revenues during particular periods. 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 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.
No single family of titles accounted for a significant portion of the
Company's gross revenues during the quarter and six months ended
February 29, 1996.
The timing of the release of Software products can cause quarterly
revenue and earnings fluctuations. A significant portion of the
Company's revenues in any quarter are generally derived from Software
products or families of products 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 and the learning process associated with
development for new technologies, including the Company's own motion
capture and related technologies. Software products for the more
sophisticated Entertainment Platforms and Multimedia/PC Systems
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 Company's results of operations and net income for such quarter to
fall significantly below anticipated levels.
The Company's ability to generate sales growth and profitability in
the long-term 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 established in the mass
market, (ii) the growth of the interactive entertainment Software
market for the next generation Entertainment Platforms and
Multimedia/PC Systems and (iii) the Company's ability to develop and
generate revenues from its other entertainment operations.
Results of Operations
The following table sets forth certain statements of consolidated
earnings data as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Domestic revenues 60.6% 81.5% 67.0% 75.7%
Foreign revenues 39.4 18.5 33.0 24.3
---- ---- ---- ----
Net revenues 100.0 100.0 100.0 100.0
Cost of revenues 73.6 45.5 60.9 46.4
---- ---- ---- ----
Gross profit 26.4 54.5 39.1 53.6
Special cartridge video charge 109.4 --- 28.2 ---
Selling, advertising, general and
administrative expenses 92.6 38.3 52.9 36.4
Operating interest 4.4 0.6 1.7 0.6
Depreciation and amortization 7.9 1.3 4.0 1.1
--- --- --- ---
Total operating expenses 214.3 40.2 86.8 38.1
(Loss) earnings from operations (188.0) 14.3 (47.7) 15.5
(Loss) earnings before income taxes (177.0) 14.7 (45.2) 15.6
Net (loss) earnings (119.3) 8.6 (30.4) 9.2
</TABLE>
Net Revenues
The decrease in the Company's net revenues from $161.3 million for
the quarter ended February 28, 1995 to $46.8 million for the quarter
ended February 29, 1996 and from $325.6 million for the six months
ended February 28, 1995 to $181.2 million for the six months ended
February 29, 1996 was predominantly due to reduced unit sales of
16-bit Software, increased returns and allowances relating primarily
to 16-bit Software and a reduction in average prices for sales of
16-bit Software. To date, the Company has not generated material
revenues from any of its operations other than Software publishing and
no assurance can be given that the Company will be able to generate
such revenues in the future.
The Company is substantially dependent on Sony, Sega and Nintendo
as the sole manufacturers of the hardware platforms marketed by them
and as the sole licensors of the proprietary information and
technology needed to develop Software for those platforms. See "Other
Information." For the quarters ended February 28, 1995 and February
29, 1996, the Company derived 47% and 25% of its gross revenues,
respectively, from sales of Nintendo-compatible Software and 46% and
41% of its gross revenues, respectively, from sales of Sega-compatible
Software. In addition, during the quarter ended February 29, 1996, the
Company derived 18% of its gross revenues from sales of Software for
the Sony PlayStation. The Company anticipates that the proportion of
its revenues derived from Nintendo-compatible Software will continue
to decline during the remainder of fiscal 1996.
The Company's gross revenues were derived from the following
product categories:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29, February 28, February 29, February 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Portable Software 7.0% 8.0% 9.0% 10.0%
16-Bit Software 45.0 81.0 56.0 81.0
Multimedia/PC and next generation Software 46.0 7.0 32.0 6.0
Other 2.0 4.0 3.0 3.0
</TABLE>
Gross Profit
Gross profit fluctuates as a result of six factors: (i) the level
of returns and allowances; (ii) the average unit price obtained for
sales of the Company's 16-bit Software; (iii) the level of
manufacture by the Company of its Software; (iv) the percentage of CD
Software sales; (v) the percentage of foreign sales and (vi) the
percentage of foreign sales to third party distributors.
The Company's gross profit is adversely impacted by increases in
returns and allowances to retailers and reduced average unit prices
obtained for sales of its 16-bit Software.
The Company arranges for the manufacture of its Sega Software under
a license granted by Sega. See "Other Information." The Company
believes that it has improved cash flows and better control over the
flow of its inventory as a result of the decreased lead time resulting
from its ability to manufacture Software. The cost of Software
manufactured by the Company, together with the royalties payable to
Sega for such manufacturing, is lower than the cost of the Company's
Software products when manufactured by Sega. The royalty payable to
Sega for Software manufactured by the Company is included as an
operating expense, rather than as part of cost of revenues, and
increased levels of manufacturing by the Company result in higher
gross profit as a percentage of net revenues.
The Company's margins on sales of CD Software are higher than those
on cartridge Software as a result of significantly lower product
costs. As the percentage of sales of the Company's CD Software
increases, the Company expects that its gross margin will also
increase (subject to the other variables listed above).
The Company's margins on foreign cartridge Software sales are
typically lower than those on domestic sales due to higher prices
charged by hardware licensers for Software distributed by the Company
outside North America. The Company's margins on foreign cartridge
Software sales to third party distributors are approximately one-third
lower than those on sales that the Company makes directly to foreign
retailers.
Management anticipates that the Company's future gross profit will
be affected by (i) the Company's product mix (i.e. the percentage of
CD Software sales and sales related to the Company's new businesses)
and (ii) the percentage of returns, price protection and other similar
concessions in respect of the Company's Software sales. The Company's
gross margins on coin-operated video arcade games are anticipated to
be substantially lower than on its CD Software. Although gross margins
on sales of CD Software are, and are anticipated to continue to be,
higher than those on sales of cartridge Software, management believes
that it will be required to effect stock-balancing programs for its
personal computer CD Software products to allow for their historically
higher rate of return. As the percentage of sales of personal computer
CD Software products increases, management anticipates that its
reserves for such returns will increase, thereby offsetting a portion
of the higher gross margins generated from CD Software sales.
Gross profit decreased from $87.8 million (55% of net revenues) for
the quarter ended February 28, 1995 to $12.3 million (26% of net
revenues) for the quarter ended February 29, 1996 and from $174.5
million (54% of net revenues) for the six months ended February 28,
1995 to $70.9 million (39% of net revenues) for the six months ended
February 29, 1996. The decrease is primarily attributable to lower
sales volume, lower average prices of 16-bit Software and higher
returns and discounts offset, in part, by higher gross profit from
sales of the Company's Software for Multimedia/PC Systems.
The Company purchases substantially all of its products at prices
payable in United States dollars. Appreciation of the yen could result
in increased prices charged by Sony, Sega or Nintendo to the Company
(although, to date, none of them has effected such a price increase),
which the Company may not be able to pass on to its customers and
which could adversely affect its results of operations.
Cartridge Market Exit Charge
A special cartridge video charge of $51.2 million was recorded for
the quarter ended February 29, 1996, consisting of provisions of $28.9
million, $20.1 million and $2.2 million, respectively, to adjust
accounts receivable, inventories and prepaid royalties at February 29,
1996 to their estimated net realizable values in conjunction with
management's decision to exit the portable and 16-bit cartridge
market. See " -- Overview." As part of its 16-bit and portable
cartridge market exit strategy, the Company may release up to three
new 16-bit Software titles currently in development and one additional
16-bit Software title in Europe. The Company intends to continue to
sell its existing 16-bit and portable cartridge Software inventory and
may, if requested by a retailer, produce additional units of the
particular title(s) so requested on a special order basis. As the
Company implements its exit strategy, the sale of 16-bit and portable
Software may have an adverse effect on the Company's gross margin
percentages in future periods. There can be no assurance that the
Company will not record additional charges in future periods relating
to its exit from the portable and 16-bit cartridge market.
Operating Expenses
Selling, advertising, general and administrative expenses decreased
from $61.8 million (38% of net revenues) for the quarter ended
February 28, 1995 to $43.3 million (93% of net revenues) for the
quarter ended February 29, 1996 and from $118.5 million (36% of net
revenues) for the six months ended February 28, 1995 to $95.9 million
(53% of net revenues) for the six months ended February 29, 1996. The
dollar decrease is primarily attributable to lower variable costs
incurred by the Company (due to lower net revenues) which were offset,
in part, by increased product development expenses attributable to the
acquisition of two Software development companies in the first quarter
of fiscal 1996. The percentage increase is primarily attributable to
the increased returns and allowances discussed above.
Operating interest expense increased from $1.0 million (0.6% of net
revenues) for the quarter ended February 28, 1995 to $2.1 million (4%
of net revenues) for the quarter ended February 29, 1996 and from $1.9
million (0.6% of net revenues) for the six months ended February 28,
1995 to $3.1 million (2% of net revenues) for the six months ended
February 29, 1996. The increase is primarily attributable to higher
outstanding balances under the Company's principal credit facility
during the quarter and six months ended February 29, 1996.
Depreciation and amortization increased from $2.0 million (1% of
net revenues) for the quarter ended February 28, 1995 to $3.7 million
(8% of net revenues) for the quarter ended February 29, 1996 and from
$3.6 million (1% of net revenues) for the six months ended February
29, 1995 to $7.2 million (4% of net revenues) for the six months ended
February 29, 1996. The increase is primarily attributable to increased
depreciation relating to the acquisition of the Company's new
corporate headquarters and increased amortization of the excess of
costs over net assets acquired relating to the acquisition of Iguana
Entertainment, Inc.
The Company's ability to control its fixed operating expenses will
have a direct impact on the Company's earnings during the near-term
future (until the transition to the next generation Entertainment
Platforms and Multimedia/PC Systems is complete).
Seasonality
The Company's business is seasonal, with higher revenues and
operating income typically occurring during its first, second and
fourth fiscal quarters (which correspond to the Christmas and
post-Christmas selling season). The timing of the delivery of Software
titles and the releases of new products cause significant fluctuations
in the Company's quarterly revenues and earnings.
Liquidity and Capital Resources
The Company's primary source of liquidity during the quarter and
six months ended February 28, 1995 and February 29, 1996 was cash
flows from operations and, to a lesser extent, from the sale during
the quarters ended February 28, 1995 and February 29, 1996 of a
portion of the shares of TCI's Class A common stock received in
exchange for shares of the Company's common stock.
The Company generally purchases inventory, other than inventory
manufactured domestically, by opening letters of credit when placing
the purchase order. At February 28, 1995 and February 29, 1996,
amounts outstanding under letters of credit were approximately $14.6
million and $2.8 million, respectively.
The Company has a revolving credit and security agreement with its
principal domestic bank in the amount of $70 million, which agreement
expires on January 31, 1997. The Company draws down working capital
advances and opens letters of credit against the facility in amounts
determined on a formula based on factored receivables and inventory,
which advances are secured by the Company's assets. This bank also
acts as the Company's factor for the majority of its North American
receivables, which are assigned on a nonrecourse, pre-approved basis.
The factoring charge is 0.25% of the receivables assigned and the
interest on advances is at the bank's prime rate minus one half
percent. The Company received a waiver with respect to its failure
to meet, at February 29, 1996, two financial covenants made under the
agreement. At February 29, 1996, the Company had approximately $30
million available under such facility.
The Company currently has a $30 million trade finance facility with
another bank. The Company's Asian and European subsidiaries currently
have independent facilities totaling approximately $20 million and $25
million, respectively, with various banks.
In connection with its acquisition by the Company, Acclaim Comics
entered into a credit agreement with Midland Bank plc ("Midland") for
a loan (the "Loan") of $40 million. In connection with the
establishment of the Joint Venture and the related stock swap with
TCI, the Company reached an agreement with Midland pursuant to which
it repaid $15 million of the Loan and the remaining $25 million
principal amount of the Loan is being amortized over a four and
one-half year period terminating in July 1999. The Loan, which is a
direct obligation of Acclaim Comics, bears interest, at the borrower's
option, at either (I) the higher of the federal funds rate plus
one-half of one percent and the lender's prime rate, in each case,
plus 125 basis points, or (ii) the London interbank offered rate plus
250 basis points, and is secured by a first priority lien on
substantially all of the assets of Acclaim Comics. The Loan is also
guaranteed by Acclaim and certain of its subsidiaries and is secured
by a first priority lien on all of the issued and outstanding shares
of Acclaim Comics and by a third priority lien on substantially all of
the assets of the Company. The credit agreement and related documents
establishing and securing the Loan, as well as the guarantees
delivered by Acclaim and its subsidiaries, contain customary
financial, affirmative and negative covenants, including mandatory
prepayments from excess cash flow of Acclaim Comics and from the
proceeds of asset sales or sales of equity by the Company and
restrictions on the declaration or payment of dividends by Acclaim
Comics and the Company.
In April 1996, the Company completed a mortgage financing related
to its corporate headquarters with Natwest Bank USA in the principal
amount of approximately $7 million. The Company is in breach of one
financial covenant made in connection with such financing. The lender
has advised the Company that it will grant a waiver with respect to
such covenant. If the waiver is not received, the Company would be
required to repay the amount of the loan in full.
Management believes that cash flow from operations and the
Company's borrowing facilities will be adequate to provide for the
Company's liquidity and capital needs for the foreseeable future.
The Company is party to class action litigations relating to its
press release announcing revised earnings and income for fiscal 1995.
See "Legal Proceedings." The Company is also party to a class action
litigation relating to the nonrenewal of the Company's license
agreement with WMS Industries, Inc. The Company is party to various
litigations arising in the course of its business the resolution of
none of which, the Company believes, will have a material adverse
effect on the Company's results of operations, liquidity or financial
condition.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In December 1995, the Company was sued in actions (the "Actions")
entitled (i) Mohammed Ali Kahn v. Gregory E. Fischbach, James
Scoroposki, Robert Holmes and Acclaim Entertainment, Inc. (CV 95
4983), (ii) Richard J. Wenski, individually and on behalf of all other
persons similarly situated, v. Acclaim Entertainment, Inc., Gregory
Fischbach, Robert Holmes and Anthony Williams (CV 95 4996), (iii)
Yosef Stern v. Acclaim Entertainment, Inc.; Gregory E. Fischbach;
James Scoroposki; Robert Holmes and Anthony Williams (CV 95 4990),
(iv) Marc Jaffe, on behalf of himself and all others similarly
situated, v. Acclaim Entertainment, Inc., Gregory E. Fischbach, James
Scoroposki, Robert Holmes , and Anthony Williams (CV 95 4989), (v)
Robert Bloom v. Acclaim Entertainment, Inc. and Robert Holmes (CV 95
4993), (vi) James Bencivenga, on behalf of himself and all others
similarly situated, v. Gregory E. Fischbach, James Scoroposki, Robert
Holmes, Anthony Williams and Acclaim Entertainment, Inc. (CV 95 4985),
(vii) Henry Vredeveld, on behalf of himself and all others similarly
situated, v. Anthony Williams, Acclaim Entertainment, Inc. (CV 95
4979), (viii) Michael Leitzes, individually and on behalf of all
others similarly situated, v. Acclaim Entertainment, Inc., Robert
Holmes and George Fischbach (CV 95 5004), (ix) Alan Yakuboff, on
behalf of himself and all others similarly situated, v. Acclaim
Entertainment, Inc., Gregory E. Fischbach, James Scoroposki and
Anthony Williams (CV 95 5017), (x) Robert K. Williams III,
individually and on behalf of all others similarly situated, v.
Acclaim Entertainment, Inc.; Gregory E. Fischbach; James Scoroposki;
Robert Holmes and Anthony Williams (CV 95 5107), (xi) Perkins
Partnership Ltd. v. Acclaim Entertainment, Inc., Gregory E. Fischbach,
Robert Holmes and Anthony Williams (CV 95 4998), (xii) Robert Bernard
v. Acclaim Entertainment Inc., Gregory E. Fischbach, Robert Holmes and
Anthony Williams (CV 95 5022), (xiii) Anne B. Caveliere and Sharon L.
Robbins, on behalf of themselves and all others similarly situated, v.
Acclaim Entertainment, Inc., Gregory Fischbach, and James Scoroposki
(CV 95 5023), (xiv) Joan J. Gordon, on behalf of herself and all other
persons similarly situated, v. Acclaim Entertainment, Inc., Gregory E.
Fischback, James Scoroposki, Robert Holmes and Anthony Williams (CV 95
5047), (xv) George H. Gray, individually and on behalf of all others
similarly situated v. Acclaim Entertainment, Inc., Robert Holmes and
Anthony Williams (CV 95 5039), (xvi) Chad Chuang, Powen Su, Jason
Hedeen, Eugene Breault, William McClurkin and William C. McClurkin, on
behalf of themselves and all others similarly situated, v. Acclaim
Entertainment, Inc., Gregory E. Fischbach, Robert Holmes and Anthony
Williams (CV 95 5263) and (xvii) Robert Lott, on behalf of himself and
all others similarly situated v. Anthony Williams and Acclaim
Entertainment, Inc. (CV 95 5136), all in the United States District
Court in the Eastern District of New York. The individual named
defendants are directors and/or officers of the Company.
The Company was also sued in an action (the "Campbell Action")
entitled Adrienne Campbell, individually and on behalf of all others
similarly situated, v. Acclaim Entertainment, Inc., Anthony R.
Williams; James Scoroposki; and Robert Holmes (C 95-04395) filed in
December 1995 in the United States District Court in the Northern
District of California. The individual named defendants in this action
are directors and/or executive officers of the Company.
The plaintiffs in the Actions and in the Campbell Action, on
behalf of a class of the Company's stockholders, claim unspecified
damages arising from alleged violations of the anti-fraud provisions
of the federal securities laws relating to, among other things, (i)
the Company's October 17, 1995 announcement of its results of
operations for the fiscal year ended August 31, 1995, which was
subsequently revised by the Company's December 4, 1995 announcement
reflecting a decision to defer $18 million of revenues and $10.5
million of net income previously reported for the fiscal year ended
August 31, 1995 and (ii) the alleged misleading nature of prior public
disclosures and announcements made by the Company. In addition, in the
Campbell Action, the plaintiffs also allege certain common law causes
of action. Additional actions may be brought against the Company and
its officers and directors arising from the matters described above.
The Company has directors' and officers' liability insurance which may
cover a portion of the liability asserted in the Actions and in the
Campbell Action. The Company intends to defend the Actions and the
Campbell Action vigorously. No assurance can be given that the
resolution of the Actions and the Campbell Action and/or future
actions will not have a material adverse effect on the Company's
results of operations and liquidity for the quarter in which any such
resolution occurs.
On April 8, 1996, the Securities and Exchange Commission issued
an order directing a private investigation relating to, among other
things, the Company's earnings estimate for fiscal 1995. The Company
intends fully to cooperate with the Commission in its investigation.
In a derivative action entitled Eugene Block v. Gregory E.
Fischbach, James Scoroposki, Robert Holmes, Bernard J. Fischbach,
Michael Tannen, Robert H. Groman and James Scibelli and Acclaim
Entertainment, Inc. (CV 95-036316) brought on behalf of the Company
in December 1995 in the Supreme Court of the State of New York,
County of Nassau, the plaintiff alleges that the individual named
defendants, who are directors of the Company, caused the Company,
among other things, to make false and misleading statements in its
October 17, 1995 announcement discussed above, thereby subjecting the
Company to shareholder lawsuits and thereby wasting Company assets
and, accordingly, claims unspecified damages based on allegations of
breaches of the duty of candor, waste of Company assets and
mismanagement. The directors intend to defend this action vigorously.
In December 1995, the former directors and/or officers of
Lazer-Tron were sued in an action entitled Adrienne Campbell and Donna
Sizemore, individually and on behalf of all others similarly situated
v. Norman B. Petermeier; Matthew F. Kelly, Bryan M. Kelly; Morton
Grosser; Bob K. Pryt; Roger V. Smith; and DOES I through 50, inclusive
(Civil No. 760717-4) in the Superior Court of the State of California,
County of Alameda. The plaintiffs, on behalf of a class of
Lazer-Tron's stockholders, claim unspecified damages based on
allegations that, as a result of the lack of due diligence by the
named defendants in fully investigating the proposed acquisition by
the Company of Lazer-Tron, the defendants breached their fiduciary
duties to Lazer-Tron's stockholders. In connection with the
acquisition of Lazer-Tron, Acclaim agreed to cause Lazer-Tron to
honor, for at least six years, all rights of indemnification in favor
of the former directors and officers contained in the articles of
incorporation and by-laws of Lazer-Tron and in indemnification
agreements between Lazer-Tron and such persons. Acclaim also agreed to
cause Lazer-Tron to use its best efforts to maintain in effect
directors' and officers' liability insurance covering the former
directors and officers and, if Lazer-Tron is unable to maintain such
insurance, has agreed to indemnify each of Lazer-Tron's former
directors and officers for any and all losses which each may suffer on
the same or similar terms and dollar limitations (not to exceed
$1,000,000 in the aggregate) as the insurance in place prior to the
acquisition by the Company of Lazer-Tron. At the present time,
Lazer-Tron has directors' and officers' liability insurance which may
cover a portion of the liability asserted in this action.
Item 5. Other Information
In April 1992, the Company entered into an agreement with Sega
(the "Sega Agreement") and has certain other arrangements with Sega,
pursuant to which the Company received the nonexclusive right to
utilize the "Sega" name and its proprietary information and technology
in order to develop and distribute Software titles for use with
various Sega platforms. The Sega Agreement, as amended, expired on
December 31, 1995. The Company is currently negotiating a new
agreement with Sega. In the interim, the Company and Sega are
continuing to operate in the ordinary course under the terms of the
expired Sega Agreement and such arrangements. The Company believes
that the terms of any such new agreement will not impose materially
greater obligations on the Company than the Sega Agreement although
there can be no assurance of that result. No assurance can be given
that the Company will be successful in negotiating a new agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10.1* License Agreement, dated as of December
14, 1994, by and between Sony Computer
Entertainment of America and the Company
------------
* Confidential treatment has been requested with respect to certain
information contained in this exhibit.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ACCLAIM ENTERTAINMENT, INC.
By: Robert Holmes April 15, 1996
-------------------
Robert Holmes,
President and
Chief Operating Officer
By: Anthony Williams April 15, 1996
--------------------
Anthony Williams,
Executive Vice President and
Chief Financial and Accounting Officer
Confidential treatment has been requested for the redacted materials on
pages 2-15, 17, E-2 and the last page.
SONY PLAYSTATION(TM) LICENSE AGREEMENT
THIS LICENSE AGREEMENT is entered into as of the 14th day of December, 1994,
by and between SONY COMPUTER ENTERTAINMENT OF AMERICA, a division of Sony
Electronic Publishing Company, with offices at 711 Fifth Avenue, New York,
New York 10022 (hereinafter "Sony"), and Acclaim Entertainment, Inc., with
offices at 71 Audrey Avenue, Oyster Bay, New York 11771 (hereinafter
"Licensee").
WHEREAS, Sony and/or its affiliates have developed a CD-based interactive
console for playing video games and for other entertainment purposes known
as PlayStation(TM) (formerly known under the development code name "PS-X")
(hereinafter referred to as the "Player") and also own or have the right to
grant licenses to certain intellectual property rights used in connection
with the Player.
WHEREAS, Licensee desires to be granted a non-exclusive license to develop
and distribute Licensed Products (as defined below) pursuant to the terms
and conditions set forth in this Agreement.
WHEREAS, Sony is willing, on the terms and subject to the conditions of this
Agreement, to grant Licensee the desired non-exclusive license to develop
and distribute Licensed Products, and desires to manufacture such Licensed
Products for Licensee.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Licensee and Sony
hereby agree as follows:
1. Definition of Terms.
1.1 "Executable Software" means Licensee's object code software which
includes the Licensee Software and any software (whether in object code or
source code form) provided by Sony which is intended to be combined with
Licensee Software for execution on a Player and has the ability to
communicate with the software resident in the Player.
1.2 "Intellectual Property Rights" means, by way of example but not by
way of limitation, all current and future worldwide patents and other patent
rights, copyrights, trademarks, service marks, trade names, mask work
rights, trade secret rights, technical information, know-how, and the
equivalents of the foregoing under the laws of any jurisdiction, and all
other proprietary or intellectual property rights throughout the universe,
including without limitation all applications and registrations with respect
thereto, and all renewals and extensions thereof.
1.3 "Licensed Territory" means the countries listed in Exhibit A, as
may be in effect from time to time.
1.4 "Licensed Products" shall mean the Executable Software embodied on
CD-ROM media.
1.5 "Licensed Trademarks" means the trademarks, service marks and
CONFIDENTIAL
logos designated by Sony. Nothing contained in this Agreement shall in any
way grant Licensee the right to use the trademark "Sony" in any manner as a
trademark, trade name, service mark or logo other than as expressly
permitted by Sony. Sony may amend such Licensed Trademarks upon reasonable
written notice to Licensee.
1.6 "Licensee Software" means Licensee's application object code and
data (including audio and video material) developed by Licensee in
accordance with this Agreement, which, when linked to any software provided
by Sony, create Executable Software.
1.7 "Packaging" means, with respect to each Licensed Product, the
carton, containers, packaging and wrapping materials (but excluding
instructional manuals, liners or other user information for such Licensed
Product to be inserted in the jewel case).
1.8 "Sony Materials" means any data, object code, source code,
documentation, and hardware provided or supplied to Licensee by Sony,
including, without limitation, any portion or portions of the development
tools.
2. License Grant.
Sony hereby grants to Licensee, and Licensee hereby accepts, for the
term of this Agreement, within the Licensed Territory, under Sony's
Intellectual Property Rights, including without limitation any relevant
patents Sony owns or has acquired by license, a non-exclusive, nontrans-
ferable license, without the right to sublicense (except as specifically
provided herein): (i) to use the object code version of any software
supplied by Sony that is intended to be combined with Licensee Software and
executed on a Player internally as may reasonably be necessary to develop
Licensed Products; (ii) to reproduce and distribute executable files for
execution on a Player incorporating such software in accordance with the
provisions of this License Agreement, including without limitation, Section
7; (iii) to market, distribute and sell such Licensed Products; (iv) to use
the Licensed Trademarks in connection with the packaging, advertising and
promotion of the Licensed Products; and (v) to sublicense to end users the
right to use the Licensed Products for non-commercial purposes only and not
for public performance.
3. Development Tools.
After execution of this Agreement, Sony will provide to Licensee the
hardware and software development tools which Sony deems to be necessary for
development of the Executable Software pursuant to an agreement to be
entered into separately between the parties hereto.
4. Limitations on Licenses; Reservation of Rights.
4.1 Reverse Engineering Prohibited. Licensee hereby agrees not to
disassemble, peel semiconductor components, decompile, or otherwise reverse
engineer or attempt to reverse engineer or derive source code from, all or
any portion of the Sony Materials (whether or not all or any portion of the
Sony Materials are integrated with the Licensee Software), or permit or
CONFIDENTIAL
encourage any third party to do so, or use or acquire any materials from any
third party who,
does so. Licensee shall not use, modify, reproduce,
sublicense, distribute, create derivative works from, or otherwise provide to
third parties, the Sony Materials, in whole or in part, other than as
expressly permitted by this License Agreement. Licensee shall be required in
all cases to pay royalties in accordance with Section 9 hereto to Sony on any
of Licensee's products utilizing Sony Materials or which are in any way
derived from the disassembly, decompilation, reverse engineering of, or use
of source code derived from, the Sony Materials.
4.2 Reservation of Sony's Rights. The licenses granted in this
License Agreement extend only to development of Licensed Products for use on
the Player, in such format as may be designated by Sony. Without limiting
the generality of the foregoing, Licensee shall not have the right to
distribute or transmit the Executable Software or the Licensed Products (to
the extent such Executable Software or the Licensed Products include Sony
Materials) via electronic means or any other means now known or hereafter
devised, including without limitation, via wireless, cable, fiber optic
means, telephone lines, microwave and/or radio waves, or over a network of
interconnected computers or other devices. This License Agreement does not
grant any right or license, under any Intellectual Property Rights of Sony
or otherwise, except as expressly provided herein, and no other right or
license is to be implied by or inferred from any provision of this License
Agreement or the conduct of the parties hereunder. Licensee shall not make
use of any of the Sony Materials and Player or any Intellectual Property
Rights related to the Sony Materials and Player (or any portion thereof)
except as authorized by and in compliance with the provisions of this
License Agreement or as may be otherwise expressly authorized in writing by
Sony. No right, license or privilege has been granted to Licensee hereunder
concerning the development of any collateral product or other use or purpose
of any kind whatsoever which displays or depicts any of the Licensed
Trademarks.
4.3 Reservation of Licensee's Rights. Licensee retains all rights,
title and interest in and to the Licensee Software, including without
limitation, Licensee's Intellectual Property Rights therein, and nothing in
this Agreement shall be construed to restrict the right of Licensee to
develop products incorporating the Licensee Software (separate and apart
from the Sony Materials) for any hardware platform or service other than the
Player.
5. Quality Standards for the Licensed Products.
5.3 Approval of Packaging and Artwork. For each proposed Licensed
Product, Licensee shall be responsible, at Licensee's expense, for
developing all artwork and mechanicals ("Artwork") set forth on the
Packaging, and all instructional manuals, liners and other user materials
("Inserts") inserted into the jewel box (Artwork and Inserts herein
collectively referred to as "Printed Materials"). All Printed Materials
shall comply with the requirements of the Sony Guidelines (hereinafter
"Guidelines") to be provided to Licensee subsequent to the execution of this
License Agreement, and as may be amended from time to time upon written
notice by Sony. At the time prototype Executable Software for a proposed
CONFIDENTIAL
Licensed Product is submitted to Sony for inspection and evaluation,
Licensee shall also deliver to Sony, for review and evaluation, the proposed
final Printed Materials for such proposed Licensed Product, and a form of
limited warranty for the proposed Licensed Product. Licensee agrees that
the quality of such Printed Materials shall be of at least the same quality
as that associated with
. If any of the Printed Materials are
disapproved because they do not comply with the foregoing, Sony shall
specify the reasons for such disapproval and state what corrections are
necessary,
After making the necessary corrections to the disapproved Printed Materials,
Licensee may submit new proposed Printed Materials for approval by Sony.
Sony shall not unreasonably withhold its approval of the proposed Printed
Materials submitted for review by Licensee in accordance with the terms of
this Section. No approval by Sony of any element of the Printed Materials
shall be deemed an approval of any other element of the Licensed Product,
nor shall any such approval be deemed to constitute a waiver of any of
Sony's rights under this Agreement.
5.4 Advertising Materials. Pre-production samples of the advertising,
merchandising, promotional, and display materials of or concerning the
Licensed Products (collectively referred to hereinafter as the "Advertising
Materials") shall be submitted by Licensee to Sony, free of cost, for Sony's
evaluation and approval as to style and usage of any of the Licensed
Trademarks, and appropriate reference of the notices, prior to any actual
production, use, or distribution of any such items by Licensee or in its
behalf. No such proposed Advertising Materials shall be produced, used, or
distributed directly or indirectly by Licensee without first obtaining the
written approval of Sony. Subject in each instance to the prior written
approval of Sony, Licensee may use such textual and/or pictorial advertising
matter (if any) as may be created by Sony or in its behalf pertaining to the
Sony Materials and/or to the Licensed Trademarks on such promotional and
advertising materials as may, in Licensee's judgment, promote the sale of
the Licensed Products within the Licensed Territory. Sony shall have the
right to use the Licensed Products in any advertising or promotion for
Player at Sony's expense, subject to Licensee's reasonable prior approval
with respect to use of Licensee's trademarks and copyrighted materials
contained in such advertisement or promotion. Sony shall confer with
Licensee regarding the text of any such advertisement. If required by Sony
and/or any governmental entity, Licensee shall include, at Licensee's cost
and expense, the required consumer advisory rating code(s) on any and all
marketing and advertising materials used in connection with the Licensed
Product, which shall be procured in accordance with the provisions of
Section 6 below.
5.5 Labeling Requirements. All Printed Materials for each unit of the
Licensed Products shall have conspicuously, legibly and irremovably affixed
thereto the notices specified in a template to be provided to Licensee
subsequent to the execution of this License Agreement, which template may be
amended from time to time by Sony during the term of this License Agreement.
Licensee agrees that, if required by Sony or any governmental entity, it
shall submit each Licensed Product to a consumer advisory ratings system
designated by Sony and/or such governmental entity for the purpose of
CONFIDENTIAL
obtaining rating code(s) for each Licensed Product. Any and all costs and
expenses incurred in connection with obtaining such rating code(s) shall be
borne solely by Licensee. Any required consumer advisory rating code(s)
procured hereby shall be displayed on the Licensed Product and the
associated Printed Materials in accordance with the Guidelines, at
Licensee's cost and expense.
7. Manufacture of the Licensed Products.
7.1
7.1.1
Sony shall
provide to Licensee written specifications setting forth terms relating to
the manufacturing of Licensed Products and their component parts
("Specifications") subsequent to execution of this Agreement, which may be
amended from time to time upon reasonable written notice to Licensee. Sony
shall have the right, but no obligation, to subcontract any phase of
production of any or all of the Licensed Products or any part thereof.
7.1.2 Creation of Master CD-ROM. Following approval by Sony
of each Licensed Product pursuant to Section 5.2, Licensee shall provide
Sony with two (2) copies (in the form of CD write-once discs or such other
form as may be requested by Sony in the Specifications) of the pre-
production Executable Software for the original master CD-ROM (the "Master
CD-ROM") from which all other copies of the Licensed Product are to be
replicated.
Licensee shall be responsible for
the costs, as set forth in the Specifications, of creating such Master CD-
ROM. In order to insure against loss or damage to the copies of the
Executable Software furnished to Sony, Licensee will retain duplicates of
all such Executable Software. Sony shall not be liable for loss of or
damage to any copies of the Executable Software.
7.1.3 Delivery of Printed Materials. Licensee shall deliver
the film for all Printed Materials to Sony or at Sony's option to Sony's
designated manufacturing facility in accordance with the Specifications, at
Licensee's sole risk and expense. In the event that Licensee elects to be
responsible for manufacturing the Printed Materials, Licensee shall deliver
such Printed Materials, in the minimum order quantities set forth in Section
7.2.2 below.
7.1.4 Manufacture of Units. Upon approval, pursuant to
Section 5, of such pre-production samples of the Executable Software for the
Master CD-ROM and the associated Artwork
7.2 Price, Payment and Terms.
7.2.1 Price. The applicable price for manufacture of any
units of the Licensed Products ordered hereunder shall be determined by Sony
and provided to Licensee in the Specifications prior to manufacture of the
Licensed Products.
CONFIDENTIAL
Purchase price(s) shall be stated in United States dollars
and are subject to change by Sony at any time upon reasonable written notice
to Licensee; provided, however, the applicable price shall not be changed
with respect to any units of the Licensed Products which are the subject of
an effective purchase order but which have not yet been delivered by Sony at
the designated F.O.B. point. Prices for the finished units of the Licensed
Products are exclusive of any foreign or U.S. federal, state, or local sales
or value-added tax, use, excise, customs duties or other similar taxes or
duties, which Sony may be required to collect or pay as a consequence of the
sale or delivery of any units of the Licensed Products to Licensee.
Licensee shall be solely responsible for the payment or reimbursement of any
such taxes, fees, and other such charges or assessments applicable to the
sale and/or purchase of any finished units of any of the Licensed Products.
7.2.2 Orders.
Such orders shall reference this Agreement, give Licensee
authorization number, specify quantities by Licensed Product, state
requested delivery date and all packaging information and be submitted on or
with an order form to be provided in the Specifications.
Licensee shall issue , for each of the Licensed
Products approved by Sony pursuant to Section 5.1, a non-cancelable Purchase
Order for at least one thousand (1,000) units of such Licensed Product. In
the event that Sony manufactures the Printed Materials for the Licensee
pursuant to Section 7.1.3 above, Licensee may, at Licensee's option, allow
Sony to purchase an additional 20% of such Printed Materials at Licensee's
expense in anticipation of reorders. Licensee agrees that such Printed
Materials will be stored by Sony for a period of no more than ninety (90)
days. Licensee may order additional units of any of such Licensed Products
in the minimum reorder quantity of one thousand (1,000) units per order,
provided that reorder quantities may be less than one thousand (1,000) units
per order (but in no event less than one hundred (100) units per order), in
Sony's sole discretion, in the event that either (i) Sony has additional
quantities of Printed Materials in stock with respect to any such Licensed
Product, or (ii) Licensee agrees to provide its own Printed Materials in
accordance with Section 7.1.3 above. Licensee shall have no right to cancel
or reschedule any Purchase Order (or any portion thereof) for any of the
Licensed Products unless the parties shall first have reached mutual
agreement as to Licensee's financial liability with respect to any desired
cancellation or rescheduling of any such Purchase Order (or any portion
thereof).
7.2.3 Payment Terms. Orders will be invoiced upon shipment,
and will include royalties payable pursuant to Section 9 hereto. Each
invoice will be paid within thirty (30) days of the date of the invoice.
No other deduction may be made from remittances unless an approved credit
memo has been issued by Sony. No claim for credit due to shortage or
breakage will be allowed unless it is made within seven (7) days from the
date of receipt of shipment. Each shipment of Licensed Products to Licensee
shall constitute a separate sale obligating Licensee to pay therefore,
whether said shipment be whole or partial fulfillment of any order. All
sums owed or otherwise payable under this Section 7 and under
Section 9 hereto shall bear interest at the rate of one and one-half (1-
CONFIDENTIAL
1/2%) percent per month, or such lower rate as may be the maximum rate
permitted under applicable law, from the date upon which payment of the same
shall first become due up to and including the date of payment thereof
whether before or after judgment. Licensee shall be additionally liable for
all of Sony's costs and expenses of collection, including, without
limitation, reasonable fees for attorneys and court costs. Notwithstanding
the foregoing, such specified rate of interest shall not excuse or be
construed as a waiver of Licensee's obligation to timely provide any and all
payments owed to Sony hereunder.
7.3 Delivery of Licensed Products.
Delivery of Licensed Products shall be in accordance with the
Specifications. Title, risk of loss, or damage in transit to any and all
Licensed Products pursuant to Licensee's orders
shall vest in Licensee immediately upon delivery to the carrier.
7.4 Technology Exchange and Quality Assurance. There will be no
technology exchange between Sony and Licensee under this Agreement.
All such physical master discs, stampers, etc. shall be and
remain the sole property of Sony.
7.5 Inspection and Acceptance. Licensee may inspect and test any
units of the Licensed Products at Licensee's receiving destination. Any
finished units of the Licensed Products which fail to conform to the
Specifications and/or any descriptions contained in this Agreement may be
rejected by Licensee by providing written notice thereof
within thirty (30) days of receipt of such units of the Licensed Products at
Licensee's receiving destination. In such event, the provisions of
regarding of the units shall apply with respect
to any such rejected units of the Licensed Products.
if Licensee fails to properly reject
any units of the Licensed Products within such thirty (30) day period, such
Licensed Product units shall be deemed accepted by Licensee and may not be
subsequently rejected.
8. Marketing and Distribution.
In accordance with the provisions of this License Agreement, Licensee
shall, at no expense to Sony, diligently market, sell and distribute the
Licensed Products, and shall use its reasonable best efforts to stimulate
demand for such Licensed Products in the Licensed Territory and to supply
any resulting demand
. Licensee shall use its reasonable best efforts to protect the
Licensed Products from and against illegal reproduction and/or copying by
end users or by any other persons or entities. Such methods of protection
may include, without limitation, markings or insignia providing
identification of authenticity and packaging seals. Subject to
availability, Licensee shall sell to Sony quantities of the Licensed
Products at as low a price and on terms as favorable as Licensee sells
similar quantities of the Licensed Products to the general trade; provided,
however, Sony shall not directly or indirectly resell any such units of the
Licensed Products within the Licensed Territory without Licensee's prior
CONFIDENTIAL
written consent.
9. Royalties.
Licensee shall pay Sony a per unit royalty in United States dollars, as
set forth on Exhibit B hereto, for each unit of the Licensed Products
manufactured. Payment of such royalties shall be made to Sony
for each unit
and pursuant to the payment terms of Section 7.2.3 hereto. No costs
incurred in the development, manufacture, marketing, sale, and/or
distribution of the Licensed Products shall be deducted from any royalties
payable to Sony hereunder
Similarly, there shall be no deduction from the royalties
otherwise owed to Sony hereunder as a result of any uncollectible accounts
owed to Licensee, or for any credits, discounts, allowances or returns which
Licensee may credit or otherwise grant to any third party customer of any
units of the Licensed Products, or for any taxes, fees, assessments, or
expenses of any kind which may be incurred by Licensee in connection with
its sale and/or distribution of any units of the Licensed Products and/or
arising with respect to the payment of royalties hereunder. In addition to
the royalty payments provided to Sony hereunder, Licensee shall be solely
responsible for and bear any cost relating to any withholding taxes and/or
other such assessments which may be imposed by any governmental authority
with respect to the royalties paid to Sony hereunder. Licensee shall provide
Sony with official tax receipts or other such documentary evidence issued by
the applicable tax authorities sufficient to substantiate that any such
taxes and/or assessments have in fact been paid.
10. Representations and Warranties.
10.1 Representations and Warranties of Sony. Sony represents and
warrants solely for the benefit of Licensee that: (i) Sony has the right,
power and authority to enter into this License Agreement, to grant rights to
Licensee and to fully perform its obligations hereunder
10.2 Representations and Warranties of Licensee. Licensee represents
and warrants that: (i) there is no threatened or pending action, suit, claim
or proceeding alleging that the use by Licensee of all or any part of the
Licensee Software or any underlying work or content embodied therein, or any
name, designation or trademark used in conjunction with the Licensed Products
infringes or otherwise violates any Intellectual Property Right or other
right or interest of any kind whatsoever of any third party, or otherwise
contesting any right, title or interest of Licensee in or to the Licensee
Software or any underlying work or content embodied therein, or any name,
designation or trademark used in conjunction with the Licensed Products; (ii)
Licensee has the right, power and authority to enter into this License
Agreement and to fully perform its obligations hereunder; (iii) the making of
this License Agreement by Licensee does not violate any separate agreement,
rights or obligations existing between Licensee and any other person or
entity, and, throughout the term of this License Agreement, Licensee shall
not make any separate agreement with any person or entity that is
inconsistent with any of the provisions of this License Agreement; (iv)
Licensee shall not make any representation or give any warranty to any person
CONFIDENTIAL
or entity expressly or impliedly on Sony's behalf, or to the effect that the
Licensed Products are connected in any way with Sony (other than that the
Licensed Products have been developed, marketed, manufactured, sold, and/or
distributed under license from Sony), (v) the Executable Software shall be
distributed by Licensee solely in object code form; (vi) each of the Licensed
Products shall be marketed, sold, and distributed in an ethical manner and in
accordance with all applicable laws and regulations; and (vii) Licensee's
policies and practices with respect to the marketing, sale, and/or
distribution of the Licensed Products shall in no manner reflect adversely
upon the name, reputation or goodwill of Sony.
11. Indemnities; Limited Liability.
11.1 Indemnification by Sony. Sony shall indemnify and hold Licensee
harmless from and against any and all claims, losses, liabilities, damages,
expenses and costs, including, without limitation, reasonable fees for
attorneys, expert witnesses and litigation costs, and including costs
incurred in the settlement or avoidance of any such claim which result from
or are in connection with a breach of any of the warranties provided by Sony
herein; provided, however, that Licensee shall give prompt written notice to
Sony of the assertion of any such claim, and provided, further, that Sony
shall have the right to select counsel and control the defense and/or
settlement thereof, subject to the right of Licensee to participate in any
such action or proceeding at its own expense with counsel of its own
choosing. Sony shall have the exclusive right, at its discretion, to
commence and prosecute at its own expense any lawsuit or to take such other
action with respect to such matters as shall be deemed appropriate by Sony.
Licensee agrees to provide Sony, at no expense to Licensee, reasonable
assistance and cooperation concerning any such matter; and Licensee shall
not agree to the settlement of any such claim, action or proceeding without
Sony's prior written consent.
11.2 Indemnification by Licensee. Licensee shall indemnify and hold
Sony harmless from and against any and all claims, losses, liabilities,
damages, expenses and costs, including, without limitation, reasonable fees
for attorneys, expert witnesses and litigation costs, and including costs
incurred in the settlement or avoidance of any such claim, which result from
or are in connection with (i) a breach of any of the representations or
warranties provided by Licensee herein, including without limitation claims
resulting from Licensee's failure to timely pay, any withholding taxes or
other assessments as set forth in Section 9 hereto or any breach of
Licensee's confidentiality obligations as set forth in Section 14 hereto; or
(ii) any claim of infringement or alleged infringement of any third party's
Intellectual Property Rights with respect to the Licensee Software; or (iii)
any claims of or in connection with any bodily injury (including death) or
property damage, by whomsoever such claim is made, arising out of, in whole
or in part, the manufacture, sale, and/or use of any of the Licensed
Products manufactured by Sony hereunder, unless due to the negligence of
Sony in performing any of the specific duties and/or providing any of the
specific manufacturing services required of it hereunder; provided, however,
that Sony shall give prompt written notice to Licensee of the assertion of
any such claim, and provided, further, that Licensee shall have the right to
select counsel and control the defense and/or settlement thereof, subject to
the right of Sony to participate in any such action or proceeding at its own
CONFIDENTIAL
expense with counsel of its own choosing. Licensee shall have the exclusive
right, at its discretion, to commence and/or prosecute at its own expense
any lawsuit or to take such other action with respect to such matter as
shall be deemed appropriate by Licensee. Sony shall provide Licensee, at no
expense to Sony, reasonable assistance and cooperation concerning any such
matter. If Sony is joined as a party to any lawsuit initiated by or against
Licensee, Licensee shall indemnify and hold Sony harmless from and against
all claims, losses, liabilities, damages, expenses and costs, including,
without limitation, reasonable fees for attorneys and court costs, incurred
in connection with any such lawsuit. Sony shall not agree to the settlement
of any such claim, action or proceeding without Licensee's prior written
consent.
11.3 Limitation of Liability; Licensee's Obligations.
11.3.3 Licensee's Obligations. If at any time or times
subsequent to the approval of the Executable Software pursuant to Section
5.2, Sony identifies any bugs with respect to the Licensed Product or any
bugs are brought to the attention of Sony, Licensee shall, at no cost to
Sony, promptly correct any such bugs, to Sony's reasonable satisfaction. In
the event any units of any of the Licensed Products create any risk of loss
or damage to any property or injury to any person, Licensee shall
immediately take effective steps, at Licensee's sole liability and expense,
to recall and/or to remove such defective product units from any affected
channels of distribution. Licensee shall provide all end-user support for
the Licensed Products.
12. Copyright, Trademark and Trade Secret Rights.
12.1 Licensee Rights. The copyrights with respect to the Licensee
Software (exclusive of the rights licensed from Sony hereunder) and any
names or other designations used as titles for the Licensed Products are and
shall be the exclusive property of Licensee or of any third party from which
Licensee has been granted the license and related rights to develop and
otherwise exploit any such Licensee Software or any such names or other
designations.
12.2 Sony Rights.
12.2.1 Licensed Trademarks. The Licensed Trademarks and the
goodwill associated therewith are and shall be the exclusive property of
Sony. Nothing herein shall give Licensee any right, title or interest in or
to any of the Licensed Trademarks, other than the non-exclusive license and
privilege during the term hereof to display and use the Licensed Trademarks
solely in accordance with the provisions of this License Agreement.
Licensee shall not do or cause to be done any act or thing in any way
impairing or tending to impair any of Sony's rights, title, or interests in
or to any of the Licensed Trademarks, nor shall Licensee register any
trademark in its own name or in the name of any other person or entity which
is similar to or is likely to be confused with any of the Licensed
Trademarks.
12.2.2 License of Sony Materials and Player. Subject to the
rights granted by Sony to Licensee hereunder, all rights with respect to the
CONFIDENTIAL
Sony Materials and Player, including, without limitation, all of Sony's
Intellectual Property Rights therein, are and shall be the exclusive
property of Sony. Nothing herein shall give Licensee any right, title or
interest in or to the Sony Materials or the Player (or any portion thereof),
other than the non-exclusive license and privilege during the term hereof to
use the Sony Materials and Player for the development of the Executable
Software solely in accordance with the provisions of this License Agreement.
Licensee shall not do or cause to be done any act or thing contesting or in
any way impairing or tending to impair any of Sony's rights, title, and/or
interests in or to the Sony Materials or the Player (or any portion
thereof).
12.3 Effect of Termination. Upon the expiration or earlier termination
of this License Agreement for any reason, Licensee shall immediately cease
and desist from any further use of the Licensed Trademarks and Sony
Materials licensed hereunder, subject to the provisions of Section 16.3,
below.
13. Copyright, Trademark and Trade Secret Protection.
In the event that either Licensee or Sony discovers or otherwise
becomes aware that any of the Intellectual Property Rights of the other
embodied in any of the Licensed Products have been or are being infringed
upon by any third party, then the party with knowledge of such infringement
or apparent infringement shall promptly notify the other party.
14. Confidentiality.
14.1 Nondisclosure Agreement. Licensee hereby acknowledges that the
Nondisclosure Agreement dated between Sony and Licensee
("Nondisclosure Agreement") will remain in full force and effect with
respect to the Confidential Information of Sony throughout the term of this
Agreement. In the event of any conflict or inconsistency between the
provisions of the Nondisclosure Agreement and the provisions of this Section
14, the provisions of the Nondisclosure Agreement shall control with respect
to the Confidential Information of Sony.
14.2 Confidential Information. For the purposes of this License
Agreement, "Confidential Information" of Sony means (i) the Sony Materials
and information regarding Sony's finances, business, marketing and technical
plans, (ii) all documentation and information relating to the foregoing
(other than documentation and information expressly intended for use by and
released to end users or the general public), and (iii) any and all other
information, of whatever type and in whatever medium (including without
limitation all data, ideas, discoveries, developments, know-how, trade
secrets, inventions, creations and improvements), that is disclosed in
writing or in any other form by Sony to Licensee. "Confidential
Information" of Licensee shall mean (i) the Licensee Software as provided to
Sony pursuant to this License Agreement, (iii) all
documentation and information
that is disclosed in writing or in any other form by Licensee to Sony if
the information is designated as (or is provided under circumstances
indicating the information is) confidential or proprietary.
CONFIDENTIAL
14.3 Preservation of Confidentiality; Non-Disclosure. Each party
("receiving party") shall hold all Confidential Information of the other
party ("disclosing party") in trust and in strict confidence for the sole
benefit of the disclosing party and for the exercise of the limited rights
expressly granted to the receiving party under this License Agreement. The
receiving party shall take all steps necessary to preserve the
confidentiality of the Confidential Information of the disclosing party, and
to prevent it from falling into the public domain or into the possession of
persons other than those persons to whom disclosure is authorized hereunder,
including but not limited to those steps that the receiving party takes to
protect the confidentiality of its own most highly confidential information.
Except as may be expressly authorized by the disclosing party in writing,
the receiving party shall not at any time, either before or after any
termination of this License Agreement, directly or indirectly: (i) disclose
any Confidential Information to any person other than an employee or
subcontractor of the receiving party who needs to know or have access to
such Confidential Information for the purposes of this License Agreement,
and only to the extent necessary for such purposes (and with respect to any
subcontractor, only in accordance with Section 17.5 below); (ii) except as
otherwise provided in this License Agreement, duplicate the Confidential
Information for any purpose whatsoever; (iii) use the Confidential
Information for any reason or purpose other than as expressly permitted in
this License Agreement; or (iv) remove any copyright notice, trademark
notice and/or other proprietary legend set forth on or contained within any
of the Confidential Information.
14.4 Obligations Upon Unauthorized Disclosure.
14.4.1 Notice to Disclosing Party. If at any time the receiving
party becomes aware of any unauthorized duplication, access, use, possession
or knowledge of any Confidential Information, the receiving party shall
immediately notify the disclosing party. The receiving party shall provide
any and all reasonable assistance to the disclosing party to protect the
disclosing party's proprietary rights in any Confidential Information that
the receiving party or its employees or permitted subcontractors may have
directly or indirectly disclosed or made available and that may be
duplicated, accessed, used, possessed or known in a manner or for a purpose
not expressly authorized by this License Agreement including but not limited
to enforcement of confidentiality agreements, commencement and prosecution
in good faith (alone or with the disclosing party) of legal action, and
reimbursement for all reasonable attorneys' fees (and all related costs),
costs and expenses incurred by the disclosing party to protect its
proprietary rights in the Confidential Information. The receiving party
shall take all reasonable steps requested by the disclosing party to prevent
the recurrence of any unauthorized duplication, access, use, possession or
knowledge of the Confidential Information.
14.4.2 Accounting, Etc. If violates or fails to
comply with any of the terms or conditions of this Section 14 or Section 4
hereto, shall be entitled to an accounting and repayment
of all forms of compensation, commissions, remuneration or benefits which
directly or indirectly realizes as a result of or in
connection with any such violation or failure to comply. Such remedy shall
be in addition to and not in limitation of any injunctive relief or other
CONFIDENTIAL
remedies to which may be entitled under this Agreement
or otherwise, at law or in equity.
14.5 Exceptions. The foregoing restrictions will not apply to
information to the extent that the receiving party can demonstrate such
information: (i) was known to the receiving party at the time of disclosure
to the receiving party by the disclosing party as shown by the files of the
receiving party in existence at the time of disclosure; (ii) becomes part of
information in the public domain through no fault of the receiving party;
(iii) has been rightfully received from a third party authorized by the
disclosing party to make such disclosure without restriction; (iv) has been
approved for release by prior written authorization of the disclosing party;
or (v) has been disclosed by court order or as otherwise required by law
(including without limitation to the extent that disclosure may be required
under Federal or state securities laws), provided that the receiving party
has notified the disclosing party promptly upon learning of the possibility
of any such court order or legal requirement and has given the disclosing
party a reasonable opportunity (and cooperated with the disclosing party) to
contest or limit the scope of such required disclosure (including
application for a protective order). Information shall not be deemed known
to the receiving party or publicly known for purposes of the above
exceptions (A) merely because it is embraced by more general information in
the prior possession of the receiving party or others, or (B) merely because
it is expressed in public material in general terms not specifically the
same as Confidential Information.
14.6 Confidentiality of Agreement. Subject to Section 14.5 above, the
terms and conditions of this License Agreement shall be treated as
Confidential Information; provided that each party may disclose the terms
and conditions of this License Agreement: (i) to legal counsel; (ii) in
confidence, to accountants, banks and financing sources and their advisors;
and (iii) in confidence, in connection with the enforcement of this License
Agreement or rights under this License Agreement and (iv) without limiting
the requirements set forth in clause (v) of Section 14.5 hereto, the parties
agree that if either of them shall be required, in the opinion of counsel,
to file publicly or otherwise disclose the terms of this License Agreement
under applicable federal and/or state securities laws, such party shall
request, and shall use its best efforts to obtain, confidential treatment
for such sections of this Agreement as the non-filing party may designate
after receiving the notice provided for in clause (v) of Section 14.5
hereof. Any failure to notify under clause (v) of Section 14.5 with respect
to clause (iv) of this section shall be deemed a breach of a material
obligation and be subject to termination pursuant to Sections 15.2 and 15.5
hereto. Both parties shall treat the fact that the parties have entered
into this License Agreement as Confidential Information until the initial
public announcement regarding this License Agreement is released by SEPC, at
its sole discretion, announcing that Licensee has become a licensee under
this License Agreement. Subsequent to such initial public announcement,
both parties may issue press releases subject to the prior written approval
of the other party, which shall not be unreasonably withheld.
15. Term and Termination.
15.1 Effective Date; Term. This License Agreement shall not be binding
CONFIDENTIAL
upon the parties until it has been signed by or on behalf of each party, in
which event it shall be effective as of the date first written above (the
"Effective Date"). Unless sooner terminated in accordance with the
provisions hereof, the initial term of this License Agreement shall be for
four (4) years from the Effective Date
15.2 Termination by Sony. Sony shall have the right to terminate
this License Agreement immediately, by providing written notice of such
election to Licensee, upon the occurrence of any of the following events or
circumstances: (i) If Licensee breaches any of its material obligations
provided for in this License Agreement and such breach is not corrected or
cured within thirty (30) days after receipt of written notice of such
breach; or (ii) Licensee's failure to pay, or a statement that it is unable
to pay any amount due hereunder, or is unable to pay its debts generally as
they shall become due; or (iii) Licensee's filing of an application for, or
consenting to, or directing the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of all or substantially all
of Licensee's property, whether tangible or intangible, wherever located; or
(iv) The making by Licensee of a general assignment for the benefit of
creditors; or (v) The commencing by Licensee or Licensee's intention to
commence a voluntary case under any applicable bankruptcy laws (as now or
hereafter may be in effect); or (vi) The adjudication that Licensee is a
bankrupt or insolvent; or (vii) The filing by Licensee or the intent to file
by Licensee of a petition seeking to take advantage of any other law
providing for the relief of debtors; or (viii) Licensee's acquiescence to,
intention to acquiesce to, or failure to have dismissed within ninety (90)
days, any petition filed against it in any involuntary case under any such
bankruptcy law.
15.3 Product-by-Product Termination by Sony. In addition to the events
of termination described in Section 15.2, above, Sony, at its option, shall
be entitled to terminate, on a product-by-product basis, the licenses and
related rights herein granted to Licensee (a) in the event that Licensee
fails to notify Sony promptly in writing of any material change to any of
the elements approved in Section 5.1, above; (b) if Licensee fails to
provide Sony in accordance with the provisions of Section 5.2, above, with
the prototype Executable Software for any Licensed Product, in the format
required by Sony, and which meets Sony's specifications; provided, however,
Sony shall not be entitled to exercise such right of termination if
Licensee's failure to provide such final Executable Software for any of the
Licensed Products is directly caused by Sony's failure to timely comply with
any of its material obligations expressly set forth herein.
15.4 No Refunds. In the event of the termination of this License
Agreement in accordance with any of the provisions of Sections 15.2 or 15.3,
above, no portion of any payments of any kind whatsoever previously provided
to Sony hereunder shall be owed or be repayable to Licensee.
16. Effect of Expiration or Termination.
16.1 Inventory Statement. Within thirty (30) days of the date of
expiration or the effective date of termination with respect to any or all
Licensed Products, Licensee shall provide Sony with an itemized statement,
certified to be accurate by an officer of Licensee, specifying the number of
CONFIDENTIAL
unsold units of the Licensed Products as to which such termination applies,
on a title-by-title basis, which remain in its inventory and/or under its
control at the time of expiration or the effective date of termination. Sony
shall be entitled to conduct a physical inspection of Licensee's inventory
and work in process during normal business hours in order to ascertain or
verify such inventory and/or statement.
16.2 Reversion of Rights. If this License Agreement is terminated by
Sony as a result of any breach or default by Licensee, the licenses and
related rights herein granted to Licensee shall immediately revert to Sony,
and Licensee shall cease and desist from any further use of the Sony
Materials and any Intellectual Property Rights related to the Sony
Materials, and, subject to the provisions of Section 16.3, below, Licensee
shall have no further right to continue the development, marketing, sale,
and/or distribution of any units of the Licensed Products, nor to continue
to use the Licensed Trademarks.
16.3 Disposal of Unsold Units. Provided this License Agreement is not
terminated due to a breach or default by Licensee, Licensee may, upon
expiration or termination of this License Agreement, sell off existing
inventories of Licensed Products, on a non-exclusive basis, for a period of
days from the date of expiration or termination of
this License Agreement, and provided such inventories have not been
manufactured solely or principally for sale during such period. Subsequent
to the expiration of such day period, or in
the event this License Agreement is terminated as a result of any breach or
default by Licensee, any and all units of the Licensed Products remaining in
Licensee's inventory shall be destroyed by Licensee within five (5) working
days of such expiration or termination. Within five (5) working days after
such destruction, Licensee shall provide Sony with an itemized statement,
certified to be accurate by an officer of Licensee, indicating the number of
units of the Licensed Products which have been destroyed (on a title-by-
title basis), the location and date of such destruction, and the disposition
of the remains of such destroyed materials.
16.4 Return of Confidential Information. Upon the expiration or
earlier termination of this License Agreement, Licensee and Sony shall
immediately deliver to the other party, as the disclosing party all
Confidential Information of the other party, including any and all copies
thereof, which the other party previously furnished to it in furtherance of
this License Agreement, including, without limitation, any such information,
knowledge, or know-how of which either party, as the receiving party, was
apprised and which was reduced to tangible or written form by such party or
in its behalf at any time during the term of this License Agreement.
16.5 Renewal or Extension of License Agreement. Other than as set
forth in Section 15.1 hereto, Sony shall be under no obligation to renew or
extend this License Agreement notwithstanding any actions taken by either of
the parties prior to the expiration of this License Agreement. Upon the
expiration of this License Agreement neither party shall be liable to the
other for any damages (whether direct, consequential, or incidental, and
including, without limitation, any expenditures, loss of profits, or
prospective profits) sustained or arising out of or alleged to have been
sustained or to have arisen out of such expiration. However, the expiration
CONFIDENTIAL
of this License Agreement shall not excuse either party from its previous
breach of any of the provisions of this License Agreement or from any
obligations surviving the expiration of this License Agreement, and full
legal and equitable remedies shall remain available for any breach or
threatened breach of this License Agreement or any obligations arising
therefrom.
16.6 Termination Without Prejudice. The expiration or termination of
this License Agreement in accordance with the provisions of Section 15,
above, shall be without prejudice to any rights or remedies which one party
may otherwise have against the other party.
17. Miscellaneous Provisions.
17.1 Notices. All notices or other communications required or desired
to be sent to either of the parties shall be in writing and shall be sent by
registered or certified mail, postage prepaid, return receipt requested, or
sent by recognized international courier service (e.g., Federal Express,
DHL, etc.), telex, telegram or facsimile, with charges prepaid and subject
to confirmation by letter sent via registered or certified mail, postage
prepaid, return receipt requested. The address for all notices or other
communications required to be sent to Sony or Licensee, respectively, shall
be the mailing address stated in the preamble hereof, or such other address
as may be provided by written notice from one party to the other on at least
ten (10) days' prior written notice. In the case of Licensee, a copy of any
such notice shall be sent to Fischbach, Perlstein & Yanny, 1925 Century Park
East, Suite 1260, Los Angeles, CA 90067. Any such notice shall be effective
upon the date of receipt.
17.2 Force Majeure. Neither Sony nor Licensee shall be liable for any
loss or damage or be deemed to be in breach of this License Agreement if its
failure to perform or failure to cure any of its obligations under this
License Agreement results from any event or circumstance beyond its
reasonable control, including, without limitation, any natural disaster,
fire, flood, earthquake, or other Act of God; shortage of equipment,
materials, supplies, or transportation facilities caused by such force
majeure event; strike or other industrial dispute; war or rebellion; or
compliance with any law, regulation, or order (whether valid or invalid) of
any governmental body, other than an order, requirement, or instruction
arising out of Licensee's violation of any applicable law or regulation;
provided, however, that the party interfered with gives the other party
written notice thereof promptly, and, in any event, within fifteen (15)
working days of discovery of any such Force Majeure condition. If notice of
the existence of any Force Majeure condition is provided within such period,
the time for performance or cure shall be extended for a period equal to the
duration of the Force Majeure event or circumstance described in such
notice, except that any such cause shall not excuse the payment of any sums
owed to Sony prior to, during, or after any such Force Majeure condition.
17.3 No Partnership or Joint Venture. The relationship between Sony
and Licensee, respectively, is that of licensor and licensee. Both parties
are independent contractors and are not the legal representative, agent,
joint venturer, partner, or employee of the other party for any purpose
whatsoever. Neither party has any right or authority to assume or create any
CONFIDENTIAL
obligations of any kind or to make any representation or warranty on behalf
of the other party, whether express or implied, or to bind the other party
in any respect whatsoever.
17.4 Assignment. Sony has entered into this License Agreement based
upon the particular reputation, capabilities and experience of Licensee and
its officers, directors and employees. Accordingly, Licensee may not assign
this License Agreement or any of its rights hereunder, nor delegate or
otherwise transfer any of its obligations hereunder, to any third party
unless the prior written consent of Sony shall first be obtained. Any
attempted or purported assignment, delegation or other such transfer without
the required consent of Sony shall be void and a material breach of this
License Agreement. Subject to the foregoing, this License Agreement shall
inure to the benefit of the parties and their respective successors and
permitted assigns. Sony shall have the right to assign any and all of its
rights and obligations hereunder to any affiliate(s), including, without
limitation, its obligations under Section 7 hereof.
17.5 Subcontractors. Licensee shall not sell, assign, delegate,
subcontract, sublicense or otherwise transfer or encumber all or any portion
of the licenses herein granted. Licensee shall have the right to employ
suitable subcontractors for the purposes of assisting Licensee with the de-
velopment of the Licensed Products,
Licensee shall not disclose to any
subcontractor any Confidential Information of Sony (as defined herein and in
the Nondisclosure Agreement), including, without limitation, any Sony
Materials, unless and until such subcontractor shall have signed either (i)
a License Agreement and a Development Tool Agreement or (ii) a Licensed
Developer Agreement, directly with Sony. Licensee shall remain fully liable
for its compliance with all of the provisions of this License Agreement and
for the compliance of any and all permitted subcontractors with the
provisions of any agreements entered into by such subcontractors in
accordance with this Section 17.5. Licensee shall cause its subcontractors
to comply in all respects with the terms and conditions of this License
Agreement, and hereby unconditionally guarantees all obligations of its
subcontractors.
17.6 Compliance with Applicable Laws. The parties shall at all times
comply with all applicable regulations and orders of their respective
countries and all conventions and treaties to which their countries are a
party or relating to or in any way affecting this License Agreement and the
performance by the parties of this License Agreement. Each party, at its own
expense, shall negotiate and obtain any approval, license or permit required
in the performance of its obligations, and shall declare, record or take
such steps to render this License Agreement binding, including, without
limitation, the recording of this License Agreement with any appropriate
governmental authorities (if required).
17.7 Governing Law; Consent to Jurisdiction. This License Agreement
shall be governed by and interpreted in accordance with the laws of the
State of New York, excluding that body of law related to choice of laws, and
of the United States of America. Any action or proceeding brought to enforce
the terms of this License Agreement or to adjudicate any dispute arising
hereunder shall be brought in the courts of the County of New York, State of
CONFIDENTIAL
New York (if under State law) or the Southern District of New York (if under
Federal law). Each of the parties hereby submits itself to the exclusive
jurisdiction and venue of such courts for purposes of any such action and
agrees that, without limiting other types of service of process permitted by
law, any service of process may be effected by registered or certified mail,
postage prepaid, return receipt requested at the addresses stated in the
preamble hereof.
17.8 Legal Costs and Expenses. In the event it is necessary for either
party to retain the services of an attorney or attorneys to enforce the
terms of this License Agreement or to file or defend any action arising out
of this Agreement, then the prevailing party in any such action shall be
entitled, in addition to any other rights and remedies available to it at
law or in equity to recover from the other party its reasonable fees for
attorneys and expert witnesses, plus such court costs and expenses as may be
fixed by any court of competent jurisdiction. The term "prevailing party"
for the purposes of this Section shall include a defendant who has by
motion, judgment, verdict or dismissal by the court, successfully defended
against any claim that has been asserted against it.
17.9 Remedies. Unless expressly set forth to the contrary, either
party's election of any remedies provided for in this License Agreement
shall not be exclusive of any other remedies available hereunder or
otherwise at law or in equity, and all such remedies shall be deemed to be
cumulative. Any breach of Sections 2, 4, 5, 6, 7.1.1, 12 and 14 of this
Agreement would cause irreparable harm to Sony, the extent of which would be
difficult to ascertain. Accordingly, Licensee agrees that, in addition to
any other remedies to which Sony may be entitled, in the event of a breach
by Licensee or any of its employees or permitted subcontractors of any such
sections of this Agreement, Sony shall be entitled to the immediate issuance
without bond of exparte injunctive relief enjoining any breach or threatened
breach of any or all of such provisions. In addition, Licensee shall
indemnify Sony for all losses, damages, liabilities, costs and expenses
(including actual attorneys' fees and all related costs) which Sony may
sustain or incur as a result of such breach.
17.10 Severability. In the event that any provision of this
License Agreement (or portion thereof) is determined by a court of competent
jurisdiction to be invalid or otherwise unenforceable, such provision (or
part thereof) shall be enforced to the extent possible consistent with the
stated intention of the parties, or, if incapable of such enforcement, shall
be deemed to be deleted from this License Agreement, while the remainder of
this License Agreement shall continue in full force and remain in effect
according to its stated terms and conditions.
17.11 Sections Surviving Expiration or Termination. The following
sections shall survive the expiration or earlier termination of this License
Agreement for any reason: 4, 7.2, 9, 10, 11, 12, 13, 14, 15.4, 16, 17.4,
17.5, 17.7, 17.8, 17.9, 17.10.
17.12 Waiver. No failure or delay by either party in exercising
any right, power, or remedy under this License Agreement shall operate as a
waiver of any such right, power, or remedy. No waiver of any provision of
this License Agreement shall be effective unless in writing and signed by
CONFIDENTIAL
the party against whom such waiver is sought to be enforced. Any waiver by
either party of any provision of this License Agreement shall not be
construed as a waiver of any other provision of this License Agreement, nor
shall such waiver operate as or be construed as a waiver of such provision
respecting any future event or circumstance.
17.13 Modification. No modification of any provision of this
License Agreement shall be effective unless in writing and signed by both of
the parties.
17.14 Headings. The section headings used in this License
Agreement are intended primarily for reference and shall not by themselves
determine the construction or interpretation of this License Agreement or
any portion hereof.
17.15 Integration. This License Agreement (together with the
Exhibits attached hereto) constitutes the entire agreement between Sony and
Licensee and supersedes all prior or contemporaneous agreements, proposals,
understandings, and communications between Sony and Licensee, whether oral
or written, with respect to the subject matter hereof; provided, however,
that notwithstanding anything to the contrary in the foregoing, the
Nondisclosure Agreement referred to in Section 14 hereto shall remain in
full force and effect.
17.16 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, and both of which
together shall constitute one and the same instrument.
17.17 Construction. This License Agreement shall be fairly
interpreted in accordance with its terms and without any strict construction
in favor of or against either of the parties.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
duly executed as of the day and year first written above.
SONY COMPUTER ENTERTAINMENT OF AMERICA ACCLAIM ENTERTAINMENT, INC.
By: /s/ James Whims By: /s/ Robert W. Holmes
Title: SR. V.P. Title: President
Date: 12/24/94 Date: 12/19/94
NOT AN AGREEMENT UNTIL
EXECUTED BY BOTH PARTIES
CONFIDENTIAL
Exhibit A
LICENSED TERRITORY
1. Licensed Territory: United States and Canada
2. Additional Provisions:
(a) Distribution Channels. Licensee may, pursuant to the licenses
granted in Section 2 above, distribute Licensee's Licensed Products
throughout the Licensed Territory and may use such distribution channels
as Licensee deems appropriate, including the use of third party
distributors, resellers, dealers and sales representatives
(collectively, "Distributors").
(b) Limitations on Distribution. Notwithstanding any other provisions
in this License Agreement, Licensee shall not, directly or indirectly,
solicit orders from and/or sell any units of the Licensed Products to
any person or entity outside of the Licensed Territory, and Licensee
further agrees that it shall not directly or indirectly solicit orders
for and/or sell any units of the Licensed Products in any situation
where Licensee reasonably should know that such Licensed Products will
be exported or resold outside of the Licensed Territory.
(c) Changes to Licensed Territory. The licenses granted in Section 2
of this License Agreement may only be exercised by Licensee in the
Licensed Territory. Sony shall have the right to delete, and intends
to delete any country or countries from the Licensed Territory if, in
Sony's reasonable judgment, the laws or enforcement of such laws in
such country or countries do not protect Sony's Intellectual Property
Rights. In the event a country is deleted from the Licensed Territory,
Sony shall deliver to Licensee a notice stating the number of days
within which Licensee shall cease exercising such licenses in the
deleted country or countries. Licensee agrees to cease exercising such
licenses, directly or through subcontractors, in such deleted country
or countries, by the end of the period stated in such notice.
CONFIDENTIAL
Exhibit B
ROYALTIES
A. Per Unit Royalty. The per unit royalty due under Section 9 of the
Agreement with respect to each Licensed Product shall be ,
unless otherwise set forth below with respect to a Licensed Product:
CONFIDENTIAL
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 32,072
<SECURITIES> 14,822
<RECEIVABLES> 91,773
<ALLOWANCES> 0
<INVENTORY> 18,902
<CURRENT-ASSETS> 249,092
<PP&E> 52,453
<DEPRECIATION> (13,883)
<TOTAL-ASSETS> 373,073
<CURRENT-LIABILITIES> 98,409
<BONDS> 0
0
0
<COMMON> 1,003
<OTHER-SE> 271,451
<TOTAL-LIABILITY-AND-EQUITY> 373,073
<SALES> 181,206
<TOTAL-REVENUES> 181,206
<CGS> 110,302
<TOTAL-COSTS> 157,345
<OTHER-EXPENSES> (4,538)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,222
<INCOME-PRETAX> (81,903)
<INCOME-TAX> (26,455)
<INCOME-CONTINUING> (55,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,176)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
