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As filed with the Securities and Exchange Commission on April 12, 2002.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
ACTIVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4803544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_________________________
Robert A. Kotick
Chairman of the Board and Chief Executive Officer
Activision, Inc.
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_________________________
Copies To:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
===================================== ================= ======================
Proposed Maximum
Title of Class of Amount Offering Price
Securities to be Registered to be Registered Per Share (1)
- ------------------------------------- ----------------- ----------------------
Common Stock, $.000001 par value 327,586 shares $28.33
===================================== ================= ======================
======================= =======================
Proposed
Maximum Aggregate Amount of
Offering Price(1) Registration Fee
- ----------------------- -----------------------
$9,280,511.38 $854(3)
======================= =======================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to the provisions of Rule 457(c) under the Securities Act of 1933, as
amended, based on the average of the reported last high and low sales
prices on the Nasdaq National Market on April 8, 2002.
(2) Each share of common stock includes a right to purchase one-hundredth of a
share of Series A Junior Preferred Stock pursuant to rights agreement
between the registrant and Continental Stock Transfer & Trust Company, as
rights agent.
(3) Pursuant to Rule 457(p) of the Securities Act of 1933, as amended, the
registration fee of $854 is offset against the $57,141 registration fee
(of which $17,761 remains) that was previously paid to the Commission
relating to 6,900,000 shares of Common Stock previously registered by the
registrant pursuant to its Registration Statement on Form S-3 filed with
the Commission on July 30, 2001 (File No. 333-66280), which Registration
Statement was withdrawn on October 22, 2001, prior to the issuance of any
such shares.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 12, 2002
327,586 Shares
ACTIVISION, INC.
Common Stock
____________________
The stockholders of Activision, Inc. listed in this prospectus under the
section entitled "Selling Stockholders" are offering and selling up to 327,586
shares of our common stock under this prospectus.
The selling stockholders acquired all 327,586 shares of our common stock in
connection with our acquisition on March 26, 2002, of Shaba Games LLC, a
California based console software development company. The selling stockholders
were all of the members of Shaba.
We will not receive any of the proceeds from the sale of shares being
offered by the selling stockholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"ATVI." On April 11, 2002, the closing sale price of our common stock as
reported by Nasdaq was $29.28 per share.
Our principal executive offices are located at 3100 Ocean Park Boulevard,
Santa Monica, California 90405, and our telephone number is (310) 255-2000.
No underwriting is being used in connection with this offering of common
stock. The shares of common stock are being offered without underwriting
discounts. The expenses of this registration will be paid by us. Normal
brokerage commissions, discounts and fees will be payable by the selling
stockholders.
Investing in our common stock involves risks that are described in the
"Risk Factors" section beginning on page 2 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is __________, 2002.
TABLE OF CONTENTS
Page
FORWARD LOOKING STATEMENTS ....................................................1
RISK FACTORS ..................................................................2
ACTIVISION, INC. .............................................................10
USE OF PROCEEDS ..............................................................12
SELLING STOCKHOLDERS .........................................................12
DESCRIPTION OF CAPITAL STOCK .................................................13
PLAN OF DISTRIBUTION .........................................................14
LEGAL MATTERS ................................................................14
EXPERTS ......................................................................14
WHERE YOU CAN FIND MORE INFORMATION ..........................................15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ..............................15
____________________
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. These securities are not
being offered for sale in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
is accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
Information contained in our web site does not constitute part of this
document.
____________________
FORWARD LOOKING STATEMENTS
We make statements in this prospectus and the documents incorporated by
reference that are considered forward looking statements under the federal
securities laws. Such forward looking statements are based on the beliefs of our
management as well as assumptions made by and information currently available to
them. The words "anticipate," "believe," "may," "estimate," "expect," and
similar expressions, and variations of such terms or the negative of such terms,
are intended to identify such forward looking statements.
All forward looking statements are subject to certain risks, uncertainties
and assumptions. If one or more of these risks or uncertainties materialize, or
if underlying assumptions prove incorrect, our actual results, performance or
achievements could differ materially from those expressed in, or implied by, any
such forward looking statements. Important factors that could cause or
contribute to such difference include those discussed under "Risk Factors" in
this prospectus and under "Business-Factors Affecting Future Performance" in our
Annual Report on Form 10 K for the fiscal year ended March 31, 2001. You should
not place undue reliance on such forward looking statements, which speak only as
of their dates. We do not undertake any obligation to update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise. You should carefully consider the information set forth
under the heading "Risk Factors."
RISK FACTORS
You should carefully consider the risks described below before investing in
our common stock. The occurrence of any of the following risks could harm our
business and our prospects. In that event, our business may be negatively
affected, the price of our stock may decline and you may lose part or all of
your investment.
We depend on a relatively small number of brands for a significant portion of
our revenues and profits.
A significant portion of our revenues are derived from products based on a
relatively small number of popular brands each year. In addition, many of these
products have substantial production or acquisition costs and marketing budgets.
In fiscal 2001, 49% of our worldwide net publishing revenues (37% of
consolidated net revenues) was derived from two brands, one of which accounted
for 39% and the other of which accounted for 10% of worldwide net publishing
revenues (29% and 8%, respectively, of consolidated net revenues). In fiscal
2000, two brands accounted for 34% of our worldwide net publishing revenues (24%
of consolidated net revenues), one of which accounted for 19%, and the other of
which accounted for 15% of worldwide net publishing revenues (13% and 11%,
respectively, of consolidated net revenues). We expect that a limited number of
popular brands will continue to produce a disproportionately large amount of our
revenues. Due to this dependence on a limited number of brands, the failure of
one or more products based on these brands to achieve anticipated results may
significantly harm our business and financial results.
Our future success depends on our ability to release popular products.
The life of any one game product is relatively short, in many cases less
than one year. It is therefore important for us to be able to continue to
develop many high quality new products that are popularly received. If we are
unable to do this, our business and financial results may be significantly
harmed.
We focus our development and publishing activities principally on products
that are, or have the potential to become, franchise brand properties. Many of
these products are based on intellectual property and other character or story
rights acquired or licensed from third parties. The license and distribution
agreements are limited in scope and time, and we may not be able to renew key
licenses when they expire or to include new products in existing licenses. The
loss of a significant number of our intellectual property licenses or of our
relationships with licensors could have a material adverse effect on our ability
to develop new products and therefore on our business and financial results.
The current transition in console platforms has a material impact on the market
for interactive entertainment software.
When new console platforms are announced or introduced into the market,
consumers typically reduce their purchases of game console entertainment
software products for current console platforms in anticipation of new platforms
becoming available. During these periods, sales of our game console
entertainment software products can be expected to slow down or even decline
until new platforms have been introduced and have achieved wide consumer
acceptance. We are currently experiencing such a transition period. Each of the
three current principal hardware producers recently launched a new platform.
Sony made the first shipments of its PlayStation 2 console system in North
America and Europe in the fourth quarter of calendar year 2000. During that
quarter, Sony's manufacturing shortages resulted in significant shipment delays
of PlayStation 2 units in North America and Europe. In November 2001, Nintendo
made the first shipments of its Nintendo GameCube console system in North
America. In
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addition, in November 2001, Microsoft made the first shipments of its Xbox
console system in North America, and Microsoft released its Xbox console system
in Europe and Japan in the first quarter of calendar year 2002. In June 2001,
Nintendo launched its Game Boy Advance hand held device. Shortages of these
platforms or lack of consumer acceptance could adversely affect our sales of
products for these platforms. Current sales of some of our products for the
existing PlayStation and Nintendo 64 platforms have been negatively affected by
the new platform transition.
We must make significant expenditures to develop products for new platforms
which may not be successful or released when anticipated.
The interactive entertainment software industry is subject to rapid
technological change. New technologies could render our current products or
products in development obsolete or unmarketable. We must continually anticipate
and assess the emergence and market acceptance of new interactive entertainment
software platforms well in advance of the time the platform is introduced to
consumers. New platforms have historically required the development of new
software and also have the effect of undermining demand for products based on
older technologies. Because product development cycles are difficult to predict,
we must make substantial product development and other investments in a
particular platform well in advance of introduction of the platform. If the
platforms for which we develop new software products or modify existing products
are not released on a timely basis or do not attain significant market
penetration, or if we develop products for a delayed or unsuccessful platform,
we may not be able to recover in revenues our development costs which could be
significant and our business and financial results could be significantly
harmed. An announcement by Sega Corporation that it has discontinued its
Dreamcast platform shows that even experienced hardware manufacturers are not
immune to failure.
We are exposed to seasonality in the purchases of our products.
The interactive entertainment software industry is highly seasonal, with
the highest levels of consumer demand occurring during the year-end holiday
buying season. As a result, our net revenues, gross profits and operating income
have historically been highest during the second half of the year. Additionally,
in a platform transition period such as the one taking place now, sales of game
console software products can be significantly affected by the timeliness of
introduction of game console platforms by the manufacturers of those platforms,
such as Sony, Microsoft and Nintendo. The timing of hardware platform
introduction is also often tied to holidays and is not within our control.
Further, delays in development, licensor approvals or manufacturing can also
affect the timing of the release of our products, causing us to miss key selling
periods such as the year-end holiday buying season.
We depend on skilled personnel.
Our success depends to a significant extent on our ability to identify,
hire and retain skilled personnel. The software industry is characterized by a
high level of employee mobility and aggressive recruiting among competitors for
personnel with technical, marketing, sales, product development and management
skills. We may not be able to attract and retain skilled personnel or may incur
significant costs in order to do so. If we are unable to attract additional
qualified employees or retain the services of key personnel, our business and
financial results could be negatively impacted.
We depend on Sony and Nintendo for the manufacture of products that we develop
for their hardware platforms.
Generally, when we develop interactive entertainment software products for
hardware platforms offered by Sony or Nintendo, the products are manufactured
exclusively by that hardware manufacturer.
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Our hardware platform licenses with Sony and Nintendo provide that the
manufacturer may change prices for the manufacturing of products. In addition,
these agreements include other provisions such as approval rights of all
products and related promotional materials that give the manufacturer
substantial control over our costs and the release of new titles. Since each of
the manufacturers is also a publisher of games for its own hardware platforms
and manufactures products for all of its other licensees, a manufacturer may
give priority to its own products or those of our competitors in the event of
insufficient manufacturing capacity. Our business and financial results could be
materially harmed by unanticipated delays in the manufacturing and delivery of
our products by Sony or Nintendo. In addition, our business and financial
results could be materially harmed if Sony or Nintendo used their rights under
these agreements to delay the manufacture or delivery of our products, limit the
costs recoverable by us to manufacture software for their consoles, or elect to
manufacture software themselves or use developers other than us.
If our products contain defects, our business could be harmed significantly.
Software products as complex as the ones we publish may contain undetected
errors when first introduced or when new versions are released. We cannot assure
you that, despite extensive testing prior to release, errors will not be found
in new products or releases after shipment, resulting in loss of or delay in
market acceptance. This loss or delay could significantly harm our business and
financial results.
Inadequate intellectual property protections could prevent us from enforcing or
defending our proprietary technology.
We regard our software as proprietary and rely on a combination of
copyright, trademark and trade secret laws, employee and third party
nondisclosure agreements and other methods to protect our proprietary rights. We
own or license various copyrights and trademarks. While we provide "shrinkwrap"
license agreements or limitations on use with our software, it is uncertain to
what extent these agreements and limitations are enforceable. We are aware that
some unauthorized copying occurs within the computer software industry, and if a
significantly greater amount of unauthorized copying of our interactive
entertainment software products were to occur, it could cause material harm to
our business and financial results.
Policing unauthorized use of our products is difficult, and software piracy
can be a persistent problem, especially in some international markets. Further,
the laws of some countries where our products are or may be distributed either
do not protect our products and intellectual property rights to the same extent
as the laws of the United States, or are poorly enforced. Legal protection of
our rights may be ineffective in such countries, and as we leverage our software
products using emerging technologies such as the Internet and online services,
our ability to protect our intellectual property rights and to avoid infringing
intellectual property rights of others may diminish. We cannot assure you that
existing intellectual property laws will provide adequate protection for our
products in connection with these emerging technologies.
We may be subject to intellectual property claims.
As the number of interactive entertainment software products increases and
the features and content of these products continue to overlap, software
developers increasingly may become subject to infringement claims. Many of our
products are highly realistic and feature materials that are based on real world
examples, which may inadvertently infringe upon the intellectual property rights
of others. Although we believe that we make reasonable efforts to ensure that
our products do not violate the intellectual property rights of others, it is
possible that third parties still may claim infringement. From time to time, we
receive communications from third parties regarding such claims. Existing or
future infringement claims against us, whether valid or not, may be time
consuming and expensive to defend.
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Intellectual property litigation or claims could force us to do one or more
of the following:
o Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
o Obtain a license from the holder of the infringed intellectual
property, which if available at all, may not be available on
commercially favorable terms; or
o Redesign our interactive entertainment software products, which could
cause us to incur additional costs, delay introduction and possibly
reduce commercial appeal of our products.
Any of these actions may cause material harm to our business and financial
results.
We rely on independent third parties to develop many of our software products.
We often rely on independent third party interactive entertainment software
developers to develop many of our software products. Since we depend on these
developers in the aggregate, we remain subject to the following risks:
o Continuing strong demand for developers' resources, combined with
recognition they receive in connection with their work, may cause
developers who worked for us in the past to either work for our
competitors in the future or to renegotiate our agreements with them
on terms less favorable to us.
o Limited financial resources and business expertise and inability to
retain skilled personnel may force developers out of business prior to
completing our products or require us to fund additional costs.
Increased competition for skilled third party software developers also has
compelled us to agree to make significant advance payments on royalties to game
developers. If the products subject to these arrangements do not generate
sufficient revenues to recover these royalty advances, we would have to
write-off unrecovered portions of these payments, which could cause material
harm to our business and financial results. In a few cases, we also agree to pay
developers fixed per unit product royalties after royalty advances are fully
recouped. To the extent that sales prices of products on which we have agreed to
pay a fixed per unit royalty are marked down, our profitability could be
adversely affected.
We operate in a highly competitive industry.
The interactive entertainment software industry is intensely competitive
and new interactive entertainment software products and platforms are regularly
introduced. Our competitors vary in size from small companies to very large
corporations with significantly greater financial, marketing and product
development resources than we have. Due to these greater resources, certain of
our competitors can undertake more extensive marketing campaigns, adopt more
aggressive pricing policies, pay higher fees to licensors of desirable motion
picture, television, sports and character properties and pay more to third party
software developers than we can. We believe that the main competitive factors in
the interactive entertainment software industry include: product features; brand
name recognition; compatibility of products with popular platforms; access to
distribution channels; quality of products; ease of use; price; marketing
support; and quality of customer service.
We compete primarily with other publishers of personal computer and video
game console interactive entertainment software. Significant third party
software competitors currently include, among
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others: Acclaim Entertainment, Inc.; Capcom Co. Ltd.; Eidos PLC; Electronic Arts
Inc.; Infogrames SA; Konami Company Ltd.; Namco Ltd.; Sega Enterprises, Ltd.;
Take-Two Interactive Software, Inc.; THQ Inc. and Vivendi Universal Publishing.
In addition, integrated video game console hardware and software companies such
as Sony Computer Entertainment, Nintendo Co. Ltd., and Microsoft Corporation
compete directly with us in the development of software titles for their
respective platforms.
We also compete with other forms of entertainment and leisure activities.
For example, we believe that the overall growth in the use of the Internet and
online services by consumers may pose a competitive threat if customers and
potential customers spend less of their available time using interactive
entertainment software and more using the Internet and online services.
We may face difficulty obtaining access to retail shelf space necessary to
market and sell our products effectively.
Retailers of our products typically have a limited amount of shelf space
and promotional resources, and there is intense competition among consumer
interactive entertainment software products for high quality retail shelf space
and promotional support from retailers. To the extent that the number of
products and platforms increases, competition for shelf space may intensify and
may require us to increase the consideration we pay to vendors. Retailers with
limited shelf space typically devote the most and highest quality shelf space to
the best selling products. We cannot assure you that our new products will
consistently achieve such "best seller" status. Due to increased competition for
limited shelf space, retailers and distributors are in an increasingly better
position to negotiate favorable terms of sale, including price discounts, price
protection, marketing and display fees and product return policies. Our products
constitute a relatively small percentage of any retailer's sale volume, and we
cannot assure you that retailers will continue to purchase our products or to
provide our products with adequate levels of shelf space and promotional support
on acceptable terms. A prolonged failure in this regard may significantly harm
our business and financial results.
Our sales may decline substantially without warning and in a brief period of
time because we generally do not have long-term contracts for the sale of our
products.
We currently sell our products directly through our own sales force to mass
merchants, warehouse club stores, large computer and software specialty chains
and through catalogs, as well as to a limited number of distributors, in the
United States and Canada. Outside North America, we sell our products directly
to retailers as well as third party distributors in certain territories. Our
sales are made primarily on a purchase order basis without long-term agreements
or other forms of commitments. The loss of, or significant reduction in sales
to, any of our principal retail customers or distributors could significantly
harm our business and financial results. Our two largest customers, Wal-Mart
Stores, Inc. and Toys "R" Us, Inc., accounted for approximately 13% and 12%,
respectively, of our worldwide net publishing revenues for fiscal 2001 (10% and
9%, respectively, of our consolidated net revenues). Our five largest retailers,
including Wal-Mart and Toys "R" Us, accounted for approximately 45% of our
worldwide net publishing revenues for fiscal 2001 (34% of our consolidated net
revenues). Our two largest customers, Wal Mart and Toys "R" Us, accounted for
approximately 13% and 9%, respectively, of our worldwide net publishing revenues
for fiscal 2000 (9% and 6%, respectively, of our consolidated net revenues). Our
five largest retailers, including Wal Mart and Toys "R" Us, accounted for
approximately 37% of our worldwide net publishing revenues for fiscal 2000 (26%
of our consolidated net revenues).
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We may permit our customers to return our products and to receive pricing
concessions which could reduce our net revenues and results of operations.
We are exposed to the risk of product returns and price protection with
respect to our distributors and retailers. We may permit product returns from or
grant price protection to our customers under certain conditions. Return
policies allow distributors and retailers to return defective, shelf-worn and
damaged products in accordance with terms granted. Price protection policies,
when granted and applicable, allow customers a credit against amounts they owe
us with respect to merchandise unsold by them. We provide price protection to a
number of our customers to manage our customers' inventory levels in the
distribution channel. We also offer a 90-day limited warranty to our end users
that our products will be free from manufacturing defects. Although we maintain
a reserve for returns and price protection, and although we may place limits on
product returns and price protection, we could be forced to accept substantial
product returns and provide price protection to maintain our relationships with
retailers and our access to distribution channels. Product returns and price
protection that exceed our reserves could significantly harm our business and
financial results.
We may be burdened with payment defaults and uncollectible accounts if our
distributors or retailers cannot honor their credit arrangements with us.
Distributors and retailers in the interactive entertainment software
industry have from time to time experienced significant fluctuations in their
businesses, and a number of them have failed. The insolvency or business failure
of any significant retailer or distributor of our products could materially harm
our business and financial results. We typically make sales to most of our
retailers and some distributors on unsecured credit, with terms that vary
depending upon the customer and the nature of the product. Although we have
insolvency risk insurance to protect against our customers' bankruptcy,
insolvency or liquidation, this insurance contains a significant deductible and
a co-payment obligation, and the policy does not cover all instances of
non-payment. In addition, while we maintain a reserve for uncollectible
receivables, the reserve may not be sufficient in every circumstance. As a
result, a payment default by a significant customer could significantly harm our
business and financial results.
We may not be able to maintain our distribution relationships with key vendors.
Our CD Contact, NBG and CentreSoft subsidiaries distribute interactive
entertainment software products and provide related services in the Benelux
territories, Germany and the United Kingdom, respectively, and, via export, in
other European territories for a variety of entertainment software publishers,
many of which are our competitors. These services are generally performed under
limited term contracts. While we expect to use reasonable efforts to retain
these vendors, we may not be successful in this regard. The cancellation or
non-renewal of one or more of these contracts could significantly harm our
business and financial results. Sony and Eidos products accounted for
approximately 26% and 13%, respectively, of our worldwide net distribution
revenues for fiscal 2001.
Our international revenues may be subject to regulatory requirements as well as
currency fluctuations.
Our international revenues have accounted for a significant portion of our
total revenues. International sales and licensing accounted for 66%, 51% and 43%
of our total net revenues in fiscal 1999, 2000 and 2001, respectively. We expect
that international revenues will continue to account for a significant portion
of our total revenues in the future. International sales may be subject to
unexpected regulatory requirements, tariffs and other barriers. Additionally,
foreign sales which are made in local currencies may fluctuate. Presently, we
engage in limited currency hedging activities. Although exposure to currency
fluctuations to date has been insignificant, fluctuations in currency exchange
rates may in the
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future have a material negative impact on revenues from international sales and
licensing and thus our business and financial results.
Our software may be subject to governmental restrictions or rating systems.
Legislation is periodically introduced at the local, state and federal
levels in the United States and in foreign countries to establish a system for
providing consumers with information about graphic violence and sexually
explicit material contained in interactive entertainment software products. In
addition, many foreign countries have laws that permit governmental entities to
censor the content and advertising of interactive entertainment software. We
believe that mandatory government-run rating systems eventually may be adopted
in many countries that are significant markets or potential markets for our
products. We may be required to modify our products or alter our marketing
strategies to comply with new regulations, which could delay the release of our
products in those countries.
Due to the uncertainties regarding such rating systems, confusion in the
marketplace may occur, and we are unable to predict what effect, if any, such
rating systems would have on our business. In addition to such regulations,
certain retailers have in the past declined to stock some of our products
because they believed that the content of the packaging artwork or the products
would be offensive to the retailer's customer base. While to date these actions
have not caused material harm to our business, we cannot assure you that similar
actions by our distributors or retailers in the future would not cause material
harm to our business.
Our software may be subject to legal claims.
Within the past two years, two lawsuits, Linda Sanders, et al. v. Meow
Media, Inc., et al., United States District Court for the District of Colorado,
and Joe James, et al. v. Meow Media, Inc., et al., United States District Court
for the Western District of Kentucky, Paducah Division, have been filed against
numerous video game companies, including us, by the families of victims who were
shot and killed by teenage gunmen. These lawsuits allege that the video game
companies manufactured and/or supplied these teenagers with violent video games,
teaching them how to use a gun and causing them to act out in a violent manner.
While our general liability insurance carrier has agreed to defend us in these
lawsuits, it is uncertain whether or not the insurance carrier would cover all
or any amounts which we might be liable for if the lawsuits are not decided in
our favor. If either of the lawsuits are decided against us and our insurance
carrier does not cover the amounts we are liable for, it could have a material
adverse effect on our business and financial results. It is possible that
similar additional lawsuits may be filed in the future. Payment of significant
claims by insurance carriers may make such insurance coverage materially more
expensive or unavailable in the future, thereby exposing our business to
additional risk.
We may face limitations on our ability to integrate additional acquired
businesses or to find suitable acquisition opportunities.
We intend to pursue additional acquisitions of companies, properties and
other assets that can be purchased or licensed on acceptable terms and which we
believe can be operated or exploited profitably. Some of these transactions
could be material in size and scope. While we will continually be searching for
additional acquisition opportunities, we may not be successful in identifying
suitable acquisitions. As the interactive entertainment software industry
continues to consolidate, we face significant competition in seeking and
consummating acquisition opportunities. We may not be able to consummate
potential acquisitions or an acquisition may not enhance our business or may
decrease rather than increase our earnings. In the future, we may issue
additional shares of our common stock in connection with one or more
acquisitions, which may dilute our existing stockholders. Future acquisitions
could also divert substantial management time and result in short term
reductions in earnings or special transaction or other
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charges. In addition, we cannot guarantee that we will be able to successfully
integrate the businesses that we may acquire into our existing business. Our
stockholders may not have the opportunity to review, vote on or evaluate future
acquisitions.
Our shareholder rights plan, charter documents and other agreements may make it
more difficult to acquire us without the approval of our Board of Directors.
We have adopted a shareholder rights plan under which one right entitling
the holder to purchase one one-hundredth of a share of our Series A Junior
Preferred Stock at a price of $40 per share (subject to adjustment) under
certain circumstances is attached to each outstanding share of common stock.
Such shareholder rights plan makes an acquisition of control in a transaction
not approved by our Board of Directors more difficult. Our Amended and Restated
By-laws have advance notice provisions for nominations for election of nominees
to the Board of Directors which may make it more difficult to acquire control of
us. Our long-term incentive plans provide for acceleration of stock options
following a change in control, which has the effect of making an acquisition of
control more expensive. A change in control constitutes a default under our
revolving credit facility. In addition, some of our officers have severance
compensation agreements that provide for substantial cash payments and
acceleration of other benefits in the event of a change in control. These
agreements and arrangements may also inhibit a change in control and may have a
negative effect on the market price of our common stock.
Our stock price is highly volatile.
The trading price of our common stock has been and could continue to be
subject to wide fluctuations in response to certain factors, including:
o Quarter to quarter variations in results of operations
o Our announcements of new products
o Our competitors' announcements of new products
o Our product development or release schedule
o General conditions in the computer, software, entertainment, media or
electronics industries
o Timing of the introduction of new platforms and delays in the actual
release of new platforms
o Changes in earnings estimates or buy/sell recommendations by analysts
o Investor perceptions and expectations regarding our products, plans
and strategic position and those of our competitors and customers
o Other events or factors.
In addition, the public stock markets experience extreme price and trading
volume volatility, particularly in high technology sectors of the market. This
volatility has significantly affected the market prices of securities of many
technology companies for reasons often unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
-9-
We do not pay dividends on our common stock.
We have not paid any dividends on our common stock and do not anticipate
paying dividends in the near future. In addition, our revolving credit facility
currently prohibits us from paying dividends on our common stock.
ACTIVISION, INC.
We are a leading international publisher of interactive entertainment
software products. We have built a company with a diverse portfolio of products
that spans a wide range of categories and target markets and that is used on a
variety of game hardware platforms and operating systems. We have created,
licensed and acquired a group of highly recognizable brands which we market to a
growing variety of consumer demographics.
Our products cover the action, adventure, extreme sports, racing, role
playing, simulation and strategy game categories. We offer our products in
versions which operate on the Sony PlayStation, Sony PlayStation 2, Nintendo 64,
Nintendo GameCube, Microsoft Xbox and Sega Dreamcast console systems, the
Nintendo Game Boy Color and Game Boy Advance hand held devices, as well as on
personal computers. Over the next few years, we plan to produce many titles for
the recently released Sony PlayStation 2, Microsoft Xbox and Nintendo GameCube
console systems and Game Boy Advance hand held device. Driven partly by the
enhanced capabilities of the next generation of platforms, we believe that in
the next few years there will be significant growth in the market for
interactive entertainment software and we plan to leverage our skills and
resources to extend our leading position in the industry.
Our publishing business involves the development, marketing and sale of
products, either directly, by license or through our affiliate label program
with third party publishers. In addition to publishing, we maintain distribution
operations in Europe that provide logistical and sales services to third party
publishers of interactive entertainment software, our own publishing operations
and manufacturers of interactive entertainment hardware.
Our objective is to be a worldwide leader in the development, publishing
and distribution of quality interactive entertainment software products that
deliver a highly satisfying consumer entertainment experience. Our strategy
includes the following elements:
Create and Maintain Diversity in Product Mix, Platforms and Markets. We
believe that maintaining a diversified mix of products can reduce our operating
risks and enhance profitability. Therefore, we develop and publish products
spanning a wide range of product categories, including action, adventure,
extreme sports, racing, role playing, simulation and strategy, and products
designed for target audiences ranging from game enthusiasts and children to mass
market consumers and "value priced" buyers. We develop, publish and distribute
products that operate on Sony PlayStation and PlayStation 2, Nintendo 64,
Nintendo GameCube, Microsoft Xbox and Sega Dreamcast console systems, Nintendo
Game Boy and Game Boy Advance hand held devices and the personal computer. We
typically release our console products for use on multiple platforms in order to
reduce the risks associated with any single platform, leverage our costs over a
larger installed base and increase unit sales.
Create, Acquire and Maintain Strong Brands. We focus development and
publishing activities principally on products that are, or have the potential to
become, franchise properties with sustainable consumer appeal and brand
recognition. These products can thereby serve as the basis for sequels,
-10-
prequels and related new products that can be released over an extended period
of time. We believe that the publishing and distribution of products based in
large part on franchise properties enhances predictability of revenues and the
probability of high unit volume sales and operating profits. We have entered
into a series of strategic relationships with the owners of intellectual
property pursuant to which we have acquired the rights to publish products based
on franchises such as Star Trek, various Disney films such as Toy Story 2 and
Marvel Comics' properties such as Spider Man, X Men, Blade, Iron Man and
Fantastic Four. We have also capitalized on the success of our Tony Hawk's Pro
Skater products to sign long term agreements, many of which are exclusive, with
numerous other extreme sports athletes including superstars Mat Hoffman in BMX
pro biking, Kelly Slater in pro surfing, Shaun Palmer in snowboarding and Shaun
Murray in wakeboarding.
Enforce Disciplined Product Selection and Development Processes. The
success of our publishing business depends, in significant part, on our ability
to develop games that will generate high unit volume sales and that can be
completed up to our high quality standards. Our publishing units have
implemented a formal control process for the selection, development, production
and quality assurance of our products. We apply this process, which we refer to
as the "Greenlight Process," to products under development with external, as
well as internal resources. The Greenlight Process includes in depth reviews of
each project at five intervals during the development process by a team that
includes several of our highest ranking operating managers and coordination
between our sales and marketing personnel and development staff at each step in
the process.
We develop our products using a strategic combination of our internal
development resources and external development resources acting under contract
with us, some of whom are independent and some of whom we have a capital
investment. We typically select our external developers based on their track
record and expertise in producing products in the same category. One developer
will often produce the same game for multiple platforms and will produce sequels
to the original game. We believe that this selection process allows us to
strengthen and leverage the particular expertise of our internal and external
development resources.
Continue to Improve Profitability. We are continually striving to reduce
our risk and increase our operating leverage and efficiency with the goal of
increased profitability. We believe the key factor affecting our profitability
will be the success rate of our product releases. Therefore, our product
selection and development process includes, as a significant component, periodic
evaluations of the expected commercial success of products under development.
Through this process, titles that we determine to be less promising are either
discontinued before we incur additional development costs, or if necessary,
corrections can be made in the development process. In addition, our focus on
cross platform releases and branded products will, we believe, contribute to
this strategic goal.
In order to further our emphasis on improved profitability, we have
implemented a number of operational initiatives. We have significantly increased
our product development capabilities by allocating a larger portion of our
product development investments to experienced independent development companies
working under contract with us, thereby taking advantage of specialized third
party developers without incurring the fixed overhead obligations associated
with increased internally employed staff. Our sales and marketing operations
work with our studio resources to increase the visibility of new product
launches and to coordinate timing and promotion of product releases. Our finance
and administration and sales and marketing personnel work together to improve
inventory management and receivables collections. We have broadly instituted
objective based reward programs that provide incentives to management and staff
throughout the organization to produce results that meet our financial
objectives.
Grow Through Continued Strategic Acquisitions and Alliances. The
interactive entertainment industry is consolidating, and we believe that success
in this industry will be driven in part by the ability
-11-
to take advantage of scale. Specifically, smaller companies are more capital
constrained, enjoy less predictability of revenues and cash flow, lack product
diversity and must spread fixed costs over a smaller revenue base. Several
industry leaders are emerging that combine the entrepreneurial and creative
spirit of the industry with professional management, the ability to access the
capital markets and the ability to maintain favorable relationships with
strategic developers, property owners and retailers. Through twelve completed
acquisitions since 1997, we believe that we have successfully diversified our
operations, our channels of distribution, our development talent pool and our
library of titles, and have emerged as one of the industry's leaders. We intend
to continue to expand our resources through acquisitions, strategic
relationships and key license transactions. We expect to focus our acquisition
strategy on increasing our development capacity through the acquisition of or
investment in selected experienced development firms, and expanding our
intellectual property library through licenses and strategic relationships with
intellectual property owners.
USE OF PROCEEDS
All net proceeds from the sale of our shares of common stock will go to the
stockholders who offer and sell their shares. Accordingly, we will not receive
any of the proceeds from the sale of the common stock being offered hereby for
the account of the selling stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock by the selling stockholders as of April
2, 2002, the number of shares of common stock being offered by this prospectus
and the number of shares of common stock beneficially owned by the selling
stockholders after the offering.
Name of
Selling Number of Shares of Number of Shares Number of Shares of
Stockholder Common Stock Owned of Common Stock Common Stock Owned
Being Offered Prior to the Offering Being Offered (1) After the Offering
- ------------- --------------------- ---------------- ------------------
Christopher Scholz 22,586 22,586 0
Zachary Krefting 22,586 22,586 0
Richard D'Aloisio 22,586 22,586 0
Tom Teuscher 22,586 22,586 0
Scott Werner 22,586 22,586 0
Gerald T. O'Neil 22,586 22,586 0
Scholz Family Trust 90,346 90,346 0
All Selling
Stockholders
as a Group 225,862 225,862 0
________________
(1) This amount does not include the following, which are more fully described
below: (i) 32,759 shares of common stock subject to certain escrow
requirements; and (ii) 68,965 shares of common stock to be issued to the
selling stockholders upon completion of certain software program delivery
and revenue requirements.
-12-
We entered into an agreement and plan of merger (the "Merger Agreement")
with Activision Publishing, Inc., Shaba Acquisition Inc., Shaba Games LLC, and
the selling stockholders pursuant to which Shaba Games LLC was merged with and
into Shaba Acquisition, Inc., a wholly owned subsidiary of ours. The selling
stockholders were all of the members of Shaba Games LLC. The transactions
contemplated by the Merger Agreement were consummated on March 26, 2002.
Pursuant to a warranty escrow agreement among us, the selling stockholders
and Comerica Bank, an aggregate of 32,759 shares of common stock, or ten percent
(10%) of the total number of shares of common stock issued in connection with
the merger, have been deposited in an escrow account in connection with the
transaction (the "Escrow Shares"). The Escrow Shares have been deposited in
order to ensure that the representations, warranties and covenants made by the
selling stockholders under the Merger Agreement are not breached and in order to
provide a source of indemnification to Activision pursuant to the Merger
Agreement. The Escrow Shares will be released form escrow and issued to the
selling stockholders on March 26, 2003, to the extent not used to indemnify us
prior to such date. In addition, an aggregate amount of 68,965 shares of common
stock, or 21.05% of the total number of shares of our common stock issued in
connection with the merger, have been deposited in an escrow account (the
"Product Escrow Shares"). The Product Escrow Shares are subject to release from
escrow and issuance to the selling stockholders upon fulfillment of certain
software program delivery and ranking requirements and certain revenue
requirements, as described in the Merger Agreement a copy of which is attached
as an exhibit to the registration statement of which this prospectus is a part.
We will file a prospectus supplement to this prospectus to reflect any
increase in the number of shares of common stock offered for sale being offered
by the selling stockholders hereunder in the event the conditions described
above are fulfilled.
Prior to the acquisition of Shaba by us, Shaba was a party to various
development agreements with us. Other than such contracts and the fact that the
selling stockholders were members of Shaba, which became a wholly owned
subsidiary of ours on March 26, 2002 pursuant to the Merger Agreement, none of
the selling stockholders has had a material relationship with us within the past
three years.
DESCRIPTION OF CAPITAL STOCK
We have 130,000,000 shares of authorized capital stock, $.000001 par value,
consisting of 125,000,000 shares of common stock and 3,750,000 shares of serial
preferred stock and 1,250,000 shares of Series A Junior Preferred Stock. As of
April 2, 2002, 56,801,865 shares of our common stock were outstanding. Our
common stock is listed on the Nasdaq National Market under the symbol "ATVI."
Each outstanding share of common stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of common stock
can elect all of the directors then standing for election. Subject to
preferences which may be applicable to any outstanding shares of preferred
stock, holders of common stock are entitled to such distributions as may be
declared from time to time by our Board of Directors out of funds legally
available. We have not paid, and have no current plans to pay, dividends on our
common stock. We intend to retain all earnings for use in our business.
Holders of common stock have no conversion, redemption or preemptive rights
to subscribe to any of our securities. All outstanding shares of common stock
are fully paid and nonassessable. In the event of any liquidation, dissolution
or winding up of the affairs of holders of our common stock will be entitled to
share ratably in our assets remaining after provision for payment of liabilities
to creditors and preferences applicable to outstanding shares of preferred
stock.
-13-
The rights, preferences and privileges of holders of common stock are
subject to the rights of the holders of any outstanding shares of preferred
stock. At present, no shares of preferred stock are outstanding. As of April 2,
2002, we had approximately 3,200 stockholders of record, excluding banks,
brokers and depository companies that are stockholders of record for the account
of beneficial owners.
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company, 17 Battery Place, New York, New York 10004.
PLAN OF DISTRIBUTION
The common stock may be sold from time to time by the selling stockholders,
or by pledgees, donees, transferees or other successors in interest. Such sales
may be made on one or more exchanges or in the over the counter market, or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The shares may be sold
from time to time in one or more of the following transactions, without
limitation: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction, (b) purchases by a broker or
dealer as principal and resale by such broker or dealer or for its account
pursuant to this prospectus, as supplemented, (c) an exchange distribution in
accordance with the rules of such exchange, and (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus, as supplemented. From time to time the selling stockholders may
engage in short sales, short sales against the box, puts and calls and other
transactions in our securities or derivatives thereof, and may sell and deliver
the shares in connection therewith.
From time to time selling stockholders may pledge their shares pursuant to
the margin provisions of their respective customer agreements with their
respective brokers. Upon a default by a selling stockholder, the broker may
offer and sell the pledged shares of common stock from time to time as described
above.
All expenses of registration of the common stock (other than commissions
and discounts of underwriters, dealers or agents), estimated to be approximately
$16,000 shall be borne by us. As and when we are required to update this
prospectus, we may incur additional expenses in excess of this estimated amount.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock offered
hereby have been passed upon for us by Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, New York 10104. Kenneth L.
Henderson, one of our directors, is a managing partner of Robinson Silverman. In
addition, Robinson Silverman owns approximately 14,232 shares of our common
stock.
EXPERTS
Our consolidated financial statements and schedule as of March 31, 2000,
and for each of the years in the two year period ended March 31, 2000, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
-14-
The consolidated financial statements as of and for the year ended March
31, 2001, incorporated by reference in this prospectus have been so incorporated
by reference in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You may read and copy such material at the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1 800 SEC 0330 for more information on the
operation of the Public Reference Room. You can also find our SEC filings at the
SEC's web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
o Our Annual Report on Form 10-K for the fiscal year ended March 31, 2001;
o Our Quarterly Reports on Form 10-Q for the quarterly periods ended June 30,
2001, September 30, 2001, and December 31, 2001;
o Our Current Reports on Form 8-K filed on July 11, 2001, July 31, 2001,
October 4, 2001 and January 18, 2002; and
o The description of our common stock and the rights associated with our
common stock contained in our Registration Statement on Form S-3,
Registration No. 333-46425, and our Registration Statement on Form 8-A,
File No. 001-15839, filed on April 19, 2000.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Activision, Inc.
3100 Ocean Park Boulevard
Santa Monica, California 90405
(310) 255-2000
Attn: Investor Relations
================================================================================
327,586 Shares
ACTIVISION, INC.
Common Stock
________________
PROSPECTUS
________________
____________, 2002
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by Activision, Inc. (the
"Company") in connection with the offering of the common stock being registered.
All amounts shown are estimates except the Securities and Exchange Commission
(the "Commission") registration fee.
Item Amount
---- ------
Registration Fee - Securities and Exchange Commission ................$ 854*
Legal Fees and Expenses ................................................7,500
Accounting Fees and Expenses ...........................................5,000
Miscellaneous ..........................................................2,500
-----
TOTAL ........................................................$15,854
=====
_________________
* Pursuant to Rule 457(p) of the Securities Act of 1933, as amended, the
registration fee of $854 is offset against the $57,141 registration fee (of
which $17,761 remains) that was previously paid to the Commission relating
to 6,900,000 shares of Common Stock previously registered by the registrant
pursuant to its Registration Statement on Form S-3 filed with the
Commission on July 30, 2001, (File No. 333-66280), which Registration
Statement was withdrawn on October 22, 2001, prior to the issuance of any
such shares.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL"), paragraphs A
and B of Article SIXTH of the Company's Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and paragraph 5
of Article VII of the Company's Amended and Restated By-laws (the "By-Laws")
provide for the indemnification of the Company's directors and officers in a
variety of circumstances, which may include liabilities under the Securities Act
of 1933, as amended (the "Securities Act").
Paragraph B of Article SIXTH of the Certificate of Incorporation provides
mandatory indemnification rights to any officer or director of the Company who,
by reason of the fact that he or she is an officer or director of the Company,
is involved in a legal proceeding of any nature. Such indemnification rights
shall include reimbursement for expenses incurred by such officer or director in
advance of the final disposition of such proceeding in accordance with the
applicable provisions of the DGCL. Paragraph 5 of Article VII of the Company's
By-laws currently provides that the Company shall indemnify its directors and
officers to the fullest extent permitted by the DGCL.
Paragraph A of Article SIXTH of the Certificate of Incorporation contains a
provision which eliminates the personal liability of a director to the Company
and its stockholders for certain breaches of his or her fiduciary duty of care
as a director. This provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of the Company protection against awards of monetary damages
resulting from negligent (except as indicated above) and "grossly" negligent
actions taken in the performance of their duty of care, including grossly
negligent business decisions made in connection with takeover proposals for the
Company. As a result of this provision, the ability of the Company or a
stockholder thereof to successfully prosecute an action against a director for a
breach of his duty of care has been limited. However, the provision does not
affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care.
The Company maintains a directors' and officers' insurance policy which
insures the officers and directors of the Company from any claim arising out of
an alleged wrongful act by such persons in their respective capacities as
officers and directors of the Company. In addition, the Company has entered into
indemnification agreements with its officers and directors containing provisions
which are in some respects broader than the specific indemnification provisions
contained in the DGCL. The indemnification agreements require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these agreements are necessary to attract and retain qualified persons as
directors and officers.
It is currently unclear as a matter of law what impact these provisions
will have regarding securities law violations. The Commission takes the position
that indemnification of directors, officers and controlling persons against
liabilities arising under the Securities Act is against public policy as
expressed in the Securities Act and therefore is unenforceable.
Item 16. Exhibits
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of March 26, 2002, among
Activision, Inc., Activision Publishing, Inc., Shaba Acquisition,
Inc., Shaba Games LLC, and the persons listed on Exhibit A thereto.
5.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP as to the
legality of securities being registered.
23.1 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (included
as part of Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Power of attorney (included on signature page).
II-2
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed with or furnished to the Commission
by the Company pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The Company hereby further undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The Company hereby further undertakes to deliver or cause to be delivered
with the Prospectus, to each person to whom the Prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the Prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Exchange Act; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the Prospectus, to deliver, or cause to be delivered to each person to
whom the Prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the Prospectus to provide such interim
financial information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that
II-3
a claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Los Angeles, State of California, on April 11, 2002.
ACTIVISION, INC.
By:/s/ Ronald Doornink
--------------------------
Ronald Doornink, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Robert A. Kotick, Brian G. Kelly and
Ronald Doornink, and each or any of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective documents in connection therewith), with
the Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Robert A. Kotick Chairman, Chief Executive Officer April 11, 2002
- ------------------------- (Principal Executive Officer)
(Robert A. Kotick) and Director
/s/ Brian G. Kelly Co-Chairman and Director April 11, 2002
- -------------------------
(Brian G. Kelly)
/s/ Ronald Doornink President, Activision, Inc.; April 11, 2002
- ------------------------- Chief Executive Officer, Activision
(Ronald Doornink) Publishing Inc. (Principal Executive
Officer)
/s/ William J. Chardavoyne Executive Vice President and April 11, 2002
- -------------------------- Chief Financial Officer
(William J. Chardavoyne) (Principal Financial
and Accounting Officer)
/s/ Kenneth L. Henderson Director April 11, 2002
- -------------------------
(Kenneth L. Henderson)
/s/ Barbara S. Isgur Director April 11, 2002
- -------------------------
(Barbara S. Isgur)
/s/ Steven T. Mayer Director April 11, 2002
- -------------------------
(Steven T. Mayer)
/s/ Robert J. Morgado Director April 11, 2002
- -------------------------
(Robert J. Morgado)
EXHIBIT INDEX
Exhibit No. Description
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2.1 Agreement and Plan of Merger, dated as of March 26, 2002, among
Activision, Inc., Activision Publishing, Inc., Shaba Acquisition,
Inc., Shaba Games LLC, and the persons listed on Exhibit A thereto.
5.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP as to the
legality of securities being registered.
23.1 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (included
as part of Exhibit 5.1).
23.2 Consent of KPMG LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Power of attorney (included on signature page).
Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
among
ACTIVISION, INC.,
ACTIVISION PUBLISHING, INC.,
SHABA ACQUISITION, INC.,
SHABA GAMES, LLC,
THE PERSONS LISTED ON EXHIBIT A HERETO
as the Members
Dated as of March 26, 2002
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Table of Contents
Page
ARTICLE I THE MERGER.....................................................1
1.1. The Merger.....................................................1
1.2. The Closing....................................................2
1.3. Effective Time.................................................2
1.4. Certificate of Incorporation; By-Laws..........................2
1.5. Directors and Officers.........................................2
1.6. Dissenting Shares..............................................2
ARTICLE II MERGER CONSIDERATION; CONVERSION OF SHARES; TAX TREATMENT......3
2.1. Merger Consideration...........................................3
2.2. Conversion of Merger Subsidiary Shares.........................3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SHABA AND THE MEMBERS........4
3.1. Organization...................................................4
3.2. Authorization, Validity and Effect of Agreement................4
3.3. Capitalization.................................................4
3.4. No Subsidiaries................................................5
3.5. Other Interests................................................5
3.6. No Violation...................................................5
3.7. Investment Intent..............................................5
3.8. Financial Statements; Undisclosed Liabilities..................6
3.9. Litigation.....................................................6
3.10. Absence of Certain Changes.....................................6
3.11. Taxes..........................................................8
3.12. Books and Records..............................................9
3.13. Properties.....................................................9
3.14. Environmental Matters.........................................10
3.15. No Brokers....................................................11
3.16. Related Party Transactions....................................11
3.17. Contracts and Commitments.....................................11
3.18. Employee Matters and Benefit Plans............................12
3.19. Intellectual Property.........................................16
3.20. Consents......................................................19
3.21. Insurance.....................................................20
3.22. Relationships with Suppliers, Licensors and Customers.........20
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Table of Contents
(continued)
Page
3.23. Bank Accounts.................................................20
3.24. Material Compliance with Agreements...........................20
3.25. Disclosure....................................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACTIVISION..................20
4.1. Organization..................................................20
4.2. Corporate Power and Authority; Effect of Agreement............21
4.3. Capitalization................................................21
4.4. No Violation..................................................21
4.5. SEC Documents.................................................22
4.6. Absence of Certain Changes....................................23
4.7. Material Compliance with Agreements...........................23
4.8. No Brokers....................................................23
ARTICLE V DELIVERIES AT CLOSING.........................................24
5.1. Deliveries by Activision......................................24
5.2. Deliveries by Shaba and/or the Members........................24
ARTICLE VI COVENANTS AND OTHER AGREEMENTS................................25
6.1. Restrictions on Sale of Activision Shares.....................25
6.2. Share Holdback................................................26
6.3. Registration of Activision Shares.............................31
6.4. Further Assurances............................................34
6.5. Confidentiality...............................................34
6.6. Publicity.....................................................34
6.7. Member Approval...............................................34
6.8. Employment Matters............................................34
6.9. Articles and Bylaws of Merger Subsidiary......................35
6.10. Tax Returns and Shaba Information.............................35
ARTICLE VII SURVIVAL; INDEMNIFICATION.....................................35
7.1. Survival......................................................35
7.2. Indemnification by the Members; Limitation of Liability.......36
7.3. Indemnification Procedures....................................36
7.4. Claims Resolution Procedure...................................37
7.5. Actions by Members............................................38
ARTICLE VIII MISCELLANEOUS.................................................38
8.1. Assignment; Binding Effect; Benefit...........................38
8.2. Entire Agreement..............................................39
8.3. Notices.......................................................39
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Table of Contents
(Continued)
Page
8.4. Amendment.....................................................40
8.5. Governing Law.................................................40
8.6. Counterparts..................................................40
8.7. Headings......................................................40
8.8. Waivers.......................................................40
8.9. No Party Deemed Drafter.......................................40
8.10. Incorporation.................................................41
8.11. Severability..................................................41
8.12. Interpretation................................................41
8.13. Specific Performance..........................................41
8.14. Expenses......................................................41
8.15. Attorneys' Fees...............................................41
iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of March 26, 2002, among Activision, Inc., a Delaware corporation
("Activision"), Activision Publishing, Inc., a Delaware corporation ("Activision
Publishing"), Shaba Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Activision ("Merger Subsidiary"), Shaba Games, LLC, a California
limited liability company ("Shaba") and the persons listed on Exhibit A hereto
(the "Members"). Shaba and Merger Subsidiary are sometimes referred to herein as
the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, each Member owns the membership interest in Shaba (the "Membership
Interests) set forth opposite such Member's name on Exhibit A hereto, which
Membership Interests, in the aggregate, constitute 100% of the outstanding
membership interests in Shaba; and
WHEREAS, the respective Boards of Directors of Activision and Merger
Subsidiary and the Managers and Members of Shaba each have determined that a
business combination among Shaba, Activision and Merger Subsidiary is fair to
and in the best interests of their respective companies and stockholders or
members, as the case may be, and, accordingly, have approved this Agreement and
agreed to effect the merger provided for herein upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. On the terms and subject to the conditions contained in
this Agreement, at the Effective Time (as defined in Section 1.3 hereof), Shaba
shall be merged with and into Merger Subsidiary in accordance with this
Agreement and the separate existence of Shaba shall thereupon cease (the
"Merger"). Merger Subsidiary shall be the surviving corporation in the Merger
(Merger Subsidiary, after the Effective Time, is sometimes hereinafter referred
to as the "Surviving Corporation"). From and after the Effective Time, all the
rights and property of each of the Constituent Corporations shall vest in the
Surviving Corporation and the Surviving Corporation shall be subject to all the
debts and liabilities of the Constituent Corporations. The Merger shall have the
effects provided in this Agreement and the applicable provisions of the Delaware
General Corporation Law ("DGCL") and the California Beverly-Killea Limited
Liability Company Act ("LLCA").
1.2. The Closing. On the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "Closing") shall be held at the
offices of Activision, 3100 Ocean Park Boulevard, Santa Monica, California, at
10:00 a.m., local time, on the date hereof. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date." All
transactions required to occur at the Closing shall be deemed to have occurred
simultaneously, and no such transaction shall be deemed to have occurred until
all have occurred.
1.3. Effective Time. On the Closing Date, (i) the parties hereto shall
cause an Agreement of Merger and officers' certificates satisfying the
requirements of Section 17552 of the LLCA to be properly executed, verified and
delivered for filing in accordance with the LLCA and (ii) a Certificate of
Merger satisfying the requirements of Section 252 of the DGCL to be properly
executed, verified and delivered for filing in accordance with the DGCL. The
Merger shall become effective upon the acceptance for record of the Agreement of
Merger by the Secretary of State of the State of California in accordance with
the LLCA and the acceptance for record of Certificate of Merger by the Secretary
of State of the State of Delaware in accordance with the DGCL (but not earlier
than the Closing Date) or at such later time which the parties hereto shall have
agreed upon and designated in such filings in accordance with applicable law as
the effective time of the Merger (the "Effective Time").
1.4. Certificate of Incorporation; By-Laws. (a) Certificate of
Incorporation. The Certificate of Incorporation of Merger Subsidiary in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation (except that the name of the
Surviving Corporation shall be "Shaba Games, Inc."), until duly amended in
accordance with applicable law.
(b) By-Laws. The By-laws of Merger Subsidiary in effect immediately prior
to the Effective Time shall be the By-laws of the Surviving Corporation (except
that the name of the Surviving Corporation shall be "Shaba Games, Inc."), until
duly amended in accordance with its terms or the Certificate of Incorporation of
the Surviving Corporation and as provided by applicable law.
1.5. Directors and Officers. (a) Directors. The directors of Merger
Subsidiary immediately prior to the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors shall have been duly elected and appointed or qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-laws or as otherwise provided.
(b) Officers. The officers of Merger Subsidiary immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surv.ving Corporation until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-laws or as otherwise provided.
1.6. Dissenting Shares. By virtue of their approval of this Agreement and
the transactions contemplated hereby, as evidenced by their execution of this
Agreement, the
Members acknowledge that they shall have no dissenters' rights of appraisal set
forth in Section 17601 of the LLCA (the "Appraisal Rights").
ARTICLE II
MERGER CONSIDERATION; CONVERSION OF SHARES; TAX TREATMENT
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2.1. Merger Consideration. (a) At the Effective Time, by virtue of the
Merger and without any action on the part of Activision, Merger Subsidiary,
Shaba or the Members, subject to Section 6.2, the Membership Interest of each
Member outstanding immediately prior to the Effective Time shall be converted
into and represent the right to receive the number of the shares of Common
Stock, par value $.000001 per share, of Activision (the "Activision Common
Stock") set forth opposite such Member's name on Exhibit A. The 327,586 shares
of Activision Common Stock to be issued in connection with the Merger are
sometimes referred to as the "Activision Shares." Such Membership Interests,
when so converted, shall no longer be outstanding, and shall automatically be
canceled and shall cease to exist and each Member shall cease to have any rights
with respect thereto, except the right to receive the Activision Shares as
provided herein.
(b) Within five business days of the Effective Time, Activision shall
deliver, or cause to be delivered, to each Member, a certificate representing
the number of Activision Shares to which such Member is entitled hereto minus
the number of Warranty Escrow Shares and Product Escrow Shares (each capitalized
term as defined in Section 6.2(a)) set forth opposite the name of such Member on
Exhibit A hereto to be deposited in the Escrow Account pursuant to Section 6.2.
No interest shall be paid or will accrue on any Activision Shares deliverable to
the Members pursuant hereto.
2.2. Conversion of Merger Subsidiary Shares. At the Effective Time, each
share of common stock, $.01 par value per share, of Merger Subsidiary, issued
and outstanding immediately prior to the Effective Time will become one fully
paid and nonassessable share of common stock, $.01 par value per share, of the
Surviving Corporation, and such shares will be the only shares of capital stock
of the Surviving Corporation that are issued and outstanding immediately after
the Effective Time. From and after the Effective Time, each certificate
theretofore representing shares of common stock of Merger Subsidiary will be
deemed for all purposes to evidence ownership and to represent the same number
of shares of common stock of the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHABA AND THE MEMBERS
Shaba and the Members, jointly and severally, hereby represent and warrant
to Activision, Activision Publishing and the Merger Subsidiary as follows
(except that the representation set forth in Section 3.3(b) shall be made by
each Member individually with respect to himself or herself or itself):
3.1. Organization. Shaba is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of California.
Shaba has all requisite power and authority to carry on its business as it is
now being conducted and to own or lease and to operate its properties. Except as
set forth in Schedule 3.1, Shaba is not qualified to transact business as a
foreign corporation or other entity in any jurisdiction, and neither the nature
of the property owned or leased by it nor the nature of the business conducted
by it makes any such qualification necessary, other than such failures which do
not and would not individually or in the aggregate have a Material Adverse
Effect on Shaba. True, complete and correct copies of the articles of
organization and operating agreement of Shaba have previously been delivered or
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made available to Activision. For purposes of this Agreement, "Material Adverse
Effect" with respect to a person or entity shall mean a material adverse effect
on the business, assets, properties, condition (financial or otherwise) or
results of operations of such person or entity (in the case of Activision,
Activision and its Subsidiaries taken as a whole), or on the ability of any
person or entity timely to consummate the transactions contemplated hereby.
3.2. Authorization, Validity and Effect of Agreement. Each of Shaba and the
Members have all requisite power and authority to execute, deliver and perform
this Agreement and to consummate their respective obligations and the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Shaba and the Members and the consummation of the transactions
contemplated hereby have been duly authorized by any and all necessary action of
Shaba and by the Members and no other action on the part of Shaba or the Members
is necessary to authorize the execution, delivery and performance of this
Agreement by Shaba or the Members and the consummation of the transactions
contemplated hereby other than the merger filings referred to in Section 1.3
hereof. This Agreement has been duly and validly executed and delivered by Shaba
and the Members and, assuming the due execution hereof by Activision, Activision
Publishing, and the Merger Subsidiary, constitutes the valid and binding
obligation of Shaba and each Member, enforceable against Shaba and each Member
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally and
general principles of equity.
3.3. Capitalization. (a) Exhibit A hereto sets forth the Membership
Interest in Shaba owned by each Member, which Membership Interests, in the
aggregate, constitute 100% of the outstanding membership or other equity
interests in Shaba. There are no other Members of Shaba. Except as set forth in
Schedule 3.3, there are outstanding no securities convertible into, exchangeable
for, or carrying the right to acquire, equity securities of Shaba, and no
subscriptions, warrants, options, calls, rights (pre-emptive or other) or other
arrangements or commitments obligating Shaba to issue or dispose of any of its
equity securities or any ownership interest therein
(b) Each Member owns the Membership Interest set forth opposite such
Member's name on Exhibit A hereto.
3.4. No Subsidiaries. Shaba does not have any direct or indirect
Subsidiaries. For purposes of this Agreement, "Subsidiary" when used with
respect to any party shall mean any corporation, partnership, limited liability
company, joint venture, business trust or other entity, of which such party or a
Subsidiary of such party, directly or indirectly, owns or controls at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization.
3.5. Other Interests. Shaba does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, joint venture, business trust or other entity (other
than investments in short-term investment securities).
3.6. No Violation. The execution, delivery and performance by Shaba and the
Members of this Agreement do not, and the consummation by Shaba and the Members
of the
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transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, conflict with or violate (i) any provision
of law, rule or regulation to which the Members or Shaba are subject, (ii) any
order, judgment, injunction or decree binding upon or applicable to the Members
or Shaba or binding upon the assets or properties of the Members or Shaba, (iii)
any provision of the articles of organization or the operating agreement of
Shaba, or (iv) other than the consents and filings provided for in this
Agreement, require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority which has
not been obtained or made, except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not individually or in the aggregate
have a Material Adverse Effect on Shaba.
3.7. Investment Intent. The Activision Shares to be issued to each Member
in connection with the Merger is being acquired by such Member for such Member's
own account, for investment purposes only and not with a view to the
distribution of such shares or with any present intention of distributing any of
such shares within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), or reselling in violation of any other applicable securities
laws, it being understood that the Activision Shares to be issued to the Members
under this Agreement have not been registered under the Securities Act, and
therefore cannot be sold unless registered under the Securities Act or unless an
exemption from registration is available, and also subject to further
restrictions under the provisions of Sections 6.1 and 6.2 hereof and the
Warranty Escrow Agreement (as defined in Section 6.2).
3.8. Financial Statements; Undisclosed Liabilities. (a) Shaba and the
Members have delivered to Activision an unaudited balance sheet of Shaba as of
February 28, 2002 and the related statements of income and expense for the
periods then ended (collectively, the "Financial Statements").
(b) Except as set forth in Schedule 3.8(b) , the Financial Statements are
correct and complete in all material respects and fairly present the financial
position and the results of operations of Shaba as of the date thereof and for
the period indicated. Except as set forth in Schedule 3.8(b), Schedule 3.10 or
elsewhere in this Agreement or as disclosed, reflected or reserved against in
the Financial Statements, Shaba does not have any liabilities, commitments or
obligations (secured or unsecured and whether accrued, absolute, contingent or
otherwise and whether due or to become due) which are not reflected on the
Financial Statements, other than any liabilities, commitments or obligations
incurred after the date of the Financial Statements in the ordinary course of
business and which do not have a Material Adverse Effect on Shaba.
3.9. Litigation. Except as set forth in Schedule 3.9 hereto, there are (i)
no continuing orders, injunctions or decrees of any court, arbitrator or
governmental authority to which Shaba or the Members is a party or by which any
of their respective properties or assets are bound or likely to be affected and
(ii) no actions, suits or proceedings pending against Shaba or the Members or to
which any of their respective properties or assets are subject or, to the
knowledge of the Members, threatened against Shaba or the Members or to which
any of their respective properties or assets are subject, at law or in equity,
that in each such case could, individually or in the aggregate, have a Material
Adverse Effect on Shaba.
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3.10. Absence of Certain Changes. Except as set forth in Schedule 3.10
hereto, since February 28, 2002, Shaba has conducted its business only in the
ordinary course of such business and consistent with past practices and there
has not been any:
(a) material adverse change in the financial condition, properties, assets
(including intangible assets), businesses, operations or results of operations
of Shaba;
(b) amendment or change in the articles of organization or operating
agreement of Shaba;
(c) incurrence, creation or assumption by Shaba of (i) any mortgage, deed
of trust, security interest, pledge, lien, title retention device, collateral
assignment, claim, charge, restriction or other encumbrance of any kind on any
of the assets or properties of Shaba; or (ii) any obligation or liability of any
indebtedness for borrowed money;
(d) issuance or sale of any debt or equity securities of Shaba, or the
issuance or grant of any options, warrants or other rights to acquire from
Shaba, directly or indirectly, any debt or equity securities of Shaba;
(e) payment or discharge by Shaba of any security interest, lien, claim, or
encumbrance of any kind on any asset or property of Shaba, or the payment or
discharge of any liability that was not either shown or reflected on the
Financial Statements or Schedule 3.10 or incurred in the ordinary course of
Shaba's business after February 28, 2002, in an amount in excess of $10,000 for
any single liability to a particular creditor;
(f) purchase, license, sale, assignment or other disposition or transfer,
or any agreement or other arrangement for the purchase, license, sale,
assignment or other disposition or transfer, of any of the assets, properties or
goodwill of Shaba other than a license or sale of any product or products of
Shaba made in the ordinary course of Shaba's business and the transactions
contemplated by this Agreement;
(g) damage, destruction or loss of any property or asset, whether or not
covered by insurance, having (or likely with the passage of time to have) a
Material Adverse Effect on Shaba;
(h) increase in the compensation payable or to become payable to any of the
officers, directors, or employees of Shaba, or any bonus or pension, insurance
or other benefit payment or arrangement, and any stock awards, stock option
grants, stock appreciation rights or stock option grants) made to or with any of
such officers, employees or agents, other than the amounts agreed to in the
Letter of Intent, dated February 15, 2002, between Shaba and Activision, or as
otherwise approved by Activision Publishing;
(i) obligation or liability incurred by Shaba to any of its officers,
directors or stockholders except for normal and customary compensation and
expense allowances payable to officers in the ordinary course of Shaba's
business consistent with past practice;
(j) making by Shaba of any loan, advance or capital contribution to, or any
investment in, any officer, director or Member of Shaba or any firm or business
enterprise in
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which any such person had a direct or indirect material interest at the time of
such loan, advance, capital contribution or investment;
(k) entering into, amendment of, relinquishment, termination or non-renewal
by Shaba of any contract, lease, transaction, commitment or other right or
obligation other than in the ordinary course of its business or any written or
oral indication or assertion by the other party thereto of any material problems
with Shaba's services or performance under such contract, lease, transaction,
commitment or other right or obligation or of such other party's demand to
amend, terminate or not renew any such contract, lease, transaction, commitment
or other right or obligation;
(l) material change in the manner in which Shaba extends discounts, credits
or warranties to customers or otherwise deals with its customers;
(m) entering into by Shaba of any transaction, contract or agreement
(excluding any agreement for professional services entered into in connection
with this Agreement) that by its terms requires or contemplates a required
minimum current and/or future financial commitment, expenses (inclusive of
overhead expenses) or obligation on the part of Shaba involving in excess of
$10,000 (provided that the amount of such financial commitments and expenses for
all such transactions, contracts or agreements does not exceed $50,000 in the
aggregate) or that is not entered into in the ordinary course of Shaba's
business, or the conduct of any business or operations by Shaba that is other
than in the ordinary course of Shaba's business; or
(n) license, transfer or grant of a right under any Shaba Intellectual
Property (as defined in Section 3.19 below), other than those licensed,
transferred or granted in the ordinary course of business consistent with its
past practices.
3.11. Taxes. Except as set forth in Schedule 3.11 hereto or where such
failure would not, individually or in the aggregate, have a Material Adverse
Effect on Shaba:
(a) Shaba has paid or caused to be paid all federal, state, local, foreign,
and other taxes, and all deficiencies, or other additions to tax, interest,
fines and penalties (collectively, "Taxes"), owed or accrued by it and due and
payable through the date hereof (including any Taxes payable pursuant to
Treasury Regulation 1.1502-6 (and any similar state, local or foreign
provision)).
(b) Shaba has timely filed all federal, state, local and foreign tax
returns (collectively "Tax Returns") required to be filed by it through the date
hereof, and all such returns accurately set forth the amount of any taxable
income, and any state franchise taxes relating to the applicable period.
(c) At all times during its existence, Shaba has been taxable as a
partnership for federal income tax purposes and has never filed an election to
be taxed as a corporation.
(d) Except as set forth in Schedule 3.11(d), Shaba has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, Member or other
party.
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(e) Except as set forth in Schedule 3.11(e) the Financial Statements
reflect adequate reserves for Taxes payable by Shaba for all taxable periods and
portions thereof through the date of such financial statements.
(f) There are no outstanding agreements, waivers or arrangements extending
the statutory period of limitations applicable to any claim for, or the period
for the collection or assessment of, Taxes due from Shaba for any taxable period
and there have been no deficiencies proposed, assessed or asserted for such
Taxes.
(g) There are no closing agreements that could affect Taxes of Shaba for
periods after the Effective Time pursuant to Section 7121 of the Internal
Revenue Code of 1986, as amended (the "Code") or any similar provision under
state, local or foreign tax laws.
(h) No audit or other proceedings by any court, governmental or regulatory
authority or similar authority has occurred, been asserted or is pending and
Shaba has not received notice that any such audit or proceeding may be
commenced.
(i) Shaba has not agreed to, or filed application for, or is required to
make, any changes or adjustment to its accounting methods.
(j) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Shaba.
(k) Neither Shaba nor any of its Subsidiaries (i) is a party to any
agreement providing for the allocation, sharing or indemnification of Taxes;
(ii) is required to include in income any adjustment pursuant to Section 481(a)
of the Code by reason of a voluntary change in accounting method initiated by
Shaba or any Subsidiary, nor does Shaba have any knowledge that the IRS has
proposed any such adjustment or change in accounting method; or (iii) is or has
been a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code.
(l) All transactions that could give rise to an understatement of U.S.
federal income tax within the meaning of Section 6662 of the Code have been
adequately disclosed in accordance with Section 6662 of the Code.
(m) There is no contract, agreement, plan or arrangement covering any
Person that, individually or collectively, could give rise to, nor will the
consummation of the transactions contemplated hereby obligate Shaba or any of
its Subsidiaries to make, the payment of any amount that would not be deductible
by Shaba or any Subsidiary thereof by reason of Section 280G of the Code.
3.12. Books and Records. (a) The books of account and other financial
records of Shaba are true, complete and correct in all material respects, have
been maintained in accordance with good business practices, and are accurately
reflected in all material respects in the financial statements included in the
Financial Statements.
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(b) The minutes of meetings of Shaba that have been made available to
Activision prior to the Closing Date, contain accurate records of such meetings
and accurately reflect all actions of the Managers and Members taken at such
meetings.
3.13. Properties. (a) Shaba does not own any real property. Schedule
3.13(a) hereto sets forth a true, complete and correct list of all real property
currently, or at any time in the past five (5) years, owned or leased by Shaba.
With respect to all real property currently leased by Shaba, a copy of each
lease and each amendment thereto, has been made available to Activision prior to
the Closing Date. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not
any existing material default or event of default under any such lease (or event
which with notice or lapse of time, or both, would constitute such a material
default) by Shaba or, to the Members' knowledge, the landlord.
(b) Shaba has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used or held for use in its business, free and
clear of any liens, except as reflected in the Financial Statements or in
Schedule 3.13(b) hereto and except for liens for taxes not yet due and payable
and such imperfections of title and encumbrances, if any, which are not material
in character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
3.14. Environmental Matters. (i) Shaba is not, and within applicable
statutes of limitation, has not been, in violation of any Environmental Law
which violation could reasonably be expected to result in a Material Adverse
Effect; (ii) there has been no disposal, spill, discharge, or release of any
Hazardous Material by Shaba, or to the knowledge of the Members, by any third
party, on, at, or under any property presently or formerly owned, leased or
operated by Shaba; (iii) Shaba has caused no Hazardous Materials to be located
in, at, on, or under such facility or property, or at any other location, in
either case that could reasonably be expected to require investigation, removal,
remedial or corrective action by Shaba or that would reasonably likely result in
liabilities of, or losses, damages or costs to Shaba under any Environmental
Law; (iv) there is currently no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, notice or demand
letter or request for information pending or, to the knowledge of the Members,
threatened, which asserts liability under any Environmental Law against Shaba;
(v) to the knowledge of the Members there has not been any underground or
aboveground storage tank, or any impoundment or other disposal area in each case
containing Hazardous Materials located at any property owned, leased, or
operated by Shaba at the time of such ownership, lease, or operation; (vi) no
asbestos or polychlorinated biphenyls have been used or disposed of by Shaba, or
have been caused by Shaba to be located at, on, or under any property owned,
leased, or operated by Shaba at the time of such ownership, lease, or operation;
and (vii) Shaba has provided Activision with all records and files available to
Shaba and the Members concerning the existence of Hazardous Materials or any
other environmental concern at properties, assets, or facilities currently or
formerly owned, operated or leased by Shaba, any present or former subsidiary,
or predecessor in interest, or concerning compliance by Shaba with, or liability
under, any Environmental Laws.
For purposes of this Agreement, "Environmental Law" means all federal,
state, and local laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, and decrees, now or
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previously in effect and regulating, relating to, or imposing liability or
standards of conduct concerning air emissions, water discharges, noise
emissions, the release or threatened release of any Hazardous Material into the
environment, the generation, handling, treatment, storage, transport or disposal
of any Hazardous Material, or otherwise concerning pollution or the protection
of the outdoor or indoor environment, or human health or safety. "Hazardous
Material" means any pollutant, contaminant, or hazardous, toxic, medical,
infectious or dangerous waste, substance, constituent or material, defined or
regulated as such in, or for purposes of, any Environmental Law, including
without limitation, any asbestos, petroleum, oil, radioactive substance,
polychlorinated biphenyls, toxin, chemical, infectious or disease-causing agent,
and any other substance that can give rise to liability under any Environmental
Law.
3.15. No Brokers. Neither Shaba nor the Members has entered into any
contract, arrangement or understanding with any person or firm that may result
in the obligation of such entity or Activision to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. Neither Shaba nor the Members is aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
3.16. Related Party Transactions. Except for the employment arrangements
described in Schedule 3.16 hereto, Shaba is not a party to any transactions,
loans or other arrangements or understandings with its Members, managers,
managing members and/or officers (or any member of their respective immediate
families or any Trustee or beneficiary of any Member) that are in effect as of
the date of this Agreement and/or are currently proposed to be carried out in
the future. Schedule 3.16 hereto identifies and describes the interest or
interests, if any, in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Shaba, now held by any Member,
managers, managing members and/or officer of Shaba.
3.17. Contracts and Commitments. (a) Except as set forth in Schedule
3.17(a) hereto, Shaba does not have, nor is Shaba party to or bound by:
(i) any consulting or sales agreement, contract or commitment under
which any firm or other organization provides services to Shaba;
(ii) any fidelity or surety bond or completion bond;
(iii) any agreement of indemnification or guaranty (other than
nondisclosure agreements);
(iv) any agreement, contract, commitment, transaction or series of
transactions for any purpose other than in the ordinary course of Shaba's
business relating to capital expenditures or commitments or long term
obligations in excess of $10,000;
(v) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside
the ordinary course of Shaba's business (other than the transactions
contemplated by this Agreement);
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(vi) any mortgages, indentures, loans or credit agreements, security
agreements or other arrangements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(iii) hereof;
(vii) any purchase order or contract for the purchase of inventory or
other materials involving $10,000 or more;
(viii) any distribution, joint marketing or development agreement;
(ix) any assignment, license or other agreement with respect to any
form of intangible property; or
(x) any other agreement, contract or commitment that involves $10,000
or more (excluding any agreement for professional services entered into in
connection with the transactions contemplated by this Agreement) or is not
cancelable without penalty in excess of $10,000 within thirty (30) days
(collectively, any of (i) through (x) above shall be known as "Contracts").
(b) Except as would not individually or in the aggregate have a Material
Adverse Effect on Shaba, all such Contracts are valid and binding on Shaba and
are in full force and effect and enforceable against Shaba in accordance with
their respective terms. Except as disclosed in Schedule 3.17(b) hereto, no
approval or consent of, or notice to any Person the failure of which to obtain
would have individually or in the aggregate a Material Adverse Effect is needed
in order that such Contracts shall continue in full force and effect in
accordance with its terms without penalty, acceleration or rights of early
termination following the consummation of the Merger. Except to the extent any
of the following would not individually or in the aggregate have a Material
Adverse Effect, Shaba is not in violation of, breach of or default under any
such Contract nor, to the Members' knowledge, is any other party to any such
Contract. Except as set forth in Schedule 3.17(b) hereto, Shaba is not in
violation or breach of or default under any such Contract (including leases of
real property) relating to non-competition, indebtedness, guarantees of
indebtedness of any other person, employment, or collective bargaining.
3.18. Employee Matters and Benefit Plans. (a) Definitions. With the
exception of the definition of "Affiliate" set forth in Section 3.18(a)(i) below
(which definition shall apply only to this Section 3.18), for purposes of this
Agreement, the following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person under common control with
or otherwise required to be aggregated with Shaba as set forth in Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder;
(ii) "Employee" shall mean any current, former or retired employee,
officer, or director of Shaba or any Affiliate;
(iii) "Employee Agreement" shall refer to any material management,
employment, severance, consulting, relocation, repatriation, expiration,
visas, work permit or
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similar agreement or contract between Shaba or any Affiliate and any Employee or
consultant that is not an Employee Plan;
(iv) "Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded
and whether or not legally binding, including without limitation, each
"employee benefit plan" within the meaning of Section 3(3) of ERISA (as
defined below), which is or has been maintained, contributed to, or
required to be contributed to, by Shaba or any Affiliate for the benefit of
any "Employee" (as defined above), and pursuant to which Shaba or any
Affiliate has or may have any material liability contingent or otherwise;
(v) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Sections 3(37) and
4001(a)(3) of ERISA; and
(viii) "Pension Plan" shall refer to each Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule 3.18(b) hereto contains a true, complete and correct list of
each Employee Plan (including for each such plan a description of any of the
benefits which will be increased or accelerated, by the occurrence of any of the
transactions contemplated by this Agreement) and each Employee Agreement of
Shaba. Except as set forth in Schedule 3.18(b) hereto, neither Shaba nor any of
its Affiliates has any announced plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Shaba in writing, or as
required by this Agreement), or to enter into any Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. Shaba has provided to Activision true, complete and correct
copies of all material documents embodying or relating to each Employee Plan and
each Employee Agreement including: (i) all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Employee Plan; (iii) the two most recent annual reports
(Series 5500 and all schedules thereto), if any, required under ERISA or the
Code in connection with each Employee Plan or related trust; (iv) if the
Employee Plan is funded, the most recent annual and periodic accounting of
Employee Plan assets; (v) the most recent summary plan description together with
the most recent summary of material modifications, if any, required under ERISA
with respect to each Employee Plan; (vi) all IRS determination letters and
rulings relating to Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any
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Employee Plan; (vii) all communications material to any Employee or Employees
relating to any Employee Plan and any proposed Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or decreases
in benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to Shaba; and (viii) all registration
statements and prospectuses prepared in connection with each Employee Plan.
(d) Employee Plan Compliance. (i) Except as set forth in Schedule 3.18(d)
hereto, Shaba and each of its Affiliates has performed in all material respects
all obligations required to be performed by them under each Employee Plan, and
each Employee Plan has been established and maintained in all material respects
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code; (ii) no "prohibited transaction," within the meaning of Section 4975
of the Code or Section 406 of ERISA for which no class or statutory exemption is
available, has occurred with respect to any Employee Plan; (iii) there are no
material actions, suits or claims pending or, to the knowledge of the Members,
threatened or anticipated (other than routine claims for benefits) against any
Employee Plan or against the assets of any Employee Plan; (iv) such Employee
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without material liability to Shaba or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Members, threatened by the IRS or DOL with
respect to any Employee Plan; (vi) Shaba is not subject to any penalty or tax
with respect to any Employee Plan under Section 502(i) of ERISA or Section 4975
through 4980B of the Code; (vii) all contributions, including any top heavy
contributions, required to be made prior to the Closing by Shaba or any ERISA
Affiliate to any Employee Plan have been made or shall be made on or before the
Closing Date; and (viii) Shaba and its Affiliates are in compliance in all
respects with the requirements of Parts 6 and 7 of Subtitle B of Title I of
ERISA and the regulations promulgated thereunder and any similar state laws
concerning group health care continuation coverage and group health plan
portability, access and renewability requirements, respectively.
(e) Pension Plans. Neither Shaba nor any of its Affiliates currently
maintain, sponsor, participate in or contribute to, nor have they ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Shaba or any of its Affiliates
contributed to, or been requested or obligated to contribute to, any
Multiemployer Plan.
(g) No Post Employment Obligations. Except as set forth in Schedule 3.18(g)
hereto or as required by Part 6 of Subtitle B of Title I of ERISA, no Employee
Plan or any other employment agreement or arrangement to which Shaba or its
Affiliates is a party provides, or is required to provide, life insurance,
medical or other employee benefits to any Employee upon his or her retirement or
termination of employment for any reason, and neither Shaba nor any of its
Affiliates has ever represented or promised to, or contracted with (whether in
oral or written form) to any Employee (either individually or to Employees as a
group) that such Employee(s)
-13-
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee, except as set forth in
Schedule 3.18(h) hereto.
(i) Employment Matters. Except as set forth in Schedule 3.18(i), and except
for any noncompliance as a result of Shaba's treatment of employees as salaried
employees instead of hourly employees, Shaba (i) is in compliance in all
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees except
as would not individually or in the aggregate have a Material Adverse Effect;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to Employees; (iii) is not liable
for any arrears of wages of any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). No claims have been
asserted and no claims have been filed in court, with an administrative agency
or with an arbitrator concerning any employment related claims of any nature
against Shaba and to the knowledge of the Members, no such claims have been
threatened.
(j) Labor. No work stoppage or labor strike against Shaba is pending or, to
the knowledge of the Members, threatened. Shaba is not involved in or, to the
knowledge of the Members, threatened with, any labor dispute, grievance,
administrative proceeding or litigation relating to labor, safety, employment
practices or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would individually or in the aggregate have a
Material Adverse Effect. Shaba has not engaged in any unfair labor practices
within the meaning of the National Labor Relations Act which would, individually
or in the aggregate, directly or indirectly have a Material Adverse Effect.
Neither Shaba nor any of its Affiliates has ever been a party to any agreement
with any labor organization or union, and none of the Employees are represented
by any labor organization or union, nor have any Employees threatened to
organize or join a union or filed a petition for representation with the
National Labor Relations Board.
(k) Schedule 3.18(k) hereto sets forth (i) the aggregate amounts of bonus
and severance payments that could be payable to employees of Shaba under
existing Employee Agreements or Employee Plans on account of the transactions
contemplated by this Agreement (without regard to termination of employment),
and (ii) the aggregate amounts of severance obligations that could be payable to
employees of Shaba under existing Employee Agreements and Employee Plans on
account of terminations of employment following the Effective Time,
-14-
separately stating the amounts that are payable by reason of a termination
following a change of control of Shaba.
(l) Schedule 3.18(l) sets forth a true, complete and correct list of all
persons who are currently employees and consultants of Shaba and all persons to
whom Shaba has extended offers of employment and the compensation payable to all
such employees and consultants.
3.19. Intellectual Property. (a) For the purposes of this Agreement, the
following terms have the following definitions:
(i) "Intellectual Property" shall mean any or all of the following and
all rights in, arising out of, or associated therewith: (a) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations
in part thereof; (b) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data, customer lists, proprietary processes and formulae,
all source and object code, algorithms, architectures, structures, display
screens, layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records; (c) all copyrights, copyrights
registrations and applications therefor, copyrightable material including
derivative works, revisions, transformations and adaptations, material that is
subject to non-copyright disclosure protections, and all other rights
corresponding thereto throughout the world; (d) all industrial designs and any
registrations and applications therefor throughout the world; (e) all trade
names, logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor throughout the world; (f) all
proprietary databases and data collections and all rights therein throughout the
world; (g) domain names; (h) intellectual property rights acquired by license or
agreement; (i) damages or benefit derived from any action arising out of or
related to the foregoing, including laws controlling computer and Internet
rights;; and (j) any equivalent rights to any of the foregoing anywhere in the
world.
(ii) "Shaba Intellectual Property" shall mean that Intellectual
Property owned by, licensed to, or used by Shaba.
(iii) "Shaba Registered Intellectual Property" means those United
States, international and foreign: (a) patents and patent applications
(including provisional applications); (b) registered trademarks and service
marks, applications to register trademarks or service marks, intent to use
applications, or other registrations or applications related to trademarks
or service marks; and (c) registered copyrights and applications for
copyright registration, in each case included in the Shaba Intellectual
Property. All of the foregoing are listed in Schedule 3.19(a)(iii) hereto.
(b) Shaba has disclosed accurately and completely all Shaba Intellectual
Property to the Surviving Corporation. Shaba is the exclusive owner of all
right, title and interest in and to Shaba Intellectual Property owned by Shaba
(with no breaks in the chain of title thereof) free and clear of any claim,
security interest, lien, pledge, option, charge or encumbrance of any kind
whatsoever. Shaba's rights in such Shaba Intellectual Property are in full force
and effect. Such Shaba Intellectual Property has not been used or enforced or
failed to
-15-
be used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of Shaba's rights in and to any Shaba
Intellectual Property.
(c) Schedule 3.19(c) hereto sets forth a true, complete and correct list of
all non routine proceedings or actions known to the Members before any court,
tribunal (including the United States Patent and Trademark Office ("PTO") or
equivalent authority anywhere in the world) related to any Shaba Intellectual
Property. Except as set forth in Schedule 3.19(c), no Shaba Intellectual
Property is the subject of any non routine proceeding or outstanding decree,
order, judgment, agreement, or stipulation restricting in any manner the use,
transfer, or licensing thereof by Shaba, or which may affect the validity, use
or enforceability of such Shaba Intellectual Property.
(d) With respect to each item of Shaba Registered Intellectual Property,
any necessary registration, maintenance and renewal fees in connection with such
Shaba Registered Intellectual Property have been paid and all necessary
documents and certificates in connection with such Shaba Registered Intellectual
Property have been filed with the relevant patent, trademark or copyright
authorities in the United States for the purposes of maintaining rights in such
Shaba Registered Intellectual Property.
(e) Shaba has the right to use, market, distribute, sell and/or license all
Shaba Intellectual Property used in its business as presently conducted and as
it is expected to be conducted as of the Effective Time, including without
limitation, all Intellectual Property used or to be used in the Shaba Products
(as defined below), and such rights to use, market, distribute, sell and/or
license are sufficient for such conduct of its business.
(f) Except as set forth on Schedule 3.19 (f)(i), neither the manufacture,
development, publication, marketing, license, sale, distribution or use intended
by Shaba of any software products currently being licensed, produced or sold by
Shaba or currently under development by Shaba (the "Shaba Products") violates
any license or agreement between Shaba and any third party or to the knowledge
of the Members infringes any Intellectual Property right, moral right or right
of publicity or privacy of any other party, and there is no pending or, to the
knowledge of the Members, threatened claim or litigation contesting the
validity, ownership or right to use, market, distribute, sell, license or
dispose of any Shaba Intellectual Property nor, to the knowledge of the Members,
is there any basis for any such claim under applicable law, nor has Shaba
received any notice asserting that any Shaba Intellectual Property or the
proposed use, marketing, distribution, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the
knowledge of the Members, is there any basis for any such assertion under
applicable law. Schedule 3.19(f)(ii) hereto sets forth a true, complete and
correct list of all Shaba Products.
(g) Shaba has timely and satisfactorily complied with its milestone
delivery requirements under all material agreements, if any, pursuant to which
Shaba has agreed with a person other than Activision or its affiliates to
program, design or develop, whether for original use or for porting or
conversion (for use on a different hardware platform or in a different
language), any software products or any part thereof, except where the failure
to so comply could not reasonably be expected to individually or in the
aggregate have a Material Adverse Effect with respect to Shaba.
-16-
(h) Except as set forth in Schedule 3.19(h) hereto, to the extent that any
Intellectual Property has been developed or created by a third party for Shaba,
Shaba has a written agreement with such third party with respect thereto and
Shaba thereby has obtained ownership of, and is the exclusive owner of such
Intellectual Property by operation of law or by valid assignment or by
agreement, as the case may be.
(i) Schedule 3.19(i) hereto sets forth a true, complete and correct list of
all material contracts, licenses and agreements to which Shaba is a party that
are currently in effect (i) with respect to Shaba Intellectual Property
licensed, transferred or offered to any third party; or (ii) pursuant to which a
third party has licensed or transferred any Intellectual Property to Shaba.
Except as set forth in Schedule 3.19(h) hereto, Shaba has not transferred
ownership of, or granted any exclusive license with respect to, any Shaba
Intellectual Property, to any third party.
(j) Except as set forth in Schedule 3.19(j) hereto, the contracts, licenses
and agreements listed in Schedule 3.19(i) are in full force and effect. The
consummation of the transactions contemplated by this Agreement will not violate
or result in the breach, modification, cancellation, termination, or suspension
of such contracts, licenses and agreements listed in Schedule 3.19(i) and will
not cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any rights of Shaba to any Shaba Intellectual Property or impair
the right of Shaba after the Effective Time to use, market, distribute, sell or
license any Shaba Intellectual Property or portion thereof. Shaba is in material
compliance with, and has not materially breached any term of any of such
contracts, licenses and agreements listed in Schedule 3.19(i) and, to the
knowledge of the Members, all other parties to such contracts, licenses and
agreements listed in Schedule 3.19(i) are in compliance with, and have not
breached any term of, such contracts, licenses and agreements. Except as set
forth in Schedule 3.19(j) hereto, following the Effective Time, the Surviving
Corporation will be permitted to exercise all of Shaba's rights under the
contracts, licenses and agreements listed in Schedule 3.19(i) to the same extent
Shaba would have been able to had the transactions contemplated by this
Agreement not occurred and without the payment of any additional funds other
than ongoing fees, royalties or payments which Shaba would otherwise be required
to pay.
(k) Schedule 3.19(k) hereto sets forth a true, complete and correct list of
all contracts, licenses and agreements between Shaba and any third party (other
than nondisclosure agreements) wherein or whereby Shaba has agreed to, or
assumed any obligation or duty to warrant, indemnify, hold harmless or otherwise
assume or incur any obligation or liability with respect to the infringement or
misappropriation by Shaba or such third party of the Intellectual Property of
any third party.
(l) Except as set forth in Schedule 3.19(l) hereto, (i) Shaba has not
received any notice or claim (whether written, oral or otherwise) challenging
Shaba's ownership or rights in the Shaba Intellectual Property or claiming that
any other person or entity has any legal or beneficial ownership with respect
thereto; (ii) all the Shaba Intellectual Property owned by Shaba and embodied in
its products are legally valid and enforceable without any material
qualification, limitation or restriction on their use; (iii) to the Members'
knowledge, no third party is infringing or misappropriating any part of the
Shaba Intellectual Property, and (iv) no Shaba Intellectual Property owned by
Shaba is subject to a final refusal of registration or is the subject of any
inter-partes proceedings.
-17-
(m) Shaba has taken reasonable and practicable measures designed to protect
its rights in its confidential information and trade secrets or any trade
secrets or confidential information of third parties provided to Shaba. None of
Shaba, or any employees or, to the Members' knowledge, consultants of Shaba, has
permitted any such confidential information or trade secrets to be used,
divulged or appropriated for the benefit of persons to the material detriment of
Shaba.
(n) Schedule 3.19(n) hereto sets forth a true, complete and correct list of
all Internet domain names used by Shaba in its business (collectively, the
"Domain Names"). Shaba has, and after the Effective Time the Surviving
Corporation will have, a valid registration and all material rights (free of any
material restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct Shaba's business as it is currently
conducted.
3.20. Consents. Except as set forth in Schedule 3.20, no consent, approval
or authorization of, or exemption by, or filing with, any governmental authority
or any third party is required to be obtained or made by the Members in
connection with the execution, delivery and performance by the Members of this
Agreement or the taking by the Members of any other action contemplated hereby.
3.21. Insurance. Shaba maintains, and has maintained or caused to be
maintained, without interruption, during its existence, policies or binders of
insurance covering such risk, and events, including personal injury, property
damage, and general liability in amounts set forth on Schedule 3.21 hereto, and
its current insurance policies will not terminate due to the consummation of the
transactions contemplated under this Agreement. Shaba has provided Activision
prior to the Closing Date with true, complete and correct copies of all
insurance policies maintained currently by Shaba and all such policies are
listed on Schedule 3.21 hereto.
3.22. Relationships with Suppliers, Licensors and Customers. No current
licensee, licensor, distributor, customer of Shaba or supplier to Shaba has
notified Shaba of an intention to terminate or substantially alter its existing
business relationship with Shaba, nor has any licensor under a license agreement
with Shaba notified Shaba of an intention to terminate or substantially alter
Shaba's rights under such license, which termination or alteration would have a
Material Adverse Effect on Shaba.
3.23. Bank Accounts. Schedule 3.23 hereto contains a true, complete and
correct (i) list of names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which Shaba has an
account or safe deposit box or maintains a banking, custodial, trading, trust,
or other similar relationship, (ii) list and description of each such account,
box and relationship, (iii) list of all signatories for each such account and
box and (iv) list of all compensating balances required with respect to each
such account.
3.24. Material Compliance with Agreements. Shaba is in material compliance
with, and has not materially breached any term of, any software development
agreements between Activision Publishing and Shaba.
3.25. Disclosure. No representation, warranty, statement or information
made or furnished by the Members in this Agreement or the Schedules hereto
contains any statement of a material fact that was untrue when made or omits any
material fact necessary to make the information contained in such
representation, statement or information not misleading.
-18-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACTIVISION
Activision hereby represents and warrants to Shaba and the Members as
follows:
4.1. Organization. Activision is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Activision, Activision
Publishing, and Merger Subsidiary have all requisite corporate power and
authority to carry on their businesses as they are now being conducted, and to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
4.2. Corporate Power and Authority; Effect of Agreement. The execution,
delivery and performance by Activision of this Agreement and the consummation by
Activision of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Activision. No vote of the
Activision stockholders is required to approve the issuance of the Activision
Shares as contemplated by this Agreement. This Agreement has been duly and
validly executed and delivered by Activision and constitutes the valid and
binding obligation of Activision, enforceable against Activision in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally and general principles
of equity.
4.3. Capitalization. (a) The authorized capital stock of Activision
consists of (i) 125,000,000 shares of Activision Common Stock, (ii) 3,750,000
shares of Preferred Stock, $.000001 par value per share (the "Activision
Preferred Shares"), and (iii) 1,250,000 shares of Series A Junior Preferred
Stock, $.000001 par value per share (the "Activision Junior Preferred Shares").
As of March 21, 2002, there were 56,392,787 shares of Activision Common Stock
issued and outstanding, no Activision Preferred Shares issued and outstanding
and no Activision Junior Preferred Shares issued and outstanding. All such
outstanding shares of Activision are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as described in the
Activision SEC Reports (as defined in Section 4.5), Activision has no
outstanding bonds, debentures, notes or other obligations the holders of which
have or upon the happening of certain events would have the right to vote (or
which are convertible into or exercisable for securities having the right to
vote) with the stockholders of Activision on any matter. Except as described in
the Activision SEC Reports and in other filings made by Activision with the
Securities and Exchange Commission (the "SEC"), there are no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements, stock appreciation rights or similar derivative securities or
instruments or commitments which obligate Activision to issue, transfer or sell
any Shares of Activision Common Stock or make any payments in lieu thereof other
than options or warrants granted to employees, directors, consultants and
licensors after the date of the most recent Activision SEC Report.
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(b) The Activision Shares to be issued pursuant to this Agreement will,
upon issuance in accordance with this Agreement, be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights of any
nature.
4.4. No Violation. The execution, delivery and performance by Activision,
Activision Publishing, and Merger Subsidiary of this Agreement and the
consummation by Activision, Activision Publishing, and Merger Subsidiary of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, conflict with or violate (i) any provision of
law, rule or regulation to which Activision, Activision Publishing, and Merger
Subsidiary are subject, (ii) any order, judgment, injunction or decree binding
upon or applicable to Activision or binding upon the assets or properties of
Activision, Activision Publishing, and Merger Subsidiary, (iii) violate any
provision of their respective Certificates of Incorporation, as amended, or
Bylaws, as amended, or (iv) other than the filings provided for in this
Agreement, require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority which has
not been obtained or made, except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not individually or in the aggregate
have a Material Adverse Effect on Activision, Activision Publishing, or Merger
Subsidiary, as applicable.
4.5. SEC Documents. Activision has timely filed with the SEC all forms,
reports and documents required to be filed by Activision since March 31, 2001
under the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder
(collectively, the "Securities Laws"), including, without limitation, (i) the
Annual Report on form 10-K, (ii) all Quarterly Reports on form 10-Q, (iii) all
proxy statements relating to meetings of stockholders (whether annual or
special), (iv) all Current Reports on form 8-K and (v) all other reports,
schedules, registration statements and other documents, each as amended
(collectively, the "Activision SEC Reports"), all of which were prepared in
compliance in all material respects with the applicable requirements of the
Exchange Act and the Securities Act. As of their respective dates, the
Activision SEC Reports (i) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of Activision included in or incorporated by
reference into the Activision SEC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of Activision and
its consolidated subsidiaries as of its date and each of the consolidated
statements of operations, cash flows and stockholders' equity included in or
incorporated by reference into the Activision SEC Reports (including any related
notes and schedules) fairly presents the results of operations, cash flows and
stockholders' equity, as the case may be, of Activision and its consolidated
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10 Q pursuant to Section 13 or 15(d) of the
Exchange Act.
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4.6. Absence of Certain Changes. Except as set forth in Schedule 4.6, and
except as disclosed in or contemplated by the SEC Reports, since December 31,
2001, Activision has conducted its business in the ordinary course of such
business and consistent with past practices and there has not been any:
(a) change, event or condition (whether or not covered by insurance) that
has resulted in, or might reasonably be expected to result in, a Material
Adverse Effect;
(b) acquisition, sale or transfer of any material asset of Activision or
any of its subsidiaries other than in the ordinary course of business;
(c) declaration, setting aside or payment of any dividend on, or the making
of any other distribution in respect of, the capital stock of Activision or the
shares of capital stock of any of its subsidiaries, any splits, combination, or
recapitalization of the capital stock of Activision, or any direct or indirect
redemption, purchase or other acquisition by Activision or any of its
subsidiaries of any such shares or any change in any rights, preferences,
privileges or restrictions of any outstanding security of Activision;
(d) entering into, material amendment or termination of, or default under,
any material contract to which Activision or any of its subsidiaries is a party
or by which it is bound except in the ordinary course of business;
(e) agreement by Activision or any of its subsidiaries to do any of the
things described in the preceding clauses (a) through (d); or
(f) agreement or arrangement made by Activision to take any action after
the date hereof which, if taken prior to the date hereof, would have made any
representation or warranty set forth in Article IV of this Agreement untrue or
incorrect as of the date when made.
4.7. Material Compliance with Agreements. Activision Publishing is in
material compliance with, and has not materially breached any term of, any
software development agreements between Activision Publishing and Shaba.
4.8. No Brokers. Activision has not entered into any contract, arrangement
or understanding with any person or firm that may result in the obligation of
Activision or Shaba to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
Activision is not aware of any claim for payment of any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE V
DELIVERIES AT CLOSING
5.1. Deliveries by Activision. At the Closing on the date hereof, the
following documents were delivered and actions taken by or on behalf of
Activision:
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(a) Activision delivered to Shaba a certificate of the Secretary of
Activision certifying that attached thereto is a true, complete and correct copy
of the resolutions of the Board of Directors of Activision authorizing the
execution, delivery and performance of this Agreement, the Merger and the
transactions contemplated hereby.
(b) Merger Subsidiary delivered to Shaba a certificate of the Secretary of
Merger Subsidiary certifying that attached thereto is a true, complete and
correct copy of the resolutions of the Board of Directors and the sole
shareholder of Merger Subsidiary authorizing the execution, delivery and
performance of this Agreement, the Merger and the transactions contemplated
hereby.
(c) Activision executed and delivered the employment agreements
substantially in the form attached hereto as Exhibit B-1 and proprietary
information agreements substantially in the form attached hereto as Exhibit B-2
with each of Christopher Scholz and Zachary Krefting and each of the six
additional employees of Shaba set forth on Exhibit B 3 ("Other Key Employees").
(d) Activision and the Escrow Agent executed and delivered the Warranty
Escrow Agreement (as defined in Section 6.2) substantially in the form of
Exhibit C attached hereto.
(e) Activision amended its Internal Project Bonus Plan to incorporate the
modifications to such Plan set forth in Exhibit D hereto.
(f) Activision delivered, or caused to be delivered, a letter to
Activision's transfer agent authorizing such transfer agent to deliver
certificates representing Activision Common Stock issued in the names of the
Members in accordance with their respective interests as set forth in Exhibit A
and bearing restrictive legends under the Securities Act, subject to the
provisions of Sections 6.1 and 6.2 of this Agreement (and the Warranty Escrow
Agreement) which require that certificates for Activision Common Stock be issued
to the Members in such denominations as required to meet the requirements of the
Warranty Escrow Agreement and deposited with the Escrow Agent.
5.2. Deliveries by Shaba and/or the Members. At the Closing on the date
hereof, the following documents were delivered and action taken by or on behalf
of Shaba and/or the Members, as the case may be:
(a) Shaba delivered to Activision a certificate of the Managers of Shaba
certifying that attached thereto is a true, complete and correct copy of the
resolutions of the Managers and the Members authorizing the execution, delivery
and performance of this Agreement, the Merger and the transactions contemplated
hereby.
(b) Shaba delivered to Activision a certificate of good standing of Shaba
issued by the Secretary of State of California, dated as of a date not more than
five (5) days prior to the Closing Date.
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(c) Each of Christopher Scholz, Zachary Krefting and the Other Key
Employees executed and delivered employment agreements in the form attached
hereto as Exhibit B-1 and proprietary information agreements in the form
attached hereto as Exhibit B-2.
(d) The Members have executed and delivered the Warranty Escrow Agreement
substantially in the form of Exhibit C attached hereto.
(e) Each of the Members executed an investment letter substantially in the
form of Exhibit E-1 attached hereto ("Investment Letter").
(f) Each Member that is an "accredited investor" ("Accredited Investor"),
as that term is defined in Rule 501(a) of Regulation D of the Securities Act,
completed and executed an accredited investor agreement substantially in the
form attached hereto as Exhibit E 2, ("Accredited Investor Agreement").
(g) Each Member that is not an Accredited Investor completed and executed a
non-accredited investor agreement substantially in the form attached hereto as
Exhibit E-3 ("Non-Accredited Investor Agreement").
(h) The Members delivered to Activision all consents required as described
in Schedule 3.20, if any.
(i) Activision received a legal opinion of Donahue, Gallagher, Woods & Wood
LLP, counsel to Shaba, in the form attached hereto as Exhibit F.
(j) Activision received a legal opinion of Greene Radovsky Maloney & Share
LLP, tax counsel to Shaba, in the form attached hereto as Exhibit G.
ARTICLE VI
COVENANTS AND OTHER AGREEMENTS
6.1. Restrictions on Sale of Activision Shares. The Members acknowledge and
agree that Activision Shares will be issued to the Members without registration
under the Securities Act, based upon the "private offering exemption," in
reliance upon appropriate written representations from the Members (as set forth
in their respective Investment Letters and their respective Accredited
Investment Agreements or Non-Accredited Investor Agreements, as applicable),
further evidenced by restrictive legends on the certificates representing
Activision Shares and "stop transfer" instructions to Activision's transfer
agent. Subject to Activision's obligations under Section 6.3(a) or Section
6.3(b), Activision Shares, and Mat Hoffman Employee Allocation and Shaun Murray
Employee Allocation, if any, will be "restricted securities" within the meaning
of the Securities Act and related rules and regulations.
6.2. Share Holdback. (a) In order to insure that the representations,
warranties and covenants made by the Members under this Agreement are not
breached, and in order to provide a nonexclusive source of indemnification of
Activision pursuant to Article 7, Shaba and the Members agree that 32,759 of the
Activision Shares, constituting ten percent (10%) thereof, (the "Warranty Escrow
Shares") shall be deposited in an Escrow Account (the "Escrow Account")
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pursuant to a Warranty Escrow Agreement substantially in the form attached
hereto as Exhibit C (the "Warranty Escrow Agreement") within five business days
of the Effective Time. Shaba and the Members further agree that 68,965 of the
Activision Shares, constituting an additional 21.05% thereof, (the "Product
Escrow Shares") shall be deposited in the Escrow Account and shall be released
in accordance with the product delivery and revenue requirements set forth in
this Section 6.2 and in the Warranty Escrow Agreement. Subject to any releases
from escrow pursuant to Section 6.2(c) and the Warranty Escrow Agreement, such
Warranty Escrow Shares and Product Escrow Shares (collectively, the "Escrow
Shares") shall be held in the Escrow Account during such period of time as set
forth in the Warranty Escrow Agreement. Any dividends or distributions with
respect to the Escrow Shares while held in the Escrow Account also shall be
retained in the Escrow Account until the release of such Escrow Shares pursuant
to the Warranty Escrow Agreement. Any offsets or deductions made from the Escrow
Shares on account of any breach of this Agreement or otherwise pursuant to this
Section 6.2 shall be made at such time as set forth in the Warranty Escrow
Agreement, and the value per share of such Escrow Shares shall be $29 (subject
to adjustment for any stock splits, reverse splits, recapitalizations or similar
transactions occurring after the Closing) (as adjusted, the "Offset Price"). All
Escrow Shares subject to such offset or deduction shall be canceled by
Activision, and the remaining Escrow Shares, together with any dividends paid or
distributions made with respect to such Escrow Shares that have not been
canceled, shall be then delivered to the Members in accordance with their
respective interests pursuant to the terms of this Section 6.2 and the Warranty
Escrow Agreement. Notwithstanding the foregoing, Warranty Escrow Shares held in
the Escrow Account pursuant to the provisions of this Section 6.2(a) shall not
be deemed the sole source of recourse by Activision for indemnification under
this Agreement, and Shaba and the Members remain severally liable in accordance
with Article 7. The parties hereto agree that the Members shall have the right
to satisfy any claim for indemnification by an Activision Indemnified Party (as
defined in Section 7.2) with cash or other property in lieu of Warranty Escrow
Shares.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Activision Products" shall mean Shaun Murray's Pro Wakeboarder and Mat
Hoffman's Pro BMX 3.
(ii) "Applicable Employee Allocation" shall mean the Mat Hoffman Employee
Allocation or the Shaun Murray Employee Allocation.
(iii) "Applicable Payments" shall mean the Mat Hoffman Payment or the Shaun
Murray Payment.
(iv) "Applicable Product Escrow Shares" shall mean (A) with respect to Mat
Hoffman's Pro BMX 3, the Mat Hoffman Escrow Shares and (B) with respect to Shaun
Murray's Pro Wakeboarder, the Shaun Murray Escrow Shares, as applicable.
(v) "Expected Net Revenue" shall mean the following: (1) for Mat Hoffman's
Pro BMX 3, $31,408,695; (2) for Shaun Murray's Pro Wakeboarder, $23,000,000.
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(vi) "Mat Hoffman Employees" shall mean those employees identified in a
notice to Activision Publishing by the senior production executives of the
Surviving Corporation as having worked on Mat Hoffman's Pro BMX 3, which notice
shall be subject to the approval of Activision Publishing, such approval not to
be unreasonably withheld.
(vii) "Mat Hoffman Employee Allocation" shall mean the number of shares of
Activision Common Stock issued to the Mat Hoffman Employees pursuant to Section
6.2(c) equal to $125,000 divided by the average closing price of Activision
Common Stock on the Nasdaq National Market over the three day trading period
ending on the business day prior to the date Activision provides notice to the
Escrow Agent to release Mat Hoffman Escrow Shares pursuant to Section 6.2(c).
(viii) "Mat Hoffman Escrow Shares" shall mean 43.75% of the Product Escrow
Shares initially deposited in the Escrow Account pursuant to Section 6.2(a).
(ix) "Mat Hoffman Final Date" shall mean September 1, 2003; provided,
however, that such date shall be extended to the extent a delay in performance
is caused by an act of God, war, terrorism, earthquake or other natural
disaster, or any similar force majeure event.
(x) "Mat Hoffman Payment" shall mean $125,000.
(xi) "Mat Hoffman's Pro BMX 3" shall mean the software product known as Mat
Hoffman's Pro BMX 3 (Playstation 2, Microsoft X-Box and Nintendo GameCube
versions).
(xii) "P&L Revenue Shortfall" with respect to an Activision Product shall
mean the Expected Net Revenue for such Activision Product minus the Product Net
Revenue for such Activision Product.
(xiii) "Product Net Revenue" with respect to an Activision Product shall
mean the aggregate revenue actually received by Activision Publishing (or any
successor or assignee of the right to receive such revenues) from all sales of
all versions of such Activision Product during the first year after the
commercial release of each version of the Activision Product, less all returns,
price protections, price allowances and mark-downs during such year.
(xiv) "Shaun Murray Agreement" shall mean the Software Development
Agreement dated as of December 7, 2000, between Activision Publishing and Shaba,
as amended on June 30, 2001 and January 10, 2002.
(xv) "Shaun Murray Employees" shall mean those employees identified in a
notice to Activision Publishing by the senior production executives of the
Surviving Corporation as having worked on Shaun Murray's Pro Wakeboarder, which
notice shall be subject to the approval of Activision Publishing, such approval
not to be unreasonably withheld.
(xvi) "Shaun Murray Employee Allocation" shall mean the number of shares of
Activision Common Stock issued to the Shaun Murray Employees pursuant to Section
6.2(c) equal to $125,000 divided by the average closing price of Activision
Common Stock on
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the Nasdaq National Market over the three day trading period ending on the
business day prior to the date Activision provides notice to the Escrow Agent to
release Shaun Murray Escrow Shares pursuant to Section 6.2(c).
(xvii) "Shaun Murray Escrow Shares" shall mean 56.25% of the Product Escrow
Shares initially deposited in the Escrow Account pursuant to Section 6.2(a).
(xviii) "Shaun Murray Final Date" shall mean October 15, 2002; provided,
however, that such date shall be extended to the extent a delay in performance
is caused by an act of God, war, terrorism, earthquake or other natural
disaster, or any similar force majeure event.
(xix) "Shaun Murray Payment" shall mean $125,000.
(xx) "Shaun Murray's Pro Wakeboarder" shall mean the software product known
as Shaun Murray's Pro Wakeboarder (Playstation 2, Microsoft X-Box and Nintendo
GameCube versions) developed pursuant to the terms of the Shaun Murray
Agreement.
(c) Development Agreement Holdback. Shaba and the Members agree that,
subject to the terms and conditions set forth in this Section 6.2 and the
Warranty Escrow Agreement, the Members will be entitled to receipt of the
Applicable Product Escrow Shares on the terms set forth below:
(i) Upon the occurrence of all of the following: (A) acceptance not later
than the Mat Hoffman Final Date by each of Sony Computer Entertainment Inc.
and/or its affiliates, Nintendo of America Inc. and/or its affiliates, and
Microsoft Corporation and/or its affiliates (collectively, the "Third Party
Manufacturers") of the respective U.S. version of Mat Hoffman's Pro BMX 3 (the
scope, function and features of which the parties hereto agree shall be
commensurate with those of Mat Hoffman's Pro BMX 2 and other entertainment
software products in Activision's extreme sports line of products); (B)
achievement by the PlayStation 2 version of Mat Hoffman's Pro BMX 3 within the
first three (3) months of its first commercial release of a minimum averaged
rating of at least 82% from GameRankings.com or if GameRankings.com is not then
in business in substantially its current fashion, an average ranking of 82% or
above from GamePro, Electronic Gaming Monthly, Game Informer, Videogames.com and
IGN.com (collectively, the "Alternative Ranking Sources") (it being agreed that
the one highest and one lowest ratings shall not be included in the
determination of the average rating) and if any of the Alternative Ranking
Sources is not then in business in substantially its current fashion, then it
shall be replaced with such sources, if any, as shall be mutually agreed among
Activision and the Members; and (C) achievement by the Microsoft X-Box and
Nintendo GameCube versions of Mat Hoffman's Pro BMX 3 of at least 77% minimum
averaged rating, which rating shall be determined as provided in clause (B)
above, the Members shall become entitled to the Mat Hoffman Escrow Shares and
the Mat Hoffman Employees shall become entitled to the Mat Hoffman Employee
Allocation or the Mat Hoffman Payment, as set forth below. Upon the satisfaction
of the conditions set forth in this paragraph, Activision shall, in accordance
with the terms of the Warranty Escrow Agreement, promptly notify the Escrow
Agent to release the Mat Hoffman Escrow Shares from the Escrow Account. The Mat
Hoffman Escrow Shares released from the Escrow Account shall be distributed to
the Members in accordance with their respective percentage Membership Interest
as set forth on Exhibit A.
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Upon satisfaction of the conditions set forth in this paragraph, Activision
shall, at its option, either (i) make the Mat Hoffman Payment to the Mat Hoffman
Employees or (ii) issue and distribute to the Mat Hoffman Employees such number
of shares of Activision Common Stock equal to the Mat Hoffman Employee
Allocation. The Mat Hoffman Payment or the Mat Hoffman Employee Allocation, as
applicable, shall be distributed to the Mat Hoffman Employees in accordance with
the joint written direction of the senior production executives of the Surviving
Corporation, which joint written direction shall be subject to the approval of
Activision Publishing, such approval not to be unreasonably withheld.
(ii) Upon the occurrence of all of the following: (A) acceptance not later
than the Shaun Murray Final Date by each of the Third Party Manufacturers of the
respective U.S. version of Shaun Murray's Pro Wakeboarder pursuant to the terms
of the Shaun Murray Agreement; (B) achievement by the PlayStation 2 version of
Shaun Murray's Pro Wakeboarder within the first three (3) months of its first
commercial release of a minimum averaged rating of at least 82% from
GameRankings.com or, if GameRankings.com is not then in business in
substantially its current fashion, an average ranking of 82% or above from the
Alternative Ranking Sources (it being agreed that the one highest and one lowest
ratings shall not be included in the determination of the average rating) and if
any of the Alternative Ranking Sources is not then in business in substantially
its current fashion, then it shall be replaced with such sources, if any, as
shall be mutually agreed among Activision and the Members; and (C) the
achievement by the Microsoft X-Box and Nintendo GameCube versions of Shaun
Murray's Pro Wakeboarder of at least 77% minimum averaged rating, which rating
shall be determined as provided in clause (B) above, the Members shall become
entitled to the Shaun Murray Escrow Shares and the Shaun Murray Employees shall
become entitled to the Shaun Murray Employee Allocation or the Shaun Murray
Payment, as set forth below. Upon the satisfaction of the conditions set forth
in this paragraph, Activision shall, in accordance with the terms of the
Warranty Escrow Agreement, promptly notify the Escrow Agent to release the Shaun
Murray Escrow Shares from the Escrow Account. The Shaun Murray Escrow Shares
released from the Escrow Account shall be distributed to the Members in
accordance with their respective percentage Membership Interest as set forth on
Exhibit A. Upon satisfaction of the conditions set forth in this paragraph,
Activision shall, at its option, either (i) make the Shaun Murray Payment to the
Shaun Murray Employees or (ii) issue and distribute to the Shaun Murray
Employees such number of shares of Activision Common Stock equal to the Shaun
Murray Employee Allocation. The Shaun Murray Payment or the Shaun Murray
Employee Allocation, as applicable, shall be distributed to the Shaun Murray
Employees in accordance with the joint written direction of the senior
production executives of the Surviving Corporation, which joint written
direction shall be subject to the approval of Activision Publishing, such
approval not to be unreasonably withheld.
(iii) In the event that all the conditions set forth in subsections (i) or
(ii), as applicable, are not satisfied with respect to the applicable Activision
Product, then the Applicable Product Escrow Shares shall be distributed as
follows:
(A) In the event there is a P&L Revenue Shortfall for such
Activision Product, the Members shall forfeit, and Activision shall be
entitled to obtain a release from the Escrow Account and to cancel,
the number of the Applicable Product Escrow Shares for such Activision
Product (the "Shortfall Shares") equal to (x) the P&L Revenue
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Shortfall divided by (y) the Offset Price. If the number of Shortfall Shares
exceeds the number of Applicable Product Escrow Shares for such Activision
Product, then (i) all of the Applicable Product Escrow Shares for such
Activision Product shall be released to Activision and cancelled and (ii)
Activision shall be under no obligation to distribute the Applicable Payments or
issue the Applicable Employee Allocations.
(B) In the event the number of Applicable Product Escrow Shares
for such Activision Product exceeds the number of Shortfall Shares calculated
pursuant to clause (A) above, then the Members shall be entitled to the number
of Applicable Product Escrow Shares for such Activision Product equal to the
Applicable Product Escrow Shares minus the Shortfall Shares for such Activision
Product (the "Remaining Applicable Product Escrow Shares"). The Remaining
Applicable Product Escrow Shares shall no longer be subject to the development
agreement holdback provisions of this Section 6.2(c), and shall be released from
the Escrow Account and distributed to the Members in accordance with the
irrespective percentage Membership Interest as set forth on Exhibit A. Not later
than thirty days (30) after the date of the distribution to the Members pursuant
to this clause (B), Activision shall distribute to the Mat Hoffman Employees or
the Shaun Murray Employees, as applicable, either cash or shares of Activision
Common Stock, at its option. In the event of a cash distribution, Activision
shall distribute such amount of cash equal to the product of (i) the Applicable
Payments and (ii) a fraction, the numerator of which is equal to the Remaining
Applicable Product Escrow Shares and the of which is equal to the Applicable
Product Escrow Shares. In the event of a distribution of Activision Common
Stock, Activision shall issue and distribute such number of shares of Activision
Common Stock equal to the product of (i) the Applicable Employee Allocation and
(ii) a fraction, the numerator of which is equal to the Remaining Applicable
Product Escrow Shares and the denominator of which is equal to the Applicable
Product Escrow Shares. Any such distributions shall be made in each case in
accordance with the joint written direction of the senior production executives
of the Surviving Corporation, which joint written direction shall be subject to
the approval of Activision Publishing, such approval not to be unreasonably
withheld.
(C) In the event there is no P&L Revenue Shortfall (as shall be
determined at the end of each quarter commencing with the month end following
the commercial release of such Activision Product), then the Members shall be
entitled to all of the Applicable Product Escrow Shares for such Activision
Product, and the Applicable Product Escrow Shares for such Activision Product
shall no longer be subject to the development agreement holdback provisions of
this Section 6.2(c) and shall be released from the Escrow Account and
distributed to the Members in accordance with their respective percentage
Membership Interest as set forth on Exhibit A. Not later than thirty days (30)
after the date of the distribution to the Members pursuant to this clause (C),
Activision shall distribute to the Mat Hoffman Employees or the Shaun Murray
Employees, as applicable, either cash or shares of Activision Common Stock, at
its option. In the event of a cash distribution, Activision shall make the
Applicable Payments. In the event of a distribution of Activision Common Stock,
Activision shall issue and distribute such number of shares of Activision Common
Stock equal to the Applicable Employee Allocation. Any such distribution shall
be made in each case in accordance with the joint written direction of the
senior production executives of the Surviving Corporation, which joint written
direction shall be subject to the approval of Activision Publishing, such
approval not to be unreasonably withheld.
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(iv) Activision shall have the right to obtain a release of any Applicable
Product Escrow Shares that are subject to the provisions of this Section 6.2(c)
by delivery in a timely manner of a Release Notice (as defined in the Warranty
Escrow Agreement) to the Members and the Escrow Agent in accordance with the
Warranty Escrow Agreement.
6.3. Registration of Activision Shares. (a) Activision agrees to use its
reasonable best efforts to file with the SEC, as soon as practicable after the
Closing Date but (subject to Section 6.3(c)) in no event later than thirty (30)
days after the Closing Date, a registration statement on Form S 3, or on such
other form as may be available, registering under the Securities Act, pursuant
to Rule 415 under the Securities Act ("Rule 415") (if available), the offer and
sale in the future of all of the Activision Shares issued by Activision to the
Members pursuant to this Agreement. In the event that Activision exercises its
option to issue to the Mat Hoffman Employees or the Shaun Murray Employees the
Applicable Allocation, Activision agrees to use its reasonable best efforts to
file with the SEC, as soon as practicable after the date of the issuance of the
Applicable Allocation but (subject to Section 6.3(b)) in no event later than
thirty (30) days after the date of such issuance, a registration statement on
Form S 3, or on such other form as may be available, registering under the
Securities Act, pursuant to Rule 415 (if available), the offer and sale in the
future of all of the Applicable Allocation issued by Activision to the Mat
Hoffman Employees or the Shaun Murray Employees, as applicable, pursuant to this
Agreement. Activision further agrees to (a) use its commercially reasonable
efforts to cause such registration statement to be declared effective by the SEC
as soon as practicable, (b) maintain the effectiveness of such registration or
successor registration statement filed by Activision for the purpose of
registering the shares of Activision Common Stock (such registration statements
being collectively referred to as the "Registration Statement") until Activision
Shares are eligible to be resold without restriction on disposition pursuant to
the Securities Act and its related rules and regulations, (c) update the
prospectus included in the Registration Statement (the "Prospectus") from time
to time as may be necessary to assure that the Prospectus does not make any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the Prospectus not misleading, and (d) provide such number of
copies of the Registration Statement and the Prospectus (as so updated) to the
Members as they may reasonably request in order to facilitate the public sale or
other disposition of Activision Shares covered by such Registration Statement.
(b) Employee Registration. In the event that Activision exercises its
option to issue to the Mat Hoffman Employees or the Shaun Murray Employees the
Applicable Allocation, Activision agrees to use its reasonable best efforts to
file with the SEC, as soon as practicable after the date of the issuance of the
Applicable Allocation but (subject to Section 6.3(c)) in no event later than
thirty (30) days after the date of such issuance, a registration statement on
Form S 3, or on such other form as may be available, registering under the
Securities Act, pursuant to Rule 415 (if available), the offer and sale in the
future of all of the Applicable Allocation issued by Activision to the Mat
Hoffman Employees or the Shaun Murray Employees, as applicable, pursuant to this
Agreement. Activision further agrees to (a) use its commercially reasonable
efforts to cause such registration statement to be declared effective by the SEC
as soon as practicable, (b) maintain the effectiveness of such registration or
successor registration statement filed by Activision for the purpose of
registering the shares of Activision Common Stock (such registration statements
being collectively referred to as the "Employee Registration Statement") until
the Applicable Allocation are eligible to be resold without
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restriction on disposition pursuant to the Securities Act and its related rules
and regulations, (c) update the prospectus included in the Employee Registration
Statement (the "Employee Prospectus") from time to time as may be necessary to
assure that the Employee Prospectus does not make any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
Prospectus not misleading, and (d) provide such number of copies of the Employee
Registration Statement and the Employee Prospectus (as so updated) to the Mat
Hoffman Employees or the Shaun Murray Employees, as applicable, as they may
reasonably request in order to facilitate the public sale or other disposition
of the Applicable Allocation covered by such Employee Registration Statement
(c) Delay of Registration. The Members hereby agree that the filing of the
Registration Statement or the Employee Registration Statement, if any, and its
effectiveness may be subject to delay, postponement or any lock-up or other
conditions as the representative of the managing underwriter pursuant to any
underwritten offering of Activision Common Stock.
(d) Costs and Expenses. Activision shall bear the costs incurred for its
legal counsel, accounting and all other costs and expenses in connection with
such registration including keeping the Registration Statement or the Employee
Registration Statement, if any, effective, which may be incurred in connection
with the preparation and filing of the Registration Statement pursuant to
Section 6.3(a) or the Employee Registration Statement, if any, pursuant to
Section 6.3(b). Activision shall have no responsibility for the payment of the
brokers' commissions of the Mat Hoffman Employees or the Shaun Murray Employees,
as applicable.
(e) Cooperation and Indemnification.
(i) The Members agree that they will provide all required cooperation
and furnish all necessary information and enter into such agreements
customarily required of selling stockholders in connection with the
preparation of the Registration Statement filed under the terms of this
Section 6.3, and the Members will represent and warrant the accuracy and
completeness of all written information regarding the Members which is
furnished by the Members for inclusion in the Registration Statement and
will indemnify and hold Activision, and its directors, officers,
shareholders, and underwriters harmless from and against any liability,
loss or damage (including costs and reasonable attorneys' fees), incurred
by or sustained by, or asserted against, any of them, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in the information provided by the Members or based on any
omission (or alleged omission) to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(ii) Activision shall indemnify and hold the Members harmless from and
against any liability, loss or damage (including costs and reasonable attorneys'
fees) incurred by or sustained by, or asserted against, any of them, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in the Registration Statement, or based on any omission (or
alleged omission) to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the extent
such untrue statement of material fact (or alleged untrue statement) or omission
(or alleged omission) related to information regarding the Members which is
furnished by the Members for inclusion in the Registration Statement.
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6.4. Further Assurances. Each party hereto shall, at the request of the
other party and at such other party's expense, execute and deliver any further
instruments or documents and take all such further action as such other party
may reasonably request in order to effectuate the consummation of the Merger.
If, at any time or from time to time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of either of the
Constituent Corporations, the officers of the Surviving Corporation are fully
authorized in the name of each Constituent Corporation or otherwise to take, and
shall take, all such lawful and necessary action.
6.5. Confidentiality. Following the Closing, the Members shall keep
confidential all information concerning the business, operations, properties,
assets and financial affairs of Shaba and may disclose such information only
upon receipt of prior written consent from Activision, as required by law, or if
such disclosure is required (a) in connection with the Members' filing of any
state or federal income tax returns, or (b) by order of any judicial or
administrative authority; provided, however, the Members shall not be required
to keep confidential information that (x) is or becomes generally available to
the public other than as a result of disclosure by the Members, (y) is or
becomes available to the Members on a nonconfidential basis from a source other
than Activision or (z) the Members or any of their affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena.
6.6. Publicity. Activision and the Members shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated herein and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the rules of the applicable stock exchange if it has used its
reasonable best efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
6.7. Member Approval. Each Member, by execution of this Agreement,
acknowledges and agrees that such Member has voted in favor of the approval and
adoption of this Agreement and the transactions contemplated hereby and the
approval of the Merger.
6.8. Employment Matters. Employees employed by Shaba immediately prior to
the Effective Time shall be employed by Activision Publishing immediately after
the Effective Time on such terms and conditions of employment as may be
determined by Activision Publishing in its sole discretion, provided that all
such employees shall be eligible to participate in the Activision Publishing
Internal Project Bonus Plan as modified by the terms of the bonus plan set forth
in Exhibit D hereto. Nothing herein is intended or shall be construed to provide
for a guarantee of employment or shall otherwise affect the "at will" employment
status of the employees of Activision Publishing after the Effective Time.
6.9. Articles and Bylaws of Merger Subsidiary. Activision and Merger
Subsidiary shall not, for a period of four (4) years after the Closing Date,
take any action to alter or impair any exculpatory or indemnification provisions
in the Certificate of Incorporation or Bylaws of
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the Merger Subsidiary that may benefit any individual who served as an officer
or manager of Shaba at any time, except for any changes that may be required to
conform with changes in applicable law.
6.10. Tax Returns and Shaba Information. The Tax Matters Member of Shaba
(as defined in the operating agreement of Shaba) shall cause to be prepared all
Shaba tax returns for all tax periods ending on or before the Closing Date,
including returns which are due after the Closing Date. The Tax Matters Member
shall have sole responsibility and authority to respond to any audit or other
inquiries from a governmental authority regarding tax matters in respect of the
period prior to the Closing Date. Neither Activision nor any of its subsidiaries
shall amend any tax return filed by Shaba unless required to file such amended
returns by law or government authority. Activision agrees to maintain and
preserve, for a period of five (5) years from the date of this Agreement, all
books, records, and other documents pertaining to the business of Shaba prior to
the Closing Date and make the same available for inspection or copying by the
Members at the expense of the Members during business hours and upon reasonable
prior written notice.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1. Survival. (a) Except as otherwise set forth in this Section 7.1, the
representations and warranties made in this Agreement (other than the
representations and warranties set forth in Section 3.11) or in any agreement,
certificate or other document executed at or prior to the Effective Time in
connection herewith (each an "Ancillary Document," it being understood that the
term "Ancillary Document" shall not include any employment agreements or
proprietary information agreements entered into by the Members in connection
herewith) shall survive until eighteen (18) months after the date of this
Agreement (the "Survival Date"), after which time such representations and
warranties shall terminate and shall be of no further force and effect.
(b) The representations and warranties set forth in Section 3.11 of this
Agreement shall survive until three (3) years after the date of this Agreement
(the "Tax Survival Date"), after which time such representations and warranties
shall terminate and shall be of no further force and effect.
(c) No investigation by Activision or on Activision's behalf heretofore or
hereafter conducted shall affect the representations, warranties or covenants of
the Members set forth in this Agreement. No investigation by Shaba or the
Members or on their behalf heretofore or hereafter conducted shall affect the
representations, warranties or covenants of Activision, Activision Publishing,
or Merger Subsidiary set forth in this Agreement.
7.2. Indemnification by the Members; Limitation of Liability. To the
fullest extent permitted by law, the Members shall, severally and not jointly,
defend, indemnify and hold harmless Activision, Activision Publishing and Merger
Subsidiary, and all officers, directors and stockholders of Activision,
Activision Publishing and Merger Subsidiary, and their successors and permitted
assigns ("Activision Indemnified Parties"), from and against any and all claims,
losses, liabilities, taxes, interest, fines, penalties, suits, actions,
proceedings, demands, damages, costs and expenses (including reasonable
attorneys', accountants' and experts' fees and court costs) of every kind and
nature (collectively, "Losses") arising out of or resulting from any
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breach by Shaba or the Members of any representation, warranty, agreement or
covenant made by any of them in this Agreement or any Ancillary Document;
provided, however, that recovery by the Activision Indemnified Parties from the
Members in respect of all Losses shall be limited to an aggregate amount of
$9,500,000.
7.3. Indemnification Procedures. (a) Promptly after receipt by an
Activision Indemnified Party under this Section of notice of the commencement of
any action or the incurrence of any Loss, such Activision Indemnified Party
will, if a claim in respect of such action is to be made against any
indemnifying party under this Section, notify the indemnifying party in writing
of the commencement of such action. Such notice shall include the amount of such
claim and a reasonably detailed statement as to the basis for the assertion of
the claim. Upon receipt of such notice the indemnifying party or parties shall
have the right to assume and control the defense of such action with counsel of
its choice, subject to the approval of the Activision Indemnified Party, which
approval shall not be unreasonably withheld. The Members hereby agree that
Garret Scholz and Jeanne Scholz shall at all times be primarily responsible for
the assumption and control of any such defense on behalf of the Members;
provided, however, that the foregoing shall not create any individual liability
on the part of Garret Scholz and Jeanne Scholz for any such indemnification
claim nor make them responsible for advancing costs or legal fees in connection
with any such defense. The Activision Indemnified Parties shall have the right
to participate in the defense of any action and to be represented by counsel of
its or their own selection in connection with such action and to be kept fully
and completely informed by the indemnifying party and its counsel as to the
status of the action at all stages of the proceedings in such action, all at the
Activision Indemnified Party's cost and expense. The Activision Indemnified
Party shall cooperate with the indemnifying party in any defense which the
indemnifying party assumes. Activision shall be entitled to settle any action
solely for monetary damages with respect to which it controls the defense.
Garret Scholz and Jeanne Scholz, on behalf of the Members, shall be entitled to
settle any action solely for monetary damages with respect to which they control
the defense, subject to the prior consent of Activision which consent shall not
be unreasonably withheld. The failure to notify an indemnifying party promptly
of the commencement of any such action will not relieve him or her or it of any
liability that he, she, or it may have to any Activision Indemnified Party
except to the extent the indemnifying party has suffered actual prejudice
thereby.
(b) The Members' liability under Section 7.2 shall be several, not joint,
and shall be in proportion to their respective Membership Interest as set forth
in Exhibit A. Subject to the limitations in this Article VII, any claim for
indemnification shall be settled in the following manner:
(i) Activision shall deliver a Claim Notice (as defined the Warranty
Escrow Agreement) for the number of Warranty Escrow Shares equal to the
Losses divided by the Offset Price, provided, however, that the Members
shall have the right to satisfy any claim for indemnification with cash or
other property in lieu of Warranty Escrow Shares;
(ii) in the event the Members elect to satisfy such claim for
indemnification with cash or other property, the Members shall deliver such
cash or other property in an amount equal to the Losses;
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(iii) in the event the Members elect to satisfy such claim for
indemnification with Warranty Escrow Shares and the amount of the Losses
exceeds the amount represented by the Warranty Escrow Shares determined
pursuant to clause (i) above, the Members shall deliver cash or other
property in the amount equal to (A) the Losses minus (B) the amount
determined by multiplying the Offset Price by the number of Warranty Escrow
Shares determined pursuant to clause (i) above.
(c) No claim for indemnification will be valid unless a Claim Notice (as
defined the Warranty Escrow Agreement) shall have been delivered pursuant to the
Warranty Escrow Agreement on or prior to the Survival Date or the Tax Survival
Date, as applicable, after which date the obligation to indemnify shall
terminate with respect to any claim except those which were specifically
identified in a Claim Notice prior to such date.
7.4. Claims Resolution Procedure. The parties shall act in good faith as
expeditiously as possible to resolve any and all claims for indemnification. To
the extent any claims are not Finally Resolved (as defined in the Warranty
Escrow Agreement) on or before the Survival Date or the Tax Survival Date (the
"Claims Resolution Date"), then the claims shall be resolved in accordance with
the following arbitration procedure:
(a) Each of Activision, on the one hand, and the Members, on the other
hand, shall select and appoint an arbitrator within thirty (30) days after the
Claims Resolution Date to finally settle all unresolved claims. An arbitrator
shall be selected and appointed by notice from one party to the other. The two
arbitrators so selected shall select a third arbitrator and give written notice
to the parties hereto of such selection within ten (10) days after the Claims
Resolution Date. If the two arbitrators cannot agree on a third arbitrator
within such ten (10) day period, then each of them shall nominate one person to
serve as the third arbitrator and the third arbitrator shall be selected from
the two nominees by toss of coin. No arbitrator shall be an officer, director,
employee, affiliate or relative of, or have any prior business or personal
relationship with, either Activision, or any subsidiary thereof, any of their
respective officers and directors, Shaba or the Members.
(b) The arbitration shall be conducted jointly by the three arbitrators,
who shall review all submissions by the parties with respect to the claim and
make an award, by majority vote, within forty-five (45) days after the Claims
Resolution Date, which award, when signed by each of the arbitrators, shall be
final and binding on the parties. Unless otherwise determined by the arbitrators
by majority vote, (i) no hearings shall be held, and the decision shall be
rendered based on written submissions by the parties, and (ii) all written
submissions must be made by the parties within fourteen (14) business days after
the date on which the third arbitrator is appointed. Once the award is made, a
claim shall be Finally Resolved for purposes of the Warranty Escrow Agreement.
(c) If either party shall refuse or neglect to select and appoint an
arbitrator within five (5) days after the Claims Resolution Date in accordance
with Section 7.5(a), then the arbitrator so appointed by the first party, acting
alone as the sole arbitrator, shall proceed to arbitrate and resolve all claims,
and such arbitrator's award in writing signed by such arbitrator shall be final
and binding on the parties.
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(d) All expenses of the arbitration shall be initially shared equally by
Activision, on the one hand, and the Members, on the other, provided that the
arbitrator(s) shall award legal fees and expenses and the costs of arbitration
to the prevailing party or parties in the arbitration. The parties hereto agree
that they will cooperate in good faith to allow any arbitration hereunder to
occur promptly and be concluded as quickly as is reasonably possible.
(e) Judgment of any arbitration conducted hereunder may be entered on the
arbitrators' award in any court having jurisdiction, and each party hereby
consents to the jurisdiction of the California state courts sitting in Los
Angeles County for this purpose.
7.5. Actions by Members. Any action required or permitted to be taken by
the Members pursuant to this Article VII may be taken by the Members that held,
immediately prior to the Closing, not less than a majority of the Membership
Interests, and Activision shall be entitled to rely on a writing executed by
such Members.
ARTICLE VIII
MISCELLANEOUS
8.1. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Activision may
assign its rights, interests or obligations hereunder to any affiliate provided
that Activision remains obligated hereunder and such assignment does not alter
the rights, interests or obligations of the Members hereunder. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns. No
assignment permitted under this Agreement shall relieve any such assignor of any
of his, her or its obligations under this Agreement and any assignee shall
assume in writing all of the undertakings of assignor under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, executors, administrators,
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.2. Entire Agreement. This Agreement (including the Exhibits and Schedules
annexed hereto), and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior negotiations, agreements and
understandings, whether written or oral, among the parties with respect thereto,
including, without limitation, the Letter of Intent, dated February 15, 2002,
between Shaba and Activision. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
8.3. Notices. Any notice required to be given hereunder shall be in writing
and shall be deemed delivered (i) upon delivery if sent by facsimile
transmission (confirmed by any of the methods that follow), (ii) upon delivery
if sent by overnight courier service (with proof of service) or hand delivery
and (iii) three days after mailing by certified or registered mail (return
receipt requested and first-class postage prepaid) and addressed as follows:
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If to Shaba Shaba Games, LLC
or the Members: 38 Topside Way
Mill Valley, California 94965
Attn: Garret and Jeanne Scholz
Tel.: (415) 381-4839
Fax: (415) 381-0853
With a copy to (which shall Donahue, Gallagher, Woods & Woods,LLP
not constitute notice): 300 Lakeside Drive, Suite 1900
Oakland,California 94612
Tel.: (510) 451-0544
Fax: (510) 832-1486
Attn: Michael J. Dalton, Esq. and
Alan J. Haus, Esq.
If to Activision and Activision, Inc.
Merger Subsidiary:3100 Ocean Park Boulevard
Santa Monica, California 90405
Attn.: George Rose, Esq.
Tel.: (310) 255-2603
Fax: (310) 255-2152
With a copy to (which shall Robinson Silverman Pearce Aronsohn
ot constitute notice): & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attn: Kenneth L. Henderson, Esq.
Tel.: (212) 541-2275
Fax: (212) 541-1357
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date received.
8.4. Amendment. This Agreement may not be amended except by an instrument
in writing signed by or on behalf of each of the parties hereto.
8.5. Governing Law. This Agreement has been executed and delivered by the
parties in California, and shall be governed by and construed in accordance with
the laws of the State of California without regard to its rules of conflict of
laws. All parties consent to the exercise of personal jurisdiction over them in
California and agree that any lawsuit arising out of or relating to this
Agreement shall be brought exclusively in a court of competent subject matter
jurisdiction located within the County of Los Angeles, State of California.
8.6. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto. In
the event that any signature is delivered by facsimile transmission, such
signature shall
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create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
8.7. Headings. All of the Section and Article headings in this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.8. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.9. No Party Deemed Drafter. The parties agree that no one party shall be
deemed to be the drafter of this Agreement and that in the event this Agreement
is ever construed by a court of law or equity, such court shall not construe
this Agreement or any provision of this Agreement against any party as the
drafter of the Agreement.
8.10. Incorporation. The Schedules and Exhibits hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
8.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.12. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders.
8.13. Specific Performance. The parties hereto agree that any material
breach or attempted or threatened breach of the provisions of this Agreement
could result in irreparable injury to the parties for which no adequate remedy
at law would exist, and damages would be difficult to determine, and consent to
specific performance of the terms hereof without the posting of bond or any
security, without limiting the applicability of any other remedy at law or
equity.
8.14. Expenses. The parties agree that Activision shall bear all costs and
expenses incurred by it and Merger Subsidiary, and the Members shall bear all
costs and expenses incurred by them and Shaba, in connection with negotiating
and completing this Agreement and the transactions contemplated hereby,
including, without limiting the generality of the foregoing, attorneys' and
accountants' fees and expenses.
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8.15. Attorneys' Fees. In any litigation arising out of or related to this
Agreement, the party or parties that do not prevail shall pay the prevailing
party or parties' costs and expenses (including court costs and reasonable
attorneys' fees) incurred in such litigation.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
ACTIVISION, INC.
By:/s/ George L. Rose
----------------------------
Name: George L. Rose
Title: Senior VP and General Counsel
ACTIVISION PUBLISHING, INC.
By:/s/ George L. Rose
----------------------------
Name: George L. Rose
Title: Senior VP and General Counsel
SHABA ACQUISITION,INC.
By:/s/ George L. Rose
----------------------------
Name: George L. Rose
Title: Senior VP and General Counsel
SHABA GAMES, LLC
By:/s/ Garrett A. Scholz
----------------------------
Name: Garrett . Scholz
Title: Manager
MEMBERS
/s/ Christopher Scholz
______________________________
Christopher Scholz
/s/ Zachary Krefting
______________________________
Zachary Krefting
/s/ Richard D'Aloisio
______________________________
Richard D'Aloisio
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/s/ Tom Teuscher
______________________________
Tom Teuscher
/s/ Scott Werner
______________________________
Scott Werner
/s/ Gerald T. O'Neil
______________________________
Gerald T. O'Neil
Scholz Family Revocable Trust, under
Agreement dated as of July 27, 1987
By:/s/ Garret Scholz
___________________________
Garret Scholz, Trustee
By:/s/ Jeanne Scholz
___________________________
Jeanne Scholz, Trustee
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Exhibit 5.1
ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 541-2000
FACSIMILE: (212) 541-4630
April 12, 2002
Activision, Inc.
3100 Ocean Park Blvd.
Santa Monica, CA 90405
Re: Activision, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement") to be filed by Activision, Inc., a Delaware corporation (the
"Company"), on or about the date hereof with the Securities and Exchange
Commission (the "Commission") in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), with respect to 327,586 shares
of the Company's common stock, par value $.000001 per share (the "Common
Stock"), held by certain of the Company's stockholders.
We are familiar with the Amended and Restated Certificate of Incorporation,
as amended, and the Amended and Restated By-laws of the Company and have
examined originals or copies, certified or otherwise identified to our
satisfaction, of such other documents, evidence of corporate action,
certificates and other instruments, and have made such other investigations of
law and fact, as we have deemed necessary or appropriate for the purposes of
this opinion.
Based upon the foregoing, it is our opinion that:
(a) The Company has been duly incorporated and is validly existing under
the laws of the State of Delaware.
(b) The 327,586 shares of Common Stock being registered for the account of
certain of the Company's stockholders have been duly authorized and are validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever appearing in such
Registration Statement, including the Prospectus consisting a part thereof, and
any amendment thereto. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act, or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Robinson Silverman Pearce
Aronsohn & Berman LLP
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 of Activision, Inc. of our report dated May 5, 2000, except as to Note
14, which is as of June 9, 2000, relating to the consolidated balance sheet of
ACTIVISION, INC. and subsidiaries as of March 31, 2000 and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the two-year period ended March 31, 2000, and the
related financial statement schedule for each of the years in the two-year
period ended March 31, 2000, which report appears in the March 31, 2001 annual
report on Form 10-K of ACTIVISION, INC., and to the reference to our firm under
the heading "Experts" in the registration statement on Form S-3.
KPMG LLP
Los Angeles, California
April 8, 2002
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S 3 of our report dated May 9, 2001 relating to the
consolidated financial statements of Activision, Inc., which appears in the
Annual Report on Form 10 K for the year ended March 31, 2001. We also consent to
the incorporation by reference in this Registration Statement on Form S 3 of our
report dated May 9, 2001 relating to the consolidated financial statement
schedule, which appears in Activision, Inc.'s Annual Report on Form 10 K for the
year ended March 31, 2001. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Los Angeles, California
April 5, 2002