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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THRUSTMASTER, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
PER UNIT PRICE OR OTHER UNDERLYING
TITLE OF EACH VALUE OF TRANSACTION COMPUTED
CLASS OF AGGREGATE NUMBER PURSUANT TO EXCHANGE ACT RULE 0-11 PROPOSED
SECURITIES TO OF SECURITIES TO (SET FORTH THE AMOUNT ON WHICH THE MAXIMUM AGGREGATE
WHICH TRANSACTION WHICH TRANSACTION FILING FEE IS CALCULATED AND STATE VALUE OF TOTAL FEE
APPLIES: APPLIES: HOW IT WAS DETERMINED): TRANSACTION: PAID
<S> <C> <C> <C> <C>
$15,000,000* $15,000,000 $3,000
*maximum cash price for sale of
assets by the registrant
</TABLE>
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
Amount previously paid: ______________________________ Filing
Party: ____________________
Form, Schedule or
Registration Statement no.: ___________________________ Date
Filed: _____________________
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To the Shareholders of ThrustMaster, Inc.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders of
ThrustMaster, Inc., an Oregon Corporation (the "Company"), will be held at the
RiverPlace Hotel, located at 1510 Southwest Harbor Way, Portland, Oregon, on
September 24, 1999, at 2:00 p.m. local time, for the following purposes:
1. To approve the sale of substantially all of the Company's assets and amend
the Company's Articles of Incorporation to change the Company's corporate
name.
2. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on August 16, 1999 will be
entitled to notice of and to vote at the meeting, and any adjournments thereof.
YOUR VOTE IS VERY IMPORTANT. All shareholders are invited to attend the
meeting. Whether or not you plan to attend the meeting, please complete the
accompanying proxy and return it promptly in the enclosed return envelope. If
you attend the meeting, you may vote in person if you wish even if you have
returned your proxy.
By order of the Board of Directors,
/s/ FRANK G. HAUSMANN
--------------------------------------
Frank H. Hausmann
President and Chief Executive Officer
Hillsboro, Oregon
September 10, 1999
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[LOGO]
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
(PRELIMINARY COPY)
GENERAL
This proxy statement and the enclosed form of proxy are being mailed on or
about September 10, 1999, to shareholders of ThrustMaster, Inc., an Oregon
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the special meeting of
shareholders to be held on September 24, 1999, at 2:00 p.m. local time, at the
RiverPlace Hotel, located at 1510 Southwest Harbor Way, Portland, Oregon, and
any adjournment thereof (the "Special Meeting").
REVOCABILITY OF PROXIES
A shareholder giving a proxy has the power to revoke that proxy at any time
before it is exercised by filing with the Secretary of the Company an instrument
of revocation, or a duly exercised proxy bearing a later date, or by personally
attending and voting at the Special Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record at the close of business on August 16, 1999 (the
"Record Date") will be entitled to vote at the meeting. At the close of business
on the Record Date, there were 4,893,426 shares of the Company's common stock
("Common Stock") outstanding.
QUORUM AND VOTING
Each share of Common Stock entitles the holder thereof to one vote. Under
Oregon law, action may be taken on a matter submitted to shareholders only if a
quorum exists with respect to such matter. A majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting, present in person or
represented by proxy, will constitute a quorum.
If a quorum is present, action will be approved if the votes cast in favor
of the action exceed the votes cast opposing the action.
Shares represented by a properly executed proxy will be voted in accordance
with the shareholder's instructions if given. If no instructions are given,
shares will be voted "FOR" the approval of the sale of substantially all of the
Company's hardware assets to Guillemot Corporation, S.A., a French societe
anonyme ("Guillemot"), including the approval of the amendment of the Company's
Articles of Incorporation to change the Company's name from "ThrustMaster, Inc."
to " ," and in accordance with the recommendations of management on
any other matters properly brought before the Special Meeting. The Board of
Directors knows of no other matters to be presented for action at the meeting.
Proxies that expressly indicate an abstention as to a particular proposal
and broker non-votes will be counted for purposes of determining whether a
quorum exists at the Special Meeting, but will not be counted for any purposes
in determining whether a proposal is approved. Proxies and ballots will be
received and tabulated by ChaseMellon Shareholder Services, the Company's
transfer agent.
SOLICITATION OF PROXIES
This solicitation is being made on behalf of and the cost of soliciting
proxies will be borne by the Company. In addition to solicitation by mail,
certain of the Company's directors, officers, and regular employees may solicit
proxies personally or by telephone or other means without additional
compensation.
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Brokers, nominees and fiduciaries will be reimbursed in accordance with
customary practice for expenses incurred in obtaining proxies or authorizations
from the beneficial shareholders. Your cooperation in promptly completing,
signing, dating and returning the enclosed proxy card will help avoid additional
expense.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED SALE AND DETERMINED THAT THE PROPOSED SALE IS FAIR
AND IN THE BEST INTERESTS OF THRUSTMASTER, INC. AND ITS SHAREHOLDERS. THE BOARD
OF DIRECTORS HAS APPROVED THE PROPOSED SALE AND THE RELATED NAME CHANGE.
In arriving at its recommendation, the Board gave careful consideration to a
number of factors as described in this Proxy Statement, including the opinion of
its financial advisor for the proposed Sale, Broadview International, LLC, to
the effect that the consideration to be received by the Company is fair, from a
financial point of view, to the Company's shareholders. SEE "PROPOSAL--OPINION
OF FINANCIAL ADVISOR."
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains or incorporates by reference statements that
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical fact made in this Proxy Statement are forward-looking. In
particular, statements regarding the Company's future financial condition,
results of operations, cash flows, financing plans, business strategy, projected
costs and capital expenditures, and operations after the proposed Sale of
substantially all of the Company's operating assets are forward-looking
statements. Words such as "anticipate," "estimate," "expect," "project,"
"intend," and similar expressions are intended to identify forward-looking
statements, but the absence of these words does not mean that a statement is not
forward-looking. Forward-looking statements are subject to certain risks,
uncertainties and assumptions. All of these forward-looking statements are based
on estimates and assumptions made by the Company's management which, although
believed by the Company's management to be reasonable, are inherently uncertain.
Shareholders are cautioned that such forward-looking statements are not
guarantees of future performance or results and involve risks and uncertainties
and that actual results or developments may differ materially from the
forward-looking statements as a result of various considerations, including the
considerations described in this Proxy Statement.
PROPOSAL: APPROVAL OF SALE OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND THE
RELATED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO CHANGE THE
COMPANY'S NAME
On July 23, 1999, the Board of Directors approved the sale of the Company's
hardware business assets (the "Sale") to Guillemot for $15 million, subject to
certain adjustments, in cash in accordance with an asset purchase agreement to
be entered into between the Company and Guillemot. On July 26, 1999, the Company
entered into the Asset Purchase Agreement with Guillemot (the "Agreement"). In
the Agreement, the Company agreed to change its corporate name and to transfer
the rights to the name "ThrustMaster" to Guillemot. On , 1999 the Board
of Directors approved changing the Company's name from "ThrustMaster, Inc." to
" ."
Attached to this Proxy Statement as Exhibit A and incorporated in this Proxy
Statement by reference is a copy of the Agreement. Although the material terms
of the Agreement are summarized below, the summary does not purport to be
complete and is subject in all respects to the specific provisions of the
Agreement. Unless otherwise indicated, all references to the Company are to the
Company and its subsidiaries collectively. The Company's shareholders are urged
to and should read the Agreement carefully and in its entirety.
BUSINESS OF THE COMPANY.
HARDWARE BUSINESS (DISCONTINUED OPERATIONS)
The Company has historically been a developer and marketer of realistic,
high quality game controllers for the home personal computer ("PC") and video
console markets, which comprises the Company's hardware business. The Company
has established ThrustMaster-Registered Trademark- as a brand name recognized
for quality, value, durability and ease of use. ThrustMaster products enhance
the enjoyment of the PC, video game, and Internet entertainment experience and
appeal to a wide variety of users, from occasional game players to avid
enthusiasts. The Company's hardware products include racing wheels, joysticks,
game pads and flight simulation controllers. The Company's hardware products are
available in over 5,000 retail outlets in North America and Europe.
INTERNET COMMUNICATIONS SOFTWARE BUSINESS (CONTINUING OPERATIONS)
The Company's new Internet community, collaboration and communications
business currently consists of two software solutions in the WeCanTalk.com
portfolio: Talk n' Play and iConference. Both products are Internet
communications solutions that allow up to four people in separate locations to
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conduct a voice conference while playing games, sharing files, or visiting the
same or different Web sites over the Internet. On May 31, 1998 the Company
entered into a license agreement with Intel Corporation that licensed to the
Company certain software source code technology related to voice communications
over the Internet. The scope of the license was limited primarily to the PC
gaming and entertainment market where the bulk of the Company's historical
business activity was conducted. In December 1998, the Company re-negotiated the
license agreement and secured additional terms allowing it to use the technology
in additional market segments outside of PC gaming and entertainment.
In January 1999, the Company shipped its first Internet communications
software product into the distribution and retail channels. The product, called
Talk n' Play, incorporates the Intel technology and allows up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they play on-line games. The product also allows the user to participate
in certain Internet communities provided by PeopleLink, Inc., a provider of
outsourced Internet community communications. In June 1999, the Company shipped
its second Internet communications product, iConference, into the distribution
and retail channels, targeting the small-office/home-office market. iConference
provides the same four-way Internet voice conferencing capability as Talk n'
Play and adds the ability for up to four people to transfer files, share files
or share a white board while they are engaged in their voice conference.
In August 1999, the Company entered into a second license agreement with
Intel Corporation that licensed to the Company additional software source code
that the Company believes will enable it to accelerate the development of its
next generation Internet community, collaboration and communications products.
The Company intends to target these new products at the strategic Internet OEM
and PC-OEM channels. Most of the Company's year-to-date revenue from its new
Internet software business has been generated in the computer retail channel.
The Company shipped its first two Internet communications software products
into the computer distribution and retail channel because the Company had
established relationships in that channel through the sale of its hardware game
controller products. Moreover, there is significant overlap between the computer
software and computer hardware distribution and retail channels. However, the
computer distribution and retail channel is expensive. Distributors and
retailers demand significant financial commitments with respect to advertising
and marketing and provide little "in store" attention and support for a vendor's
products. As a result, the Company plans to significantly increase it's
advertising and marketing efforts to promote its software products.
The Company believes that Internet community, collaboration and
communications by the mass market is in an early stage of development but that
increasing demand for these services will develop with the convergence of
real-time data, voice and video multimedia interactivity over the Internet.
Currently, most of this technology is "server based." This requires a provider
of these services to buy additional computer equipment in order to constantly
"scale-up" to meet the increased demands of its subscribers or visitors. The
technology the Company licensed from Intel Corporation provides for
"client-to-client" solutions. This technology allows a provider to offer a
desktop client software solution that will allow its subscribers or visitors to
engage in real-time multimedia communications without being "tied" to the
provider's server. The Company believes that the future of Internet community,
collaboration and communications will be driven by open, standards-based,
"client-to-client" technology and solutions.
PRODUCTS
The Company's hardware products include racing wheels, joysticks, game pads
and flight simulation controllers. The Company closely monitors trends and
consumer preferences in the PC and video console entertainment markets, and
offers a broad line of competitively priced products at various price points.
The Company's software products are Internet communications solutions that
allows up to four people in four separate locations to simultaneously talk and
play games over the Internet.
- RACING WHEELS. The Company's introduction in 1994 of its Formula T1
driving control, consisting of a racing wheel, console, and brake and
accelerator pedals, helped create the PC racing wheel
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market. The Company later introduced the Formula T2 and the Grand Prix 1
racing wheels. After signing a licensing agreement with the National
Association for Stock Car Auto Racing, Inc. ("NASCAR"), the foremost
sanctioning body of stock car racing in North America, the Company
introduced the NASCAR Pro Racing Wheel in mid-1997. In the fourth quarter
of 1998, the Company started shipping the NASCAR Sprint, NASCAR Super
Sport, NASCAR Force GT and NASCAR Race Pro (video console product). NASCAR
racing is currently one of the fastest growing spectator sports in the
United States. In Europe, versions of the NASCAR products are marketed
under the Formula, rather than the NASCAR, name.
- JOYSTICKS. The Company offers a line of joysticks priced to appeal to
different consumers in the PC entertainment market. The Company's
joysticks offer a rich set of features that enhance the experience found
in today's action and adventure games. This product line includes the TOP
GUN-Registered Trademark- (game port), the TOP GUN USB ("Universal Serial
Bus"), the TOP GUN Platinum (includes throttle), the Frag Master, the
X-Fighter, and the Millennium 3D Inceptor.
- GAMEPADS. In November 1998, the Company began shipping the FUSION game pad
to address demand created by the popularity of action and multi-player PC
software titles. The FUSION game pad combines ergonomic design,
sophisticated technology and a variety of programmable buttons and
triggers to offer users maximum control in action, adventure and sports PC
games.
- FLIGHT SIMULATION CONTROLLERS. The Company manufacturers a broad line of
award-winning flight products designed to simulate the equipment found in
high-performance aircraft, including flight sticks, throttle controls and
rudder pedals. These products, the Company's initial offerings,
established the ThrustMaster name for realism and quality and offer flight
simulation enthusiasts a realistic PC interactive flight control system.
- VIDEO CONSOLE CONTROLLERS. In November 1998, the Company introduced three
controllers for the video console market: the Shockhammer for the Sony
PlayStation, the StingRay for the Nintendo 64, and the NASCAR and Formula
Race Pro Racing Wheels which are compatible with both the Sony and
Nintendo video console platforms.
- WECANTALK.COM. The Company has integrated new and cutting edge technology
licensed from Intel Corporation with the Company's proprietary software
technology to create software products that enable up to four people from
four separate locations to simultaneously conduct a voice conference while
playing games, sharing files, or visiting the same or different Web sites
over the Internet or to engage in other collaborative activities. The
Company shipped Talk n' Play into distribution channels in January 1999
and shipped iConference into distribution channels in late June 1999.
BUSINESS OF THE PURCHASER
Guillemot, a publicly-traded company in France, manufactures and resells a
broad range of computer peripheral products, including 3D graphics cards, sound
cards and game controllers. Guillemot sells these products throughout the world.
Guillemot's principal executive offices are located in Carentoir, France.
REASONS FOR THE PROPOSED SALE
The Company's revenues from the sale of its hardware products declined from
$45.5 million in fiscal 1997 to $25.9 million in fiscal 1998. Gross profit for
fiscal 1998 was $991,000, a decrease of $15,664,000, or 94.1%, compared to
$16,655,000 for fiscal 1997. As a percentage of revenues, the gross profit
percentage was 3.8% for fiscal 1998 and 36.6% for fiscal 1997. The Company
believes that these declines in revenues and gross profit percentage were
attributable primarily to increased competition, declining average selling
prices, and higher than normal product returns. In the quarters ended March 31,
1999 and June 30, 1999, the Company continued to experience higher than normal
returns and decreasing selling prices, resulting in a decrease in gross profit
percentage for the quarter ended March 31, 1999 compared to the same periods of
the prior year. As a percentage of revenues, gross profit was 21.6% for the
three months ended
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March 31, 1999 compared to 23.7% for the three months ended March 31,1998. The
Company recorded a negative gross margin for the quarter ended June 30, 1999.
The Company believes that the increasingly competitive market for joystick,
gamepad, and driving wheel products has put downward pressure on pricing, eroded
the Company's market position, and had a negative impact on the Company's
revenue growth and margins. The Company believes that the game controller market
is in a period of consolidation and that the Company will not be able to achieve
the economies of scale necessary to maintain market share and enhance
shareholder value.
The Company's management believes that there are significant opportunities
for the Company in Internet community, collaboration and communications. With
the proceeds from the Sale, the Company intends to grow and leverage its
technological capabilities, product offerings and partner/customer relationships
through make, license or buy arrangements. For example, the Company has
integrated new technology licensed from Intel Corporation with the Company's
proprietary software technology to create its WeCanTalk.com portfolio of
products. The Company intends to pursue additional products to market to the
Internet community.
SUMMARY OF THE TERMS OF THE AGREEMENT
On July 26, 1999, the Company entered into the Agreement with Guillemot,
providing for the sale by the Company to Guillemot of substantially all of the
Company's hardware business assets for approximately $15 million in cash,
subject to potential adjustments in certain circumstances.
Public announcement of the proposed Sale was disseminated by the Company on
July 27, 1999. On July 26, 1999, the trading day immediately preceding the date
of the announcement, the high and low sales prices for the Company's Common
Stock on the Nasdaq National Market were $21.125 and $20.75, respectively.
ASSETS AND LIABILITIES SUBJECT TO THE SALE
The assets to be sold by the Company consist of only those assets within the
Company's hardware business, and include the following:
- the Company's accounts receivable from the sale of its hardware products;
- the Company's inventory of hardware products;
- the Company's intellectual property rights related to the hardware
business;
- the Company's assignable agreements related to the hardware business;
- the Company's tooling, moulds, and other plastic injection equipment used
in the hardware business;
- the Company's prepaid expenses and deposits related exclusively to the
hardware business;
- the Company's sales-related materials related to the hardware business;
- the Company's computer software and firmware related to the hardware
business, including the Company's EDI software; and
- the Company's records and government licenses and permits related to the
hardware business.
The Company will retain all of its other assets, including all assets
related to its software business.
As part of the Sale, Guillemot will assume certain liabilities related to
the hardware business, including the following:
- trade accounts payable for products or services received for the benefit
of the hardware business after August 3, 1999 (the "Deposit Date");
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- the Company's contractual liabilities and obligations requiring
performance after the Deposit Date with respect to the intellectual
property rights to be acquired by Guillemot and the contractual rights to
be acquired by Guillemot;
- the Company's liabilities and obligations requiring performance after the
Deposit Date arising in connection with the computer software and firmware
to be acquired by Guillemot;
- all product sales and return warranty claims insofar as such claims may be
resolved by repair or replacement of the product; and
- the Company's liabilities and obligations requiring performance after the
Deposit Date arising under the government permits and licenses to be
acquired by Guillemot.
PURCHASE PRICE AND ADJUSTMENTS
The purchase price for the assets proposed to be sold by the Company is $15
million in cash, subject to certain possible adjustments discussed below.
The purchase price is subject to downward adjustments in the event that
Guillemot experiences certain levels of inventory return costs, price protection
costs, or uncollectible accounts receivable with respect to the assets it
acquires, each of which must exceed specified threshold amounts and certain
reserve allowances established by the Company's management.
The purchase price is subject to a downward or upward adjustment if the
total amount of the Company's assets being sold as of the Deposit Date differs
from the total of the Company's assets being sold as of May 31, 1999 (as
reflected on a May 31, 1999 balance sheet provided by the Company to Guillemot)
by more than $160,000.
The purchase price may be reduced if Guillemot receives less than $2 million
from the sale of the inventory acquired by Guillemot from the Company. The price
would be reduced by the difference between the amount received by Guillemot from
the sale of the inventory and $2 million.
The purchase price is also subject to a downward adjustment of $500,000 if
(i) the License Agreement (the "License Agreement"), dated as of March 1, 1997,
between the Company and NASCAR, which is to be assigned to Guillemot, is not
modified to allow Guillemot to sell the Company's NASCAR-branded inventory for
an additional 90 days after the period already provided for in such agreement
and (ii) the License Agreement is not extended or renewed by NASCAR. The
downward adjustment to the purchase price would only be $250,000 if the License
Agreement is not renewed or extended but NASCAR agrees to modify the agreement
to give Guillemot the extra 90-day period to sell the NASCAR-branded inventory.
CLOSING AND PRE-CLOSING PERIOD OPERATIONS
On the Deposit Date, Guillemot deposited $15 million cash into an escrow
account with West Coast Trust Co., Inc. If the Company's shareholders approve
the Sale and related name change at the Special Meeting, the Sale will close
within five business days of the approval, and the Company will receive $12.275
million in cash from the escrow account. The remainder of the funds in escrow
will continue to be held in escrow to secure any purchase price adjustments, if
any, that may be applicable. SEE "--PURCHASE PRICE AND ADJUSTMENTS." The
purchase price adjustments will be determined prior to May 31, 2000, subject to
any disputes between the Company and Guillemot.
After the Deposit Date and until the date that the Sale closes, the hardware
business will be operated on a custodial basis by Guillemot. The hardware
business assets remain subject to the ultimate control and direction of the
Company's management, subject to certain rights of Guillemot to object to
actions outside the ordinary course of business proposed to be taken by the
Company's management with respect to the hardware business assets. Guillemot and
the Company have set up a joint account, which will hold funds received from the
Company's accounts receivable after the Deposit Date related to the Company's
hardware business and certain amounts deposited by Guillemot (the "Interim
Account"). Guillemot will
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deposit in the Interim Account any funds necessary to pay any liabilities it is
to assume under the Agreement.
If the Company does not obtain the requisite shareholder approval for the
Sale by November 30, 1999 or if the Sale is not consummated for any other
reason, Guillemot will withdraw any amounts it has deposited in the Interim
Account that have not been applied to pay liabilities to be assumed by Guillemot
and all the hardware business assets will return to the Company's custody. In
such event, the Company may have to reimburse Guillemot for certain reasonable
expenses associated with Guillemot's services in connection with its pre-closing
servicing of the hardware business assets.
In connection with the negotiations for the Sale, Guillemot obtained
irrevocable proxies from eight shareholders of the Company representing 46.9% of
the Company's voting power, which gave representatives of Guillemot the power to
vote such shares for the approval of the Sale and the related name change. In
addition, three security holders of the Company, including the Company's Chief
Executive Officer, entered into a voting agreement that provides that each of
them will vote for the approval of the Sale and the name change. These three
shareholders represent 3.4% of the Company's voting power. The shares
represented by Guillemot's proxies combined with the shares subject to the
voting agreement represent more than 50% of the voting power of the Company's
capital stock.
There are no federal or state regulatory approvals necessary for the
consummation by the Company of the Sale other than the required approval of the
Company's shareholders, which the Company is seeking with this Proxy Statement.
OPINION OF FINANCIAL ADVISOR
Pursuant to a letter dated as of January 21, 1999, the Company engaged
Broadview International LLC ("Broadview") to act as financial advisor to the
Company's Board of Directors and to render an opinion to the Company's Board of
Directors regarding the fairness of the consideration to be received by the
Company in the proposed Sale, from a financial point of view, to the Company's
shareholders. The Company's Board of Directors selected Broadview to act as
financial advisor based on Broadview's reputation and experience in the
information technology communication and media industries. On July 23, 1999,
Broadview delivered its written opinion (the "Fairness Opinion") to the Board of
Directors of the Company that, as of the date of the Fairness Opinion, based
upon and subject to the various factors and assumptions described in the
Fairness Opinion, the consideration being paid to the Company for the hardware
business assets is fair, from a financial point of view, to the Company's
shareholders.
The Fairness Opinion, which describes the assumptions made, matters
considered and limitations on the review undertaken by Broadview, is attached as
Exhibit B to this Proxy Statement. The Company's shareholders are urged to and
should read the Fairness Opinion carefully and in its entirety. The Fairness
Opinion is directed to the Company's Board of Directors and addresses only the
fairness of the consideration from a financial point of view to the holders of
shares of the Company's Common Stock as of the date of the opinion. The Fairness
Opinion does not constitute a recommendation to any shareholder to vote his or
her shares in favor of the Proposal. The summary of the Fairness Opinion set
forth in this Proxy Statement, although materially complete, is qualified in its
entirety by reference to the full text of such opinion.
In developing the Fairness Opinion, Broadview, among other things:
- reviewed the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1998, including the audited financial statements
included therein, and the Company's quarterly report on Form 10-Q for the
period ended March 31, 1999, including the unaudited financial statements
included therein;
- reviewed the terms of the Agreement in the form of a draft dated July 22,
1999 (which, for the purposes of the Fairness Opinion, Broadview assumed
to be identical in all material respects to the Agreement as executed);
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- reviewed certain internal historical financial and operating data
concerning the Company's hardware business prepared and provided to
Broadview by the Company;
- reviewed certain quarterly financial and operational projections through
December 31, 2000 for the Company's hardware business prepared and
provided to Broadview by the Company's management;
- reviewed the reported closing prices and trading activity for the
Company's Common Stock both before and after the December 7, 1998
announcements of the Talk n' Play product line and the Company's
distribution arrangement with PeopleLink, Inc.;
- participated in discussions with the Company's management concerning the
operations, business strategy, financial performance and prospects for the
Company's hardware business;
- discussed with the Company's management its view of the strategic
rationale for the proposed Sale, as well as the financial viability of the
Company absent the Sale;
- compared certain aspects of the financial performance of the Company's
hardware business with public companies Broadview deemed comparable;
- analyzed available information, both public and private, concerning other
mergers and acquisitions Broadview believed to be comparable in whole or
in part to the proposed Sale;
- discussed with Guillemot's management its view of the strategic rationale
for the proposed Sale;
- participated in negotiations and discussions related to the Sale among the
Company, Guillemot and their financial and legal advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of the Fairness Opinion.
In rendering the Fairness Opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including, without limitation, the representations and warranties
contained in the Agreement) that was publicly available or furnished to
Broadview by the Company, Guillemot, or their respective advisors. With respect
to the financial projections examined by Broadview, Broadview assumed that they
were reasonably prepared and reflected the best available estimates and good
faith judgments of the management of the Company as to the future performance of
the hardware business.
For purposes of the Fairness Opinion, Broadview assumed that neither the
Company nor Guillemot was, as of the date of the Fairness Opinion, involved in
any material transaction other than the proposed Sale and those activities
undertaken in the ordinary course of conducting their respective businesses.
Broadview's opinion is necessarily based upon market, economic, financial and
other conditions as they existed and could be evaluated as of the date of the
Fairness Opinion, and any change in such conditions may impact its opinion.
Broadview expressed no opinion as to the price at which the Company's Common
Stock will trade at any time. Additionally, Broadview expressed no opinion as to
the value of the assets or businesses of the Company that are not included in
the proposed Sale.
The Fairness Opinion speaks only as of July 23, 1999. The opinion was for
the information of the Board of Directors of the Company in connection with its
consideration of the proposed Sale and does not constitute a recommendation to
any of the Company's shareholders as to how such shareholder should vote on the
proposed Sale.
The following is a brief summary of some of the information and valuation
methodologies employed by Broadview in rendering the Fairness Opinion. These
analyses were presented to the Company's Board of Directors at its meeting on
July 23, 1999. This summary includes all financial analyses used by Broadview
which were deemed to be material, but does not purport to be a complete
description of analyses performed by Broadview in arriving at its opinion.
Broadview did not explicitly assign any relative weights to the various factors
or analyses considered. In order to fully understand the financial analyses
10
<PAGE>
used by Broadview, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
Broadview's considerations were based on actual and projected results of the
Company's hardware business only. Historical operating results were adjusted to
reflect only the Company's hardware business' operating history and were
prepared and provided to Broadview by the Company's management. Broadview
employed analyses based on: (1) historical stock price performance, (2) public
company comparables, and (3) transaction comparables to determine the fairness
of the proposed Sale.
HISTORICAL STOCK PRICE PERFORMANCE. For comparative purposes, Broadview
examined the Company's Common Stock daily historical volume and trading prices
from July 22, 1998 through July 22, 1999. For the examination of the historical
prices and performance of the Company's publicly-traded Common Stock, Broadview
used market prices, which necessarily included considerations the public market
had made for the Company's non-hardware business.
PUBLIC COMPANY COMPARABLES ANALYSIS. Broadview considered ratios of share
price and equity market capitalization, adjusted for cash and debt when
appropriate, to selected historical and projected operating metrics to derive
multiples placed on a company in a particular market segment.
For this analysis, as well as other analyses, Broadview examined publicly
available information, a range of estimates based on securities research analyst
reports, and financial projections prepared by the Company's management.
Broadview reviewed and compared the financial operating and market performance
of the following group of six companies with that of the Company: ENCAD, Inc.;
Logitech International S.A.; MicroTouch Systems, Inc.; Planar Systems, Inc.; Key
Tronic Corp.; and Printronix, Inc. Collectively, these six companies comprise
the ThrustMaster Hardware Business Comparable Index.
The following table presents, as of July 22, 1999, the median multiples and
the range of multiples for the ThrustMaster Hardware Business Comparable Index
of total market capitalization (defined as equity market capitalization plus
total debt minus cash and cash equivalents) and equity market capitalization
divided by selected operating metrics:
<TABLE>
<CAPTION>
RANGE OF
MEDIAN MULTIPLE MULTIPLES
------------------- -----------------
<S> <C> <C>
Total Market Capitalization to Last Reported Twelve Months' Revenue.......... 0.56 0.46 - 0.83
Equity Market Capitalization to Book Value................................... 1.44 0.94 - 2.03
Total Market Capitalization to Projected Calendar Year 1999 Revenue.......... 0.52 0.41 - 0.72
</TABLE>
The following table presents, as of July 22, 1999, the median implied values
and the range of implied values of the Company's hardware business, derived in
each instance by using the multiples shown above and the appropriate company
hardware business operating metric (values stated in thousands of dollars):
<TABLE>
<CAPTION>
RANGE OF
MEDIAN IMPLIED VALUE IMPLIED VALUES
-------------------- ---------------------
<S> <C> <C>
Total Market Capitalization to Last Reported Twelve Months Revenue... $ 14,932 $ 12,308 - $22,181
Equity Market Capitalization to Book Value........................... $ 15,040 $ 9,773 - $21,117
Total Market Capitalization to Projected Calendar Year 1999
Revenue............................................................ $ 15,036 $ 11,942 - $20,970
</TABLE>
No company utilized in the public company comparables analysis as a
comparison is identical to the hardware business of the Company. In evaluating
the comparables, Broadview made numerous assumptions with respect to the
consumer gaming and external input/output peripherals product industries'
performance and general economic conditions, many of which are beyond the
control of the Company.
11
<PAGE>
Mathematical analysis, such as determining the median, average, or range, is not
in itself a meaningful method of using comparable company data.
TRANSACTION COMPARABLES ANALYSIS. Broadview considered ratios of equity
purchase price, adjusted for the seller's cash and debt when appropriate, to
selected historical operating results in order to indicate multiples strategic
and financial acquirers have been willing to pay for companies in a particular
market segment. In order to perform this analysis, Broadview reviewed a number
of transactions that it considered similar to the proposed Sale. Broadview
reviewed seven comparable merger and acquisition transactions that occurred
between January 1, 1997 and July 22, 1999 involving sellers in the consumer
gaming and external input/output peripherals product industries. For this
analysis, as well as other analyses, Broadview examined publicly available
information, as well as information from Broadview's proprietary database of
published and confidential merger and acquisition transactions in the
information technology, communication and media industries. The transactions
used were the acquisition of: Cambridge SoundWorks, Inc. by Creative
Technologies LTD.; Boca Research, Inc. by Infomatec Integrated Information
Systems AG; International Jensen Corp. by Recoton Corp.; Diamond Multimedia
Systems, Inc. by S3 Inc; Advanced Gravis Computer Technology Ltd. by American
Brands, Inc.; and Visioneer, Inc. (hardware business) by Primax Electronics Ltd.
Broadview also used a transaction that is confidential and that the Company
cannot identify in this Proxy Statement.
The following table presents, as of July 22, 1999, the median multiple and
the range of multiples of adjusted price (defined as equity price plus total
debt minus cash and cash equivalents) divided by the seller's revenue in the
last reported twelve months prior to acquisition for the transactions listed
above:
<TABLE>
<CAPTION>
RANGE OF
MEDIAN MULTIPLE MULTIPLES
----------------- ----------------
<S> <C> <C>
Adjusted Price to Last Reported Twelve Months' Revenue......................... 0.41x 0.10x - 0.80x
</TABLE>
The following table presents, as of July 22, 1999, the median implied value
and the range of implied values of the Company's hardware business, derived in
each instance by multiplying the multiples shown above by the Company's hardware
business' revenue for the twelve months ended June 30, 1999 (values stated in
thousands of dollars):
<TABLE>
<CAPTION>
RANGE OF IMPLIED
MEDIAN IMPLIED VALUE VALUES
-------------------- ----------------------
<S> <C> <C>
Adjusted Price to Last Reported Twelve Months Revenue............... $ 10,956 $2,791 - $21,120
</TABLE>
No transaction utilized as a comparable in the transaction comparables
analysis is identical to the proposed Sale. In evaluating the comparables,
Broadview made numerous assumptions with respect to the consumer gaming and
external input/output peripherals product industries' performance and general
economic conditions, many of which are beyond the control of the Company.
Mathematical analysis, such as determining the average, median, or range, is not
in itself a meaningful method of using comparable transaction data.
CONSIDERATION OF DISCOUNTED CASH FLOW VALUATION METHODOLOGY. While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of its opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
somewhat predictable streams of future cash flow. For a company such as the
Company, a preponderance of the value in a valuation based on discounted cash
flow will be in the terminal value of the entity, which is extremely sensitive
to assumptions about the sustainable long-term growth rate of the entity. Given
the uncertainty in estimating both the future cash flows and a sustainable
long-term growth rate for the Company, Broadview considered a discounted cash
flow analysis inappropriate for valuing the Company.
As mentioned above, Broadview performed a variety of financial and
comparative analyses in connection with the review of the proposed Sale by the
Company's Board of Directors. The summary set
12
<PAGE>
forth above does not purport to be a complete description of the analyses
performed by Broadview in connection with the proposed Sale.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Broadview considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Broadview believes that selecting any portion of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with respect
to industry performance and general business and economic conditions and other
matters, many of which are beyond the control of the Company or Guillemot. The
analyses performed by Broadview are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. The consideration to be paid in connection with the
proposed Sale and other terms of the Agreement were determined through arm's
length negotiations between the Company and Guillemot, and were approved by the
Company's Board of Directors. Broadview provided advice to the Company's Board
of Directors during these negotiations; however, Broadview did not recommend any
specific consideration to the Company's Board of Directors or that any specific
consideration constituted the only appropriate consideration for the proposed
Sale. In addition, Broadview's opinion and presentation to the Company's Board
of Directors was one of many factors taken into consideration by the Company's
Board of Directors in making its decision to approve the proposed Sale.
Consequently, the Broadview analyses as described above should not be viewed as
determinative of the opinion of the Company's Board of Directors with respect to
the value of Company's hardware business assets or of whether the Company's
Board of Directors would have been willing to agree to a different
consideration.
Upon completion of the proposed Sale, the Company will be obligated to pay
Broadview a transaction fee of approximately $600,000. The Company has already
paid Broadview a fee of $175,000 for the Fairness Opinion. The Fairness Opinion
fee will be credited against the transaction fee payable by the Company upon
completion of the proposed Sale. In addition, the Company has agreed to
reimburse Broadview for its reasonable expenses, including fees and expenses of
its counsel, and to indemnify Broadview and its affiliates against certain
liabilities and expenses related to their engagement, including any liabilities
under the federal securities laws. The terms of the fee arrangement with
Broadview, which the Company and Broadview believe are customary in transactions
of this nature, were negotiated at arm's length between the Company and
Broadview, and the Company's Board of Directors was aware of the nature of the
fee arrangement, including the fact that a significant portion of the fees
payable to Broadview is contingent upon completion of the proposed Sale.
USE OF PROCEEDS
The Company intends to use the proceeds from the Sale to pay expenses
incurred in connection with the Sale. The Company will use the remaining
proceeds to develop its software and Internet community, collaboration and
communications business.
ANTICIPATED ACCOUNTING TREATMENT
The transaction will be accounted for as a sale by the Company.
FEDERAL INCOME TAX CONSEQUENCES
The Company does not believe that there would be a significant gain
resulting from the Sale. Furthermore, any gain resulting from the Sale would be
offset by the Company's net operating losses and accordingly, the Company does
not expect any federal or state income tax liabilities resulting from the Sale.
There will be no direct federal or state income tax consequences to the holders
of the Company's Common Stock resulting from the Sale.
13
<PAGE>
TREATMENT OF EMPLOYEES
The Company intends to terminate all of the employees related to its
hardware business other than certain employees that will be retained for
short-term transitionary purposes. The Company intends to retain the services of
its employees within the Company's software business.
ACCELERATION OF OPTIONS
Under the terms of the Company's stock option plans, the Sale is an event
that would lead to the acceleration of all options held by the Company's
directors and by employees still employed with the Company on the date the Sale
is consummated. The Company adopted an acceleration of options policy that
provides that each employee of the Company that is terminated will have a
portion of such employee's unvested options accelerated in accordance with a
specified schedule, depending on the length of such employee's service with the
Company. In addition, the Company agreed to pay severance payments to the
employees it is terminating based on their number of years of service to the
Company.
The Company entered into agreements with each of its employees that it is
terminating to evidence this policy. As a result of this policy and the
Company's stock option plans, an aggregate of 403,645 options of the Company
will accelerate and become fully vested upon the consummation of the Sale and
the termination of certain employees of the Company. Options of terminated
employees that are not vested as a result of the policy discussed above or
otherwise will expire upon the employees' date of termination.
APPRAISAL/DISSENTER RIGHTS
Under Oregon law, holders of the Company's Common Stock are not entitled to
appraisal rights or similar dissenter rights for their shares in connection with
the proposed Sale.
INTERESTS OF CERTAIN PERSONS IN THE SALE
To the best of the Company's knowledge, no officer, director or holder of at
least five percent of the Company's Common Stock has a financial interest in the
Sale different from any other holder of the Company's Common Stock. SEE
"--ACCELERATION OF OPTIONS."
NO CHANGE IN RIGHTS OF SHAREHOLDERS
There will be no material differences in the rights of the Company's
shareholders as a result of the Sale.
NAME CHANGE
In connection with the Sale, the Company agreed to change its corporate name
and assigned the rights to the name "ThrustMaster" and any related trademarks to
Guillemot. The Board of Directors of the Company met on , 1999 and
approved changing the Company's name to " ." To effect this name
change, the Company will need to amend its Articles of Incorporation by filing
an Articles of Amendment with the Secretary of State of Oregon. The Company is
required to obtain shareholder approval to amend its Articles of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE SALE OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND THE
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S
NAME.
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership as of August 16, 1999 of the Company's Common Stock by (i) each
shareholder known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock, (ii) each director of the Company, (iii) the Company's
Chief Executive Officer and the Company's four most highly compensated executive
officers and (iv) all directors and executive officers as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OWNED(2)
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
C. Norman Winningstad(3)................................................................ 482,360 9.8
Sawtooth Capital Management, L.P.(4).................................................... 448,400 9.2
G. Gerald Pratt(5)...................................................................... 429,348 8.7
Robert A. Simms, Sr.(6)................................................................. 242,850 5.0
55 RAILROAD AVE.
GREENWICH, CT 06830
Milton R. Smith(7)...................................................................... 281,642 5.7
Robert L. Carter(8)..................................................................... 258,835 5.3
Frank G. Hausmann(9).................................................................... 190,000 3.7
G. Edward Brightman(10)................................................................. 107,774 2.2
Frederick M. Stevens(11)................................................................ 34,458 *
Graham E. Dorland(12)................................................................... 32,200 *
General Merrill A. McPeak(13)........................................................... 25,600 *
David A. McFeeters-Krone(14)............................................................ 0 *
Robert B. Smart(15)..................................................................... 0 *
All Executive Officers and Directors as a group (11 persons)(16)........................ 1,842,217 34.0
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner identified
is ThrustMaster, Inc., 7175 NW Evergreen Parkway #400, Hillsboro, Oregon
97124.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of this table, a person is
deemed to be the beneficial owner of securities that (i) can be acquired by
such person within 60 days upon the exercise of options or warrants and
(ii) are held by such person's spouse or other immediate family member
sharing such person's household. Each beneficial owner's percentage
ownership set forth below is determined by assuming that options and
warrants that are held by such person (but not those held by any other
person) and that are exercisable or convertible within 60 days after August
16, 1999, have been exercised or converted.
(3) Includes 53,000 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after August 16, 1999.
(4) Share ownership based on Schedule 13G filed March 22, 1999. Includes
250,480 shares beneficially owned by with Sawtooth Partners, L.P. Sawtooth
Capital Management, L.P. is a registered investment advisor whose clients,
including Sawtooth Partners, L.P., have the right to receive or the power
to direct the receipt of dividends from, or the proceeds from the sale of,
shares of Common Stock. No person, other than Sawtooth Partners, L.P.,
holds more than five percent of the shares. Sawtooth Capital Management,
L.P. is the sole general partner of Sawtooth Partners, L.P. Sawtooth
Capital Management, Inc. is the sole general partner of Sawtooth Capital
Management, L.P., and Bartley B.
15
<PAGE>
Blout is the controlling shareholder of Sawtooth Capital Management, Inc.
The address for all of these persons is 100 Wilshire Blvd., 15th Floor,
Santa Monica, CA 90401. This information is based on a Schedule 13G filed
.
(5) Includes 29,720 shares subject to options exercisable within 60 days after
August 16, 1999.
(6) Share ownership based on Schedule 13D/A filed May 17, 1999. Includes 36,950
shares beneficially owned by Simms Capital Management, Inc.
(7) Includes 79,160 shares subject to options exercisable within 60 days after
August 16, 1999.
(8) Includes 10,150 shares subject to options exercisable within 60 days after
August 16, 1999.
(9) Includes 190,000 shares subject to options exercisable within 60 days after
August 16, 1999.
(10) Includes 103,990 shares subject to options exercisable within 60 days
after August 16, 1999.
(11) Includes 4,738 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after August 16, 1999.
(12) Includes 2,480 shares beneficially owned with spouse and 29,720 shares
subject to options exercisable within 60 days after August 16, 1999.
(13) Includes 25,600 shares subject to options exercisable within 60 days after
August 16, 1999.
(14) Excludes 45,000 shares subject to options exercisable more than 60 days
after August 16, 1999.
(15) Excludes 45,000 shares subject to options exercisable more than 60 days
after August 16, 1999.
(16) Includes 527,780 shares subject to options exercisable within 60 days
after August 16, 1999. Excludes 90,000 shares subject to options
exercisable more than 60 days August 16, 1999.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has historically been a developer and marketer of realistic,
high quality game controllers for the home personal computer ("PC") and video
console markets, which comprises the Company's hardware business. The Company
has established ThrustMaster-Registered Trademark- as a brand name recognized
for quality, value, durability and ease of use. ThrustMaster products enhance
the enjoyment of the PC, video game, and Internet entertainment experience and
appeal to a wide variety of users, from occasional game players to avid
enthusiasts. The Company's hardware products include racing wheels, joysticks,
game pads and flight simulation controllers. The Company's hardware products are
available in over 5,000 retail outlets in North America and Europe.
The Company's new Internet community, collaboration and communications
business currently consists of two software solutions in the WeCanTalk.com
portfolio: Talk n' Play and iConference. Both products are Internet
communications solutions that allow up to four people in separate locations to
conduct a voice conference while playing games, sharing files, or visiting the
same or different Web sites over the Internet. To create these software
products, the Company integrated new and cutting edge technology licensed from
Intel Corporation with the Company's proprietary software technology. The
Company shipped Talk n' Play into distribution channels in January 1999 and
shipped iConference into distribution channels in late June 1999.
SALE OF HARDWARE BUSINESS (DISCONTINUED OPERATIONS)
On July 26, 1999, the Company entered into the Agreement for the sale of the
Company's hardware business assets and its sales and return warranty reserves to
Guillemot for $15 million in cash (cash is held in an escrow account pending
closing of the transaction), subject to certain adjustments. The Company's
hardware business has historically comprised the bulk of the Company's assets,
liabilities, revenues and expenses. From its founding in 1990 through 1997, the
Company was the leader in designing and marketing innovative PC game controller
products. However, commencing in 1997, many larger competitors with greater
economies of scale entered the game controller market, creating an extremely
competitive environment characterized by declining prices and increased
marketing costs. The Company's management determined that the Company could not
achieve the economies of scale necessary to be profitable in the game controller
market in the foreseeable future and concluded that the Company should sell the
hardware business and invest the proceeds in the Company's Internet community,
collaboration and communications business.
INTERNET COMMUNICATIONS SOFTWARE BUSINESS (CONTINUED OPERATIONS)
On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to the PC gaming and entertainment market where the bulk of
the Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional terms
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.
In January 1999, the Company shipped its first Internet communications
software product into the distribution and retail channels. The product, called
Talk n' Play, incorporates the Intel technology and allows up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they play on-line games. The product also allows the user to participate
in certain Internet communities provided by PeopleLink, Inc., a provider of
outsourced Internet community communications. In June 1999, the Company shipped
its second Internet communications product, iConference, into the distribution
and retail channels, targeting the small-office/home-office market. iConference
provides the
17
<PAGE>
same four-way Internet voice conferencing capability as Talk n' Play and adds
the ability for up to four people to transfer files, share files or share a
white board while they are engaged in their voice conference.
In August 1999, the Company entered into a second license agreement with
Intel Corporation that licensed to the Company additional software source code
that the Company believes will enable it to accelerate the development of its
next generation Internet community, collaboration and communications products.
The Company intends to target these new products at the strategic Internet OEM
and PC-OEM channels. Most of the Company's 1999 revenue from its new Internet
software business has been generated in the computer retail channel.
The Company shipped its first two Internet communications software products
into the computer distribution and retail channel because the Company had
established relationships in that channel through the sale of its hardware game
controller products. Moreover, there is significant overlap between the computer
software and computer hardware distribution and retail channels. However, the
computer distribution and retail channel is expensive. Distributors and
retailers demand significant financial commitments with respect to advertising
and marketing and provide little "in store" attention and support for a vendor's
products. As a result, the Company plans to significantly increase its
advertising and marketing efforts to promote its software products.
The Company believes that Internet community, collaboration and
communications by the mass market is in an early stage of development but that
increasing demand for these services will develop with the convergence of
real-time data, voice and video multimedia interactivity over the Internet.
Currently, most of this technology is "server based." This requires a provider
of these services to buy additional computer equipment in order to constantly
"scale-up" to meet the increased demands of its subscribers or visitors. The
technology the Company licensed from Intel Corporation provides for
"client-to-client" solutions. This technology allows a provider to offer a
desktop client software solution that will allow its subscribers or visitors to
engage in real-time multimedia communications without being "tied" to the
provider's server. The Company believes that the future of Internet community,
collaboration and communications will be driven by open, standards-based,
"client-to-client" technology and solutions.
The discussion below and the consolidated financial statements contained in
this Proxy Statement give effect to the Sale and treat the hardware business as
a discontinued operation. Even though the Company derived no revenues from its
software business prior to 1999 and did not begin operating its software
business until mid-1998, the consolidated financial statements contained herein
reflect certain overhead costs and interest income that is attributable to
general corporate purposes and continuing operations.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere in
this report.
RESULTS OF OPERATIONS
On July 26, 1999, the Company entered into an agreement to sell
substantially all of the assets of the hardware business and its sales and
return warranty reserves for approximately $15 million in cash (cash is held in
an escrow account pending closing of the transaction), subject to adjustments in
specified circumstances. The transaction is subject to customary closing
conditions, including formal approval by the Company's shareholders. Prior to
the expected closing in September 1999, the Company will continue to operate the
hardware business for the benefit of the purchaser. The continuing operations of
the Company consist of its software business, which began in mid-1998 and
generated minor revenues in 1999. On or before the closing, the Company is
expecting to reduce its workforce to match its future operations.
Because the Company did not derive any revenues from its software business
until early 1999, the Company cannot set forth the percentage of revenues
represented by certain items included in the Company's Consolidated Statements
of Operations.
18
<PAGE>
COMPARISONS OF YEARS ENDED DECEMBER 31, 1998 AND 1997
The Company did not derive any revenue from its continuing operations in
1998 or 1997. The hardware business has been accounted for as discontinued
operations, but certain expenses have been allocated to continued operations,
based on the number of employees remaining with the software business, their
related employee costs and overhead for facilities and other related costs and
corporate overhead expenses that are expected to represent continuing expenses.
RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$162,000 for 1998, an increase of 100% compared to 1997. This increase was a
result of software engineers and related costs allocated to 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $935,000 for 1998, an increase of $440,000 or
88.9%, compared to $495,000 in 1997. The increase in selling, general and
administrative expenses in 1998 was a result of employee costs and expenses
allocated to 1998.
INTEREST INCOME. Interest income for 1998 was $64,000. This compares with
interest income of $304,000 in 1997. Interest income represents earnings from
the investment of the cash balances of the Company.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company did not derive any revenue from its continuing operations in
1997 or 1998 and did not incur any research and engineering expenses in 1997 or
1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $495,000 for 1997, an increase of $55,000 or 12.5%,
compared to $440,000 in 1996. The increase in selling, general and
administrative expenses in 1997 was a result of an increase in employee costs
and expenses allocated to 1997.
INTEREST INCOME. Interest income for 1997 was $304,000. This compares with
interest income of $466,000 in 1996. Interest income represents earnings from
the investment of the cash balances of the Company.
INCOME/LOSS FROM DISCONTINUED OPERATIONS IN 1996, 1997, AND 1998
Income (loss) from discontinued operations of $2,233,000, $3,388,000 and
($8,023,000) represents the net activity of the discontinued hardware business,
including revenues and associated expenses and the resulting tax provision
(benefit) for the years ended December 31, 1996, 1997 and 1998, respectively.
Income (loss) from discontinued operations includes the entire tax provision
(benefit) of the Company for the years ended December 31, 1996, 1997 and 1998 as
management determined that income taxes (benefits) were primarily associated
with the hardware business because the software business had limited activity in
1998 and future taxable income is not reasonably predictable.
The significant loss incurred in 1998 in comparison to the previous two
years is primarily due to the influx of several large competitors late in 1997
with greater economies of scale, creating an extremely competitive environment
resulting in declining sales prices and increased marketing costs. Leading up to
and during part of 1997, the Company was one of the leaders in the game
controller market and was generating positive net income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of cash
flow from operations, borrowed funds, and proceeds from the sale of equity
securities.
19
<PAGE>
As of June 30, 1999 the Company owed $671,000 under its demand discretionary
$16,000,000 line of credit. On July 30, 1999, the Company paid off this line of
credit in full, and the lender and the Company terminated the line of credit.
Prior to its termination the line of credit bore interest at a fluctuating rate
equal to the prime rate plus 4% and was collateralized by substantially all of
the Company's assets.
On January 28, 1999, the Company issued to three investors an aggregate of
250,000 shares of the Company's Common Stock (subject to adjustment as described
below) and warrants exercisable for an aggregate of 70,754 shares of Common
Stock for an aggregate of $4,000,000. The exercise price applicable to 50% of
the shares issuable upon exercise of the warrants is $20.00 per share; the
exercise price for the remaining warrant shares is $22.40 per share. The Company
also agreed to issue to the investors "adjustment" shares of its Common Stock
for no additional consideration depending upon the market price of the Company's
Common Stock during specified periods following the investment. The adjustment
periods lapsed in July 1999 and the Company was not required to issue any
additional shares. The Company may elect, subject to the satisfaction of certain
conditions, to sell one additional tranche of equity investment to the
investors. As of the date hereof, the conditions to the additional tranche of
investment have not been satisfied. The amount of the additional tranche would
range from $1,000,000 to $6,000,000 depending on the price of the Company's
Common Stock at the time of the investment. The Company could be required to
issue additional shares of its Common Stock in connection with any additional
tranche of investment to ensure at least a 12.5% return to the investors.
On June 9, 1999, the Company issued and sold to two investors $6,000,000
aggregate principal amount of the Company's zero coupon Convertible Debentures
due June 9, 2002 (the "Debentures"). The Debentures may be converted into shares
of the Company's Common Stock at any time prior to June 9, 2002. The number of
shares into which each Debenture is convertible is equal to the outstanding
principal amount of the Debenture divided by the conversion price, which may
fluctuate from time to time.
On August 6, 1999, the Company entered into a binding letter of intent with
a single investor for the sale of 273,853 shares of the Company's Common Stock
for $18.258 per share. The Company entered into definitive documentation for the
sale on August 31, 1999 and received $5,000,008 in proceeds. In connection with
the sale, the Company agreed to issue a warrant for 30,000 shares of the
Company's Common Stock to the investor's financial consultant as a finder's fee.
The exercise price for this warrant is $18.258 per share.
Net cash used in operating activities was $5,020,000 in 1998, resulting
primarily from an increase in deferred income taxes and taxes receivable of
$6,410,000 and a net loss of $9,056,000, offset by a decrease in net assets from
discontinued operations of $6,474,000, depreciation of $1,124,000 and an
increase in payables and accrued liabilities of $2,942,000. Net cash used in
operating activities was $6,342,000 in 1997. The primary components of changes
in working capital in 1997 were an increase in net assets used in discontinued
operations of $10,494,000 and an offset from net income of $3,197,000 and from
an increase in payables and accrued liabilities of $792,000. Net cash used in
operating activities was $1,395,000 in 1996. The primary components of changes
in working capital in 1996 were an increase in net assets used in discontinued
operations of $7,670,000 and an offset from net income of $2,259,000 and from an
increase in payables and accrued liabilities of $3,684,000.
Capital expenditures for 1998, 1997, and 1996 were $359,000, $793,000, and
$335,000, respectively. These expenditures were primarily for new computer
equipment.
The Company believes that available funds to be generated by the sale of the
hardware business and the issuance of additional debt and equity as described
above or otherwise will be adequate to meet the Company's cash needs during the
next twelve months. The Company may require additional capital beyond the
amounts currently forecasted by the Company. Any such required additional
capital may not be available on reasonable terms, if at all, at such time or
times as required by the Company.
20
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 and cause system
failures or miscalculations or material disruptions of business operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business operations. If the Company
or its significant customers, suppliers, service providers and other related
third parties fail to take the necessary steps to correct or replace these
problematic computer programs, the Year 2000 issue could have a material adverse
effect on the Company. The Company cannot, however, quantify the impact at this
time.
The Company has begun upgrading or replacing the software packages
underlying its financial, production, communication, desktop and other systems,
as appropriate, to address the Year 2000 issue. It has also performed an in-
depth analysis of its products and begun to modify those that are not Year 2000
compliant. Moreover, the Company has begun to contact all major external third
parties that provide products and services to the Company to assess their
readiness for the Year 2000.
Management believes it has completed the review and assessment phase of
affected systems within the Company and those which are external to the Company.
This assessment indicated that most of the Company's significant internal
information systems could be affected by the Year 2000 issue, and that the
Company may be negatively impacted by non-compliance of related third parties.
The Company has begun the remediation phase of the Company's internal
information technology systems and has set September 1999 as the target for Year
2000 compliance of all of the Company's internal information technology systems.
The Company's internal information technology systems include its finance
systems and those systems used in the research and development of the Company's
products.
The Company is in the process of creating contingency plans for its internal
information technology systems. These contingency plans are expected to be in
place by September 30, 1999. In the event the Company's information technology
systems are not Year 2000 compliant by September 30, 1999, the Company will
decide at that time whether to implement the necessary contingency plans.
The Company has queried its important suppliers and service providers and
has obtained assurances from those third parties that they are or will be Year
2000 compliant. The inability of those parties to become Year 2000 compliant
could have a material adverse effect on the Company. The effects of non-
compliance by third parties where no system interface exists is not
determinable.
The Company has made and will continue to make investments in systems and
applications to address Year 2000 issues. The Company has not tracked all
internal resources dedicated to the resolution of the Year 2000 issue and,
therefore, is unable to quantify precisely internal costs incurred to date that
are associated with the Year 2000 issue. Identifiable expenditures for these
investments were approximately $46,000 through June 30, 1999. Management
estimates that additional expenditures in 1999 will total approximately $84,000.
Investments to address the Year 2000 issue have been, and are expected to be,
funded through cash generated from operations.
The Company's plans to complete the Year 2000 modifications are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events, including continued availability of certain resources, and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include the availability and
cost of personnel trained in this area and the ability to locate and correct all
relevant computer codes.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the Company
should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto. On July 23, 1999, the Board of
Directors of the Company approved the sale of the Company's hardware business
assets. The Company has presented the hardware business as a discontinued
operation in the selected consolidated financial data presented below. The
selected financial data set forth below for the Company as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
are derived from the audited financial statements included elsewhere herein. The
selected financial data set forth below for the Company as of December 31, 1994,
1995 and 1996 and for each of the two years in the period ended December 31,
1995 are derived from the consolidated financial statements not included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and engineering.......................................... $ -- $ -- $ -- $ -- (162)
Selling, general and administrative............................... (329) (397) (440) (495) (935)
Interest income..................................................... -- 404 466 304 64
--------- --------- --------- --------- ---------
Income (loss) from continuing operations............................ (329) 7 26 (191) (1,033)
Income (loss) from discontinued operations, net of tax provision
(benefit) of $633; $687; $1,370; $1,615 and ($5,792)(1)........... 1,467 1,354 2,233 3,388 (8,023)
--------- --------- --------- --------- ---------
Net income (loss)................................................... $ 1,138 $ 1,361 $ 2,259 $ 3,197 $ (9,056)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) from continuing operations per share
Basic............................................................. $ (0.15) $ 0.00 $ 0.01 $ (0.04) $ (0.24)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................................... $ (0.12) $ 0.00 $ 0.01 $ (0.04) $ (0.24)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations per share (1)
Basic............................................................. $ 0.65 $ 0.37 $ 0.53 $ 0.79 $ (1.83)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................................... $ 0.55 $ 0.33 $ 0.50 $ 0.73 $ (1.83)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding
Basic............................................................. 2,244 3,647 4,182 4,268 4,380
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................................... 2,684 4,060 4,468 4,660 4,380
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 2,230 $ 12,836 $ 15,253 $ 18,361 $ 10,685
Total assets........................................................ 4,346 14,910 20,896 26,092 25,954
Total liabilities................................................... 1,656 1,599 4,998 6,812 14,401
Total shareholders' equity.......................................... 2,690 13,311 15,898 19,280 11,553
</TABLE>
- ------------------------
(1) Income (loss) from discontinued operations net of tax provision (benefit)
and income (loss) from continuing operations per share amounts include a pro
forma income tax adjustment to reflect the Company as a C corporation,
rather than an S corporation, for federal and state income tax purposes for
the year ended December 31, 1994, and to exclude the cumulative effect on
deferred taxes in 1995 related to the conversion from an S corporation to a
C corporation.
22
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following tabulation reflects the historical net income (loss) per share
in comparison with the income (loss) from continuing operations per share after
giving effect to the proposed Sale. The information presented in this tabulation
should be read in conjunction with the description of the proposed Sale
contained in this Proxy Statement and the consolidated financial statements
appearing elsewhere herein and ThrustMaster's consolidated financial statements
included in ThrustMaster's 1998 Form 10K/ A, previously filed with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic Income (loss) per share:
Historical net income (loss)..................................... $ 0.54 $ 0.75 $ (2.07)
--------- --------- ---------
--------- --------- ---------
Income (loss) from continuing operations......................... $ 0.01 $ (0.04) $ (0.24)
--------- --------- ---------
--------- --------- ---------
Diluted income (loss) per share:
Historical net income (loss)..................................... $ 0.51 $ 0.69 $ (2.07)
--------- --------- ---------
--------- --------- ---------
Income (loss) from continuing operations......................... $ 0.01 $ (0.04) $ (0.24)
--------- --------- ---------
--------- --------- ---------
</TABLE>
BOOK VALUE PER SHARE (UNAUDITED)
The following tabulation reflects the historical net book value per share of
ThrustMaster's Common Stock in comparison with the continuing operations net
book value per share of ThrustMaster's Common Stock after giving effect to the
proposed Sale at July 26, 1999 based on 4,380,000 basic and diluted shares
outstanding for both the historical net book value and continuing operations net
book value. The information presented in this tabulation should be read in
conjunction with the description of the proposed Sale contained in this
information statement and the consolidated financial statements appearing
elsewhere herein and ThrustMaster's consolidated financial statements included
in ThrustMaster's 1998 Form 10K/A, previously filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
------------------------
<S> <C> <C>
PRO
HISTORICAL FORMA
----------- -----------
Book Value Per Share:
Basic and Diluted.................................................... $ 2.64 $ 2.64
</TABLE>
23
<PAGE>
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals to be presented at the 1999 Annual Meeting of
Shareholders must be received at the Company's principal executive offices no
later than October 1, 1999 in order to be included in the Company's proxy
statement and form of proxy relating to that meeting.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the following documents filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, is incorporated by reference in this Proxy Statement:
- Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and
June 30, 1999;
- Current Reports on Form 8-K filed on February 16, 1999 and June 14, 1999;
and
- All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, before September 24, 1999.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998, QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTERS ENDED MARCH
31, 1999 AND JUNE 30, 1999, CURRENT REPORTS ON FORM 8-K FILED ON FEBRUARY 16,
1999 AND JUNE 14, 1999, AND ANY DOCUMENTS SUBSEQUENTLY FILED BY THE COMPANY
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, BEFORE SEPTEMBER
24, 1999 MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE COMPANY. REQUESTS SHOULD BE DIRECTED TO THE SECRETARY, THRUSTMASTER, INC.,
7175 N.W. EVERGREEN PARKWAY #400, HILLSBORO, OREGON 97124.
Representatives of PricewaterhouseCoopers LLP will be in attendance at the
Special Meeting and will be given the opportunity to make a statement if they
wish to do so and will be available to respond to appropriate questions.
/s/ FRANK G. HAUSMANN
--------------------------------------
President and Chief Executive Officer
Portland, Oregon
September 10, 1999
24
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets--As of December 31, 1997 and 1998.............................................. F-3
Consolidated Statements of Operations--For each of the three years in the
period ended December 31, 1998........................................................................... F-4
Consolidated Statements of Cash Flows--For each of the three years in the
period ended December 31, 1998........................................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity--For each of the
three years in the period ended December 31, 1998........................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of ThrustMaster, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index on the preceding page present fairly, in all material
respects, the financial position of ThrustMaster, Inc. and its subsidiary (the
"Company") at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
January 25, 1999, except as to Note 14, which is as of January 28, 1999, and
except as to Notes 1 and 3, which are as of July 26, 1999
F-2
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 449 $ 460
Prepaid expenses and other................................................................ 40 134
Net assets from discontinued operations................................................... 24,211 17,737
Income taxes receivable................................................................... -- 2,078
Deferred income taxes..................................................................... 409 4,677
--------- ---------
Total current assets...................................................................... 25,109 25,086
Plant and equipment, net.................................................................... 955 843
Other....................................................................................... 28 25
--------- ---------
Total assets............................................................................ $ 26,092 $ 25,954
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating line of credit.................................................................. $ 1,110 $ 5,821
Accounts payable.......................................................................... 2,919 7,202
Accrued liabilities....................................................................... 2,719 1,378
--------- ---------
Total current liabilities................................................................... 6,748 14,401
Deferred income taxes....................................................................... 64 --
--------- ---------
Total liabilities....................................................................... 6,812 14,401
--------- ---------
Commitments (Note 9)
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized;
none issued or outstanding.............................................................. -- --
Common stock, no par value, 25,000,000 shares authorized;
4,293,588 and 4,597,333 shares issued and outstanding................................... 13,486 14,846
Retained earnings (accumulated deficit)................................................... 5,794 (3,262)
Cumulative translation adjustment......................................................... -- (31)
--------- ---------
Total shareholders' equity.............................................................. 19,280 11,553
--------- ---------
Total liabilities and shareholders' equity.............................................. $ 26,092 $ 25,954
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Operating expenses:
Research and engineering.......................................................... $ -- $ -- $ (162)
Selling, general and administrative............................................... (440) (495) (935)
Interest income..................................................................... 466 304 64
--------- --------- ---------
Income (loss) from continuing operations............................................ 26 (191) (1,033)
Income (loss) from discontinued operations,
net of tax provision (benefit) of $1,370; $1,615 and ($5,792)..................... 2,233 3,388 (8,023)
--------- --------- ---------
Net income (loss)................................................................. $ 2,259 $ 3,197 $ (9,056)
--------- --------- ---------
--------- --------- ---------
Income (loss) from continuing operations per share
Basic............................................................................. $ 0.01 $ (0.04) $ (0.24)
--------- --------- ---------
--------- --------- ---------
Diluted........................................................................... $ 0.01 $ (0.04) $ (0.24)
--------- --------- ---------
--------- --------- ---------
Income (loss) from discontinued operations per share
Basic............................................................................. $ 0.53 $ 0.79 $ (1.83)
--------- --------- ---------
--------- --------- ---------
Diluted........................................................................... $ 0.50 $ 0.73 $ (1.83)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding
Basic............................................................................. 4,182 4,268 4,380
--------- --------- ---------
--------- --------- ---------
Diluted........................................................................... 4,468 4,660 4,380
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
--------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operations:
Income (loss) from continuing operations....................................... $ 26 $ (191) $ (1,033)
Income (loss) from discontinued operations..................................... 2,233 3,388 (8,023)
--------- ---------- ---------
Net income (loss).............................................................. 2,259 3,197 (9,056)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation................................................................. 198 471 1,124
Deferred income taxes and taxes receivable................................... (152) (127) (6,410)
Change in operating assets and liabilities:
Prepaid expenses and other assets.......................................... 286 (181) (94)
Payables and accrued liabilities........................................... 3,684 792 2,942
Change in net assets from discontinued operations............................ (7,670) (10,494) 6,474
--------- ---------- ---------
Net cash used in operating activities.................................... (1,395) (6,342) (5,020)
--------- ---------- ---------
Cash flows from investing activities:
Purchases of plant and equipment............................................... (335) (793) (359)
--------- ---------- ---------
Cash flows from financing activities:
Proceeds from operating line of credit......................................... -- 1,110 4,711
Payments on long-term debt..................................................... (11) (10) --
Proceeds from issuance of common stock......................................... 71 64 679
--------- ---------- ---------
Net cash provided by financing activities................................ 60 1,164 5,390
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents..................... (1,670) (5,971) 11
Cash and cash equivalents, beginning of year..................................... 8,090 6,420 449
--------- ---------- ---------
Cash and cash equivalents, end of year........................................... $ 6,420 $ 449 $ 460
--------- ---------- ---------
--------- ---------- ---------
Cash paid during the year for:
Interest......................................................................... $ 1 $ 19 $ 183
Income taxes..................................................................... 47 1,531 1,025
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
COMMON STOCK EARNINGS OTHER
---------------------- (ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT DEFICIT) LOSS INCOME (LOSS)
----------- --------- ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996....................... 3,953 $ 11,877 $ 1,434
Proceeds from issuance of common stock....... 164 71 --
Tax benefits from stock options exercised.... -- 257 --
Stock dividend declared...................... 123 1,096 (1,096)
Net income................................... -- -- 2,259 -- $ 2,259
----- --------- ------------ --- -------
Balance, December 31, 1996..................... 4,240 13,301 2,597 --
Comprehensive income 1996.................... 2,259
-------
-------
Proceeds from issuance of common stock....... 54 64 --
Tax benefits from stock options exercised.... -- 121 --
Net income................................... -- -- 3,197 -- 3,197
----- --------- ------------ --- -------
Balance, December 31, 1997..................... 4,294 13,486 5,794 --
Comprehensive income 1997.................... 3,197
-------
-------
Proceeds from issuance of common stock....... 303 679 --
Tax benefits from stock options exercised.... -- 681 --
Translation Adjustment....................... -- -- -- $ (31) (31)
Net loss..................................... -- -- (9,056) -- (9,056)
----- --------- ------------ --- -------
Balance, December 31, 1998..................... 4,597 $ 14,846 $ (3,262)
----- --------- ------------
----- --------- ------------
Comprehensive loss 1998...................... $ (31) $ (9,087)
--- -------
--- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--THE COMPANY
The consolidated financial statements include the accounts of ThrustMaster,
Inc., (the "Company"), an Oregon corporation, and its wholly-owned subsidiaries,
ThrustMaster (Europe) Limited, and its wholly owned subsidiary ThrustMaster
(Deutschland) GmbH. The Company was incorporated on July 31, 1990. The Company
is a developer and marketer of realistic, high quality game controllers and
software solutions designed to enhance the personal computer and video console
entertainment experience.
On July 26, 1999, the Company entered into an agreement to sell
substantially all of the assets of the hardware business and sales and return
warranty reserves for approximately $15 million in cash which is being held in
an escrow account pending closing of the transaction, subject to adjustments in
specified circumstances. While the transaction is subject to customary closing
conditions, including formal approval by the Company's shareholders, the
purchaser has received irrevocable proxies from shareholders representing more
than 46.9 percent of the Company's outstanding shares approving the transaction,
and three security holders (representing 3.4 percent of the Company's
outstanding shares), including the Company's Chief Executive Officer, entered
into a voting agreement to approve the transaction. Prior to the expected
closing in September 1999, the Company will continue to operate the hardware
business for the benefit of the purchaser. The continuing operations of the
Company consist of its software business which began in mid-1998 and generated
minor revenues in 1999. On or before the closing, the Company is expecting to
reduce its workforce to match its future operations.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.
HARDWARE INVENTORIES. Inventories are stated at the lower of cost or market
on a first-in, first-out basis. Finished goods are costed using standard costs,
which approximates the first-in, first-out method of accounting. No software
inventories existed at or before December 31, 1998. See Note 3.
PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated useful lives
(three to seven years). Replacements and improvements which extend the useful
life are capitalized. Maintenance and repairs and routine replacements are
expensed as incurred. Upon disposal, costs and related accumulated depreciation
of the assets are removed from the accounts and resulting gains and losses are
reflected in operations. See Note 3.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
reporting and tax bases of assets and liabilities and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of change. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amounts expected to be realized.
REVENUE RECOGNITION. Revenue is recognized at the time of product shipment.
All hardware products have a warranty for one year from date of sale covering
product defects. Certain sales agreements provide the right to return unsold
merchandise. The Company provides for estimated costs of warranty and returns
F-7
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
when products are shipped. The Company offers price protection to certain
customers on its products. At the time of a price reduction, the Company records
this price protection as a reduction of revenues.
RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs are
charged to operations as incurred.
ADVERTISING. Advertising costs, which include cooperative advertising and
marketing development funds, are expensed as incurred.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS. The Company maintains a
sales and hardware distribution office and warehouse in Surrey, England, through
which all of its European hardware sales are made. The financial statements of
the Company's operations in the United Kingdom have been translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, "Foreign Currency Translation. "Certain of the Company's hardware sales
to foreign distributors are denominated in foreign currencies. Gains and losses
associated with foreign currency transactions are recorded in the Company's
consolidated financial statements at the settlement date. Gains and losses
associated with foreign currency receivables are recorded based upon the
exchange rate at the end of the period.
EARNINGS PER SHARE DATA. Basic earnings per common share is computed using
the weighted average number of shares of common stock outstanding for the
period. Diluted earnings per common share is computed using the weighted average
number of shares of common stock and dilutive common equivalent shares
outstanding during the year. Common equivalent shares from stock options are
excluded from the computation when their effect is antidilutive.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 3--DISPOSAL OF HARDWARE BUSINESS ASSETS
As described in Note 1, the Company entered into an agreement on July 26,
1999 to sell substantially all of the assets of the hardware business, including
its sales and return warranty reserves, for approximately $15 million in cash.
The hardware business has been accounted for as discontinued operations, and
accordingly, its operations are segregated in the accompanying statement of
operations. Revenues from these operations were $30,821; $45,494 and $25,905 for
the years ended December 31, 1996, 1997 and 1998, respectively. Certain expenses
have been allocated to continuing operations, including interest income, based
on the number of employees remaining with the software business, their related
employee costs and overhead for facilities and other related costs and corporate
overhead expenses that are expected
F-8
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--DISPOSAL OF HARDWARE BUSINESS ASSETS (CONTINUED)
to represent continuing operations. The components of net assets from
discontinued operations included in the consolidated balance sheets at December
31, 1997 and 1998, follow:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accounts receivable, net................................................ $ 16,604 $ 10,581
Inventories, net........................................................ 6,974 6,786
Prepaid expenses and other.............................................. 254 118
Tooling, net............................................................ 1,164 1,507
Sales and return warranty reserves...................................... (785) (1,255)
--------- ---------
Total net assets from discountinued operations........................ $ 24,211 $ 17,737
--------- ---------
--------- ---------
</TABLE>
NOTE 4--CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS, AND MAJOR HARDWARE
CUSTOMER INFORMATION
The financial instrument that potentially subjects the Company to
concentration of credit risk is hardware accounts receivable. The Company's
hardware accounts receivable are primarily from a small number of computer
wholesale distributors and software specialty stores located in the United
States, Canada, and western Europe. Management believes that any risk of loss is
significantly reduced by its ongoing credit evaluations of its customers'
financial condition.
In 1996, no hardware customer individually accounted for more than 10% of
revenues of discontinued operations. In 1997, two hardware customers accounted
for 11.8% and 10.4% of revenues, respectively. In 1998, two hardware customers
accounted for 12.8% and 12.4% of revenues of discontiuned operations.
Certain of the Company's game controllers designed to enhance the personal
computer, video game, and internet entertainment experience are manufactured and
assembled in Taiwan and China by independent contractors. Hardware products
manufactured and assembled by one of these vendors approximated 74.3%, 89.9%,
and 91.8% of total hardware product purchases in 1996, 1997, and 1998,
respectively.
Net hardware revenue by geographic region and as a percentage of total
hardware revenue for Europe which constituted more than 10% of the Company's
total hardware revenue is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net hardware revenue by geographic region.................... $ 10,225 $ 13,473 $ 9,256
Net hardware revenue as a % of total hardware revenue........ 33.2% 29.6% 35.7%
</TABLE>
The Company's U.K. operations accounted for substantially all of the
Company's European hardware sales. Identifiable hardware assets of the Company's
U.K. operations were $2,937 at December 31, 1998.
F-9
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--HARDWARE INVENTORIES
Hardware inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 1,062 $ 1,072
Work-in-progress........................................................... 49 34
Finished goods............................................................. 5,863 5,680
--------- ---------
$ 6,974 $ 6,786
--------- ---------
--------- ---------
</TABLE>
NOTE 6--PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computers and other equipment............................................ $ 1,652 $ 1,961
Furniture and fixtures................................................... 343 393
--------- ---------
1,995 2,354
Accumulated depreciation................................................. (1,040) (1,511)
--------- ---------
$ 955 $ 843
--------- ---------
--------- ---------
</TABLE>
NOTE 7--OPERATING LINE OF CREDIT
At December 31, 1998, the Company has a revolving line of credit pursuant to
which it may borrow up to the lesser of $16,000 or 50% of eligible receivables
and 50% of eligible inventory (subject to an inventory sub-limit of $2,500).
Borrowings are payable on demand and bear interest at a fluctuating rate equal
to the prime rate plus 2% which was 9.75% as of December 31, 1998. The line of
credit is scheduled for review in October 1999 and is collateralized by
substantially all the Company's assets. The line of credit is a "demand
discretionary" credit facility and does not require the Company to maintain
working capital and debt-to-equity ratios. At December 31, 1998, $5,821 was
outstanding under the facility and the Company was in compliance with all loan
covenants. At December 31, 1998, the Company had $826 available to borrow on the
operating line of credit.
F-10
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued payroll and payroll liabilities.................................... $ 208 $ 265
Accrued bonuses............................................................ 601 35
Federal and state income taxes............................................. 1,056 --
Accrued commissions........................................................ 771 354
Other liabilities.......................................................... 83 724
--------- ---------
$ 2,719 $ 1,378
--------- ---------
--------- ---------
</TABLE>
A portion of the compensation paid by the Company to certain officers is
determined based upon the Company's revenues and net income for the year. The
Company recorded expense of $251 in 1996, $289 in 1997, and $25 in 1998 related
to such amounts.
NOTE 9--COMMITMENTS
The Company leases facilities and equipment under non-cancelable operating
leases. Certain of the facility leases contain escalation clauses. The following
is a schedule by years, through expiration of the facilities leases, of future
minimum lease payments required under these leases as of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
1999.............................................................. $ 705
2000.............................................................. 701
2001.............................................................. 705
2002.............................................................. 725
2003.............................................................. 580
2004.............................................................. 188
2005.............................................................. 188
2006.............................................................. 188
2007.............................................................. 126
</TABLE>
Under the agreements for the lease of its office, production, and
distribution facilities, the Company is obligated to the lessors for its share
of certain expenses related to the use, operation, maintenance and insurance of
the property. These expenses, payable monthly in addition to the base rent, are
not included in the amounts shown above. Rental expense totaled $236, $438 and
$767 for the years ended December 31, 1996, 1997, and 1998, respectively.
NOTE 10--STOCK OPTION PLANS AND WARRANTS
The Company has adopted a stock option plan for employees and directors (the
"1998 Stock Option Plan"). The Company has reserved 1,000,000 shares for
issuance under the 1998 Stock Option Plan. The plan provides for incentive stock
options and nonqualified options to be granted. The Company previously made
grants under the 1994 Stock Option Plan, the 1994 Directors' Stock Option Plan,
and a nonqualified plan adopted in 1990 in which 1,200,000 shares had been
reserved. In May 1998, any ungranted options
F-11
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--STOCK OPTION PLANS AND WARRANTS (CONTINUED)
and any future forfeitures under the 1994 and 1990 option plans were transferred
to the 1998 Stock Option Plan.
The stock option plans generally require the price of options to be at the
estimated fair market value of the stock at the date of grant. Options have a
maximum duration of ten years (five years under certain circumstances) and may
be exercised in varying amounts over the vesting periods. During 1998, the Board
of Directors approved a stock option repricing for all executives and employees
of the Company. The repricing was effective as of October 1, 1998.
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------
AVAILABLE
UNDER OPTION FOR GRANT
------------- ----------
<S> <C> <C>
Balance, January 1, 1996.......................................... 700,606 629,869
Granted ($4.125 to $7.625 per share).............................. 340,930 (340,930)
Exercised ($0.25 to $0.75 per share).............................. (169,023) --
Cancelled( $0.485 to $5.34 per share)............................. (138,535) 138,535
------------- ----------
Balance, December 31, 1996........................................ 733,978 427,474
Granted ($8.675 to $15.75 per share).............................. 243,470 (243,470)
Exercised ($0.243 to $8.495 per share)............................ (41,394) --
Cancelled ($4.733 to $8.75 per share)............................. (40,233) 40,233
------------- ----------
Balance, December 31, 1997........................................ 895,821 224,237
Authorization of additional shares................................ -- 1,000,000
Granted ($2.75 to $12.375 per share).............................. 811,190 (811,190)
Exercised ($0.243 to $8.617 per share)............................ (303,745) --
Cancelled ($0.243 to $15.75 per share)............................ (357,349) 357,349
------------- ----------
Balance, December 31, 1998........................................ 1,045,917 770,396
------------- ----------
------------- ----------
</TABLE>
The exercise price of the outstanding options at December 31, 1998 ranged
between $0.24 and $15.75 per share. The weighted average exercise price of
outstanding options was $4.12 at December 31, 1998.
F-12
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--STOCK OPTION PLANS AND WARRANTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -------------------------
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE AT DECEMBER CONTRACTUAL EXERCISE AT DECEMBER EXERCISE
PRICES 31, 1998 REMAINING LIFE PRICE 31, 1998 PRICE
- ----------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.24--$0.73 128,488 4.1 $ 0.36 128,488 $ 0.36
$2.43--$3.00 292,400 8.2 2.77 82,400 2.52
$3.50--$5.34 475,728 8.6 4.04 74,372 4.94
$8.62--$8.75 89,801 8.2 8.68 20,712 8.68
$11.50--$12.38 49,500 9.2 12.07 -- --
$15.75 10,000 8.8 15.75 2,500 15.75
------------ ------------
Total 1,045,917 308,472
------------ ------------
------------ ------------
</TABLE>
During 1995, warrants to purchase 139,050 shares were granted at a price of
$7.57 per share. There were 117,151 warrants outstanding at December 31, 1998.
The Company applies Accounting Principles Bulletin Opinion No. 25 and
related interpretations in accounting for its plans. However, in accordance with
SFAS No. 123, pro forma disclosures as if the Company adopted the cost
recognition requirements under SFAS No. 123 for all awards subsequent to January
1, 1995, are presented below.
The fair value of each option granted during the years ended 1996, 1997 and
1998 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: (i) average dividend yield of 0%, (ii)
expected volatility of 28.8% for 1996, 26.7% for 1997, and 33.9% for 1998, (iii)
expected average life of 3.3 years. The risk-free interest rate (equivalent to
the zero coupon treasury rate) at the date of grant ranged from 4.8% to 6.3% for
1996, from 5.9% to 6.8% for 1997, and from 4.1% to 5.6% for 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)--as reported.................................. $ 2,259 $ 3,197 $ (9,056)
Net income (loss)--pro forma.................................... 2,173 2,987 (9,321)
Net income (loss) per share--as reported
Basic......................................................... 0.54 0.75 (2.07)
Diluted....................................................... 0.51 0.69 (2.07)
Net income (loss) per share--pro forma
Basic......................................................... 0.52 0.70 (2.13)
Diluted....................................................... 0.49 0.64 (2.13)
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure is not
indicative of future amounts.
F-13
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11--INCOME TAXES
As described in Note 3, certain expenses including interest income have been
allocated to continuing operations. Income (loss) from continuing operations
were $26; $(191) and $(1,033) for the years ended December 31, 1996, 1997 and
1998, respectively. Based upon the history of losses from continuing operations,
no provision for (benefit) from income taxes are provided for income (loss) from
continuing operations.
The provision for (benefit from) income taxes from discontinued operations
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal....................................................... $ 1,256 $ 1,535 $ (2,224)
State......................................................... 266 207 --
--------- --------- ---------
Total current................................................. 1,522 1,742 (2,224)
--------- --------- ---------
Deferred:
Federal....................................................... (126) (105) (2,591)
State......................................................... (26) (22) (977)
--------- --------- ---------
Total deferred................................................ (152) (127) (3,568)
--------- --------- ---------
Total....................................................... $ 1,370 $ 1,615 $ (5,792)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for (benefit from) income taxes related to discontinued
operations differs from the amount of income taxes determined by applying the
statutory federal income tax rate to income (loss) from discontinued operations
due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate........................................... 34.0% 34.0% (34.0)%
State income taxes, net of federal income tax benefit............ 4.4 2.2 (4.4)
Effect of research and experimentation tax credit and other...... (0.4) (3.9) (3.5)
--- --- ---------
Effective income tax rate........................................ 38.0% 32.3% (41.9)%
--- --- ---------
--- --- ---------
</TABLE>
F-14
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11--INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax asset:
Expenses and allowances not currently deductible........................... $ 409 $ 1,158
Net operating loss carryforwards........................................... 2,938
Credit carryforwards....................................................... 581
Deferred tax liability:
Excess tax over book depreciation and amortization......................... (64) --
--------- ---------
Net deferred tax asset....................................................... $ 345 $ 4,677
--------- ---------
--------- ---------
</TABLE>
The Company has federal and state net operating loss carryforwards of $6,000
and $13,900 respectively, that expire in 2018. The Company has accumulated
unused research and experimentation credits of approximately $417 that expire
from 2012-2019. The Company also has Alternative Minimum Tax (AMT) credits in
the amount of $164 which may be carried forward indefinitely.
F-15
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted computations of earnings per share:
<TABLE>
<CAPTION>
INCOME PER SHARE
(LOSS) SHARES AMOUNT
--------- ----------- -----------
<S> <C> <C> <C>
Year Ended December 31, 1998
- -----------------------------------------------------------------
Basic earnings (loss) per share:
Loss available to common shareholders.......................... $ (9,056) 4,380 $ (2.07)
-----------
-----------
Effect of dilutive securities Stock options issuable............. -- --
--------- -----
Diluted earnings (loss) per share:
Loss available to common shareholders.......................... $ (9,056) 4,380 $ (2.07)
--------- ----- -----------
--------- ----- -----------
Year Ended December 31, 1997
- -----------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders........................ $ 3,197 4,268 $ 0.75
-----------
-----------
Effect of dilutive securities Stock options issuable............. -- 392
--------- -----
Diluted earnings per share:
Income available to common shareholders........................ $ 3,197 4,660 $ 0.69
--------- ----- -----------
--------- ----- -----------
Year Ended December 31, 1996
- -----------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders........................ $ 2,259 4,182 $ 0.54
-----------
-----------
Effect of dilutive securities Stock options issuable............. -- 286
--------- -----
Diluted earnings per share:
Income available to common shareholders........................ $ 2,259 4,468 $ 0.51
--------- ----- -----------
--------- ----- -----------
</TABLE>
NOTE 13--401(K) PLAN
The Company has a 401(k) Plan (the "Plan") covering substantially all
employees meeting minimum service requirements. The Plan allows the Company to
make discretionary matching contributions. The Company provided discretionary
contributions of $35, $45, and $46 for the years ended December 31, 1996, 1997,
and 1998, respectively.
NOTE 14--SUBSEQUENT EVENT
On January 28, 1999, and in connection with equity line financing provided
to the Company, the Company issued to three investors an aggregate of 250,000
shares of the Company's Common Stock and warrants exercisable for an aggregate
of 70,754 shares of Common Stock. The purchase price for the Common Stock issued
to the investors was $16.00 per share. The exercise price applicable to 50% of
the shares issuable upon exercise of the warrants is $20.00 per share; the
exercise price for the remaining warrant shares is $22.40 per share. The Company
may elect, at its sole discretion, that two additional
F-16
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--SUBSEQUENT EVENT (CONTINUED)
tranches of investment be made under the equity line. The amount of each
additional tranche would range from $1,000, to $6,000, depending on the price of
the Common Stock at the time of the investment. Warrants to purchase additional
shares of Common Stock will be issued if the aggregate investment under the line
exceeds $12,000. The equity line includes a "reset" mechanism which may result
in the issuance to the investors of additional shares of Common Stock at no
additional cost. There are two reset periods for each tranche, each covering 50%
of the shares issued on the applicable closing date. The first reset period is
the 25 days after the effective date of a registration statement to be filed in
connection with that tranche. The second reset period is the 25 days after the
end of the first reset period. For each reset period, the reset price is the
average of the lowest ten trading days' closing bid prices during the related
25-day period. The number of shares to be issued at the end of each reset is
calculated by (a) multiplying the number of shares subject to price adjustment
by (b) (i) an amount equal to 112.5% of the applicable tranche purchase price
less the reset price divided by (ii) the reset price. The investors have agreed
that, until the expiration of the final reset period in connection with the
equity line, they will not enter into certain short sales of the Company's
Common Stock.
NOTE 15--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected unaudited actual and pro forma financial information for each of
the quarters in the two-year period ended December 31, 1998 is as follows. Pro
forma net income per share and net income per share data has been adjusted to
reflect the stock dividend discussed in 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- --------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Operating expenses......................................... $ (120) $ (122) $ (126) $ (127)
Interest income............................................ 80 99 105 20
----------- --------- ------------- ------------
Loss from continuing operations............................ (40) (23) (21) (107)
Income from discontinued operations........................ 328 353 857 1,850
----------- --------- ------------- ------------
Net income................................................. 288 330 836 1,743
----------- --------- ------------- ------------
----------- --------- ------------- ------------
Diluted net income per share............................... $ 0.06 $ 0.07 $ 0.18 $ 0.37
1998
Operating expenses......................................... (130) (138) (244) (585)
Interest income............................................ 47 17 -- --
----------- --------- ------------- ------------
Loss from continuing operations............................ (83) (121) (244) (585)
Loss from discontinued operations.......................... (1,158) (2,708) (3,038) (1,119)
----------- --------- ------------- ------------
Net loss................................................... (1,241) (2,829) (3,282) (1,704)
----------- --------- ------------- ------------
----------- --------- ------------- ------------
Diluted net loss per share................................. $ (0.29) $ (0.65) $ (0.75) $ (0.38)
</TABLE>
F-17
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
DATED AS OF JULY 26, 1999
AMONG
GUILLEMOT CORPORATION, S.A.,
AS THE PURCHASER,
AND
THRUSTMASTER, INC.,
AS THE SELLER,
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS...................................................... 1
SECTION 1.01. CERTAIN DEFINED TERMS............................................ 1
SECTION 1.02. CERTAIN ADDITIONAL DEFINED TERMS................................. 2
ARTICLE II. PURCHASE AND SALE................................................ 4
SECTION 2.01. PURCHASE AND SALE................................................ 4
SECTION 2.02. ASSUMPTION OF LIABILITIES; LIABILITIES RETAINED BY SELLER........ 5
SECTION 2.03. PURCHASE PRICE; ADJUSTMENTS TO PURCHASE PRICE.................... 6
SECTION 2.05. CLOSING.......................................................... 11
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER..................... 11
SECTION 3.01. INCORPORATION AND AUTHORITY OF THE SELLER........................ 11
SECTION 3.02. SUBSIDIARIES..................................................... 12
SECTION 3.03. NO CONFLICT...................................................... 12
SECTION 3.04. CONSENTS AND APPROVALS........................................... 12
SECTION 3.05. FINANCIAL INFORMATION............................................ 13
SECTION 3.06. LITIGATION....................................................... 13
SECTION 3.07. COMPLIANCE WITH LAWS; LICENSES AND PERMITS....................... 13
SECTION 3.08. INTELLECTUAL PROPERTY RIGHTS..................................... 13
SECTION 3.09. TANGIBLE PERSONAL PROPERTY....................................... 14
SECTION 3.10. CONTRACTS........................................................ 14
SECTION 3.11. INVENTORIES...................................................... 15
SECTION 3.12. ACCOUNTS RECEIVABLE.............................................. 15
SECTION 3.13. BROKERS.......................................................... 15
SECTION 3.14. CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CHANGES............... 15
SECTION 3.15. APPROVAL BY SHAREHOLDERS OF SELLER............................... 15
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................. 16
SECTION 4.01. INCORPORATION AND AUTHORITY OF THE PURCHASER..................... 16
SECTION 4.02. NO CONFLICT...................................................... 16
SECTION 4.03. CONSENTS AND APPROVALS........................................... 16
SECTION 4.04. ABSENCE OF LITIGATION............................................ 17
SECTION 4.05. FINANCING........................................................ 17
SECTION 4.06. BROKERS.......................................................... 17
SECTION 4.07. VALUATION OF ASSETS.............................................. 17
ARTICLE V. ADDITIONAL AGREEMENTS............................................ 17
SECTION 5.01. CONDUCT OF HARDWARE BUSINESS PRIOR TO CLOSING.................... 17
SECTION 5.03. ACCESS TO INFORMATION............................................ 17
SECTION 5.05. BOOKS AND RECORDS................................................ 18
SECTION 5.06. REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS.................... 18
SECTION 5.08. TAXES............................................................ 19
SECTION 5.09. BULK TRANSFER LAWS............................................... 19
SECTION 5.10. FURTHER ACTION................................................... 19
SECTION 5.11. USE OF NAMES..................................................... 19
ARTICLE VI. CONDITIONS TO CLOSING............................................ 20
SECTION 6.01. CONDITIONS TO OBLIGATIONS OF THE SELLER.......................... 20
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF THE PURCHASER....................... 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII. INDEMNIFICATION.................................................. 21
SECTION 7.01. SURVIVAL......................................................... 21
SECTION 7.02. INDEMNIFICATION BY THE PURCHASER................................. 21
SECTION 7.03. INDEMNIFICATION BY THE SELLER.................................... 22
SECTION 7.04. GENERAL PROVISIONS............................................... 22
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER................................ 23
SECTION 8.01. TERMINATION...................................................... 24
SECTION 8.02. EFFECT OF TERMINATION............................................ 24
SECTION 8.03. WAIVER........................................................... 24
ARTICLE IX. GENERAL PROVISIONS............................................... 24
SECTION 9.01. EXPENSES......................................................... 24
SECTION 9.02. NOTICES.......................................................... 24
SECTION 9.03. PUBLIC ANNOUNCEMENTS............................................. 25
SECTION 9.04. HEADINGS......................................................... 25
SECTION 9.05. SEVERABILITY..................................................... 25
SECTION 9.06. ENTIRE AGREEMENT................................................. 25
SECTION 9.07. ASSIGNMENT....................................................... 25
SECTION 9.08. NO THIRD-PARTY BENEFICIARIES..................................... 26
SECTION 9.09. AMENDMENT; WAIVER................................................ 26
SECTION 9.10. GOVERNING LAW.................................................... 26
SECTION 9.11. COUNTERPARTS..................................................... 26
EXHIBITS
Exhibit A Intentionally Deleted
Exhibit B Form of Bill of Sale
Exhibit C Form of Escrow Agreement
Exhibit D Form of Noncompetition Agreement
Exhibit E Reference Balance Sheet
Exhibit 6.01(g) Form of Legal Opinion of Counsel to the Purchaser
Exhibit 6.02(f) Form of Legal Opinion of Counsel to the Seller
SCHEDULES
Schedule 2.01(a)(i) Tooling
Schedule
2.01(a)(ii) Inventory
Schedule
2.01(a)(iv) Patents, Trademarks, etc.
Schedule 2.01(a)(v) Contracts
Schedule
2.01(a)(viii) Product Software and Firmware
Schedule 3.02 Subsidiaries
Schedule 3.08(b) Patents, Copyrights, etc.
Schedule 3.08(e) Options, Licenses, etc.
Schedule 3.10(b) Material Contracts
Schedule 3.10(c) Material Licenses
Schedule 3.12 Accounts Receivable Aging Report
Schedule 4.03 Consents and Approvals (Purchaser)
Schedule 6.01(c) Closing Consents, Authorizations, etc.
</TABLE>
ii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 26, 1999, Guillemot Corporation,
S.A., a French societe anonyme (the "Purchaser"), and THRUSTMASTER, INC., an
Oregon corporation (the "Seller").
RECITALS
The Seller desires to sell to the Purchaser, and the Purchaser desires to
purchase from the Seller, the Assets (as defined below) on the terms and subject
to the conditions set forth herein. It is understood and agreed that the
Purchaser may form one or more wholly-owned subsidiaries (collectively, the
"Acquisition Sub") and may cause the Acquisition Sub to purchase the Assets and
assume the Assumed Liabilities (as defined below) as provided for herein.
Accordingly, it is understood and agreed that any or all of the rights, but not
the obligations, of the Purchaser under this Agreement may be assigned by the
Purchaser to the Acquisition Sub. It is further understood that the Seller shall
cause the European Subsidiaries (as defined below) to do and perform all of the
things contemplated to be performed by them herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Seller
hereby agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS
As used in this Agreement, the following terms shall have the following
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined):
"ANCILLARY AGREEMENTS" means, collectively, the Bill of Sale, the Escrow
Agreement and the Noncompetition Agreement.
"BILL OF SALE" means a Bill of Sale and Assignment Agreement substantially in
the form of Exhibit B.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or any other day
on which banks generally are required or authorized to be closed in Portland,
Oregon.
"DESIGNATED AMOUNT" means $160,000.
"ESCROW ACCOUNT" has the meaning ascribed thereto in the Escrow Agreement.
"ESCROW AGENT" means West Coast Trust.
"ESCROW AGREEMENT" means an Escrow Agreement substantially in the form of
Exhibit C.
"EUROPEAN SUBSIDIARIES" means ThrustMaster (Europe) Limited and ThrustMaster
(Deutschland) GmbH.
"GAAP" means United States generally accepted accounting principles.
"HARDWARE BUSINESS" means the Seller's business of developing, producing,
manufacturing, marketing and selling computer game controller hardware products
as currently being conducted by the Seller and its subsidiaries.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
"IN CHANNEL PRODUCTS" means any and all products sold or otherwise transferred
by the Seller or any Subsidiaries to any Person, other than the Purchaser, on or
before the Deposit Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended.
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"KNOWLEDGE" means with reference to (a) the Seller, the actual knowledge of
Frank G. Hausmann, David K. Bergeson, G. Edward Brightman, Allen Robison, any
other vice president or higher ranking officer of the Seller and the executive
in charge of each of the European Subsidiaries, and (b) the Purchaser, the
actual knowledge of the executive officers of the Purchaser. "To the knowledge
of," or any similar phrase with respect to, any person or entity means that such
person or entity has no actual knowledge contrary to the facts or matters so
referenced after reasonable investigation.
"LIABILITIES" means any and all debts, obligations or liabilities (whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated or due or to become due).
"MATERIAL ADVERSE EFFECT," when used with reference to the Seller, means a
material adverse effect upon the financial condition or operating results of the
Hardware Business, the Assets or the Assumed Liabilities.
"NASCAR LICENSE" means the License Agreement between the Seller and National
Association for Stock Car Auto Racing, Inc., dated as of March 1, 1997.
"NET ASSET VALUE" as reflected on any balance sheet, means the book value, as of
the date of that balance sheet, of the items that would have been Assets if the
Closing had occurred on that date.
"NONCOMPETITION AGREEMENT" means a Noncompetition Agreement substantially in the
form of Exhibit D.
"ORDINARY COURSE" or "ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PERSON" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
"REFERENCE BALANCE SHEET" means the unaudited consolidated balance sheet of the
Seller as of May 31, 1999, attached hereto as Exhibit E.
"SOFTWARE BUSINESS" means the business of developing, manufacturing and
marketing software products and ancillary equipment as currently conducted and
proposed to be conducted by the Seller.
"TAX" or "TAXES" means all income, gross receipts, sales, use, employment,
franchise, profits, property or other taxes, fees, stamp taxes and duties,
assessments or charges of any kind whatsoever, whether payable directly or by
withholding (together with any interest and any penalties, additions to tax or
additional amounts imposed with respect thereto), imposed by any governmental or
taxing authority.
SECTION 1.02. CERTAIN ADDITIONAL DEFINED TERMS
In addition to terms defined in Section 1.01, the following capitalized
terms are used as defined in the Sections set forth opposite such terms:
<TABLE>
<CAPTION>
DEFINED TERMS SECTION REFERENCE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Accountants Section 2.03(f)(iv)
Acquisition Sub Recital
Adjustment Amount Section 2.03(a)
Adjustment Balance Sheet Section 2.03(f)(ii)
Adjustment Date Section 2.03(a)
Adjustment Net Asset Value Section 2.02(b)(i)
Assets Section 2.01(a)
Assumed Accounts Payable Section 2.02(a)(i)
Assumed Liabilities Section 2.02(a)
Audit Section 2.03(f)(ii)
Audit Dispute Procedure Section 2.03(f)(iv)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERMS SECTION REFERENCE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Audited Financial Statements Section 3.05
Base Purchase Price Section 2.03(a)
Closing Section 2.05(a)
Closing Date Section 2.05(a)
Confidentiality Agreement Section 5.05
Contracts Section 2.01(a)(v)
Deposit Date Section 2.04(a)
Encumbrances Section 3.09
Escrow Amount Section 2.04(a)
Excluded Assets Section 2.01(b)
Financial Statements Section 3.05
Funding Deposits Section 2.04(f)
Indemnified Party Section 7.04(b)
Indemnifying Party Section 7.04(b)
Initial Determination Date Section 2.03(b)
Intellectual Property Rights Section 3.08
Interim Account Section 2.04(f)
Inventory Section 2.01(a)(ii)
Inventory Return Costs Section 2.03(d)(i)
Inventory Return Offset Section 2.03(d)(ii)
Losses Section 7.02(a)
Material Contracts Section 3.10
Objection Notice Section 2.03(f)(iii)
Operations Period Section 2.04(a)
Price Protection Costs Section 2.03(c)(i)
Price Protection Offset Section 2.03(c)(ii)
Purchase Price Section 2.03(a)
Purchaser Initial Paragraph
Purchaser's Accountants Section 2.03(f)(ii)
Reference Net Asset Value Section 2.02(b)(i)
Retained Escrow Amount Section 2.05(c)(i)
Retained Liabilities Section 2.02(b)
Retained Names and Marks Section 5.11
Returned Inventory Section 2.03(d)(i)
Schedule of Exceptions Introduction to Article III
Seller's Accountants Section 2.03(f)(iv)
Seller Initial Paragraph
Subsidiaries Section 3.02
Tooling Section 2.01(a)(i)
Unaudited Adjusted Balance Sheet Section 2.03(f)(i)
Unaudited Financial Statements Section 3.05
Uncollectible Accounts Section 2.03(e)(i)
Uncollectible Accounts Offset Section 2.03(e)(ii)
</TABLE>
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ARTICLE II. PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE
(a) On the terms and subject to the conditions set forth in this Agreement,
on the Closing Date, the Seller shall sell, assign, transfer, convey and deliver
to the Purchaser (or the Acquisition Sub), and the Purchaser (or the Acquisition
Sub), shall purchase and acquire from the Seller, all of the Seller's and the
European Subsidiaries' right, title and interest in and to all of the following
assets used in the Hardware Business, in each case as such assets exist as of
the Closing Date (collectively the "Assets"):
(i) the tooling, moulds and other plastic injection equipment used in
the Hardware Business ("Tooling"), including, without limitation, those
items listed on Schedule 2.01(a)(i);
(ii) the Seller's and the European Subsidiaries' inventories of game
controllers and related raw materials, work in process and finished goods
relating to the products listed on Schedule 2.01(a)(ii) (collectively,
"Inventory");
(iii) the Seller's and the European Subsidiaries' accounts receivable
relating to the Hardware Business;
(iv) the Seller's and the European Subsidiaries' patents, trade names,
trademarks, service marks, domain names, universal resource locators and
copyrights relating to the Hardware Business, the Seller's web-site and the
software, hardware, design and content relating to the web-site (and such
web-site shall be altered within 30 days of signing this Agreement to delete
any aspects relating exclusively to the Software Business), all as described
in Schedule 2.01(a)(iv), and the goodwill associated therewith;
(v) the Seller's and the European Subsidiaries' assignable rights and
interests under, in or to any contracts, agreements, instruments, licenses,
purchase or customer orders, commitments and other binding arrangements of
the Seller or the European Subsidiaries which relate to the Hardware
Business (collectively, the "Contracts"), all as described in Schedule
2.01(a)(v);
(vi) the Seller's and the European Subsidiaries' sales and promotional
literature, customer lists and other sales-related materials relating to the
Hardware Business;
(vii) copies of the Seller's and the European Subsidiaries' general,
financial and other records relating to the Hardware Business as in
existence on the Closing Date;
(viii) the Seller's and the European Subsidiaries' computer software
and firmware relating to the Hardware Business listed on Schedule
2.01(a)(viii), including, without limitation, source code, operating systems
and specifications, data, data bases, files, documentation and other
materials related exclusively thereto and including the Seller's EDI
software;
(ix) all municipal, state, federal and foreign franchises, permits,
licenses, agreements, waivers and authorizations held by the Seller and the
European Subsidiaries and required for the conduct of the Hardware Business,
as currently conducted, to the extent transferable;
(x) the Seller's and the European Subsidiaries' prepaid expenses and
deposits relating exclusively to the Hardware Business; and
(xi) the Interim Account.
(b) The assets of the Seller and the European Subsidiaries, other than the
Assets, (the "Excluded Assets") are specifically excepted from the Assets to be
transferred to the Purchaser pursuant to Section 2.01(a).
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SECTION 2.02. ASSUMPTION OF LIABILITIES; LIABILITIES RETAINED BY SELLER
(a) The Purchaser (or the Acquisition Sub) shall assume only those
Liabilities which (A) relate to the Hardware Business and the Assets, and (B)
are expressly specified (and only to the extent so specified) in Sections
2.02(a)(i) through (vi) below (collectively, the "Assumed Liabilities") and no
other Liabilities:
(i) trade accounts payable, to the extent (and only to the extent) that
such accounts are (A) for products or services received for the benefit of
the Hardware Business after the Deposit Date in the Ordinary Course of
Business ("Assumed Accounts Payable"), and (B) not accounts payable to the
Seller or any Subsidiary;
(ii) the Seller's and the European Subsidiaries' contractual
liabilities and obligations requiring performance after the Deposit Date
arising with respect to the patents, trade names, trademarks, service marks,
domain names, universal resource locators and copyrights described in
Schedule 2.01(a)(iv) (other than Liabilities arising as a result of any
breach occurring prior to the Deposit Date by the Seller or a European
Subsidiary of any agreements with respect to such patents, trade names,
trademarks, service marks, domain names, universal resource locators or
copyrights);
(iii) the Seller's and the European Subsidiaries' liabilities and
obligations requiring performance after the Deposit Date arising under the
Contracts described in Schedule 2.01(a)(v) (other than Liabilities arising
as a result of any breach occurring prior to the Deposit Date by the Seller
or a European Subsidiary of any such Contract);
(iv) the Seller's and the European Subsidiaries' liabilities and
obligations requiring performance after the Deposit Date arising in
connection with the computer software and related items described in Section
2.01(a)(viii) (other than Liabilities arising as a result of any breach
occurring prior to the Deposit Date by the Seller or a European Subsidiary
of any agreements with respect to such computer software or related items);
(v) the Seller's and the European Subsidiaries' liabilities and
obligations requiring performance after the Deposit Date arising under the
franchises, permits, licenses, agreements, waivers and authorizations
described in Section 2.01(a)(ix) (other than Liabilities arising as a result
of any breach occurring prior to the Deposit Date by the Seller or a
European Subsidiary of its obligations under any such franchises, permits,
licenses, agreements, waivers or authorizations); and
(vi) product warranty claims insofar, but only insofar, as such claims
may be resolved by repair or replacement of the product.
(b) Except as otherwise expressly provided in this Section 2.02(b),
notwithstanding the Closing and notwithstanding any other provision of this
Agreement or any Ancillary Agreement, the Seller and the European Subsidiaries
shall retain, pay, perform and discharge, if and when due, to the extent not
otherwise paid, performed or discharged, any and all Liabilities of or relating
to the Seller or any Subsidiaries, except for the Assumed Liabilities,
(collectively, the "Retained Liabilities") including, without limitation, the
following:
(i) Any and all Liabilities of or relating to the Hardware Business or
the Assets that are not Assumed Liabilities;
(ii) Any and all Liabilities of the Seller and the European
Subsidiaries, or any Person to whom the Seller or the European Subsidiaries
is a successor in interest, that result from the breach before the Deposit
Date of any contract, undertaking or obligation (whether or not the
contract, undertaking or obligation is an Assumed Liability other than
warranty claims to the extent expressly provided for above) or from the
violation before the Deposit Date by the Seller or the European
Subsidiaries, or any Person to whom the Seller or the European Subsidiaries
is a successor in interest, of any law, rule, regulation or other
noncontractual obligation; and
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(iii) Any and all Liabilities and related costs that arise or result
from the alleged infringement by the Seller of Atari Games Corporation's
patent (U.S. Patent No. 5,044,956) with respect to the production and sale
of the Force GT force feedback racing wheel.
SECTION 2.03. PURCHASE PRICE; ADJUSTMENTS TO PURCHASE PRICE
(a) The aggregate purchase price for the Assets (the "Purchase Price") shall
be the amount equal to $15,000,000 (the "Base Purchase Price") adjusted as
specified in Sections 2.03(b) through (e) below (each an "Adjustment Amount"),
as of the dates specified in each of Sections 2.03(b) through (e) below (each
such date, an "Adjustment Date").
(b) The following adjustment to the Base Purchase Price (as otherwise
adjusted pursuant to this Section 2.03) shall be made as soon as is practicable
after the completion of the Audit or the Audit Dispute Procedure, as the case
may be (the "Initial Determination Date"):
(i) If the Net Asset Value reflected on the Adjustment Balance Sheet
(the "Adjustment Net Asset Value") exceeds the Net Asset Value reflected on
the Reference Balance Sheet (the "Reference Net Asset Value") by an amount
greater than the Designated Amount, the sum of (A) the amount of the
Adjustment Net Asset Value, MINUS (B) the amount of the Reference Net Asset
Value, MINUS (C) the Designated Amount shall be ADDED TO the Base Purchase
Price (and such sum shall be paid to the Seller by the Purchaser); or
(ii) If the Adjustment Net Asset Value is less than the Reference Net
Asset Value by an amount greater than the Designated Amount, the sum of (A)
the amount of the Reference Net Asset Value, MINUS (B) the amount of the
Adjustment Net Asset Value, MINUS (C) the Designated Amount shall be
SUBTRACTED FROM the Base Purchase Price (and such sum shall be repaid to the
Purchaser (x) pursuant to the Escrow Agreement, from the Escrow Amount, or
(y) if all or any part of such amounts are not available from the Escrow
Amount, any unpaid amounts, by the Seller).
(c) The following adjustment to the Base Purchase Price (as otherwise
adjusted pursuant to this Section 2.03) shall be made as of December 31, 1999:
(i) On or as soon as practicable following the Adjustment Date, the
Purchaser, acting in good faith, shall determine the total amount of all
commercially reasonable payments, costs or expenses incurred by the
Purchaser from and after the Deposit Date to cause any reseller of In
Channel Products to discount such In Channel Products so as to permit the
Purchaser to sell products to such reseller (collectively, "Price Protection
Costs");
(ii) For purposes of this Agreement, "Price Protection Offset" means
the sum of (A) the amount reserved for Price Protection Costs with respect
to In Channel Products on the Adjustment Balance Sheet, PLUS (B) $500,000;
(iii) If the Price Protection Costs (not including Inventory Return
Costs), exceed the Price Protection Offset, the sum of (A) the Price
Protection Costs MINUS (B) the Price Protection Offset shall be SUBTRACTED
FROM the Base Purchase Price (and such sum shall be repaid to the Purchaser
(x) pursuant to the Escrow Agreement, from the Escrow Amount, or (y) if all
or any part of such amounts are not available from the Escrow Amount, any
unpaid amounts, by the Seller); and
(iv) From and after the Deposit Date, each of the Purchaser and the
Seller covenant and agree to use their respective commercially reasonable
efforts (and the Seller shall cause Frank G. Hausmann, the Chief Executive
Officer of the Seller, to use his best efforts) to cause the NASCAR to enter
into an agreement extending, renewing or replacing the NASCAR License.
(A) If as of the Adjustment Date, the NASCAR License shall not have
been extended, replaced or renewed for a period of at least one (1) year
or longer after December 31, 1999 and NASCAR has not agreed to give the
Purchaser an additional three (3) months to sell Inventory
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subject to the NASCAR License (in addition to the three-month period
already provided for in the NASCAR License), $500,000 shall be SUBTRACTED
FROM the Base Purchase Price (and such sum shall be immediately repaid to
the Purchaser (x) pursuant to the Escrow Agreement, from the Escrow
Amount, or (y) if all or any part of such amounts are not available from
the Escrow Amount, any unpaid amounts, by the Seller);
(B) If as of the Adjustment Date, NASCAR has agreed to give the
Purchaser an additional three (3) months to sell Inventory subject to the
NASCAR License (in addition to the three-month period already provided
for in the NASCAR License), but the NASCAR License shall not have been
extended, replaced or renewed for a period of one year or longer,
$250,000 shall be SUBTRACTED FROM the Base Purchase Price (and such sum
shall be immediately repaid to the Purchaser (x) pursuant to the Escrow
Agreement, from the Escrow Amount, or (y) if all or any part of such
amounts are not available from the Escrow Amount, any unpaid amounts, by
the Seller); or
(C) If as of the Adjustment Date, the NASCAR License shall have been
extended for a period of one year or longer after December 31, 1999, no
amount shall be subtracted from the Base Purchase Price pursuant to this
Section 2.03(c)(iv).
(d) The following adjustments shall be made to the Base Purchase Price (as
otherwise adjusted pursuant to this Section 2.03) as of the first Business Day
six (6) months after the Closing Date:
(i) On or as soon as practicable following the Adjustment Date, the
Purchaser, acting in good faith, shall determine the total amount of all
commercially reasonable payments, costs or expenses incurred by the
Purchaser from and after the Deposit Date relating to the return of In
Channel Products ("Returned Inventory"), including without limitation all
commercially reasonable payments, costs or expenses incurred in
circumstances where the Purchaser has repurchased Returned Inventory from
any Person to accommodate the sale of different products to such Person by
the Purchaser (collectively, the "Inventory Return Costs");
(ii) For purposes of this Agreement, "Inventory Return Offset" means
the sum of (A) the total market value of the Returned Inventory as of the
Adjustment Date (as determined in good faith by the Purchaser), PLUS (B) the
total amount of any proceeds received by the Purchaser as of the Adjustment
Date from the sale of any Returned Inventory, PLUS (C) the amount reserved
for Inventory Return Costs with respect to In Channel Products on the
Adjustment Balance Sheet, PLUS (D) $2,000,000; and
(iii) If the Inventory Return Costs (not including Price Protection
Costs) exceed the Inventory Return Offset, the sum of (A) the Inventory
Return Costs MINUS (B) the Inventory Return Offset shall be SUBTRACTED FROM
the Base Purchase Price (and such sum shall be immediately repaid to the
Purchaser (x) pursuant to the Escrow Agreement, from the Escrow Amount, or
(y) if all or any part of such amounts are not available from the Escrow
Amount, any unpaid amounts, by the Seller).
(e) The following adjustments shall be made to the Base Purchase Price (as
otherwise adjusted pursuant to this Section 2.03) as of the first Business Day
nine (9) months after the Closing Date:
(i) On or as soon as practicable following the Adjustment Date, the
Purchaser, acting in good faith, shall determine the total amount of all
uncollectible accounts with respect to In Channel Products (collectively,
the "Uncollectible Accounts");
(ii) For purposes of this Agreement, "Uncollectible Accounts Offset"
means the sum of (A) the amount reserved for Uncollectible Accounts with
respect to In Channel Products on the Adjustment Balance Sheet, PLUS (B)
$500,000;
(iii) If the Uncollectible Accounts exceed the Uncollectible Accounts
Offset, the sum of (A) the Uncollectible Accounts MINUS (B) the
Uncollectible Accounts Offset shall be SUBTRACTED FROM the Base
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Purchase Price (and such sum shall be immediately repaid to the Purchaser
(x) pursuant to the Escrow Agreement, from the Escrow Amount, or (y) if all
or any part of such amounts are not available from the Escrow Amount, any
unpaid amounts, by the Seller); and
(iv) If the Purchaser is entitled to an Adjustment Amount pursuant to
this Section 2.03(e), the Purchaser, upon receipt of such Adjustment Amount,
shall transfer, convey and assign to the Seller all of the Uncollectible
Accounts.
(f) The following adjustment to the Base Purchase Price (as otherwise
adjusted pursuant to this Section 2.03) shall be made as of May 31, 2000:
(i) From and after the Deposit Date, the Purchaser shall use
commercially reasonable efforts to sell the Inventory, and shall only sell
the Inventory in the Ordinary Course in North America or in Europe. On or as
soon as practicable following the Adjustment Date, the Purchaser, acting in
good faith, shall determine the total amount of all revenue resulting from
sales of the Inventory (collectively, "Product Revenue");
(ii) For purposes of this Agreement, "Minimum Product Revenue" means
$2,000,000; and
(iii) If the Product Revenue is less than the Minimum Product Revenue,
the sum of (A) the Minimum Product Revenue MINUS (B) the Product Revenue
shall be SUBTRACTED FROM the Base Purchase Price (and such sum shall be
repaid to the Purchaser (x) pursuant to the Escrow Agreement, from the
Escrow Amount, or (y) if all or any part of such amounts are not available
from the Escrow Amount, any unpaid amounts, by the Seller).
(g) With respect to the Adjustment Amounts provided for in this Section
2.03, each of the Purchaser and the Seller shall have the following rights,
duties and obligations:
(i) As soon as practicable, but in any event within 30 calendar days
following the date of this Agreement, the Seller shall deliver to the
Purchaser an unaudited consolidated balance sheet of the Seller (the
"Unaudited Adjustment Balance Sheet") as of the close of business on the
date immediately preceding the date of this Agreement. The Unaudited
Adjustment Balance Sheet shall be prepared in accordance with GAAP and,
except as required by GAAP, in a manner consistent with the preparation of
the Reference Balance Sheet and shall show as separate entries the items
that would have constituted Assets or Assumed Liabilities if the Closing had
occurred on the date of the Unaudited Adjustment Balance Sheet.
(ii) Promptly after delivery of the Unaudited Adjustment Balance Sheet
to the Purchaser, KPMG Peat Marwick LLP, independent accountants
("Purchaser's Accountants"), shall perform an audit (the "Audit") with
respect to the Unaudited Adjustment Balance Sheet (thereafter, the
"Adjustment Balance Sheet"). The Audit shall be conducted on the basis that
the Seller is a going concern and shall be directed to a physical count and
confirmation of all inventory as of the date of the Adjustment Balance Sheet
and customary audit procedures as to all other assets and all liabilities on
the Adjustment Balance Sheet. The Seller shall provide Purchaser's
Accountants with full access to the books, records and facilities related to
the Assets and to its employees, and shall cooperate fully with the
Purchaser and Purchaser's Accountants, in each case to the extent reasonably
required in order to perform the Audit; PROVIDED, HOWEVER, that any such
activities shall be conducted in such a manner as not to interfere
unreasonably with the operation of either the Hardware Business or the
Software Business.
(iii) Upon completion of the Audit, the Purchaser will deliver the
Adjustment Balance Sheet to the Seller. If within fifteen (15) calendar days
following delivery of the Adjustment Balance Sheet, the Seller has not given
the Purchaser notice of its objection (an "Objection Notice") to the
Adjustment Balance Sheet (the Objection Notice must contain a statement of
the basis of the Seller's objection),
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then the Adjustment Net Asset Value reflected in the Adjustment Balance
Sheet will be used in computing the applicable Adjustment Amount.
(iv) If the Seller gives an Objection Notice in accordance with Section
2.03(g)(iii) above, then the following shall occur (the "Audit Dispute
Procedure"):
(A) Within thirty (30) calendar days after receipt by the Purchaser
of the Objection Notice, the Purchaser's Accountants and Price Waterhouse
Coopers LLP, independent accountants (the "Seller's Accountants"), shall
meet together and conclusively resolve any issues in dispute and shall
finally determine the Adjustment Net Asset Value.
(B) If the Purchaser's Accounts and the Seller's Accountants are not
able to reach such resolution within the required time, any remaining
issues in dispute will be submitted to independent accountants mutually
agreeable to the Purchaser and the Seller (the "Accountants"), for
resolution.
(C) If the issues in dispute are submitted to the Accountants for
resolution, (1) each of the Purchaser and the Seller will furnish (or
will cause to be furnished) to the Accountants such workpapers and other
documents and information relating to any disputed issues as the
Accountants may request, and will be afforded the opportunity to present
to the Accountants any material relating to the determination and to
discuss the determination with the Accountants, (2) all determinations of
the Accountants, as set forth in a notice delivered to each of the
Purchaser and the Seller by the Accountants, will be binding and
conclusive on each of the Purchaser and the Seller, and (3) the Purchaser
and the Seller will each bear 50% of the fees of the Accountants for such
determinations.
(v) With respect to any actions, or any failure to act, that reasonably
may be expected to affect an Adjustment Amount, the Purchaser shall act in
good faith and shall take commercially reasonable efforts to minimize all
Adjustment Amounts.
(h) The Purchaser, in its sole discretion, shall allocate the amount of the
Purchase Price among the Assets as of the Closing Date and, as soon as is
practicable following the Closing Date, shall provide the Seller with a written
statement specifying all such allocations. Neither the Seller nor the Purchaser
shall file any Tax return or form or take any position with any Tax authority
that is inconsistent with such allocation.
(i) The Seller accepts, and hereby agrees that, the payment of the
Purchase Price (as may be adjusted in accordance with this Section 2.03) and
the assumption of the Assumed Liabilities, each as provided for in this
Article II, constitutes payment in full and is the sole consideration for
the sale, transfer, conveyance, assignment and delivery of the Assets to the
Purchaser by the Seller.
SECTION 2.04. ESCROW; THE OPERATIONS PERIOD
(a) On or prior to the third (3rd) Business Day after the date of this
Agreement, the Purchaser (or the Acquisition Sub) shall cause $15,000,000 (the
"Escrow Amount") to be deposited in the Escrow Account (such date, the "Deposit
Date"). The Escrow Amount shall be disbursed pursuant to Section 2.05 of this
Agreement and pursuant to the terms of the Escrow Agreement.
(b) From and after the Deposit Date until either (x) this Agreement is
terminated in accordance with its terms or (y) the Closing (the "Operations
Period"), the Hardware Business and the Assets shall be operated on a custodial
basis by the Purchaser. Accordingly, the Seller and the Purchaser covenant and
agree that during the Operations Period:
(i) The Purchaser shall be permitted to (A) take possession of the
Assets, (B) move all or any of part of the Assets, including without
limitation, Inventory, to different locations, (C) market and sell
Inventory, (D) using the Assets or the Purchaser's systems, produce invoices
and other documentation
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with respect to sales of Inventory, and (E) subject to the requirements of
Section 2.04(f) below, receive the proceeds from such sales and otherwise
collect accounts receivable with respect to the Hardware Business;
(ii) Except as otherwise consented to by the Purchaser, the Hardware
Business shall be operated in the Ordinary Course of Business; and
(iii) The Seller shall use commercially reasonable efforts to (A) as
requested by the Purchaser, keep available to the Purchaser the services of
its employees, and (B) preserve the current relationships of the Seller and
the Subsidiaries with their important customers and suppliers and other
entities with which they have material business relationships.
(c) Notwithstanding any other provision of this Agreement or any Ancillary
Agreement, (i) the Seller and its officers and directors shall have the ultimate
authority and responsibility for all aspects of the Hardware Business during the
Operations Period, and (ii) the Purchaser expressly disclaims, and the Seller
and the Subsidiaries release, the Purchaser from any Liability or other loss
incurred by the Seller, the Subsidiaries or any of the officers or directors of
the Seller or any Subsidiary as a result of any actions or any failure to act of
the Purchaser relating to the Hardware Business during the Operations Period
(except, and only to the extent that, such action or failure to act constitutes
negligence or willful misconduct on the part of the Purchaser).
(d) Except as expressly set forth in Section 2.04(e) below, the Seller
covenants and agrees that, without the prior written consent of the Purchaser
(which consent shall not be unreasonably withheld or delayed), it shall not,
prior to the Closing, (i) materially change its accounting methods, principles
or practices as they relate to the Assets; (ii) sell, transfer or otherwise
dispose of (or permit the sale, transfer or other disposition of) any of the
Assets, other than Inventory in the Ordinary Course; or (iii) create, or permit
to be created, any Encumbrance on any of the Assets.
(e) During the Operations Period, each of the Purchaser and the Seller shall
(i) use their commercially reasonable efforts to cause the financial and
accounting records relating to the Hardware Business to be kept separately from
the comparable records of their other respective businesses.
(f) During the Operations Period, the Seller and the Purchaser shall jointly
establish and maintain one or more bank accounts (collectively, the "Interim
Account") and (x) shall cause all receipts from accounts receivable of the
Hardware Business, to the extent such accounts receivable would constitute
Assets, if they existed on the Closing Date, to be deposited into the Interim
Account, and (y) shall cause all payments with respect to Assumed Liabilities to
be paid from, the Interim Account. The Purchaser shall make deposits to the
Interim Account ("Funding Deposits") as required to fund Assumed Liabilities.
The Seller shall not make withdrawals from the Interim Account. The Purchaser
shall not make withdrawals from the Interim Account except (i) to pay the
Assumed Liabilities or (ii) to be repaid Funding Deposits no longer required to
fund Assumed Liabilities. Each party shall provide the other party with any
account balance information relating to the Interim Account as reasonably
requested by such party. If this Agreement is terminated at any time prior to
Closing, the Purchaser shall immediately withdraw from the Interim Account the
aggregate amount of all Funding Deposits not previously withdrawn by the
Purchaser pursuant to subsection (ii) of this Section 2.04(f).
(g) During the Operations Period, the Purchaser may make expenditures and
incur costs in connection with the operation of the Hardware Business. In the
event that the Closing does not occur (other than by reason of a breach of this
Agreement by the Purchaser), the Seller shall reimburse the Purchaser for its
reasonable costs in connection with the operation of the Hardware Business. In
the event that the Closing does not occur (for any reason), the Purchaser shall
return all of the Assets to the Seller in good order and repair, normal wear
excepted.
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(h) As soon as practicable following the Deposit Date, the Seller will
obtain any consents or approvals that may be necessary to ensure that the
actions contemplated to be taken pursuant to this Section 2.04 by the Purchaser
and the Seller do not conflict with any Encumbrance imposed on the Assets.
SECTION 2.05. CLOSING
(a) Subject to the terms and conditions of this Agreement, the sale and
purchase of the Assets and the assumption of the Assumed Liabilities
contemplated hereby shall take place at a closing (the "Closing") at the offices
of Perkins Coie LLP, 1211 S.W. Fifth Avenue, Suite 1500, Portland, Oregon at
10:00 a.m., local time, on or before the fifth (5th) Business Day following the
approval of the transactions contemplated by this Agreement by the shareholders
of the Seller, or at such other time or on such other date or at such other
place as the Seller and the Purchaser may mutually agree upon in writing (the
day on which the Closing takes place being the "Closing Date").
(b) At the Closing, the Seller shall deliver or cause to be delivered to the
Purchaser:
(i) a receipt for the amount of the Base Purchase Price, less the
Retained Escrow Amount;
(ii) the Bill of Sale and such other instruments executed by the Seller
as may reasonably be requested by the Purchaser to transfer title to the
Assets to the Purchaser;
(iii) executed counterparts of each other Ancillary Agreement to which
the Seller is a party; and
(iv) the certificates, opinion and other documents required to be
delivered pursuant to Section 6.02.
(c) At the Closing, the Purchaser shall deliver or cause to be delivered to
the Seller:
(i) the amount of the Base Purchase Price, less an amount equal to
$2,250,000 in accordance with the provisions of the Escrow Agreement (the
"Retained Escrow Amount");
(ii) executed counterparts of each Ancillary Agreement to which the
Purchaser is a party; and
(iii) the certificates, opinion and other documents required to be
delivered pursuant to Section 6.01.
(d) Notwithstanding any provision of this Agreement or any Ancillary
Agreement, the sale and purchase of the Assets and the assumption by the
Purchaser of the Assumed Liabilities shall be deemed for all purposes to have
taken place as of 12:01 a.m. on the Closing Date.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Subject to the limitations and exceptions set forth in this Agreement,
including, without limitation, in the attached Schedule of Exceptions dated as
of the date hereof (the "Schedule of Exceptions"), the Seller makes the
following representations and warranties to the Purchaser. Notwithstanding
references in the Schedule of Exceptions to specific sections of this Agreement,
the disclosure of any exception set forth in the Schedule of Exceptions shall be
deemed an exception to all representations, warranties and covenants to which
such exception may reasonably be applicable.
SECTION 3.01. INCORPORATION AND AUTHORITY OF THE SELLER
The Seller is a corporation duly incorporated and validly existing under the
laws of the State of Oregon and has the corporate power and authority to execute
and deliver this Agreement and the Ancillary Agreements to which it is a party,
to carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby including, but not limited to, the
transfer of the Assets. The Seller is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such
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licensing or qualification necessary except where the failure to be so licensed
or qualified could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. The execution and delivery by the Seller of
this Agreement and the Ancillary Agreements to which it is a party, the
performance of its obligations hereunder and thereunder and the consummation by
the Seller of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action on the part of the Seller. This
Agreement and the Ancillary Agreements required to be executed by the Seller
concurrently herewith have been duly executed and delivered by the Seller, and
(assuming due authorization, execution and delivery by the Purchaser) constitute
legal, valid and binding obligations of the Seller enforceable against the
Seller in accordance with their respective terms. At the Closing, the Ancillary
Agreements required to be executed by the Seller at Closing shall be duly
executed and delivered by the Seller, and (assuming due authorization, execution
and delivery by the other parties thereto) shall constitute legal, valid and
binding obligations of the Seller enforceable against the Seller in accordance
with their terms.
SECTION 3.02. SUBSIDIARIES
A true and complete list of all subsidiaries of the Seller (the
"Subsidiaries"), listing the name and jurisdiction of incorporation or
organization of each such Subsidiary, is set forth in Schedule 3.02. Each
Subsidiary is a corporation (or equivalent corporate entity) duly incorporated
or formed and validly existing under the laws of its jurisdiction of
incorporation or formation, has the corporate power and authority to own,
operate or lease the properties and assets now owned, operated or leased by it
and to carry on its business in all material respects as currently conducted by
it, and is duly licensed or qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary, except where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect. Each Subsidiary listed
in Schedule 3.02 is wholly owned by the Seller.
SECTION 3.03. NO CONFLICT
The execution, delivery and performance by the Seller of this Agreement and
the Ancillary Agreements to which it is a party do not, and will not (a) violate
or conflict with the Articles of Incorporation or Bylaws of the Seller or the
charter documents of any Subsidiary, in each case as amended, (b) conflict with
or violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Seller, any Subsidiary or any of the
Assets, or (c) result in any breach of, or constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien or other encumbrance on
any of the Assets pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument to which the
Seller or any Subsidiary is a party relating to the Assets or to which the
Seller is a party or by which any of the Assets is bound or affected.
SECTION 3.04. CONSENTS AND APPROVALS
The execution, delivery and performance by the Seller of this Agreement and
the Ancillary Agreements to which it is a party do not, and will not, require
any consent, approval, exemption, authorization or other action by, or filing
with or notification to, any court, administrative agency or other governmental
or regulatory authority or other Person, except (a) any applicable notification
requirements of the HSR Act or any equivalent provision of French or European
Community law, and (b) where failure to obtain such consent, approval,
exemption, authorization or action, make such filing or give such notice would
not prevent the Seller from performing any of its material obligations under
this Agreement or the Ancillary Agreements to which it is a party.
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SECTION 3.05. FINANCIAL INFORMATION
The Seller has provided to the Purchaser true and complete copies of (a) the
audited consolidated balance sheets of the Seller dated as of December 31, 1998,
1997, and 1996 and the audited consolidated income statements for the Seller for
the years ended December 31, 1998, 1997 and 1996 (collectively, the "Audited
Financial Statements") and (b) the Reference Balance Sheet and an unaudited
consolidated income statement for the Seller for the period ended May 31, 1999
(the "Unaudited Financial Statements" and, together with the Audited Financial
Statements, being referred to herein, collectively, as the "Financial
Statements"). The Financial Statements present fairly the consolidated financial
condition and results of operations of the Seller as of the dates thereof or for
the periods covered thereby and the Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, except as described in the notes thereto
and except that the Unaudited Financial Statements do not contain the footnotes
required by GAAP and are subject to year-end and other adjustments.
SECTION 3.06. LITIGATION
The Seller and the Subsidiaries (i) are not subject to any outstanding
injunction, judgment, order, decree or charge and (ii) are not a party or
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any foreign, federal, state or municipal court,
or administrative, governmental or regulatory authority or body that (a)
questions the validity of this Agreement or any Ancillary Agreement to which the
Seller or any Subsidiary is a party or any action taken or to be taken by the
Seller or any Subsidiary hereunder or thereunder, (b) prohibits any action taken
or to be taken by the Seller or any Subsidiary pursuant to this Agreement or any
Ancillary Agreement to which the Seller is a party, or (c) questions the
Seller's or a Subsidiary's title to or ability to transfer to the Purchaser
title to any of the Assets.
SECTION 3.07. COMPLIANCE WITH LAWS; LICENSES AND PERMITS
Each of the Seller and the Subsidiaries has complied with all laws, rules,
regulations, orders, judgments or decrees applicable to it or by which any of
the Assets is bound or affected, except for violations the existence of which
could not reasonably be expected to have a Material Adverse Effect and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been filed against any of them alleging any failure to so
comply. The Seller and the Subsidiaries have all governmental licenses,
franchises, permits, approvals, authorizations, exemptions, certificates, and
registrations necessary to carry on the Hardware Business and the businesses of
the Seller's European Subsidiaries as they are now being conducted, except for
such governmental licenses, permits, approvals, authorizations, exemptions,
certificates and registrations the absence of which could not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.08. INTELLECTUAL PROPERTY RIGHTS
(a) The Seller or a Subsidiary owns, has licensed or is otherwise entitled
to exercise, without restriction or any conflict or infringement of the rights
of others, rights to, all patents, trademarks, trade names, brand names, service
marks, copyrights, domain names, universal resource locators, trade secret
rights and other intellectual property rights, and any applications or
registrations therefor, and all technology, source code, know-how, computer
software programs and all other tangible and intangible information or material,
that are used or currently proposed to be used in the Hardware Business
(collectively, the "Intellectual Property Rights"), except, in each case, for
restrictions, conflicts or infringements that cannot reasonably be expected to
have a Material Adverse Effect. The Seller has taken all necessary actions to
maintain and protect each Intellectual Property Right, and with respect to its
brand names and trademarks, the Seller holds the exclusive worldwide rights. No
third party has any ownership right, title, interest, claim or lien on any of
the Seller's Intellectual Property Rights which could reasonably be expected to
have a Material Adverse Effect.
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(b) Schedule 3.08(b) lists all patents, copyrights, domain names, universal
resource locators, trademarks, trade names and service marks and any
applications or registrations therefor or rights therein, included in the
Intellectual Property Rights.
(c) No claims with respect to the Intellectual Property Rights have been
asserted and neither the Seller nor any Subsidiary has received notice of any
threatened or pending claims (i) to the effect that the Seller or any Subsidiary
infringes any patent, copyright, trade secret, trademark or other intellectual
property right of any other person or entity, (ii) against the use by the Seller
or any Subsidiary of any Intellectual Property Rights, or (iii) challenging the
ownership, validity or effectiveness of any of the Intellectual Property Rights.
(d) To the Seller's knowledge, there has not been and there is not now any
unauthorized use, infringement or misappropriation of any of the Intellectual
Property Rights by any third party, including, without limitation, any employee
or former employee of the Seller or any Subsidiary, which unauthorized use,
infringement or misappropriation would have a Material Adverse Effect.
(e) Schedule 3.08(e) lists all options, licenses or agreements of any kind
relating to the Intellectual Property Rights by which the Seller and the
Subsidiaries are bound or to which they are a party.
(f) Neither the Seller nor any Subsidiary is obligated to pay any royalties
or other payments to third parties with respect to the license or use of any
Intellectual Property Rights.
SECTION 3.09. TANGIBLE PERSONAL PROPERTY
Each material item of tangible personal property included in the Assets
(exclusive of Inventory) is listed on Schedule 2.01(a)(i) and is owned by the
Seller or the Subsidiaries, free and clear of all liens, security interests and
other charges and encumbrances, except for liens, claims or encumbrances that do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Seller and the
Subsidiaries (collectively, "Encumbrances"). Such tangible personal property is
in normal operating condition, ordinary wear and tear excepted.
SECTION 3.10. CONTRACTS
(a) Schedule 2.01(a)(v) lists each Contract to which the Seller or any
Subsidiary is a party relating to the Hardware Business that requires, in
accordance with its terms, payments in excess of $25,000 or that requires, in
accordance with its terms, payments in excess of $5,000 and is not cancelable
upon not more than 60 days' notice (collectively, the "Material Contracts").
(b) Except as set forth in Schedule 3.10(b), (i) each Material Contract is
valid, binding and enforceable in accordance with its terms and is assignable to
the Purchaser without the consent of any party other than the Seller or a
Subsidiary and without material change in its terms; (ii) neither the Seller nor
any Subsidiary is in default under or in violation of any provision of any of
the Material Contracts, which default (with or without the lapse of time or the
giving of notice or both) could reasonably be expected to have a Material
Adverse Effect; (iii) neither the Seller nor any Subsidiary has received notice
of alleged nonperformance or other noncompliance with respect to its obligations
under any of the Material Contracts which alleged nonperformance or other
noncompliance is currently unresolved, nor any notice that is currently
unresolved that any of the Material Contracts may be totally or partially
terminated or suspended by any other party thereto; (iv) the Seller does not
have knowledge of any nonperformance, breach or other noncompliance by any other
party to any of the Material Contracts; (v) no Material Contract requires any
third party notice or consent prior to being transferred or assigned to the
Purchaser; and (vi) no Material Contract has any non-competition or exclusivity
provision.
(c) Each license listed on Schedule 3.10(c) is (i) good and valid in
accordance with the terms of such license; and (ii) transferable to the
Purchaser without the consent of any person other than the Seller or a
Subsidiary and without material change in its terms. The licenses listed on
Schedule 3.10(c) constitute all of the material licenses required in the conduct
of the Hardware Business.
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SECTION 3.11. INVENTORIES
Subject to such reserves and write-downs as may be reflected on the
Reference Balance Sheet, the items of Inventory reflected on the Reference
Balance Sheet, or currently owned by the Seller or the Subsidiaries, are of a
quality and quantity usable and saleable in the Ordinary Course of Business,
except for immaterial portions of such Inventory. Such Inventory consists of
materials and supplies used or sold in the Hardware Business.
SECTION 3.12. ACCOUNTS RECEIVABLE
All accounts receivable of the Seller reflected on the Reference Balance
Sheet represent bona fide transactions made in the Ordinary Course of Business
of the Seller and, in the aggregate, to the Seller's knowledge, are collectible
in the Ordinary Course of Business consistent with past practices of the Seller,
subject to applicable reserves and to returns and credits in accordance with the
Seller's policies. Schedule 3.12 contains a complete and accurate aging report
of such accounts receivable as of July 21, 1999.
SECTION 3.13. BROKERS
No broker, finder or investment banker other than Broadview International
LLC is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Seller. The Seller is solely
responsible for any such fees and expenses.
SECTION 3.14. CONDUCT IN THE ORDINARY COURSE; ABSENCE OF CHANGES
Since May 31, 1999, the Hardware Business has been conducted in the Ordinary
Course and consistent with past practice. As amplification and not limitation of
the foregoing, since such date neither the Seller nor any Subsidiary has:
(i) imposed any security interest upon any of its assets, tangible or
intangible;
(ii) granted any license or sublicense of any material rights under or
with respect to any Intellectual Property Rights;
(iii) authorized or made any change in the charter or bylaws of any of
the Seller and the Subsidiaries;
(iv) issued, sold, or otherwise disposed of any of its capital stock,
or granted any options, warrants, or other rights to purchase or obtain
(including upon conversion, exchange, or exercise) any of its capital stock
(excluding shares issued upon the exercise of employee options);
(v) experienced any material damage, destruction, or loss (whether or
not covered by insurance) to its property or the Assets.
SECTION 3.15. APPROVAL BY SHAREHOLDERS OF SELLER
The Seller has delivered to the Buyer voting agreements (each with an
irrevocable proxy attached thereto) covering 46.9% by voting power of the
securities entitled to vote with respect to the approval of the transactions
contemplated hereby. Each such voting agreement and irrevocable proxy (i) has
been duly and validly executed and delivered by the designated shareholder of
the Seller; constitutes the irrevocable, valid and binding agreement of such
person, enforceable against such person and the Seller in accordance with its
terms, and (ii) duly and validly empowers the Purchaser to vote the securities
subject thereto in any vote to approve the transactions contemplated hereby or
to consent to such transaction. The Seller has also delivered to the Purchaser a
voting agreement covering 3.4% by voting power of the securities entitled to
vote with respect to the approval of the transactions contemplated hereby. This
voting agreement (i) has been duly and validly executed and delivered by the
designated shareholder of the Seller and
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(ii) constitutes the valid and binding agreement of such person, enforceable
against such person in accordance with its terms.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
SECTION 4.01. INCORPORATION AND AUTHORITY OF THE PURCHASER
The Purchaser has been duly formed and validly exists under the laws of
France and has all necessary power and authority under its charter documents and
the law pursuant to which it is formed to execute and deliver this Agreement and
the Ancillary Agreements to which it is a party, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by the Purchaser of this Agreement and
the Ancillary Agreements to which it is a party, the performance of its
obligations hereunder and thereunder and the consummation by the Purchaser of
the transactions contemplated hereby and thereby have been duly authorized by
all requisite corporate (or similar) action on the part of the Purchaser. This
Agreement has been duly executed and delivered by the Purchaser, and (assuming
due authorization, execution and delivery by the Seller) constitutes a legal,
valid and binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, except as enforceability may be affected by
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting creditors' rights, or by general equity principles At
the Closing, the Ancillary Agreements to which the Purchaser is a party shall be
duly executed and delivered by the Purchaser, and (assuming due authorization,
execution and delivery by the other parties thereto) shall constitute legal,
valid and binding obligations of the Purchaser, enforceable against the
Purchaser in accordance with their terms, except as enforceability may be
affected by bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting creditors' rights, or by general equity
principles
SECTION 4.02. NO CONFLICT
The execution, delivery and performance by the Purchaser of this Agreement
and the Ancillary Agreements to which the Purchaser is a party do not, and will
not (a) violate or conflict with the charter documents of the Purchaser, as
amended, (b) conflict with or violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award applicable to the
Purchaser, or (c) except as could not reasonably be expected to have a material
adverse effect on the ability of the Purchaser to perform its obligations under
this Agreement and the Ancillary Agreements to which the Purchaser is a party,
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any lien or other encumbrance on any of the assets or
properties of the Purchaser pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties, to which the Purchaser is a party or by
which any of such assets or properties is bound or affected.
SECTION 4.03. CONSENTS AND APPROVALS
The execution, delivery and performance by the Purchaser of this Agreement
and the Ancillary Agreements to which the Purchaser is a party do not, and will
not, require any consent, approval, exemption, authorization or other action by,
or filing with or notification to, any court, administrative agency or other
governmental or regulatory authority, except (a) as described in Schedule 4.03,
(b) any applicable notification requirements of the HSR Act or any equivalent
provision of French or European Community law, and (c) where failure to obtain
such consent, approval, authorization or action, or to make such filing or
notification, would not prevent the Purchaser from performing any of its
material obligations under this Agreement or the Ancillary Agreements to which
the Purchaser is a party.
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SECTION 4.04. ABSENCE OF LITIGATION
No claim, action, proceeding or investigation is pending or, to the
Purchaser's knowledge, threatened against the Purchaser, which questions the
validity of this Agreement or any of the Ancillary Agreements to which the
Purchaser is a party or any action taken or to be taken by the Purchaser
hereunder or thereunder.
SECTION 4.05. FINANCING
The Purchaser has, or as of the Closing will have, all funds necessary to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements to which it is a party.
SECTION 4.06. BROKERS
Other than Concordia Capital Technology Group, Inc., no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser. The Purchaser
shall be solely responsible for any such fees and expenses.
SECTION 4.07. VALUATION OF ASSETS
The Purchaser's board of directors has adopted a resolution evidencing its
good faith determination that the value of the Assets being acquired that are
located in the United States is less than $15,000,000.
ARTICLE V. ADDITIONAL AGREEMENTS
SECTION 5.01. CONDUCT OF HARDWARE BUSINESS PRIOR TO CLOSING
Prior to the Closing, the Hardware Business shall be conducted in accordance
with the terms and conditions specified in Section 2.04 of this Agreement.
SECTION 5.02. BEST EFFORTS TO CAUSE THE CLOSING TO OCCUR
The Seller and the Purchaser shall each use its reasonable best efforts to
cause the Closing to occur, including, without limitation, the taking of all
actions reasonably required to cause the transactions contemplated hereby to be
approved by the shareholders of the Seller as required by the Oregon Business
Corporation Act. Accordingly, pursuant to one or more voting agreements among
the Seller, the Purchaser and certain shareholders of the Seller signatory
thereto, the Seller shall deliver to the Purchaser proxies to vote to approve
the transactions contemplated by this Agreement at a meeting of the shareholders
of the Seller. The Purchaser covenants and agrees to, and it shall cause its
officers, employees or representatives to, vote at such meeting to approve the
transactions contemplated by this Agreement. Notwithstanding the foregoing,
neither party shall be required to waive any condition precedent to its
obligation to close.
SECTION 5.03. ACCESS TO INFORMATION
(a) From the date hereof until the Closing, upon reasonable notice, the
Seller shall (i) afford the officers, employees and authorized agents and
representatives of the Purchaser reasonable access, during normal business
hours, to the offices, properties, books and records of the Seller and the
Subsidiaries relating to the Assets, the Assumed Liabilities and the Hardware
Business and (ii) furnish to the officers, employees and authorized agents and
representatives of the Purchaser such additional information regarding the
Assets, the Assumed Liabilities and the Hardware Business as the Purchaser may
from time to time reasonably request; PROVIDED, HOWEVER, that such investigation
shall be conducted in a manner so as not to interfere unreasonably with the
business or operations of the Seller.
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(b) In order to facilitate the resolution of any claims made by or against
or incurred by the Seller with respect to the period prior to the Closing, after
the Closing, upon reasonable notice, the Purchaser shall (i) afford the
officers, employees and authorized agents and representatives of the Seller
reasonable access, during normal business hours, to the offices, properties,
books and records of the Purchaser relating to the Assets, the Assumed
Liabilities and the Hardware Business, (ii) furnish to the officers, employees
and authorized agents and representatives of the Seller such additional
financial and other information regarding the Assets, the Assumed Liabilities
and the Hardware Business as the Seller may from time to time reasonably request
and (iii) make available to the Seller the employees of the Purchaser whose
assistance, testimony or presence is necessary to assist the Seller in
evaluating any such claims and in defending such claims, including the presence
of such persons as witnesses in hearings or trials for such purposes; PROVIDED,
HOWEVER, that such investigation shall be conducted in a manner so as not to
interfere unreasonably with any of the businesses or operations of the
Purchaser.
SECTION 5.04. NOTICE OF DEVELOPMENTS
Each party will give prompt written notice to the other party of any
material adverse development causing a breach of any of its own representations
and warranties in Articles III and IV above. No disclosure by any party pursuant
to this Section 5.05, however, shall be deemed to amend or supplement the
Seller's or the Purchaser's respective required disclosures pursuant to Article
III or Article IV, as applicable, or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
SECTION 5.05. BOOKS AND RECORDS
(a) The Purchaser agrees that it shall preserve and keep all books and
records relating to the Assets, the Assumed Liabilities and the Hardware
Business for a period of at least five years from the Closing Date. After such
period, before the Purchaser shall dispose of any of such books and records, at
least 30 calendar days' prior written notice to such effect shall be given by
the Purchaser to the Seller, and the Seller shall be given an opportunity, at
its cost and expense, to remove and retain all or any part of such books and
records as the Seller may select within 30 days after the delivery of notice to
the Purchaser of the Seller's intent to take possession of such books and
records. During such period, duly authorized representatives of the Seller
shall, upon reasonable notice, have access thereto during normal business hours
to examine, inspect and copy such books and records.
(b) If, in order properly to prepare documents required to be filed with
governmental authorities or its financial statements, it is necessary that
either party hereto or any successors be furnished with additional information
relating to the Assets, the Assumed Liabilities or the Hardware Business, and
such information is in the possession of the other party hereto, such other
party agrees to use its best efforts to furnish such information to such party,
at the cost and expense of the party being furnished such information.
SECTION 5.06. REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS
The Seller and the Purchaser will use their reasonable best efforts to
obtain all authorizations, consents, orders and approvals of all federal, state,
local and foreign regulatory bodies and officials that may be or become
necessary for their respective execution and delivery of, and the performance of
their respective obligations pursuant to, this Agreement and the Ancillary
Agreements and will cooperate fully with each other in promptly seeking to
obtain all such authorizations, consents, orders and approvals. To the extent
applicable, the Seller and the Purchaser agree to make appropriate filings of
Notification and Report Forms pursuant to the HSR Act or any equivalent
provision of French or European Community law with respect to the transactions
contemplated hereby within five Business Days of the date hereof and to supply
promptly any additional information and documentary material that may be
requested pursuant to the HSR Act or any equivalent provision of French or
European Community law. The parties hereto will not take any action that will
have the effect of delaying, impairing or impeding the receipt of any required
approvals.
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SECTION 5.07. EXCLUSIVITY
The Seller will not (and the Seller will not cause or permit any of the
Subsidiaries to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets, of
any of the Seller and the Subsidiaries (including any acquisition structured as
a merger, consolidation, or share exsetall) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Seller will notify
the Purchaser immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
SECTION 5.08. TAXES
(a) The Seller shall be liable for any and all sales, transfer, stamp and
similar Taxes, levies, charges and fees incurred as a result of the transactions
contemplated by this Agreement, except that the Purchaser shall pay (i) any
sales taxes imposed upon the sale of the Tooling to the Purchaser, and (ii) any
value added tax imposed in the United Kingdom on the sale of Inventory. The
Purchaser and the Seller shall cooperate in the filing of all necessary
documentation and all Tax returns, reports and forms with respect to such Taxes,
levies, charges and fees.
(b) The Purchaser shall pay all personal property taxes attributable to the
Assets that are due after the Closing Date, whether accruing prior to, on or
after the Closing Date.
SECTION 5.09. BULK TRANSFER LAWS
The Purchaser hereby waives compliance by the Seller and the Subsidiaries
with the provisions of any so-called bulk transfer or similar laws of any
jurisdiction in connection with the sale to the Purchaser of the Assets.
SECTION 5.10. FURTHER ACTION
Each of the parties hereto shall execute and deliver such documents and
other papers and take such further actions as may be reasonably required to
carry out the provisions hereof and give effect to the transactions contemplated
hereby.
SECTION 5.11. USE OF NAMES
(a) As soon as is practicable, each of the Seller and its Subsidiaries shall
take such action, including, without limitation, corporate action, and file such
documents as are necessary to setall its corporate name so as not to contain the
word "ThrustMaster", including, without limitation, filing amendments to the
Seller's Articles of Incorporation.
(b) The Purchaser recognizes that the names "Talk n' Play," "See n' Play"
and "We Can Talk" are good and valid trademarks owned by the Seller, and that,
notwithstanding anything to the contrary in this Agreement, no interest or right
to use such names, any derivation thereof or any related logo, trademark or
trade name in which the Seller has any interest (collectively, the "Retained
Names and Marks") is being transferred to the Purchaser pursuant to the
transactions contemplated hereby. The Purchaser will not contest the ownership
or validity of any rights of the Seller in the Retained Names and Marks or any
registrations thereof. The Purchaser shall, as soon as practicable following the
Closing Date, remove or obliterate all Retained Names and Marks from all signs,
purchase orders, invoices, sales orders, labels, letterheads, shipping documents
and other materials included in the Assets, and the Purchaser shall not put into
use after the Closing Date any such materials not in existence on the Closing
Date that bear any Retained Name or Mark or any name, mark or logo similar
thereto. Notwithstanding the foregoing, the Purchaser shall be entitled for a
period of 60 days following the Closing Date, to use any signs, purchase
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orders, invoices, sales orders, labels, letterheads or shipping documents
existing on the Closing Date and included in the Assets that bear any Retained
Name or Mark or any name, mark or logo similar thereto, in each case where the
removal of any Retained Name or Mark or any such similar name, mark or logo
would be impractical; PROVIDED, HOWEVER, that the Purchaser shall place a stamp,
mark or other notation on any such item that identifies the Hardware Business as
a business of the Purchaser (and not the Seller). Other than as set forth in
this Section 5.13, the Purchaser shall not have any right to use or exploit the
Retained Names or Marks or any name, mark or logo similar thereto.
ARTICLE VI. CONDITIONS TO CLOSING
SECTION 6.01. CONDITIONS TO OBLIGATIONS OF THE SELLER
The obligations of the Seller to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the Closing,
of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects when made, other than such representations and
warranties as are made as of another date, and all the material covenants
contained in this Agreement to be complied with by the Purchaser on or before
the Closing shall have been complied with in all material respects.
(b) NO ORDER. No governmental authority or other agency or commission or
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and has the
effect of making the transactions contemplated by this Agreement or any of the
Ancillary Agreements illegal or otherwise restraining or prohibiting
consummation of such transactions.
(c) CONSENTS. All consents, authorizations and approvals listed on Schedule
6.01(c) shall have been obtained.
(d) SHAREHOLDER APPROVAL. The Company's shareholders shall have approved the
transaction contemplated hereby.
(e) ESCROW AGREEMENT. The Escrow Agent shall have executed and delivered the
Escrow Agreement.
(f) NON-COMPETITION AGREEMENT. The Seller and the Subsidiaries have executed
a non-competition agreement with the Purchaser in the form attached as Exhibit
D.
(g) LEGAL OPINION. The Seller shall have received from Stoel Rives LLP the
Purchaser's counsel a legal opinion addressed to the Seller and dated the
Closing Date, substantially in the form of Exhibit 6.01(g).
(h) APPROVAL BY COUNSEL. All actions, proceedings, instruments, and
documents required to fulfill the conditions set forth in this Section 6.01 or
incident thereto and all other related legal matters shall have been reasonably
satisfactory to and approved by Perkins Coie LLP, the Seller's counsel, and such
counsel shall have been furnished with such certified copies of such corporate
actions and proceedings and such other instruments and documents as shall have
been reasonably requested by such counsel.
SECTION 6.02. CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment, at or prior to the
Closing, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of the Seller contained in this Agreement shall be true and correct
in all material respects when made, other than such representations and
warranties as are made as of another date, and all the material covenants
contained in this Agreement to be complied with by the Seller on or before the
Closing shall have been complied with in all material respects.
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(b) NO ORDER. No governmental authority or other agency or commission or
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and has the
effect of making the transactions contemplated by this Agreement or any of the
Ancillary Agreements illegal or otherwise restraining or prohibiting
consummation of such transactions.
(c) CONSENTS. All consents, authorizations and approvals listed on Schedule
6.01(c) shall have been obtained.
(d) ESCROW AGREEMENT. The Escrow Agent shall have executed and delivered the
Escrow Agreement.
(e) LEGAL OPINION. The Purchaser shall have received from Perkins Coie LLP,
the Seller's counsel, a legal opinion addressed to the Purchaser and dated the
Closing Date, substantially in the form of Exhibit 6.02(e).
(f) APPROVAL BY COUNSEL. All actions, proceedings, instruments, and
documents required to fulfill the conditions set forth in this Section 6.02 or
incident thereto and all other related legal matters shall have been reasonably
satisfactory to and approved by Stoel Rives LLP, the Purchaser's counsel, and
such counsel shall have been furnished with such certified copies of such
corporate actions and proceedings and such other instruments and documents as
shall have been reasonably requested by such counsel.
(g) ENCUMBRANCES. The Seller shall have the ability to transfer the Assets
to the Purchaser free of any Encumbrances.
ARTICLE VII. INDEMNIFICATION
SECTION 7.01. SURVIVAL
Subject to the limitations and other provisions of this Agreement, the
representations, warranties, covenants and agreements of the parties hereto
contained herein shall survive and remain in full force and effect, regardless
of any investigation made by or on behalf of the Seller or the Purchaser, for a
period of two years after the Closing Date; provided, however, that any claim
based on fraud shall survive the Closing indefinitely.
SECTION 7.02. INDEMNIFICATION BY THE PURCHASER
(a) The Purchaser agrees, subject to the other terms and conditions of this
Section 7.02 and Section 7.04 and without gross-up for Taxes, to indemnify the
Seller against and hold the Seller harmless from any and all liabilities,
losses, costs, expenses (including, without limitation, reasonable attorneys'
fees) of and damages to (collectively, "Losses") the Seller, arising out of or
with respect to (i) the breach of any representation, warranty, covenant or
agreement of the Purchaser herein and (ii) the Assumed Liabilities. If the
transactions contemplated by this Agreement are not consummated, the Purchaser
agrees, subject to the other terms and conditions of this Section 7.02 and
Section 7.04 and without gross-up for Taxes, to indemnify the Seller against and
hold the Seller harmless from any and all Losses to the Seller arising out of or
with respect to the material breach of any representation, warranty, covenant or
agreement of the Purchaser herein.
(b) No claim may be made against the Purchaser for indemnification pursuant
to this Section 7.02 with respect to any individual item of Loss, unless such
item exceeds $5,000 and unless the aggregate of all such Losses of the Seller
with respect to this Section 7.02 shall exceed $150,000, at which time, the
Purchaser shall be required to pay or be liable for all such Losses to the
Seller, including the first $150,000; PROVIDED, HOWEVER, that any Losses arising
in connection with Section 4.06 or based upon a claim of fraud shall not be
subject to any of such limitations.
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SECTION 7.03. INDEMNIFICATION BY THE SELLER
(a) The Seller agrees, subject to the other terms and conditions of this
Section 7.03 and Section 7.04 and without gross-up for Taxes, to indemnify the
Purchaser against and hold it harmless from any and all Losses to the Purchaser
arising out of or with respect to (i) the breach of any representation,
warranty, covenant or agreement of the Seller herein and (ii) the Retained
Liabilities. If the transactions contemplated by this Agreement are not
consummated, the Seller agrees, subject to the other terms and conditions of
this Section 7.03 and Section 7.04 and without gross-up for Taxes, to indemnify
the Purchaser against and hold the Purchaser harmless from any and all Losses to
the Purchaser arising out of or with respect to the breach of any
representation, warranty, covenant or agreement of the Seller herein.
(b) No claim may be made against the Seller for indemnification pursuant to
this Section 7.03 with respect to any individual item of Loss, unless such item
exceeds $5,000 and unless the aggregate of all Losses of the Purchaser with
respect to this Section 7.03 shall exceed $150,000, at which time the Seller
shall be required to pay or be liable for all such Losses to the Purchaser,
including the first $150,000; PROVIDED, HOWEVER, that any Losses arising in
connection with Section 3.13 or 3.15 or based upon a claim of fraud shall not be
subject to any of such limitations. Except for Losses based upon a claim of
fraud, the aggregate liability of the Seller to the Purchaser under this
Agreement shall be limited to the Purchase Price. Any and all indemnification
obligations of the Seller under this Section 7.03 (other than obligations based
upon a claim of fraud) shall be satisfied first from the Retained Escrow Amount
pursuant to the terms of the Escrow Agreement. For purposes of this Section
7.03(b), in computing the individual or aggregate amounts of claims, the amount
of each claim shall be deemed to be an amount (i) net of any reserves provided
for the item in question in the Reference Balance Sheet and (ii) net of any
adjustments to the Purchase Price paid to the Purchaser pursuant to Section
2.03(b) with respect to the subject matter in question.
SECTION 7.04. GENERAL PROVISIONS
(a) Anything in Section 7.01 to the contrary notwithstanding, no claim may
be asserted nor any action commenced against the Purchaser or the Seller for
breach of any representation, warranty, covenant or agreement contained herein,
unless written notice of such claim or action is received by such party,
describing in detail the facts and circumstances with respect to the subject
matter of such claim or action on or prior to the date on which the
representation, warranty, covenant or agreement on which such claim or action is
based ceases to survive as set forth in Section 7.01, irrespective of whether
the subject matter of such claim or action shall have occurred before or after
such date.
(b) Each party entitled to indemnification under this Article VII (an
"Indemnified Party") agrees to give the party bearing the related
indemnification obligation hereunder (the "Indemnifying Party") prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which the Indemnified Party has knowledge concerning any Loss as to
which it may request indemnification hereunder or any liability or damage as to
which the $150,000 amount referred to in Section 7.02(c) or the $150,000 amount
referred to in Section 7.03(c) may be applied. The Indemnifying Party shall have
the right to direct, through counsel of its own choosing, the defense or
settlement of any such claim or proceeding at its own expense. If the
Indemnifying Party elects to assume the defense of any such claim or proceeding,
the Indemnified Party may participate in such defense, but in such case the
expenses of the Indemnified Party shall be paid by the Indemnified Party. The
Indemnified Party shall provide the Indemnifying Party with access to its
records and personnel relating to any such claim, assertion, event or proceeding
during normal business hours and shall otherwise cooperate with the Indemnifying
Party in the defense or settlement thereof, and the Indemnifying Party shall
reimburse the Indemnified Party for its reasonable out-of-pocket expenses in
connection therewith. If the Indemnifying Party elects to direct the defense of
any such claim or proceeding, the Indemnified Party shall not pay, or permit to
be paid, any part of any claim or demand arising from such asserted liability
unless the Indemnifying Party consents in writing to such payment (which consent
shall not be unreasonably withheld) or unless the Indemnifying Party, subject
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to the last sentence of this Section 7.04(b), withdraws from the defense of such
asserted liability, or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnifying Party is entered against the Indemnified
Party for such liability. If the Indemnifying Party shall fail to defend or, if
after commencing or undertaking any such defense, shall fail to prosecute or
shall withdraw from such defense, the Indemnified Party shall have the right to
undertake the defense or settlement thereof, at the Indemnifying Party's
expense. If the Indemnified Party assumes the defense of any such claim or
proceeding pursuant to this Section 7.04(b) and proposes to settle such claim or
proceeding prior to a final judgment thereon or to forego any appeal with
respect thereto, then the Indemnified Party shall give the Indemnifying Party
prompt written notice thereof and the Indemnifying Party shall have the right to
participate in the settlement or assume or reassume the defense of such claim or
proceeding.
(c) Each of the Seller and the Purchaser hereby acknowledges and agrees that
its sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement shall be pursuant to the indemnification
provisions set forth in this Article VII. In furtherance of the foregoing, each
of the Seller and the Purchaser hereby waives, to the fullest extent permitted
under applicable law, any and all rights, claims and causes of action it may
have against the other party hereto arising under or based upon any Federal,
state or local statute, law, ordinance, rule or regulation (including, without
limitation, any such rights, claims or causes of action arising under or based
upon common law or otherwise).
(d) Except as set forth in this Agreement, neither the Seller nor the
Purchaser is making any representation, warranty, covenant or agreement with
respect to the matters contained herein. Anything herein to the contrary
notwithstanding, no breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of the
Seller or the Purchaser, after the consummation of the purchase and sale of the
Assets contemplated hereby, to rescind this Agreement or any of the transactions
contemplated hereby.
(e) In no event shall the Seller or the Purchaser be liable for
consequential damages.
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION
This Agreement may be terminated upon written notice given at any time prior
to the Closing:
(a) by the mutual written consent of the Purchaser and the Seller;
(b) by the Purchaser, provided that the Purchaser is not then in material
default under this Agreement, if the Seller should default in any material
respect in the observance or in the due and timely performance of any of its
covenants or agreements contained herein, or any condition to the Purchaser's
obligations under this Agreement shall fail to be satisfied or waived, which
default, nonperformance or failure has not been cured within 10 Business Days of
written notice of such default or is not reasonably capable of cure on or prior
to the Closing Date;
(c) by the Seller, provided that the Seller is not then in material default
under this Agreement, if the Purchaser should default in any material respect in
the observance or in the due and timely performance of any of its covenants or
agreements contained herein, or any condition to the Seller's obligations under
this Agreement shall fail to be satisfied or waived, which default,
nonperformance or failure has not been cured within 10 Business Days of written
notice of such default or is not reasonably capable of cure on or prior to the
Closing Date; or
(d) by the Purchaser or the Seller if the Closing shall not have occurred
prior to November 30, 1999; PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 8.01(d) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior to such
date.
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SECTION 8.02. EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in Section 8.01,
this Agreement shall forthwith become void and there shall be no liability on
the part of any party hereto except (a) as set forth in Sections 3.13, 4.06,
5.08 and 9.01 and (b) nothing herein shall relieve any party from liability for
any willful breach hereof.
SECTION 8.03. WAIVER
At any time prior to the Closing, the Purchaser or the Seller may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant hereto or
(c) waive compliance with any of the agreements or conditions of the other party
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby.
ARTICLE IX. GENERAL PROVISIONS
SECTION 9.01. EXPENSES
Unless otherwise indicated in this Agreement or the Ancillary Agreements,
all costs and expenses incurred in connection with this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby,
including, without limitation, fees and disbursements of counsel, financial
advisors and accountants, shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 9.02. NOTICES
All notices, requests, claims, demands and other communications given or
made pursuant hereto shall be in writing (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by telecopy (with
confirmation copy of such telecopied material delivered in person or by
registered or certified mail, postage prepaid, return receipt requested) or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
9.02):
(a) if to the Seller:
Thrustmaster, Inc.
7175 NW Evergreen Parkway, #400
Hillsboro, OR 97124-5839
Attention: Frank G. Hausmann
Telecopy: (503) 615-3297
with a copy to:
Perkins Coie LLP
1211 SW Fifth Avenue, Suite 1500
Portland, OR 97204
Attention: Patrick J. Simpson, Esq.
Telecopy: (503) 727-2222
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(b) if to the Purchaser:
Guillemot Corporation S.A.
Place de l'Etoile
56910 Carentoir
France
Attention: Christian Guillemot
Telecopy: 33-2-99-08-95-78
with a copy to:
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Attention: John J. Halle, Esq.
Telecopy: (503) 220-2480
SECTION 9.03. PUBLIC ANNOUNCEMENTS
Neither the Purchaser nor the Seller shall make, or cause to be made, any
press releases or public announcements in respect of this Agreement or the
transactions contemplated herein or otherwise communicate with any news media
without prior notification to the other party, and the parties shall cooperate
as to the timing and contents of any such announcement, except as such release,
announcement or communication may be required by governmental authorities, a
court of competent jurisdiction or applicable law (including, without
limitation, securities laws and regulations affecting the Seller's public
disclosure obligations), in which case the party making the release,
announcement or communication shall provide the information contained therein to
the other party in advance of its disclosure.
SECTION 9.04. HEADINGS
The descriptive headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 9.05. SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
SECTION 9.06. ENTIRE AGREEMENT
This Agreement, the Ancillary Agreements and the Confidentiality Agreement
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and undertakings, both
written and oral, among the parties hereto with respect to the subject matter
hereof.
SECTION 9.07. ASSIGNMENT
Prior to the Closing, this Agreement shall not be assigned by operation of
law or otherwise without the express written consent of the other party (which
consent shall not be unreasonably withheld), provided,
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however, that the Purchaser may assign its rights, but not its obligations,
under this agreement to the Acquisition Sub. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
SECTION 9.08. NO THIRD-PARTY BENEFICIARIES
This Agreement is for the sole benefit of the parties hereto and their
successors and permitted assigns, and nothing herein, express or implied, is
intended to or shall confer upon any other person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 9.09. AMENDMENT; WAIVER
This Agreement may not be amended or modified except by an instrument in
writing duly executed by the Seller and the Purchaser. Waiver of any term or
condition of this Agreement shall only be effective if in writing, duly executed
by the party to be bound thereby, and shall not be construed as a waiver of any
subsequent breach or waiver of the same term or condition, or a waiver of any
other term or condition of this Agreement.
SECTION 9.10. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon applicable to contracts executed and to be performed
in that State.
SECTION 9.11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be duly executed as of the date first written above.
<TABLE>
<S> <C> <C>
THRUSTMASTER, INC.
/s/ FRANK G. HAUSMANN
-----------------------------------------
Frank G. Hausmann
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
<TABLE>
<S> <C> <C>
GUILLEMOT CORPORATION, S.A.
/s/ CLAUDE GUILLEMOT
-----------------------------------------
Claude Guillemot
Title: PRESIDENT
</TABLE>
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EXHIBIT B
July 23, 1999
CONFIDENTIAL
Board of Directors
ThrustMaster, Inc.
7175 NW Evergreen Parkway, #400
Hillsboro, OR 97124
Dear Members of the Board:
We understand that ThrustMaster, Inc. ("ThrustMaster") and Guillemot
Corporation ("Guillemot") propose to enter into an Asset Purchase Agreement (the
"Agreement") pursuant to which Guillemot (or a subsidiary thereof) will purchase
certain Assets of ThrustMaster and its European subsidiaries used in
ThrustMaster's hardware business (the "Assets" as defined in the Agreement) for
$15,000,000 cash (subject to adjustment) and assume certain liabilities (the
"Assumed Liabilities" as defined in the Agreement) related to the hardware
business (the "Consideration"). The Assets and Assumed Liabilities are
collectively referred to herein as the Hardware Business ("Hardware Business").
The terms and conditions of the above-described transaction (the "Transaction")
are more fully detailed in the Agreement.
You have requested our opinion as to whether the Consideration is fair, from
a financial point of view, to ThrustMaster shareholders.
Broadview International LLC focuses on providing merger and acquisition
advisory services to Information Technology ("IT"), Communications and Media
companies. In this capacity, we are continually engaged in valuing such
businesses, and we maintain an extensive database of IT, Communications and
Media mergers and acquisitions for comparative purposes. We are currently acting
as financial advisor to ThrustMaster's Board of Directors and will receive a fee
from ThrustMaster upon the successful completion of the Transaction.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement in the form of the draft dated July
22, 1999 furnished to us by ThrustMaster's legal counsel on July 22,
1999 (which, for the purposes of this opinion, we have assumed, with
your permission, to be identical in all material respects to the
agreement to be executed);
2.) reviewed ThrustMaster's annual report on Form 10-K for its fiscal year
ended December 31, 1998, including the audited financial statements
included therein, and ThrustMaster's quarterly report on Form 10-Q for
the period ended March 31, 1999, including the unaudited financial
statements included therein;
3.) reviewed certain internal historical financial and operating data
concerning the Hardware Business prepared and provided to us by
ThrustMaster management;
4.) reviewed certain quarterly financial and operational projections through
December 31, 2000 for the Hardware Business prepared and provided to us
by ThrustMaster management;
5.) reviewed the reported closing prices and trading activity for
ThrustMaster common stock both before and after the December 7, 1998
announcements of the Talk n' Play product line and PeopleLink
distribution arrangement;
6.) participated in discussions with ThrustMaster management concerning the
operations, business strategy, financial performance and prospects for
the Hardware Business;
<PAGE>
7.) discussed with ThrustMaster management its view of the strategic
rationale for the Transaction, as well as the financial viability of
ThrustMaster absent the Transaction;
8.) compared certain aspects of the financial performance of the Hardware
Business with public companies we deemed comparable;
9.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part of the Transaction;
10.) discussed with Guillemot management its view of the strategic rationale
for the Transaction;
11.) assisted in negotiations and discussions related to the Transaction
among ThrustMaster, Guillemot and their financial and legal advisors;
and
12.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by ThrustMaster,
Guillemot, or their advisors. With respect to the financial projections examined
by us, we have assumed that they were reasonably prepared and reflected the best
available estimates and good faith judgments of the management of ThrustMaster
as to the future performance of the Hardware Business.
Based upon and subject to the foregoing, we are of the opinion that the
Consideration is fair, from a financial point of view, to ThrustMaster
shareholders.
For purposes of this opinion, we have assumed that neither ThrustMaster nor
Guillemot is currently involved in any material transaction other than the
Transaction and those activities undertaken in the ordinary course of conducting
their respective businesses. Our opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this opinion, and any change in such conditions may impact this
opinion. We express no opinion as to the price at which ThrustMaster common
stock will trade at any time. Additionally, we express no opinion as to the
value of the assets or businesses of ThrustMaster which are not included in the
Transaction.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of ThrustMaster in
connection with its consideration of the Transaction and does not constitute a
recommendation to any ThrustMaster shareholder as to how such shareholder should
vote on the Transaction. This opinion may not be published or referred to, in
whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview hereby consents to references to and the
inclusion of this opinion in its entirety in the Proxy Statement, if any, to be
distributed to ThrustMaster shareholders in connection with the Transaction.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
Broadview International LLC
<PAGE>
PRELIMINARY FORM OF PROXY CARD
THRUSTMASTER, INC.
7175 N.W. EVERGREEN PARKWAY #400
HILLSBORO, OR 97124-5839
PROXY FOR THE SEPTEMBER 24, 1999 SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THRUSTMASTER, INC.
The undersigned shareholder(s) of ThrustMaster, Inc. (the "Company")
hereby appoint Frank G. Hausmann and G. Edward Brightman and each of them, as
proxies, each with the power of substitution to represent and to vote, as
designated in this proxy, all the shares of Common Stock of the Company held
of record by the undersigned as of August 16, 1999, at the Special Meeting of
Shareholders to be held at 2:00 p.m., Friday, September 24, 1999, and at any
and all adjournments thereof.
This proxy represents your shares of ThrustMaster, Inc. Common Stock.
You must execute and return this proxy if you wish to vote
these shares by proxy as set forth herein.
PLEASE RETURN ONLY THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
<PAGE>
<TABLE>
<S><C>
- ---------------------------------------------------------------------------------------------
Please mark
your votes as / X /
indicated in
this example>
I/WE WILL be attending WILL NOT be attending
the Special Meeting the Special Meeting
/ / / /
SPECIAL MEETING R.S.V.P.:
(Enter number of people attending _________)
FOR AGAINST ABSTAIN
1. SALE OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS AND
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO / / / / / /
CHANGE THE COMPANY'S CORPORATE NAME
SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED IN
ACCORDANCE WITH INSTRUCTIONS APPEARING ON THE PROXY AND IN THE
DISCRETION OF THE PROXY HOLDERS, BASED ON THE RECOMMENDATIONS OF
MANAGEMENT, AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
SPECIAL MEETING OF SHAREHOLDERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1. IN THE
ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR"
ITEM 1 AND IN THE DISCRETION OF THE PROXY HOLDERS, BASED ON THE
RECOMMENDATIONS OF MANAGEMENT, AS TO ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING OF SHAREHOLDERS. THE
COMPANY DOES NOT KNOW OF ANY OTHER MATTERS TO BE PRESENTED AT THE
SPECIAL MEETING.
Signature(s) ____________________________________________________ Dated ___________, 1999
NOTE: Please sign exactly as name(s) appear on your stock certificate and date this proxy.
If a joint account, each joint owner must sign. If signing for a corporation or partnership
or as agent, attorney or fiduciary, indicate the capacity in which you are signing.
- ---------------------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
</TABLE>
THRUSTMASTER, INC.
SPECIAL MEETING OF SHAREHOLDERS
Friday, September 24, 1999
2:00 p.m.
RiverPlace Hotel
1510 Southwest Harbor Way
Portland, Oregon
